81_FR_4738 81 FR 4721 - Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding SQF Port Fees

81 FR 4721 - Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding SQF Port Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 17 (January 27, 2016)

Page Range4721-4723
FR Document2016-01533

Federal Register, Volume 81 Issue 17 (Wednesday, January 27, 2016) 
[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4721-4723]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-01533]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76952; File No. SR-BX-2016-003]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
SQF Port Fees

January 21, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 12, 2016, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify BX Options Market (``BX Options'') 
Chapter XV, Section 3, entitled ``BX Options Market--Access Services,'' 
which governs pricing for BX members using BX Options,\3\ BX's facility 
for executing and routing standardized equity and index options. 
Specifically, the Exchange proposes to add new streaming quote 
interface (``SQF'') Port Fees.\4\
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    \3\ References in this proposal to Chapter and Series refer to 
BX Options rules, unless otherwise indicated.
    \4\ SQF Ports are described in detail below.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend BX Options Chapter XV, Section 3(b) 
to add new SQF Port Fees.
    Currently, BX Options Chapter XV, Section 3 lists port fees as 
follows:
    (b) Port Fees, per port, per month, per mnemonic as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Order Entry Port Fee..........................................   $200.00
CTI Port Fee..................................................    200.00
BX Depth Port Fee \1\.........................................    200.00
BX TOP Port Fee \1\...........................................    200.00
Order Entry DROP Port Fee.....................................    200.00
SQF Port Fee \1\..............................................      0.00
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\1\ BX Depth and BX Top Port fees will be assessed to non-BX
  Participants and BX Participants.

    Today, if an option participant transacting business on BX Options 
(``Participant'') \5\ has one mnemonic \6\ and 20 SQF Ports, in a month 
the Participant would not pay anything (20 x $0.00). The Exchange now 
proposes to assess an SQF Fee, which is currently set at $0.00. This 
change is described below.
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    \5\ Options Participants may transact options business via the 
Exchange Trading System. See BX Options Chapter II, Section 1.
    \6\ A ``mnemonic'' is a unique identifier consisting of a four 
character alpha code.
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    The SQF Port is a port that allows a Participant acting as a BX 
Options Market Maker (``Market Maker'') \7\ to enter his markets into 
the BX Options markets. The SQF Port also allows a Market Maker to 
access information such as execution reports and other relevant data 
through a single feed. Market Makers rely on data available through the 
SQF Port to provide them the necessary information to perform market 
making activities in a swift and meaningful way. This proposal 
establishes that SQF Ports, which are not currently fee liable, will be 
fee liable. Prospectively, fees for SQF Ports will to be assessed per 
port, per month.\8\
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    \7\ The term ``Market Maker'' or (``M'') means a Participant 
that has registered as a Market Maker on BX Options pursuant to 
Chapter VII, Section 2, and must also remain in good standing 
pursuant to Chapter VII, Section 4. In order to receive Market Maker 
pricing in all securities, the Participant must be registered as a 
Market Maker in at least one security.
    \8\ All current port fee assessments (e.g., CTI Port Fee, Order 
Entry Port Fee, and SQF Port Fee) are assessed per port, per month, 
per mnemonic. See BX Options Chapter XV, Section 3. For additional 
information regarding SQF generally, see http://www.nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/sqfnom2.0.pdf. This document applies to BX Options, 
NASDAQ Options Market (``NOM''), and NASDAQ OMX Phlx LLC (``Phlx''). 
NOM, Phlx, and BX Options are options exchanges of Nasdaq, Inc.
