81_FR_52102 81 FR 51951 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt an Options Regulatory Fee

81 FR 51951 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt an Options Regulatory Fee

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 151 (August 5, 2016)

Page Range51951-51954
FR Document2016-18570

Federal Register, Volume 81 Issue 151 (Friday, August 5, 2016)
[Federal Register Volume 81, Number 151 (Friday, August 5, 2016)]
[Notices]
[Pages 51951-51954]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18570]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78452; File No. SR-BatsEDGX-2016-33]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt an Options Regulatory Fee

August 1, 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 July 20, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule

[[Page 51952]]

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 modify the fee schedule applicable to the 
Exchange's options platform (``EDGX Options'') to adopt an ORF in the 
amount of $0.0002 per contract side. The per-contract ORF will be 
assessed by the Exchange to each Member and non-Member for all options 
transactions cleared by OCC in the ``customer'' range, regardless of 
the exchange on which the transaction occurs. The ORF will be collected 
indirectly from Members and non-Members through their clearing firms by 
OCC on behalf of the Exchange. The ORF will be collected indirectly 
from Members and non-Members through their clearing firms by OCC on 
behalf of EDGX Options.
    The Exchange believes it is appropriate to charge the ORF to 
transactions by Members and non-Members that clear as customer at the 
OCC, irrespective of where the transactions takes place. Many of the 
Exchange's surveillance programs for customer trading activity require 
the Exchange to look at activity across all options markets, such as 
surveillances for position limit violations, manipulation, insider 
trading, front-running and contrary exercise advice violations/expiring 
exercise declarations. Accordingly, there is a strong nexus between the 
ORF and the Exchange's regulatory activities with respect to its 
Members', as well as non-Members', customer trading activity. These 
activities span across multiple exchanges.
    In addition to its own surveillance programs, the Exchange works 
with other SROs and exchanges on intermarket surveillance related 
issues. Through its participation in the Intermarket Surveillance Group 
(``ISG''),\6\ the Exchange shares information and coordinates inquiries 
and investigations with other exchanges designed to address potential 
intermarket manipulation and trading abuses. Also, the Exchange and the 
other options exchanges are required to populate a consolidated options 
audit trail (``COATS'') \7\ system in order to surveil trading 
activities across markets.
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    \6\ ISG is an industry organization formed in 1983 to coordinate 
intermarket surveillance among the SROs by co-operatively sharing 
regulatory information pursuant to a written agreement between the 
parties. The goal of the ISG's information sharing is to coordinate 
regulatory efforts to address potential intermarket trading abuses 
and manipulations.
    \7\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
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    The Exchange proposes to assess ORF monthly based on information 
received from the OCC regarding transactions that cleared in the 
customer range. Notably, the Exchange believes that this will help to 
alleviate confusion or even potential double-billing of customer 
transactions. In particular, by billing all customer transactions on a 
monthly basis the Exchange will be able to capture transactions that 
may have been executed on the Exchange that were submitted for clearing 
by a Member but then ``flipped'' to the account of a non-Member. Thus, 
the Exchange believes that charging the ORF to Members and non-Members 
across all markets will avoid having non-Members clear their trades 
through non-Members in order to avoid the fee and to thereby avoid 
paying for their fair share for regulation. If the ORF did not apply to 
activity across markets then a Member or non-Member would send their 
orders to the least cost, least regulated exchange. In addition, 
applying the fee to all Members' and non-Members' activity across all 
market will avoid options participants from terminating their 
membership status on or not becoming a Members of certain exchanges 
simply to avoid being assessed ORF.
    As discussed above, the ORF is designed to recover a material 
portion of the costs to the Exchange of the supervision and regulation 
of Members' and non-Member's customer options business, including 
performing routine surveillances and investigations, as well as policy, 
rulemaking, interpretive and enforcement activities. The Exchange 
believes that revenue generated from the ORF, when combined with all of 
the Exchange's other regulatory fees and fines, will cover a material 
portion, but not all, of the Exchange's regulatory costs.\8\
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    \8\ The Exchange notes that its regulatory responsibilities with 
respect to compliance with options sales practice rules has been 
allocated to the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') under a 17d-2 Agreement. The ORF is not designed to 
cover the cost of options sales practice regulation.
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    The Exchange will monitor the amount of revenue collected from the 
ORF to ensure that it, in combination with its other regulatory fees 
and fines, does not exceed the Exchange's total regulatory costs. The 
Exchange expects to monitor its regulatory costs and revenues at a 
minimum on a semi-annual basis. If the Exchange determines regulatory 
revenues exceed or are insufficient to cover a material portion of its 
regulatory costs, the Exchange will adjust the ORF by submitting a fee 
change filing to the Commission. The Exchange will notify Members and 
non-Members of adjustments to the ORF at least 30 calendar days prior 
to the effective date of the change.\9\
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    \9\ The Exchange announced its intent to charge an ORF on June 
30, 2016. See Bats Options Exchange Regulatory Fee Schedule Update 
Effective August 1, 2016 available at: http://cdn.batstrading.com/resources/fee_schedule/2016/Bats-Options-Exchange-Regulatory-Fee-Schedule-Update-Effective-August-1-2016.pdf. The semi-annual review 
and notice provisions are similar to those adopted by NYSE Arca, 
Inc. (``NYSE Arca''). See Securities Exchange Act Release No. 70500 
(September 25, 2013), 78 FR 60361 (October 1, 2013) (SR-NYSEArca-
2013-91).

