82 FR 14048 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees as They Apply to the Equity Options Platform

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 50 (March 16, 2017)

[Federal Register Volume 82, Number 50 (Thursday, March 16, 2017)]
[Notices]
[Pages 14048-14050]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-05211]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80204; File No. SR-BatsEDGX-2017-14]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change Related 
to Fees as They Apply to the Equity Options Platform

March 10, 2017.
    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 March 1, 2017, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 the 
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 EDGX Rules 
15.1(a) and (c).
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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).
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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 its equity 
options platform (``EDGX Options'') to: (i) Adopt fees for its recently 
adopted Qualified Contingent Cross Orders (``QCC''); \6\ and (ii) 
modify the criteria of two tiers related to orders executed in Bats 
Auction Mechanism (``BAM'').
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    \6\ See Securities Exchange Act Release No. 79942 (February 1, 
2017), 82 FR 9804 (February 8, 2017) (SR-BatsEDGX-2017-11) (``QCC 
Filing'').
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Background of QCC

    The Exchange recently filed to adopt functionality allowing 
participants on the Exchange the ability to submit to the Exchange 
Qualified Contingent Cross Orders, an order type offered by multiple 
other options exchanges.\7\ The operation of Qualified Contingent Cross 
Orders on the Exchange will be substantially similar in all material 
respects to the operation of such orders on such other exchanges.\8\
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    \7\ See ISE Rule 715(j), Supplementary Material .01 to ISE Rule 
715 and ISE Rule 721(b); see also CBOE Rule 6.53(u); NASDAQ PHLX 
Rule 1080(o); NYSE Arca Rule 6.62(bb), Commentary .02 to NYSE Arca 
Rule 6.62 and NYSE Arca Rule 6.90.
    \8\ See QCC Filing supra, note 6.
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Definitions of QCC

    In connection with this fee proposal, the Exchange proposes to 
adopt definitions necessary for QCC pricing. First, the Exchange 
proposes to adopt defined terms of ``QCC'' to refer to Qualified 
Contingent Cross Orders on the fee schedule. Second, the Exchange 
proposes to adopt the defined term ``QCC Agency'', which would be 
defined as a Qualified Contingent Cross Order represented as agent by a 
Member on behalf of another party, and submitted for execution pursuant 
to Rule 21.1. Third, the Exchange proposes to adopt the defined term 
``QCC Contra'', which would be defined as a Qualified Contingent Cross 
Order submitted by a Member that will potentially execute against the 
QCC Agency Order pursuant to Rule 21.1.

Pricing of QCC Orders

    The Exchange proposes to adopt four new fee codes in connection 
with QCC, which would be added to the Fee Codes and Associated Fees 
table of the Fee Schedule. These fee codes represent the fees 
applicable to QCC, as described below. As proposed, initially all 
executions in QCC orders would be provided free of charge. The Exchange 
proposes to adopt two fee codes for QCC Agency Orders, fee code QA and 
fee code QM, which would be applicable to Customer \9\ and Non-Customer 
\10\ QCC

[[Page 14049]]

Agency Orders, respectively. The Exchange proposes to adopt two fee 
codes for QCC Contra Orders, fee code QC and fee code QN, which would 
be applicable to Customer and Non-Customer QCC Contra Orders, 
respectively.
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    \9\ ``Customer'' applies to any transaction identified by a 
Member for clearing in the Customer range at the OCC, excluding any 
transaction for a Broker Dealer or a ``Professional'' as defined in 
Exchange Rule 16.1.
    \10\ ``Non-Customer'' applies to any transaction that is not a 
Customer order.
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Modification of Customer Volume Tier 6

    The Exchange proposes to modify the required criteria for the Tier 
6 under footnote 1 of the fee schedule. The Exchange currently offers 
enhanced rebates ranging from $0.10 to $0.25 per share under six Add 
Volume Tiers set forth in footnote 1. Under Tier 6, qualifying Members 
earn a rebate per share of $0.25 on orders yielding fee codes PC \11\ 
and NC \12\. Currently, to qualify for this tier a Member must: (i) 
Have an ADV \13\ in Customer orders greater than or equal to 0.05% of 
average OCV \14\; (ii) have an ADV in Customer or Market Maker \15\ 
orders greater than or equal to 0.35% of average OCV; and (iii) have an 
ADV in BAM Agency Orders \16\ greater than or equal to 1 contract. The 
Exchange now proposes to modify the third prong of this tier to require 
that a Member have an ADV in BAM Agency Orders greater than or equal to 
10,000 contracts.
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    \11\ Fee code PC is appended to Customer orders in Penny Pilot 
securities. Orders that yield fee code PC receive a standard rebate 
of $0.05 per contract. See the Exchange's fee schedule available at 
http://www.bats.com/us/equities/membership/fee_schedule/edgx/.
    \12\ Fee code NC is appended to Customer orders in Non-Penny 
Pilot securities. Orders that yield fee code NC receive a standard 
rebate of $0.05 per contract. Id.
    \13\ ``ADV'' means average daily volume calculated as the number 
of shares added or removed, combined, per day, and is calculated on 
a monthly basis. Id.
    \14\ ``OCV'' means the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close. Id.
    \15\ ``Market Maker'' applies to any transaction identified by a 
Member for clearing in the Market Maker range at the OCC, where such 
Member is registered with the Exchange as a Market Maker as defined 
in Rule 16.1(a)(37). Id.
    \16\ ``BAM Agency Order'' is an order represented as agent by a 
Member on behalf of another party and submitted to BAM for potential 
price improvement pursuant to Rule 21.19. Id.
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Modification of Market Maker Volume Tier 8

