81 FR 71146 - Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of Bats BZX Exchange, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 199 (October 14, 2016)

[Federal Register Volume 81, Number 199 (Friday, October 14, 2016)]
[Notices]
[Pages 71146-71149]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-24838]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79070; File No. SR-BatsBZX-2016-66]


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

October 7, 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 September 30, 2016, Bats BZX

[[Page 71147]]

Exchange, Inc. (the ``Exchange'' or ``BZX'') filed with the Securities 
and Exchange Commission (the ``Commission'') the proposed rule change 
as described in Items I, II, and III below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \3\ and non-members of the Exchange pursuant to BZX Rules 
15.1(a) and (c).
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    \3\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to modify its fee schedule applicable to the 
Exchange's options platform (``BZX Options'') to: (i) Modify the 
Professional Penny Pilot Add Volume Tiers under footnote 9; (ii) remove 
fee codes PA and NA from footnote 4, NBBO Setter Tiers; (iii) modify 
the criteria for Tier 5 under footnote 1, Customer Penny Pilot Add; 
(iv) modify the criteria for the Tier 1 under footnote 3, Non-Customer 
Penny Pilot Take Volume; and (v) modify the criteria for Tier 1 under 
footnote 13, Non-Customer Non-Penny Pilot Take Volume.
Professional Penny Pilot Add Volume Tiers
    The Exchange is proposing to add two new tiers under footnote 9, 
Professional Penny Pilot Add Volume Tiers,\4\ Tier 3 and Tier 4. 
Currently, Professional \5\ orders that add liquidity in Penny Pilot 
Securities \6\ receive a standard rebate of $0.25 per contract. In 
addition, Members who qualify for Tier 1 and Tier 2 under footnote 9, 
Professional Penny Pilot Add Volume Tier, receive for such orders a 
rebate of $0.40 and $0.43, respectively. Under the proposed new Tier 3, 
a Member that has a combined ADAV \7\ in Customer \8\ and Professional 
orders equal to or greater than 0.30% of average TCV \9\ would receive 
a $0.46 rebate per contract for each Professional order that adds 
liquidity in Penny Pilot Securities. Under the proposed new Tier 4, a 
Member that has a combined ADAV in Customer and Professional orders 
equal to or greater than 0.50% of average TCV would receive a $0.48 
rebate per contract for each Professional order that adds liquidity in 
Penny Pilot Securities.
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    \4\ In addition to the proposed substantive changes to footnote 
9, the Exchange proposes to make the title of the footnote plural, 
as it currently reads ``Professional Penny Pilot Add Volume Tier'' 
even though there is more than one tier.
    \5\ As set forth in the Exchange's fee schedule, the term 
``Professional'' applies to any transaction identified by a Member 
as such pursuant to Exchange Rule 16.1.
    \6\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01.
    \7\ As set forth in the Exchange's fee schedule, ``ADAV'' means 
average daily volume calculated as the number of contracts added per 
day.
    \8\ As set forth in the Exchange's fee schedule, the term 
``Customer'' applies to any transaction identified by a Member for 
clearing in the Customer range at the Options Clearing Corporation 
(``OCC''), excluding any transaction for a Broker Dealer or a 
``Professional'' as defined in Exchange Rule 16.1.
    \9\ As set forth in the Exchange's fee schedule, ``TCV'' means 
total consolidated volume calculated as the volume reported by all 
exchanges to the consolidated transaction reporting plan for the 