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[[Page 51953]]

    The Exchange notes that there is established precedent for an SRO 
charging a fee across markets, namely, FINRAs Trading Activity Fee \10\ 
and the BZX, MIAX, NYSE Amex, NYSE Arca, CBOE, PHLX, ISE and BOX ORFs. 
While the Exchange does not have all of the same regulatory 
responsibilities as FINRA, the Exchange believes that, like other 
exchanges that have adopted an ORF, its broad regulatory 
responsibilities with respect to a Member's and non-Members' 
activities, irrespective of where their transactions take place, 
support a regulatory fee applicable to transactions on other markets. 
Unlike FINRA's Trading Activity Fee, the ORF would apply only to a 
Member's and non-Member's customer options transactions.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 3402 (June 6, 2003).
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Implementation Date
    The Exchange proposes to implement the ORF on August 1, 2016.
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.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with section 6(b)(4) of the Act,\12\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the ORF is equitable and not unfairly 
discriminatory because it would be objectively allocated to Members and 
non-Members in that it would be charged to all Members and non-Members 
on all their transactions that clear as customer transactions at the 
OCC. Moreover, the Exchange believes the ORF ensures fairness by 
assessing fees to those Members and non-Members that are directly based 
on the amount of customer options business they conduct. Regulating 
customer trading activity is much more labor intensive and requires 
greater expenditure of human and technical resources than regulating 
non-customer trading activity, which tends to be more automated and 
less labor-intensive. As a result, the costs associated with 
administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., Member proprietary 
transactions) of its regulatory program. In addition, the Exchange 
believes the amount of the ORF is reasonable as it is significantly 
lower than ORFs charged by other exchanges. By way of comparison, MIAX 
charges an ORF of $0.0045 per contract side,\13\ and both NYSE Arca and 
NYSE Amex charge an ORF of $0.0055 per contract side.\14\ The CBOE 
charges an ORF of $0.0081 per contract.\15\
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    \13\ See MIAX fee schedule available at http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_06012016.pdf (date May 1, 2016).
    \14\ See NYSE Arca Options fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (dated June 6, 2016); and NYSE 
Amex fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (dated June 
9, 2016).
    \15\ See CBOE fee schedule available at http://www.cboe.com/framed/pdfframed.aspx?content=/publish/feeschedule/CBOEFeeSchedule.pdf§ion=SEC_RESOURCES&title=CBOE%20Fee%20Schedule
 (dated May 16, 2016).
---------------------------------------------------------------------------

    The Exchange believes applying the ORF to transactions executed or 
cleared by non-Members is equitable and not unfairly discriminatory 
because it should avoid having transactions cleared through non-Members 
in order to avoid the fee and to thereby avoid paying for their fair 
share for regulation.\16\ If the ORF did not apply to activity across 
markets then a non-Member would send their orders to the least cost, 
least regulated exchange. In addition, applying the fee to all Members' 
and non-Members' activity across all market will avoid options 
participants from terminating their membership status on or not 
becoming a Members of certain exchanges simply to avoid being assessed 
ORF. Moreover, the Exchange believes the ORF ensures fairness by 
assessing fees to those Members and non-Members that are directly based 
on the amount of customer options business they conduct.
---------------------------------------------------------------------------

    \16\ Despite rule text to the contrary, the Exchange believes 
based on conversations with market participants that other options 
exchanges currently charge an ORF on all options transactions 
cleared by the OCC in the customer range regardless of whether they 
are executed or cleared by their member.
---------------------------------------------------------------------------

    The Exchange also believes it is reasonable and appropriate for the 
Exchange to charge the ORF for options transactions by a non-Member 
regardless of the exchange on which the transactions occur. The 
Exchange has a statutory obligation to enforce compliance by Members 
and their associated persons under the Act and the rules of the 
Exchange and cannot effectively surveil for manipulative conduct by 
market participants (including non-Members) trading on the Exchange 
without looking at and evaluating activity across all options markets. 
Many of the Exchange's market surveillance programs require the 
Exchange to look at and evaluate activity across all options markets, 
such as surveillance for position limit violations, manipulation, 
front-running and contrary exercise advice violations/expiring exercise 
declarations.
    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Members' and non-Members' customer options 
business including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. The Exchange will monitor, on 
at least a semi-annual basis the amount of revenue collected from the 
ORF to ensure that it, in combination with its other regulatory fees 
and fines, does not exceed the Exchange's total regulatory costs. If 
the Exchange determines regulatory revenues exceed or are insufficient 
to cover a material portion of its regulatory costs, the Exchange will 
adjust the ORF by submitting a fee change filing to the Commission. The 
Exchange will notify Members and non-Members of adjustments to the ORF 
via regulatory circular.
    The Exchange has designed the ORF to generate revenues that, when 
combined with all of the Exchange's other regulatory fees, will be less 
than or equal to the Exchange's regulatory costs, which is consistent 
with the Commission's view that regulatory fees be used for regulatory 
purposes and not to support the Exchange's business side. In this 
regard, the Exchange believes that the initial level of the fee is 
reasonable.

