81 FR 64221 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Tiers Related to SPY Options
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 181 (September 19, 2016)
Federal Register Volume 81, Issue 181 (September 19, 2016)
| Page Range | 64221-64226 | |
| FR Document | 2016-22416 |
[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)] [Notices] [Pages 64221-64226] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-22416] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78819; File No. SR-BX-2016-049] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Tiers Related to SPY Options September 13, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, on August 31, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Options Pricing at Chapter XV Section 2, entitled ``BX Options Market--Fees and Rebates,'' which governs pricing for BX members using the BX Options Market (``BX Options''). The Exchange proposes to modify fees and rebates (per executed contract) for options overlying Standard and Poor's[supreg] Depositary Receipts/SPDRs[supreg] (``SPY'') \3\ to: (a) Adopt two additional rebate Tiers applicable to Rebate to Remove Liquidity, and modify the existing volume criteria and rebate amounts per Tier; and (b) modify Note 1 through Note 6; within the SPY Options Tier Schedule. --------------------------------------------------------------------------- \3\ Options overlying SPY are based on the SPDR exchange-traded fund (``ETF''), and are Penny Pilot Options. The SPY ETF represents ownership in the SPDR S&P 500 Trust, a unit investment trust that generally corresponds to the price and yield performance of the SPDR S&P 500 Index. ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' ``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' are registered trademarks of Standard & Poor's Financial Services LLC. The Penny Pilot was established in June 2012 and extended through 2016. See Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX option rules and establishing Penny Pilot); and 78036 (June 10, 2016), 81 FR 39308 (June 16, 2016) (SR-BX-2016-021) (notice of filing and immediate effectiveness extending the Penny Pilot through December 31, 2016). --------------------------------------------------------------------------- While changes to the Pricing Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative on September 1, 2016. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqbx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Chapter XV, Section 2, to modify fees and rebates (per executed contract) for options overlying SPY to: (a) Adopt two additional rebate Tiers applicable to Rebate to Remove Liquidity, and modify the existing volume criteria and rebate amounts per Tier; and (b) modify Note 1 through Note 6; within the SPY Options Tier Schedule. The Tiers, described below along with the Notes, together make up the ``SPY Options Tier Schedule.'' The proposed SPY Options Tier Schedule rebates would apply to Customers \4\ that remove liquidity from Customers, Non-Customers,\5\ BX Options Market Makers,\6\ or Firms.\7\ --------------------------------------------------------------------------- \4\ The term ``Customer'' or (``C'') applies to any transaction that is identified by a Participant for clearing in the Customer range at The Options Clearing Corporation (``OCC'') which is not for the account of broker or dealer or for the account of a ``Professional'' (as that term is defined in Chapter I, Section 1(a)(48)). BX Chapter XV. This is known as being marked in the Customer range. \5\ Note 1 to Chapter XV, Section 2 states: ``\1\A Non-Customer includes a Professional, Broker-Dealer and Non-BX Options Market Maker.'' \6\ The term ``BX Options Market Maker'' or (``M'') means a Participant that has registered as a Market Maker on BX Options pursuant to Chapter VII, Section 2, and must also remain in good standing pursuant to Chapter VII, Section 4. In order to receive Market Maker pricing in all securities, the Participant must be registered as a BX Options Market Maker in at least one security. BX Chapter XV. \7\ The term ``Firm'' or (``F'') applies to any transaction that is identified by a Participant for clearing in the Firm range at OCC. BX Chapter XV. --------------------------------------------------------------------------- Currently, Chapter XV, Section 2, subsection (1), has a SPY Options Tier Schedule that has three Tiers and six Notes. The Exchange proposes in the current filing to modify the Tiers and Notes to give BX Participants (``Participants'') additional rebate and fee options, and each specific change is described in detail below. Change 1--Penny Pilot Options: In SPY Options Tier Schedule Adopt Two Additional Rebate Tiers and Modify Existing Volume Criteria and Rebate Amounts per Tiers [sic] In Change 1, the Exchange proposes modifications to its current SPY Options Tier Schedule \8\ to indicate that this particular schedule will have two additional tiers for the Rebate to Remove Liquidity, namely Tiers 4 and 5. The Exchange proposes also to modify existing Tiers 1 through 3. By doing so, the Exchange proposes to have a Rebate to Remove Liquidity of $0.01 to $0.52 per contract over five Tiers, whereas now the rebates are $0.10 to $0.51 per contract over three Tiers. The proposed five Tier structure for Rebate to Remove Liquidity offers a more graduated Tier structure to further incentivize Participants to bring SPY Options volume to the Exchange. --------------------------------------------------------------------------- \8\ The Penny Pilot Options Tier Schedule, Select Symbols Options Tier Schedule, and Non-Penny Pilot Options Tier Schedule pricing will remain unchanged. --------------------------------------------------------------------------- Today, Tier 1 to the Rebate to Remove Liquidity indicates that a Participant [sic] removes less than 1500 SPY Options contracts per day in the customer range can earn a rebate of $0.10 per contract. The Exchange proposes to modify Tier 1 so that going forward a Participant that removes less than 500 SPY Options contracts per day in the customer range can earn a rebate of $0.01 per contract. Today, Tier 2 to the Rebate to Remove Liquidity indicates that a Participant [sic] removes 1500 to not more than 2999 SPY Options contracts per day in the customer range can earn a rebate of $0.42 per contract. The Exchange [[Page 64222]] proposes to modify Tier 2 to the Rebate to Remove Liquidity so that going forward a Participant that removes 500 to not more than 999 SPY Options contracts per day in the customer range can earn a rebate of $0.10 per contract. Today, Tier 3 to the Rebate to Remove Liquidity indicates that a Participant [sic] removes more than 2999 SPY Options contracts per day in the customer range can earn a rebate of $0.51 per contract. The Exchange proposes to modify Tier 3 to the Rebate to Remove Liquidity so that going forward a Participant that removes 1000 to not more than 1999 SPY Options contracts per day in the customer range can earn a rebate of $0.35 per contract. The Exchange also proposes two new Tiers that are similar in structure to the existing Tiers. The Exchange proposes new Tier 4 applicable to Rebate to Remove Liquidity so that a Participant that removes 2000 to not more than 3999 SPY Options contracts per day in the customer range can earn a rebate of $0.43 per contract. The Exchange also proposes new Tier 5 applicable to Rebate to Remove Liquidity so that a Participant that removes more than 3999 SPY Options contracts per day in the customer range can earn a rebate of $0.52 per contract. Thus, instead of offering Participants rebates of $0.10 to $0.51 per contract over three Tiers, as proposed Participants will be offered rebates of $0.01 to $0.52 per contract over five Tiers. The Exchange believes that proposed Change 1 is reasonable because, by more finely tuning the rebates to volume (e.g., $0.01 per contract rebate if remove less than 500 SPY Contracts per lowest Tier 1; and $0.52 per contract if remove more than 3999 SPY Contracts per highest Tier 5), the proposed five Tier system will serve to incentivize Participants to remove more SPY Options contracts from the Exchange. As proposed, the Rebate to Remove Liquidity, which is in the SPY Options Tier Schedule in Chapter XV, Section 2 subsection (1), will read as follows: SPY Options Tier Schedule ------------------------------------------------------------------------ ------------------------------------------------------------------------ Rebate to Remove Liquidity (per contract) ------------------------------------------------------------------------ Applied to: Customer ------------------------------------------------------------------------ Non-Customer, BX Options Trading with: Market Maker, Customer, or Firm ------------------------------------------------------------------------ Tier 1..................... Participant removes less $0.01 than 500 SPY Options contracts per day in the customer range. Tier 2..................... Participant removes 500 to 0.10 not more than 999 SPY Options contracts per day in the customer range. Tier 3..................... Participant removes 1000 to 0.35 not more than 1999 SPY Options contracts per day in the customer range. Tier 4..................... Participant removes 2000 to 0.43 not more than 3999 SPY Options contracts per day in the customer range. Tier 5..................... Participant removes more 0.52 than 3999 SPY Options contracts per day in the customer range. ------------------------------------------------------------------------ Change 2--Penny Pilot Options: SPY Option Tier Schedule Modify Note 1 Through Note 6 There are currently six Notes regarding certain fees to add and remove liquidity within the SPY Options Tier Schedule. The language of each of these Notes will remain the same, but commensurate with the above-discussed Tier modifications the Exchange proposes to modestly change the fees and rebates in the Notes. Today, Note 1 indicates that Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.33 per contract, regardless of counterparty. The Exchange proposes to modify Note 1 so that going forward the Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.41 per contract, regardless of counterparty. Today, Note 2 indicates that Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.46 per contract, regardless of counterparty. The Exchange proposes to modify Note 2 so that going forward the Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.44 per contract, regardless of counterparty. Today, Note 3 indicates that BX Options Market Maker fee to remove liquidity in SPY Options will be $0.46 per contract when trading with Firm, Non-Customer, or BX Options Market Maker. The Exchange proposes to modify Note 3 so that going forward the BX Options Market Maker fee to remove liquidity in SPY Options will be $0.44 per contract when trading with Firm, Non-Customer, or BX Options Market Maker. Today, Note 4 indicates that Customer fee to add liquidity in SPY Options when contra to another Customer will be $0.33 per contract. There will be no fee or rebate for Customer SPY Options that add liquidity when contra to Firm, BX Options Market Maker or Non Customer.