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Change 1--SQF Port Fees
    SQF Port Fees are currently set at $0.00 and as such are not fee 
liable for Participants that are Market Makers. The Exchange is now 
proposing in BX Options Chapter XV, Section 3(b) a fee of $500 per 
port, per month for SQF Ports. The Exchange had not initially made the 
SQF Ports fee liable in order to incentivize more Market Makers to make 
markets on the Exchange. The Exchange believes that this strategy has 
been successful in incentivizing Market Makers and that the Exchange no 
longer needs to offer SQF Ports without fee liability. Therefore, the 
Exchange is proposing a $500 SQF Port Fee that is significantly lower 
than that of other exchanges.\9\ Moreover, the Exchange is proposing 
that the SQF Port Fee will be per port, per month similarly to how the 
same fee is offered on other exchanges.\10\ The Exchange believes the 
continued availability of SQF Ports, even where fee liable as 
discussed, will continue to incentivize Market Makers to make markets 
on the Exchange. The Exchange believes that it is reasonable to impose 
an SQF Port Fee so that the Exchange may begin to partially recoup the 
costs of maintaining and enhancing SQF Ports.\11\
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    \9\ The proposed $500 SQF Port Fee is, for example, 
significantly lower than the current $750 NOM SQF Port Fee. See NOM 
Chapter XV, Section 3(b).
    \10\ For example, the NOM SQF Port Fee is similarly offered per 
port, per month. See NOM Chapter XV, Section 3(b).
    \11\ The Exchange is proposing to delete the ``1'' indicating 
applicability of note 1 to the SQF Port Fee, as note 1 is clearly 
applicable only to BX Depth and BX Top Port fees.

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[[Page 4722]]

    As proposed, BX Options Chapter XV, Section 3 will read as follows:
Sec. 3 BX Options Market--Access Services
    The following charges are assessed by BX for connectivity to the BX 
Options Market:
    (a) TradeInfo BX
     BX Options Participants using TradeInfo BX will be charged 
a fee of $95 per user per month.
    (b) Port Fees, per port, per month, per mnemonic as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Order Entry Port Fee..........................................   $200.00
CTI Port Fee..................................................    200.00
BX Depth Port Fee \1\.........................................    200.00
BX TOP Port Fee \1\...........................................    200.00
Order Entry DROP Port Fee.....................................    200.00
Port Fees, per port, per month as follows:
    SQF Port Fee..............................................    500.00
------------------------------------------------------------------------
\1\ BX Depth and BX Top Port fees will be assessed to non-BX
  Participants and BX Participants.

    With the proposed SQF Fee, if a Participant has 20 SQF Ports, the 
Participant would pay $10,000 (20 x $500).\12\
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    \12\ The number of mnemonics is not relevant for the proposed 
SQF Port Fees.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using its 
facilities which the Exchange operates or controls [sic], and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, for example, the Commission indicated that market forces should 
generally determine pricing because national market system regulation 
``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \15\ Likewise, in NetCoalition v. Securities and Exchange 
Commission \16\ (``NetCoalition'') the D.C. Circuit upheld the 
Commission's use of a market-based approach in evaluating the fairness 
of market data fees against a challenge claiming that Congress mandated 
a cost-based approach.\17\ As the court emphasized, the Commission 
``intended in Regulation NMS that `market forces, rather than 
regulatory requirements' play a role in determining the market data . . 
. to be made available to investors and at what cost.'' \18\
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    \15\ Securities Exchange Act Release No. 51808 [sic] at 37499 
(June 9, 2005) (``Regulation NMS Adopting Release'').
    \16\ NetCoalition v. Securities and Exchange Commission, No. 09-
1042 (D.C. Cir. 2010).
    \17\ See id. at 534-535.
    \18\ See id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \19\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \19\ Id. at 539 (quoting Securities Exchange Release No. 59039 
(December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-
2006-21) at 73 FR at 74782-74783).
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    The Exchange believes that its proposal should continue to provide 
opportunities for more efficient participation in orders and executions 
on the Exchange, and at the same time facilitate the ability of the 
Exchange to recoup some costs, maintain, and improve SQF Ports.
Change 1--SQF Port Fees
    SQF Ports are not currently fee liable for Participants that are 
Market Makers. The Exchange is now proposing in BX Options Chapter XV, 
Section 3(b) a fee of $500 per port, per month for SQF Ports.\20\ The 
Exchange had not initially made the SQF Ports fee liable in order to 
incentivize more BX Market Makers to make markets on the Exchange. The 
Exchange believes that this strategy has been successful in 
incentivizing Market Makers and that the Exchange no longer needs to 
offer SQF Ports without fee liability.