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. The ORF is not intended to have 
any impact on competition. Rather, it is designed to

[[Page 51954]]

enable the Exchange to recover a material portion of the Exchange's 
cost related to its regulatory activities. The proposed ORF is also 
comparable to, and in most instances less than, ORF fees charged by 
other options exchanges. Further, the expansion of ORF to non-Members 
is also not designed to have an impact on competition as the Exchange 
believes based on conversations from market participants that it is 
consistent with the practice by other exchanges in applying ORF to non-
Member transactions, despite rule text to the contrary.

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 \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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-2016-33 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-2016-33. 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-2016-33, and should be 
submitted on or before August 26, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18570 Filed 8-4-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                  Federal Register / Vol. 81, No. 151 / Friday, August 5, 2016 / Notices                                                  51951

                                                  associated tasks, which appear in the                    necessary or appropriate in furtherance                subject line if email is used. To help the
                                                  revised content outline, reflect the day-                of the purposes of the Act. The updated                Commission process and review your
                                                  to-day activities of a General Securities                examination aligns with the functions                  comments more efficiently, please use
                                                  Sales Supervisor. CBOE is also                           and associated tasks currently                         only one method. The Commission will
                                                  proposing to adopt the changes made by                   performed by a General Securities Sales                post all comments on the Commission’s
                                                  FINRA to the format of the content                       Supervisor and tests knowledge of the                  Internet Web site (http://www.sec.gov/
                                                  outline, including the preface, sample                   most current laws, rules, regulations                  rules/sro.shtml). Copies of the
                                                  questions and reference materials.                       and skills relevant to those functions                 submission, all subsequent
                                                    FINRA also adjusted the number of                      and associated tasks. As such, the                     amendments, all written statements
                                                  examination questions assigned to each                   proposed revisions would make the                      with respect to the proposed rule
                                                  major job function to ensure that the                    examination more efficient and                         change that are filed with the
                                                  overall examination better reflects the                  effective.                                             Commission, and all written
                                                  key tasks performed by a General                                                                                communications relating to the
                                                  Securities Sales Supervisor. The                         C. Self-Regulatory Organization’s                      proposed rule change between the
                                                  questions on the revised Series 9/10                     Statement on Comments on the                           Commission and any person, other than
                                                  examination will place greater emphasis                  Proposed Rule Change Received From                     those that may be withheld from the
                                                  on key tasks such as supervision of                      Members, Participants, or Others                       public in accordance with the
                                                  registered persons, sales practices and                    Written comments were neither                        provisions of 5 U.S.C. 552, will be
                                                  compliance. CBOE is proposing to adopt                   solicited nor received.                                available for Web site viewing and
                                                  these revisions related to the Series 9/                                                                        printing in the Commission’s Public
                                                                                                           III. Date of Effectiveness of the
                                                  10 examination questions.                                                                                       Reference Room, 100 F Street NE.,
                                                                                                           Proposed Rule Change and Timing for                    Washington, DC 20549 on official
                                                    Finally, CBOE is proposing to adopt
                                                                                                           Commission Action                                      business days between the hours of
                                                  the changes made by FINRA to the
                                                  Series 9/10 selection specifications and                    The foregoing rule change has become                10:00 a.m. and 3:00 p.m. Copies of the
                                                  question bank.                                           effective pursuant to Section 19(b)(3)(A)              filing also will be available for
                                                                                                           of the Act 15 and paragraph (f)(1) of Rule             inspection and copying at the principal
                                                  Availability of Content Outline                          19b–4 thereunder.16 At any time within                 office of the Exchange. All comments
                                                     The revised Series 9/10 content                       60 days of the filing of the proposed rule             received will be posted without change;
                                                  outline is available on FINRA’s Web                      change, the Commission summarily may                   the Commission does not edit personal
                                                  site, at www.finra.org/                                  temporarily suspend such rule change if                identifying information from
                                                  brokerqualifications/exams.                              it appears to the Commission that such                 submissions. You should submit only
                                                     CBOE is filing the proposed rule                      action is necessary or appropriate in the              information that you wish to make
