81 FR 8558 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Fees and Rebates Applicable to Firms and To Adopt Tiers Applicable to Options Overlying SPY
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 33 (February 19, 2016)
Federal Register Volume 81, Issue 33 (February 19, 2016)
| Page Range | 8558-8566 | |
| FR Document | 2016-03392 |
[Federal Register Volume 81, Number 33 (Friday, February 19, 2016)] [Notices] [Pages 8558-8566] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-03392] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77129; File No. SR-BX-2016-010] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Fees and Rebates Applicable to Firms and To Adopt Tiers Applicable to Options Overlying SPY February 12, 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 February 1, 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 certain fees and rebates (per executed contract) to: (1) Adopt fees and rebates applicable to Firm \3\ and (2) adopt tiers applicable to options overlying Standard and Poor's Depositary Receipts/SPDRs (``SPY'').\4\ --------------------------------------------------------------------------- \3\ 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. \4\ SPY options are based on the SPDR exchange-traded fund (``ETF''), which is designed to track the performance of the S&P 500 Index, and are Penny Pilot Options. The Penny Pilot was established in June 2012 and extended in 2015. 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 75326 (June 29, 2015), 80 FR 38481 (July 6, 2015) (SR- BX-2015-037) (notice of filing and immediate effectiveness extending the Penny Pilot through June 30, 2016). --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. [[Page 8559]] A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its Chapter XV, Section 2 to modify subsection (1) regarding certain fees and rebates \5\ (known as ``fees and rebates'') to (1) adopt fees and rebates applicable to Firm; and (2) adopt tiers applicable to options overlying SPY (the ``SPY Option Tier Schedule''). The proposed modified fees and rebates (per executed contract) and new SPY Option Tier Schedule would apply to Customers,\6\ BX Options Market Makers,\7\ Non-Customers \8\ and Firms. --------------------------------------------------------------------------- \5\ Fees and rebates are per executed contract. Chapter XV, Section 2(1). \6\ 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. \7\ BX Options Market Makers may also be referred to as ``Market Makers''. 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. \8\ Note 1 to Chapter XV, Section 2 states: ``\1\A Non-Customer includes a Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.'' Firm is proposed to be removed from the note. --------------------------------------------------------------------------- Each specific change is described in detail below. Currently, Chapter XV, Section 2 subsection (1) reads as follows: (1) Fees for Execution of Contracts on the BX Options Market: Fees and Rebates [Per executed contract] ---------------------------------------------------------------------------------------------------------------- BX Options Customer Market Maker Non-Customer \1\ ---------------------------------------------------------------------------------------------------------------- Penny Pilot Options: Rebate to Add Liquidity............................... # \2\ $0.10 N/A Fee to Add Liquidity.................................. # \3\$0.39 $0.45 Rebate to Remove Liquidity............................ # N/A N/A Fee to Remove Liquidity............................... N/A # $0.46 Non-Penny Pilot Options: Rebate to Add Liquidity............................... * N/A N/A Fee to Add Liquidity.................................. * \5\ $0.50/$0.95 $0.98 Rebate to Remove Liquidity............................ * N/A N/A Fee to Remove Liquidity............................... N/A * $0.89 ---------------------------------------------------------------------------------------------------------------- \1\ A Non-Customer includes a Professional, Firm, Broker-Dealer and Non-BX Options Market Maker. \2\ The Rebate to Add Liquidity will be paid to a BX Options Market Maker only when the BX Options Market Maker is contra to a Non-Customer or BX Options Market Maker. \3\ The Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a Customer. \4\ Reserved \5\ The higher Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a Customer. # Penny Pilot Options Tier Schedule -------------------------------------------------------------------------------------------------------------------------------------------------------- Rebate to add Rebate to remove Fee to remove Fee to remove liquidity Fee to add liquidity liquidity liquidity liquidity -------------------------------------------------------------------------------------------------------------------------------------------------------- When............................... Customer.............. Customer.............. Customer............. BX Options Market BX Options Market Maker. Maker. Trading with....................... Non-Customer or BX Customer.............. Non-Customer, BX Customer............. Non-Customer or BX Options Market Maker. Options Market Options Market Maker, or Customer. Maker. Tier 1: Participant executes less than $0.00................. $0.39................. $0.00................ $0.39................ $0.46. 0.05% of total industry customer equity and ETF option ADV contracts per month. Tier 2: Participant executes 0.05% to $0.10................. $0.39................. $0.25................ $0.39................ $0.46. less than 0.15% of total industry customer equity and ETF option ADV contracts per month. Tier 3: Participant executes 0.15% or $0.20................. $0.39................. $0.35................ $0.30................ $0.46. more of total industry customer equity and ETF option ADV contracts per month. -------------------------------------------------------------------------------------------------------------------------------------------------------- [[Page 8560]] * Non-Penny Pilot Options Tier Schedule -------------------------------------------------------------------------------------------------------------------------------------------------------- Rebate to add Rebate to remove Fee to remove Fee to remove liquidity Fee to add liquidity liquidity liquidity liquidity -------------------------------------------------------------------------------------------------------------------------------------------------------- When............................... Customer.............. Customer.............. Customer............. BX Options Market BX Options Market Maker. Maker. Trading with....................... Non-Customer or BX Customer.............. Non-Customer, BX Customer............. Non-Customer or BX Options Market Maker. Options Market Options Market Maker, or Customer. Maker. Tier 1: Participant executes less than $0.00................. $0.85................. $0.80................ $0.89................ $0.89. 0.05% of total industry customer equity and ETF option ADV contracts per month. Tier 2: Participant executes 0.05% to $0.10................. $0.85................. $0.80................ $0.89................ $0.89. less than 0.15% of total industry customer equity and ETF option ADV contracts per month. Tier 3: Participant executes 0.15% or $0.20................. $0.85................. $0.80................ $0.60................ $0.89. more of total industry customer equity and ETF option ADV contracts per month. -------------------------------------------------------------------------------------------------------------------------------------------------------- Change 1--Penny Pilot Options: Modify Fees and Rebates To Add Firm Column In Change 1, the Exchange proposes modifications to its fees and rebates for Penny Pilot Options \9\ and for Non-Penny Pilot Options to add a new Firm column. The proposed Firm column would have exactly the same assessments or rates as the current Non-Customer column, which now includes Firm.\10\ The Exchange notes that by adding the new Firm column it is not changing any fees and rebates for Firm. Rather, all fees and rebates applicable to Firm are now in the new Firm column but remain exactly the same as they are currently for Firm when it is part of the Non-Customer column. Commensurate with the proposed Firm column, the Exchange also proposes to change notes 1 and 2 so that these notes read properly. The Exchange proposes to take out ``Firm'' in note 1 and to add ``Firm'' in note 2. --------------------------------------------------------------------------- \9\ The greatest volume options traded on the Exchange and in the options market are Penny Pilot Options, and in particular SPY Options, and the Exchange has taken this into account when structuring and modifying its fee and rebate schedule. \10\ Currently, note 1 states: ``A Non-Customer includes a Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.'' --------------------------------------------------------------------------- The proposed change keeps current fees and rebates assessments intact. Thus, for Penny Pilot Options: The Rebate to Add Liquidity would remain at N/A for Non-Customer and would be the same for Firm; the Fee to Add Liquidity would remain at $0.45 for Non-Customer and would be the same for Firm; the Rebate to Remove Liquidity would remain at N/A for Non-Customer and would be the same for Firm; and the Fee to Remove Liquidity would remain at $0.46 for non-Customer and would be the same for Firm. Thus, for Non-Penny Pilot Options: The Rebate to Add Liquidity would remain at N/A for Non-Customer and would be the same for Firm; the Fee to Add Liquidity would remain at $0.98 for non- Customer and would be the same for Firm; the Rebate to Remove Liquidity would remain at N/A for Non-Customer and would be the same for Firm; and the Fee to Add Liquidity would remain at $0.89 for non-Customer and would be the same for Firm. Chapter XV, Section 2 subsection (1) reflecting the proposed new Firm column is set forth below. Change 2--Penny Pilot Options: Modify Fees and Rebates To Add SPY Options Tiers In Change 2, the Exchange proposes modifications to its current Penny Pilot Options Tier Schedule to indicate that this particular schedule does not apply to SPY Options and that for SPY Options pricing there will be a separate SPY Options Tier Schedule. The Exchange proposes new The Tier 1, Tier 2, and Tier 3 requirements which will be similar to tiers in the current Penny Pilot Options Tier Schedule; and a new Tier 4. Specifically, the Exchange proposes to add SPY Options Tiers 1-4 for Rebate to Add Liquidity for Customer (when trading with Non- Customer, BX Options Market Maker, or Firm \11\), Fee to Add Liquidity for BX Market Maker (when trading with Customer), Rebate to Remove Liquidity for Customer (when trading with Non-Customer, BX Options Market Maker, Customer, or Firm), and Fee to Remove Liquidity for BX Options Market Maker (when trading with Customer). The Exchange also proposes several explanatory notes applicable to the SPY Option Tier Schedule. --------------------------------------------------------------------------- \11\ Commensurate with establishing a Firm column, and in particular indicating Firm in the new SPY Options Tier Schedule, the Exchange proposes to add Firm in the Non-Penny Pilot Options Tier Schedule (e.g., Rebate to Add Liquidity, Rebate to Remove Liquidity, Fee to Remove Liquidity). --------------------------------------------------------------------------- Proposed Tier 1 in the SPY Options Tier Schedule will be where a BX Participant (``Participant'') executes less than 0.05% of total industry customer equity and exchange traded fund (``ETF'') option average daily volume (``ADV'') contracts per month. Proposed Tier 1 will range from a $0.00 rebate to a $0.42 fee: --The new Rebate to Add Liquidity when Customer trading with Non- Customer, BX Options Market Maker, or Firm will be $0.00 (no rebate will be paid); \12\ --------------------------------------------------------------------------- \12\ The new Rebate to Add Liquidity is similar to what is in the current Penny Pilot Options Tier Schedule. However, in the new rebate the Exchange proposes to add that the rebate is also applicable when trading with Firm, which is proposed to be separate from Non-Customer. For purposes of conformity, Firm is proposed to be added to the Rebate to Add Liquidity for Customer in the Penny Pilot Tier Schedule, the SPY Options Tier Schedule, and the Non- Penny Pilot Tier Schedule. --------------------------------------------------------------------------- [[Page 8561]] --the new Fee to Add Liquidity when BX Options Market Maker trading with Customer will be $0.42; \13\ --------------------------------------------------------------------------- \13\ There is no similar fee in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Rebate to Remove Liquidity when Customer trading with Non- Customer, BX Options Market Maker, Customer, or Firm will be $0.00; \14\ and --------------------------------------------------------------------------- \14\ The new Rebate to Remove Liquidity is similar to what is in the current Penny Pilot Options Tier Schedule. However, in the new rebate the Exchange proposes to add that the rebate is also applicable when trading with Firm, which is proposed to be separate from Non-Customer. For purposes of conformity, Firm is proposed to be added to the Rebate to Add [sic] Liquidity for Customer in the Penny Pilot Tier Schedule, the SPY Options Tier Schedule, and the Non-Penny Pilot Tier Schedule. --------------------------------------------------------------------------- --the new Fee to Remove Liquidity when BX Options Market Maker trading with Customer will be $0.42.