\9\ The Exchange proposes to modify Note 4 so that going forward the Customer fee to add liquidity in SPY Options when contra to another Customer will be $0.38 per contract. --------------------------------------------------------------------------- \9\ This no fee or rebate language remains in Note 4 without change. --------------------------------------------------------------------------- Today, Note 5 indicates that BX Options Market Maker fee to add liquidity and BX Options Market Maker fee to remove liquidity in SPY Options will each be $0.44 per contract when trading with Customer. The Exchange proposes to modify Note 5 so that going forward the BX Options Market Maker fee to add liquidity and BX Options Market Maker fee to remove liquidity in SPY Options will each be $0.39 per contract when trading with Customer. Today, Note 6 indicates that BX Options Market Maker fee to add liquidity in SPY Options will be $0.10 per contract when trading with Firm, BX Options Market Maker or Non Customer. The Exchange proposes to modify Note 6 so that going forward the BX Options Market Maker fee to add liquidity in SPY Options will be $0.14 per contract when trading with Firm, BX Options Market Maker or Non Customer. The Exchange believes that proposed Change 2, together with the effort in proposed Change 1 to more finely tune the Rebate to Remove Liquidity to volume Tiers, is reasonable in light of the overall Exchange effort to incentivize Participants to bring SPY Options liquidity to the Exchange. As proposed, Notes 1 through 6 to the Rebates to Remove Liquidity, which are in the SPY Options Tier Schedule in Chapter XV, Section 2 subsection (1), will read as follows:Note 1: Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.41 per contract, regardless of counterparty. Note 2: Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.44 per contract, regardless of counterparty. Note 3: BX Options Market Maker fee to remove liquidity in SPY Options will be $0.44 per contract when trading [[Page 64223]] with Firm, Non-Customer, or BX Options Market Maker. Note 4: Customer fee to add liquidity in SPY Options when contra to another Customer will be $0.38 per contract. There will be no fee or rebate for Customer SPY Options that add liquidity when contra to Firm, BX Options Market Maker or Non Customer. Note 5: BX Options Market Maker fee to add liquidity and BX Options Market Maker fee to remove liquidity in SPY Options will each be $0.39 per contract when trading with Customer. Note 6: BX Options Market Maker fee to add liquidity in SPY Options will be $0.14 per contract when trading with Firm, BX Options Market Maker or Non Customer. The Exchange is proposing the changes because it believes that they will provide even greater incentives for execution of SPY Options contracts on the BX Options Market. The Exchange believes that its proposal should provide increased opportunities for participation in SPY Options executions on the Exchange, facilitating the ability of the Exchange to bring together participants and encourage more robust competition for orders. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6 of the Act,\10\ in general, and with Section 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the Exchange operates or controls, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Attracting order flow to the Exchange benefits all Participants who have the opportunity to interact with this order flow. --------------------------------------------------------------------------- \10\ 15 U.S.C. 78f. \11\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ``has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.'' \12\ --------------------------------------------------------------------------- \12\ Securities Exchange Act Release No. 51808 (June 29, 2005), 70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \13\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of a market-based approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a cost-based approach.\14\ As the court emphasized, the Commission ``intended in Regulation NMS that `market forces, rather than regulatory requirements' play a role in determining the market data . . . to be made available to investors and at what cost.'' \15\ --------------------------------------------------------------------------- \13\ Net Coalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \14\ See id. At 534-535. \15\ See id. At 537. --------------------------------------------------------------------------- Further, ``[n]o one disputes that competition for order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution'; [and] `no exchange can afford to take its market share percentages for granted' because `no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers'. . . .'' \16\ Although the court and the SEC were discussing the cash equities markets, the Exchange believes that these views apply with equal force to the options markets. --------------------------------------------------------------------------- \16\ See id. At 539 (quoting Securities Exchange Act Commission at [sic] Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782- 74783 (December 9, 2008) (SR-NYSEArca-2006-21)). --------------------------------------------------------------------------- The Exchange believes that its proposal should provide increased opportunities for participation in SPY Options executions on the Exchange, facilitating the ability of the Exchange to bring together participants and encourage more robust competition for orders. The Exchange believes that the proposed change is reasonable, equitable and not unfairly discriminatory for the following reasons. Change 1--Penny Pilot Options: In SPY Options Tier Schedule Adopt Two Additional Rebate Tiers and Modify Existing Volume Criteria and Rebate Amounts per Tiers [sic] In Change 1, the Exchange proposes modifications to its current SPY Options Tier Schedule to indicate that this particular schedule will have additional Tiers 4 and 5 to Rebate to Remove Liquidity. The Exchange proposes also to modify existing Tiers 1 through 3 to Rebate to Remove Liquidity. These proposed changes will enable rebates of $0.01 to $0.52 per contract over five Tiers in terms of Rebate to Remove Liquidity, whereas now the rebates are $0.10 to $0.51 per contract over three Tiers. The proposed five Tier structure for Rebate to Remove Liquidity is reasonable because it offers a more graduated Tier structure to further incentivize Participants to bring SPY Options volume to the Exchange. The Exchange believes it is equitable and not unfairly discriminatory to modify the Tiers because they will be applied uniformly to all similarly situated Participants. This is further discussed below. Tier 1 would offer the smallest Rebate to Remove Liquidity ($0.01 per contract) for removing the smallest number or [sic] SPY Options contracts, and the Tiers would be graduated so that Tier 5 would offer the largest Rebate to Remove Liquidity ($0.52 per contract) for removing the largest number or [sic] SPY Options contracts. Going forward, as discussed in detail above, the proposed Tiers would be as follows: Tier 1--a Participant that removes less than 500 (now 1,500) SPY Options contracts per day in the customer range can earn a rebate of $0.01 per contract (now $0.10 per contract); Tier 2--a Participant that removes 500 to not more than 999 (now 1500 to not more than 2999) SPY Options contracts per day in the customer range can earn a rebate of $0.10 per contract (now $0.42 per contract); Tier 3--a Participant that removes 1000 to not more than 1999 (now more than 2999) SPY Options contracts per day in the customer range can earn a rebate of $0.35 per contract (now $0.51 per contract); new Tier 4--a Participant that removes 2000 to not more than 3999 SPY Options contracts per day in the customer range can earn a rebate of $0.43 per contract; and new Tier 5--a Participant that removes more than 3999 SPY Options contracts per day in the customer range can earn a rebate of $0.52 per contract. Thus, as proposed, Participants will be offered rebates of $0.01 per contract to $0.52 per contract over five Tiers. The Exchange believes that proposed Change 1 is reasonable because, by more finely graduating the Customer Rebate to Remove Liquidity to volume (e.g., $0.01 rebate per contract if remove less than 500 SPY Contracts per lowest Tier 1; and $0.52 rebate per contract if remove more than 3999 SPY Contracts per highest Tier 5), the proposed five Tier system will serve to further incentivize Participants to remove more [[Page 64224]] SPY Options order flow in the customer range on the Exchange. The Exchange believes that proposed Change 2 [sic] is equitable and not unfairly discriminatory because the new Tiers and graduated Tier modifications will be applied uniformly to all similarly situated Participants. SPY Options are among the very highest volume options traded on the Exchange. The Exchange believes that the proposed new and modified Tiers to the Rebate to Remove Liquidity in the SPY Options Tier Schedule applicable to these high-volume options are reasonable because they continue to reflect a structure that is not novel in the options markets but rather is similar to that of other options markets and competitive with what is offered by other exchanges.\17\ In addition, the Exchange believes that making changes to add Tiers applicable to the Customer in terms of Rebate to Remove Liquidity is reasonable because it encourages the desired Customer behavior by marking [sic] the Tier structure more graduated and attracting Customer interest to the Exchange. Customer activity enhances liquidity on the Exchange for the benefit of all market participants and benefits all market participants by providing more trading opportunities, which attracts market makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. --------------------------------------------------------------------------- \17\ See, e.g., the MIAX fee schedule at https://www.miaxoptions.com/content/fees, the BATS EDGX fee schedule at http://www.bats.com/us/options/membership/fee_schedule/edgx/, and the BOX fee schedule at http://boxoptions.com/fee-schedule/. --------------------------------------------------------------------------- Expanding SPY Option Tiers for Rebate to Remove Liquidity is reasonable because it encourages market participant behavior through progressive tiered fees and rebates using an accepted methodology among options exchanges.