82 FR 11381 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Increase the BX Options Market Port Fees and Institute a Fee Cap at Chapter XV Section 3

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 34 (February 22, 2017)

[Federal Register Volume 82, Number 34 (Wednesday, February 22, 2017)]
[Notices]
[Pages 11381-11383]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-03461]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80055; File No. SR-BX-2017-009]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Increase the BX 
Options Market Port Fees and Institute a Fee Cap at Chapter XV Section 
3

February 16, 2017.
    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 8, 2017, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to increase the BX Options Market port fees 
and institute a fee cap at Chapter XV Section 3.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to increase the BX 
Options Market port fees and institute a fee cap at Chapter XV Section 
3(b).\3\ The Exchange notes that it has not increased fees for the 
connectivity provided under the rule since its adoption in January 2015 
\4\ notwithstanding that the costs that the Exchange incurs in offering 
the connectivity have increased. As described below, the Exchange is 
also proposing to limit the total amount that an Options Participant 
\5\ may be assessed under the rule.
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    \3\ The Exchange initially filed the proposed pricing changes on 
February 1, 2017 (SR-BX-2017-005). On February 8, 2017, the Exchange 
withdrew that filing and submitted this filing.
    \4\ See Securities Exchange Act Release No. 73894 (December 19, 
2014), 79 FR 78119 (December 29, 2014) (SR-BX-2014-060).
    \5\ As defined by BX Options Rules Chapter II, Section 1.
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    Under the Chapter XV Section 3(b), the Exchange assesses an Options 
Participant $200 per port, per month, per mnemonic \6\ for Order Entry 
Ports,\7\ CTI Ports,\8\ BX Depth Ports,\9\ BX TOP Ports,\10\ and Order 
Entry DROP Ports \11\ without a cap on how much a Participant is 
assessed.\12\ The Exchange is proposing to increase the fee assessed 
for Order Entry Ports, CTI Ports, BX Depth Ports, BX TOP Ports, and 
Order Entry DROP Ports to $650 per port, per month, per mnemonic, which 
is consistent with the fees assessed by The NASDAQ Stock Market for 
comparable connectivity.\13\ The Exchange is also

[[Page 11382]]

