Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Fees for Its Recently Adopted Functionality for the Handling of Complex Orders on Its Equity Options Platform, 54443-54448 [2017-24929]
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
reasonable dues, fees, and other charges
as the Exchange believes that the
increased fees obtained will enable it to
cover its increased infrastructure costs
associated with establishing physical
ports to connect to the Exchange’s
Systems. The additional revenue from
the increased fee will also enable the
Exchange to continue to maintain and
improve its market technology and
services.
Lastly, the Exchange believes the fees
and credits remain competitive with
those charged by other venues and
therefore continue to be reasonable and
equitably allocated to Members. For
instance, the proposed fees for a 10
gigabyte circuit of $7,000 per month is
less than analogous fees charged by the
Nasdaq Stock Market LLC (‘‘Nasdaq’’)
and NYSE Arca, Inc. (‘‘Arca’’), which
range from $10,000–$15,000 per month
for 10 gigabyte circuits.10
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. As discussed
above, the Exchange believes that fees
for connectivity are constrained by the
robust competition for order flow among
exchanges and non-exchange markets.
The Exchange does not believe that the
proposed changes represent a significant
departure from previous pricing offered
by the Exchange or pricing offered by
the Exchange’s competitors.
Additionally, Members may opt to
disfavor the Exchange’s pricing if they
believe that alternatives offer them
better value. Further, excessive fees for
connectivity would serve to impair an
exchange’s ability to compete for order
flow rather than burdening competition.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
sradovich on DSK3GMQ082PROD with NOTICES
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
10 See
Nasdaq Rule 7034(b) and the NYSE Arca
fee schedule available at https://www.nyse.com/
publicdocs/nyse/markets/nyse-arca/NYSE_Arca_
Marketplace_Fees.pdf (dated October 11, 2017).
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18:32 Nov 16, 2017
Jkt 244001
of the Act 11 and paragraph (f) of Rule
19b–4 thereunder.12 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
BatsEDGX–2017–46 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR–BatsEDGX–2017–46. 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 will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
11 15
12 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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54443
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File No.
SR–BatsEDGX–2017–46 and should be
submitted on or before December 8,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–24936 Filed 11–16–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82057; File No. SR–
BatsEDGX–2017–48]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Adopt Fees
for Its Recently Adopted Functionality
for the Handling of Complex Orders on
Its Equity Options Platform
November 13, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
31, 2017, Cboe EDGX Exchange, Inc.
(formerly known as 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
Exchange has designated the proposed
rule change as one establishing or
changing a member due, fee, or other
charge imposed by the Exchange under
Section 19(b)(3)(A)(ii) of the Act 3 and
Rule 19b–4(f)(2) thereunder,4 which
renders the proposed rule change
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend the fee schedule applicable to
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
Members 5 and non-Members of the
Exchange pursuant to EDGX Rules
15.1(a) and (c).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.markets.cboe.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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The Exchange proposes to modify the
Fee Schedule applicable to the
Exchange’s equity options platform
(‘‘EDGX Options’’) to adopt fees for its
recently adopted functionality for the
handling of complex orders on EDGX
Options.6
The Exchange proposes to adopt
twelve new fee codes in connection
with this new complex order
functionality, which would be added to
the Fee Codes and Associated Fees table
of the Fee Schedule. These fee codes
represent the fees applicable to complex
orders, as described below. In addition,
the Exchange proposes to adopt new
footnote 8, which would again
summarize complex order fees and
rebates in a table form and would
provide additional details regarding the
applicability of such fees and rebates. In
particular, the proposed tables for
footnote 8 highlight that the proposed
fees and rebates for complex orders vary
depending on the contra-party for each
transaction. Finally, the Exchange
proposes a change to the Marketing Fees
section of the Fee Schedule in
connection with this proposal.
5 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
6 See Securities Exchange Act Release No. 81891
(October 17, 2017) (SR–BatsEDGX–2017–29) (order
approving rules for EDGX complex order book).
18:32 Nov 16, 2017
Jkt 244001
Other Non-Customer Pricing—Customer
as Contra-Party
The Exchange proposes to adopt three
fee codes for Customer 7 complex orders
that trade on the EDGX Options
complex order book (‘‘COB’’), fee codes
ZA, ZB, and ZC. As proposed, the
Exchange would apply fee code ZA to
Customer complex orders that are
executed on the COB with a nonCustomer 8 as the contra-party in Penny
Pilot Securities 9 and would provide
such orders a rebate of $0.47 per
contract. The Exchange would apply fee
code ZB to Customer complex orders
that are executed on the COB with a
non-Customer as the contra-party in
Non-Penny Pilot Securities 10 and
would provide such orders a rebate of
$0.97 per contract. The Exchange would
apply fee code ZC to Customer complex
orders that are executed on the COB
with another Customer as the contraparty and would not assess a fee or
provide any rebate for such orders.
There is no proposed distinction
between pricing for such orders in
Penny Pilot Securities and Non-Penny
Pilot Securities.
Next, the Exchange proposes to adopt
two fee codes for non-Customer/nonMarket Maker complex orders that trade
on the COB against Customer orders, fee
codes ZT and ZR. The origin codes
included in the category of nonCustomer/non-Market Maker include:
Professional,12 Firm,13 Broker Dealer,14
Joint Back Office,15 and Away Market
Maker.16
As proposed, the Exchange would
apply fee code ZT to non-Customer/
non-Market Maker complex orders that
are executed on the COB with a
Customer as the contra-party in Penny
Pilot Securities and would charge such
orders a fee of $0.50 per contract. The
Exchange would apply fee code ZR to
non-Customer/non-Market Maker
complex orders that are executed on the
COB with a Customer as the contraparty in Non-Penny Pilot Securities and
would charge such orders a fee of $1.10
per contract. The Exchange notes that
while the pricing for non-Customer/
non-Market Maker orders executed on
the COB with Customer orders as
contra-party is the same as that
proposed for Market Maker orders
executed on the COB with Customer
orders as contra-party, the Exchange
believes it is necessary to create
different fee codes in order to maintain
the ability to later differentiate such
pricing, for instance to encourage
Market Maker participate on the COB.
