Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Fee Schedule of the Exchange's Options Platform To Adopt Fees for its Recently Adopted Bats Auction Mechanism, 4941-4947 [2017-00782]
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Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices
Applicant states that the Contributor’s
violation of the Policy and the Rule
resulted from the Contributor’s failure to
appreciate the regulatory significance of
the Contribution, which was intended
as a friendly gesture toward a social
acquaintance.
12. Applicant submits that neither the
Adviser nor the Contributor sought to
interfere with the Clients’ merit-based
selection process for advisory services,
nor did they seek to negotiate higher
fees or greater ancillary benefits than
would be achieved in arms’ length
transactions. Applicant further submits
that there was no violation of the
Adviser’s fiduciary duty to deal fairly or
disclose material conflicts given the
absence of any intent or action by the
Adviser or the Contributor to influence
the selection process. Applicant
contends that in the case of the
Contribution, imposition of the two-year
prohibition on compensation does not
achieve the Rule’s purposes and would
result in consequences disproportionate
to the mistake that was made.
sradovich on DSK3GMQ082PROD with NOTICES
Applicant’s Conditions
The Applicant agrees that any order of
the Commission granting the requested
relief will be subject to the following
conditions:
1. The Contributor will be prohibited
from discussing the business of the
Applicant with any ‘‘government
entity’’ client for which the Official is
an ‘‘official,’’ each as defined in Rule
206(4)–5(f), until January 12, 2017.
2. The Contributor will receive a
written notification of the conditions
and will provide a quarterly certificate
of compliance until January 12, 2017.
Copies of the certifications will be
maintained and preserved in an easily
accessible place for a period of not less
than five years, the first two years in an
appropriate office of the Applicant, and
be available for inspection by the staff
of the Commission.
3. The Applicant will conduct testing
reasonably designed to prevent
violations of the conditions of the Order
and maintain records regarding such
testing, which will be maintained and
preserved in an easily accessible place
for a period of not less than five years,
the first two years in an appropriate
office of the Applicant, and be available
for inspection by the staff of the
Commission.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–00778 Filed 1–13–17; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79769; File No. SR–
BatsEDGX–2017–01]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Modify the
Fee Schedule of the Exchange’s
Options Platform To Adopt Fees for its
Recently Adopted Bats Auction
Mechanism
January 10, 2017.
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 January 3,
2017, Bats EDGX Exchange, Inc.
(‘‘EDGX’’ or the ‘‘Exchange’’) 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 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 filed a proposal to
modify the Fee Schedule applicable to
the Exchange’s options platform
(‘‘EDGX Options’’) to adopt fees for its
recently adopted Bats Auction
Mechanism (‘‘BAM’’, ‘‘BAM Auction’’,
or ‘‘Auction’’).3
The text of the proposed rule change
is available at the Exchange’s Web site
at www.bats.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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 79718
(January 3, 2017) (SR–BatsEDGX–2016–41),
available at: https://www.sec.gov/rules/sro/
batsedgx.shtml.
2 17
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4941
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Background
The Exchange proposes to modify the
Fee Schedule applicable to the
Exchange’s options platform (‘‘EDGX
Options’’) to adopt fees for its recently
adopted Bats Auction Mechanism
(‘‘BAM’’, ‘‘BAM Auction’’, or
‘‘Auction’’). BAM includes functionality
in which a Member (an ‘‘Initiating
Member’’) may electronically submit for
execution an order it represents as agent
on behalf of a Priority Customer,4 broker
dealer, or any other person or entity
(‘‘Agency Order’’) against principal
interest or against any other order it
represents as agent (an ‘‘Initiating
Order’’) provided it submits the Agency
Order for electronic execution into the
BAM Auction pursuant Rule 21.19. All
options traded on EDGX Options are
eligible for BAM.
As additional background for the fees
described below, the Exchange notes
that any person or entity other than the
Initiating Member may submit
responses to an Auction. A BAM
Auction takes into account responses to
the Auction as well as interest resting
on the Exchange’s order book at the
conclusion of the auction (‘‘unrelated
orders’’), regardless of whether such
unrelated orders were already present
on the Exchange’s order book when the
Agency Order was received by the
Exchange or were received after the
Exchange commenced the applicable
Auction. If contracts remain from one or
more unrelated orders at the time the
Auction ends, they will be considered
for participation in the BAM order
allocation process.
Definitions
In connection with the fee proposal,
the Exchange proposes to adopt
definitions necessary for BAM pricing.
First, the Exchange proposes to adopt
defined terms of ‘‘BAM’’ and ‘‘BAM
Auction’’ to refer to Auctions on the Fee
Schedule. Second, the Exchange
proposes to adopt the defined term
‘‘BAM Agency Order’’, which would be
4 The term ‘‘Priority Customer’’ means any person
or entity that is not: (A) A broker or dealer in
securities; or (B) a Professional. The term ‘‘Priority
Customer Order’’ means an order for the account of
a Priority Customer. See Rule 16.1(a)(45). A
‘‘Professional’’ is any person or entity that: (A) Is
not a broker or dealer in securities; and (B) places
more than 390 orders in listed options per day on
average during a calendar month for its own
beneficial account(s). All Professional orders shall
be appropriately marked by Options Members. See
Rule 16.1(a)(46).
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defined as an order represented as agent
by a Member on behalf of another party,
and submitted to BAM for potential
price improvement pursuant to Rule
21.19. Third, the Exchange proposes to
adopt the defined term ‘‘BAM Contra
Order’’ or ‘‘Initiating Order’’,5 which
would be defined as an order submitted
by a Member entering a BAM Agency
Order for execution within BAM, that
will potentially execute against the
BAM Agency Order pursuant to Rule
21.19. Fourth, the Exchange proposes to
adopt the defined term ‘‘BAM
Customer-to-Customer Immediate
Cross’’, which would provide a crossreference to the process defined in Rule
21.19(c).6 Finally, the Exchange
proposes to adopt the defined term
‘‘BAM Responder Order’’, which would
be defined to include any order
submitted in response to and
specifically designated to participate in
a BAM Auction as well as unrelated
orders that are received by the Exchange
after a BAM Auction has begun.
sradovich on DSK3GMQ082PROD with NOTICES
BAM Pricing
The Exchange proposes to adopt six
new fee codes in connection with BAM,
which would be added to the Fee Codes
and Associated Fees table of the Fee
Schedule. These fee codes represent the
fees applicable to BAM, as described
below. In addition, the Exchange
proposes to adopt new footnote 6,
which would again summarize BAM
fees and rebates in a table form, would
provide additional details regarding the
applicability of such fees and rebates,
and would include a provision
regarding BAM Break-Up Credits.
The Exchange proposes to adopt two
fee codes for BAM Agency Orders, fee
code BA and fee code BC, which would
be applicable to Non-Customer 7 and
Customer 8 orders, respectively. As
proposed, the Exchange would apply fee
code BA to Non-Customer BAM Agency
Orders that are executed in an Auction
and would charge such orders a fee of
5 The Exchange notes that it has proposed to
include the term Initiating Order on the Fee
Schedule even though it is not currently used
elsewhere on the Fee Schedule because this is the
term used for a BAM Contra Order within Rule
21.19.
6 As set forth in Rule 21.19(c), in lieu of the
procedures set forth in paragraphs (a) and (b) of
Rule 21.10 [sic], an Initiating Member may enter an
Agency Order for the account of a Priority Customer
paired with an order for the account of a Priority
Customer and such paired orders will be
automatically executed without an Auction, subject
to the conditions set forth in Rule 21.19(c)(1)–(3).
7 As defined in the Exchange’s Fee Schedule,
available at: https://www.bats.com/us/options/
membership/fee_schedule/edgx/.
8 As defined in the Exchange’s Fee Schedule,
available at: https://www.bats.com/us/options/
membership/fee_schedule/edgx/.
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$0.20 per contract. The Exchange would
apply fee code BC to Customer BAM
Agency Orders that are executed in an
Auction and would provide such orders
a rebate of $0.14 per contract.
Next, the Exchange proposes to adopt
fee code BB, which would apply to a
BAM Contra Order executed in an
Auction and would be charged a fee of
$0.04 per contract.
The Exchange also proposes to adopt
fee codes BD and BE, which would
apply to BAM Responder Orders in
Penny Pilot Securities 9 and Non-Penny
Pilot Securities,10 respectively. As
proposed, the Exchange would apply fee
code BD or BE to a BAM Responder
Order that is executed in an Auction.
The Exchange proposes to charge a fee
of $0.50 per contract for executions
yielding fee code BD and to charge a fee
of $1.05 per contract for executions
yielding fee code BE.
Finally, the Exchange proposes to
adopt fee code CC for all executions in
a BAM Customer-to-Customer
Immediate Cross. As proposed, all
executions yielding fee code CC would
be provided free of charge.
