82 FR 28204 - Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Fee Schedule
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 117 (June 20, 2017)
Federal Register Volume 82, Issue 117 (June 20, 2017)
| Page Range | 28204-28207 | |
| FR Document | 2017-12762 |
[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)] [Notices] [Pages 28204-28207] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-12762] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80921; File No. SR-GEMX-2017-23] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Fee Schedule June 14, 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 June 1, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II, 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 the Exchange's Fee Schedule to add a percentage measurement as an alternative way of qualifying for Tiers 2- 4 of the Total Affiliated Member ADV for purposes of calculating a member's fees and rebates for purposes of Section I, as described further below. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqgemx.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 amend the Exchange's Fee Schedule to add a percentage measurement as an alternative way of qualifying for Tiers 2-4 of the Total Affiliated Member ADV for purposes of calculating a member's fees and rebates for purposes of Section I. The Exchange currently uses volume-based tiers, referred to as the Total Affiliated Member ADV, to assess the level of taker fees and maker rebates applicable to members. These tiers apply to both Penny Symbols and SPY, and to Non-Penny Symbols (excluding index options). These tiers apply to all different categories of market participants set forth in Section I, such as Market Makers, Firm Proprietary/Broker- Dealer, and Priority Customers.\3\ The Total Affiliated Member ADV category includes all volume in all symbols and order types, including both maker and taker volume and volume executed in the Price Improvement Mechanism (``PIM''), Facilitation, Solicitation, and Qualified Contingent Cross (``QCC'') mechanisms. All eligible volume from affiliated members will be aggregated in determining applicable tiers, provided there is at least 75% common ownership between the members as reflected on each member's Form BD, Schedule A. --------------------------------------------------------------------------- \3\ The Exchange also uses a separate set of tiers to determine the amount of a Priority Customer's maker rebate. These volume requirements of these tiers are a subset of a member's Total Affiliated Member ADV. The Exchange is not changing the Priority Customer Maker ADV tiers as part of this proposed rule change. --------------------------------------------------------------------------- The Exchange currently uses numeric thresholds for the purpose of determining a member's eligibility for Tiers 1-4. Currently, a member would qualify for Tier 1 if its ADV is 0-99,999 contracts in a given month; Tier 2 if its ADV is 100,000-224,999 contracts in a given month; Tier 3 if its ADV is 225,000-349,999 contracts in a given month, and Tier 4 if its ADV is 350,000 or more contracts in a given month. The Exchange now proposes to add a percentage-based calculation that may be used as an alternative to the numeric [[Page 28205]] thresholds for determining a member's eligibility for the Total Affiliated Member ADV tiers. Specifically, a member would be eligible for Tier 2 if it executes 100,000-224,999 contracts or 1% to less than 2% of Customer Total Consolidated Volume; Tier 3 if it executes 225,000-349,999 contracts or 2% to less than 3% of Customer Total Consolidated Volume; and Tier 4 if it executes 350,000 or more contracts or 3% or greater of Customer Total Consolidated Volume. For purposes of measuring Total Affiliated Member ADV, Customer Total Consolidated Volume means the total volume cleared at The Options Clearing Corporation in the Customer range in equity and ETF options in that month. The Exchange developed these percentage requirements based on historical data, and believes that there is a close correlation between the proposed percentage requirements and the current numeric requirements. As is the case currently, the Total Affiliated Member ADV category will continue to include all volume in all symbols and order types, including both maker and taker volume and volume executed in the PIM, Facilitation, Solicitation, and QCC mechanisms. Similarly, all eligible volume from affiliated members will continue to be aggregated in determining applicable tiers, provided there is at least 75% common ownership between the members as reflected on each member's Form BD, Schedule A. The fees and rebates in Section I to which the Total Affiliated Member ADV tiers apply remain unchanged. In using a percentage-based measurement that considers a member's volume relative to total customer industry volume, rather than a member's absolute volume, the Exchange is providing members with an alternative way to achieve a tier even if that member's absolute volume no longer meets the tier's requirements. In using a relative measurement, the Exchange is recognizing that both the industry and a member's volume may change due to a variety of factors, and is providing an alternative measurement that may allow that member to continue to meet its existing tier. At the same time, the proposed requirements, which are closely aligned to the current numeric requirements, still require a member to add meaningful volume in order to qualify for a given tier. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\4\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\5\ 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. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78f(b). \5\ 15 U.S.C. 78f(b)(4) and (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 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.'' \6\ --------------------------------------------------------------------------- \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \7\ (``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.