81 FR 30580 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees as They Apply to the Equity Options Platform

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 95 (May 17, 2016)

[Federal Register Volume 81, Number 95 (Tuesday, May 17, 2016)]
[Notices]
[Pages 30580-30583]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-11543]



[[Page 30580]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77813; File No. SR-BatsEDGX-2016-15]


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

May 11, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 2, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to EDGX Rules 
15.1(a) and (c).
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its fee schedule for its equity 
options platform (``EDGX Options'') to: (1) Modify an existing tier and 
add a new tier to its existing tiered pricing structure; and (2) 
simplify the Exchange's routing fees, as further described below.
Tiered Pricing Changes
    The Exchange currently offers two pricing tiers under footnotes 1 
and 2 of the fee schedule, Customer Volume Tiers and Market Maker 
Volume Tiers, respectively. Under the tiers, Members that achieve 
certain volume criteria may qualify for reduced fees or enhanced 
rebates for Customer \6\ and Market Maker \7\ orders. The Exchange 
proposes to modify Customer Volume Tier 6 under footnote 1 and to add 
an additional Market Maker Volume Tier under footnote 2, as further 
described below.
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    \6\ The term ``Customer'' applies to any transaction identified 
by a Member for clearing in the Customer range at the Options 
Clearing Corporation (``OCC''), excluding any transaction for a 
Broker Dealer or a ``Professional'' as defined in Exchange Rule 
16.1.
    \7\ The term ``Market Maker'' applies to any transaction 
identified by a Member for clearing in the Market Maker range at the 
OCC, where such Member is registered with the Exchange as a Market 
Maker as defined in Rule 16.1(a)(37).
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    Fee code PC and NC are currently appended to all Customer orders in 
Penny Pilot Securities \8\ and Non-Penny Pilot Securities,\9\ 
respectively, and result in a standard rebate of $0.01 per contract. 
The Customer Volume Tiers in footnote 1 consist of six separate tiers, 
each providing an enhanced rebate to a Member's Customer orders that 
yield fee codes PC or NC upon satisfying monthly volume criteria 
required by the respective tier. For instance, pursuant to Customer 
Volume Tier 1, the lowest volume tier, a Member will receive a rebate 
of $0.05 per contract where the Member has an ADV \10\ in Customer 
orders equal to or greater than 0.10% of average TCV.\11\
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    \8\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
    \9\ 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.
    \10\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \11\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan for the month for which the fees apply, excluding 
volume on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
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    Pursuant to Customer Volume Tier 6, a Member currently will receive 
a rebate of $0.21 per contract where: (1) The Member has an ADV in 
Customer orders equal to or greater than 0.25% of average TCV; and (2) 
the Member has an ADV in Market Maker orders equal to or greater than 
0.25% of average TCV. In order to encourage the entry of additional 
orders to the Exchange, Exchange proposes to modify Customer Volume 
Tier 6 to reduce the criteria necessary to qualify. Specifically, the 
Exchange proposes to provide the same rebate, $0.21 per contract, as it 
currently provides for Customer Volume Tier 6, but to provide such 
rebate where: (1) The Member has an ADV in Customer orders equal to or 
greater than 0.20% of average TCV; and (2) the Member has an ADV in 
Market Maker orders equal to or greater than 0.15% of average TCV. The 
Exchange believes that this change will make Customer Volume Tier 6 
more attainable for additional Members.
    Fee code 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 six separate tiers, 
each providing a reduced fee or rebate to a Member's Market Maker 
orders that yield fee codes PM or NM upon satisfying monthly volume 
criteria required by the respective tier. For instance, pursuant to 
Market Maker Volume Tier 1, the lowest volume tier, a Member will pay a 
reduced fee of $0.16 per contract where the Member has an ADV in Market 
Maker orders equal to or greater than 0.05% of average TCV. Pursuant to 
Market Maker Volume Tier 6, the highest volume tier, a Member will 
receive a rebate of $0.01 per contract where the Member has an ADV in 
Market Maker orders equal to or greater than 1.10% of average TCV.
    In addition to the change to the qualifying criteria for Customer 
Volume Tier 6 set forth above, the Exchange proposes to adopt a new 
Market Maker Volume Tier with the same criteria as amended Customer 
Volume Tier 6. Specifically, the Exchange proposes to