Market Maker Pricing—Customer as
Contra-Party
1. Purpose
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Customer Pricing for Transactions on
Complex Order Book
The Exchange proposes to adopt two
fee codes for Market Maker 11 complex
orders that trade on the COB against
Customer orders, fee codes ZM and ZN.
As proposed, the Exchange would apply
fee code ZM to Market Maker complex
orders that are executed on the COB
with a Customer as the contra-party in
Penny Pilot Securities and would charge
such orders a fee of $0.50 per contract.
The Exchange would apply fee code ZN
to Market Maker complex orders that are
executed on the COB with a Customer
as the contra-party in Non-Penny Pilot
Securities and would charge such orders
a fee of $1.10 per contract.
7 ‘‘Customer’’ applies to any transaction identified
by a Member for clearing in the Customer range at
the OCC, excluding any transaction for a Broker
Dealer or a ‘‘Professional’’ as defined in Exchange
Rule 16.1. See the Exchange’s Fee Schedule
available at: https://markets.cboe.com/us/options/
membership/fee_schedule/edgx/.
8 ‘‘Non-Customer’’ applies to any transaction that
is not a Customer order. Id.
9 ‘‘Penny Pilot Securities’’ are those issues quoted
pursuant to Exchange Rule 21.5, Interpretation and
Policy .01. Id.
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 ‘‘Market Maker’’ applies to any transaction
identified by a Member for clearing in the Market
Maker range at the OCC, where such Member is
registered with the Exchange as a Market Maker as
defined in Rule 16.1(a)(37). See the Exchange’s Fee
Schedule available at: https://markets.cboe.com/us/
options/membership/fee_schedule/edgx/.
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
Non-Customer Pricing—Non-Customer
as Contra-Party
Finally, the Exchange proposes to
adopt four fee codes to cover all
transactions between non-Customers
(including Market Makers) on the COB,
fee codes ZF, ZG, ZH, and ZJ. In
contrast to the fee codes described
above, all of which involve a Customer
12 ‘‘Professional’’ applies to any transaction
identified by a Member as such pursuant to
Exchange Rule 16.1. Id.
13 ‘‘Firm’’ applies to any transaction identified by
a Member for clearing in the Firm range at the OCC,
excluding any Joint Back Office transaction. Id.
14 ‘‘Broker Dealer’’ applies to any order for the
account of a broker dealer, including a foreign
broker dealer, that clears in the Customer range at
the Options Clearing Corporation (‘‘OCC’’). Id.
15 ‘‘Joint Back Office’’ applies to any transaction
identified by a Member for clearing in the Firm
range at the OCC that is identified with an origin
code as Joint Back Office. A Joint Back Office
participant is a Member that maintains a Joint Back
Office arrangement with a clearing broker-dealer.
Id.
16 ‘‘Away Market Maker’’ applies to any
transaction identified by a Member for clearing in
the Market Maker range at the OCC, where such
Member is not registered with the Exchange as a
Market Maker, but is registered as a market maker
on another options exchange. Id.
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Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
on one side of the transaction occurring
on the COB, for non-Customer to nonCustomer transactions (including
transactions involving Market Makers),
the Exchange proposes to vary fees
depending on which party to the
transaction added liquidity and which
party to the transaction removed
liquidity. As proposed, the Exchange
would apply fee code ZF to nonCustomer complex orders executed on
the COB that add liquidity in Penny
Pilot Securities and do not have a
Customer contra-party, and would
charge such orders a fee of $0.10 per
contract. The Exchange would apply fee
code ZG to non-Customer complex
orders executed on the COB that remove
liquidity in Penny Pilot Securities and
do not have a Customer contra-party,
and would charge such orders a fee of
$0.47 per contract. The Exchange would
apply fee code ZH to non-Customer
complex orders executed on the COB
that add liquidity in Non-Penny Pilot
Securities and do not have a Customer
contra-party, and would charge such
orders a fee of $0.10 per contract. Last,
the Exchange would apply fee code ZJ
to non-Customer complex orders
executed on the COB that remove
liquidity in Non-Penny Pilot Securities
and do not have a Customer contraparty, and would charge such orders a
fee of $0.75 per contract.
sradovich on DSK3GMQ082PROD with NOTICES
Pricing for ‘‘Leg’’ Transactions
As described in Rule 21.20, in
addition to complex orders executing
against other complex orders on the
COB, complex orders will, in certain
circumstances instead ‘‘leg’’ into the
EDGX Options Simple Book 17 and
execute against interest resting on the
Simple Book. In addition to the pricing
proposed above, the Exchange proposes
to adopt fee code ZD, which would be
applicable to Customer complex orders
that are not executed on the COB but
instead leg into the Simple Book. The
Exchange does not propose to assess a
fee or provide any rebate for such
orders. The Exchange notes that a
Customer order on the Simple Book is
currently provided a standard rebate of
$0.05 per contract, subject to pricing
incentives that may result in higher
rebates.
Other than the proposed fee code
specific to Customer complex orders
that leg into the Simple Book, fee code
ZD, as described above, the Exchange
does not propose to adopt any specific
pricing for complex orders that leg into
17 As defined in Rule 21.20, the Simple Book is
the Exchange’s regular electronic book of orders.
The Exchange notes that it proposes to include this
definition in proposed footnote 8 for clarity.