                                                  change for immediate effectiveness.                      public interest, for the protection of                 available publicly. All submissions
                                                  CBOE will announce the proposed rule                     investors, or otherwise in furtherance of              should refer to File Number SR–CBOE–
                                                  change in a Regulatory Circular.                         the purposes of the Act. If the                        2016–051 and should be submitted on
                                                                                                           Commission takes such action, the                      or before August 26, 2016.
                                                  2. Statutory Basis
                                                                                                           Commission will institute proceedings                    For the Commission, by the Division of
                                                     CBOE believes that the proposed                       to determine whether the proposed rule                 Trading and Markets, pursuant to delegated
                                                  revisions to the Series 9/10 examination                 change should be approved or                           authority.17
                                                  program are consistent with the                          disapproved.                                           Robert W. Errett,
                                                  provisions of Section 6(b)(5) of the                                                                            Deputy Secretary.
                                                  Act,13 which requires, among other                       IV. Solicitation of Comments
                                                                                                                                                                  [FR Doc. 2016–18568 Filed 8–4–16; 8:45 am]
                                                  things, that CBOE rules must be                            Interested persons are invited to
                                                                                                                                                                  BILLING CODE 8011–01–P
                                                  designed to prevent fraudulent and                       submit written data, views, and
                                                  manipulative acts and practices, to                      arguments concerning the foregoing,
                                                  promote just and equitable principles of                 including whether the proposed rule                    SECURITIES AND EXCHANGE
                                                  trade, and, in general, to protect                       change is consistent with the Act.                     COMMISSION
                                                  investors and the public interest, and                   Comments may be submitted by any of
                                                  Section 6(c)(3) of the Act,14 which                      the following methods:                                 [Release No. 34–78452; File No. SR–
                                                  authorizes CBOE to prescribe standards                                                                          BatsEDGX–2016–33]
                                                                                                           Electronic Comments
                                                  of training, experience, and competence                                                                         Self-Regulatory Organizations; Bats
                                                  for persons associated with CBOE TPHs.                     • Use the Commission’s Internet
                                                                                                                                                                  EDGX Exchange, Inc.; Notice of Filing
                                                  CBOE believes that the proposed                          comment form (http://www.sec.gov/
                                                                                                                                                                  and Immediate Effectiveness of a
                                                  revisions will further these purposes by                 rules/sro.shtml); or
                                                                                                             • Send an email to rule-comments@                    Proposed Rule Change To Adopt an
                                                  updating the examination program to                                                                             Options Regulatory Fee
                                                  reflect changes to the laws, rules and                   sec.gov. Please include File Number SR–
                                                  regulations covered by the examination                   CBOE–2016–051 on the subject line.                     August 1, 2016.
                                                  and to incorporate the functions and                     Paper Comments                                            Pursuant to section 19(b)(1) of the
                                                  associated tasks currently performed by                                                                         Securities Exchange Act of 1934 (the
                                                  a General Securities Sales Supervisor.                     • Send paper comments in triplicate                  ‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                                                                           to Brent J. Fields, Secretary, Securities              notice is hereby given that on July 20,
                                                  B. Self-Regulatory Organization’s                        and Exchange Commission, 100 F Street
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                                                                                  2016, Bats EDGX Exchange, Inc. (the
                                                  Statement on Burden on Competition                       NE., Washington, DC 20549–1090.                        ‘‘Exchange’’ or ‘‘EDGX’’) filed with the
                                                    CBOE does not believe that the                         All submissions should refer to File                   Securities and Exchange Commission
                                                  proposed rule change will result in any                  Number SR–CBOE–2016–051. This file                     (the ‘‘Commission’’) the proposed rule
                                                  burden on competition that is not                        number should be included on the
                                                                                                                                                                    17 17 CFR 200.30–3(a)(12).
                                                    13 15 U.S.C. 78f(b)(5).                                  15 15 U.S.C. 78s(b)(3)(A).                             1 15 U.S.C. 78s(b)(1).
                                                    14 15 U.S.C. 78f(c)(3).                                  16 17 CFR 240.19b–4(f)(1).                             2 17 CFR 240.19b–4.