[[Page 30581]]

adopt Market Maker Volume Tier 7, providing a reduced fee of $0.10 per 
contract where: (1) The Member has an ADV in Customer orders equal to 
or greater than 0.20% of average TCV; and (2) the Member has an ADV in 
Market Maker orders equal to or greater than 0.15% of average TCV. As 
with all other fees and rebates pursuant to footnote 2, the fee would 
be charged for transactions yielding fee code PM and NM.
    The Exchange notes that the reduced fee of $0.10 per contract is 
the same fee as Market Maker Volume Tier 3, which is provided where the 
Member has an ADV in Market Maker orders equal to or greater than 0.20% 
of average TCV. By introducing Tier 7, the Exchange is providing an 
additional mechanism for a Member to achieve this reduced fee. The 
Exchange also notes that the proposed fee and associated criteria are 
intended to encourage the entry of both Customer orders and Market 
Maker orders by providing a hybrid tier that rewards the entry of both. 
Although the qualifying criteria includes Customer orders, as noted 
above, the proposed reduced fee of $0.10 per contract would only be 
awarded to a Member's Market Maker orders that yield fee codes PM or NM 
upon satisfying the monthly volume criteria (and not such Member's 
Customer orders). However, as noted above, because the criteria are the 
same, a Member qualifying for Market Maker Volume Tier 7 would also 
qualify for Customer Volume Tier 6, and thus would be entitled to 
enhanced rebates for such Member's Customer orders.
    In addition to the changes described above, the Exchange proposes 
to add the phrase ``of average TCV'' to the end of the criteria for 
existing Market Making Volume Tiers 1 through 6. Although the filing 
initially adopting such tiers did include the language in describing 
the applicable criteria, the Exchange believes that such language is 
appropriate for the fee schedule. This change would ensure that the 
language of footnote 2 is consistent with footnote 1, which does 
include this phrase in each Tier's criteria description. The Exchange 
also proposes to change all references to ``Customer Orders'' to 
``Customer orders'' and from ``Market Maker Orders'' to ``Market Maker 
orders'' throughout footnote 1 and footnote 2. These changes will also 
ensure consistency on the fee schedule with respect to the word 
``order'', which is not contained in any of the defined terms on the 
fee schedule.
Routing Fees
    The Exchange proposes to modify the fees charged for orders routed 
away from the Exchange and executed at various away options exchanges. 
The Exchange currently has specific rates and associated fee codes for 
each away options exchange.\12\ Such rates are further divided at each 
options exchange into either two categories in order to differentiate 
between Customer and Non-Customer \13\ orders or into four categories 
in order to differentiate between Customer and Non-Customer orders and 
then into Penny Pilot Securities and Non-Penny Pilot Securities.\14\ In 
order to simplify routing fees for executions at away options 
exchanges, the Exchange proposes to charge flat rates for routing to 
other options exchanges that have been placed into groups based on the 
approximate cost of routing to such venues. The grouping of away 
options exchanges is based on the cost of transaction fees assessed by 
each venue as well as costs to the Exchange for routing (i.e., clearing 
fees, connectivity and other infrastructure costs, membership fees, 
etc.) (collectively, ``Routing Costs''). To address different fees at 
various other options exchanges, the Exchange proposes to adopt five 
different fees and associated fee codes applicable to routing to away 
options exchanges, as further described below.
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    \12\ Other options exchanges to which the Ewchange routes 
include: Bats BZX Exchange, Inc. (``BZX Options''), BOX Options 
Exchange LLC (``BOX''), Chicago Board Options Exchange, Inc. 
(``CBOE''), C2 Options Exchange, Inc. (``C2''), International 