\15\ --------------------------------------------------------------------------- \15\ The Fee to Remove Liquidity is $0.39 in the current Penny Pilot Options Tier Schedule. However, in the new rebate the Exchange proposes to add that the rebate is also applicable when trading with Firm, which is proposed to be separate from Non-Customer. For purposes of conformity, Firm is proposed to be added to the Rebate to Add Liquidity for Customer in the Penny Pilot Tier Schedule, the SPY Options Tier Schedule, and the Non-Penny Pilot Tier Schedule. Proposed Tier 2 in the SPY Options Tier Schedule will be where Participant executes 0.05% to less than 0.15% of total industry customer equity and ETF option ADV contracts per month. Proposed Tier 2 --------------------------------------------------------------------------- will range from a $0.25 rebate to a $0.42 fee: --The new Rebate to Add Liquidity when Customer trading with Non- Customer, BX Options Market Maker, or Firm will be $0.10.\16\ --------------------------------------------------------------------------- \16\ The new Rebate to Add Liquidity is similar to what is in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Fee to Add Liquidity when BX Options Market Maker trading with Customer will be $0.42; \17\ --------------------------------------------------------------------------- \17\ There is no similar fee in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Rebate to Remove Liquidity when Customer trading with Non- Customer, BX Options Market Maker, Customer, or Firm will be $0.25; \18\ and --------------------------------------------------------------------------- \18\ The new Rebate to Remove Liquidity is similar to what is in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Fee to Remove Liquidity when BX Options Market Maker trading with Customer will be $0.42.\19\ --------------------------------------------------------------------------- \19\ The Fee to Remove Liquidity is $0.39 in the current Penny Pilot Options Tier Schedule. Proposed Tier 3 in the SPY Options Tier Schedule will be where Participant executes 0.15% or more of total industry customer equity and ETF option ADV contracts per month. Proposed Tier 3 will range from --------------------------------------------------------------------------- a $0.37 rebate to a $0.39 fee: --The new Rebate to Add Liquidity when Customer trading with Non- Customer, BX Options Market Maker, or Firm will be $0.20.\20\ --------------------------------------------------------------------------- \20\ The Rebate to Add Liquidity is similar to what is in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Fee to Add Liquidity when BX Options Market Maker trading with Customer will be $0.39; \21\ --------------------------------------------------------------------------- \21\ There is no similar fee in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Rebate to Remove Liquidity when Customer trading with Non- Customer, BX Options Market Maker, Customer, or Firm will be $0.37; \22\ and --------------------------------------------------------------------------- \22\ The Rebate to Remove Liquidity is $0.35 in the current Penny Pilot Options Tier Schedule. --------------------------------------------------------------------------- --the new Fee to Remove Liquidity when BX Options Market Maker trading with Customer will be $0.39.\23\ --------------------------------------------------------------------------- \23\ The Fee to Remove Liquidity is $0.30 in the current Penny Pilot Options Tier Schedule. Proposed Tier 4 in the SPY Options Tier Schedule, which has no equivalent in the Penny Pilot Options Tier Schedule, will be where Participant executes greater than 5,000 ADV in BX Price Improvement Auction (``PRISM'') Agency Contracts.\24\ If a Participant qualifies for Tier 4 the rates applicable to this tier will supersede any other SPY tier rates that the Participant may that [sic] qualify for. Proposed Tier 4 will range from a $0.37 rebate to a $0.32 fee: --------------------------------------------------------------------------- \24\ PRISM is a Price Improvement Mechanism for all-electronic BX Options whereby a buy and sell order may be submitted in one order message to initiate an auction at a stop price and seek potential price improvement. Options are traded electronically on BX Options, and all options participants may respond to a PRISM Auction, the duration of which is set at 200 milliseconds. PRISM includes auto-match functionality in which a Participant (an ``Initiating Participant'') may electronically submit for execution an order it represents as agent on behalf of customer, n6 [sic] broker dealer, or any other entity (``PRISM Order'') against principal interest or against any other order it represents as agent (an ``Initiating Order'') provided it submits the PRISM Order for electronic execution into the PRISM Auction pursuant [sic]. See Chapter VI, Section 9; and Securities Exchange Act Release No. 76301 (October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (order approving BX PRISM). --The new Rebate to Add Liquidity when Customer trading with Non- Customer, BX Options Market Maker, or Firm will be $0.25. --the new Fee to Add Liquidity when BX Options Market Maker trading with Customer will be $0.32; --the new Rebate to Remove Liquidity when Customer trading with Non- Customer, BX Options Market Maker, Customer, or Firm will be $0.37; and --the new Fee to Remove Liquidity when BX Options Market Maker trading with Customer will be $0.25. In addition, the Exchange proposes several explanatory notes at the end of the SPY Options Tier Schedule: --BX Options Market Maker fee to add liquidity in SPY Options will be $0.00 when trading with Firm, Non-Customer, or BX Options Market Maker; --Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.33 per contract, regardless of counterparty; --Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.46 per contract, regardless of counterparty; --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; --Customer fee to add liquidity in SPY Options when contra to another Customer is $0.33 per contract; and --Volume from all products listed on BX Options will apply to the SPY Options Tiers. Chapter XV, Section 2 subsection (1) reflecting all proposed changes will read as follows: (1) Fees for Execution of Contracts on the BX Options Market: Fees and Rebates [Per executed contract] ---------------------------------------------------------------------------------------------------------------- BX Options Non-Customer Customer Market Maker \1\ Firm ---------------------------------------------------------------------------------------------------------------- Penny Pilot Options (Excluding Options in SPY): Rebate to Add Liquidity..................... # \2\ $0.10 N/A N/A Fee to Add Liquidity........................ # \3\ $0.39 $0.45 $0.45 Rebate to Remove Liquidity.................. # N/A N/A N/A [[Page 8562]] Fee to Remove Liquidity..................... N/A # $0.46 $0.46 Non-Penny Pilot Options: Rebate to Add Liquidity..................... * N/A N/A N/A Fee to Add Liquidity........................ * \5\ $0.50/ $0.98 $0.98 $0.95 Rebate to Remove Liquidity.................. * N/A N/A N/A Fee to Remove Liquidity..................... N/A * $0.89 $0.89 ---------------------------------------------------------------------------------------------------------------- \1\ A Non-Customer includes a Professional, Broker-Dealer and Non-BX Options Market Maker. \2\ The Rebate to Add Liquidity will be paid to a BX Options Market Maker only when the BX Option Market Maker is contra to a Non-Customer, Firm, or BX Options Market Maker. \3\ The Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a Customer. \4\ Reserved. \5\ The higher Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a Customer. # Penny Pilot Options Tier Schedule [Excluding SPY Options] -------------------------------------------------------------------------------------------------------------------------------------------------------- Rebate to add Rebate to remove Fee to remove Fee to remove liquidity Fee to add liquidity liquidity liquidity liquidity -------------------------------------------------------------------------------------------------------------------------------------------------------- When: Customer.............. Customer.............. Customer............. BX Options Market BX Options Market Maker. Maker. Trading with: Non-Customer, BX Customer.............. Non-Customer, BX Customer............. Non-Customer, BX Options Market Maker, Options Market Options Market or Firm. Maker, Customer, or Maker, or Firm. Firm. Tier 1: Participant executes less than $0.00................. $0.39................. $0.00................ $0.39................ $0.46. 0.05% of total industry customer equity and ETF option ADV contracts per month. Tier 2: Participant executes 0.05% to $0.10................. $0.39................. $0.25................ $0.39................ $0.46. less than 0.15% of total industry customer equity and ETF option ADV contracts per month. Tier 3: Participant executes 0.15% or $0.20................. $0.39................. $0.35................ $0.30................ $0.46. more of total industry customer equity and ETF option ADV contracts per month. -------------------------------------------------------------------------------------------------------------------------------------------------------- SPY Options Tier Schedule ---------------------------------------------------------------------------------------------------------------- Rebate to add Fee to add Rebate to remove Fee to remove liquidity liquidity liquidity liquidity ---------------------------------------------------------------------------------------------------------------- When: Customer.......... BX Options Market Customer.......... BX Options Market Maker. Maker. Trading with: Non-Customer, BX Customer.......... Non-Customer, BX Customer. Options Market Options Market Maker, or Firm. Maker, Customer, or Firm. Tier 1: Participant executes less $0.00............. $0.42............. $0.00............. $0.42. than 0.05% of total industry customer equity and ETF option ADV contracts per month. Tier 2: Participant executes 0.05% $0.10............. $0.42............. $0.25............. $0.42. to less than 0.15% of total industry customer equity and ETF option ADV contracts per month. Tier 3: Participant executes 0.15% $0.20............. $0.39............. $0.37............. $0.39. or more of total industry customer equity and ETF option ADV contracts per month. [[Page 8563]] Tier 4: Participant executes greater $0.25............. $0.32............. $0.37............. $0.25. than 5,000 ADV in PRISM Agency Contracts. ----------------------------------------------------------------------------------------------------------------BX Options Market Maker fee to add liquidity in SPY Options will be $0.00 when trading with Firm, Non- Customer, or BX Options Market Maker. Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.33 per contract, regardless of counterparty. Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.46 per contract, regardless of counterparty. 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. Customer fee to add liquidity in SPY Options when contra to another Customer is $0.33 per contract. Volume from all products listed on BX Options will apply to the SPY Options Tiers. * Non-Penny Pilot Options Tier Schedule -------------------------------------------------------------------------------------------------------------------------------------------------------- Rebate to add Rebate to remove Fee to remove Fee to remove liquidity Fee to add liquidity liquidity liquidity liquidity -------------------------------------------------------------------------------------------------------------------------------------------------------- When: Customer.............. Customer.............. Customer............. BX Options Market BX Options Market Maker. Maker. Trading with: Non-Customer, BX Customer.............. Non-Customer, BX Customer............. Non-Customer, BX Options Market Maker, Options Market Options Market or Firm. Maker, Customer, or Maker, or Firm. Firm. Tier 1: Participant executes less than $0.00................. $0.85................. $0.80................ $0.89................ $0.89. 0.05% of total industry customer equity and ETF option ADV contracts per month. Tier 2: Participant executes 0.05% to $0.10................. $0.85................. $0.80................ $0.89................ $0.89. less than 0.15% of total industry customer equity and ETF option ADV contracts per month. Tier 3: Participant executes 0.15% or $0.20................. $0.85................. $0.80................ $0.60................ $0.89. more of total industry customer equity and ETF option ADV contracts per month. -------------------------------------------------------------------------------------------------------------------------------------------------------- The Exchange is proposing fees and rebate changes and adopting the SPY Options Tier Schedule at this time because it believes that this will provide incentives for execution of contracts, and in particular SPY Options contracts, on the BX Options Market. The Exchange also believes that its proposal should provide increased opportunities for participation in 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 its proposal to amend its Pricing Schedule is consistent with Section 6(b) of the Act,\25\ in general, and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act,\26\ 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. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78f(b). \26\ 15 U.S.C. 78f(b)(4), (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* [sic] 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.'' \27\ Likewise, in NetCoalition v. Securities and Exchange Commission \28\ (``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.\29\ 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.'' \30\ --------------------------------------------------------------------------- \27\ Securities Exchange Act Release No. 51808 at 37499 (June 9, 2005) (``Regulation NMS Adopting Release''). \28\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \29\ See id. at 534-535. \30\ 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'; [[Page 8564]] [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'. . . .'' \31\ 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. --------------------------------------------------------------------------- \31\ Id. at 539 (quoting Securities Exchange [sic] Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR- NYSEArca-2006-21) at 73 FR at 74782-74783). --------------------------------------------------------------------------- The Exchange proposes to amend its Chapter XV, Section 2 to modify subsection (1) to adopt fees and rebates applicable to Firm, and to adopt a new SPY Option Tier Schedule. The proposed modified fees and rebates and new SPY Option Tier Schedule would, as discussed, apply to Customers, BX Options Market Makers, Non-Customers, and Firms. The Exchange believes that its proposal is reasonable, equitable, and not unfairly discriminatory and should provide increased opportunities for participation in executions on the Exchange, facilitating the ability of the Exchange to bring together participants and encourage more robust competition for orders. Change 1--Penny Pilot Options: Modify Fees and Rebates To Add Firm Column In Change 1, the Exchange proposes modifications to its fees and rebates for Penny Pilot Options and for Non-Penny Pilot Options to add a new Firm column; and to make changes to notes to properly reflect the use of the new Firm column. The proposed Firm column would have exactly the same assessments or rates as the current Non-Customer column, which now includes Firm. The proposed change is reasonable because it simply establishes a new Firm column but keeps current fees and rebate assessments intact. The proposed rule change is reasonable because it continues to encourage market participant behavior through the fees and rebates system, which is an accepted methodology among options exchanges.\32\ The proposed change is also reasonable because it continues, through the fees and rebates schedule, to incentivize Participants to direct Penny Pilot Options liquidity\33\ and Non-Penny Pilot Options liquidity to the Exchange. --------------------------------------------------------------------------- \32\ 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''). \33\ Penny Pilot Options, and in particular SPY Options, represent the greatest volume options traded on the Exchange and in the options market and the Exchange has taken this into account when structuring and modifying its fee and rebate schedule. --------------------------------------------------------------------------- The proposed rule change to fees and rebates for Penny Pilot Options and for Non-Penny Pilot Options to add a new Firm column, and to make changes to notes to properly reflect the use of the new Firm column, is equitable and not unfairly discriminatory. This is because the Exchange's proposal keeps current fees and rebate assessments intact, and the fees and rebates schedule will continue to apply uniformly to all similarly situated Participants. The fees and rebates 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 some market participants like BX Options Market Makers commit to various obligations. For example, transactions of a BX Options Market Maker must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and BX Options Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Further, all BX Options Market Makers are designated as specialists on BX for all purposes under the Act or rules thereunder.\34\ --------------------------------------------------------------------------- \34\ See Chapter VII, Section 5, entitled ``Obligations of Market Makers.'' --------------------------------------------------------------------------- The Exchange believes that by making the proposed Firm column change, it is continuing to incentivize Participants to execute more volume on the Exchange to further enhance liquidity in this market. Change 2--Penny Pilot Options: Modify Fees and Rebates To Add SPY Options Tiers In Change 2, the Exchange proposes modifications to its current Penny Pilot Options Tier Schedule to indicate that this particular schedule does not apply to SPY Options, and that for SPY Options pricing there will be a separate SPY Options Tier Schedule. The Tier 1, Tier 2, and Tier 3 requirements in the proposed SPY Options Tier Schedule will be similar to the current Penny Pilot Options Tier Schedule. The Exchange also proposes a new Tier 4 for the SPY Options Tier Schedule. Specifically, the Exchange proposes to add SPY Options Tiers 1-4 for Rebate to Add Liquidity for Customer (when trading with Non-Customer, BX Options Market Maker, or Firm), Fee to Add Liquidity for BX Market Maker (when trading with Customer), Rebate to Remove Liquidity for Customer (when trading with Non-Customer, BX Options Market Maker, Customer, or Firm), and Fee to Remove Liquidity or [sic] BX Options Market Maker (when trading with Customer). The Exchange also proposes several explanatory notes applicable to the SPY Option Tier Schedule. The Exchange believes that excluding SPY Options pricing form the Penny Pilot Options Tier Schedule and establishing a separate SPY Options Tier Schedule is reasonable because of the nature of SPY options. These are most heavily traded options on the Exchange as well as in the industry. The Exchange believes that the proposed SPY Options Tier Schedule is reasonable because it is not a novel, untested structure but rather is similar to what is offered by other options markets,\35\ and, is based on the Exchange's Penny Pilot Options Tier Schedule. The proposed Tiers 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. This encourages market participant behavior through progressive tiered fees and rebates using an accepted methodology among options exchanges.\36\ Tier 1 in the SPY Options Tier Schedule is, similarly to Tier 1 in the Penny Pilot Options Tier Schedule, set up to enable a Participant to earn a Rebate to Add Liquidity or pay a Fee to Add Liquidity in SPY where the Participant executes less than 0.05% of total industry customer equity and ETF option ADV contracts per month. Tier 2 in the SPY Options Tier Schedule is, similarly to Tier 2 in the Penny Pilot Options Tier Schedule, set up to enable a Participant to earn a Rebate to Add Liquidity or pay a Fee to Add Liquidity in SPY where the Participant executes 0.05% to less than 0.15% of total industry customer equity and ETF option ADV contracts per month. And Tier 3 in the SPY Options Tier Schedule is, similarly to Tier 3 in the Penny Pilot Options Tier Schedule, set up to [sic] Participant executes 0.15% or more of total industry customer equity and ETF option ADV contracts per month. The fees and rebates that BX Options Market Makers and Customers are assessed are, as has been discussed at length, comparable to [[Page 8565]] the fees and rebates in the Penny Pilot Options Tier Schedule. The Exchange believes that it is reasonable to also establish Tier 4 in the in the [sic] SPY Options Tier Schedule in order to enable a Participant to earn a Rebate to Add Liquidity or pay a Fee to Add Liquidity in SPY where the Participant executes greater than 5,000 ADV in certain PRISM Contracts. By so doing, the Exchange encourages Participants to trade Prism Contracts, which have been recently approved for trading.