\8\ 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.'' \9\ --------------------------------------------------------------------------- \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \8\ See NetCoalition, at 534-535. \9\ 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'; [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' . . . .'' \10\ 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. --------------------------------------------------------------------------- \10\ Id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)). --------------------------------------------------------------------------- The Exchange believes that determining a member's eligibility for a Total Affiliated Member ADV tier by using percentage requirements as an alternative to the existing numeric requirements is reasonable. In using a percentage-based measurement that considers a member's volume relative to total customer industry volume, rather than a member's absolute volume, the Exchange is providing members with an alternative way to achieve a tier even if that member's absolute volume no longer meets the tier's requirements. The Exchange also believes that the actual proposed percentage requirements are reasonable. Using historical data, the Exchange has formulated percentage requirements that it believes are closely correlated to the existing numeric requirements. In using a relative measurement, the Exchange is recognizing that both the industry and a member's volume may change due to a variety of factors, and is providing an alternative measurement that may allow that member to continue to meet its existing tier. At the same time, the proposed requirements, which are closely aligned to the current numeric requirements, still require a member to add meaningful volume in order to qualify for a given tier. The Exchange believes that it is reasonable to calculate the percentage based on the total volume cleared at the OCC in the Customer range in that month. The Exchange notes that other exchanges have similar programs that use percentage requirements based on national customer volume. For example, NASDAQ PHLX LLC (``Phlx'') operates a Customer Rebate Program, which has five volume tiers that consist of percentage thresholds of national customer volume in multiply-listed equity and ETF options classes (excluding monthly SPY options).\11\ Similarly, the NASDAQ Options Market (``NOM'') operates a tiered rebate program, which consists of eight tiers, using both numeric and percentage thresholds, that is based on the total industry customer equity and ETF option average daily volume contracts per day in a month.\12\ As with these programs, the Exchange believes that the use of customer volume in equity and ETF options here as the baseline provides a meaningful metric by which to measure a member's activity. --------------------------------------------------------------------------- \11\ See Phlx Pricing Schedule, Preface B. \12\ See NOM Chapter XV, Section 2. --------------------------------------------------------------------------- The Exchange believes that it is reasonable to add the percentage requirements to Tiers 2-4. Since a [[Page 28206]] member may qualify for the Tier 1 with an ADV of 0, the Exchange does not believes that a percentage requirement is necessary for this Tier. The Exchange also believes that it is reasonable to add percentage requirements to the Total Affiliated Member ADV, and not Priority Customer Maker ADV, because the proposed change will apply to all members subject to maker rebates and taker fees in Section I, not just the subset of market participants and activity that is covered by the Priority Customer Maker ADV tiers. The Exchange also believes that the proposal is an equitable allocation and is not unfairly discriminatory. As noted above, the Total Affiliated Member ADV applies to all market participants that are subject to Maker Rebates and Taker Fees pursuant to Section I, and the proposed percentage requirements will correspondingly apply. The percentage requirements, which are closely aligned to the current numeric requirements, recognize that both a member's and industry volume may change for a number of reasons, and provides members with an alternative way to qualify for a given tier that uses a relative, rather than an absolute, measurement. At the same time, the Exchange will apply the same percentage requirements to all similarly situated members. The Exchange believes it is equitable and not unfairly discriminatory to add the percentage requirements to Tiers 2-4, since, as described above, it believes the percentage requirement for Tier 1 is unnecessary. The Exchange believes that it is equitable and not unfairly discriminatory to add percentage requirement to the Total Affiliated Member ADV, and not Priority Customer Maker ADV, because the proposed change will apply to all members subject to maker rebates and taker fees in Section I, not just the subset of market participants and activity that is covered by the Priority Customer Maker ADV tiers. 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. The proposed addition of percentage requirements to Tiers 2-4 of the Total Affiliated Member ADV tiers does not impose a burden on competition not necessary or appropriate because the Exchange's execution services are completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. More specifically, the Total Affiliated Member ADV applies to all market participants that are subject to Maker Rebates and Taker Fees pursuant to Section I, and the proposed percentage requirements will correspondingly apply. The percentage requirements recognize that both a member's and industry volume may change for a number of reasons, and provides members with an alternative way to qualify for a given tier that uses a relative, rather than an absolute, measurement. At the same time, the Exchange will apply the same percentage requirements to all similarly situated members. The Exchange believes that adding the percentage requirements to Tiers 2-4 does not impose a burden on competition not necessary or appropriate since, as described above, it believes the percentage requirement for Tier 1 is unnecessary. The Exchange believes that adding the percentage requirement to the Total Affiliated Member ADV, and not Priority Customer Maker ADV, does not impose a burden on competition not necessary or appropriate because the proposed change will apply to all members subject to maker rebates and taker fees in Section I, not just the subset of market participants and activity that is covered by the Priority Customer Maker ADV tiers. In sum, 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. 