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18:32 Nov 16, 2017
Jkt 244001
the Simple Book. Instead, the Exchange
proposes to apply standard pricing
applicable to transactions on the Simple
Book for complex orders that leg into
the Simple Book. For instance, the
Exchange currently applies fee code PT
to Market Maker orders that remove
liquidity from EDGX Options in Penny
Pilot Securities and charges a standard
fee of $0.19 per contract for such orders,
subject to tiered pricing incentives
offered by the Exchange as described in
footnote 3 of the Fee Schedule. The
Exchange proposes to apply fee code PT
to Market Maker complex orders that leg
into the Simple Book and remove
liquidity and does not propose to
change the pricing with respect to fee
code PT. Accordingly, the Exchange
proposes to state in proposed footnote 8
that with the exception of fee code ZD,
standard fee codes shall apply for orders
that leg into the Simple Book.
Other Changes
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 8 to again summarize
fees and rebates for complex orders in
a table form that is organized differently
in order to provide clarity to market
participants. Footnote 8 would be
organized similar to existing footnotes
on the Fee Schedule and would first
make clear that the footnote is
applicable to the following twelve fee
codes: ZA, ZB, ZC, ZD, ZM, ZN, ZT, ZR,
ZF, ZG, ZH, and ZJ, and that the rates
provided in the tables apply to
executions on the Exchange’s complex
order book. The footnote would then restate the fees applicable to complex
orders, including the statement
described above that other than fee code
ZD, standard fee codes shall apply for
orders that leg into the Simple Book as
well as the proposed inclusion of the
definition of the term ‘‘Simple Book’’
from Rule 21.20.
The first proposed table would
represent fees for an order that interacts
with a Customer order with three rows
for each origin code or set of origin
codes that yields a different fee code
when interacting with a Customer
Order: (i) Customer; (ii) Market Maker;
and (iii) Professional Customer (or
‘‘Pro’’), Firm, Broker Dealer (or ‘‘BD’’),
Joint Back Office (or ‘‘JBO’’), and Away
Market Maker. The table would then
have four columns, first a pair of
columns to provide the fee code and
rate for Penny Pilot Securities and
second a pair of columns to provide the
fee code and rate for Non-Penny Pilot
Securities.
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Frm 00130
Fmt 4703
Sfmt 4703
54445
The second proposed table would
represent fees for an order that interacts
with a Non-Customer order with three
rows for each origin code or set of origin
codes that yields a different fee code
when interacting with a Non-Customer
Order, with the additional detail that for
the two Non-Customer groupings the
distinction is between an order that
adds liquidity and an order that
removes liquidity. Thus, the table
would have the following rows: (i)
Customer; (ii) Non-Customer Add; and
(iii) Non-Customer Remove. The table
would then again have four columns,
first a pair of columns to provide the fee
code and rate for Penny Pilot Securities
and second a pair of columns to provide
the fee code and rate for Non-Penny
Pilot Securities.
The fee codes and rates included in
each table of proposed footnote 8 are the
same as proposed and described above
but the Exchange believes that
presenting them in a table format will
assist market participants in
understanding the rates applicable to
executions on the COB.
Marketing Fees
The Fee Schedule currently contains
a section entitled ‘‘Marketing Fees’’ that
specifies that marketing fees are charged
to all Market Makers who are
counterparties to a trade with a
Customer. In connection with the
adoption of fees applicable to complex
orders, the Exchange proposes to specify
that marketing fees shall not apply to
executions of complex orders on the
COB.
Implementation Date
The Exchange proposes to implement
the proposed changes immediately.18
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.19
Specifically, the Exchange believes that
the proposed rule change is consistent
with Section 6(b)(4) of the Act,20 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
18 The Exchange initially filed the proposed rule
changes on October 23, 2017 (SR–BatsEDGX–2017–
42). On October 31, 2017 the Exchange withdrew
SR–BatsEDGX–2017–42 and then subsequently
submitted this filing (SR–BatsEDGX–2017–48).
19 15 U.S.C. 78f.
20 15 U.S.C. 78f(b)(4).
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which the Exchange operates or
controls.
The Exchange’s proposal establishes
fees and rebates regarding complex
orders, which is new functionality
adopted by the Exchange.21 The
Exchange’s launch of a complex order
book is a competitive offering, and
believes that its proposed pricing will
allow the Exchange to recoup the costs
associated with developing the COB
while also incentivizing its use.
In sum, the Exchange believes that the
proposed fee and rebate structure is
designed to promote the entry of
complex orders to the Exchange 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
complex order transactions is
reasonable, equitable, and not unfairly
discriminatory because these types of
market participants are more
sophisticated and have higher levels of
order flow activity and system usage.
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 the
COB, which is beneficial to market
participants.
With respect to the proposal to adopt
a rebate for Customer orders that
interact with non-Customer orders on
the COB, the Exchange believes this is
reasonable because it encourages
participation on the COB by entry of
Customer orders to the Exchange. The
rebate for Customer complex orders is
designed to encourage Customer orders
entered into the Exchange, which is
reasonable for the reasons further
discussed below. The proposed fees for
Market Maker orders and other nonCustomer complex orders that trade
with Customer orders are also
reasonable because the associated
revenue will allow the Exchange to
promote and maintain the COB, and
continue to enhance its services.
Providing Customers a rebate for
complex orders, while assessing NonCustomers a fee for complex orders, is
21 See
supra, note 6.