\37\ --------------------------------------------------------------------------- \35\ See, e.g., the pricing schedule of Phlx. See also, e.g., the pricing schedule of NASDAQ Options Market (``NOM''). \36\ See, e.g., fee and rebate schedules of other options exchanges, including, but not limited to, NOM, Phlx, and Chicago Board Options Exchange (``CBOE''). \37\ See Securities Exchange Act Release No. 76301 (October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (order approving BX PRISM). --------------------------------------------------------------------------- In addition, the Exchange believes that making changes to add the SPY Options Tier Schedule in terms of Rebate to Add Liquidity and Fee to Add Liquidity, and Rebate to Remove Liquidity and Fee to Remove Liquidity, is reasonable because it encourages the desired Customer behavior by 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. The SPY Options Tier Schedule is reasonable in that it is, like the Penny Pilot Options Tier Schedule, set up to incentivize Participants to direct liquidity to the Exchange; using volume from all products listed on BX Options will further incentivize Participants. As Participants execute more of total industry customer equity and ETF option ADV contracts per month on the Exchange, they can in certain categories earn higher rebates and be assessed lower fees. For example, in the SPY Options Tier Schedule the Tier 3 Rebate to Add Liquidity when Customer trading with Non-Customer, BX Options Market Maker, or Firm is higher ($0.20) than the Penny Pilot [sic] Tier 1 Rebate to Add Liquidity ($0.00); and the Tier 3 Rebate to Remove Liquidity when Customer trading with Non-Customer, BX Options Market Maker, Customer, or Firm is higher ($0.37) that [sic] the Tier 2 Rebate to Remove Liquidity ($0.25). Similarly, the Fee to Add Liquidity when BX Option Market Maker trading with Customer is lesser for Tier 3 ($0.39) than for Tier 1 ($0.42); and the Fee to Remove Liquidity when BX Option Market Maker trading with Customer is less for Tier 3 ($0.39) than for Tier 1 ($0.42). The Exchange believes that it is reasonable to add notes to the SPY Options Tier Schedule as they are explanatory in nature. Five such notes explain that unlike how new Tiers 1-4 function, certain fees (e.g. BX Options Market Maker, Firm, Non-Customer, and Customer) remain the same regardless of counterparty. The Exchanges believes that it is also reasonable for conformity to indicate Firm across fees and rebates, the new SPY Options Tier Schedule, the Penny Pilot Options Tier Schedule, and the Non-Penny Pilot Options Tier Schedule. Establishing the SPY Options Tier Schedule, which includes new Tiers 1-4, is equitable and not unfairly discriminatory. This is because the Exchange's proposal to assess fees and pay rebates according to Tiers 1, 2, 3, and 4 will apply uniformly to all similarly situated Participants. Customers would earn a Rebate to Add Liquidity and be assessed a Fee to Add Liquidity according to the Tiers, and BX Market Makers would earn a Rebate to Remove Liquidity [sic] and a Fee to Remove Liquidity according to the same Tiers per the SPY Options Tier Schedule; and certain fees would be the same regardless of counterparty. 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, because some market participants like BX Options Market Makers commit to obligations such as that transactions must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and BX Options Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. The Exchange believes that by making the proposed Penny Pilot Options changes it is incentivizing Participants to execute more volume on the Exchange to further enhance liquidity in this market. 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 Penny Pilot Options and Non-Penny Pilot Options fees and rebates and to establish a SPY Options Tiers Schedule 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 [sic] for Penny Pilot Options and Non-Penny Pilot Options and establishing a SPY Options Tiers Schedule in order to 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 and BX Options Market Maker) 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 [[Page 8566]] corresponding increase in order flow from other market participants. Moreover, unlike others market participants 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.\38\ --------------------------------------------------------------------------- \38\ See Chapter VII, Section 5, entitled ``Obligations of Market Makers''. --------------------------------------------------------------------------- In this instance, the proposed changes to the fees and rebates for Penny Pilot Options and for Non-Penny Pilot Options to add a new Firm column, and establishing a SPY Options Tiers Schedule, do not impose a burden on competition because the Exchange's execution and routing services are completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. If the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. Additionally, the changes proposed herein are pro-competitive to the extent that they continue to allow the Exchange to promote and maintain order executions. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Pursuant to Section 19(b)(3)(A)(ii) of the Act,\39\ the Exchange has designated this proposal as establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization, which renders the proposed rule change effective upon filing. --------------------------------------------------------------------------- \39\ 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-2016-010 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-2016-010. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BX-2016-010 and should be submitted on or before March 11, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\40\ --------------------------------------------------------------------------- \40\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-03392 Filed 2-18-16; 8:45 am] BILLING CODE 8011-01-P
![8558 Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices
Register on December 30, 2015.3 On proceedings to determine whether the III below, which Items have been
January 15, 2016, the Exchange proposed rule change should be prepared by the Exchange. The
submitted Amendment No. 1 to the disapproved. The 45th day after Commission is publishing this notice to
proposed rule change.4 On January 27, publication of the notice for this solicit comments on the proposed rule
2016, the Exchange submitted proposed rule change is February 13, change from interested persons.
Amendment No. 2 to the proposed rule 2016. The Commission is extending this
change.5 On February 11, 2016, the 45-day time period. I. Self-Regulatory Organization’s
Exchange submitted Amendment No. 3 The Commission finds it appropriate Statement of the Terms of Substance of
to the proposed rule change.6 The to designate a longer period within the Proposed Rule Change
Commission has received no comments which to take action on the proposed The Exchange proposes to amend its
on the proposal. rule change so that it has sufficient time Options Pricing at Chapter XV Section
Section 19(b)(2) of the Act 7 provides to consider this proposed rule change. 2, entitled ‘‘BX Options Market—Fees
that within 45 days of the publication of Accordingly, the Commission, pursuant and Rebates,’’ which governs pricing for
notice of the filing of a proposed rule to Section 19(b)(2) of the Act,8 BX members using the BX Options
change, or within such longer period up designates March 29, 2016, as the date Market (‘‘BX Options’’). The Exchange
to 90 days as the Commission may by which the Commission shall either proposes to modify certain fees and
designate if it finds such longer period approve or disapprove, or institute rebates (per executed contract) to: (1)
to be appropriate and publishes its proceedings to determine whether to
Adopt fees and rebates applicable to
reasons for so finding, or as to which the disapprove, the proposed rule change
Firm 3 and (2) adopt tiers applicable to
self-regulatory organization consents, (File No. SR–NYSEArca–2015–107), as
options overlying Standard and Poor’s
the Commission shall either approve the modified by Amendment Nos. 1, 2, and
Depositary Receipts/SPDRs (‘‘SPY’’).4
proposed rule change, disapprove the 3 thereto.
proposed rule change, or institute For the Commission, by the Division of
The text of the proposed rule change
Trading and Markets, pursuant to delegated is available on the Exchange’s Web site
3 See Securities Exchange Act Release No. 76761
authority.9 at http://nasdaqomxbx.
(December 23, 2015), 80 FR 81564. cchwallstreet.com/, at the principal
4 In Amendment No. 1, which replaced and
Robert W. Errett,
Deputy Secretary.
office of the Exchange, and at the
superseded the original filing in its entirety, the
Exchange clarified the Funds’ direct and indirect
Commission’s Public Reference Room.
[FR Doc. 2016–03391 Filed 2–18–16; 8:45 am]
principal and other investments; the determination II. Self-Regulatory Organization’s
BILLING CODE 8011–01–P
of the value of certain underlying assets for
purposes of the Funds’ net asset value calculation; Statement of the Purpose of, and
and the availability of price information for certain Statutory Basis for, the Proposed Rule
underlying assets. Because Amendment No. 1 is a SECURITIES AND EXCHANGE Change
technical amendment that adds clarification to the COMMISSION
proposal and does not materially alter the substance In its filing with the Commission, the
of the proposed rule change or raise unique or novel [Release No. 34–77129; File No. SR–BX–
regulatory issues, Amendment No. 1 is not subject
Exchange included statements
2016–010]
to notice and comment (Amendment No. 1 to the concerning the purpose of and basis for
proposed rule change is available at: http:// Self-Regulatory Organizations; the proposed rule change and discussed
www.sec.gov/comments/sr-nysearca-2015-107/
NASDAQ BX, Inc.; Notice of Filing and any comments it received on the
nysearca2015107-1.pdf). proposed rule change. The text of these
5 In Amendment No. 2, the Exchange made Immediate Effectiveness of Proposed
additional clarifying changes regarding the Funds’ Rule Change Regarding Fees and statements may be examined at the
other investments; the availability of price Rebates Applicable to Firms and To places specified in Item IV below. The
information for certain underlying assets; and the Adopt Tiers Applicable to Options Exchange has prepared summaries, set
dissemination of the Portfolio Indicative Value.
Overlying SPY forth in sections A, B, and C below, of
Because Amendment No. 2 is a technical the most significant aspects of such
amendment that adds clarification to the proposal
and does not materially alter the substance of the
February 12, 2016. statements.
proposed rule change or raise unique or novel Pursuant to Section 19(b)(1) of the
regulatory issues, Amendment No. 2 is not subject Securities Exchange Act of 1934 3 The term ‘‘Firm’’ or (‘‘F’’) applies to any
to notice and comment (Amendment No. 2 to the (‘‘Act’’),1 and Rule 19b–4 thereunder,2 transaction that is identified by a Participant for
proposed rule change is available at: http:// clearing in the Firm range at OCC. BX Chapter XV.
www.sec.gov/comments/sr-nysearca-2015-107/
notice is hereby given that on February 4 SPY options are based on the SPDR exchange-
nysearca2015107-2.pdf). 1, 2016, NASDAQ BX, Inc. (‘‘BX’’ or traded fund (‘‘ETF’’), which is designed to track the
6 In Amendment No. 3, the Exchange expanded ‘‘Exchange’’) filed with the Securities performance of the S&P 500 Index, and are Penny
the application of the criteria for non-U.S. equity and Exchange Commission (‘‘SEC’’ or Pilot Options. The Penny Pilot was established in
securities in the REX Gold Hedged FTSE Emerging ‘‘Commission’’) the proposed rule June 2012 and extended in 2015. See Securities
Markets ETF portfolio so that they will apply on a Exchange Act Release Nos. 67256 (June 26, 2012),
change as described in Items I, II, and
continual basis. Because Amendment No. 3 does 77 FR 39277 (July 2, 2012) (SR–BX–2012–030)
not materially alter the substance of the proposed (order approving BX option rules and establishing
8 15 U.S.C. 78s(b)(2).
rule change or raise unique or novel regulatory Penny Pilot); and 75326 (June 29, 2015), 80 FR
9 17 CFR 200.30–3(a)(31).
issues, Amendment No. 3 is not subject to notice 38481 (July 6, 2015) (SR–BX–2015–037) (notice of
and comment. 1 15 U.S.C. 78s(b)(1).
filing and immediate effectiveness extending the
7 15 U.S.C. 78s(b)(2). 2 17 CFR 240.19b–4. Penny Pilot through June 30, 2016).
