81 FR 94468 - Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt a Participant Fee Applicable to Options Members of Its Equity Options Platform

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 247 (December 23, 2016)

[Federal Register Volume 81, Number 247 (Friday, December 23, 2016)]
[Notices]
[Pages 94468-94469]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-30946]



[[Page 94468]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79600; File No. SR-BatsBZX-2016-91]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt a 
Participant Fee Applicable to Options Members of Its Equity Options 
Platform

December 19, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 15, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to BZX Rules 
15.1(a) and (c) to adopt a Participant Fee applicable to Options 
Members \6\ of its equity options platform (``BZX Options'').
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
    \6\ The term ``Options Member'' is defined as ``a firm, or 
organization that is registered with the Exchange pursuant to 
Chapter XVII of these Rules for purposes of participating in options 
trading on BZX Options as an `Options Order Entry Firm' or `Options 
Market Maker.' '' See Exchange Rule 16.1(a)(38).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its fee schedule for BZX Options to 
adopt a Participant Fee applicable to Options Members. The Exchange 
believes the Participant Fee with help recoup costs related to the 
administration of Options Members. As proposed, Options Members would 
pay a Participant Fee of $500 per month where they have an ADV \7\ of 
less than 5,000 contracts traded or $1,000 per month where they have an 
ADV equal to or greater than 5,000 contract traded. New Options Members 
would not be charged a Participant Fee for their first three (3) month 
of membership on BZX Options. The Exchange proposes to implement the 
Participant Fee on January 3, 2017.\8\
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    \7\ As defined in the BZX Options fee schedule.
    \8\ The Exchange notes that the date of the fee schedule was 
amended to January 3, 2017 in SR-BatsBZX-2016-90 (December 14, 
2016).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(4),\10\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and other persons using its 
facilities. The Exchange believes that the proposed rates are equitable 
and non-discriminatory in that they apply uniformly to all Members.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    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, for example, the Commission indicated that market forces should 
generally determine the price of non-core market data because national 
market system regulation ``has been remarkably successful in promoting 
market competition in its broader forms that are most important to 
investors and listed companies.'' \11\ Likewise, in NetCoalition v. 
NYSE Arca, Inc.\12\ (``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.\13\ 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.'' \14\
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    \11\ Securities Exchange Act Release No. 51808 at 37499 (June 9 
[sic], 2005) (``Regulation NMS Adopting Release'').
    \12\ NetCoalition v. NYSE Arca, Inc., 615 F.3d 525 (D.C. Cir. 
2010).
    \13\ See NetCoalition, at 534.
    \14\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \15\ 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.
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    \15\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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    The Exchange believes the adoption of a Participant Fee for Options 
Members is equitable and reasonable because the Exchange is seeking to 
recoup costs related to membership administration. Depending on the 
Options Member's ADV, the proposed fee is either less than or equal to 
that charged by the Nasdaq Stock Market LLC (``Nasdaq'').\16\ The 
Exchange also believes it is equitable and not unfairly discriminatory 
to charge a lower Participant Fee to those Options Members with an ADV 
less than 5,000

[[Page 94469]]

contracts traded.\17\ The lower fee, coupled with not charging new 
Options Members the Participant Fee during their first three (3) months 
of membership, is designed to encourage membership and to allow firms 
to grow their business on BZX Options. Therefore, the Exchange believes 
the proposed tiered Participant Fee if equitable, reasonable, and not 
unfairly discriminatory because it is designed to recoup costs related 
to membership administration while not serving as a deterrent to firms 
seeking to become new members of BZX Options.
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    \16\ See Nasdaq Options Rules Chapter XV, Section 10, 
Participant Fee--Options (charging a Participant Fee of $1,000 to 
all Nasdaq options participants, regardless of volume). See also 
Securities Exchange Act Release Nos. 68502 (December 20, 2012), 77 
FR 76572 (December 28, 2012) (SR-Nasdaq-2012-139); and 76760 
(December 23, 2015), 80 FR 81562 (December 30, 2015) (SR-Nasdaq-
2015-154).
    \17\ The fee is also less than similar fees charged by other 
exchanges, some of which also charged different rates based on the 
type of member or that member's participation on that exchange. See 
e.g., The Chicago Board Options Exchange, Incorporated's Fees 
Schedule (charging per month a Market Maker Trading Permit is 
$5,500, an SPX Tier appointment is $3,000, a VIX Tier Appointment is 
$2,000, and an electronic Access Permit is $1,600); the 
International Securities Exchange LLC's Schedule of Fees (charging 
per month an Electronic Access Member is assessed $500.00 for 
membership and a market maker is assessed from $2,000 to $4,000 per 
membership depending on the type of market maker); C2 Options 
Exchange, Incorporated's Fees Schedule (charging per month, a 
market-maker is assessed a $5,000 permit fee, an Electronic Access 
Permit is assessed a $1,000 permit fee); and NYSE Arca, Inc.'s Fee 
Schedule (charging per month, a Clearing Firm is assessed a $1,000 
per month fee for the first Options Trading Permit (``OTP'') and 
$250 thereafter, and a market maker is assessed a permit based on 
the maximum number of OTPs held by an OTP Firm or OTP Holder during 
a calendar month ranging from $1,000 to $6,000 a month).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes the 
proposed Participant Fee will not impose an undue burden on competition 
because the Exchange will uniformly assess the participant fee on all 
Member based on their ADV of contracts traded. The Exchange does not 
believe that the proposed changes represent a significant departure 
from pricing offered by the Exchange's competitors.\18\ Additionally, 
Members may opt to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value or if they view the proposed fee 
as excessive. Further, excessive fees for participation would serve to 
impair an exchange's ability to compete for order flow and members 
rather than burdening competition.
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    \18\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BatsBZX-2016-91 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-BatsBZX-2016-91. 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-BatsBZX-2016-91 and should 
be submitted on or before January 13, 2017.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30946 Filed 12-22-16; 8:45 am]
 BILLING CODE 8011-01-P