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                                                  51952                          Federal Register / Vol. 81, No. 151 / Friday, August 5, 2016 / Notices

                                                  change as described in Items I, II, and                 range, regardless of the exchange on                  submitted for clearing by a Member but
                                                  III below, which Items have been                        which the transaction occurs. The ORF                 then ‘‘flipped’’ to the account of a non-
                                                  prepared by the Exchange. The                           will be collected indirectly from                     Member. Thus, the Exchange believes
                                                  Exchange has designated the proposed                    Members and non-Members through                       that charging the ORF to Members and
                                                  rule change as one establishing or                      their clearing firms by OCC on behalf of              non-Members across all markets will
                                                  changing a member due, fee, or other                    the Exchange. The ORF will be collected               avoid having non-Members clear their
                                                  charge imposed by the Exchange under                    indirectly from Members and non-                      trades through non-Members in order to
                                                  section 19(b)(3)(A)(ii) of the Act 3 and                Members through their clearing firms by               avoid the fee and to thereby avoid
                                                  Rule 19b–4(f)(2) thereunder,4 which                     OCC on behalf of EDGX Options.                        paying for their fair share for regulation.
                                                  renders the proposed rule change                           The Exchange believes it is                        If the ORF did not apply to activity
                                                  effective upon filing with the                          appropriate to charge the ORF to                      across markets then a Member or non-
                                                  Commission. The Commission is                           transactions by Members and non-                      Member would send their orders to the
                                                  publishing this notice to solicit                       Members that clear as customer at the                 least cost, least regulated exchange. In
                                                  comments on the proposed rule change                    OCC, irrespective of where the                        addition, applying the fee to all
                                                  from interested persons.                                transactions takes place. Many of the                 Members’ and non-Members’ activity
                                                                                                          Exchange’s surveillance programs for                  across all market will avoid options
                                                  I. Self-Regulatory Organization’s                       customer trading activity require the                 participants from terminating their
                                                  Statement of the Terms of Substance of                  Exchange to look at activity across all               membership status on or not becoming
                                                  the Proposed Rule Change                                options markets, such as surveillances                a Members of certain exchanges simply
                                                     The Exchange filed a proposal to                     for position limit violations,                        to avoid being assessed ORF.
                                                  amend the fee schedule applicable to                    manipulation, insider trading, front-                    As discussed above, the ORF is
                                                  Members 5 and non-members of the                        running and contrary exercise advice                  designed to recover a material portion of
                                                  Exchange pursuant to EDGX Rules                         violations/expiring exercise                          the costs to the Exchange of the
                                                  15.1(a) and (c).                                        declarations. Accordingly, there is a                 supervision and regulation of Members’
                                                     The text of the proposed rule change                 strong nexus between the ORF and the                  and non-Member’s customer options
                                                  is available at the Exchange’s Web site                 Exchange’s regulatory activities with                 business, including performing routine
                                                  at www.batstrading.com, at the                          respect to its Members’, as well as non-              surveillances and investigations, as well
                                                  principal office of the Exchange, and at                Members’, customer trading activity.                  as policy, rulemaking, interpretive and
                                                  the Commission’s Public Reference                       These activities span across multiple                 enforcement activities. The Exchange
                                                  Room.                                                   exchanges.                                            believes that revenue generated from the
                                                                                                             In addition to its own surveillance                ORF, when combined with all of the
                                                  II. Self-Regulatory Organization’s                      programs, the Exchange works with                     Exchange’s other regulatory fees and
                                                  Statement of the Purpose of, and                        other SROs and exchanges on                           fines, will cover a material portion, but
                                                  Statutory Basis for, the Proposed Rule                  intermarket surveillance related issues.              not all, of the Exchange’s regulatory
                                                  Change                                                  Through its participation in the                      costs.8
                                                    In its filing with the Commission, the                Intermarket Surveillance Group                           The Exchange will monitor the
                                                  Exchange included statements                            (‘‘ISG’’),6 the Exchange shares                       amount of revenue collected from the
                                                  concerning the purpose of and basis for                 information and coordinates inquiries                 ORF to ensure that it, in combination
                                                  the proposed rule change and discussed                  and investigations with other exchanges               with its other regulatory fees and fines,
                                                  any comments it received on the                         designed to address potential                         does not exceed the Exchange’s total
                                                  proposed rule change. The text of these                 intermarket manipulation and trading                  regulatory costs. The Exchange expects
                                                  statements may be examined at the                       abuses. Also, the Exchange and the                    to monitor its regulatory costs and
                                                  places specified in Item IV below. The                  other options exchanges are required to               revenues at a minimum on a semi-
                                                  Exchange has prepared summaries, set                    populate a consolidated options audit                 annual basis. If the Exchange
                                                  forth in sections A, B, and C below, of                 trail (‘‘COATS’’) 7 system in order to                determines regulatory revenues exceed
                                                  the most significant parts of such                      surveil trading activities across markets.            or are insufficient to cover a material
                                                  statements.                                                The Exchange proposes to assess ORF                portion of its regulatory costs, the
                                                                                                          monthly based on information received                 Exchange will adjust the ORF by
                                                  A. Self-Regulatory Organization’s                       from the OCC regarding transactions                   submitting a fee change filing to the
                                                  Statement of the Purpose of, and the                    that cleared in the customer range.                   Commission. The Exchange will notify
                                                  Statutory Basis for, the Proposed Rule                  Notably, the Exchange believes that this              Members and non-Members of
                                                  Change                                                  will help to alleviate confusion or even              adjustments to the ORF at least 30
                                                  1. Purpose                                              potential double-billing of customer                  calendar days prior to the effective date
                                                                                                          transactions. In particular, by billing all           of the change.9
                                                    The Exchange proposes to modify the                   customer transactions on a monthly
                                                  fee schedule applicable to the                          basis the Exchange will be able to                       8 The Exchange notes that its regulatory

                                                  Exchange’s options platform (‘‘EDGX                     capture transactions that may have been               responsibilities with respect to compliance with
                                                  Options’’) to adopt an ORF in the                                                                             options sales practice rules has been allocated to
                                                                                                          executed on the Exchange that were                    the Financial Industry Regulatory Authority, Inc.
                                                  amount of $0.0002 per contract side.                                                                          (‘‘FINRA’’) under a 17d–2 Agreement. The ORF is
                                                  The per-contract ORF will be assessed                      6 ISG is an industry organization formed in 1983   not designed to cover the cost of options sales
                                                  by the Exchange to each Member and                      to coordinate intermarket surveillance among the      practice regulation.
                                                  non-Member for all options transactions                 SROs by co-operatively sharing regulatory                9 The Exchange announced its intent to charge an
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                                                                                                          information pursuant to a written agreement           ORF on June 30, 2016. See Bats Options Exchange
                                                  cleared by OCC in the ‘‘customer’’                      between the parties. The goal of the ISG’s            Regulatory Fee Schedule Update Effective August 1,
                                                                                                          information sharing is to coordinate regulatory       2016 available at: http://cdn.batstrading.com/
                                                    3 15 U.S.C. 78s(b)(3)(A)(ii).                         efforts to address potential intermarket trading      resources/fee_schedule/2016/Bats-Options-
                                                    4 17 CFR 240.19b–4(f)(2).                             abuses and manipulations.                             Exchange-Regulatory-Fee-Schedule-Update-
                                                    5 The term ‘‘Member’’ is defined as ‘‘any                7 COATS effectively enhances intermarket           Effective-August-1-2016.pdf. The semi-annual
                                                  registered broker or dealer that has been admitted      options surveillance by enabling the options          review and notice provisions are similar to those
                                                  to membership in the Exchange.’’ See Exchange           exchanges to reconstruct the market promptly to       adopted by NYSE Arca, Inc. (‘‘NYSE Arca’’). See
                                                  Rule 1.5(n).                                            effectively surveil certain rules.                    Securities Exchange Act Release No. 70500