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A. Self-Regulatory Organization’s rebates 5 (known as ‘‘fees and rebates’’) BX Options Market Makers,7 Non-
Statement of the Purpose of, and to (1) adopt fees and rebates applicable Customers 8 and Firms.
Statutory Basis for, the Proposed Rule to Firm; and (2) adopt tiers applicable Each specific change is described in
Change to options overlying SPY (the ‘‘SPY detail below.
1. Purpose Option Tier Schedule’’). The proposed Currently, Chapter XV, Section 2
modified fees and rebates (per executed subsection (1) reads as follows:
The Exchange proposes to amend its
contract) and new SPY Option Tier
Chapter XV, Section 2 to modify (1) Fees for Execution of Contracts on
Schedule would apply to Customers,6
subsection (1) regarding certain fees and the BX Options Market:
FEES AND REBATES
[Per executed contract]
BX Options
Customer Non-Customer 1
Market Maker
Penny Pilot Options:
Rebate to Add Liquidity ............................................................................................ # 2 $0.10 N/A
Fee to Add Liquidity ................................................................................................. # 3$0.39 $0.45
Rebate to Remove Liquidity ..................................................................................... # N/A N/A
Fee to Remove Liquidity .......................................................................................... N/A # $0.46
Non-Penny Pilot Options:
Rebate to Add Liquidity ............................................................................................ * N/A N/A
Fee to Add Liquidity ................................................................................................. * 5 $0.50/$0.95 $0.98
Rebate to Remove Liquidity ..................................................................................... * N/A N/A
Fee to Remove Liquidity .......................................................................................... N/A * $0.89
1A Non-Customer includes a Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.
2 TheRebate to Add Liquidity will be paid to a BX Options Market Maker only when the BX Options Market Maker is contra to a Non-Customer
or BX Options Market Maker.
3 The Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a Customer.
4 Reserved
5 The higher Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a
Customer.
# PENNY PILOT OPTIONS TIER SCHEDULE
Rebate to add Rebate to remove Fee to remove Fee to remove
Fee to add liquidity
liquidity liquidity liquidity liquidity
When ................................................... Customer ............. Customer ............. Customer .............. BX Options Market BX Options Market
Maker. Maker.
Trading with ........................................ Non-Customer or Customer .............. Non-Customer, BX Customer .............. Non-Customer or
BX Options Mar- Options Market BX Options Mar-
ket Maker. Maker, or Cus- ket Maker.
tomer.
Tier 1:
Participant executes less than $0.00 .................... $0.39 .................... $0.00 .................... $0.39 .................... $0.46.
0.05% of total industry cus-
tomer equity and ETF option
ADV contracts per month.
Tier 2:
Participant executes 0.05% to $0.10 .................... $0.39 .................... $0.25 .................... $0.39 .................... $0.46.
less than 0.15% of total indus-
try customer equity and ETF
option ADV contracts per
month.
Tier 3:
Participant executes 0.15% or $0.20 .................... $0.39 .................... $0.35 .................... $0.30 .................... $0.46.
more of total industry customer
equity and ETF option ADV
contracts per month.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
5 Fees and rebates are per executed contract. ‘‘Professional’’ (as that term is defined in Chapter Section 4. In order to receive Market Maker pricing
Chapter XV, Section 2(1). I, Section 1(a)(48)). BX Chapter XV. in all securities, the Participant must be registered
6 The term ‘‘Customer’’ or (‘‘C’’) applies to any 7 BX Options Market Makers may also be referred as a BX Options Market Maker in at least one
transaction that is identified by a Participant for to as ‘‘Market Makers’’. The term ‘‘BX Options security. BX Chapter XV.
clearing in the Customer range at The Options Market Maker’’ or (‘‘M’’) means a Participant that 8 Note 1 to Chapter XV, Section 2 states: ‘‘1A Non-
has registered as a Market Maker on BX Options Customer includes a Professional, Firm, Broker-
Clearing Corporation (‘‘OCC’’) which is not for the
pursuant to Chapter VII, Section 2, and must also Dealer and Non-BX Options Market Maker.’’ Firm
account of broker or dealer or for the account of a
remain in good standing pursuant to Chapter VII, is proposed to be removed from the note.
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![Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices 8561
—the new Fee to Add Liquidity when contracts per month. Proposed Tier 3 —the new Rebate to Remove Liquidity
BX Options Market Maker trading will range from a $0.37 rebate to a $0.39 when Customer trading with Non-
with Customer will be $0.42; 13 fee: Customer, BX Options Market Maker,
—the new Rebate to Remove Liquidity —The new Rebate to Add Liquidity Customer, or Firm will be $0.37; and
when Customer trading with Non- when Customer trading with Non- —the new Fee to Remove Liquidity
Customer, BX Options Market Maker, Customer, BX Options Market Maker, when BX Options Market Maker
Customer, or Firm will be $0.00; 14 or Firm will be $0.20.20 trading with Customer will be $0.25.
and —the new Fee to Add Liquidity when In addition, the Exchange proposes
—the new Fee to Remove Liquidity
BX Options Market Maker trading several explanatory notes at the end of
when BX Options Market Maker
with Customer will be $0.39; 21 the SPY Options Tier Schedule:
trading with Customer will be
—the new Rebate to Remove Liquidity —BX Options Market Maker fee to add
$0.42.15
when Customer trading with Non- liquidity in SPY Options will be $0.00
Proposed Tier 2 in the SPY Options Customer, BX Options Market Maker,
Tier Schedule will be where Participant when trading with Firm, Non-
Customer, or Firm will be $0.37; 22 Customer, or BX Options Market
executes 0.05% to less than 0.15% of and
total industry customer equity and ETF Maker;
—the new Fee to Remove Liquidity —Firm fee to add liquidity and fee to
option ADV contracts per month.
when BX Options Market Maker remove liquidity in SPY Options will
Proposed Tier 2 will range from a $0.25
trading with Customer will be be $0.33 per contract, regardless of
rebate to a $0.42 fee:
$0.39.23 counterparty;
—The new Rebate to Add Liquidity
when Customer trading with Non- Proposed Tier 4 in the SPY Options —Non-Customer fee to add liquidity
Customer, BX Options Market Maker, Tier Schedule, which has no equivalent and fee to remove liquidity in SPY
or Firm will be $0.10.16 in the Penny Pilot Options Tier Options will be $0.46 per contract,
—the new Fee to Add Liquidity when Schedule, will be where Participant regardless of counterparty;
BX Options Market Maker trading executes greater than 5,000 ADV in BX —BX Options Market Maker fee to
with Customer will be $0.42; 17 Price Improvement Auction (‘‘PRISM’’) remove liquidity in SPY Options will
—the new Rebate to Remove Liquidity Agency Contracts.24 If a Participant be $0.46 per contract when trading
when Customer trading with Non- qualifies for Tier 4 the rates applicable with Firm, Non-Customer, or BX
Customer, BX Options Market Maker, to this tier will supersede any other SPY Options Market Maker;
Customer, or Firm will be $0.25; 18 tier rates that the Participant may that —Customer fee to add liquidity in SPY
and [sic] qualify for. Proposed Tier 4 will Options when contra to another
—the new Fee to Remove Liquidity range from a $0.37 rebate to a $0.32 fee: Customer is $0.33 per contract; and
when BX Options Market Maker —The new Rebate to Add Liquidity —Volume from all products listed on
trading with Customer will be when Customer trading with Non- BX Options will apply to the SPY
$0.42.19 Customer, BX Options Market Maker, Options Tiers. Chapter XV, Section 2
Proposed Tier 3 in the SPY Options or Firm will be $0.25. subsection (1) reflecting all proposed
Tier Schedule will be where Participant —the new Fee to Add Liquidity when changes will read as follows:
executes 0.15% or more of total industry BX Options Market Maker trading (1) Fees for Execution of Contracts on
customer equity and ETF option ADV with Customer will be $0.32; the BX Options Market:
FEES AND REBATES
[Per executed contract]
BX Options Non-Cus-
Customer Market Firm
tomer 1
Maker
Penny Pilot Options (Excluding Options in SPY):
Rebate to Add Liquidity ............................................................................ # 2 $0.10 N/A N/A
Fee to Add Liquidity ................................................................................. # 3 $0.39 $0.45 $0.45
Rebate to Remove Liquidity ..................................................................... # N/A N/A N/A
13 There is no similar fee in the current Penny Schedule, the SPY Options Tier Schedule, and the 24 PRISM is a Price Improvement Mechanism for
Pilot Options Tier Schedule. Non-Penny Pilot Tier Schedule. all-electronic BX Options whereby a buy and sell
14 The new Rebate to Remove Liquidity is similar 16 The new Rebate to Add Liquidity is similar to order may be submitted in one order message to
to what is in the current Penny Pilot Options Tier what is in the current Penny Pilot Options Tier initiate an auction at a stop price and seek potential
Schedule. However, in the new rebate the Exchange Schedule. price improvement. Options are traded
proposes to add that the rebate is also applicable 17 There is no similar fee in the current Penny electronically on BX Options, and all options
when trading with Firm, which is proposed to be Pilot Options Tier Schedule. participants may respond to a PRISM Auction, the
separate from Non-Customer. For purposes of 18 The new Rebate to Remove Liquidity is similar duration of which is set at 200 milliseconds. PRISM
to what is in the current Penny Pilot Options Tier includes auto-match functionality in which a
conformity, Firm is proposed to be added to the
Schedule. Participant (an ‘‘Initiating Participant’’) may
Rebate to Add [sic] Liquidity for Customer in the
asabaliauskas on DSK5VPTVN1PROD with NOTICES
19 The Fee to Remove Liquidity is $0.39 in the electronically submit for execution an order it
Penny Pilot Tier Schedule, the SPY Options Tier
represents as agent on behalf of customer, n6 [sic]
Schedule, and the Non-Penny Pilot Tier Schedule. current Penny Pilot Options Tier Schedule.