proposing to limit the amount a Participant must pay for the 
aforementioned connectivity provided under Chapter XV Section 3(b) to 
$7,500 per month.
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    \6\ A ``mnemonic'' is a unique identifier consisting of a four 
character alpha code.
    \7\ The Order Entry Port Fee is a connectivity fee in connection 
with routing orders to the Exchange via an external order entry 
port. BX Options Market Participants access the Exchange's network 
through order entry ports. A BX Options Market Participant may have 
more than one order entry port.
    \8\ CTI offers real-time clearing trade updates. A real-time 
clearing trade update is a message that is sent to a member after an 
execution has occurred and contains trade details. The message 
containing the trade details is also simultaneously sent to The 
Options Clearing Corporation. The trade messages are routed to a 
member's connection containing certain information. The 
administrative and market event messages include, but are not 
limited to: System event messages to communicate operational-related 
events; options directory messages to relay basic option symbol and 
contract information for options traded on the Exchange; complex 
strategy messages to relay information for those strategies traded 
on the Exchange; trading action messages to inform market 
participants when a specific option or strategy is halted or 
released for trading on the Exchange; and an indicator which 
distinguishes electronic and non-electronically delivered orders.
    \9\ A BX Depth Port provides access to BX Depth, which is a data 
feed that provides quotation information for individual orders on 
the BX book, last sale information for trades executed on BX, and 
Order Imbalance Information as set forth in BX Options Rules Chapter 
VI, Section 8. BX Depth is the options equivalent of the BX 
TotalView/ITCH data feed that BX offers under BX Rule 7023 with 
respect to equities traded on BX. As with TotalView, members use BX 
Depth to ``build'' their view of the BX book by adding individual 
orders that appear on the feed, and subtracting individual orders 
that are executed. See Chapter VI, Section 1(a)(3)(A).
    \10\ BX TOP Port is a data feed that provides the BX Best Bid 
and Offer (``BBO'') and last sale information for trades executed on 
BX. The BBO and last sale information are identical to the 
information that BX sends to the Options Price Regulatory Authority 
(``OPRA'') and which OPRA disseminates via the consolidated data 
feed for options. BX TOP Port is the options equivalent of the BX 
Basic data feed offered for equities under BX Rule 7047. See Chapter 
VI, Section 1(a)(3)(B).
    \11\ The DROP interface provides real time information regarding 
orders sent to the BX Options Market and executions that occurred on 
the BX Options Market. The DROP interface is not a trading interface 
and does not accept order messages.
    \12\ The Exchange also assesses a $500 SQF Port fee, which is 
assessed per port, per month. A SQF Port is a port that allows a 
Participant acting as options Market Maker to enter its markets into 
the BX Options Market. The Exchange is not proposing to amend the 
fees assessed for SQF Ports or apply the proposed limit on fees to 
SQF Port fees.
    \13\ See NASDAQ Options Rules Chapter XV, Section 3(b).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that increasing the fee assessed for Order 
Entry Ports, CTI Ports, BX Depth Ports, BX TOP Ports, and Order Entry 
DROP Ports to $650 per port, per month, per mnemonic is reasonable 
because it is competitive with the fees of other exchanges. 
Specifically, The NASDAQ Stock Market assesses $650 per port, per 
month, per mnemonic for comparable connectivity under Nasdaq Options 
Market Rules Chapter XV, Section 3(b). Moreover, the Exchange notes 
that it has not increased fees for the connectivity provided under the 
rule since it adopted the connectivity options on January 2, 2015,\16\ 
notwithstanding that costs associated with offering and supporting the 
connectivity have increased, which include the cost of technology and 
infrastructure. The costs that the Exchange incurs is substantially 
similar to those that The NASDAQ Stock Market incurs, since both 
exchanges use the same hardware and support services for the ports. 
Thus, the Exchange has determined that $650 per port, per month, per 
mnemonic is the appropriate fee that will allow it to cover its costs 
and realize a profit, while avoiding an overall reduction in the number 
of subscribers. The Exchange also believes that the proposed $7,500 fee 
cap is reasonable because, taken together with the proposed fee 
increase, it will allow the Exchange to cover costs while reducing the 
impact of the fees on Options Participants that subscribe to a large 
number of ports. Because Options Participants generally need an 
increasing number of ports as provided under BX Options Market Rules 
Chapter XV Section 3(b) as their activity expands on the BX Options 
Market, the Exchange believes that without such a cap Options 
Participants may be inhibited from growing their activity on the 
Exchange. As a general principal, the Exchange believes that greater 
participation on the BX Options Market by Options Participants improves 
market quality for all market participants. Thus, in arriving at a fee 
cap of $7,500, the Exchange balanced the desire to improve market 
quality against the need to cover costs and make a profit.
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    \16\ See note 4, supra.
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    The Exchange believes that increasing the fee assessed for Order 
Entry Ports, CTI Ports, BX Depth Ports, BX TOP Ports, and Order Entry 
DROP Ports to $650 per port, per month, per mnemonic is an equitable 
allocation and is not unfairly discriminatory because the increased fee 
will apply to all Options Participants that have, or are seeking, the 
connectivity provided under the rule. As noted above, the Exchange is 
increasing the fees under the rule to align them with the costs 
associated with offering the ports as well as to allow the Exchange to 
realize a profit. The Exchange believes that the proposed $7,500 fee 
cap is an equitable allocation and is not unfairly discriminatory 
because the any Options Participant that subscribes to connectivity 
under the rule that would otherwise exceed $7,500 per month will have 
its fees capped. Although Options Participants that do not have fees 
under the rule in excess of $7,500 per month will not benefit from the 
fee cap, the Exchange notes that any Options Participant may increase 
the number of ports subscribed to receive the fee cap, should their 
activity on the BX Options Market warrant increased subscription. 
Moreover, Options Participants that do not qualify for the fee cap will 
benefit from the greater liquidity provided by Options Participants 
that conduct a sufficient level of activity on the BX Options Market to 
require connectivity in excess of the fee cap.
    The Exchange notes that it is not amending or applying a fee 
limitation to SQF Port Fees, which are also provided under BX Options 
Market Rules Chapter XV Section 3(b).\17\ The Exchange believes that it 
is equitable and not unfairly discriminatory to increase the other port 
fees, as proposed herein, and not increase the fee assessed for SQF 
Port Fees because SQF Port Fees are used by BX market makers in 
connection with their market making activities. Unlike other Options 
Participants, BX market makers add value to the market through 
continuous quoting and a commitment of capital. The Exchange believes 
that not applying a limitation on fees to SQF Port Fees is equitable 
and not unfairly discriminatory because the Exchange has found that 
maintaining the separation between SQF ports and the other ports under 
BX Options Market Rules Chapter XV Section 3(b) is appropriate given 
the different purposes for subscribing to the ports. Moreover, the 
Exchange does not believe that applying an independent fee limitation 
to SQF Port Fees is warranted at this juncture because of the limited 
number of SQF ports to which any single market maker subscribes.
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    \17\ See note 12, supra.
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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. 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 this instance, the proposed changes to the charges assessed for 
Order Entry Ports, CTI Ports, BX Depth Ports, BX TOP Ports, and Order 
Entry DROP Ports under BX Options Market Rules Chapter XV Section 3(b) 
do not impose a burden on competition because the Exchange's 
connectivity services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues. To 
the extent that the changes are viewed unfavorably by Options 
Participants, the proposed fees increase and fee cap may result in the 
Exchange losing subscribership and market participation, which would 
likely benefit other exchanges and trading venues. Accordingly, the 
Exchange does not believe that the proposed changes will impair the 
ability of Options Participants or competing order execution venues to 
maintain their

[[Page 11383]]

competitive standing in the financial markets.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\18\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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-2017-009 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2017-009. 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-2017-009, and should be 
submitted on or before March 15, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03461 Filed 2-21-17; 8:45 am]
 BILLING CODE 8011-01-P