month for which the fees apply, excluding volume on any day that the 
Exchange experiences an Exchange System Disruption and on any day 
with a scheduled early market close.
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    The Exchange is also proposing to modify the criteria necessary to 
qualify for the Professional Penny Pilot Add Volume Tier 1 and to 
increase the rebate provided under both Professional Penny Pilot Add 
Volume Tier 1 and Tier 2 under footnote 9. Currently under Tier 1, a 
Member must have an ADV \10\ equal to or greater than 0.25% of average 
TCV in order to receive a rebate of $0.40. The Exchange now proposes an 
increased rebate of $0.42 pursuant to Tier 1 when a Member has an ADAV 
in Customer and Professional Orders equal to or greater than 0.10% of 
average TCV. Thus, in addition to increasing the rebate this change 
will align the structure of the criteria of Tier 1 with the structure 
of existing Tier 2 as well as new proposed Tiers 3 and 4 described 
above.
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    \10\ As set forth in the Exchange's fee schedule, ``ADV'' means 
average daily volume calculated as the number of contracts added or 
removed, combined, per day.
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    Under Tier 2 the Exchange presently provides a rebate of $0.43 for 
Members who have a combined ADAV in Customer and Professional orders 
equal to or greater than 0.20% of average TCV. The Exchange is 
proposing to increase the rebate under Tier 2 to $0.44. In addition, in 
order to ensure consistent terminology throughout footnote 9, the 
Exchange proposes to modify the description of Tier 2 to eliminate the 
reference to ``combined'' such that the Tier will apply when a Member 
has an ADAV in Customer and Professional orders equal to or greater 
than 0.20% of average TCV. The Exchange believes the use of the word 
``combined'' in this case is unnecessary and inconsistent with other 
portions of the fee schedule.\11\ The Exchange also notes that changes 
are required to the Standard Rates table of the fee schedule in 
connection with the changes to footnote 9 to reflect these changes.
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    \11\ See, e.g., footnote 2, Tier 1, which simply refers to ADAV 
in orders representing multiple capacities (``Away MM/Firm/BD/JBO 
orders'').
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NBBO Setter Tiers
    The Exchange's NBBO Setter Program is a program intended to 
incentivize aggressive quoting on BZX Options by providing an 
additional rebate upon execution for all orders that add liquidity that 
set either the national best bid (``NBB'') or national best offer 
(``NBO''), subject to certain volume requirements. The Exchange 
currently operates four NBBO Setter Tiers that provide an additional 
rebate of either $0.02, $0.03 or $0.04 per contract to orders from 
qualifying Members that submit orders that yield fee codes PA, PF, PM, 
[sic] NA, NF, NM or NN.\12\
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    \12\ The Exchange notes that it also offers a fifth NBBO Setter 
Tier that provides an additional rebate of $0.05 per contract to 
orders from qualifying Members that submit orders that yield fee 
codes PF, PM and PN.
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    The Exchange does not propose to modify the criteria necessary to 
qualify for the NBBO Setter Tiers or the rebates provided thereunder, 
however the Exchange does propose to limit the applicability of Tier 1 
through Tier 4 to fee codes PF, PM, PN, NF, NM, and NN. Thus, NBBO 
Setter Tiers rebates would no longer be provided to orders yielding fee 
codes PA or NA. The Exchange also proposes to eliminate references to