Securities Exchange, Inc. (``ISE''), ISE Gemini, LLC (``ISE 
Gemini''), ISE Mercury, LLC (``ISE Mercury''), Miami International 
Securities Exchange, LLC (``MIAX'') Nasdaq Options Market LLC 
(``NOM''), Nasdaq OMX BX LLC (``BX Options''), Nasdaq OMX PHLX LLC 
(``PHLX''), NYSE Arca, Inc (``ARCA''), and NYSE MKT LLC (``AMEX'').
    \13\ The term ``Non-Customer'' applies to any transaction that 
is not a Customer order.
    \14\ The Exchange notes that it still applies a single rate for 
order routed to and executed at the newest options exchange, ISE 
Mercury.
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    With respect to Non-Customer orders, the Exchange proposes to adopt 
two fee codes: (1) Fee code RN, which would result in a fee of $0.85 
per contract and would apply to all Non-Customer orders in Penny Pilot 
Securities; and (2) fee code RO, which would result in a fee of $1.20 
per contract and would apply to all Non-Customer orders in Non-Penny 
Pilot Securities. The Exchange notes that the current range of fees 
applicable to Non-Customer orders routed to other options exchanges is 
from $0.60 per contract (fee code RF, applicable to Non-Customer orders 
in Penny Pilot Securities executed at BZX Options) to $1.25 per 
contract (fee code QG, applicable to Non-Customer orders executed at 
NOM in Non-Penny Pilot Securities).
    With respect to Customer orders, the Exchange proposes to adopt 
three fee codes: (1) Fee code RP, which would result in a fee of $0.25 
per contract and would apply to all Customer orders routed to and 
executed at AMEX, BOX, BX Options, CBOE, ISE Mercury, MIAX or PHLX; (2) 
fee code RQ, which would result in a fee of $0.70 per contract and 
would apply to all Customer orders in Penny Pilot Securities routed to 
and executed at ARCA, BZX Options, C2, ISE, ISE Gemini or NOM; and (3) 
fee code RR, which would result in a fee of $0.90 per contract and 
would apply to all Customer orders in Non-Penny Pilot Securities routed 
to and executed at ARCA, BZX Options, C2, ISE, ISE Gemini or NOM. The 
Exchange notes that the current range of fees applicable to Customer 
orders routed to other options exchanges is from no charge per contract 
(fee code BD, applicable to Customer orders in Non-Penny Pilot 
Securities executed at BX Options) to $0.94 per contract (fee code RD, 
applicable to Customer orders executed at BZX Options in Non-Penny 
Pilot Securities).\15\
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    \15\ The Exchange again notes that it currently applies a single 
rate for orders routed to and executed at the newest options 
exchange, ISE Mercury. As such, Customer orders execute at ISE 
Mercury technically pay the highest rate today, a fee of $0.99 per 
contract.
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    As a general matter, the groupings described above in most 
instances attempt to differentiate between the Routing Costs applicable 
to either executions of orders in Penny Pilot Securities versus those 
in Non-Penny Pilot Securities or between fee ranges typical of 
exchanges that operate primarily a maker/taker or price/time market 
model (generally imposing higher fees, including for Customer orders) 
versus exchanges that operate primarily a pro rata or customer priority 
market model (generally imposing lower fees, especially for Customer 
orders).
    As set forth above, the Exchange's proposed approach to routing 
fees is to set forth in a simple manner certain flat fees that 
approximate the cost of routing to other options exchanges. The 
Exchange will then monitor the fees charged as compared to the costs of 
its routing services, as well as monitoring for specific fee changes by 
other options exchanges, and intends to adjust its flat routing fees 
and/or groupings to ensure that the Exchange's fees do indeed result in 
a rough approximation of overall Routing Costs, and are not 
significantly higher or lower in any area. Although there may be 
instances where the Exchanges [sic] fee to a particular options 
exchange is indeed significantly higher than the fee charged by such