20 The Rebate to Add Liquidity is similar to what
broker dealer, or any other entity (‘‘PRISM Order’’)
15 The Fee to Remove Liquidity is $0.39 in the
against principal interest or against any other order
current Penny Pilot Options Tier Schedule. is in the current Penny Pilot Options Tier Schedule. it represents as agent (an ‘‘Initiating Order’’)
21 There is no similar fee in the current Penny
However, in the new rebate the Exchange proposes provided it submits the PRISM Order for electronic
to add that the rebate is also applicable when Pilot Options Tier Schedule. execution into the PRISM Auction pursuant [sic].
trading with Firm, which is proposed to be separate 22 The Rebate to Remove Liquidity is $0.35 in the
See Chapter VI, Section 9; and Securities Exchange
from Non-Customer. For purposes of conformity, current Penny Pilot Options Tier Schedule. Act Release No. 76301 (October 29, 2015), 80 FR
Firm is proposed to be added to the Rebate to Add 23 The Fee to Remove Liquidity is $0.30 in the 68347 (November 4, 2015) (SR–BX–2015–032)
Liquidity for Customer in the Penny Pilot Tier current Penny Pilot Options Tier Schedule. (order approving BX PRISM).
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![8562 Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices
FEES AND REBATES—Continued
[Per executed contract]
BX Options Non-Cus-
Customer Market Firm
tomer 1
Maker
Fee to Remove Liquidity ........................................................................... N/A # $0.46 $0.46
Non-Penny Pilot Options:
Rebate to Add Liquidity ............................................................................ * N/A N/A N/A
Fee to Add Liquidity ................................................................................. * 5 $0.50/$0.95 $0.98 $0.98
Rebate to Remove Liquidity ..................................................................... * N/A N/A N/A
Fee to Remove Liquidity ........................................................................... N/A * $0.89 $0.89
1A Non-Customer includes a Professional, Broker-Dealer and Non-BX Options Market Maker.
2 The Rebate to Add Liquidity will be paid to a BX Options Market Maker only when the BX Option Market Maker is contra to a Non-Customer,
Firm, or BX Options Market Maker.
3 The Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a Customer.
4 Reserved.
5 The higher Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker is contra to a
Customer.
# PENNY PILOT OPTIONS TIER SCHEDULE
[Excluding SPY Options]
Rebate to add Rebate to remove Fee to remove Fee to remove
Fee to add liquidity
liquidity liquidity liquidity liquidity
When: Customer .............. Customer ............. Customer .............. BX Options Market BX Options Market
Maker. Maker.
Trading with: Non-Customer, BX Customer .............. Non-Customer, BX Customer .............. Non-Customer, BX
Options Market Options Market Options Market
Maker, or Firm. Maker, Cus- Maker, or Firm.
tomer, or Firm.
Tier 1:
Participant executes less than $0.00 .................... $0.39 .................... $0.00 .................... $0.39 .................... $0.46.
0.05% of total industry cus-
tomer equity and ETF option
ADV contracts per month.
Tier 2:
Participant executes 0.05% to $0.10 .................... $0.39 .................... $0.25 .................... $0.39 .................... $0.46.
less than 0.15% of total indus-
try customer equity and ETF
option ADV contracts per
month.
Tier 3:
Participant executes 0.15% or $0.20 .................... $0.39 .................... $0.35 .................... $0.30 .................... $0.46.
more of total industry customer
equity and ETF option ADV
contracts per month.
SPY OPTIONS TIER SCHEDULE
Rebate to remove Fee to remove
Rebate to add liquidity Fee to add liquidity liquidity liquidity
When: Customer ................... BX Options Market Customer ................... BX Options Market
Maker. Maker.
Trading with: Non-Customer, BX Customer ................... Non-Customer, BX Customer.
Options Market Options Market
Maker, or Firm. Maker, Customer,
or Firm.
Tier 1:
Participant executes less than 0.05% of $0.00 .......................... $0.42 .......................... $0.00 .......................... $0.42.
total industry customer equity and
ETF option ADV contracts per month.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Tier 2:
Participant executes 0.05% to less than $0.10 .......................... $0.42 .......................... $0.25 .......................... $0.42.
0.15% of total industry customer eq-
uity and ETF option ADV contracts
per month.
Tier 3:
Participant executes 0.15% or more of $0.20 .......................... $0.39 .......................... $0.37 .......................... $0.39.
total industry customer equity and
ETF option ADV contracts per month.
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![Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices 8563
SPY OPTIONS TIER SCHEDULE—Continued
Rebate to remove Fee to remove
Rebate to add liquidity Fee to add liquidity liquidity liquidity
Tier 4:
Participant executes greater than 5,000 $0.25 .......................... $0.32 .......................... $0.37 .......................... $0.25.
ADV in PRISM Agency Contracts.
• BX Options Market Maker fee to add liquidity in SPY Options will be $0.00 when trading with Firm, Non-Customer, or BX Options Market
Maker.
• Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.33 per contract, regardless of counterparty.
• Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.46 per contract, regardless of counterparty.
• 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.
• Customer fee to add liquidity in SPY Options when contra to another Customer is $0.33 per contract.
• Volume from all products listed on BX Options will apply to the SPY Options Tiers.
* NON-PENNY PILOT OPTIONS TIER SCHEDULE
Rebate to add Rebate to remove Fee to remove Fee to remove
Fee to add liquidity
liquidity liquidity liquidity liquidity
When: Customer .............. Customer ............. Customer .............. BX Options Market BX Options Market
Maker. Maker.
Trading with: Non-Customer, BX Customer .............. Non-Customer, BX Customer .............. Non-Customer, BX
Options Market Options Market Options Market
Maker, or Firm. Maker, Cus- Maker, or Firm.
tomer, or Firm.
Tier 1:
Participant executes less than $0.00 .................... $0.85 .................... $0.80 .................... $0.89 .................... $0.89.
0.05% of total industry cus-
tomer equity and ETF option
ADV contracts per month.
Tier 2:
Participant executes 0.05% to $0.10 .................... $0.85 .................... $0.80 .................... $0.89 .................... $0.89.
less than 0.15% of total indus-
try customer equity and ETF
option ADV contracts per
month.
Tier 3:
Participant executes 0.15% or $0.20 .................... $0.85 .................... $0.80 .................... $0.60 .................... $0.89.
more of total industry customer
equity and ETF option ADV
contracts per month.
The Exchange is proposing fees and reasonable dues, fees and other charges Likewise, in NetCoalition v. Securities
rebate changes and adopting the SPY among members and issuers and other and Exchange Commission 28
Options Tier Schedule at this time persons using any facility or system (‘‘NetCoalition’’) the D.C. Circuit upheld
because it believes that this will provide which the Exchange operates or the Commission’s use of a market-based
incentives for execution of contracts, controls, and is not designed to permit approach in evaluating the fairness of
and in particular SPY Options contracts, unfair discrimination between market data fees against a challenge
on the BX Options Market. customers, issuers, brokers, or dealers. claiming that Congress mandated a cost-
The Exchange also believes that its The Commission and the courts have based approach.29 As the court
proposal should provide increased repeatedly expressed their preference emphasized, the Commission ‘‘intended
opportunities for participation in for competition over regulatory in Regulation NMS that ‘market forces,
executions on the Exchange, facilitating intervention in determining prices, rather than regulatory requirements’
the ability of the Exchange to bring products, and services in the securities play a role in determining the market
together participants and encourage markets. In Regulation NMS, while data . . . to be made available to
more robust competition for orders. adopting a series of steps to improve the investors and at what cost.’’ 30
current market model, the Commission Further, ‘‘[n]o one disputes that
2. Statutory Basis highlighted the importance of market competition for order flow is ‘fierce.’
The Exchange believes that its forces in determining prices and SRO . . . As the SEC explained, ‘[i]n the U.S.
proposal to amend its Pricing Schedule revenues* [sic] and, also, recognized national market system, buyers and
asabaliauskas on DSK5VPTVN1PROD with NOTICES
is consistent with Section 6(b) of the that current regulation of the market sellers of securities, and the broker-
Act,25 in general, and furthers the system ‘‘has been remarkably successful dealers that act as their order-routing
objectives of Section 6(b)(4) and (b)(5) of in promoting market competition in its agents, have a wide range of choices of
the Act,26 in particular, in that it broader forms that are most important to where to route orders for execution’;
provides for the equitable allocation of investors and listed companies.’’ 27
28 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
27 Securities
Exchange Act Release No. 51808 at 2010).
25 15 U.S.C. 78f(b). 29 See id. at 534–535.
37499 (June 9, 2005) (‘‘Regulation NMS Adopting
26 15 U.S.C. 78f(b)(4), (5). Release’’). 30 See id. at 537.