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    \20\ In establishing that the SQF Fee is per port, per month the 
Exchange is proposing that the Exchange SQF Port Fee will be similar 
to that of NOM. See NOM Chapter XV, Section 3(b).
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    The Exchange believes that its proposal to make the SQF Port Fee 
$500 per port, per month is reasonable because it would allow the 
Exchange to keep pace with increasing technology costs. The proposed 
SQF Port Fee reflects the desire of the Exchange to recoup costs that 
the Exchange bears with respect to maintaining ports. The proposed SQF 
Port Fee is reasonable because it enables the Exchange to offset, in 
part, its costs associated with making such ports available, including 
costs based on software and hardware enhancements and resources 
dedicated to development, quality assurance, and support. This will 
continue to incentivize Market Makers while allowing the Exchange to 
recoup its costs. The proposed SQF Port Fee is reasonable because it is 
lower than, and therefore competitive with, fees for similar ports on 
other exchanges.\21\ In addition, the proposed SQF Port Fee is in line 
with costs for other ports at other options exchanges.\22\ SQF Ports 
allow a Market Maker to access information and rely on data available 
through such ports to provide necessary information to perform market 
making activities in a swift and meaningful way. Market Makers are 
valuable market participants that provide liquidity in the marketplace 
and incur costs unlike other market participants because Market Makers 
add value through continuous quoting \23\ and the commitment of 
capital. Exchange Market Makers provide a critical liquidity function 
across thousands of individual option puts and option calls, a function 
no other market participants are obligated to perform.
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    \21\ The proposed $500 SQF Port Fee is, for example, 
significantly lower than the current $750 NOM SQF Port Fee. See NOM 
Chapter XV, Section 3(b).
    \22\ See NOM Pricing Schedule (port fees $650 or $750 per port); 
and Phlx Pricing Schedule, (port fees $650 or $1250 capped per 
port). See also ISE Gemini, LLC (``ISE Gemini'') Fee Schedule (port 
fees $750 to $15,000 depending on connectivity levels); and C2 
Options Exchange, Incorporated (``C2'') (generally assesses port 
fees $500 to $1,000 depending on connectivity levels).
    \23\ Pursuant to BX Options Chapter VII (Market Participants), 
Section 5 (Obligations of Market Makers), in registering as a Market 
Maker, an Options Participant commits himself to various 
obligations. Transactions of a Market Maker in its market making 
capacity 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. The 
Exchange recognizes that BX Option Market Makers that utilize SQF 
Ports require more technology infrastructure and more ports than BX 
Option Participants that are not engaged in market making, and has 
built this in to the fee structure.
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    The Exchange believes that establishing the proposed SQF Port Fee 
is equitable and not unfairly discriminatory. This is because the SQF 
Port Fee is applicable to all Participants that are Market Makers on 
the Exchange and will apply uniformly to all similarly

[[Page 4723]]

situated Participants. All Market Makers that use a SQF Port(s) will be 
assessed the SQF Port Fee in the same way.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange does 
not believe that its proposal to make changes to BX Options Chapter XV, 
Section 3(b) to add new SQF Port Fees will impose any undue burden on 
competition, as discussed below.
    The Exchange operates in a highly competitive market in which many 
sophisticated and knowledgeable market participants can readily and do 
send order flow to competing exchanges if they deem fee levels at a 
particular exchange to be excessive. Additionally, new competitors have 
entered the market and still others are reportedly entering the market 
shortly. These market forces ensure that the Exchange's fees remain 
competitive with the fee structures at other trading platforms. In that 
sense, the Exchange's proposal is actually pro-competitive because it 
enables the Exchange to continue offering SQF Ports to the benefit of 
market participants.
    The Exchange does not believe that the proposed rule change will 
impose any undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. 
Moreover, in terms of intra-market competition, the Exchange notes that 
the proposed assessment of an SQF Port Fee will be applied uniformly to 
all Participants that are Market Makers that use such ports but should 
have no undue burden on any particular group of users. The proposal is 
designed to ensure a fair and reasonable use of Exchange resources by 
allowing the Exchange to recoup for certain of its connectivity costs, 
while continuing to offer competitive rates to Participants.