As discussed above, in addition to
setting forth the proposed fees and
rebates in the Fee Codes and Associated
Fees table, the Exchange proposes to
adopt footnote 6 to again summarize
BAM fees and rebates in a table form
that is organized differently in order to
provide clarity to Users.11 Footnote 6
would be organized similar to existing
footnotes on the Fee Schedule and
would first make clear that the footnote
is applicable to the following six fee
codes: BA, BB, BC, BD, BE and CC. The
footnote would then re-state the fees
applicable to BAM, including a lead-in
to the table that would state that the fees
and rates are applicable when a BAM
Agency Order trades in a BAM Auction
against either a BAM Contra Order or a
BAM Responder Order.
The proposed table would
horizontally categorize the types of
orders that could be executed within
BAM, namely ‘‘Agency’’ (i.e., BAM
Agency Orders), ‘‘Contra’’ (i.e., BAM
Contra Orders) and ‘‘Responder’’ (i.e.,
BAM Responder Orders). Further,
within the Responder category, the
Exchange would differentiate between
Penny Pilot Securities and Non-Penny
9 The term ‘‘Penny Pilot Security’’ applies to
those issues that are quoted pursuant to Exchange
Rule 21.5, Interpretation and Policy .01.
10 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.
11 The term ‘‘Users’’ applies to any Member or
Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3.
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Pilot Securities (whereas it would not
for the other two categories because
there is no applicable distinction).
Vertically, the table would be organized
by Customer, Non-Customer and
Customer-to-Customer Immediate Cross.
The Exchange also proposes to make
clear with respect to BAM Agency
Orders that when a BAM Agency Order
executes against one or more resting
orders that were already on the
Exchange’s order book when the BAM
Agency Order was received by the
Exchange, the BAM Agency Order and
the resting order(s) would receive the
Standard Fee Rates. Specifically, and as
described above, it is possible for
unrelated interest that is already present
on the Exchange’s order book when a
BAM Agency Order is received to be
included in an Auction. As proposed,
footnote 6 will make clear that this will
not alter the fee structure for such
execution and instead the Exchange will
charge a fee or provide a rebate to each
side of the transaction as if it were a
transaction occurring on the Exchange’s
order book pursuant to the Exchange’s
normal order handling methodology and
not in BAM. This stands in contrast to
BAM Responder Orders, which, as
defined, include unrelated orders that
are received by the Exchange after a
BAM Auction has begun and which
would be charged or provided rebates
based specifically on BAM pricing.
The Exchange also proposes to make
clear with respect to Customer orders
that such orders will be charged or
provided rebates based on the proposed
pricing for BAM (e.g., will yield fee
code BC if submitted as a BAM Agency
Order, will yield fee code BB if
submitted as a BAM Contra Order, etc.)
but that fee code CC would be assigned
when both the BAM Agency Order and
the BAM Contra Order are Customer
orders.
In addition, the Exchange proposes to
adopt under footnote 6 BAM Break-Up
Credits. As proposed, the Exchange will
apply a BAM Break-Up Credit to the
Member that submitted a BAM Agency
Order, including a Member who routed
an order to the Exchange with a
Designated Give Up (as described in
further detail below), when the BAM
Agency Order trades with a BAM
Responder Order. As proposed, the
BAM Break-Up Credit provided with
respect to a BAM Auction in a Penny
Pilot Security would be $0.25 per
contract and the BAM Break-Up Credit
provided with respect to a BAM
Auction in a Non-Penny Pilot Security
would be $0.60 per contract.
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Tiered Pricing Incentives
In order to encourage the use of BAM,
the Exchange proposes to adopt new
tiers under footnotes 1 and 2 of the Fee
Schedule, which are similar to existing
tiers but with an enhanced rebated to
incentivize the submission of BAM
Agency Orders.
Fee codes PC and NC are currently
appended to all Customer orders in
Penny Pilot Securities and Non-Penny
Pilot Securities, respectively, and result
in a standard rebate of $0.05 per
contract. Instead of the standard rebate
provided to Customer orders, Members
are able to receive enhanced rebates for
Customer orders to the extent they
satisfy monthly volume criteria. The
Exchange currently offers five Customer
Volume Tiers pursuant to footnote 1.
For instance, pursuant to Customer
Volume Tier 5, a Member will receive
an enhanced rebate of $0.21 per contract
where the Member has an ADV 12 in: (i)
Customer orders equal to or greater than
0.05% of average OCV; 13 and (ii)
Customer or Market Maker 14 orders
equal to or greater than 0.35% of
average OCV. To encourage the entry of
BAM Agency Orders to the Exchange,
the Exchange proposes to adopt
Customer Volume Tier 6, which would
be identical to Tier 5 but would instead
provide an enhanced rebate of $0.25 per
contract for Customer orders to the
extent a Member also has an ADV in
BAM Agency Orders equal to or greater
than 1 contract (in addition to the
volume criteria described above with
respect to Tier 5).
Fee codes PM and NM are currently
appended to all Market Maker orders in
Penny Pilot Securities and Non-Penny
Pilot Securities, respectively, and result
in a standard fee of $0.19 per contract.
The 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 the monthly volume
criteria required by the respective tier.
For instance, pursuant to Market Maker
Volume Tier 7, a Member will be
charged a reduced fee of $0.03 per
contract where the Member has: (i)
Customer orders equal to or greater than
0.05% of average OCV; and (ii)
Customer or Market Maker orders equal
to or greater than 0.35% of average OCV.
12 As defined in the Exchange’s Fee Schedule,
available at: https://www.bats.com/us/options/
membership/fee_schedule/edgx/.
13 As defined in the Exchange’s Fee Schedule,
available at: https://www.bats.com/us/options/
membership/fee_schedule/edgx/.
14 As defined in the Exchange’s Fee Schedule,
available at: https://www.bats.com/us/options/
membership/fee_schedule/edgx/.
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To encourage the entry of BAM Agency
Orders to the Exchange, the Exchange
proposes to adopt Market Maker
Volume Tier 8, which would be
identical to Tier 7 but would instead
provide a reduced fee of $0.02 per
contract for Market Maker orders to the
extent a Member also has an ADV in
BAM Agency Orders equal to or greater
than 1 contract (in addition to the
volume criteria described above with
respect to Tier 7).
Designated Give Up Footnote
Footnote 5 of the Fee Schedule
currently specifies that when order is
submitted with a Designated Give Up, as
defined in Rule 21.12(b)(1), the
applicable rebates for such orders when
executed on the Exchange (yielding fee
code NC or PC) 15 are provided to the
Member who routed the order to the
Exchange. Pursuant to Rule 21.12,
which specifies the process to submit an
order with a Designated Give Up, a
Member acting as an options routing
firm on behalf of one or more other
Exchange Members (a ‘‘Routing Firm’’)
is able to route orders to the Exchange
and to immediately give up the party (a
party other than the Routing Firm itself
or the Routing Firm’s own clearing firm)
who will accept and clear any resulting
transaction. Because the Routing Firm is
responsible for the decision to route the
order to the Exchange, the Exchange
provides such Member with the rebate
when orders that yield fee code NC or
PC are executed.
In connection with the adoption of
fees applicable to BAM, the Exchange
proposes to add new fee code BC to the
lead-in sentence of footnote 5 and to
append footnote 5 to fee code BC in the
Fee Codes and Associated Fees table of
the Fee Schedule. In addition, the
Exchange proposes to include reference
to Routing Firms (i.e., a Member who
routed an order to the Exchange with a
Designated Give up) in the proposed
BAM Break-Up Credit section of
footnote 6, to make clear that a Routing
Firm will be provided any applicable
BAM Break-Up Credits. Similar to the
provision of a rebate to a Routing Firm
who routed an order to the Exchange to
execute directly on the Exchange’s order
book, the Exchange believes that a
Routing Firm that routed a BAM Agency
Order to the Exchange should be
provided applicable rebates, including
any BAM Break-Up Credits, based on
the Routing Firm’s decision to route the
order to the Exchange.
15 Fee codes NC and PC are appended to
Customer orders in Non-Penny Pilot and Penny
Pilot Securities, respectively. Id.
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4943
Implementation Date
The Exchange proposes to implement
the proposed changes immediately.16
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.17
Specifically, the Exchange believes that
the proposed rule change is consistent
with Section 6(b)(4) of the Act,18 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’s proposal establishes
fees and rebates regarding BAM, which
promotes price improvement to the
benefit of market participants. The
Exchange believes that BAM will
encourage market participants, and in
particular liquidity providers on the
Exchange, to compete vigorously to
provide opportunities for price
improvement in a competitive auction
process. The Exchange believes that its
proposal will allow the Exchange to
recoup the costs associated with BAM
while also incentivizing its use.
The Exchange is adopting the
proposed fees and rebates at this time
because it believes that the associated
revenue will allow it to promote and
maintain BAM, which is beneficial to
market participants.