    The Exchange proposes to modify the required criteria for the Tier 
8 under footnote 2 of the fee schedule. The Exchange currently offers 
reduced fees ranging from $0.01 rebate to a $0.16 fee per share under 
eight Market Maker Volume Tiers set forth in footnote 2. Under Tier 8, 
qualifying Members are charged a reduced fee per share of $0.02 on 
orders yielding fee codes PM \17\ and NM \18\. Currently, to qualify 
for this tier a Member must: (i) Have an ADV in Customer orders greater 
than or equal to 0.05% of average OCV; (ii) have an ADV in Customer or 
Market Maker orders greater than or equal to 0.35% of average OCV; and 
(iii) have an ADV in BAM Agency Orders greater than or equal to 1 
contract. The Exchange now proposes to modify the third prong of this 
tier to require that a Member have an ADV in BAM Agency Orders greater 
than or equal to 10,000 contracts.
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    \17\ Fee code PM is appended to Market Maker orders in Penny 
Pilot securities. Orders that yield fee code PM pay a standard fee 
of $0.19 per contract. Id.
    \18\ Fee code NM is appended to Customer orders in Non-Penny 
Pilot securities. Orders that yield fee code NM pay a standard fee 
of $0.19 per contract. Id.
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Implementation Date

    The Exchange proposes to implement this amendment to its fee 
schedule on March 1, 2017.\19\
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    \19\ The Exchange notes that the date of its fee schedule was 
previously amended to state March 1, 2017 in SR-BatsEDGX-2017-07. 
See Securities Exchange Act Release No. 79957 (February 3, 2017), 82 
FR 10071 (February 9, 2017).
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2. Statutory Basis

    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\20\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\21\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls.
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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal establishes definitions and pricing for 
QCC, thus, allowing the Exchange to launch functionality that is 
designed to offer market participants the ability to submit QCC Orders 
to the Exchange in the same way they are permitted to send QCC Orders 
to other options exchanges. The Exchange believes that its proposal to 
offer functionality related to QCC Orders without charge is reasonable 
and fair and equitable because this pricing structure will incentivize 
the use of QCC, which is new functionality that has not previously been 
offered by the Exchange. The Exchange further believes that this 
pricing structure is non-discriminatory, as it applies equally to all 
Members and all components of QCC Orders submitted to the Exchange, 
regardless of the capacity (i.e., Customer or Non-Customer) of the 
order. Over time, as QCC grows, the Exchange anticipates that it would 
adopt a pricing structure that would ultimately generate revenue for 
the Exchange, however, again, the Exchange believes that it is 
reasonable to launch this new functionality without charge in order to 
incentivize its use.
    In addition, the Exchange believes that the proposed modification 
to the tiered pricing structure is reasonable, fair and equitable, and 
non-discriminatory. Volume-based rebates such as that proposed herein 
have been widely adopted by exchanges, including the Exchange, and are 
equitable because they are open to all Members on an equal basis and 
provide additional benefits or discounts that are reasonably related 
to: (i) The value to an exchange's market quality; (ii) associated 
higher levels of market activity, such as higher levels of liquidity 
provisions and/or growth patterns; and (iii) introduction of higher 
volumes of orders into the price and volume discovery processes. The 
modification proposed herein is intended to incentivize Members to send 
additional BAM Agency Orders to the Exchange in an effort to qualify 
for the enhanced rebate or reduced fee made available by the tiers, in 
turn contributing to the growth of BAM on the Exchange. Thus, the 
Exchange believes that the proposed tier, as modified, is a reasonable, 
fair and equitable, and not an unfairly discriminatory allocation of 
fees and rebates, because it will provide Members with an incentive to 
reach certain thresholds on the Exchange by contributing a meaningful 
amount of BAM Agency Orders.

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

    The Exchange does not believe that the proposed rule change to 
adopt fees and definitions related to QCC Orders will impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act. The Exchange's proposed functionality is open 
to all market participants. Further, the proposed rule will allow the 
Exchange launch the QCC functionality, which in turn will allow the 
Exchange to compete with other options exchanges that currently offer 
QCC Orders. Thus, the proposal alleviates the burden on competition 
that would arise if such exchanges were permitted to continue offering 
such

[[Page 14050]]

functionality and the Exchange was not. For these reasons, the Exchange 
does not believe that the proposed fee schedule changes will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, and believes the proposed change will enhance 
competition.
    The Exchange does not believe that any of the proposed change to 
the Exchange's tiered pricing structure burden competition, but 
instead, that it enhances competition as it is intended to increase the 
competitiveness of EDGX by modifying pricing incentives in order to 
attract order flow and incentivize participants to increase their 
participation on the Exchange, particularly in the context of BAM, 
which is relatively new functionality offered by the Exchange.

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

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \22\ and paragraph (f) of Rule 19b-4 
thereunder.\23\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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-BatsEDGX-2017-14 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-BatsEDGX-2017-14. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsEDGX-2017-14, and should 
be submitted on or before April 6, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05211 Filed 3-15-17; 8:45 am]
 BILLING CODE 8011-01-P