    Furthermore, in this instance the proposed SQF Port Fee does not 
impose a burden on competition because the Exchange's execution and 
routing services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues. If 
the changes proposed herein are unattractive to market participants, it 
is likely that the Exchange will lose market share as a result. 
Accordingly, the Exchange does not believe that the proposed changes 
will impair the ability of members or competing order execution venues 
to maintain their competitive standing in the financial markets. 
Additionally, the changes proposed herein are pro-competitive to the 
extent that they continue to allow the Exchange to promote and maintain 
order executions.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\24\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2016-003 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2016-003. 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 Number SR-BX-2016-003 and should be 
submitted on or before February 17, 2016.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Brent J. Fields,
Secretary.
[FR Doc. 2016-01533 Filed 1-26-16; 8:45 am]
 BILLING CODE 8011-01-P

Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 4721 office of Nasdaq. All comments received The text of the proposed rule change enter his markets into the BX Options will be posted without change; the is available on the Exchange’s Web site markets. The SQF Port also allows a Commission does not edit personal at http:// Market Maker to access information identifying information from nasdaqomxbx.cchwallstreet.com/, at the such as execution reports and other submissions. You should submit only principal office of the Exchange, and at relevant data through a single feed. information that you wish to make the Commission’s Public Reference Market Makers rely on data available available publicly. All submissions Room. through the SQF Port to provide them should refer to File Number SR– the necessary information to perform II. Self-Regulatory Organization’s market making activities in a swift and NASDAQ–2016–002 and should be Statement of the Purpose of, and meaningful way. This proposal submitted on or before February 17, Statutory Basis for, the Proposed Rule establishes that SQF Ports, which are 2016. Change not currently fee liable, will be fee For the Commission, by the Division of Trading and Markets, pursuant to delegated In its filing with the Commission, the liable. Prospectively, fees for SQF Ports authority.34 Exchange included statements will to be assessed per port, per month.8 Brent J. Fields, concerning the purpose of and basis for Change 1—SQF Port Fees the proposed rule change and discussed Secretary. SQF Port Fees are currently set at any comments it received on the [FR Doc. 2016–01542 Filed 1–26–16; 8:45 am] $0.00 and as such are not fee liable for proposed rule change. The text of these BILLING CODE 8011–01–P statements may be examined at the Participants that are Market Makers. The places specified in Item IV below. The Exchange is now proposing in BX Exchange has prepared summaries, set Options Chapter XV, Section 3(b) a fee SECURITIES AND EXCHANGE of $500 per port, per month for SQF forth in sections A, B, and C below, of COMMISSION Ports. The Exchange had not initially the most significant aspects of such [Release No. 34–76952; File No. SR–BX– statements. made the SQF Ports fee liable in order 2016–003] to incentivize more Market Makers to A. Self-Regulatory Organization’s make markets on the Exchange. The Self-Regulatory Organizations; Statement of the Purpose of, and Exchange believes that this strategy has NASDAQ OMX BX, Inc.; Notice of Filing Statutory Basis for, the Proposed Rule been successful in incentivizing Market and Immediate Effectiveness of Change Makers and that the Exchange no longer Proposed Rule Change Regarding SQF 1. Purpose needs to offer SQF Ports without fee Port Fees liability. Therefore, the Exchange is The Exchange proposes to amend BX January 21, 2016. proposing a $500 SQF Port Fee that is Options Chapter XV, Section 3(b) to add significantly lower than that of other Pursuant to Section 19(b)(1) of the new SQF Port Fees. Currently, BX Options Chapter XV, exchanges.9 Moreover, the Exchange is Securities Exchange Act of 1934 Section 3 lists port fees as follows: proposing that the SQF Port Fee will be (‘‘Act’’) 1, and Rule 19b–4 thereunder,2 (b) Port Fees, per port, per month, per per port, per month similarly to how the notice is hereby given that on January mnemonic as follows: same fee is offered on other 12, 2016, NASDAQ OMX BX, Inc. (‘‘BX’’ exchanges.10 The Exchange believes the or ‘‘Exchange’’) filed with the Securities Order Entry Port Fee ...................... $200.00 continued availability of SQF Ports, and Exchange Commission (‘‘SEC’’ or CTI Port Fee ................................... 