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                                                                                 Federal Register / Vol. 81, No. 151 / Friday, August 5, 2016 / Notices                                            51953

                                                     The Exchange notes that there is                     expenditure of human and technical                        The Exchange also believes it is
                                                  established precedent for an SRO                        resources than regulating non-customer                 reasonable and appropriate for the
                                                  charging a fee across markets, namely,                  trading activity, which tends to be more               Exchange to charge the ORF for options
                                                  FINRAs Trading Activity Fee 10 and the                  automated and less labor-intensive. As a               transactions by a non-Member
                                                  BZX, MIAX, NYSE Amex, NYSE Arca,                        result, the costs associated with                      regardless of the exchange on which the
                                                  CBOE, PHLX, ISE and BOX ORFs. While                     administering the customer component                   transactions occur. The Exchange has a
                                                  the Exchange does not have all of the                   of the Exchange’s overall regulatory                   statutory obligation to enforce
                                                  same regulatory responsibilities as                     program are materially higher than the                 compliance by Members and their
                                                  FINRA, the Exchange believes that, like                 costs associated with administering the                associated persons under the Act and
                                                  other exchanges that have adopted an                    non-customer component (e.g., Member                   the rules of the Exchange and cannot
                                                  ORF, its broad regulatory                               proprietary transactions) of its                       effectively surveil for manipulative
                                                  responsibilities with respect to a                      regulatory program. In addition, the                   conduct by market participants
                                                  Member’s and non-Members’ activities,                   Exchange believes the amount of the                    (including non-Members) trading on the
                                                  irrespective of where their transactions                ORF is reasonable as it is significantly               Exchange without looking at and
                                                  take place, support a regulatory fee                    lower than ORFs charged by other                       evaluating activity across all options
                                                  applicable to transactions on other                     exchanges. By way of comparison,                       markets. Many of the Exchange’s market
                                                  markets. Unlike FINRA’s Trading                         MIAX charges an ORF of $0.0045 per                     surveillance programs require the
                                                  Activity Fee, the ORF would apply only                  contract side,13 and both NYSE Arca                    Exchange to look at and evaluate
                                                  to a Member’s and non-Member’s                          and NYSE Amex charge an ORF of                         activity across all options markets, such
                                                  customer options transactions.                          $0.0055 per contract side.14 The CBOE                  as surveillance for position limit
                                                                                                          charges an ORF of $0.0081 per                          violations, manipulation, front-running
                                                  Implementation Date
                                                                                                          contract.15                                            and contrary exercise advice violations/
                                                    The Exchange proposes to implement                                                                           expiring exercise declarations.
                                                  the ORF on August 1, 2016.                                 The Exchange believes applying the                     The ORF is designed to recover a
                                                                                                          ORF to transactions executed or cleared                material portion of the costs of
                                                  2. Statutory Basis                                      by non-Members is equitable and not                    supervising and regulating Members’
                                                     The Exchange believes that the                       unfairly discriminatory because it                     and non-Members’ customer options
                                                  proposed rule change is consistent with                 should avoid having transactions                       business including performing routine
                                                  the requirements of the Act and the                     cleared through non-Members in order                   surveillances, investigations,
                                                  rules and regulations thereunder that                   to avoid the fee and to thereby avoid                  examinations, financial monitoring, and
                                                  are applicable to a national securities                 paying for their fair share for                        policy, rulemaking, interpretive, and
                                                  exchange, and, in particular, with the                  regulation.16 If the ORF did not apply to              enforcement activities. The Exchange
                                                  requirements of section 6 of the Act.11                 activity across markets then a non-                    will monitor, on at least a semi-annual
                                                  Specifically, the Exchange believes that                Member would send their orders to the                  basis the amount of revenue collected
                                                  the proposed rule change is consistent                  least cost, least regulated exchange. In               from the ORF to ensure that it, in
                                                  with section 6(b)(4) of the Act,12 in that              addition, applying the fee to all                      combination with its other regulatory
                                                  it provides for the equitable allocation                Members’ and non-Members’ activity                     fees and fines, does not exceed the