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18:32 Nov 16, 2017
Jkt 244001
reasonable because of the desirability of
Customer activity. The proposed new
fees and rebates for complex orders 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.22 The proposed fee and
rebate schedule similarly attracts
Customer order flow. Other competing
exchanges offer different fees and
rebates for orders executed on behalf of
different market participants (i.e., orders
with different origin codes).23 Other
competing exchanges also charge
different rates for transactions on their
complex order books for customers
versus their non-customers in a manner
similar to the proposal, including the
provision of rebates to customers.24
The fee and rebate schedule as
proposed continues to reflect
differentiation among different market
participants typically found in options
fee and rebate schedules.25 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.26 Further, all
Market Makers are designated as
specialists on EDGX Options for all
22 See the Exchange’s Fee Schedule, available at:
https://markets.cboe.com/us/options/membership/
fee_schedule/edgx/; see also, e.g., MIAX Fee
Schedule, NYSE Amex Options Fee Schedule.
23 Id.
24 Id.
25 Id; see also, e.g., MIAX Fee Schedule, NYSE
Amex Options Fee Schedule, BX Options Fee
Schedule and Nasdaq Options Market Fee
Schedule.
26 See Exchange Rule 22.5, entitled ‘‘Obligations
of Market Makers’’.
PO 00000
Frm 00131
Fmt 4703
Sfmt 4703
purposes under the Act or rules
thereunder.27
Establishing a rebate for Customer
orders and a fee for Non-Customer
Orders is also 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 complex
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 complex 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.
Similarly, the Exchange believes that
fees include different rates for Penny
Pilot Securities and Non-Penny Pilot
Securities is well-established in the
options industry, including on the
Exchange’s current fee schedule.28 The
Exchange believes it is reasonable,
equitably allocated and nondiscriminatory to impose higher fees
and provide higher rebates in NonPenny Pilot Securities than Penny Pilot
Securities because Penny Pilot
Securities and Non-Penny Pilot
Securities have different liquidity,
spread and trading characteristics. In
particular, spreads in Penny Pilot
Securities are tighter than those in NonPenny Pilot Securities (which trade in
increments of $0.05 or greater). The
wider spreads in Non-Penny Pilot
Securities allow for greater profit
potential.
With respect to the fees applicable to
non-Customer complex orders, the
Exchange believes the proposed fees are
reasonable and equitably allocated as
they are similar to fees charged on the
Exchange for certain other orders
executed, such as orders executed
through the Bats Auction Mechanism
(‘‘BAM’’), and on other options
exchanges, and because the associated
revenue will allow the Exchange to
maintain and enhance its services. The
proposed fees are not unreasonably
discriminatory as compared to Customer
orders for the reasons described above,
`
and vis-a-vis other non-Customers
27 See Exchange Rule 22.2, entitled ‘‘Options
Market Maker Registration and Appointment’’.
28 See the Exchange’s Fee Schedule, available at:
https://markets.cboe.com/us/options/membership/
fee_schedule/edgx/; see also, e.g., MIAX Fee
Schedule, NYSE Amex Options Fee Schedule.
E:\FR\FM\17NON1.SGM
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sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
because all types of non-Customers will
be charged identical fees as proposed.
The Exchange also believes the
proposed fees are reasonable, equitably
allocated and not unreasonably
discriminatory despite a proposed
distinction between fees for nonCustomer complex orders that add
liquidity and those that remove
liquidity. The Exchange currently
applies this distinction to Market Maker
orders on the Simple Book, and this
pricing structure, the ‘‘make-take’’
pricing structure, is common on other
options exchanges as well.29 The maketake pricing structure is designed to
incentivize market participants to
provide liquidity on an exchange, and
such liquidity in turn, benefits all
market participants. Thus, the proposal
to charge a higher rate to Non-Customer
orders that remove liquidity than those
that add liquidity is reasonable,
equitably allocated and not
unreasonably discriminatory despite a
proposed distinction between orders
that add liquidity and those that remove
liquidity.
With respect to the Customer against
Customer transactions, 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.
Similarly, providing that Customer
orders that leg into the Simple Book will
be executed without application of any
fee and rebate is reasonable, equitably
allocated, and not unreasonably
discriminatory because it provides fee
certainty to Customer orders, as such
orders are guaranteed to either pay no
fee or to receive a rebate, again
encouraging the entry of Customer
orders to the Exchange.
In connection with the adoption of
fees applicable to complex orders, the
Exchange proposes to modify the
description of Marketing Fees
applicable on the Exchange to make
clear that such fees do not apply to
complex orders. The Exchange believes
this proposal is a reasonable and
equitable allocation of fees and dues
and is not unreasonably discriminatory
because the proposed initial rates for
Market Makers on the complex order
book are designed to be consistent with
29 See the Exchange’s Fee Schedule, available at:
https://markets.cboe.com/us/options/membership/
fee_schedule/edgx/; see also, e.g., MIAX Fee
Schedule, BX Options Fee Schedule and Nasdaq
Options Market Fee Schedule.
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18:32 Nov 16, 2017
Jkt 244001
pricing with other non-Customers and
adding an additional marketing fee to
Market Maker transactions would
instead increase such rates to a level
higher than that paid by other nonCustomers.
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 pricing for
complex orders 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 complex
orders.
The Exchange’s proposal to adopt
complex order functionality was a
competitive response to complex order
books operated by other options
exchanges. The Exchange believes this
proposed rule change is necessary to
permit fair competition among the
options exchanges. The Exchange
anticipates that the COB will create new
opportunities for EDGX to attract new
business to the Exchange. While the
proposed fees and rebates are intended
to attract participation on the Exchange,
particularly complex orders, the
Exchange does not believe that its
proposed pricing significantly departs
from pricing in place on other options
exchanges that accept complex orders.
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
complex orders 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 consistently in recent years.
These market forces ensure that the
Exchange’s fees and rebates remain
competitive with the fee structures at
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
54447
other trading platforms. In that sense,
the Exchange’s proposal is actually procompetitive 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 complex
orders do not impose a burden on
competition because the Exchange’s
execution 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 the COB. 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 the COB,
which has the potential to result in
efficient 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
E:\FR\FM\17NON1.SGM
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54448
Federal Register / Vol. 82, No. 221 / Friday, November 17, 2017 / Notices
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.