200.00 even where fee liable as discussed, will ‘‘Commission’’) the proposed rule BX Depth Port Fee 1 ....................... 200.00 continue to incentivize Market Makers change as described in Items I, II, and BX TOP Port Fee 1 ......................... 200.00 to make markets on the Exchange. The III, below, which Items have been Order Entry DROP Port Fee .......... 200.00 Exchange believes that it is reasonable prepared by the Exchange. The SQF Port Fee 1 ............................... 0.00 to impose an SQF Port Fee so that the Commission is publishing this notice to 1 BX Depth and BX Top Port fees will be as- Exchange may begin to partially recoup solicit comments on the proposed rule sessed to non-BX Participants and BX the costs of maintaining and enhancing change from interested persons. Participants. SQF Ports.11 I. Self-Regulatory Organization’s Today, if an option participant Statement of the Terms of Substance of transacting business on BX Options Maker pricing in all securities, the Participant must the Proposed Rule Change be registered as a Market Maker in at least one (‘‘Participant’’) 5 has one mnemonic 6 security. The Exchange proposes to modify BX and 20 SQF Ports, in a month the 8 All current port fee assessments (e.g., CTI Port Options Market (‘‘BX Options’’) Chapter Participant would not pay anything (20 Fee, Order Entry Port Fee, and SQF Port Fee) are XV, Section 3, entitled ‘‘BX Options × $0.00). The Exchange now proposes to assessed per port, per month, per mnemonic. See BX Options Chapter XV, Section 3. For additional Market—Access Services,’’ which assess an SQF Fee, which is currently information regarding SQF generally, see http:// governs pricing for BX members using set at $0.00. This change is described www.nasdaqtrader.com/content/technicalsupport/ BX Options,3 BX’s facility for executing below. specifications/TradingProducts/sqfnom2.0.pdf. The SQF Port is a port that allows a This document applies to BX Options, NASDAQ and routing standardized equity and Options Market (‘‘NOM’’), and NASDAQ OMX Phlx index options. Specifically, the Participant acting as a BX Options LLC (‘‘Phlx’’). NOM, Phlx, and BX Options are Exchange proposes to add new Market Maker (‘‘Market Maker’’) 7 to options exchanges of Nasdaq, Inc. streaming quote interface (‘‘SQF’’) Port 9 The proposed $500 SQF Port Fee is, for asabaliauskas on DSK5VPTVN1PROD with NOTICES 5 Options Participants may transact options example, significantly lower than the current $750 Fees.4 business via the Exchange Trading System. See BX NOM SQF Port Fee. See NOM Chapter XV, Section Options Chapter II, Section 1. 3(b). 34 17 CFR 200.30–3(a)(12). 6 A ‘‘mnemonic’’ is a unique identifier consisting 10 For example, the NOM SQF Port Fee is 1 15 U.S.C. 78s(b)(1). of a four character alpha code. similarly offered per port, per month. See NOM 2 17 CFR 240.19b–4. 7 The term ‘‘Market Maker’’ or (‘‘M’’) means a Chapter XV, Section 3(b). 3 References in this proposal to Chapter and Participant that has registered as a Market Maker on 11 The Exchange is proposing to delete the ‘‘1’’ Series refer to BX Options rules, unless otherwise BX Options pursuant to Chapter VII, Section 2, and indicating applicability of note 1 to the SQF Port indicated. must also remain in good standing pursuant to Fee, as note 1 is clearly applicable only to BX Depth 4 SQF Ports are described in detail below. Chapter VII, Section 4. In order to receive Market and BX Top Port fees. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 E:\FR\FM\27JAN1.SGM 27JAN1

4722 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices As proposed, BX Options Chapter XV, Circuit upheld the Commission’s use of costs. The proposed SQF Port Fee Section 3 will read as follows: a market-based approach in evaluating reflects the desire of the Exchange to the fairness of market data fees against recoup costs that the Exchange bears Sec. 3 BX Options Market—Access a challenge claiming that Congress with respect to maintaining ports. The Services mandated a cost-based approach.17 As proposed SQF Port Fee is reasonable The following charges are assessed by the court emphasized, the Commission because it enables the Exchange to BX for connectivity to the BX Options ‘‘intended in Regulation NMS that offset, in part, its costs associated with Market: ‘market forces, rather than regulatory making such ports available, including (a) TradeInfo BX requirements’ play a role in determining costs based on software and hardware • BX Options Participants using the market data . . . to be made enhancements and resources dedicated TradeInfo BX will be charged a fee of available to investors and at what to development, quality assurance, and $95 per user per month. cost.’’ 18 support. This will continue to (b) Port Fees, per port, per month, per incentivize Market Makers while Further, ‘‘[n]o one disputes that mnemonic as follows: allowing the Exchange to recoup its competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. costs. The proposed SQF Port Fee is Order Entry Port Fee ...................... $200.00 reasonable because it is lower than, and CTI Port Fee ................................... 