[[Page 30582]]

options exchange, the Exchange believes that this is appropriate for 
several reasons discussed in further detail below, including the 
simplicity that it will provide Users of the Exchange's routing 
services.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule immediately.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\16\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\17\ 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.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes its proposed fees and rebates pursuant to the 
tiered pricing structure are reasonable, fair and equitable, and non-
discriminatory. The Exchange operates in a highly competitive market in 
which market participants may readily send order flow to many competing 
venues if they deem fees at the Exchange to be excessive. As a new 
options exchange, the proposed fee structure remains intended to 
attract order flow to the Exchange by offering market participants a 
competitive yet simple pricing structure. At the same time, the 
Exchange believes it is reasonable to incrementally adopt incentives 
intended to help to contribute to the growth of the Exchange.
    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by options exchanges and are 
equitable because they are open to all Members on an equal basis and 
provide additional benefits or discounts that are reasonably related to 
the value of an exchange's market quality associated with higher levels 
of market activity, such as higher levels of liquidity provision and/or 
growth patterns, and introduction of higher volumes of orders into the 
price and volume discovery processes. The proposed modification to the 
Customer Volume Tier and the proposed addition of Market Maker Volume 
Tier 7 is each intended to incentivize Members to send additional 
Customer orders and Market Maker orders to the Exchange in an effort to 
qualify for the enhanced rebate or lower fee made available by the 
tiers.
    The Exchange believes that the proposed tiers are reasonable, fair 
and equitable, and non-discriminatory, for the reasons set forth above 
with respect to volume-based pricing generally and because such changes 
will incentivize participants to further contribute to market quality. 
The proposed tiers will provide an additional way for market 
participants to qualify for enhanced rebates or reduced fees. The 
Exchange also believes that the proposed tiered pricing structure is 
consistent with pricing previously offered by the Exchange as well as 
other options exchanges and does not represent a significant departure 
from such pricing structures.\18\
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    \18\ See, e.g., Bats BZX Options Fee Schedule, Footnote 1, 
Customer Add Volume Tier 5, which provides an enhanced rebate to 
Customer orders on BZX Options based on both Customer volume and 
Market Maker volume. The BZX Options Fee Schedule is available at: 
http://www.batsoptions.com/support/fee_schedule/bzx/.
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    With respect to the proposed routing structure, the Exchange again 
notes that it operates in a highly competitive market in which market 
participants can readily direct order flow to competing venues or 
providers of routing services if they deem fee levels to be excessive. 
As explained above, the Exchange proposes to approximate the cost of 
routing to other options exchanges, including other applicable costs to 
the Exchange for routing, in order to provide a simplified and easy to 
understand pricing model. The Exchange believes that a pricing model 
based on approximate Routing Costs is a reasonable, fair and equitable 
approach to pricing. Specifically, the Exchange believes that its 
proposal to modify fees is fair, equitable and reasonable because the 
fees are generally an approximation of the cost to the Exchange for 
routing orders to such exchanges. The Exchange believes that its flat 
fee structure for orders routed to various venues is a fair and 
equitable approach to pricing, as it will provide certainty with 
respect to execution fees at groups of away options exchanges. In order 
to achieve its flat fee structure, taking all costs to the Exchange 
into account, the Exchange will necessarily charge a higher premium to 
route to certain options exchanges than to others. As a general matter, 
the Exchange believes that the proposed fees will allow it to recoup 
and cover its costs of providing routing services to such exchanges and 
to make some additional profit in exchange for the services it 
provides. The Exchange also believes that the proposed fee structure 
for orders routed to and executed at these away options exchanges is 
fair and equitable and not unreasonably discriminatory in that it 
applies equally to all Members. Finally, the Exchange notes that it 
intends to consistently evaluate its routing fees, including profit and 
loss attributable to routing, as applicable, in connection with the 
operation of a flat fee routing service, and would consider future 
adjustments to the proposed pricing structure to the extent it was 
recouping a significant profit or loss from routing to away options 
exchanges.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Rather, the 
proposal is a competitive proposal that is seeking to further the 
growth of the Exchange and to simplify the Exchange's fees for routing 
orders to away options exchanges. With respect to the tiered pricing 
changes, the Exchange has structured the proposed fees and rebates to 
attract additional volume in Market Maker and Customer orders, however, 
the Exchange believes that its pricing for all capacities is 
competitive with that offered by other options exchanges. With respect 
to the proposed routing fee structure, the Exchange believes that the 
proposed fees are competitive in that they will provide a simple 
approach to routing pricing that some Members may favor. Additionally, 
Members may opt to disfavor the Exchange's pricing, including pricing 
for transactions on the Exchange as well as routing fees, if they 
believe that alternatives offer them better value. In particular, with 
respect to routing services, such services are available to Members 
from other broker-dealers as well as other options exchanges. The 
Exchange also notes that Members may choose to mark their orders as 
ineligible for routing to avoid incurring routing fees.\19\ 
Accordingly, the Exchange does not believe that the proposed change 
will impair the ability of Members or competing venues to maintain 
their competitive standing in the financial markets.
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    \19\ See Exchange Rule 21.1(d)(7) (describing ``Book Only'' 
orders) and Exchange Rule 21.9(a)(1) (describing the Exchange's 
routing process, which requires orders to be designated as available 
for routing).

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[[Page 30583]]

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 \20\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-BatsEDGX-2016-15 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-2016-15. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-BatsEDGX-2016-15, and should be 
submitted on or before June 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\15 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11543 Filed 5-16-16; 8:45 am]
 BILLING CODE 8011-01-P