As noted above, while the Exchange
has proposed to establish different fee
codes for Market Maker complex orders
that interact with Customer orders on
the COB and other non-Customer
complex orders that interact with
Customer orders on the COB, the
Exchange has not proposed to
differentiate the pricing applicable to
these fee codes at this time.
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.
sradovich on DSK3GMQ082PROD with 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:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–82055; File No. SR–OCC–
2017–805]
• 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–2017–48 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BatsEDGX–2017–48. 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BatsEDGX–2017–48, and
should be submitted on or before
December 8, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–24929 Filed 11–16–17; 8:45 am]
BILLING CODE 8011–01–P
30 15
U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
18:32 Nov 16, 2017
32 17
Jkt 244001
PO 00000
CFR 200.30–3(a)(12).
Frm 00133
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Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Advance Notice
Concerning the Use of the Society of
Worldwide Interbank Financial
Telecommunication Messaging
Network in OCC’s Cash Settlement
Process
November 13, 2017.
Pursuant to Section 806(e)(1) of Title
VIII of the Dodd–Frank Wall Street
Reform and Consumer Protection Act,
entitled Payment, Clearing and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) of the Securities Exchange
Act of 1934 (‘‘Act’’),2 notice is hereby
given that on October 10, 2017, The
Options Clearing Corporation (‘‘OCC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) an
advance notice as well as a proposed
cash settlement agreement procedures
agreement (‘‘CSPA’’) template as
described in Items I and II below, which
Items have been prepared by OCC. The
Commission is publishing this notice to
solicit comments on the advance notice
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
In accordance with Section 806(e)(1)
of the Clearing Supervision Act 3 and
Rule 19b–4(n)(1)(i) 4 of the Act,5 this
advance notice is filed by OCC in
connection with proposed changes to
improve OCC’s cash settlement process
by implementing Society of Worldwide
Interbank Financial Telecommunication
(‘‘SWIFT’’) messaging as the primary
means of transmitting daily cash
settlement instructions between OCC
and its Clearing Banks.6 The proposed
change is designed to: (1) Increase the
efficiency, accuracy, and resiliency of
OCC’s cash settlement process, (2)
eliminate certain risks associated with
the current use of OCC’s proprietary
online cash settlement system within
the ENCORE clearing system (‘‘OCS’’),
and (3) adopt communication
procedures and standards that are
internationally accepted and therefore
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 12 U.S.C. 5465(e)(1).
4 17 CFR 240.19b–4(n)(1)(i).
5 15 U.S.C. 78a et seq.
6 See OCC Rule 101.C.(1) (defining the term
‘‘Clearing Bank’’).
2 17
E:\FR\FM\17NON1.SGM
17NON1
]]>Agencies
[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54443-54448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24929]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82057; File No. SR-BatsEDGX-2017-48]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt Fees for Its Recently Adopted Functionality for the Handling of
Complex Orders on Its Equity Options Platform
November 13, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 31, 2017, Cboe EDGX Exchange, Inc. (formerly known as
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 Exchange has designated the proposed
rule change as one establishing or changing a member due, fee, or other
charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act
\3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposed rule
change effective upon filing with the Commission. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend the fee schedule applicable
to
[[Page 54444]]
Members \5\ and non-Members of the Exchange pursuant to EDGX Rules
15.1(a) and (c).
---------------------------------------------------------------------------
\5\ The term ``Member'' is defined as ``any registered broker or
dealer that has been admitted to membership in the Exchange.'' See
Exchange Rule 1.5(n).
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
Web site at www.markets.cboe.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify the Fee Schedule applicable to the
Exchange's equity options platform (``EDGX Options'') to adopt fees for
its recently adopted functionality for the handling of complex orders
on EDGX Options.\6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 81891 (October 17,
2017) (SR-BatsEDGX-2017-29) (order approving rules for EDGX complex
order book).
---------------------------------------------------------------------------
The Exchange proposes to adopt twelve new fee codes in connection
with this new complex order functionality, which would be added to the
Fee Codes and Associated Fees table of the Fee Schedule. These fee
codes represent the fees applicable to complex orders, as described
below. In addition, the Exchange proposes to adopt new footnote 8,
which would again summarize complex order fees and rebates in a table
form and would provide additional details regarding the applicability
of such fees and rebates. In particular, the proposed tables for
footnote 8 highlight that the proposed fees and rebates for complex
orders vary depending on the contra-party for each transaction.
Finally, the Exchange proposes a change to the Marketing Fees section
of the Fee Schedule in connection with this proposal.
Customer Pricing for Transactions on Complex Order Book
The Exchange proposes to adopt three fee codes for Customer \7\
complex orders that trade on the EDGX Options complex order book
(``COB''), fee codes ZA, ZB, and ZC. As proposed, the Exchange would
apply fee code ZA to Customer complex orders that are executed on the
COB with a non-Customer \8\ as the contra-party in Penny Pilot
Securities \9\ and would provide such orders a rebate of $0.47 per
contract. The Exchange would apply fee code ZB to Customer complex
orders that are executed on the COB with a non-Customer as the contra-
party in Non-Penny Pilot Securities \10\ and would provide such orders
a rebate of $0.97 per contract. The Exchange would apply fee code ZC to
Customer complex orders that are executed on the COB with another
Customer as the contra-party and would not assess a fee or provide any
rebate for such orders. There is no proposed distinction between
pricing for such orders in Penny Pilot Securities and Non-Penny Pilot
Securities.