In sum, the Exchange believes that the
proposed fee and rebate structure is
designed to promote BAM and, in
particular, to attract Customer liquidity,
which benefits all market participants
by providing additional trading
opportunities. This attracts liquidity
providers and an increase in the activity
of these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow originating from
other market participants.
Moreover, the Exchange believes that
charging market participants, other than
Customers, a higher effective rate for
certain BAM transactions is reasonable,
equitable, and not unfairly
discriminatory because these types of
market participants are more
16 The Exchange notes that it previously adopted
fee changes effective January 3, 2017, and thus, has
not proposed to modify the date of the Fee
Schedule. See SR–BatsEDGX–2016–75, available at:
https://www.bats.com/us/options/regulation/
rule_filings/edgx/.
17 15 U.S.C. 78f.
18 15 U.S.C. 78f(b)(4).
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sophisticated and have higher levels of
order flow activity and system usage.
Facilitating this level of trading activity
requires a greater amount of system
resources than that of Customers, and
thus, generates greater ongoing
operational costs for the Exchange. The
proposed fees and rebates, which are
further discussed below, will allow the
Exchange to promote and maintain
BAM, which is beneficial to market
participants.
BAM Agency Orders and BAM Contra
Orders
sradovich on DSK3GMQ082PROD with NOTICES
With respect to the proposal to adopt
a rebate for Customer BAM Agency
Orders ($0.14 per contract) and adopt
fees for both Non-Customer BAM
Agency Orders ($0.20 per contract) and
all BAM Contra Orders ($0.04 per
contract), the Exchange believes this is
reasonable because it encourages
participation in BAM by offering rates
that are equivalent to or better than most
other price improvement auctions
offered by other options exchanges.19
The rebate for Customer BAM Agency
Orders is designed to encourage
Customer orders entered into BAM,
which is reasonable for the reasons
further discussed below. The proposed
fees for Non-Customer BAM Agency
Orders and BAM Contra Orders are also
reasonable because the associated
revenue will allow the Exchange to
promote and maintain BAM, and
continue to enhance its services.
Providing Customers a rebate for BAM
Agency Orders, while assessing NonCustomers a fee for BAM Agency
Orders, is reasonable because of the
desirability of Customer activity. The
proposed new fees and rebates for BAM
are generally intended to encourage
greater Customer trade volume to the
Exchange. Customer activity enhances
liquidity on the Exchange for the benefit
of all market participants and benefits
all market participants by providing
more trading opportunities, which
attracts market makers and other
liquidity providers. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants. The practice of
incentivizing increased Customer order
flow through a fee and rebate schedule
19 See Miami International Securities Exchange,
LLC (‘‘MIAX’’) Fee Schedule; and Securities
Exchange Act Release No. 72943 (August 28, 2014),
80 [sic] FR 52785 (September 4, 2014) (SR–MIAX–
2015–45 [sic]) (notice of filing and immediate
effectiveness regarding MIAX PRIME). See also, e.g.,
NYSE MKT LLC (‘‘NYSE Amex Options’’) Fee
Schedule and NASDAQ OMX BX, Inc. (‘‘BX
Options’’) Fee Schedule.
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in order to attract professional liquidity
providers is, and has been, commonly
practiced in the options markets, and
the Exchange.20 The proposed fee and
rebate schedule similarly attracts
Customer order flow.
The proposed fee and rebate schedule
is reasonably designed because it is
within the range of fees and rebates
assessed by other exchanges employing
similar fee structures for price
improvement mechanisms.21 Other
competing exchanges offer different fees
and rebates for agency orders, contraside orders, and responder orders to the
auction in a manner similar to the
proposal.22 Other competing exchanges
also charge different rates for
transactions in their price improvement
mechanisms for customers versus their
non-customers in a manner similar to
the proposal.23 As proposed, all
applicable fees and rebates are within
the range of fees and rebates for
executions in price improvement
mechanisms assessed by other
exchanges that are currently employing
similar fee structures for price
improvement mechanisms.
The fee and rebate schedule as
proposed continues to reflect
differentiation among different market
participants typically found in options
fee and rebate schedules.24 The
Exchange believes that the
differentiation is reasonable and notes
that unlike others (e.g., Customers) some
market participants like EDGX Options
Market Makers commit to various
obligations. For example, transactions of
an EDGX Options Market Maker must
constitute a course of dealings
reasonably calculated to contribute to
the maintenance of a fair and orderly
market, and Market Makers should not
make bids or offers or enter into
transactions that are inconsistent with
such course of dealings.25 Further, all
Market Makers are designated as
specialists on EDGX Options for all
20 See Exchanges Fee Schedule, available at:
https://www.bats.com/us/options/membership/
fee_schedule/edgx/; see also, e.g., MIAX Fee
Schedule, NYSE Amex Options Fee Schedule,
Nasdaq Options Market (‘‘NOM’’) Fee Schedule.
21 See MIAX Fee Schedule; and Securities
Exchange Act Release No. 72943 (August 28, 2014),
80 [sic] FR 52785 (September 4, 2014) (SR–MIAX–
2015–45 [sic]) (notice of filing and immediate
effectiveness regarding MIAX PRIME). See also, e.g.,
NYSE Amex Options Fee Schedule and BX Options
Fee Schedule.
22 Id.
23 Id.
24 See Exchange’s Fee Schedule, available at:
https://www.bats.com/us/options/membership/
fee_schedule/edgx/; see also, e.g., MIAX Fee
Schedule, NYSE Amex Options Fee Schedule, BX
Options Fee Schedule and NOM Fee Schedule.
25 See Exchange Rule 22.5, entitled ‘‘Obligations
of Market Makers’’.
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Frm 00107
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Sfmt 4703
purposes under the Act or rules
thereunder.26 For BAM Agency Orders,
establishing a rebate for Customer
orders and a fee for Non-Customer
Orders is equitable and not unfairly
discriminatory. This is because the
Exchange’s proposal to provide rebates
and assess fees will apply the same to
all similarly situated participants.
Moreover, all similarly situated BAM
Agency Orders are subject to the same
proposed fee schedule, and access to the
Exchange is offered on terms that are
not unfairly discriminatory. In addition,
the proposed fee for BAM Agency
Orders is equitable and not unfairly
discriminatory because, while other
market participants (Non-Customers)
will be assessed a fee, Customers will
receive a rebate because an increase in
Customer order flow will bring greater
volume and liquidity, which benefits all
market participants by providing more
trading opportunities and tighter
spreads.
Customer-to-Customer Immediate Cross
With respect to the Customer-toCustomer Immediate Cross, establishing
no Customer fee or rebate for either side
of the transaction, is also reasonable,
equitably allocated and not
unreasonably discriminatory because it
still encourages the entry of Customer
orders to the Exchange while treating,
from the Exchange’s perspective, each
side of the order neutrally rather than
providing one Customer a rebate but
charging another Customer a fee.
BAM Responder Orders and Other
Unrelated Orders
For BAM Responder Orders,
establishing that there will be a $0.50
fee per contract for orders in Penny Pilot
Securities and a $1.05 fee per contract
for orders in Non-Penny Pilot Securities,
is reasonable because the associated
revenue will allow the Exchange to
maintain and enhance its services. The
proposed fee and rebate schedule is also
reasonably designed because it is within
the range of fees and rebates assessed by
other exchanges employing similar fee
structures for price improvement
mechanisms.27 Other competing
exchanges offer different fees and
rebates for agency orders, contra-side
order, and responders to the auction in
a manner similar to the proposal.28
For BAM Responder Orders,
establishing a fee for such orders is
equitable and not unfairly
26 See Exchange Rule 22.2, entitled ‘‘Options
Market Maker Registration and Appointment’’.
27 See NYSE Amex Options Fee Schedule; see
also, e.g., MIAX Fee Schedule and BX Options Fee
Schedule.
28 Id.
E:\FR\FM\17JAN1.SGM
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discriminatory. This is because the
Exchange’s proposal to assess such fee
will apply the same to all participants
and will vary only based on whether the
security is a Penny Pilot Security or a
Non-Penny Pilot Security. Moreover, all
BAM Responder Orders are subject to
the same proposed fee schedule, and
access to the Exchange is offered on
terms that are not unfairly
discriminatory.
The Exchange further believes its
proposal represents a reasonable and
equitable allocation of dues and fees in
that the proposal would treat an
unrelated order as well as a BAM
Agency Order that executes against such
order differently depending on whether
the unrelated order was already resting
on the Exchange’s order book at the time
the BAM Agency Order was received or
was received after the BAM Auction had
begun.
As proposed, an unrelated order
would be considered a BAM Responder
Order if received after the BAM Auction
had commenced. As a result, both the
BAM Agency Order executing against
such order and such order itself would
be assessed fees and provided rebates
according to the proposed BAM pricing.