[[Page 71148]]

footnote 4 for each of these fee codes on the Fee Codes and Associated 
Fees chart.
Customer Penny Pilot Add Tiers
    The Exchange currently offers a total of eight tiers under footnote 
1, Customer Penny Pilot Add Tiers, which provide rebates for Customer 
orders in Penny Pilot Securities that add liquidity to BZX Options and 
yield fee code PY. The Exchange proposes to update the required 
criteria for Customer Add Volume Tier 5 under footnote 1 as set forth 
below.
    Presently under Tier 5, the Exchange provides a rebate of $0.53 per 
contract for a Customer order where a Member: (1) Has an ADAV in 
Customer orders equal to or greater than 0.60% of average TCV; (2) has 
an ADAV in Market Maker \13\ orders equal to or greater than 0.30% of 
average TCV; and (3) has on the Exchange's affiliated equity securities 
platform (``BZX Equities'') an ADAV equal to or greater than 0.30% of 
average TCV. The Exchange proposes to modify the second prong of these 
criteria to decrease the ADAV threshold in Market Maker orders from 
0.30% to 0.25%.
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    \13\ As set forth in the Exchange's fee schedule, the term 
``Market Maker'' applies to any transaction identified by a Member 
for clearing in the Market Maker range at the OCC, where such Member 
is registered with the Exchange as a Market Maker as defined in Rule 
16.1(a)(37).
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Non-Customer Penny Pilot Take Volume Tiers
    The Exchange currently offers a total of three tiers under footnote 
3, Non-Customer Penny Pilot Take Volume Tiers, which provide discounted 
fees for Non-Customer orders in Penny Pilot Securities that remove 
liquidity from BZX Options under fee code PP. The Exchange proposes to 
update the required criteria for Tier 1, as set forth below.
    The Exchange currently charges $0.44 per contract for Members that 
qualify for Non-Customer Volume Tier 1, which requires that a Member 
has (1) an ADAV in Customer orders equal to or greater than 0.60% of 
average TCV; (2) an ADAV in Market orders equal to or greater than 
0.30%; and (3) on BZX Equities an ADAV equal to or greater than 0.30% 
of average TCV. The Exchange proposes to modify the second prong of 
these criteria to decrease the ADAV threshold in Market Maker orders 
from 0.30% to 0.25%.
Non-Customer Non-Penny Pilot Take Volume Tiers
    The Exchange presently offers a total of three tiers under footnote 
13, Non-Customer Non-Penny Pilot Take Volume Tiers,\14\ which offer 
discounted fees for Non-Customer orders in No-Penny Pilot Securities 
that remove liquidity from BZX Options under fee code NP. The Exchange 
is proposing to update the required criteria for Tier 1 under footnote 
13 as described below.
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    \14\ In addition to the proposed substantive changes to footnote 
13, the Exchange proposes to make the title of the footnote plural, 
as it currently reads ``Non-Customer Non-Penny Pilot Take Volume 
Tier'' even though there is more than one tier.
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    Currently, the Exchange charges $1.02 per contract for Members that 
qualify for Non-Customer Take Volume Tier 1, which requires that a 
Member has (1) an ADAV in Customer orders equal to or greater than 
0.60% of average TCV; (2) an ADAV in Market Maker orders equal to or 
greater than 0.30% of average TCV; and (3) on BZX Equities an ADAV 
equal to or greater than 0.30% of average TCV. The Exchange is 
proposing to modify the second prong of these criteria to decrease the 
ADAV threshold in Market Maker orders from 0.30% to 0.25%.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule as of October 3, 2016.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\15\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\16\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels to be 
excessive.
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    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(4).
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    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by equities and options exchanges and 
are equitable because they are open to all Members on an equal basis 
and provide additional benefits or discounts that are reasonably 
related to the value to an exchange's market quality associated with 
higher levels of market activity, such as higher levels of liquidity 
provision and/or growth patterns, and introduction of higher volumes of 
orders into the price and volume discovery processes.
    The Exchange believes that its proposal to add two new Professional 
Penny Pilot Add Volume Tiers and update the required criteria and 
rebate amounts for Tier 1 and Tier 2 under footnote 9 is reasonable, 
fair and equitable and non-discriminatory, for the reasons set forth 
above with respect to volume-based pricing generally. In addition, the 
Exchange believes the amount of the proposed rebates offered under the 
new Professional Penny Pilot Add Volume Tiers, Tier 3 and Tier 4, are 
equitable and reasonable because they are generally in line with the 
proposed rebates offered pursuant to Professional Penny Pilot Add 
Volume Tier 1 and Tier 2. The Exchange believes that the proposed tiers 
are reasonable, fair and equitable, and non-discriminatory because 
they, like the Professional Penny Pilot Add Volume Tier generally, are 
aimed to incentivize active participation on the Exchange.
    The Exchange believes that its proposal to remove fee codes PA and 
NA from footnote 4, NBBO Setter Tiers, is reasonable, fair and 
equitable and non-discriminatory, because the proposal coincides with 
the addition of new volume tiers and enhanced rebates for transactions 
that yield fee code PA. Thus, although Professional orders will no 
longer be able to qualify for NBBO Setter Tiers, there are additional 
ways to receive enhanced rebates and such rebates have also been 
increased. Similar to the pricing tiers discussed above, the Exchange 
believes this incentive is reasonably related to the value to the 
Exchange's market quality associated with higher levels of market 
activity, including liquidity provision and the introduction of higher 
volumes of orders into the price and volume discovery processes.
    The proposed modifications to the criteria required to qualify for 
current Customer (Penny Pilot) Add Tier 5, Non-Customer (Penny Pilot) 
Take Volume Tier 1, and Non-Customer (Non-Penny Pilot) Take Volume Tier 
1, are intended to incentivize additional Members to send Customer 
orders and/or Market Maker orders to the Exchange in an effort to 
qualify for the enhanced rebate or lower fee made available by the 
tiers. The Exchange believes that the proposal to require that the 
Member have an ADAV in Market Maker orders equal to or greater than 
0.25% of average TCV under all three tiers is a reasonable, fair and 
equitable, and not unfairly discriminatory allocation of fees and 
rebates because it will make it easier to qualify for enhanced rebates 
or reduced fees pursuant to such tiers. The