\18\ The proposed Tiers applicable to the Rebate to Remove Liquidity in the SPY Options Tier Schedule clearly reflect the progressively increasing nature of Participant executions structured for the purpose of attracting order flow to the Exchange. That is, as discussed if a Participant removes more SPY Options contracts per day in the customer range, the Participant can earn higher rebates. For example, in the highest proposed SPY Options Tier 5 Rebate to Remove Liquidity, for which Participant must remove more than 3999 SPY Options contracts per day in the customer range, the Participant can earn the highest $0.52 rebate (per contract). And in the lowest proposed SPY Options Tier 1 Rebate to Remove Liquidity, for which Participant must remove less than 500 SPY Options contracts per day in the customer range, the Participant can earn the lowest $0.01 rebate (per contract). --------------------------------------------------------------------------- \18\ See, e.g., fee and rebate schedules of other options exchanges, including, but not limited to, NASDAQ Options Market (``NOM''), NASDAQ PHLX LLC (``Phlx''), and Chicago Board Options Exchange (``CBOE''). --------------------------------------------------------------------------- Change 2--Penny Pilot Options: In SPY Option Tier Schedule Modify Note 1 Through Note 6 In Change 2 the Exchange proposes to modify six Notes regarding certain fees to add liquidity and fees to remove liquidity. The language of each of these Notes will remain the same, but the Exchange proposes to modestly increase or decrease the amount of the fees and rebates [sic] as discussed below. The Exchange believes that this is reasonable. The Exchange believes it is equitable and not unfairly discriminatory to update the Notes because they will be applied uniformly to all similarly situated Participants. Going forward, as discussed in detail above, the proposed Notes would be as follows: Note 1--Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.41 (now $0.33) per contract, regardless of counterparty; Note 2--Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.44 (now $0.46) per contract, regardless of counterparty; Note 3--BX Options Market Maker fee to remove liquidity in SPY Options will be $0.44 (now $0.46) per contract when trading with Firm, Non-Customer, or BX Options Market Maker. [sic]; Note 4--Customer fee to add liquidity in SPY Options when contra to another Customer will be $0.38 (now $0.33) per contract; \19\ Note 5--BX Options Market Maker fee to add liquidity and BX Options Market Maker fee to remove liquidity in SPY Options will each be $0.39 (today $0.44) per contract when trading with Customer; and Note 6--BX Options Market Maker fee to add liquidity in SPY Options will be $0.14 (now $0.10) per contract when trading with Firm, BX Options Market Maker or Non Customer. --------------------------------------------------------------------------- \19\ The following language in Note 4 remains without change: There will be no fee or rebate for Customer SPY Options that add liquidity when contra to Firm, BX Options Market Maker or Non Customer. --------------------------------------------------------------------------- The fee and rebate schedule as proposed continues to reflect differentiation among different market participants. The Exchange believes that the differentiation is equitable and not unfairly discriminatory, as well as reasonable, and notes that unlike others (e.g., Non-Customers) some market participants like BX Options Market Makers commit to various obligations. Despite the fact that certain BX Options Market Maker fees to add liquidity are proposed to be increased as discussed earlier, the BX Options Market Maker fees to add and remove will be lower as compared to other non-Customer market participants. Unlike other non-Customer market participants, BX Options Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.\20\ A BX Options Market Maker has the obligation to make continuous markets, engage in course [sic] of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with course [sic] of dealings. Customers will continue to be assessed the lowest fees because Customer liquidity benefits all market participants by providing more trading opportunities, which attracts market makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. --------------------------------------------------------------------------- \20\ Pursuant to Chapter VII (Market Participants), Section 5 (Obligations of Market Makers), in registering as a Market Maker, an Options Participant commits himself to various obligations. Transactions of a Market Maker in its market making capacity must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Further, all Market Makers are designated as specialists on BX for all purposes under the Act or rules thereunder. See Chapter VII, Section 5.'' [sic] --------------------------------------------------------------------------- The Exchange believes that proposed Change 2, together with the effort in proposed Change 1 to more finely tune the Rebate to Remove Liquidity to volume Tiers, is reasonable in light of the overall Exchange effort to incentivize Participants to bring SPY Options liquidity to the Exchange. The Exchange believes that proposed Change 2 to modify the Notes applicable to SPY Options Tier Schedule is equitable and not unfairly discriminatory because it will be applied uniformly to all similarly situated Participants.\21\ --------------------------------------------------------------------------- \21\ Because the Notes are in the Rebate to Remove Liquidity section of the SPY Options Tier Schedule, the additional reasonable, equitable, and not unfairly discriminatory arguments immediately above in respect of proposed Change 1 are likewise applicable to proposed Change 2. --------------------------------------------------------------------------- The Exchange believes that by making the proposed changes it is incentivizing Participants to trade more SPY Options volume to the Exchange to further enhance liquidity in this market. [[Page 64225]] B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Specifically, the Exchange does not believe that its proposal to make changes to its SPY Options fees and rebates to add new Tiers 4 and 5 and modify existing Tiers 1, 2, and 3 to Rebate to Remove Liquidity, and to adjust applicable Notes 1 through 6, will impose any undue burden on competition, as discussed below. The Exchange operates in a highly competitive market in which many sophisticated and knowledgeable market participants can readily and do send order flow to competing exchanges if they deem fee levels or rebate incentives at a particular exchange to be excessive or inadequate. Additionally, new competitors have entered the market and still others are reportedly entering the market shortly. These market forces ensure that the Exchange's fees and rebates remain competitive with the fee structures at other trading platforms. In that sense, the Exchange's proposal is actually pro-competitive because the Exchange is simply continuing its fees and rebates and enhancing Tiers with Notes applicable to Rebate to Remove Liquidity for SPY Options in order to attract trading such options on the Exchange and remain competitive in the current environment. The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. In terms of intra-market competition, the Exchange notes that price differentiation among different market participants operating on the Exchange (e.g., Customer, BX Options Market Maker, and Non-Customer) is reasonable. Customer activity, for example, enhances liquidity on the Exchange for the benefit of all market participants and benefits all market participants by providing more trading opportunities, which attracts market makers. An increase in the activity of these market participants (particularly in response to pricing) in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Moreover, unlike others (e.g., Non-Customers) each BX Options Market Maker commits to various obligations. These obligations include, for example, transactions of a BX Market Maker must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. In this instance, the proposed changes to the fees and rebates for execution of contracts on the Exchange, and establishing SPY Options Tiers with Notes for such fees and rebates, do not impose a burden on competition because the Exchange's execution and routing services are completely voluntary and subject to extensive competition from other exchanges.. [sic] If the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. Additionally, the changes proposed herein are pro- competitive to the extent that they continue to allow the Exchange to promote and maintain order executions. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.\22\ --------------------------------------------------------------------------- \22\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-BX-2016-049 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-BX-2016-049. 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 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 [[Page 64226]] submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BX- 2016-049, and should be submitted on or before October 11, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-22416 Filed 9-16-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 181 / Monday, September 19, 2016 / Notices 64221
available publicly. All submissions two additional rebate Tiers applicable to Customers, Non-Customers,5 BX
should refer to File Number SR–BOX– Rebate to Remove Liquidity, and modify Options Market Makers,6 or Firms.7
2016–42, and should be submitted on or the existing volume criteria and rebate Currently, Chapter XV, Section 2,
before October 11, 2016. amounts per Tier; and (b) modify Note subsection (1), has a SPY Options Tier
For the Commission, by the Division of 1 through Note 6; within the SPY Schedule that has three Tiers and six
Trading and Markets, pursuant to delegated Options Tier Schedule. Notes. The Exchange proposes in the
authority.16 current filing to modify the Tiers and
While changes to the Pricing
Robert W. Errett, Notes to give BX Participants
Schedule pursuant to this proposal are
Deputy Secretary. (‘‘Participants’’) additional rebate and
effective upon filing, the Exchange has
fee options, and each specific change is
[FR Doc. 2016–22420 Filed 9–16–16; 8:45 am] designated these changes to be operative
described in detail below.