---------------------------------------------------------------------------
\7\ ``Customer'' applies to any transaction identified by a
Member for clearing in the Customer range at the OCC, excluding any
transaction for a Broker Dealer or a ``Professional'' as defined in
Exchange Rule 16.1. See the Exchange's Fee Schedule available at:
https://markets.cboe.com/us/options/membership/fee_schedule/edgx/.
\8\ ``Non-Customer'' applies to any transaction that is not a
Customer order. Id.
\9\ ``Penny Pilot Securities'' are those issues quoted pursuant
to Exchange Rule 21.5, Interpretation and Policy .01. Id.
\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.
---------------------------------------------------------------------------
Market Maker Pricing--Customer as Contra-Party
The Exchange proposes to adopt two fee codes for Market Maker \11\
complex orders that trade on the COB against Customer orders, fee codes
ZM and ZN. As proposed, the Exchange would apply fee code ZM to Market
Maker complex orders that are executed on the COB with a Customer as
the contra-party in Penny Pilot Securities and would charge such orders
a fee of $0.50 per contract. The Exchange would apply fee code ZN to
Market Maker complex orders that are executed on the COB with a
Customer as the contra-party in Non-Penny Pilot Securities and would
charge such orders a fee of $1.10 per contract.
---------------------------------------------------------------------------
\11\ ``Market Maker'' applies to any transaction identified by a
Member for clearing in the Market Maker range at the OCC, where such
Member is registered with the Exchange as a Market Maker as defined
in Rule 16.1(a)(37). See the Exchange's Fee Schedule available at:
https://markets.cboe.com/us/options/membership/fee_schedule/edgx/.
---------------------------------------------------------------------------
Other Non-Customer Pricing--Customer as Contra-Party
Next, the Exchange proposes to adopt two fee codes for non-
Customer/non-Market Maker complex orders that trade on the COB against
Customer orders, fee codes ZT and ZR. The origin codes included in the
category of non-Customer/non-Market Maker include: Professional,\12\
Firm,\13\ Broker Dealer,\14\ Joint Back Office,\15\ and Away Market
Maker.\16\
---------------------------------------------------------------------------
\12\ ``Professional'' applies to any transaction identified by a
Member as such pursuant to Exchange Rule 16.1. Id.
\13\ ``Firm'' applies to any transaction identified by a Member
for clearing in the Firm range at the OCC, excluding any Joint Back
Office transaction. Id.
\14\ ``Broker Dealer'' applies to any order for the account of a
broker dealer, including a foreign broker dealer, that clears in the
Customer range at the Options Clearing Corporation (``OCC''). Id.
\15\ ``Joint Back Office'' applies to any transaction identified
by a Member for clearing in the Firm range at the OCC that is
identified with an origin code as Joint Back Office. A Joint Back
Office participant is a Member that maintains a Joint Back Office
arrangement with a clearing broker-dealer. Id.
\16\ ``Away Market Maker'' applies to any transaction identified
by a Member for clearing in the Market Maker range at the OCC, where
such Member is not registered with the Exchange as a Market Maker,
but is registered as a market maker on another options exchange. Id.
---------------------------------------------------------------------------
As proposed, the Exchange would apply fee code ZT to non-Customer/
non-Market Maker complex orders that are executed on the COB with a
Customer as the contra-party in Penny Pilot Securities and would charge
such orders a fee of $0.50 per contract. The Exchange would apply fee
code ZR to non-Customer/non-Market Maker complex orders that are
executed on the COB with a Customer as the contra-party in Non-Penny
Pilot Securities and would charge such orders a fee of $1.10 per
contract. The Exchange notes that while the pricing for non-Customer/
non-Market Maker orders executed on the COB with Customer orders as
contra-party is the same as that proposed for Market Maker orders
executed on the COB with Customer orders as contra-party, the Exchange
believes it is necessary to create different fee codes in order to
maintain the ability to later differentiate such pricing, for instance
to encourage Market Maker participate on the COB.
Non-Customer Pricing--Non-Customer as Contra-Party
Finally, the Exchange proposes to adopt four fee codes to cover all
transactions between non-Customers (including Market Makers) on the
COB, fee codes ZF, ZG, ZH, and ZJ. In contrast to the fee codes
described above, all of which involve a Customer
[[Page 54445]]
on one side of the transaction occurring on the COB, for non-Customer
to non-Customer transactions (including transactions involving Market
Makers), the Exchange proposes to vary fees depending on which party to
the transaction added liquidity and which party to the transaction
removed liquidity. As proposed, the Exchange would apply fee code ZF to
non-Customer complex orders executed on the COB that add liquidity in
Penny Pilot Securities and do not have a Customer contra-party, and
would charge such orders a fee of $0.10 per contract. The Exchange
would apply fee code ZG to non-Customer complex orders executed on the
COB that remove liquidity in Penny Pilot Securities and do not have a
Customer contra-party, and would charge such orders a fee of $0.47 per
contract. The Exchange would apply fee code ZH to non-Customer complex
orders executed on the COB that add liquidity in Non-Penny Pilot
Securities and do not have a Customer contra-party, and would charge
such orders a fee of $0.10 per contract. Last, the Exchange would apply
fee code ZJ to non-Customer complex orders executed on the COB that
remove liquidity in Non-Penny Pilot Securities and do not have a
Customer contra-party, and would charge such orders a fee of $0.75 per
contract.
Pricing for ``Leg'' Transactions
As described in Rule 21.20, in addition to complex orders executing
against other complex orders on the COB, complex orders will, in
certain circumstances instead ``leg'' into the EDGX Options Simple Book
\17\ and execute against interest resting on the Simple Book. In
addition to the pricing proposed above, the Exchange proposes to adopt
fee code ZD, which would be applicable to Customer complex orders that
are not executed on the COB but instead leg into the Simple Book. The
Exchange does not propose to assess a fee or provide any rebate for
such orders. The Exchange notes that a Customer order on the Simple
Book is currently provided a standard rebate of $0.05 per contract,
subject to pricing incentives that may result in higher rebates.