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![8564 Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices
[and] ‘no exchange can afford to take its Non-Penny Pilot Options liquidity to trading with Customer), Rebate to
market share percentages for granted’ the Exchange. Remove Liquidity for Customer (when
because ‘no exchange possesses a The proposed rule change to fees and trading with Non-Customer, BX Options
monopoly, regulatory or otherwise, in rebates for Penny Pilot Options and for Market Maker, Customer, or Firm), and
the execution of order flow from broker Non-Penny Pilot Options to add a new Fee to Remove Liquidity or [sic] BX
dealers’. . . .’’ 31 Although the court and Firm column, and to make changes to Options Market Maker (when trading
the SEC were discussing the cash notes to properly reflect the use of the with Customer). The Exchange also
equities markets, the Exchange believes new Firm column, is equitable and not proposes several explanatory notes
that these views apply with equal force unfairly discriminatory. This is because applicable to the SPY Option Tier
to the options markets. the Exchange’s proposal keeps current Schedule.
The Exchange proposes to amend its fees and rebate assessments intact, and The Exchange believes that excluding
Chapter XV, Section 2 to modify the fees and rebates schedule will SPY Options pricing form the Penny
subsection (1) to adopt fees and rebates continue to apply uniformly to all Pilot Options Tier Schedule and
applicable to Firm, and to adopt a new similarly situated Participants. establishing a separate SPY Options Tier
SPY Option Tier Schedule. The The fees and rebates schedule as Schedule is reasonable because of the
proposed modified fees and rebates and proposed continues to reflect nature of SPY options. These are most
new SPY Option Tier Schedule would, differentiation among different market heavily traded options on the Exchange
as discussed, apply to Customers, BX participants. The Exchange believes that as well as in the industry.
Options Market Makers, Non- the differentiation is equitable and not The Exchange believes that the
Customers, and Firms. The Exchange unfairly discriminatory, as well as proposed SPY Options Tier Schedule is
believes that its proposal is reasonable, reasonable, and notes that some market reasonable because it is not a novel,
equitable, and not unfairly participants like BX Options Market untested structure but rather is similar
discriminatory and should provide Makers commit to various obligations. to what is offered by other options
increased opportunities for participation For example, transactions of a BX markets,35 and, is based on the
in executions on the Exchange, Options Market Maker must constitute a Exchange’s Penny Pilot Options Tier
facilitating the ability of the Exchange to course of dealings reasonably calculated Schedule. The proposed Tiers in the
bring together participants and to contribute to the maintenance of a SPY Options Tier Schedule clearly
encourage more robust competition for fair and orderly market, and BX Options reflect the progressively increasing
orders. Market Makers should not make bids or nature of Participant executions
offers or enter into transactions that are structured for the purpose of attracting
Change 1—Penny Pilot Options: Modify order flow to the Exchange. This
Fees and Rebates To Add Firm Column inconsistent with such course of
dealings. Further, all BX Options Market encourages market participant behavior
In Change 1, the Exchange proposes Makers are designated as specialists on through progressive tiered fees and
modifications to its fees and rebates for BX for all purposes under the Act or rebates using an accepted methodology
Penny Pilot Options and for Non-Penny rules thereunder.34 among options exchanges.36 Tier 1 in
Pilot Options to add a new Firm The Exchange believes that by making the SPY Options Tier Schedule is,
column; and to make changes to notes the proposed Firm column change, it is similarly to Tier 1 in the Penny Pilot
to properly reflect the use of the new continuing to incentivize Participants to Options Tier Schedule, set up to enable
Firm column. The proposed Firm execute more volume on the Exchange a Participant to earn a Rebate to Add
column would have exactly the same to further enhance liquidity in this Liquidity or pay a Fee to Add Liquidity
assessments or rates as the current Non- market. in SPY where the Participant executes
Customer column, which now includes less than 0.05% of total industry
Firm. Change 2—Penny Pilot Options: Modify customer equity and ETF option ADV
The proposed change is reasonable Fees and Rebates To Add SPY Options contracts per month. Tier 2 in the SPY
because it simply establishes a new Tiers Options Tier Schedule is, similarly to
Firm column but keeps current fees and In Change 2, the Exchange proposes Tier 2 in the Penny Pilot Options Tier
rebate assessments intact. The proposed modifications to its current Penny Pilot Schedule, set up to enable a Participant
rule change is reasonable because it Options Tier Schedule to indicate that to earn a Rebate to Add Liquidity or pay
continues to encourage market this particular schedule does not apply a Fee to Add Liquidity in SPY where the
participant behavior through the fees to SPY Options, and that for SPY Participant executes 0.05% to less than
and rebates system, which is an Options pricing there will be a separate 0.15% of total industry customer equity
accepted methodology among options SPY Options Tier Schedule. The Tier 1, and ETF option ADV contracts per
exchanges.32 The proposed change is Tier 2, and Tier 3 requirements in the month. And Tier 3 in the SPY Options
also reasonable because it continues, proposed SPY Options Tier Schedule Tier Schedule is, similarly to Tier 3 in
through the fees and rebates schedule, will be similar to the current Penny the Penny Pilot Options Tier Schedule,
to incentivize Participants to direct Pilot Options Tier Schedule. The set up to [sic] Participant executes
Penny Pilot Options liquidity33 and Exchange also proposes a new Tier 4 for 0.15% or more of total industry
the SPY Options Tier Schedule. customer equity and ETF option ADV
31 Id. at 539 (quoting Securities Exchange [sic]
Specifically, the Exchange proposes to contracts per month. The fees and
Release No. 59039 (December 2, 2008), 73 FR 74770 rebates that BX Options Market Makers
(December 9, 2008) (SR–NYSEArca–2006–21) at 73 add SPY Options Tiers 1–4 for Rebate to
asabaliauskas on DSK5VPTVN1PROD with NOTICES
FR at 74782–74783). Add Liquidity for Customer (when and Customers are assessed are, as has
32 See, e.g., fee and rebate schedules of other
trading with Non-Customer, BX Options been discussed at length, comparable to
options exchanges, including, but not limited to, Market Maker, or Firm), Fee to Add
NASDAQ Options Market (‘‘NOM’’), NASDAQ 35 See, e.g., the pricing schedule of Phlx. See also,
PHLX LLC (‘‘Phlx’’), and Chicago Board Options Liquidity for BX Market Maker (when e.g., the pricing schedule of NASDAQ Options
Exchange (‘‘CBOE’’). Market (‘‘NOM’’).
33 Penny Pilot Options, and in particular SPY structuring and modifying its fee and rebate 36 See, e.g., fee and rebate schedules of other
Options, represent the greatest volume options schedule. options exchanges, including, but not limited to,
traded on the Exchange and in the options market 34 See Chapter VII, Section 5, entitled NOM, Phlx, and Chicago Board Options Exchange
and the Exchange has taken this into account when ‘‘Obligations of Market Makers.’’ (‘‘CBOE’’).
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![Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices 8565
the fees and rebates in the Penny Pilot The Exchange believes that it is will impose any undue burden on
Options Tier Schedule. The Exchange reasonable to add notes to the SPY competition, as discussed below.
believes that it is reasonable to also Options Tier Schedule as they are The Exchange operates in a highly
establish Tier 4 in the in the [sic] SPY explanatory in nature. Five such notes competitive market in which many
Options Tier Schedule in order to explain that unlike how new Tiers 1–4 sophisticated and knowledgeable
enable a Participant to earn a Rebate to function, certain fees (e.g. BX Options market participants can readily and do
Add Liquidity or pay a Fee to Add Market Maker, Firm, Non-Customer, and send order flow to competing exchanges
Liquidity in SPY where the Participant Customer) remain the same regardless of if they deem fee levels or rebate
executes greater than 5,000 ADV in counterparty. The Exchanges believes incentives at a particular exchange to be
certain PRISM Contracts. By so doing, that it is also reasonable for conformity excessive or inadequate. Additionally,
the Exchange encourages Participants to to indicate Firm across fees and rebates, new competitors have entered the
trade Prism Contracts, which have been the new SPY Options Tier Schedule, the market and still others are reportedly
recently approved for trading.37 Penny Pilot Options Tier Schedule, and entering the market shortly. These
In addition, the Exchange believes the Non-Penny Pilot Options Tier market forces ensure that the Exchange’s
that making changes to add the SPY Schedule. fees and rebates remain competitive
Options Tier Schedule in terms of Establishing the SPY Options Tier with the fee structures at other trading
Rebate to Add Liquidity and Fee to Add Schedule, which includes new Tiers 1– platforms. In that sense, the Exchange’s
Liquidity, and Rebate to Remove 4, is equitable and not unfairly proposal is actually pro-competitive
Liquidity and Fee to Remove Liquidity, discriminatory. This is because the because the Exchange is simply
is reasonable because it encourages the Exchange’s proposal to assess fees and continuing its fees and rebates and [sic]
desired Customer behavior by attracting pay rebates according to Tiers 1, 2, 3, for Penny Pilot Options and Non-Penny
Customer interest to the Exchange. and 4 will apply uniformly to all Pilot Options and establishing a SPY
Customer activity enhances liquidity on similarly situated Participants. Options Tiers Schedule in order to
the Exchange for the benefit of all Customers would earn a Rebate to Add remain competitive in the current
market participants and benefits all Liquidity and be assessed a Fee to Add environment.