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,\13\ and Rule 19b-4(f)(2) \14\ thereunder. 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. --------------------------------------------------------------------------- \13\ 15 U.S.C. 78s(b)(3)(A)(ii). \14\ 17 CFR 240.19b-4(f)(2). --------------------------------------------------------------------------- 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 CommentsUse 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-GEMX-2017-23 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-GEMX-2017-23. 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 [[Page 28207]] 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-GEMX-2017-23 and should be submitted on or before July 11, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\15\ --------------------------------------------------------------------------- \15\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-12762 Filed 6-19-17; 8:45 am] BILLING CODE 8011-01-P
![28204 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices
and publishes its reasons for so finding 2017–30 and should be submitted on or any comments it received on the
or (ii) as to which the self-regulatory before July 11, 2017. proposed rule change. The text of these
organization consents, the Commission For the Commission, by the Division of statements may be examined at the
will: Trading and Markets, pursuant to delegated places specified in Item IV below. The
(A) By order approve or disapprove authority.12 Exchange has prepared summaries, set
the proposed rule change, or Eduardo A. Aleman, forth in sections A, B, and C below, of
(B) institute proceedings to determine Assistant Secretary. the most significant aspects of such
whether the proposed rule change statements.
[FR Doc. 2017–12804 Filed 6–19–17; 8:45 am]
should be disapproved.
BILLING CODE 8011–01–P A. Self-Regulatory Organization’s
IV. Solicitation of Comments Statement of the Purpose of, and
Interested persons are invited to Statutory Basis for, the Proposed Rule
submit written data, views, and SECURITIES AND EXCHANGE Change
arguments concerning the foregoing, COMMISSION
1. Purpose
including whether the proposed rule [Release No. 34–80921; File No. SR–GEMX–
change is consistent with the Act. 2017–23] The purpose of the proposed rule
Comments may be submitted by any of change is to amend the Exchange’s Fee
the following methods: Self-Regulatory Organizations; Nasdaq Schedule to add a percentage
GEMX, LLC; Notice of Filing and measurement as an alternative way of
Electronic Comments Immediate Effectiveness of Proposed qualifying for Tiers 2–4 of the Total
• Use the Commission’s Internet Rule Change to Amend the Fee Affiliated Member ADV for purposes of
comment form (http://www.sec.gov/ Schedule calculating a member’s fees and rebates
rules/sro.shtml); or for purposes of Section I.
• Send an email to rule-comments@ June 14, 2017. The Exchange currently uses volume-
sec.gov. Please include File Number SR– Pursuant to Section 19(b)(1) of the based tiers, referred to as the Total
NYSE–2017–30 on the subject line. Securities Exchange Act of 1934 Affiliated Member ADV, to assess the
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 level of taker fees and maker rebates
Paper Comments notice is hereby given that on June 1, applicable to members. These tiers
• Send paper comments in triplicate 2017, Nasdaq GEMX, LLC (‘‘GEMX’’ or apply to both Penny Symbols and SPY,
to Secretary, Securities and Exchange ‘‘Exchange’’) filed with the Securities and to Non-Penny Symbols (excluding
Commission, 100 F Street NE., and Exchange Commission (‘‘SEC’’ or index options). These tiers apply to all
Washington, DC 20549–1090. ‘‘Commission’’) the proposed rule different categories of market
All submissions should refer to File change as described in Items I and II, participants set forth in Section I, such
Number SR–NYSE–2017–30. This file below, which Items have been prepared as Market Makers, Firm Proprietary/
number should be included on the by the Exchange. The Commission is Broker-Dealer, and Priority Customers.3
subject line if email is used. To help the publishing this notice to solicit The Total Affiliated Member ADV
Commission process and review your comments on the proposed rule change category includes all volume in all
comments more efficiently, please use from interested persons. symbols and order types, including both
only one method. The Commission will maker and taker volume and volume
I. Self-Regulatory Organization’s
post all comments on the Commission’s executed in the Price Improvement
Statement of the Terms of Substance of
Internet Web site (http://www.sec.gov/ Mechanism (‘‘PIM’’), Facilitation,
the Proposed Rule Change
rules/sro.shtml). Copies of the Solicitation, and Qualified Contingent
The Exchange proposes to amend the Cross (‘‘QCC’’) mechanisms. All eligible
submission, all subsequent
Exchange’s Fee Schedule to add a volume from affiliated members will be
amendments, all written statements
percentage measurement as an aggregated in determining applicable
with respect to the proposed rule
alternative way of qualifying for Tiers tiers, provided there is at least 75%
change that are filed with the
2–4 of the Total Affiliated Member ADV common ownership between the
Commission, and all written
for purposes of calculating a member’s members as reflected on each member’s
communications relating to the
fees and rebates for purposes of Section Form BD, Schedule A.