200.00 national market system, buyers and BX Depth Port Fee 1 ....................... 200.00 sellers of securities, and the broker- therefore competitive with, fees for BX TOP Port Fee 1 ......................... 200.00 dealers that act as their order-routing similar ports on other exchanges.21 In Order Entry DROP Port Fee .......... 200.00 agents, have a wide range of choices of addition, the proposed SQF Port Fee is Port Fees, per port, per month as where to route orders for execution’; in line with costs for other ports at other follows: [and] ‘no exchange can afford to take its options exchanges.22 SQF Ports allow a SQF Port Fee .......................... 500.00 market share percentages for granted’ Market Maker to access information and 1 BX Depth and BX Top Port fees will be as- because ‘no exchange possesses a rely on data available through such sessed to non-BX Participants and BX monopoly, regulatory or otherwise, in ports to provide necessary information Participants. the execution of order flow from broker to perform market making activities in With the proposed SQF Fee, if a dealers’. . . .’’ 19 Although the court a swift and meaningful way. Market Participant has 20 SQF Ports, the and the SEC were discussing the cash Makers are valuable market participants Participant would pay $10,000 (20 × equities markets, the Exchange believes that provide liquidity in the $500).12 that these views apply with equal force marketplace and incur costs unlike to the options markets. other market participants because 2. Statutory Basis Market Makers add value through The Exchange believes that its The Exchange believes that the proposal should continue to provide continuous quoting 23 and the proposed rule change is consistent with opportunities for more efficient commitment of capital. Exchange the provisions of Section 6 of the Act,13 participation in orders and executions Market Makers provide a critical in general, and with Section 6(b)(4) and on the Exchange, and at the same time liquidity function across thousands of 6(b)(5) of the Act,14 in particular, in that facilitate the ability of the Exchange to individual option puts and option calls, it provides for the equitable allocation recoup some costs, maintain, and a function no other market participants of reasonable dues, fees and other improve SQF Ports. are obligated to perform. charges among members and issuers and The Exchange believes that other persons using its facilities which Change 1—SQF Port Fees establishing the proposed SQF Port Fee the Exchange operates or controls [sic], SQF Ports are not currently fee liable is equitable and not unfairly and is not designed to permit unfair for Participants that are Market Makers. discriminatory. This is because the SQF discrimination between customers, The Exchange is now proposing in BX Port Fee is applicable to all Participants issuers, brokers, or dealers. Options Chapter XV, Section 3(b) a fee that are Market Makers on the Exchange The Commission and the courts have of $500 per port, per month for SQF and will apply uniformly to all similarly repeatedly expressed their preference Ports.20 The Exchange had not initially for competition over regulatory made the SQF Ports fee liable in order 21 The proposed $500 SQF Port Fee is, for intervention in determining prices, example, significantly lower than the current $750 to incentivize more BX Market Makers NOM SQF Port Fee. See NOM Chapter XV, Section products, and services in the securities to make markets on the Exchange. The 3(b). markets. In Regulation NMS, for Exchange believes that this strategy has 22 See NOM Pricing Schedule (port fees $650 or example, the Commission indicated that been successful in incentivizing Market $750 per port); and Phlx Pricing Schedule, (port market forces should generally fees $650 or $1250 capped per port). See also ISE Makers and that the Exchange no longer Gemini, LLC (‘‘ISE Gemini’’) Fee Schedule (port determine pricing because national needs to offer SQF Ports without fee fees $750 to $15,000 depending on connectivity market system regulation ‘‘has been liability. levels); and C2 Options Exchange, Incorporated remarkably successful in promoting The Exchange believes that its (‘‘C2’’) (generally assesses port fees $500 to $1,000 market competition in its broader forms depending on connectivity levels). proposal to make the SQF Port Fee $500 23 Pursuant to BX Options Chapter VII (Market that are most important to investors and per port, per month is reasonable Participants), Section 5 (Obligations of Market listed companies.’’ 