[[Page 71149]]

increased liquidity from this proposal also benefits all investors by 
deepening the BZX Options liquidity pool, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection. Such pricing programs thereby reward a Member's 
growth pattern on the Exchange and such increased volume increases 
potential revenue to the Exchange, and will allow the Exchange to 
continue to provide and potentially expand the incentive programs 
operated by the Exchange. The Exchange believes that the proposal is 
reasonable, equitably allocated and non-discriminatory with respect to 
such Member based on the overall benefit to the Exchange resulting from 
the success of BZX Options. As noted above, such success allows the 
Exchange to continue to provide and potentially expand its existing 
incentive programs to the benefit of all participants on the Exchange. 
The proposed pricing program is also fair and equitable in that 
membership in BZX Options is available to all market participants which 
would provide them with access to the benefits on BZX Options provided 
by the proposed changes, as described above, even where a member of BZX 
Options is not necessarily eligible for the proposed increased rebates 
on the Exchange. Further, the proposed changes will result in Members 
receiving either the same or an increased rebate than they would 
currently receive.

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

    The Exchange believes the proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the Exchange has designed the proposed amendments to its fee schedule 
in order to enhance its ability to compete with other exchanges. Also, 
the Exchange believes that the addition of volume-tiered rebates by the 
Exchange contributes to rather than burdens competition, as such 
changes are intended to incentivize participants to increase their 
participation on the Exchange. Similarly, the modifications to criteria 
applicable to existing volume-tiered rebates and fees are intended to 
provide incentives to Members to encourage them to enter orders to the 
Exchange, and thus are intended to enhance competition.
    Additionally, Members may opt to disfavor the Exchange's pricing if 
they believe that alternatives offer them better value. Accordingly, 
the Exchange does not believe that the proposed change will impair the 
ability of Members or competing venues to maintain their competitive 
standing in the financial markets. Additionally, Members may opt to 
disfavor the Exchange's pricing if they believe that alternatives offer 
them better value. Accordingly, the Exchange does not believe that the 
proposed changes to the Exchange's tiered pricing structure burdens 
competition, but instead, enhances competition as it is intended to 
increase the competitiveness of the Exchange. Also, the Exchange 
believes that the price changes contribute to, rather than burden 
competition, as such changes are broadly intended to incentivize 
participants to increase their participation on the Exchange, which 
will increase the liquidity and market quality on the Exchange, which 
will then further enhance the Exchange's ability to compete with other 
exchanges.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BatsBZX-2016-66 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BatsBZX-2016-66. 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 submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsBZX-2016-66, and should 
be submitted on or before November 4, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24838 Filed 10-13-16; 8:45 am]
 BILLING CODE 8011-01-P