BILLING CODE 8011–01–P on September 1, 2016.
The text of the proposed rule change Change 1—Penny Pilot Options: In SPY
is available on the Exchange’s Web site Options Tier Schedule Adopt Two
SECURITIES AND EXCHANGE at http://nasdaqbx.cchwallstreet.com/, Additional Rebate Tiers and Modify
COMMISSION at the principal office of the Exchange, Existing Volume Criteria and Rebate
and at the Commission’s Public Amounts per Tiers [sic]
[Release No. 34–78819; File No. SR–BX–
2016–049] Reference Room. In Change 1, the Exchange proposes
modifications to its current SPY Options
Self-Regulatory Organizations; II. Self-Regulatory Organization’s Tier Schedule 8 to indicate that this
NASDAQ BX, Inc.; Notice of Filing and Statement of the Purpose of, and particular schedule will have two
Immediate Effectiveness of Proposed Statutory Basis for, the Proposed Rule additional tiers for the Rebate to
Rule Change Regarding Tiers Related Change Remove Liquidity, namely Tiers 4 and
to SPY Options 5. The Exchange proposes also to
In its filing with the Commission, the
Exchange included statements modify existing Tiers 1 through 3. By
September 13, 2016.
concerning the purpose of and basis for doing so, the Exchange proposes to have
Pursuant to Section 19(b)(1) of the a Rebate to Remove Liquidity of $0.01
Securities Exchange Act of 1934 the proposed rule change and discussed
any comments it received on the to $0.52 per contract over five Tiers,
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 whereas now the rebates are $0.10 to
notice is hereby given that, on August proposed rule change. The text of these
$0.51 per contract over three Tiers. The
31, 2016, NASDAQ BX, Inc. (‘‘BX’’ or statements may be examined at the
proposed five Tier structure for Rebate
‘‘Exchange’’) filed with the Securities places specified in Item IV below. The
to Remove Liquidity offers a more
and Exchange Commission (‘‘SEC’’ or Exchange has prepared summaries, set
graduated Tier structure to further
‘‘Commission’’) the proposed rule forth in sections A, B, and C below, of
incentivize Participants to bring SPY
change as described in Items I, II, and the most significant aspects of such
Options volume to the Exchange.
III below, which Items have been statements. Today, Tier 1 to the Rebate to Remove
prepared by the Exchange. The Liquidity indicates that a Participant
A. Self-Regulatory Organization’s
Commission is publishing this notice to [sic] removes less than 1500 SPY
Statement of the Purpose of, and
solicit comments on the proposed rule Options contracts per day in the
Statutory Basis for, the Proposed Rule
change from interested persons. customer range can earn a rebate of
Change
I. Self-Regulatory Organization’s $0.10 per contract. The Exchange
Statement of the Terms of Substance of 1. Purpose proposes to modify Tier 1 so that going
the Proposed Rule Change forward a Participant that removes less
The Exchange proposes to amend
than 500 SPY Options contracts per day
The Exchange proposes to amend its Chapter XV, Section 2, to modify fees
in the customer range can earn a rebate
Options Pricing at Chapter XV Section and rebates (per executed contract) for
of $0.01 per contract.
2, entitled ‘‘BX Options Market—Fees options overlying SPY to: (a) Adopt two Today, Tier 2 to the Rebate to Remove
and Rebates,’’ which governs pricing for additional rebate Tiers applicable to Liquidity indicates that a Participant
BX members using the BX Options Rebate to Remove Liquidity, and modify [sic] removes 1500 to not more than
Market (‘‘BX Options’’). The Exchange the existing volume criteria and rebate 2999 SPY Options contracts per day in
proposes to modify fees and rebates (per amounts per Tier; and (b) modify Note the customer range can earn a rebate of
executed contract) for options overlying 1 through Note 6; within the SPY $0.42 per contract. The Exchange
Standard and Poor’s® Depositary Options Tier Schedule. The Tiers,
Receipts/SPDRs® (‘‘SPY’’) 3 to: (a) Adopt described below along with the Notes, 5 Note 1 to Chapter XV, Section 2 states: ‘‘1A Non-
together make up the ‘‘SPY Options Tier Customer includes a Professional, Broker-Dealer
16 17 CFR 200.30–3(a)(12). Schedule.’’ The proposed SPY Options and Non-BX Options Market Maker.’’
1 15 U.S.C. 78s(b)(1). 6 The term ‘‘BX Options Market Maker’’ or (‘‘M’’)
Tier Schedule rebates would apply to
2 17 CFR 240.19b–4. means a Participant that has registered as a Market
3 Options overlying SPY are based on the SPDR
Customers 4 that remove liquidity from Maker on BX Options pursuant to Chapter VII,
exchange-traded fund (‘‘ETF’’), and are Penny Pilot Section 2, and must also remain in good standing
Options. The SPY ETF represents ownership in the Pilot); and 78036 (June 10, 2016), 81 FR 39308 (June pursuant to Chapter VII, Section 4. In order to
SPDR S&P 500 Trust, a unit investment trust that 16, 2016) (SR–BX–2016–021) (notice of filing and receive Market Maker pricing in all securities, the
generally corresponds to the price and yield immediate effectiveness extending the Penny Pilot Participant must be registered as a BX Options
mstockstill on DSK3G9T082PROD with NOTICES
performance of the SPDR S&P 500 Index. ‘‘SPDR®,’’ through December 31, 2016). Market Maker in at least one security. BX Chapter
‘‘Standard & Poor’s®,’’ ‘‘S&P®,’’ ‘‘S&P 500®,’’ and 4 The term ‘‘Customer’’ or (‘‘C’’) applies to any XV.
7 The term ‘‘Firm’’ or (‘‘F’’) applies to any
‘‘Standard & Poor’s 500’’ are registered trademarks transaction that is identified by a Participant for
of Standard & Poor’s Financial Services LLC. The clearing in the Customer range at The Options transaction that is identified by a Participant for
Penny Pilot was established in June 2012 and Clearing Corporation (‘‘OCC’’) which is not for the clearing in the Firm range at OCC. BX Chapter XV.
extended through 2016. See Securities Exchange account of broker or dealer or for the account of a 8 The Penny Pilot Options Tier Schedule, Select
Act Release Nos. 67256 (June 26, 2012), 77 FR ‘‘Professional’’ (as that term is defined in Chapter Symbols Options Tier Schedule, and Non-Penny
39277 (July 2, 2012) (SR–BX–2012–030) (order I, Section 1(a)(48)). BX Chapter XV. This is known Pilot Options Tier Schedule pricing will remain
approving BX option rules and establishing Penny as being marked in the Customer range. unchanged.