The Exchange believes this is a
reasonable and equitable allocation of
dues and fees, and is not unreasonably
discriminatory, because it ensures that
market participants are treated similarly
with respect to their executions against
BAM Agency Orders. To do otherwise,
to the extent fees are higher pursuant to
BAM pricing than under the Exchange’s
Standard Fee Rates, would incentivize a
market participant that wishes to
participate in an Auction to nonetheless
avoid sending orders to the Exchange
that are not targeted towards the
Auction and instead send orders to the
Exchange’s order book generally,
knowing that such orders would be
considered in the Auction anyway.
In contrast, as proposed, to the extent
an unrelated order was already present
on the Exchange’s order book when a
BAM Agency Order is received, such
unrelated order, if executed in an
Auction, as well as the BAM Agency
Order against which it trades will be
charged a fee or provided a rebate as if
the transaction occurred on the
Exchange’s order book pursuant to the
Exchange’s normal order handling
methodology and not in BAM. The
Exchange similarly believes this is a
reasonable and equitable allocation of
dues and fees, and is not unreasonably
discriminatory, because it will ensure
that the participant that had established
position on the Exchange’s order book
first, the unrelated order, is not
impacted with respect to applicable fees
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18:21 Jan 13, 2017
Jkt 241001
or rebates despite the later arrival of a
BAM Agency Order that commences an
Auction.
BAM Break-Up Credits
With respect to the proposal to adopt
BAM Break-Up Credits, the Exchange
believes this is reasonable because it
encourages use of BAM by offering
pricing that is equivalent to pricing
provided pursuant to other price
improvement auctions offered by other
options exchanges. The proposal to offer
BAM Break-Up Credits is reasonably
designed because it is within the range
of fees and rebates assessed by other
exchanges employing similar fee
structures for price improvement
mechanisms.29 Further, the proposed
BAM Break-Up Credits are reasonable
and equitably allocated because such
credits are different based on whether
the Auction is for a Penny Pilot Security
or a Non-Penny Pilot Security, which is
the same differentiation applicable to
BAM Responder Orders. Thus, the
Exchange has based the amount of the
Break-Up Credit, in part, on the amount
of the fee it will receive with respect to
each BAM Responder Order. Finally,
the proposed BAM Break-Up Credits are
not unreasonably discriminatory
because such credits are equally
available to all Members submitting
BAM Agency Orders to the Exchange.
Tiers
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 adoption of Customer Volume
Tier 6 and Market Maker Volume Tier
8, are each intended to incentivize
Members to send additional Customer
and Market Maker orders to the
Exchange as well as to participate in the
Exchange’s new BAM process in an
effort to qualify for the enhanced rebate
or lower fee made available by the tiers.
The Exchange believes that the
proposed tiers are reasonable, fair and
29 See MIAX Fee Schedule; and Securities
Exchange Act Release No. 72943 (August 28, 2014),
80 FR 52785 (September 4, 2014) (SR–MIAX–2015–
45) (notice of filing and immediate effectiveness
regarding MIAX PRIME). See also, e.g., NYSE Amex
Options Fee Schedule and NASDAQ BX Options
Fee Schedule.
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
4945
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. Further, BAM is
fully available to all Members, and the
proposed threshold is intentionally low
to encourage Members to do the
development work necessary to
participate in BAM and send BAM
Agency Orders.
Designated Give Up
In connection with the adoption of
fees applicable to BAM, the Exchange
proposes to add new fee code BC to the
lead-in sentence of footnote 5 and to
append footnote 5 to fee code BC in the
Fee Codes and Associated Fees table of
the Fee Schedule. In addition, the
Exchange proposes to include reference
to Routing Firms (i.e., a Member who
routed an order to the Exchange with a
Designated Give up) in the proposed
BAM Break-Up Credit section of
footnote 6, to make clear that a Routing
Firm too will be provided any
applicable BAM Break-Up Credits. The
Exchange believes this proposal is a
reasonable and equitable allocation of
fees and dues and is not unreasonably
discriminatory because, as is currently
the case pursuant to footnote 5, the
proposal simply will make clear that a
firm acting as a Routing Firm that routes
BAM Agency Orders to the Exchange
will be provided applicable rebates,
including any BAM Break-Up Credits,
based on the Routing Firm’s decision to
route the order to the Exchange.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes the proposed
rebate would not impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. The Exchange does
not believe that the proposed rebate
represents a significant departure from
previous pricing offered by the
Exchange or pricing offered by the
Exchange’s competitors. Rather, the
Exchange believes the proposal will
enhance competition as it is a
competitive proposal that seeks to
further the growth of the Exchange by
encouraging Members to enter BAM
Agency Orders, orders in response to
BAM Agency Orders, and orders to the
Exchange generally.
The Exchange’s proposal to adopt
BAM was a competitive response to
similar price improvement auctions
operated by other options exchanges.
E:\FR\FM\17JAN1.SGM
17JAN1
sradovich on DSK3GMQ082PROD with NOTICES
4946
Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices
The Exchange believes this proposed
rule change is necessary to permit fair
competition among the options
exchanges. The Exchange anticipates
that BAM will create new opportunities
for EDGX to attract new business and
compete on equal footing with those
options exchanges with auctions. While
the proposed fees and rebates are
intentionally aggressive in order to
attract participation on the Exchange,
particularly in BAM, the Exchange does
not believe that its proposed pricing
significantly departs from pricing in
place on other options exchanges that
operate price improvement auctions.
Accordingly, the Exchange does not
believe that the proposal creates an
undue burden on inter-market
competition.
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Exchange does not believe that its
proposal to establish fees and rebates for
BAM will impose any burden on
competition, as discussed below.
The Exchange operates in a highly
competitive market in which many
sophisticated and knowledgeable
market participants can readily and do
send order flow to competing exchanges
if they deem fee levels or rebate
incentives at a particular exchange to be
excessive or inadequate. Additionally,
new competitors have entered the
market and still others are reportedly
entering the market shortly. These
market forces ensure that the Exchange’s
fees and rebates remain competitive
with the fee structures at other trading
platforms. In that sense, the Exchange’s
proposal is actually pro-competitive
because the Exchange is simply
establishing rebates and fees in order to
remain competitive in the current
environment.
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. In terms of
inter-market competition, the Exchange
notes that it operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
continually adjust its fees to remain
competitive with other exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
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18:21 Jan 13, 2017
Jkt 241001
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited.
In this instance, the proposed charges
assessed and credits available to
member firms in respect of BAM do not
impose a burden on competition
because the Exchange’s execution and
routing services are completely
voluntary and subject to extensive
competition. If the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result and/or will be unable to attract
participants to BAM. Accordingly, the
Exchange does not believe that the
proposed changes will impair the ability
of members or competing order
execution venues to maintain their
competitive standing in the financial
markets. Additionally, the changes
proposed herein are pro-competitive to
the extent that they allow the Exchange
to promote and maintain BAM, which
has the potential to result in more
efficient, price improved executions to
the benefit of market participants.
The Exchange believes that the
proposed change would increase both
inter-market and intra-market
competition by incentivizing members
to direct their orders, and particularly
Customer orders, to the Exchange,
which benefits all market participants
by providing more trading
opportunities, which attracts market
makers. To the extent that there is a
differentiation between proposed fees
assessed and rebates offered to
Customers as opposed to other market
participants, the Exchange believes that
this is appropriate because the fees and
rebates should incentivize members to
direct additional order flow to the
Exchange and thus provide additional
liquidity that enhances the quality of its
markets and increases the volume of
contracts traded on the Exchange.
To the extent that this purpose is
achieved, all the Exchange’s market
participants should benefit from the
improved market liquidity. Enhanced
market quality and increased
transaction volume that results from the
anticipated increase in order flow
directed to the Exchange will benefit all
market participants and improve
competition on the Exchange. The
Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive.
The Exchange believes that the
proposed fees and rebates for
participation in the BAM Auction are
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
not going to have an impact on intramarket competition based on the total
cost for participants to transact as
respondents to the Auction as compared
to the cost for participants to engage in
non-Auction electronic transactions on
the Exchange.
As noted above, the Exchange
believes that the proposed pricing for
the BAM Auction is comparable to that
of other exchanges offering similar
electronic price improvement
mechanisms, and the Exchange believes
that, based on general industry
experience, market participants
understand that the price-improving
benefits offered by an Auction justify
and offset the transaction costs
associated with such Auction. To the
extent that there is a difference between
non-BAM transactions and BAM
transactions, the Exchange does not
believe this difference will cause
participants to refrain from responding
to BAM or submitting orders to the
Exchange when a BAM Auction is
underway.
In addition, the Exchange does not
believe that the proposed transaction
fees and credits burden competition by
creating a disparity of transaction fees
between the BAM Contra Order and the
transaction fees a Responder pays
would result in certain participants
being unable to compete with the contra
side order.