                                                  of reasonable dues, fees and other                      across all market will avoid options                   Exchange’s total regulatory costs. If the
                                                  charges among members and other                         participants from terminating their                    Exchange determines regulatory
                                                  persons using any facility or system                    membership status on or not becoming                   revenues exceed or are insufficient to
                                                  which the Exchange operates or                          a Members of certain exchanges simply                  cover a material portion of its regulatory
                                                  controls. The Exchange notes that it                    to avoid being assessed ORF. Moreover,                 costs, the Exchange will adjust the ORF
                                                  operates in a highly competitive market                 the Exchange believes the ORF ensures                  by submitting a fee change filing to the
                                                  in which market participants can                        fairness by assessing fees to those                    Commission. The Exchange will notify
                                                  readily direct order flow to competing                  Members and non-Members that are                       Members and non-Members of
                                                  venues or providers of routing services                 directly based on the amount of                        adjustments to the ORF via regulatory
                                                  if they deem fee levels to be excessive.                customer options business they                         circular.
                                                     The Exchange believes the ORF is                     conduct.                                                  The Exchange has designed the ORF
                                                  equitable and not unfairly                                                                                     to generate revenues that, when
                                                  discriminatory because it would be                        13 See MIAX fee schedule available at http://        combined with all of the Exchange’s
                                                  objectively allocated to Members and                    www.miaxoptions.com/sites/default/files/MIAX_          other regulatory fees, will be less than
                                                  non-Members in that it would be                         Options_Fee_Schedule_06012016.pdf (date May 1,         or equal to the Exchange’s regulatory
                                                  charged to all Members and non-                         2016).
                                                                                                            14 See NYSE Arca Options fee schedule available      costs, which is consistent with the
                                                  Members on all their transactions that                                                                         Commission’s view that regulatory fees
                                                                                                          at https://www.nyse.com/publicdocs/nyse/markets/
                                                  clear as customer transactions at the                   arca-options/NYSE_Arca_Options_Fee_                    be used for regulatory purposes and not
                                                  OCC. Moreover, the Exchange believes                    Schedule.pdf (dated June 6, 2016); and NYSE Amex       to support the Exchange’s business side.
                                                  the ORF ensures fairness by assessing                   fee schedule available at https://www.nyse.com/
                                                                                                                                                                 In this regard, the Exchange believes
                                                  fees to those Members and non-                          publicdocs/nyse/markets/amex-options/NYSE_
                                                                                                          Amex_Options_Fee_Schedule.pdf (dated June 9,           that the initial level of the fee is
                                                  Members that are directly based on the                  2016).                                                 reasonable.
                                                  amount of customer options business                       15 See CBOE fee schedule available at http://
                                                  they conduct. Regulating customer                       www.cboe.com/framed/pdfframed.aspx?content=/           B. Self-Regulatory Organization’s
                                                  trading activity is much more labor                     publish/feeschedule/CBOEFeeSchedule.pdf&               Statement on Burden on Competition
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                                                  intensive and requires greater                          section=SEC_RESOURCES&title=CBOE%20Fee%20
                                                                                                          Schedule (dated May 16, 2016).                           The Exchange does not believe that
                                                                                                            16 Despite rule text to the contrary, the Exchange   the proposed rule change will impose
                                                  (September 25, 2013), 78 FR 60361 (October 1,           believes based on conversations with market            any burden on competition not
                                                  2013) (SR–NYSEArca–2013–91).                            participants that other options exchanges currently
                                                    10 See Securities Exchange Act Release No. 47946                                                             necessary or appropriate in furtherance
                                                                                                          charge an ORF on all options transactions cleared
                                                  (May 30, 2003), 68 FR 3402 (June 6, 2003).              by the OCC in the customer range regardless of
                                                                                                                                                                 of the purposes of the Act. The ORF is
                                                    11 15 U.S.C. 78f.
                                                                                                          whether they are executed or cleared by their          not intended to have any impact on
                                                    12 15 U.S.C. 78f(b)(4).                               member.                                                competition. Rather, it is designed to