proposed rule change between the
I, as described further below. The Exchange currently uses numeric
Commission and any person, other than The text of the proposed rule change thresholds for the purpose of
those that may be withheld from the is available on the Exchange’s Web site determining a member’s eligibility for
public in accordance with the at http:// Tiers 1–4. Currently, a member would
provisions of 5 U.S.C. 552, will be nasdaqgemx.cchwallstreet.com/, at the qualify for Tier 1 if its ADV is 0–99,999
available for Web site viewing and principal office of the Exchange, and at contracts in a given month; Tier 2 if its
printing in the Commission’s Public the Commission’s Public Reference ADV is 100,000–224,999 contracts in a
Reference Room, 100 F Street NE., Room. given month; Tier 3 if its ADV is
Washington, DC 20549 on official 225,000–349,999 contracts in a given
business days between the hours of II. Self-Regulatory Organization’s
month, and Tier 4 if its ADV is 350,000
10:00 a.m. and 3:00 p.m. Copies of the Statement of the Purpose of, and
or more contracts in a given month.
filing also will be available for Statutory Basis for, the Proposed Rule The Exchange now proposes to add a
inspection and copying at the principal Change percentage-based calculation that may
office of the Exchange. All comments
sradovich on DSK3GMQ082PROD with NOTICES
In its filing with the Commission, the be used as an alternative to the numeric
received will be posted without change; Exchange included statements
the Commission does not edit personal concerning the purpose of and basis for 3 The Exchange also uses a separate set of tiers to
identifying information from the proposed rule change and discussed determine the amount of a Priority Customer’s
submissions. You should submit only maker rebate. These volume requirements of these
tiers are a subset of a member’s Total Affiliated
information that you wish to make 12 17 CFR 200.30–3(a)(12). Member ADV. The Exchange is not changing the
available publicly. All submissions 1 15 U.S.C. 78s(b)(1). Priority Customer Maker ADV tiers as part of this
should refer to File Number SR–NYSE– 2 17 CFR 240.19b–4. proposed rule change.
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thresholds for determining a member’s of the Act,4 in general, and furthers the that these views apply with equal force
eligibility for the Total Affiliated objectives of Sections 6(b)(4) and 6(b)(5) to the options markets.
Member ADV tiers. Specifically, a of the Act,5 in particular, in that it The Exchange believes that
member would be eligible for Tier 2 if provides for the equitable allocation of determining a member’s eligibility for a
it executes 100,000–224,999 contracts or reasonable dues, fees, and other charges Total Affiliated Member ADV tier by
1% to less than 2% of Customer Total among members and issuers and other using percentage requirements as an
Consolidated Volume; Tier 3 if it persons using any facility, and is not alternative to the existing numeric
executes 225,000–349,999 contracts or designed to permit unfair requirements is reasonable. In using a
2% to less than 3% of Customer Total discrimination between customers, percentage-based measurement that
Consolidated Volume; and Tier 4 if it issuers, brokers, or dealers. considers a member’s volume relative to
executes 350,000 or more contracts or The Commission and the courts have total customer industry volume, rather
3% or greater of Customer Total repeatedly expressed their preference than a member’s absolute volume, the
Consolidated Volume. For purposes of for competition over regulatory Exchange is providing members with an
measuring Total Affiliated Member intervention in determining prices, alternative way to achieve a tier even if
ADV, Customer Total Consolidated products, and services in the securities that member’s absolute volume no
Volume means the total volume cleared markets. In Regulation NMS, while longer meets the tier’s requirements.