The Exchange expects to see robust
competition within the BAM Auction.
As discussed, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive. In such an environment,
the Exchange must continually adjust its
fees to remain competitive with other
exchanges and to attract order flow to
the Exchange. The Exchange believes
that the proposed rule change reflects
this competitive environment because it
establishes a fee structure in a manner
that encourages market participants to
direct their order flow, to provide
liquidity, and to attract additional
transaction volume to the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
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.
E:\FR\FM\17JAN1.SGM
17JAN1
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Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices
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 30 and paragraph (f) of Rule
19b–4 thereunder.31 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:
sradovich on DSK3GMQ082PROD with NOTICES
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–2017–01 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–BatsEDGX–2017–01. 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 such
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–
BatsEDGX–2017–01, and should be
submitted on or before February 7, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–00782 Filed 1–13–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79770; File No. SR–
NASDAQ–2016–173]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Reduce the
All-Inclusive Annual Listing Fee for
Limited Partnerships Listed on Nasdaq
January 10, 2017
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on December
28, 2016, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to reduce the
fees for limited partnerships listed on
Nasdaq.
While these amendments are effective
upon filing, the Exchange has
designated the proposed amendments to
be operative on January 1, 2017.
A notice of the proposed rule change
for publication in the Federal Register
is attached as Exhibit 1 [sic]. The text of
the proposed rule change is set forth
32 17
30 15
31 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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18:21 Jan 13, 2017
Jkt 241001
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
below. Proposed new language is
italicized; deleted text is in brackets.
*
*
*
*
*
5910. The Nasdaq Global Market
(including the Nasdaq Global Select
Market)
*
*
*
*
*
IM–5910–1. All-Inclusive Annual
Listing Fee
(a)–(c) No change.
(d) The All-Inclusive Annual Listing
Fee will be calculated on total shares
outstanding according to the following
schedules:
(1)–(3) No change.
(4) Limited Partnerships (effective
January 1, 2017):
Up to 75 million shares $37,500
75+ to 100 million shares $50,000
100+ to 125 million shares $62,500
125+ to 150 million shares $67,500
Over 150 million shares $77,500
(e) No change.
*
*
*
*
*
5920. The Nasdaq Capital Market
*
*
*
*
*
IM–5920–1. All-Inclusive Annual
Listing Fee
(a)–(c) No change.
(d) The All-Inclusive Annual Listing
Fee will be calculated on total shares
outstanding according to the following
schedules:
(1)–(3) No change.
(4) Limited Partnerships (effective
January 1, 2017):
Up to 50 million shares $30,000
Over 50 million shares $37,500
(e) No change.
*
*
*
*
*
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
Nasdaq proposes to reduce the fees for
limited partnerships listed on Nasdaq.
E:\FR\FM\17JAN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 10 (Tuesday, January 17, 2017)]
[Notices]
[Pages 4941-4947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00782]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79769; File No. SR-BatsEDGX-2017-01]
Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Modify the Fee Schedule of the Exchange's Options Platform To Adopt
Fees for its Recently Adopted Bats Auction Mechanism
January 10, 2017.
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 January 3, 2017, Bats EDGX Exchange, Inc. (``EDGX'' or the
``Exchange'') 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
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to modify the Fee Schedule applicable
to the Exchange's options platform (``EDGX Options'') to adopt fees for
its recently adopted Bats Auction Mechanism (``BAM'', ``BAM Auction'',
or ``Auction'').\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 79718 (January 3,
2017) (SR-BatsEDGX-2016-41), available at: https://www.sec.gov/rules/sro/batsedgx.shtml.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
Web site at www.bats.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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
The Exchange proposes to modify the Fee Schedule applicable to the
Exchange's options platform (``EDGX Options'') to adopt fees for its
recently adopted Bats Auction Mechanism (``BAM'', ``BAM Auction'', or
``Auction''). BAM includes functionality in which a Member (an
``Initiating Member'') may electronically submit for execution an order
it represents as agent on behalf of a Priority Customer,\4\ broker
dealer, or any other person or entity (``Agency Order'') against
principal interest or against any other order it represents as agent
(an ``Initiating Order'') provided it submits the Agency Order for
electronic execution into the BAM Auction pursuant Rule 21.19. All
options traded on EDGX Options are eligible for BAM.
---------------------------------------------------------------------------
\4\ The term ``Priority Customer'' means any person or entity
that is not: (A) A broker or dealer in securities; or (B) a
Professional. The term ``Priority Customer Order'' means an order
for the account of a Priority Customer. See Rule 16.1(a)(45). A
``Professional'' is any person or entity that: (A) Is not a broker
or dealer in securities; and (B) places more than 390 orders in
listed options per day on average during a calendar month for its
own beneficial account(s). All Professional orders shall be
appropriately marked by Options Members. See Rule 16.1(a)(46).
---------------------------------------------------------------------------
As additional background for the fees described below, the Exchange
notes that any person or entity other than the Initiating Member may
submit responses to an Auction. A BAM Auction takes into account
responses to the Auction as well as interest resting on the Exchange's
order book at the conclusion of the auction (``unrelated orders''),
regardless of whether such unrelated orders were already present on the
Exchange's order book when the Agency Order was received by the
Exchange or were received after the Exchange commenced the applicable
Auction. If contracts remain from one or more unrelated orders at the
time the Auction ends, they will be considered for participation in the
BAM order allocation process.
Definitions
In connection with the fee proposal, the Exchange proposes to adopt
definitions necessary for BAM pricing. First, the Exchange proposes to
adopt defined terms of ``BAM'' and ``BAM Auction'' to refer to Auctions
on the Fee Schedule. Second, the Exchange proposes to adopt the defined
term ``BAM Agency Order'', which would be
[[Page 4942]]
defined as an order represented as agent by a Member on behalf of
another party, and submitted to BAM for potential price improvement
pursuant to Rule 21.19. Third, the Exchange proposes to adopt the
defined term ``BAM Contra Order'' or ``Initiating Order'',\5\ which
would be defined as an order submitted by a Member entering a BAM
Agency Order for execution within BAM, that will potentially execute
against the BAM Agency Order pursuant to Rule 21.19. Fourth, the
Exchange proposes to adopt the defined term ``BAM Customer-to-Customer
Immediate Cross'', which would provide a cross-reference to the process
defined in Rule 21.19(c).\6\ Finally, the Exchange proposes to adopt
the defined term ``BAM Responder Order'', which would be defined to
include any order submitted in response to and specifically designated
to participate in a BAM Auction as well as unrelated orders that are
received by the Exchange after a BAM Auction has begun.
---------------------------------------------------------------------------
\5\ The Exchange notes that it has proposed to include the term
Initiating Order on the Fee Schedule even though it is not currently
used elsewhere on the Fee Schedule because this is the term used for
a BAM Contra Order within Rule 21.19.
\6\ As set forth in Rule 21.19(c), in lieu of the procedures set
forth in paragraphs (a) and (b) of Rule 21.10 [sic], an Initiating
Member may enter an Agency Order for the account of a Priority
Customer paired with an order for the account of a Priority Customer
and such paired orders will be automatically executed without an
Auction, subject to the conditions set forth in Rule 21.19(c)(1)-
(3).
---------------------------------------------------------------------------
BAM Pricing
The Exchange proposes to adopt six new fee codes in connection with
BAM, which would be added to the Fee Codes and Associated Fees table of
the Fee Schedule. These fee codes represent the fees applicable to BAM,
as described below. In addition, the Exchange proposes to adopt new
footnote 6, which would again summarize BAM fees and rebates in a table
form, would provide additional details regarding the applicability of
such fees and rebates, and would include a provision regarding BAM
Break-Up Credits.
The Exchange proposes to adopt two fee codes for BAM Agency Orders,
fee code BA and fee code BC, which would be applicable to Non-Customer
\7\ and Customer \8\ orders, respectively. As proposed, the Exchange
would apply fee code BA to Non-Customer BAM Agency Orders that are
executed in an Auction and would charge such orders a fee of $0.20 per
contract. The Exchange would apply fee code BC to Customer BAM Agency
Orders that are executed in an Auction and would provide such orders a
rebate of $0.14 per contract.
---------------------------------------------------------------------------
\7\ As defined in the Exchange's Fee Schedule, available at:
https://www.bats.com/us/options/membership/fee_schedule/edgx/.
\8\ As defined in the Exchange's Fee Schedule, available at:
https://www.bats.com/us/options/membership/fee_schedule/edgx/.
---------------------------------------------------------------------------
Next, the Exchange proposes to adopt fee code BB, which would apply
to a BAM Contra Order executed in an Auction and would be charged a fee
of $0.04 per contract.