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![64222 Federal Register / Vol. 81, No. 181 / Monday, September 19, 2016 / Notices
proposes to modify Tier 2 to the Rebate The Exchange also proposes two new rebates of $0.01 to $0.52 per contract
to Remove Liquidity so that going Tiers that are similar in structure to the over five Tiers.
forward a Participant that removes 500 existing Tiers. The Exchange proposes The Exchange believes that proposed
to not more than 999 SPY Options new Tier 4 applicable to Rebate to Change 1 is reasonable because, by more
contracts per day in the customer range Remove Liquidity so that a Participant finely tuning the rebates to volume (e.g.,
can earn a rebate of $0.10 per contract. that removes 2000 to not more than $0.01 per contract rebate if remove less
Today, Tier 3 to the Rebate to Remove 3999 SPY Options contracts per day in
Liquidity indicates that a Participant than 500 SPY Contracts per lowest Tier
the customer range can earn a rebate of
[sic] removes more than 2999 SPY 1; and $0.52 per contract if remove more
$0.43 per contract. The Exchange also
Options contracts per day in the than 3999 SPY Contracts per highest
proposes new Tier 5 applicable to
customer range can earn a rebate of Tier 5), the proposed five Tier system
Rebate to Remove Liquidity so that a
$0.51 per contract. The Exchange Participant that removes more than 3999 will serve to incentivize Participants to
proposes to modify Tier 3 to the Rebate SPY Options contracts per day in the remove more SPY Options contracts
to Remove Liquidity so that going customer range can earn a rebate of from the Exchange.
forward a Participant that removes 1000 $0.52 per contract. Thus, instead of As proposed, the Rebate to Remove
to not more than 1999 SPY Options offering Participants rebates of $0.10 to Liquidity, which is in the SPY Options
contracts per day in the customer range $0.51 per contract over three Tiers, as Tier Schedule in Chapter XV, Section 2
can earn a rebate of $0.35 per contract. proposed Participants will be offered subsection (1), will read as follows:
SPY OPTIONS TIER SCHEDULE
Rebate to Remove Liquidity (per contract)
Applied to: Customer
Non-Customer, BX Options Trading with: Market Maker, Customer, or Firm
Tier 1 ................ Participant removes less than 500 SPY Options contracts per day in the customer range ............................... $0.01
Tier 2 ................ Participant removes 500 to not more than 999 SPY Options contracts per day in the customer range ............ 0.10
Tier 3 ................ Participant removes 1000 to not more than 1999 SPY Options contracts per day in the customer range ........ 0.35
Tier 4 ................ Participant removes 2000 to not more than 3999 SPY Options contracts per day in the customer range ........ 0.43
Tier 5 ................ Participant removes more than 3999 SPY Options contracts per day in the customer range ........................... 0.52
Change 2—Penny Pilot Options: SPY Non-Customer, or BX Options Market Today, Note 6 indicates that BX
Option Tier Schedule Modify Note 1 Maker. The Exchange proposes to Options Market Maker fee to add
Through Note 6 modify Note 3 so that going forward the liquidity in SPY Options will be $0.10
There are currently six Notes BX Options Market Maker fee to remove per contract when trading with Firm,
liquidity in SPY Options will be $0.44 BX Options Market Maker or Non
regarding certain fees to add and remove
per contract when trading with Firm, Customer. The Exchange proposes to
liquidity within the SPY Options Tier
Non-Customer, or BX Options Market modify Note 6 so that going forward the
Schedule. The language of each of these
Maker. BX Options Market Maker fee to add
Notes will remain the same, but
Today, Note 4 indicates that Customer liquidity in SPY Options will be $0.14
commensurate with the above-discussed
fee to add liquidity in SPY Options per contract when trading with Firm,
Tier modifications the Exchange
when contra to another Customer will BX Options Market Maker or Non
proposes to modestly change the fees
be $0.33 per contract. There will be no Customer.
and rebates in the Notes. The Exchange believes that proposed
Today, Note 1 indicates that Firm fee fee or rebate for Customer SPY Options
Change 2, together with the effort in
to add liquidity and fee to remove that add liquidity when contra to Firm,
proposed Change 1 to more finely tune
liquidity in SPY Options will be $0.33 BX Options Market Maker or Non
the Rebate to Remove Liquidity to
per contract, regardless of counterparty. Customer.9 The Exchange proposes to
volume Tiers, is reasonable in light of
The Exchange proposes to modify Note modify Note 4 so that going forward the
the overall Exchange effort to
1 so that going forward the Firm fee to Customer fee to add liquidity in SPY
incentivize Participants to bring SPY
add liquidity and fee to remove Options when contra to another
Options liquidity to the Exchange.
liquidity in SPY Options will be $0.41 Customer will be $0.38 per contract. As proposed, Notes 1 through 6 to the
per contract, regardless of counterparty. Today, Note 5 indicates that BX Rebates to Remove Liquidity, which are
Today, Note 2 indicates that Non- Options Market Maker fee to add in the SPY Options Tier Schedule in
Customer fee to add liquidity and fee to liquidity and BX Options Market Maker Chapter XV, Section 2 subsection (1),
remove liquidity in SPY Options will be fee to remove liquidity in SPY Options will read as follows:
$0.46 per contract, regardless of will each be $0.44 per contract when • Note 1: Firm fee to add liquidity
counterparty. The Exchange proposes to trading with Customer. The Exchange and fee to remove liquidity in SPY
modify Note 2 so that going forward the proposes to modify Note 5 so that going Options will be $0.41 per contract,
Non-Customer fee to add liquidity and
mstockstill on DSK3G9T082PROD with NOTICES
forward the BX Options Market Maker regardless of counterparty.
fee to remove liquidity in SPY Options fee to add liquidity and BX Options • Note 2: Non-Customer fee to add
will be $0.44 per contract, regardless of Market Maker fee to remove liquidity in liquidity and fee to remove liquidity in
counterparty. SPY Options will each be $0.39 per SPY Options will be $0.44 per contract,
Today, Note 3 indicates that BX contract when trading with Customer. regardless of counterparty.
Options Market Maker fee to remove • Note 3: BX Options Market Maker
liquidity in SPY Options will be $0.46 9 This no fee or rebate language remains in Note fee to remove liquidity in SPY Options
per contract when trading with Firm, 4 without change. will be $0.44 per contract when trading
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![Federal Register / Vol. 81, No. 181 / Monday, September 19, 2016 / Notices 64223
with Firm, Non-Customer, or BX broader forms that are most important to Liquidity. The Exchange proposes also
Options Market Maker. investors and listed companies.’’ 12 to modify existing Tiers 1 through 3 to
• Note 4: Customer fee to add Likewise, in NetCoalition v. Securities Rebate to Remove Liquidity. These
liquidity in SPY Options when contra to and Exchange Commission 13 proposed changes will enable rebates of
another Customer will be $0.38 per (‘‘NetCoalition’’) the D.C. Circuit upheld $0.01 to $0.52 per contract over five
contract. There will be no fee or rebate the Commission’s use of a market-based Tiers in terms of Rebate to Remove
for Customer SPY Options that add approach in evaluating the fairness of Liquidity, whereas now the rebates are
liquidity when contra to Firm, BX market data fees against a challenge $0.10 to $0.51 per contract over three
Options Market Maker or Non claiming that Congress mandated a cost- Tiers. The proposed five Tier structure
Customer. based approach.14 As the court for Rebate to Remove Liquidity is
emphasized, the Commission ‘‘intended reasonable because it offers a more
• Note 5: BX Options Market Maker graduated Tier structure to further
fee to add liquidity and BX Options in Regulation NMS that ‘market forces,
rather than regulatory requirements’ incentivize Participants to bring SPY
Market Maker fee to remove liquidity in Options volume to the Exchange. The
SPY Options will each be $0.39 per play a role in determining the market
data . . . to be made available to Exchange believes it is equitable and not
contract when trading with Customer. unfairly discriminatory to modify the
investors and at what cost.’’ 15
• Note 6: BX Options Market Maker Further, ‘‘[n]o one disputes that Tiers because they will be applied
fee to add liquidity in SPY Options will competition for order flow is ‘fierce.’ uniformly to all similarly situated
be $0.14 per contract when trading with . . . As the SEC explained, ‘[i]n the U.S. Participants. This is further discussed
Firm, BX Options Market Maker or Non national market system, buyers and below.