---------------------------------------------------------------------------
\17\ As defined in Rule 21.20, the Simple Book is the Exchange's
regular electronic book of orders. The Exchange notes that it
proposes to include this definition in proposed footnote 8 for
clarity.
---------------------------------------------------------------------------
Other than the proposed fee code specific to Customer complex
orders that leg into the Simple Book, fee code ZD, as described above,
the Exchange does not propose to adopt any specific pricing for complex
orders that leg into the Simple Book. Instead, the Exchange proposes to
apply standard pricing applicable to transactions on the Simple Book
for complex orders that leg into the Simple Book. For instance, the
Exchange currently applies fee code PT to Market Maker orders that
remove liquidity from EDGX Options in Penny Pilot Securities and
charges a standard fee of $0.19 per contract for such orders, subject
to tiered pricing incentives offered by the Exchange as described in
footnote 3 of the Fee Schedule. The Exchange proposes to apply fee code
PT to Market Maker complex orders that leg into the Simple Book and
remove liquidity and does not propose to change the pricing with
respect to fee code PT. Accordingly, the Exchange proposes to state in
proposed footnote 8 that with the exception of fee code ZD, standard
fee codes shall apply for orders that leg into the Simple Book.
Other Changes
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 8 to again summarize fees and rebates for
complex orders in a table form that is organized differently in order
to provide clarity to market participants. Footnote 8 would be
organized similar to existing footnotes on the Fee Schedule and would
first make clear that the footnote is applicable to the following
twelve fee codes: ZA, ZB, ZC, ZD, ZM, ZN, ZT, ZR, ZF, ZG, ZH, and ZJ,
and that the rates provided in the tables apply to executions on the
Exchange's complex order book. The footnote would then re-state the
fees applicable to complex orders, including the statement described
above that other than fee code ZD, standard fee codes shall apply for
orders that leg into the Simple Book as well as the proposed inclusion
of the definition of the term ``Simple Book'' from Rule 21.20.
The first proposed table would represent fees for an order that
interacts with a Customer order with three rows for each origin code or
set of origin codes that yields a different fee code when interacting
with a Customer Order: (i) Customer; (ii) Market Maker; and (iii)
Professional Customer (or ``Pro''), Firm, Broker Dealer (or ``BD''),
Joint Back Office (or ``JBO''), and Away Market Maker. The table would
then have four columns, first a pair of columns to provide the fee code
and rate for Penny Pilot Securities and second a pair of columns to
provide the fee code and rate for Non-Penny Pilot Securities.
The second proposed table would represent fees for an order that
interacts with a Non-Customer order with three rows for each origin
code or set of origin codes that yields a different fee code when
interacting with a Non-Customer Order, with the additional detail that
for the two Non-Customer groupings the distinction is between an order
that adds liquidity and an order that removes liquidity. Thus, the
table would have the following rows: (i) Customer; (ii) Non-Customer
Add; and (iii) Non-Customer Remove. The table would then again have
four columns, first a pair of columns to provide the fee code and rate
for Penny Pilot Securities and second a pair of columns to provide the
fee code and rate for Non-Penny Pilot Securities.
The fee codes and rates included in each table of proposed footnote
8 are the same as proposed and described above but the Exchange
believes that presenting them in a table format will assist market
participants in understanding the rates applicable to executions on the
COB.
Marketing Fees
The Fee Schedule currently contains a section entitled ``Marketing
Fees'' that specifies that marketing fees are charged to all Market
Makers who are counterparties to a trade with a Customer. In connection
with the adoption of fees applicable to complex orders, the Exchange
proposes to specify that marketing fees shall not apply to executions
of complex orders on the COB.
Implementation Date
The Exchange proposes to implement the proposed changes
immediately.\18\
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\18\ The Exchange initially filed the proposed rule changes on
October 23, 2017 (SR-BatsEDGX-2017-42). On October 31, 2017 the
Exchange withdrew SR-BatsEDGX-2017-42 and then subsequently
submitted this filing (SR-BatsEDGX-2017-48).
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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.\19\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\20\ 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
[[Page 54446]]
which the Exchange operates or controls.
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\19\ 15 U.S.C. 78f.
\20\ 15 U.S.C. 78f(b)(4).
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The Exchange's proposal establishes fees and rebates regarding
complex orders, which is new functionality adopted by the Exchange.\21\
The Exchange's launch of a complex order book is a competitive
offering, and believes that its proposed pricing will allow the
Exchange to recoup the costs associated with developing the COB while
also incentivizing its use.
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\21\ See supra, note 6.
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In sum, the Exchange believes that the proposed fee and rebate
structure is designed to promote the entry of complex orders to the
Exchange 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 complex order
transactions is reasonable, equitable, and not unfairly discriminatory
because these types of market participants are more sophisticated and
have higher levels of order flow activity and system usage.
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 the COB, which is beneficial to market
participants.
With respect to the proposal to adopt a rebate for Customer orders
that interact with non-Customer orders on the COB, the Exchange
believes this is reasonable because it encourages participation on the
COB by entry of Customer orders to the Exchange. The rebate for
Customer complex orders is designed to encourage Customer orders
entered into the Exchange, which is reasonable for the reasons further
discussed below. The proposed fees for Market Maker orders and other
non-Customer complex orders that trade with Customer orders are also
reasonable because the associated revenue will allow the Exchange to
promote and maintain the COB, and continue to enhance its services.