market participants by providing more Liquidity according to the Tiers, and BX The Exchange does not believe that
trading opportunities, which attracts Market Makers would earn a Rebate to the proposed rule change will impose
market makers. An increase in the Remove Liquidity [sic] and a Fee to any burden on competition not
activity of these market participants in Remove Liquidity according to the same necessary or appropriate in furtherance
turn facilitates tighter spreads, which Tiers per the SPY Options Tier of the purposes of the Act. In terms of
may cause an additional corresponding Schedule; and certain fees would be the inter-market competition, the Exchange
increase in order flow from other market same regardless of counterparty. The fee notes that it operates in a highly
participants. and rebate schedule as proposed competitive market in which market
The SPY Options Tier Schedule is continues to reflect differentiation participants can readily favor competing
reasonable in that it is, like the Penny among different market participants. venues if they deem fee levels at a
Pilot Options Tier Schedule, set up to The Exchange believes that the particular venue to be excessive, or
incentivize Participants to direct differentiation is equitable and not rebate opportunities available at other
liquidity to the Exchange; using volume unfairly discriminatory, as well as venues to be more favorable. In such an
from all products listed on BX Options reasonable, because some market environment, the Exchange must
will further incentivize Participants. As participants like BX Options Market continually adjust its fees to remain
Participants execute more of total Makers commit to obligations such as competitive with other exchanges and
industry customer equity and ETF that transactions must constitute a with alternative trading systems that
option ADV contracts per month on the course of dealings reasonably calculated have been exempted from compliance
Exchange, they can in certain categories to contribute to the maintenance of a with the statutory standards applicable
earn higher rebates and be assessed fair and orderly market, and BX Options to exchanges. Because competitors are
lower fees. For example, in the SPY Market Makers should not make bids or free to modify their own fees in
Options Tier Schedule the Tier 3 Rebate offers or enter into transactions that are response, and because market
to Add Liquidity when Customer inconsistent with such course of participants may readily adjust their
trading with Non-Customer, BX Options dealings. order routing practices, the Exchange
Market Maker, or Firm is higher ($0.20)
The Exchange believes that by making believes that the degree to which fee
than the Penny Pilot [sic] Tier 1 Rebate
the proposed Penny Pilot Options changes in this market may impose any
to Add Liquidity ($0.00); and the Tier 3
changes it is incentivizing Participants burden on competition is extremely
Rebate to Remove Liquidity when
to execute more volume on the limited. In terms of intra-market
Customer trading with Non-Customer,
Exchange to further enhance liquidity in competition, the Exchange notes that
BX Options Market Maker, Customer, or
this market. price differentiation among different
Firm is higher ($0.37) that [sic] the Tier
market participants operating on the
2 Rebate to Remove Liquidity ($0.25). B. Self-Regulatory Organization’s
Exchange (e.g., Customer and BX
Similarly, the Fee to Add Liquidity Statement on Burden on Competition
Options Market Maker) is reasonable.
when BX Option Market Maker trading
The Exchange does not believe that Customer activity, for example,
with Customer is lesser for Tier 3
the proposed rule change will impose enhances liquidity on the Exchange for
asabaliauskas on DSK5VPTVN1PROD with NOTICES
($0.39) than for Tier 1 ($0.42); and the
any burden on competition not the benefit of all market participants
Fee to Remove Liquidity when BX
necessary or appropriate in furtherance and benefits all market participants by
Option Market Maker trading with
of the purposes of the Act. Specifically, providing more trading opportunities,
Customer is less for Tier 3 ($0.39) than
the Exchange does not believe that its which attracts market makers. An
for Tier 1 ($0.42).
proposal to make changes to its Penny increase in the activity of these market
37 See Securities Exchange Act Release No. 76301 Pilot Options and Non-Penny Pilot participants (particularly in response to
(October 29, 2015), 80 FR 68347 (November 4, 2015) Options fees and rebates and to pricing) in turn facilitates tighter
(SR–BX–2015–032) (order approving BX PRISM). establish a SPY Options Tiers Schedule spreads, which may cause an additional
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![8566 Federal Register / Vol. 81, No. 33 / Friday, February 19, 2016 / Notices
corresponding increase in order flow action is: (i) Necessary or appropriate in 2016–010 and should be submitted on
from other market participants. the public interest; (ii) for the protection or before March 11, 2016.
Moreover, unlike others market of investors; or (iii) otherwise in For the Commission, by the Division of
participants each BX Options Market furtherance of the purposes of the Act. Trading and Markets, pursuant to delegated
Maker commits to various obligations. If the Commission takes such action, the authority.40
These obligations include, for example, Commission shall institute proceedings Robert W. Errett,
transactions of a BX Market Maker must to determine whether the proposed rule Deputy Secretary.
constitute a course of dealings should be approved or disapproved. [FR Doc. 2016–03392 Filed 2–18–16; 8:45 am]
reasonably calculated to contribute to
IV. Solicitation of Comments BILLING CODE 8011–01–P
the maintenance of a fair and orderly
market, and Market Makers should not Interested persons are invited to
make bids or offers or enter into submit written data, views, and SECURITIES AND EXCHANGE
transactions that are inconsistent with arguments concerning the foregoing, COMMISSION
such course of dealings.38 including whether the proposed rule
In this instance, the proposed changes change is consistent with the Act. [Release No. 34–77122; File No. 4–697]
to the fees and rebates for Penny Pilot Comments may be submitted by any of
Program for Allocation of Regulatory
Options and for Non-Penny Pilot the following methods:
Responsibilities Pursuant to Rule 17d–
Options to add a new Firm column, and
Electronic Comments 2; Notice of Filing of Proposed Plan for
establishing a SPY Options Tiers
the Allocation of Regulatory
Schedule, do not impose a burden on • Use the Commission’s Internet
Responsibilities Between the Financial
competition because the Exchange’s comment form (http://www.sec.gov/
Industry Regulatory Authority, Inc. and
execution and routing services are rules/sro.shtml); or
ISE Mercury, LLC
completely voluntary and subject to • Send an email to rule-comments@
extensive competition both from other sec.gov. Please include File Number SR– February 11, 2016.
exchanges and from off-exchange BX–2016–010 on the subject line. Pursuant to Section 17(d) of the
venues. If the changes proposed herein Securities Exchange Act of 1934
are unattractive to market participants, Paper Comments
(‘‘Act’’),1 and Rule 17d–2 thereunder,2
it is likely that the Exchange will lose • Send paper comments in triplicate notice is hereby given that on February
market share as a result. Accordingly, to Brent J. Fields, Secretary, Securities 9, 2016, ISE Mercury, LLC (‘‘ISE
the Exchange does not believe that the and Exchange Commission, 100 F Street Mercury’’) and the Financial Industry
proposed changes will impair the ability NE., Washington, DC 20549–1090. Regulatory Authority, Inc. (‘‘FINRA’’)
of members or competing order All submissions should refer to File (together with ISE Mercury, the
execution venues to maintain their Number SR–BX–2016–010. This file ‘‘Parties’’) filed with the Securities and
competitive standing in the financial number should be included on the Exchange Commission (‘‘Commission’’
markets. Additionally, the changes subject line if email is used. To help the or ‘‘SEC’’) a plan for the allocation of
proposed herein are pro-competitive to Commission process and review your regulatory responsibilities, dated
the extent that they continue to allow comments more efficiently, please use February 8, 2016 (‘‘17d–2 Plan’’ or the
the Exchange to promote and maintain only one method. The Commission will ‘‘Plan’’). The Commission is publishing
order executions. post all comments on the Commission’s this notice to solicit comments on the
C. Self-Regulatory Organization’s Internet Web site (http://www.sec.gov/ 17d–2 Plan from interested persons.
Statement on Comments on the rules/sro.shtml). Copies of the I. Introduction
Proposed Rule Change Received From submission, all subsequent
amendments, all written statements Section 19(g)(1) of the Act,3 among
Members, Participants, or Others
with respect to the proposed rule other things, requires every self-
No written comments were either change that are filed with the regulatory organization (‘‘SRO’’)
solicited or received. Commission, and all written registered as either a national securities
III. Date of Effectiveness of the communications relating to the exchange or national securities
Proposed Rule Change and Timing for proposed rule change between the association to examine for, and enforce
Commission Action Commission and any person, other than compliance by, its members and persons
those that may be withheld from the associated with its members with the
Pursuant to Section 19(b)(3)(A)(ii) of Act, the rules and regulations
the Act,39 the Exchange has designated public in accordance with the
provisions of 5 U.S.C. 552, will be thereunder, and the SRO’s own rules,
this proposal as establishing or changing unless the SRO is relieved of this
a due, fee, or other charge imposed by available for Web site viewing and
printing in the Commission’s Public responsibility pursuant to Section 17(d)
the self-regulatory organization on any or Section 19(g)(2) of the Act.4 Without
person, whether or not the person is a Reference Room, 100 F Street NE.,
Washington, DC 20549, on official this relief, the statutory obligation of
member of the self-regulatory each individual SRO could result in a
organization, which renders the business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the pattern of multiple examinations of
proposed rule change effective upon broker-dealers that maintain
filing. filing also will be available for
inspection and copying at the principal memberships in more than one SRO
asabaliauskas on DSK5VPTVN1PROD with NOTICES
At any time within 60 days of the (‘‘common members’’) for compliance
filing of the proposed rule change, the office of the Exchange. All comments
received will be posted without change; with certain rules that are substantially
Commission summarily may
temporarily suspend such rule change if the Commission does not edit personal 40 17 CFR 200.30–3(a)(12).
it appears to the Commission that such identifying information from 1 15 U.S.C. 78q(d).
submissions. You should submit only 2 17 CFR 240.17d–2.
38 See Chapter VII, Section 5, entitled information that you wish to make 3 15 U.S.C. 78s(g)(1).
‘‘Obligations of Market Makers’’. available publicly. All submissions 4 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2),
39 15 U.S.C. 78s(b)(3)(A)(ii). should refer to File Number SR–BX– respectively.
VerDate Sep<11>2014 17:59 Feb 18, 2016 Jkt 238001 PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 E:\FR\FM\19FEN1.SGM 19FEN1](https://thefederalregister.org/doc/81_FR_8591/page/9.svg)
Document Created: 2018-02-02 14:31:59
Document Modified: 2018-02-02 14:31:59
| 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 8558 |
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