at The Options Clearing Corporation in adopting a series of steps to improve the The Exchange also believes that the
the Customer range in equity and ETF current market model, the Commission actual proposed percentage
options in that month. The Exchange highlighted the importance of market requirements are reasonable. Using
developed these percentage forces in determining prices and SRO historical data, the Exchange has
requirements based on historical data, revenues and, also, recognized that formulated percentage requirements that
and believes that there is a close current regulation of the market system it believes are closely correlated to the
correlation between the proposed ‘‘has been remarkably successful in existing numeric requirements. In using
percentage requirements and the current promoting market competition in its a relative measurement, the Exchange is
numeric requirements. broader forms that are most important to recognizing that both the industry and
investors and listed companies.’’ 6 a member’s volume may change due to
As is the case currently, the Total a variety of factors, and is providing an
Affiliated Member ADV category will Likewise, in NetCoalition v. Securities
and Exchange Commission 7 alternative measurement that may allow
continue to include all volume in all that member to continue to meet its
symbols and order types, including both (‘‘NetCoalition’’) the D.C. Circuit upheld
the Commission’s use of a market-based existing tier. At the same time, the
maker and taker volume and volume proposed requirements, which are
executed in the PIM, Facilitation, approach in evaluating the fairness of
market data fees against a challenge closely aligned to the current numeric
Solicitation, and QCC mechanisms. requirements, still require a member to
Similarly, all eligible volume from claiming that Congress mandated a cost-
based approach.8 As the court add meaningful volume in order to
affiliated members will continue to be qualify for a given tier.
aggregated in determining applicable emphasized, the Commission ‘‘intended
The Exchange believes that it is
tiers, provided there is at least 75% in Regulation NMS that ‘market forces,
reasonable to calculate the percentage
common ownership between the rather than regulatory requirements’
based on the total volume cleared at the
members as reflected on each member’s play a role in determining the market
OCC in the Customer range in that
Form BD, Schedule A. data . . . to be made available to
month. The Exchange notes that other
investors and at what cost.’’ 9
The fees and rebates in Section I to exchanges have similar programs that
Further, ‘‘[n]o one disputes that use percentage requirements based on
which the Total Affiliated Member ADV competition for order flow is ‘fierce.’
tiers apply remain unchanged. national customer volume. For example,
. . . As the SEC explained, ‘[i]n the U.S. NASDAQ PHLX LLC (‘‘Phlx’’) operates
In using a percentage-based national market system, buyers and
measurement that considers a member’s a Customer Rebate Program, which has
sellers of securities, and the broker- five volume tiers that consist of
volume relative to total customer dealers that act as their order-routing
industry volume, rather than a percentage thresholds of national
agents, have a wide range of choices of customer volume in multiply-listed
member’s absolute volume, the where to route orders for execution’;
Exchange is providing members with an equity and ETF options classes
[and] ‘no exchange can afford to take its (excluding monthly SPY options).11
alternative way to achieve a tier even if market share percentages for granted’
that member’s absolute volume no Similarly, the NASDAQ Options Market
because ‘no exchange possesses a (‘‘NOM’’) operates a tiered rebate
longer meets the tier’s requirements. In monopoly, regulatory or otherwise, in
using a relative measurement, the program, which consists of eight tiers,
the execution of order flow from broker using both numeric and percentage
Exchange is recognizing that both the dealers’ . . . .’’ 10 Although the court
industry and a member’s volume may thresholds, that is based on the total
and the SEC were discussing the cash industry customer equity and ETF
change due to a variety of factors, and equities markets, the Exchange believes
is providing an alternative measurement option average daily volume contracts
that may allow that member to continue 4 15
per day in a month.12 As with these
U.S.C. 78f(b).
to meet its existing tier. At the same 5 15
programs, the Exchange believes that
U.S.C. 78f(b)(4) and (5).
time, the proposed requirements, which 6 Securities Exchange Act Release No. 51808 the use of customer volume in equity
are closely aligned to the current (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) and ETF options here as the baseline
sradovich on DSK3GMQ082PROD with NOTICES
numeric requirements, still require a (‘‘Regulation NMS Adopting Release’’). provides a meaningful metric by which
member to add meaningful volume in
7 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
to measure a member’s activity.