15 Likewise, in because it would allow the Exchange to Makers), in registering as a Market Maker, an NetCoalition v. Securities and Exchange keep pace with increasing technology Options Participant commits himself to various Commission 16 (‘‘NetCoalition’’) the D.C. obligations. Transactions of a Market Maker in its asabaliauskas on DSK5VPTVN1PROD with NOTICES 17 See market making capacity must constitute a course of id. at 534–535. dealings reasonably calculated to contribute to the 12 The number of mnemonics is not relevant for 18 See id. at 537. maintenance of a fair and orderly market, and the proposed SQF Port Fees. 19 Id. at 539 (quoting Securities Exchange Release 13 15 U.S.C. 78f. Market Makers should not make bids or offers or No. 59039 (December 2, 2008), 73 FR 74770 enter into transactions that are inconsistent with 14 15 U.S.C. 78f(b)(4) and (5). (December 9, 2008) (SR–NYSEArca–2006–21) at 73 such course of dealings. The Exchange recognizes 15 Securities Exchange Act Release No. 51808 FR at 74782–74783). that BX Option Market Makers that utilize SQF [sic] at 37499 (June 9, 2005) (‘‘Regulation NMS 20 In establishing that the SQF Fee is per port, per Ports require more technology infrastructure and Adopting Release’’). month the Exchange is proposing that the Exchange more ports than BX Option Participants that are not 16 NetCoalition v. Securities and Exchange SQF Port Fee will be similar to that of NOM. See engaged in market making, and has built this in to Commission, No. 09–1042 (D.C. Cir. 2010). NOM Chapter XV, Section 3(b). the fee structure. VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\27JAN1.SGM 27JAN1

Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 4723 situated Participants. All Market Makers of users. The proposal is designed to change is consistent with the Act. that use a SQF Port(s) will be assessed ensure a fair and reasonable use of Comments may be submitted by any of the SQF Port Fee in the same way. Exchange resources by allowing the the following methods: Exchange to recoup for certain of its B. Self-Regulatory Organization’s Electronic Comments connectivity costs, while continuing to Statement on Burden on Competition offer competitive rates to Participants. • Use the Commission’s Internet The Exchange does not believe that Furthermore, in this instance the the proposed rule change will impose comment form (http://www.sec.gov/ proposed SQF Port Fee does not impose any burden on competition not rules/sro.shtml); or a burden on competition because the necessary or appropriate in furtherance Exchange’s execution and routing • Send an email to rule-comments@ of the purposes of the Act. Specifically, services are completely voluntary and sec.gov. Please include File Number SR– the Exchange does not believe that its subject to extensive competition both BX–2016–003 on the subject line. proposal to make changes to BX Options from other exchanges and from off- Chapter XV, Section 3(b) to add new Paper Comments exchange venues. If the changes SQF Port Fees will impose any undue proposed herein are unattractive to • Send paper comments in triplicate burden on competition, as discussed market participants, it is likely that the to Secretary, Securities and Exchange below. Exchange will lose market share as a Commission, 100 F Street NE., The Exchange operates in a highly result. Accordingly, the Exchange does Washington, DC 20549–1090. competitive market in which many not believe that the proposed changes sophisticated and knowledgeable will impair the ability of members or All submissions should refer to File market participants can readily and do competing order execution venues to Number SR–BX–2016–003. This file send order flow to competing exchanges maintain their competitive standing in number should be included on the if they deem fee levels at a particular the financial markets. Additionally, the subject line if email is used. To help the exchange to be excessive. Additionally, changes proposed herein are pro- Commission process and review your new competitors have entered the competitive to the extent that they comments more efficiently, please use market and