The Exchange also proposes to adopt fee codes BD and BE, which
would apply to BAM Responder Orders in Penny Pilot Securities \9\ and
Non-Penny Pilot Securities,\10\ respectively. As proposed, the Exchange
would apply fee code BD or BE to a BAM Responder Order that is executed
in an Auction. The Exchange proposes to charge a fee of $0.50 per
contract for executions yielding fee code BD and to charge a fee of
$1.05 per contract for executions yielding fee code BE.
---------------------------------------------------------------------------
\9\ The term ``Penny Pilot Security'' applies to those issues
that are quoted pursuant to Exchange Rule 21.5, Interpretation and
Policy .01.
\10\ 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.
---------------------------------------------------------------------------
Finally, the Exchange proposes to adopt fee code CC for all
executions in a BAM Customer-to-Customer Immediate Cross. As proposed,
all executions yielding fee code CC would be provided free of charge.
As discussed above, in addition to setting forth the proposed fees
and rebates in the Fee Codes and Associated Fees table, the Exchange
proposes to adopt footnote 6 to again summarize BAM fees and rebates in
a table form that is organized differently in order to provide clarity
to Users.\11\ Footnote 6 would be organized similar to existing
footnotes on the Fee Schedule and would first make clear that the
footnote is applicable to the following six fee codes: BA, BB, BC, BD,
BE and CC. The footnote would then re-state the fees applicable to BAM,
including a lead-in to the table that would state that the fees and
rates are applicable when a BAM Agency Order trades in a BAM Auction
against either a BAM Contra Order or a BAM Responder Order.
---------------------------------------------------------------------------
\11\ The term ``Users'' applies to any Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Rule 11.3.
---------------------------------------------------------------------------
The proposed table would horizontally categorize the types of
orders that could be executed within BAM, namely ``Agency'' (i.e., BAM
Agency Orders), ``Contra'' (i.e., BAM Contra Orders) and ``Responder''
(i.e., BAM Responder Orders). Further, within the Responder category,
the Exchange would differentiate between Penny Pilot Securities and
Non-Penny Pilot Securities (whereas it would not for the other two
categories because there is no applicable distinction). Vertically, the
table would be organized by Customer, Non-Customer and Customer-to-
Customer Immediate Cross.
The Exchange also proposes to make clear with respect to BAM Agency
Orders that when a BAM Agency Order executes against one or more
resting orders that were already on the Exchange's order book when the
BAM Agency Order was received by the Exchange, the BAM Agency Order and
the resting order(s) would receive the Standard Fee Rates.
Specifically, and as described above, it is possible for unrelated
interest that is already present on the Exchange's order book when a
BAM Agency Order is received to be included in an Auction. As proposed,
footnote 6 will make clear that this will not alter the fee structure
for such execution and instead the Exchange will charge a fee or
provide a rebate to each side of the transaction as if it were a
transaction occurring on the Exchange's order book pursuant to the
Exchange's normal order handling methodology and not in BAM. This
stands in contrast to BAM Responder Orders, which, as defined, include
unrelated orders that are received by the Exchange after a BAM Auction
has begun and which would be charged or provided rebates based
specifically on BAM pricing.
The Exchange also proposes to make clear with respect to Customer
orders that such orders will be charged or provided rebates based on
the proposed pricing for BAM (e.g., will yield fee code BC if submitted
as a BAM Agency Order, will yield fee code BB if submitted as a BAM
Contra Order, etc.) but that fee code CC would be assigned when both
the BAM Agency Order and the BAM Contra Order are Customer orders.
In addition, the Exchange proposes to adopt under footnote 6 BAM
Break-Up Credits. As proposed, the Exchange will apply a BAM Break-Up
Credit to the Member that submitted a BAM Agency Order, including a
Member who routed an order to the Exchange with a Designated Give Up
(as described in further detail below), when the BAM Agency Order
trades with a BAM Responder Order. As proposed, the BAM Break-Up Credit
provided with respect to a BAM Auction in a Penny Pilot Security would
be $0.25 per contract and the BAM Break-Up Credit provided with respect
to a BAM Auction in a Non-Penny Pilot Security would be $0.60 per
contract.
[[Page 4943]]
Tiered Pricing Incentives
In order to encourage the use of BAM, the Exchange proposes to
adopt new tiers under footnotes 1 and 2 of the Fee Schedule, which are
similar to existing tiers but with an enhanced rebated to incentivize
the submission of BAM Agency Orders.
Fee codes PC and NC are currently appended to all Customer orders
in Penny Pilot Securities and Non-Penny Pilot Securities, respectively,
and result in a standard rebate of $0.05 per contract. Instead of the
standard rebate provided to Customer orders, Members are able to
receive enhanced rebates for Customer orders to the extent they satisfy
monthly volume criteria. The Exchange currently offers five Customer
Volume Tiers pursuant to footnote 1. For instance, pursuant to Customer
Volume Tier 5, a Member will receive an enhanced rebate of $0.21 per
contract where the Member has an ADV \12\ in: (i) Customer orders equal
to or greater than 0.05% of average OCV; \13\ and (ii) Customer or
Market Maker \14\ orders equal to or greater than 0.35% of average OCV.
To encourage the entry of BAM Agency Orders to the Exchange, the
Exchange proposes to adopt Customer Volume Tier 6, which would be
identical to Tier 5 but would instead provide an enhanced rebate of
$0.25 per contract for Customer orders to the extent a Member also has
an ADV in BAM Agency Orders equal to or greater than 1 contract (in
addition to the volume criteria described above with respect to Tier
5).
---------------------------------------------------------------------------
\12\ As defined in the Exchange's Fee Schedule, available at:
https://www.bats.com/us/options/membership/fee_schedule/edgx/.
\13\ As defined in the Exchange's Fee Schedule, available at:
https://www.bats.com/us/options/membership/fee_schedule/edgx/.
\14\ As defined in the Exchange's Fee Schedule, available at:
https://www.bats.com/us/options/membership/fee_schedule/edgx/.
---------------------------------------------------------------------------
Fee codes PM and NM are currently appended to all Market Maker
orders in Penny Pilot Securities and Non-Penny Pilot Securities,
respectively, and result in a standard fee of $0.19 per contract. The
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 the monthly
volume criteria required by the respective tier. For instance, pursuant
to Market Maker Volume Tier 7, a Member will be charged a reduced fee
of $0.03 per contract where the Member has: (i) Customer orders equal
to or greater than 0.05% of average OCV; and (ii) Customer or Market
Maker orders equal to or greater than 0.35% of average OCV. To
encourage the entry of BAM Agency Orders to the Exchange, the Exchange
proposes to adopt Market Maker Volume Tier 8, which would be identical
to Tier 7 but would instead provide a reduced fee of $0.02 per contract
for Market Maker orders to the extent a Member also has an ADV in BAM
Agency Orders equal to or greater than 1 contract (in addition to the
volume criteria described above with respect to Tier 7).
Designated Give Up Footnote
Footnote 5 of the Fee Schedule currently specifies that when order
is submitted with a Designated Give Up, as defined in Rule 21.12(b)(1),
the applicable rebates for such orders when executed on the Exchange
(yielding fee code NC or PC) \15\ are provided to the Member who routed
the order to the Exchange. Pursuant to Rule 21.12, which specifies the
process to submit an order with a Designated Give Up, a Member acting
as an options routing firm on behalf of one or more other Exchange
Members (a ``Routing Firm'') is able to route orders to the Exchange
and to immediately give up the party (a party other than the Routing
Firm itself or the Routing Firm's own clearing firm) who will accept
and clear any resulting transaction. Because the Routing Firm is
responsible for the decision to route the order to the Exchange, the
Exchange provides such Member with the rebate when orders that yield
fee code NC or PC are executed.
---------------------------------------------------------------------------
\15\ Fee codes NC and PC are appended to Customer orders in Non-
Penny Pilot and Penny Pilot Securities, respectively. Id.
---------------------------------------------------------------------------
In connection with the adoption of fees applicable to BAM, the
Exchange proposes to add new fee code BC to the lead-in sentence of
footnote 5 and to append footnote 5 to fee code BC in the Fee Codes and
Associated Fees table of the Fee Schedule. In addition, the Exchange
proposes to include reference to Routing Firms (i.e., a Member who
routed an order to the Exchange with a Designated Give up) in the
proposed BAM Break-Up Credit section of footnote 6, to make clear that
a Routing Firm will be provided any applicable BAM Break-Up Credits.
Similar to the provision of a rebate to a Routing Firm who routed an
order to the Exchange to execute directly on the Exchange's order book,
the Exchange believes that a Routing Firm that routed a BAM Agency
Order to the Exchange should be provided applicable rebates, including
any BAM Break-Up Credits, based on the Routing Firm's decision to route
the order to the Exchange.
Implementation Date
The Exchange proposes to implement the proposed changes
immediately.\16\
---------------------------------------------------------------------------
\16\ The Exchange notes that it previously adopted fee changes
effective January 3, 2017, and thus, has not proposed to modify the
date of the Fee Schedule. See SR-BatsEDGX-2016-75, available at:
https://www.bats.com/us/options/regulation/rule_filings/edgx/.