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                                                  51954                          Federal Register / Vol. 81, No. 151 / Friday, August 5, 2016 / Notices

                                                  enable the Exchange to recover a                        All submissions should refer to File No.              ‘‘Exchange’’ or ‘‘BZX’’) filed with the
                                                  material portion of the Exchange’s cost                 SR–BatsEDGX–2016–33. This file                        Securities and Exchange Commission
                                                  related to its regulatory activities. The               number should be included on the                      (the ‘‘Commission’’) the proposed rule
                                                  proposed ORF is also comparable to,                     subject line if email is used. To help the            change as described in Items I, II, and
                                                  and in most instances less than, ORF                    Commission process and review your                    III below, which Items have been
                                                  fees charged by other options                           comments more efficiently, please use                 prepared by the Exchange. The
                                                  exchanges. Further, the expansion of                    only one method. The Commission will                  Exchange has designated the proposed
                                                  ORF to non-Members is also not                          post all comments on the Commission’s                 rule change as one establishing or
                                                  designed to have an impact on                           Internet Web site (http://www.sec.gov/                changing a member due, fee, or other
                                                  competition as the Exchange believes                    rules/sro.shtml). Copies of the                       charge imposed by the Exchange under
                                                  based on conversations from market                      submission, all subsequent                            section 19(b)(3)(A)(ii) of the Act 3 and
                                                  participants that it is consistent with the             amendments, all written statements                    Rule 19b–4(f)(2) thereunder,4 which
                                                  practice by other exchanges in applying                 with respect to the proposed rule                     renders the proposed rule change
                                                  ORF to non-Member transactions,                         change that are filed with the                        effective upon filing with the
                                                  despite rule text to the contrary.                      Commission, and all written                           Commission. The Commission is
                                                                                                          communications relating to the                        publishing this notice to solicit
                                                  C. Self-Regulatory Organization’s                       proposed rule change between the                      comments on the proposed rule change
                                                  Statement on Comments on the                            Commission and any person, other than                 from interested persons.
                                                  Proposed Rule Change Received From                      those that may be withheld from the
                                                  Members, Participants, or Others                        public in accordance with the                         I. Self-Regulatory Organization’s
                                                                                                          provisions of 5 U.S.C. 552, will be                   Statement of the Terms of Substance of
                                                    The Exchange has not solicited, and
                                                                                                          available for Web site viewing and                    the Proposed Rule Change
                                                  does not intend to solicit, comments on
                                                  this proposed rule change. The                          printing in the Commission’s Public                      The Exchange filed a proposal to
                                                  Exchange has not received any written                   Reference Room, 100 F Street NE.,                     amend the fee schedule applicable to
                                                  comments from members or other                          Washington, DC 20549, on official                     Members 5 and non-members of the
                                                  interested parties.                                     business days between the hours of                    Exchange pursuant to BZX Rules 15.1(a)
                                                                                                          10:00 a.m. and 3:00 p.m. Copies of the                and (c).
                                                  III. Date of Effectiveness of the                       filing also will be available for                        The text of the proposed rule change
                                                  Proposed Rule Change and Timing for                     inspection and copying at the principal               is available at the Exchange’s Web site
                                                  Commission Action                                       office of the Exchange. All comments                  at www.batstrading.com, at the
                                                     The foregoing rule change has become                 received will be posted without change;               principal office of the Exchange, and at
                                                  effective pursuant to section 19(b)(3)(A)               the Commission does not edit personal                 the Commission’s Public Reference
                                                  of the Act 17 and paragraph (f) of Rule                 identifying information from                          Room.
                                                  19b–4 thereunder.18 At any time within                  submissions. You should submit only
                                                                                                          information that you wish to make                     II. Self-Regulatory Organization’s
                                                  60 days of the filing of the proposed rule                                                                    Statement of the Purpose of, and
                                                  change, the Commission summarily may                    available publicly. All submissions
                                                                                                          should refer to File No. SR–BatsEDGX–                 Statutory Basis for, the Proposed Rule
                                                  temporarily suspend such rule change if                                                                       Change
                                                  it appears to the Commission that such                  2016–33, and should be submitted on or
                                                  action is necessary or appropriate in the               before August 26, 2016.                                 In its filing with the Commission, the
                                                  public interest, for the protection of                    For the Commission, by the Division of              Exchange included statements
                                                  investors, or otherwise in furtherance of               Trading and Markets, pursuant to delegated            concerning the purpose of and basis for
                                                  the purposes of the Act.                                authority.19                                          the proposed rule change and discussed
                                                                                                          Robert W. Errett,                                     any comments it received on the
                                                  IV. Solicitation of Comments                            Deputy Secretary.                                     proposed rule change. The text of these
                                                    Interested persons are invited to                     [FR Doc. 2016–18570 Filed 8–4–16; 8:45 am]            statements may be examined at the
                                                  submit written data, views, and                         BILLING CODE 8011–01–P
                                                                                                                                                                places specified in Item IV below. The
                                                  arguments concerning the foregoing,                                                                           Exchange has prepared summaries, set
                                                  including whether the proposed rule                                                                           forth in sections A, B, and C below, of
                                                  change is consistent with the Act.                      SECURITIES AND EXCHANGE                               the most significant parts of such
                                                  Comments may be submitted by any of                     COMMISSION                                            statements.
                                                  the following methods:                                  [Release No. 34–78453; File No. SR–                   A. Self-Regulatory Organization’s
                                                  Electronic Comments                                     BatsBZX–2016–42]                                      Statement of the Purpose of, and the
                                                                                                                                                                Statutory Basis for, the Proposed Rule
                                                    • Use the Commission’s Internet                       Self-Regulatory Organizations; Bats                   Change
                                                  comment form (http://www.sec.gov/                       BZX Exchange, Inc.; Notice of Filing
                                                  rules/sro.shtml); or                                    and Immediate Effectiveness of a                      1. Purpose
                                                    • Send an email to rule-comments@                     Proposed Rule Change To Amend the                       The Exchange proposes to modify the
                                                  sec.gov. Please include File No. SR–                    Options Regulatory Fee                                fee schedule applicable to the
                                                  BatsEDGX–2016–33 on the subject line.                   August 1, 2016.                                       Exchange’s options platform (‘‘BZX
                                                                                                             Pursuant to section 19(b)(1) of the                Options’’) to amend the rate of its ORF
                                                  Paper Comments                                                                                                as well as to expand its application to
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                                                                                                          Securities Exchange Act of 1934 (the
                                                    • Send paper comments in triplicate                   ‘‘Act’’),1 and Rule 19b–4 thereunder,2                non-Members. Currently, the Exchange
                                                  to Secretary, Securities and Exchange                   notice is hereby given that on July 20,                 3 15 U.S.C. 78s(b)(3)(A)(ii).
                                                  Commission, 100 F Street NE.,                           2016, Bats BZX Exchange, Inc. (the                      4 17 CFR 240.19b–4(f)(2).
                                                  Washington, DC 20549–1090.                                                                                      5 The term ‘‘Member’’ is defined as ‘‘any
                                                                                                            19 17 CFR 200.30–3(a)(12).                          registered broker or dealer that has been admitted
                                                    17 15 U.S.C. 78s(b)(3)(A).                              1 15 U.S.C. 78s(b)(1).                              to membership in the Exchange.’’ See Exchange
                                                    18 17 CFR 240.19b–4(f).                                 2 17 CFR 240.19b–4.                                 Rule 1.5(n).



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Document Created: 2016-08-05 06:43:49
Document Modified: 2016-08-05 06:43:49
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 51951 

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