still others are reportedly continue to allow the Exchange to only one method. The Commission will entering the market shortly. These promote and maintain order executions. post all comments on the Commission’s market forces ensure that the Exchange’s Internet Web site (http://www.sec.gov/ fees remain competitive with the fee C. Self-Regulatory Organization’s rules/sro.shtml). Copies of the structures at other trading platforms. In Statement on Comments on the submission, all subsequent that sense, the Exchange’s proposal is Proposed Rule Change Received From amendments, all written statements actually pro-competitive because it Members, Participants, or Others with respect to the proposed rule enables the Exchange to continue No written comments were either change that are filed with the offering SQF Ports to the benefit of solicited or received. Commission, and all written market participants. III. Date of Effectiveness of the communications relating to the The Exchange does not believe that the proposed rule change will impose Proposed Rule Change and Timing for proposed rule change between the any undue burden on competition not Commission Action Commission and any person, other than necessary or appropriate in furtherance those that may be withheld from the Pursuant to Section 19(b)(3)(A)(ii) of public in accordance with the of the purposes of the Act. In terms of the Act,24 the Exchange has designated inter-market competition, the Exchange provisions of 5 U.S.C. 552, will be this proposal as establishing or changing available for Web site viewing and notes that it operates in a highly a due, fee, or other charge imposed by competitive market in which market printing in the Commission’s Public the self-regulatory organization on any Reference Room, 100 F Street NE., participants can readily favor competing person, whether or not the person is a venues if they deem fee levels at a Washington, DC 20549, on official member of the self-regulatory particular venue to be excessive, or business days between the hours of organization, which renders the rebate opportunities available at other 10:00 a.m. and 3:00 p.m. Copies of the proposed rule change effective upon venues to be more favorable. In such an filing also will be available for filing. environment, the Exchange must At any time within 60 days of the inspection and copying at the principal continually adjust its fees to remain filing of the proposed rule change, the office of the Exchange. All comments competitive with other exchanges and Commission summarily may received will be posted without change; with alternative trading systems that temporarily suspend such rule change if the Commission does not edit personal have been exempted from compliance it appears to the Commission that such identifying information from with the statutory standards applicable action is: (i) Necessary or appropriate in submissions. You should submit only to exchanges. Because competitors are the public interest; (ii) for the protection information that you wish to make free to modify their own fees in of investors; or (iii) otherwise in available publicly. All submissions response, and because market furtherance of the purposes of the Act. should refer to File Number SR–BX– participants may readily adjust their If the Commission takes such action, the 2016–003 and should be submitted on order routing practices, the Exchange Commission shall institute proceedings or before February 17, 2016. believes that the degree to which fee to determine whether the proposed rule For the Commission, by the Division of changes in this market may impose any asabaliauskas on DSK5VPTVN1PROD with NOTICES should be approved or disapproved. Trading and Markets, pursuant to delegated burden on competition is extremely authority.25 limited. Moreover, in terms of intra- IV. Solicitation of Comments Brent J. Fields, market competition, the Exchange notes Interested persons are invited to that the proposed assessment of an SQF Secretary. submit written data, views, and Port Fee will be applied uniformly to all arguments concerning the foregoing, [FR Doc. 2016–01533 Filed 1–26–16; 8:45 am] Participants that are Market Makers that including whether the proposed rule BILLING CODE 8011–01–P use such ports but should have no undue burden on any particular group 24 15 U.S.C. 78s(b)(3)(A)(ii). 25 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:41 Jan 26, 2016 Jkt 238001 PO 00000 Frm 00116 Fmt 4703 Sfmt 9990 E:\FR\FM\27JAN1.SGM 27JAN1


Document Created: 2018-02-02 12:39:44
Document Modified: 2018-02-02 12:39:44
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 4721 
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