Providing Customers a rebate for complex orders, while assessing
Non-Customers a fee for complex orders, is reasonable because of the
desirability of Customer activity. The proposed new fees and rebates
for complex orders 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.\22\ The
proposed fee and rebate schedule similarly attracts Customer order
flow. Other competing exchanges offer different fees and rebates for
orders executed on behalf of different market participants (i.e.,
orders with different origin codes).\23\ Other competing exchanges also
charge different rates for transactions on their complex order books
for customers versus their non-customers in a manner similar to the
proposal, including the provision of rebates to customers.\24\
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\22\ See the Exchange's Fee Schedule, available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/; see also,
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule.
\23\ Id.
\24\ Id.
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The fee and rebate schedule as proposed continues to reflect
differentiation among different market participants typically found in
options fee and rebate schedules.\25\ 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.\26\
Further, all Market Makers are designated as specialists on EDGX
Options for all purposes under the Act or rules thereunder.\27\
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\25\ Id; see also, e.g., MIAX Fee Schedule, NYSE Amex Options
Fee Schedule, BX Options Fee Schedule and Nasdaq Options Market Fee
Schedule.
\26\ See Exchange Rule 22.5, entitled ``Obligations of Market
Makers''.
\27\ See Exchange Rule 22.2, entitled ``Options Market Maker
Registration and Appointment''.
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Establishing a rebate for Customer orders and a fee for Non-
Customer Orders is also 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 complex 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 complex
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.
Similarly, the Exchange believes that fees include different rates
for Penny Pilot Securities and Non-Penny Pilot Securities is well-
established in the options industry, including on the Exchange's
current fee schedule.\28\ The Exchange believes it is reasonable,
equitably allocated and non-discriminatory to impose higher fees and
provide higher rebates in Non-Penny Pilot Securities than Penny Pilot
Securities because Penny Pilot Securities and Non-Penny Pilot
Securities have different liquidity, spread and trading
characteristics. In particular, spreads in Penny Pilot Securities are
tighter than those in Non-Penny Pilot Securities (which trade in
increments of $0.05 or greater). The wider spreads in Non-Penny Pilot
Securities allow for greater profit potential.
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\28\ See the Exchange's Fee Schedule, available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/; see also,
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule.
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With respect to the fees applicable to non-Customer complex orders,
the Exchange believes the proposed fees are reasonable and equitably
allocated as they are similar to fees charged on the Exchange for
certain other orders executed, such as orders executed through the Bats
Auction Mechanism (``BAM''), and on other options exchanges, and
because the associated revenue will allow the Exchange to maintain and
enhance its services. The proposed fees are not unreasonably
discriminatory as compared to Customer orders for the reasons described
above, and vis-[agrave]-vis other non-Customers
[[Page 54447]]
because all types of non-Customers will be charged identical fees as
proposed.
The Exchange also believes the proposed fees are reasonable,
equitably allocated and not unreasonably discriminatory despite a
proposed distinction between fees for non-Customer complex orders that
add liquidity and those that remove liquidity. The Exchange currently
applies this distinction to Market Maker orders on the Simple Book, and
this pricing structure, the ``make-take'' pricing structure, is common
on other options exchanges as well.\29\ The make-take pricing structure
is designed to incentivize market participants to provide liquidity on
an exchange, and such liquidity in turn, benefits all market
participants. Thus, the proposal to charge a higher rate to Non-
Customer orders that remove liquidity than those that add liquidity is
reasonable, equitably allocated and not unreasonably discriminatory
despite a proposed distinction between orders that add liquidity and
those that remove liquidity.
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\29\ See the Exchange's Fee Schedule, available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/; see also,
e.g., MIAX Fee Schedule, BX Options Fee Schedule and Nasdaq Options
Market Fee Schedule.
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With respect to the Customer against Customer transactions,
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. Similarly,
providing that Customer orders that leg into the Simple Book will be
executed without application of any fee and rebate is reasonable,
equitably allocated, and not unreasonably discriminatory because it
provides fee certainty to Customer orders, as such orders are
guaranteed to either pay no fee or to receive a rebate, again
encouraging the entry of Customer orders to the Exchange.
In connection with the adoption of fees applicable to complex
orders, the Exchange proposes to modify the description of Marketing
Fees applicable on the Exchange to make clear that such fees do not
apply to complex orders. The Exchange believes this proposal is a
reasonable and equitable allocation of fees and dues and is not
unreasonably discriminatory because the proposed initial rates for
Market Makers on the complex order book are designed to be consistent
with pricing with other non-Customers and adding an additional
marketing fee to Market Maker transactions would instead increase such
rates to a level higher than that paid by other non-Customers.
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 pricing for complex orders 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 complex orders.
The Exchange's proposal to adopt complex order functionality was a
competitive response to complex order books operated by other options
exchanges. The Exchange believes this proposed rule change is necessary
to permit fair competition among the options exchanges. The Exchange
anticipates that the COB will create new opportunities for EDGX to
attract new business to the Exchange. While the proposed fees and
rebates are intended to attract participation on the Exchange,
particularly complex orders, the Exchange does not believe that its
proposed pricing significantly departs from pricing in place on other
options exchanges that accept complex orders. 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 complex
orders 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
consistently in recent years. 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 complex orders do not impose a
burden on competition because the Exchange's execution 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 the COB. 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 the COB, which has the
potential to result in efficient 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
[[Page 54448]]
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.
As noted above, while the Exchange has proposed to establish
different fee codes for Market Maker complex orders that interact with
Customer orders on the COB and other non-Customer complex orders that
interact with Customer orders on the COB, the Exchange has not proposed
to differentiate the pricing applicable to these fee codes at this
time.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \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-2017-48 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BatsEDGX-2017-48. 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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-BatsEDGX-2017-48, and should
be submitted on or before December 8, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24929 Filed 11-16-17; 8:45 am]
BILLING CODE 8011-01-P
