81 FR 62781 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Fees for Use of Bats EDGX Exchange, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 176 (September 12, 2016)

[Federal Register Volume 81, Number 176 (Monday, September 12, 2016)]
[Notices]
[Pages 62781-62783]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-21800]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78771; File No. SR-BatsEDGX-2016-49]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change to Fees 
for Use of Bats EDGX Exchange, Inc.

September 6, 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 August 22, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to EDGX Rules 
15.1(a) and (c).
---------------------------------------------------------------------------

    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at www.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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its marketing fee program to 
institute a monthly cap of $250,000 on undisbursed funds and reimburse 
excess funds on a pro-rata basis, as further described below.
    The Exchange assesses a marketing fee to all Market Makers for 
contracts they execute in their assigned classes when the contra-party 
to the execution is a Customer.\6\ The marketing fee is charged only in 
a Market Maker's assigned classes because it is in these classes that 
the Market Maker has the general obligation to attract order flow to 
the Exchange. Each Primary Market Maker (``PMM'') \7\ and Directed 
Market Maker (``DMM'') \8\ has a marketing fee pool into which the 
Exchange will deposit the applicable per-contract marketing fee. For 
orders directed to DMMs, the applicable marketing fees are allocated to 
the DMM pool. For non-directed orders, the applicable marketing fees 
are allocated to the PMM pool. All Market Makers that participated in 
such transaction will pay the applicable marketing fees to the 
Exchange, which allocates such funds to the Market Maker that controls 
the distribution of the marketing fee pool. Each month the Market Maker 
provides instruction to the Exchange describing how the Exchange is to 
distribute the marketing fees in the pool to the order flow provider, 
who submit as agent, Customer orders to the Exchange.
---------------------------------------------------------------------------

    \6\ The amount of the marketing fee depends upon whether the 
affected option class is a Penny Pilot Security. A marketing fee of 
$0.25 per contract is assessed to Market Makers for transactions in 
Penny Pilot Securities. A Marketing Fee of $0.70 per contract is 
assessed to Market Makers for transactions in Non-Penny Pilot 
Securities. A list of option classes included in the Penny Pilot 
Program is available on the Exchange's Web site.
    \7\ See Exchange Rule 21.8(g).
    \8\ See Exchange Rule 21.8(f).
---------------------------------------------------------------------------

    The Exchange proposes to now require that the total balance of the 
undisbursed marketing fees for a PMM pool and DMM pool cannot exceed 
$250,000. When the pool balance exceeds this threshold level, the 
Exchange will rebate funds proportionately to those who have paid the 
marketing fee during the preceding month. Today, undisbursed marketing 
fees are reimbursed to the Market Makers that contributed to the pool 
based upon their pro-rata portion of the entire amount of marketing fee 
collected. As proposed, each month, undisbursed marketing fees in 
excess of $250,000 will be reimbursed to the Market Makers that 
contributed to the pool based upon a one month look back and their pro-
rata portion of the entire amount of marketing fee collected during 
that month. The Exchange will closely monitor the levels of the cap to 
ensure that there are adequate funds available to Market Makers to be 
competitive. The Exchange believes the proposed cap and reimbursement 
process would assist Market Makers in better managing their respective 
marketing fee pools and incentivize them to allocate those funds to 
order flow providers accordingly on a monthly basis.

[[Page 62782]]

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.\9\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with section 6(b)(4) of the Act,\10\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange notes that the U.S. options markets are highly 
competitive, and the marketing fee is intended to provide an incentive 
for Market Makers to enter into marketing agreements with Members so 
that they will provide order flow to the Exchange. The marketing fee is 
charged only in a Market Maker's assigned classes because it is in 
these classes that the Market Maker has the general obligation to 
attract order flow to the Exchange.
    The Exchange believes that the proposed amendments to its marketing 
fee program, which is similar to marketing fee programs that have 
previously been implemented on other options exchanges,\11\ will 
enhance the Exchange's competitive position and will result in 
increased liquidity on the Exchange, thereby providing more of an 
opportunity for customers to receive best executions. In addition, the 
proposed cap and reimbursement process would assist Market Makers in 
better managing their respective marketing fee pools and incentivize 
them to allocate those funds to order flow providers accordingly on a 
monthly basis. The Exchange notes that most options exchange's that 
administer a marketing fee program do not cap the monthly 
contributions,\12\ thereby allowing their market makers to roll over 
monies from month to month without making the disbursements provided 
for by their respective programs. Therefore, the Exchange believes that 
providing a cap of $250,000 is equitable and reasonable as it would 
allow the Exchange to monitor the impact of the cap on a Market Maker's 
allocation of marketing fees without inappropriately limiting a Market 
Maker's ability to carry over funds from month to month.
---------------------------------------------------------------------------

    \11\ See International Securities Exchange, Inc. (``ISE'') fee 
schedule available at http://www.ise.com/assets/documents/OptionsExchange/legal/fee/ISE_fee_schedule.pdf (implementing a cap 
of $100,000); ISE Mercury LLC (``ISE Mercury'') fee schedule 
available at http://www.ise.com/assets/mercury/documents/OptionsExchange/legal/fee/Mercury_Fee_Schedule.pdf (implementing a 
marketing fee cap of $100,000); and Chicago Board Options Exchange, 
Incorporated (``CBOE'') fee schedule available at http://www.cboe.com/framed/pdfframed.aspx?content=/publish/feeschedule/CBOEFeeSchedule.pdf§ion=SEC_RESOURCES&title=CBOE%20Fee%20Schedule
 (implementing a marketing fee cap of $100,000).
    \12\ See e.g., Nasdaq PHLX LLC (``PHLX'') price list available 
at http://www.nasdaqtrader.com/Micro.aspx?id=PHLXPricing; Miami 
International Securities Exchange LLC (``MIAX'') available at http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_08012016C.pdf.
---------------------------------------------------------------------------

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

    The Exchange believes its proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed change represents a significant 
departure from previous pricing offered by the Exchange or its 
competitors. Additionally, Members may opt to disfavor the Exchange's 
pricing if they believe that alternatives offer them better value. The 
Exchange believes that its proposed marketing fee cap, which is similar 
to marketing fee caps in place on other options exchanges,\13\ will 
enhance the Exchange's competitive position by resulting in increased 
liquidity on the Exchange, thereby providing more of an opportunity for 
customers to receive best executions.
---------------------------------------------------------------------------

    \13\ See supra note 10.
---------------------------------------------------------------------------

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 \14\ and paragraph (f) of Rule 19b-4 
thereunder.\15\ 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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-2016-49 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-2016-49. 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 such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-2016-49 and should be 
submitted on or before October 3, 2016.


[[Page 62783]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-21800 Filed 9-9-16; 8:45 am]
BILLING CODE 8011-01-P