Customer. sellers of securities, and the broker- Tier 1 would offer the smallest Rebate
The Exchange is proposing the dealers that act as their order-routing to Remove Liquidity ($0.01 per contract)
changes because it believes that they agents, have a wide range of choices of for removing the smallest number or
will provide even greater incentives for where to route orders for execution’; [sic] SPY Options contracts, and the
execution of SPY Options contracts on [and] ‘no exchange can afford to take its Tiers would be graduated so that Tier 5
the BX Options Market. The Exchange market share percentages for granted’ would offer the largest Rebate to
believes that its proposal should because ‘no exchange possesses a Remove Liquidity ($0.52 per contract)
provide increased opportunities for monopoly, regulatory or otherwise, in for removing the largest number or [sic]
participation in SPY Options executions the execution of order flow from broker SPY Options contracts. Going forward,
on the Exchange, facilitating the ability dealers’. . . .’’ 16 Although the court as discussed in detail above, the
of the Exchange to bring together and the SEC were discussing the cash proposed Tiers would be as follows:
participants and encourage more robust equities markets, the Exchange believes Tier 1—a Participant that removes less
competition for orders. that these views apply with equal force than 500 (now 1,500) SPY Options
to the options markets. contracts per day in the customer range
2. Statutory Basis can earn a rebate of $0.01 per contract
The Exchange believes that its
The Exchange believes that the proposal should provide increased (now $0.10 per contract); Tier 2—a
proposed rule change is consistent with opportunities for participation in SPY Participant that removes 500 to not
Section 6 of the Act,10 in general, and Options executions on the Exchange, more than 999 (now 1500 to not more
with Section 6(b)(4) and 6(b)(5) of the than 2999) SPY Options contracts per
facilitating the ability of the Exchange to
day in the customer range can earn a
Act,11 in particular, in that it provides bring together participants and
rebate of $0.10 per contract (now $0.42
for the equitable allocation of reasonable encourage more robust competition for
per contract); Tier 3—a Participant that
dues, fees, and other charges among orders.
removes 1000 to not more than 1999
members and issuers and other persons The Exchange believes that the
(now more than 2999) SPY Options
using any facility or system which the proposed change is reasonable,
contracts per day in the customer range
Exchange operates or controls, and is equitable and not unfairly
can earn a rebate of $0.35 per contract
not designed to permit unfair discriminatory for the following
(now $0.51 per contract); new Tier 4—
discrimination between customers, reasons.
a Participant that removes 2000 to not
issuers, brokers, or dealers. Attracting
Change 1—Penny Pilot Options: In SPY more than 3999 SPY Options contracts
order flow to the Exchange benefits all per day in the customer range can earn
Options Tier Schedule Adopt Two
Participants who have the opportunity a rebate of $0.43 per contract; and new
Additional Rebate Tiers and Modify
to interact with this order flow. Tier 5—a Participant that removes more
Existing Volume Criteria and Rebate
The Commission and the courts have Amounts per Tiers [sic] than 3999 SPY Options contracts per
repeatedly expressed their preference day in the customer range can earn a
for competition over regulatory In Change 1, the Exchange proposes
rebate of $0.52 per contract. Thus, as
intervention in determining prices, modifications to its current SPY Options
proposed, Participants will be offered
products, and services in the securities Tier Schedule to indicate that this
rebates of $0.01 per contract to $0.52 per
markets. In Regulation NMS, while particular schedule will have additional
contract over five Tiers.
adopting a series of steps to improve the Tiers 4 and 5 to Rebate to Remove The Exchange believes that proposed
current market model, the Commission 12 Securities Exchange Act Release No. 51808
Change 1 is reasonable because, by more
highlighted the importance of market (June 29, 2005), 70 FR 37496 at 37499 (File No. S7– finely graduating the Customer Rebate
forces in determining prices and SRO to Remove Liquidity to volume (e.g.,
mstockstill on DSK3G9T082PROD with NOTICES
10–04) (‘‘Regulation NMS Adopting Release’’).
revenues and, also, recognized that 13 Net Coalition v. SEC, 615 F.3d 525 (D.C. Cir. $0.01 rebate per contract if remove less
current regulation of the market system 2010). than 500 SPY Contracts per lowest Tier
14 See id. At 534–535.
‘‘has been remarkably successful in 1; and $0.52 rebate per contract if
15 See id. At 537.
promoting market competition in its 16 See id. At 539 (quoting Securities Exchange Act
remove more than 3999 SPY Contracts
Commission at [sic] Release No. 59039 (December
per highest Tier 5), the proposed five
10 15 U.S.C. 78f. 2, 2008), 73 FR 74770 at 74782–74783 (December Tier system will serve to further
11 15 U.S.C. 78f(b)(4) and (5). 9, 2008) (SR–NYSEArca–2006–21)). incentivize Participants to remove more
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![64224 Federal Register / Vol. 81, No. 181 / Monday, September 19, 2016 / Notices
SPY Options order flow in the customer remove more than 3999 SPY Options (e.g., Non-Customers) some market
range on the Exchange. The Exchange contracts per day in the customer range, participants like BX Options Market
believes that proposed Change 2 [sic] is the Participant can earn the highest Makers commit to various obligations.
equitable and not unfairly $0.52 rebate (per contract). And in the Despite the fact that certain BX Options
discriminatory because the new Tiers lowest proposed SPY Options Tier 1 Market Maker fees to add liquidity are
and graduated Tier modifications will Rebate to Remove Liquidity, for which proposed to be increased as discussed
be applied uniformly to all similarly Participant must remove less than 500 earlier, the BX Options Market Maker
situated Participants. SPY Options contracts per day in the fees to add and remove will be lower as
SPY Options are among the very customer range, the Participant can earn compared to other non-Customer market
highest volume options traded on the the lowest $0.01 rebate (per contract). participants. Unlike other non-Customer
Exchange. The Exchange believes that market participants, BX Options Market
the proposed new and modified Tiers to Change 2—Penny Pilot Options: In SPY
Makers have obligations to the market
the Rebate to Remove Liquidity in the Option Tier Schedule Modify Note 1
and regulatory requirements, which
SPY Options Tier Schedule applicable Through Note 6
normally do not apply to other market
to these high-volume options are In Change 2 the Exchange proposes to participants.20 A BX Options Market
reasonable because they continue to modify six Notes regarding certain fees Maker has the obligation to make
reflect a structure that is not novel in to add liquidity and fees to remove continuous markets, engage in course
the options markets but rather is similar liquidity. The language of each of these [sic] of dealings reasonably calculated to
to that of other options markets and Notes will remain the same, but the contribute to the maintenance of a fair
competitive with what is offered by Exchange proposes to modestly increase and orderly market, and not make bids
other exchanges.17 In addition, the or decrease the amount of the fees and or offers or enter into transactions that
Exchange believes that making changes rebates [sic] as discussed below. The are inconsistent with course [sic] of
to add Tiers applicable to the Customer Exchange believes that this is dealings. Customers will continue to be
in terms of Rebate to Remove Liquidity reasonable. The Exchange believes it is assessed the lowest fees because
is reasonable because it encourages the equitable and not unfairly Customer liquidity benefits all market
desired Customer behavior by marking discriminatory to update the Notes participants by providing more trading
[sic] the Tier structure more graduated because they will be applied uniformly opportunities, which attracts market
and attracting Customer interest to the to all similarly situated Participants. makers. An increase in the activity of
Exchange. Customer activity enhances Going forward, as discussed in detail these market participants in turn
liquidity on the Exchange for the benefit above, the proposed Notes would be as facilitates tighter spreads, which may
of all market participants and benefits follows: Note 1—Firm fee to add cause an additional corresponding
all market participants by providing liquidity and fee to remove liquidity in increase in order flow from other market
more trading opportunities, which SPY Options will be $0.41 (now $0.33) participants.