---------------------------------------------------------------------------
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.\17\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\18\ 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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f.
\18\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange's proposal establishes fees and rebates regarding BAM,
which promotes price improvement to the benefit of market participants.
The Exchange believes that BAM will encourage market participants, and
in particular liquidity providers on the Exchange, to compete
vigorously to provide opportunities for price improvement in a
competitive auction process. The Exchange believes that its proposal
will allow the Exchange to recoup the costs associated with BAM while
also incentivizing its use.
The Exchange is adopting the proposed fees and rebates at this time
because it believes that the associated revenue will allow it to
promote and maintain BAM, which is beneficial to market participants.
In sum, the Exchange believes that the proposed fee and rebate
structure is designed to promote BAM and, in particular, to attract
Customer liquidity, which benefits all market participants by providing
additional trading opportunities. This attracts liquidity providers and
an increase in the activity of these market participants in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow originating from other market
participants.
Moreover, the Exchange believes that charging market participants,
other than Customers, a higher effective rate for certain BAM
transactions is reasonable, equitable, and not unfairly discriminatory
because these types of market participants are more
[[Page 4944]]
sophisticated and have higher levels of order flow activity and system
usage. Facilitating this level of trading activity requires a greater
amount of system resources than that of Customers, and thus, generates
greater ongoing operational costs for the Exchange. The proposed fees
and rebates, which are further discussed below, will allow the Exchange
to promote and maintain BAM, which is beneficial to market
participants.
BAM Agency Orders and BAM Contra Orders
With respect to the proposal to adopt a rebate for Customer BAM
Agency Orders ($0.14 per contract) and adopt fees for both Non-Customer
BAM Agency Orders ($0.20 per contract) and all BAM Contra Orders ($0.04
per contract), the Exchange believes this is reasonable because it
encourages participation in BAM by offering rates that are equivalent
to or better than most other price improvement auctions offered by
other options exchanges.\19\ The rebate for Customer BAM Agency Orders
is designed to encourage Customer orders entered into BAM, which is
reasonable for the reasons further discussed below. The proposed fees
for Non-Customer BAM Agency Orders and BAM Contra Orders are also
reasonable because the associated revenue will allow the Exchange to
promote and maintain BAM, and continue to enhance its services.
---------------------------------------------------------------------------
\19\ See Miami International Securities Exchange, LLC (``MIAX'')
Fee Schedule; and Securities Exchange Act Release No. 72943 (August
28, 2014), 80 [sic] FR 52785 (September 4, 2014) (SR-MIAX-2015-45
[sic]) (notice of filing and immediate effectiveness regarding MIAX
PRIME). See also, e.g., NYSE MKT LLC (``NYSE Amex Options'') Fee
Schedule and NASDAQ OMX BX, Inc. (``BX Options'') Fee Schedule.
---------------------------------------------------------------------------
Providing Customers a rebate for BAM Agency Orders, while assessing
Non-Customers a fee for BAM Agency Orders, is reasonable because of the
desirability of Customer activity. The proposed new fees and rebates
for BAM are generally intended to encourage greater Customer trade
volume to the Exchange. Customer activity enhances liquidity on the
Exchange for the benefit of all market participants and benefits all
market participants by providing more trading opportunities, which
attracts market makers and other liquidity providers. An increase in
the activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. The practice of incentivizing
increased Customer order flow through a fee and rebate schedule in
order to attract professional liquidity providers is, and has been,
commonly practiced in the options markets, and the Exchange.\20\ The
proposed fee and rebate schedule similarly attracts Customer order
flow.
---------------------------------------------------------------------------
\20\ See Exchanges Fee Schedule, available at: https://www.bats.com/us/options/membership/fee_schedule/edgx/; see also,
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule, Nasdaq
Options Market (``NOM'') Fee Schedule.
---------------------------------------------------------------------------
The proposed fee and rebate schedule is reasonably designed because
it is within the range of fees and rebates assessed by other exchanges
employing similar fee structures for price improvement mechanisms.\21\
Other competing exchanges offer different fees and rebates for agency
orders, contra-side orders, and responder orders to the auction in a
manner similar to the proposal.\22\ Other competing exchanges also
charge different rates for transactions in their price improvement
mechanisms for customers versus their non-customers in a manner similar
to the proposal.\23\ As proposed, all applicable fees and rebates are
within the range of fees and rebates for executions in price
improvement mechanisms assessed by other exchanges that are currently
employing similar fee structures for price improvement mechanisms.
---------------------------------------------------------------------------
\21\ See MIAX Fee Schedule; and Securities Exchange Act Release
No. 72943 (August 28, 2014), 80 [sic] FR 52785 (September 4, 2014)
(SR-MIAX-2015-45 [sic]) (notice of filing and immediate
effectiveness regarding MIAX PRIME). See also, e.g., NYSE Amex
Options Fee Schedule and BX Options Fee Schedule.
\22\ Id.
\23\ Id.
---------------------------------------------------------------------------
The fee and rebate schedule as proposed continues to reflect
differentiation among different market participants typically found in
options fee and rebate schedules.\24\ The Exchange believes that the
differentiation is reasonable and notes that unlike others (e.g.,
Customers) some market participants like EDGX Options Market Makers
commit to various obligations. For example, transactions of an EDGX
Options Market Maker must constitute a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, and Market Makers should not make bids or offers or enter into
transactions that are inconsistent with such course of dealings.\25\
Further, all Market Makers are designated as specialists on EDGX
Options for all purposes under the Act or rules thereunder.\26\ For BAM
Agency Orders, establishing a rebate for Customer orders and a fee for
Non-Customer Orders is equitable and not unfairly discriminatory. This
is because the Exchange's proposal to provide rebates and assess fees
will apply the same to all similarly situated participants. Moreover,
all similarly situated BAM Agency Orders are subject to the same
proposed fee schedule, and access to the Exchange is offered on terms
that are not unfairly discriminatory. In addition, the proposed fee for
BAM Agency Orders is equitable and not unfairly discriminatory because,
while other market participants (Non-Customers) will be assessed a fee,
Customers will receive a rebate because an increase in Customer order
flow will bring greater volume and liquidity, which benefits all market
participants by providing more trading opportunities and tighter
spreads.
---------------------------------------------------------------------------
\24\ See Exchange's Fee Schedule, available at: https://www.bats.com/us/options/membership/fee_schedule/edgx/; see also,
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule, BX Options
Fee Schedule and NOM Fee Schedule.
\25\ See Exchange Rule 22.5, entitled ``Obligations of Market
Makers''.
\26\ See Exchange Rule 22.2, entitled ``Options Market Maker
Registration and Appointment''.
---------------------------------------------------------------------------
Customer-to-Customer Immediate Cross
With respect to the Customer-to-Customer Immediate Cross,
establishing no Customer fee or rebate for either side of the
transaction, is also reasonable, equitably allocated and not
unreasonably discriminatory because it still encourages the entry of
Customer orders to the Exchange while treating, from the Exchange's
perspective, each side of the order neutrally rather than providing one
Customer a rebate but charging another Customer a fee.
BAM Responder Orders and Other Unrelated Orders
For BAM Responder Orders, establishing that there will be a $0.50
fee per contract for orders in Penny Pilot Securities and a $1.05 fee
per contract for orders in Non-Penny Pilot Securities, is reasonable
because the associated revenue will allow the Exchange to maintain and
enhance its services. The proposed fee and rebate schedule is also
reasonably designed because it is within the range of fees and rebates
assessed by other exchanges employing similar fee structures for price
improvement mechanisms.\27\ Other competing exchanges offer different
fees and rebates for agency orders, contra-side order, and responders
to the auction in a manner similar to the proposal.\28\
---------------------------------------------------------------------------
\27\ See NYSE Amex Options Fee Schedule; see also, e.g., MIAX
Fee Schedule and BX Options Fee Schedule.
\28\ Id.
---------------------------------------------------------------------------
For BAM Responder Orders, establishing a fee for such orders is
equitable and not unfairly
[[Page 4945]]
discriminatory. This is because the Exchange's proposal to assess such
fee will apply the same to all participants and will vary only based on
whether the security is a Penny Pilot Security or a Non-Penny Pilot
Security. Moreover, all BAM Responder Orders are subject to the same
proposed fee schedule, and access to the Exchange is offered on terms
that are not unfairly discriminatory.
The Exchange further believes its proposal represents a reasonable
and equitable allocation of dues and fees in that the proposal would
treat an unrelated order as well as a BAM Agency Order that executes
against such order differently depending on whether the unrelated order
was already resting on the Exchange's order book at the time the BAM
Agency Order was received or was received after the BAM Auction had
begun.