attracts market makers. An increase in per contract, regardless of counterparty; The Exchange believes that proposed
the activity of these market participants Note 2—Non-Customer fee to add Change 2, together with the effort in
in turn facilitates tighter spreads, which liquidity and fee to remove liquidity in proposed Change 1 to more finely tune
may cause an additional corresponding SPY Options will be $0.44 (now $0.46) the Rebate to Remove Liquidity to
increase in order flow from other market per contract, regardless of counterparty; volume Tiers, is reasonable in light of
participants. Note 3—BX Options Market Maker fee the overall Exchange effort to
Expanding SPY Option Tiers for to remove liquidity in SPY Options will incentivize Participants to bring SPY
Rebate to Remove Liquidity is be $0.44 (now $0.46) per contract when Options liquidity to the Exchange. The
reasonable because it encourages market trading with Firm, Non-Customer, or BX Exchange believes that proposed Change
participant behavior through Options Market Maker. [sic]; Note 4— 2 to modify the Notes applicable to SPY
progressive tiered fees and rebates using Customer fee to add liquidity in SPY Options Tier Schedule is equitable and
an accepted methodology among Options when contra to another not unfairly discriminatory because it
options exchanges.18 The proposed Customer will be $0.38 (now $0.33) per will be applied uniformly to all
Tiers applicable to the Rebate to contract; 19 Note 5—BX Options Market similarly situated Participants.21
Remove Liquidity in the SPY Options Maker fee to add liquidity and BX The Exchange believes that by making
Tier Schedule clearly reflect the Options Market Maker fee to remove the proposed changes it is incentivizing
progressively increasing nature of liquidity in SPY Options will each be Participants to trade more SPY Options
Participant executions structured for the $0.39 (today $0.44) per contract when volume to the Exchange to further
purpose of attracting order flow to the trading with Customer; and Note 6—BX enhance liquidity in this market.
Exchange. That is, as discussed if a Options Market Maker fee to add
Participant removes more SPY Options liquidity in SPY Options will be $0.14 20 Pursuant to Chapter VII (Market Participants),
contracts per day in the customer range, (now $0.10) per contract when trading Section 5 (Obligations of Market Makers), in
registering as a Market Maker, an Options
the Participant can earn higher rebates. with Firm, BX Options Market Maker or Participant commits himself to various obligations.
For example, in the highest proposed Non Customer. Transactions of a Market Maker in its market
SPY Options Tier 5 Rebate to Remove The fee and rebate schedule as making capacity must constitute a course of
Liquidity, for which Participant must proposed continues to reflect dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and
differentiation among different market Market Makers should not make bids or offers or
17 See, e.g., the MIAX fee schedule at https:// participants. The Exchange believes that enter into transactions that are inconsistent with
www.miaxoptions.com/content/fees, the BATS the differentiation is equitable and not such course of dealings. Further, all Market Makers
mstockstill on DSK3G9T082PROD with NOTICES
EDGX fee schedule at http://www.bats.com/us/ unfairly discriminatory, as well as are designated as specialists on BX for all purposes
options/membership/fee_schedule/edgx/, and the under the Act or rules thereunder. See Chapter VII,
BOX fee schedule at http://boxoptions.com/fee- reasonable, and notes that unlike others Section 5.’’ [sic]
schedule/. 21 Because the Notes are in the Rebate to Remove
18 See, e.g., fee and rebate schedules of other 19 The following language in Note 4 remains
Liquidity section of the SPY Options Tier Schedule,
options exchanges, including, but not limited to, without change: There will be no fee or rebate for the additional reasonable, equitable, and not
NASDAQ Options Market (‘‘NOM’’), NASDAQ Customer SPY Options that add liquidity when unfairly discriminatory arguments immediately
PHLX LLC (‘‘Phlx’’), and Chicago Board Options contra to Firm, BX Options Market Maker or Non above in respect of proposed Change 1 are likewise
Exchange (‘‘CBOE’’). Customer. applicable to proposed Change 2.
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![Federal Register / Vol. 81, No. 181 / Monday, September 19, 2016 / Notices 64225
B. Self-Regulatory Organization’s price differentiation among different At any time within 60 days of the
Statement on Burden on Competition market participants operating on the filing of the proposed rule change, the
The Exchange does not believe that Exchange (e.g., Customer, BX Options Commission summarily may
the proposed rule change will impose Market Maker, and Non-Customer) is temporarily suspend such rule change if
any burden on competition not reasonable. Customer activity, for it appears to the Commission that such
necessary or appropriate in furtherance example, enhances liquidity on the action is: (i) Necessary or appropriate in
of the purposes of the Act. Specifically, Exchange for the benefit of all market the public interest; (ii) for the protection
the Exchange does not believe that its participants and benefits all market of investors; or (iii) otherwise in
proposal to make changes to its SPY participants by providing more trading furtherance of the purposes of the Act.
Options fees and rebates to add new opportunities, which attracts market If the Commission takes such action, the
Tiers 4 and 5 and modify existing Tiers makers. An increase in the activity of Commission shall institute proceedings
1, 2, and 3 to Rebate to Remove these market participants (particularly to determine whether the proposed rule
Liquidity, and to adjust applicable in response to pricing) in turn facilitates should be approved or disapproved.
Notes 1 through 6, will impose any tighter spreads, which may cause an IV. Solicitation of Comments
undue burden on competition, as additional corresponding increase in
order flow from other market Interested persons are invited to
discussed below. submit written data, views, and
The Exchange operates in a highly participants. Moreover, unlike others
(e.g., Non-Customers) each BX Options arguments concerning the foregoing,
competitive market in which many including whether the proposed rule
sophisticated and knowledgeable Market Maker commits to various
obligations. These obligations include, change is consistent with the Act.
market participants can readily and do Comments may be submitted by any of
send order flow to competing exchanges for example, transactions of a BX Market
Maker must constitute a course of the following methods:
if they deem fee levels or rebate
incentives at a particular exchange to be dealings reasonably calculated to Electronic Comments
excessive or inadequate. Additionally, contribute to the maintenance of a fair • Use the Commission’s Internet
new competitors have entered the and orderly market, and Market Makers comment form (http://www.sec.gov/
market and still others are reportedly should not make bids or offers or enter rules/sro.shtml); or
entering the market shortly. These into transactions that are inconsistent • Send an email to rule-comments@
market forces ensure that the Exchange’s with such course of dealings. sec.gov. Please include File Number SR–
fees and rebates remain competitive In this instance, the proposed changes BX–2016–049 on the subject line.
with the fee structures at other trading to the fees and rebates for execution of
contracts on the Exchange, and Paper Comments
platforms. In that sense, the Exchange’s
proposal is actually pro-competitive establishing SPY Options Tiers with • Send paper comments in triplicate
because the Exchange is simply Notes for such fees and rebates, do not to Brent J. Fields, Secretary, Securities
continuing its fees and rebates and impose a burden on competition and Exchange Commission, 100 F Street
enhancing Tiers with Notes applicable because the Exchange’s execution and NE., Washington, DC 20549–1090.