As proposed, an unrelated order would be considered a BAM Responder
Order if received after the BAM Auction had commenced. As a result,
both the BAM Agency Order executing against such order and such order
itself would be assessed fees and provided rebates according to the
proposed BAM pricing. The Exchange believes this is a reasonable and
equitable allocation of dues and fees, and is not unreasonably
discriminatory, because it ensures that market participants are treated
similarly with respect to their executions against BAM Agency Orders.
To do otherwise, to the extent fees are higher pursuant to BAM pricing
than under the Exchange's Standard Fee Rates, would incentivize a
market participant that wishes to participate in an Auction to
nonetheless avoid sending orders to the Exchange that are not targeted
towards the Auction and instead send orders to the Exchange's order
book generally, knowing that such orders would be considered in the
Auction anyway.
In contrast, as proposed, to the extent an unrelated order was
already present on the Exchange's order book when a BAM Agency Order is
received, such unrelated order, if executed in an Auction, as well as
the BAM Agency Order against which it trades will be charged a fee or
provided a rebate as if the transaction occurred on the Exchange's
order book pursuant to the Exchange's normal order handling methodology
and not in BAM. The Exchange similarly believes this is a reasonable
and equitable allocation of dues and fees, and is not unreasonably
discriminatory, because it will ensure that the participant that had
established position on the Exchange's order book first, the unrelated
order, is not impacted with respect to applicable fees or rebates
despite the later arrival of a BAM Agency Order that commences an
Auction.
BAM Break-Up Credits
With respect to the proposal to adopt BAM Break-Up Credits, the
Exchange believes this is reasonable because it encourages use of BAM
by offering pricing that is equivalent to pricing provided pursuant to
other price improvement auctions offered by other options exchanges.
The proposal to offer BAM Break-Up Credits is reasonably designed
because it is within the range of fees and rebates assessed by other
exchanges employing similar fee structures for price improvement
mechanisms.\29\ Further, the proposed BAM Break-Up Credits are
reasonable and equitably allocated because such credits are different
based on whether the Auction is for a Penny Pilot Security or a Non-
Penny Pilot Security, which is the same differentiation applicable to
BAM Responder Orders. Thus, the Exchange has based the amount of the
Break-Up Credit, in part, on the amount of the fee it will receive with
respect to each BAM Responder Order. Finally, the proposed BAM Break-Up
Credits are not unreasonably discriminatory because such credits are
equally available to all Members submitting BAM Agency Orders to the
Exchange.
---------------------------------------------------------------------------
\29\ See MIAX Fee Schedule; and Securities Exchange Act Release
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee
Schedule and NASDAQ BX Options Fee Schedule.
---------------------------------------------------------------------------
Tiers
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 adoption of Customer
Volume Tier 6 and Market Maker Volume Tier 8, are each intended to
incentivize Members to send additional Customer and Market Maker orders
to the Exchange as well as to participate in the Exchange's new BAM
process in an effort to qualify for the enhanced rebate or lower fee
made available by the tiers.
The Exchange believes that the proposed tiers 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. Further,
BAM is fully available to all Members, and the proposed threshold is
intentionally low to encourage Members to do the development work
necessary to participate in BAM and send BAM Agency Orders.
Designated Give Up
In connection with the adoption of fees applicable to BAM, the
Exchange proposes to add new fee code BC to the lead-in sentence of
footnote 5 and to append footnote 5 to fee code BC in the Fee Codes and
Associated Fees table of the Fee Schedule. In addition, the Exchange
proposes to include reference to Routing Firms (i.e., a Member who
routed an order to the Exchange with a Designated Give up) in the
proposed BAM Break-Up Credit section of footnote 6, to make clear that
a Routing Firm too will be provided any applicable BAM Break-Up
Credits. The Exchange believes this proposal is a reasonable and
equitable allocation of fees and dues and is not unreasonably
discriminatory because, as is currently the case pursuant to footnote
5, the proposal simply will make clear that a firm acting as a Routing
Firm that routes BAM Agency Orders to the Exchange will be provided
applicable rebates, including any BAM Break-Up Credits, based on the
Routing Firm's decision to route the order to the Exchange.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rebate would not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rebate represents a significant departure from
previous pricing offered by the Exchange or pricing offered by the
Exchange's competitors. Rather, the Exchange believes the proposal will
enhance competition as it is a competitive proposal that seeks to
further the growth of the Exchange by encouraging Members to enter BAM
Agency Orders, orders in response to BAM Agency Orders, and orders to
the Exchange generally.
The Exchange's proposal to adopt BAM was a competitive response to
similar price improvement auctions operated by other options exchanges.
[[Page 4946]]
The Exchange believes this proposed rule change is necessary to permit
fair competition among the options exchanges. The Exchange anticipates
that BAM will create new opportunities for EDGX to attract new business
and compete on equal footing with those options exchanges with
auctions. While the proposed fees and rebates are intentionally
aggressive in order to attract participation on the Exchange,
particularly in BAM, the Exchange does not believe that its proposed
pricing significantly departs from pricing in place on other options
exchanges that operate price improvement auctions. Accordingly, the
Exchange does not believe that the proposal creates an undue burden on
inter-market competition.
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange does
not believe that its proposal to establish fees and rebates for BAM
will impose any burden on competition, as discussed below.
The Exchange operates in a highly competitive market in which many
sophisticated and knowledgeable market participants can readily and do
send order flow to competing exchanges if they deem fee levels or
rebate incentives at a particular exchange to be excessive or
inadequate. Additionally, new competitors have entered the market and
still others are reportedly entering the market shortly. These market
forces ensure that the Exchange's fees and rebates remain competitive
with the fee structures at other trading platforms. In that sense, the
Exchange's proposal is actually pro-competitive because the Exchange is
simply establishing rebates and fees in order to remain competitive in
the current environment.
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
In this instance, the proposed charges assessed and credits
available to member firms in respect of BAM do not impose a burden on
competition because the Exchange's execution and routing services are
completely voluntary and subject to extensive competition. If the
changes proposed herein are unattractive to market participants, it is
likely that the Exchange will lose market share as a result and/or will
be unable to attract participants to BAM. Accordingly, the Exchange
does not believe that the proposed changes will impair the ability of
members or competing order execution venues to maintain their
competitive standing in the financial markets. Additionally, the
changes proposed herein are pro-competitive to the extent that they
allow the Exchange to promote and maintain BAM, which has the potential
to result in more efficient, price improved executions to the benefit
of market participants.
The Exchange believes that the proposed change would increase both
inter-market and intra-market competition by incentivizing members to
direct their orders, and particularly Customer orders, to the Exchange,
which benefits all market participants by providing more trading
opportunities, which attracts market makers. To the extent that there
is a differentiation between proposed fees assessed and rebates offered
to Customers as opposed to other market participants, the Exchange
believes that this is appropriate because the fees and rebates should
incentivize members to direct additional order flow to the Exchange and
thus provide additional liquidity that enhances the quality of its
markets and increases the volume of contracts traded on the Exchange.
To the extent that this purpose is achieved, all the Exchange's
market participants should benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange. The Exchange notes that it operates in a highly competitive
market in which market participants can readily favor competing venues
if they deem fee levels at a particular venue to be excessive.
The Exchange believes that the proposed fees and rebates for
participation in the BAM Auction are not going to have an impact on
intra-market competition based on the total cost for participants to
transact as respondents to the Auction as compared to the cost for
participants to engage in non-Auction electronic transactions on the
Exchange.
As noted above, the Exchange believes that the proposed pricing for
the BAM Auction is comparable to that of other exchanges offering
similar electronic price improvement mechanisms, and the Exchange
believes that, based on general industry experience, market
participants understand that the price-improving benefits offered by an
Auction justify and offset the transaction costs associated with such
Auction. To the extent that there is a difference between non-BAM
transactions and BAM transactions, the Exchange does not believe this
difference will cause participants to refrain from responding to BAM or
submitting orders to the Exchange when a BAM Auction is underway.
In addition, the Exchange does not believe that the proposed
transaction fees and credits burden competition by creating a disparity
of transaction fees between the BAM Contra Order and the transaction
fees a Responder pays would result in certain participants being unable
to compete with the contra side order.
The Exchange expects to see robust competition within the BAM
Auction. As discussed, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and to attract
order flow to the Exchange. The Exchange believes that the proposed
rule change reflects this competitive environment because it
establishes a fee structure in a manner that encourages market
participants to direct their order flow, to provide liquidity, and to
attract additional transaction volume to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
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.
[[Page 4947]]
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 \30\ and paragraph (f) of Rule 19b-4
thereunder.\31\ 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.
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f).
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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-2017-01 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-BatsEDGX-2017-01. 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 such 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-BatsEDGX-2017-01, and should
be submitted on or before February 7, 2017.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00782 Filed 1-13-17; 8:45 am]
BILLING CODE 8011-01-P