to Rebate to Remove Liquidity for SPY routing services are completely All submissions should refer to File
Options in order to attract trading such voluntary and subject to extensive Number SR–BX–2016–049. This file
options on the Exchange and remain competition from other exchanges.. [sic] number should be included on the
competitive in the current environment. If the changes proposed herein are subject line if email is used. To help the
The Exchange does not believe that unattractive to market participants, it is Commission process and review your
the proposed rule change will impose likely that the Exchange will lose comments more efficiently, please use
any burden on competition not market share as a result. Accordingly, only one method. The Commission will
necessary or appropriate in furtherance the Exchange does not believe that the post all comments on the Commission’s
of the purposes of the Act. In terms of proposed changes will impair the ability Internet Web site (http://www.sec.gov/
inter-market competition, the Exchange of members or competing order rules/sro.shtml). Copies of the
notes that it operates in a highly execution venues to maintain their submission, all subsequent
competitive market in which market competitive standing in the financial amendments, all written statements
participants can readily favor competing markets. Additionally, the changes with respect to the proposed rule
venues if they deem fee levels at a proposed herein are pro-competitive to change that are filed with the
particular venue to be excessive, or the extent that they continue to allow Commission, and all written
rebate opportunities available at other the Exchange to promote and maintain communications relating to the
venues to be more favorable. In such an order executions. proposed rule change between the
environment, the Exchange must C. Self-Regulatory Organization’s Commission and any person, other than
continually adjust its fees to remain Statement on Comments on the those that may be withheld from the
competitive with other exchanges and Proposed Rule Change Received From public in accordance with the
with alternative trading systems that Members, Participants, or Others provisions of 5 U.S.C. 552, will be
have been exempted from compliance available for Web site viewing and
with the statutory standards applicable No written comments were either printing in the Commission’s Public
to exchanges. Because competitors are solicited or received. Reference Room, 100 F Street NE.,
free to modify their own fees in III. Date of Effectiveness of the Washington, DC 20549 on official
response, and because market business days between the hours of
mstockstill on DSK3G9T082PROD with NOTICES
Proposed Rule Change and Timing for
participants may readily adjust their Commission Action 10:00 a.m. and 3:00 p.m. Copies of such
order routing practices, the Exchange filing also will be available for
believes that the degree to which fee The foregoing rule change has become inspection and copying at the principal
changes in this market may impose any effective pursuant to Section office of the Exchange. All comments
burden on competition is extremely 19(b)(3)(A)(ii) of the Act.22 received will be posted without change;
limited. In terms of intra-market the Commission does not edit personal
competition, the Exchange notes that 22 15 U.S.C. 78s(b)(3)(A)(ii). identifying information from
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![64226 Federal Register / Vol. 81, No. 181 / Monday, September 19, 2016 / Notices
submissions. You should submit only SECURITIES AND EXCHANGE FOR FURTHER INFORMATION CONTACT:
information that you wish to make COMMISSION Kieran G. Brown, Senior Counsel, at
available publicly. All submissions (202) 551–6773 or Daniele Marchesani,
[Release No. IC–32259; File No. 812–14602]
should refer to File Number SR–BX– Branch Chief, at (202) 551–6821
2016–049, and should be submitted on OFS Capital Corporation, et al.; Notice (Division of Investment Management,
or before October 11, 2016. of Application Chief Counsel’s Office).
For the Commission, by the Division of SUPPLEMENTARY INFORMATION: The
Trading and Markets, pursuant to delegated September 13, 2016. following is a summary of the
authority.23 AGENCY: Securities and Exchange application. The complete application
Robert W. Errett, Commission (‘‘Commission’’). may be obtained via the Commission’s
Deputy Secretary. ACTION: Notice of application for an Web site by searching for the file
[FR Doc. 2016–22416 Filed 9–16–16; 8:45 am] order under sections 17(d) and 57(i) of number, or for an applicant using the
BILLING CODE 8011–01–P
the Investment Company Act of 1940 Company name box, at http://
(the ‘‘Act’’) and rule 17d–1 under the www.sec.gov/search/search.htm or by
Act permitting certain joint transactions calling (202) 551–8090.
SECURITIES AND EXCHANGE otherwise prohibited by sections 17(d)
Applicants’ Representations
COMMISSION and 57(a)(4) of the Act and under rule
17d–1 under the Act. 1. OFS BDC, a Delaware corporation,
Sunshine Act Meeting is organized as a closed-end
SUMMARY OF APPLICATION: Applicants management investment company that
Notice is hereby given, pursuant to request an order to permit certain has elected to be regulated as a BDC
the provisions of the Government in the business development companies (each, under section 54(a) of the Act.1
Sunshine Act, Public Law 94–409, that a ‘‘BDC’’) and certain closed end Applicants state that OFS BDC seeks to
the Securities and Exchange investment companies to co-invest in generate both current income and
Commission will hold a closed meeting portfolio companies with each other and capital appreciation primarily through
on Thursday, September 22, 2016 at 2 with affiliated investment funds. debt investments and, to a lesser extent,
p.m. equity investments.
APPLICANTS: OFS Capital Corporation
Commissioners, Counsel to the 2. Hancock BDC, a Maryland
Commissioners, the Secretary to the (‘‘OFS BDC’’); Hancock Park Corporate
Income, Inc. (‘‘Hancock BDC’’ and corporation, was organized on
Commission, and recording secretaries December 8, 2015, for the purpose of
will attend the closed meeting. Certain together with OFS BDC, the ‘‘Existing
Regulated Funds’’); OFS Capital operating as an externally managed,
staff members who have an interest in closed-end management investment
the matters also may be present. Management, LLC (‘‘OFS Adviser’’);
OFSI Fund V, LTD., OFSI Fund VI, company which will elect to be
The General Counsel of the regulated as a BDC under section 54(a)
Commission, or her designee, has LTD., and OFSI Fund VII, LTD. (each an
‘‘Existing Affiliated Fund’’); and OFS of the Act. Structured as a private BDC,
certified that, in her opinion, one or Hancock BDC seeks to generate current
more of the exemptions set forth in 5 SBIC I LP (the ‘‘Existing SBIC
Subsidiary’’). income and, to a lesser extent, capital
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) appreciation primarily through debt
and 17 CFR 200.402(a)(3), (a)(5), (a)(7), FILING DATES: The application was filed
on January 15, 2016, and amended on investments and, to a lesser extent,
(a)(9)(ii) and (a)(10), permit equity investments.
consideration of the scheduled matter at June 8, 2016.
3. OFS Adviser, a Delaware limited
the closed meeting. HEARING OR NOTIFICATION OF HEARING: An
liability company, is registered with the
Commissioner Piwowar, as duty order granting the requested relief will Commission as an investment adviser
officer, voted to consider the items be issued unless the Commission orders under the Investment Advisers Act of
listed for the closed meeting in closed a hearing. Interested persons may 1940 (the ‘‘Advisers Act’’) and serves as
session. request a hearing by writing to the investment adviser to the Existing
The subject matter of the closed Commission’s Secretary and serving Regulated Funds.
meeting will be: applicants with a copy of the request, 4. Each of the Existing Affiliated
Institution and settlement of personally or by mail. Hearing requests Funds is a Cayman ‘‘collateralized loan
injunctive actions; should be received by the Commission
Institution and settlement of obligation’’ fund for which OFS Adviser
by 5:30 p.m. on October 11, 2016, and acts as the adviser pursuant to a
administrative proceedings; and should be accompanied by proof of
Other matters relating to enforcement collateral management agreement
service on applicants, in the form of an between the relevant Existing Affiliated
proceedings. affidavit or, for lawyers, a certificate of
At times, changes in Commission Fund and OFS Adviser. The Existing
service. Pursuant to rule 0–5 under the Affiliated Funds’ portfolios are
priorities require alterations in the Act, hearing requests should state the
scheduling of meeting items. comprised predominantly of senior
nature of the writer’s interest, any facts secured ‘‘club’’ and syndicated loans
For further information and to
bearing upon the desirability of a made to U.S. companies (both public
ascertain what, if any, matters have been
hearing on the matter, the reason for the and private). In reliance on the
added, deleted or postponed, please
request, and the issues contested. exclusion from the definition of
contact Brent J. Fields from the Office of
Persons who wish to be notified of a ‘‘investment company’’ provided by
the Secretary at (202) 551–5400.
hearing may request notification by
mstockstill on DSK3G9T082PROD with NOTICES
section 3(c)(1) or 3(c)(7) of the 1940 Act,
Dated: September 15, 2016. writing to the Commission’s Secretary.
Brent J. Fields, ADDRESSES: Secretary, U.S. Securities 1 Section 2(a)(48) defines a BDC to be any closed-
Secretary. and Exchange Commission, 100 F St. end investment company that operates for the
[FR Doc. 2016–22659 Filed 9–15–16; 4:15 pm] NE., Washington, DC 20549–1090. purpose of making investments in securities
described in sections 55(a)(1) through 55(a)(3) of the
BILLING CODE 8011–01–P Applicants: 10 S. Wacker Drive, Suite Act and makes available significant managerial
2500, Chicago, Illinois 60606, Attention: assistance with respect to the issuers of such
23 17 CFR 200.30–3(a)(12). Jeffrey A. Cerny. securities.
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Document Created: 2016-09-17 02:30:35
Document Modified: 2016-09-17 02:30:35
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 64221 |
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