2010). The Exchange believes that it is
order to qualify for a given tier. 8 See NetCoalition, at 534–535.
9 Id. at 537.
reasonable to add the percentage
2. Statutory Basis 10 Id. at 539 (quoting Securities Exchange Act
requirements to Tiers 2–4. Since a
Release No. 59039 (December 2, 2008), 73 FR
The Exchange believes that its 74770, 74782–83 (December 9, 2008) (SR– 11 See Phlx Pricing Schedule, Preface B.
proposal is consistent with Section 6(b) NYSEArca–2006–21)). 12 See NOM Chapter XV, Section 2.
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with respect to the proposed rule I. Clearing Agency’s Statement of the through the facilities of a correspondent
change that are filed with the Terms of Substance of the Proposed clearing corporation (i.e., NSCC) and are
Commission, and all written Rule Change not settled through the facilities OCC.
communications relating to the This proposed rule change by OCC is OCC and NSCC are parties to a Third
proposed rule change between the filed in connection with proposed Amended and Restated Options
Commission and any person, other than changes relating to a new Stock Options Exercise Settlement Agreement, dated
those that may be withheld from the and Futures Settlement Agreement February 16, 1995, as amended
public in accordance with the (‘‘New Accord’’) between OCC and the (‘‘Existing Accord’’),5 which governs the
provisions of 5 U.S.C. 552, will be National Securities Clearing Corporation delivery and receipt of stock in the
available for Web site viewing and (‘‘NSCC,’’ collectively NSCC and OCC settlement of put and call options issued
printing in the Commission’s Public by OCC (‘‘Stock Options’’) that are
may be referred to herein as the
Reference Room, 100 F Street NE., eligible for settlement through NSCC’s
‘‘clearing agencies’’) and amendments to
Washington, DC 20549, on official Continuous Net Settlement (‘‘CNS’’)
OCC’s By-Laws and Rules to
business days between the hours of Accounting Operation and are
accommodate the proposed provisions
10:00 a.m. and 3:00 p.m. Copies of the designated to settle on the third
of the New Accord.
filing also will be available for business day following the date the
The proposed changes to OCC’s By-
inspection and copying at the principal related exercise or assignment was
Laws and Rules and the proposed New
office of the Exchange. All comments accepted by NSCC (‘‘Options E&A’’). All
Accord were attached as Exhibits 5A–5C
received will be posted without change; OCC Clearing Members that intend to
of the filing, respectively.3 The
the Commission does not edit personal engage in Stock Options transactions are
proposed changes are described in
identifying information from required to also be Members of NSCC or
detail in Item 3 below. All terms with
submissions. You should submit only to have appointed or nominated an
initial capitalization not defined herein
information that you wish to make NSCC Member to act on its behalf.6
have the same meaning as set forth in OCC proposes to adopt a New Accord
available publicly. All submissions OCC’s By-Laws and Rules.4
should refer to File Number SR–GEMX– with NSCC, which would provide for
2017–23 and should be submitted on or II. Clearing Agency’s Statement of the the settlement of certain Stock Options
before July 11, 2017. Purpose of, and Statutory Basis for, the and delivery obligations arising from
Proposed Rule Change certain matured physically-settled stock
For the Commission, by the Division of futures contracts cleared by OCC
Trading and Markets, pursuant to delegated In its filing with the Commission,
(‘‘Stock Futures’’). Specifically, the New
authority.15 OCC included statements concerning Accord would, among other things: (1)
Eduardo A. Aleman, the purpose of and basis for the Expand the category of securities that
Assistant Secretary. proposed rule change and discussed any are eligible for settlement and guaranty
[FR Doc. 2017–12762 Filed 6–19–17; 8:45 am] comments it received on the proposed under the agreement to certain
BILLING CODE 8011–01–P
rule change. The text of these statements securities (including stocks, exchange-
may be examined at the places specified traded funds and exchange-traded
in Item IV below. OCC has prepared notes) that (i) are required to be
SECURITIES AND EXCHANGE summaries, set forth in sections (A), (B), delivered in the exercise and
COMMISSION and (C) below, of the most significant assignment of Stock Options and are
aspects of these statements. eligible to be settled through NSCC’s
[Release No. 34–80941; File No. SR–OCC–
2017–013] (A) Clearing Agency’s Statement of the Balance Order Accounting Operation (in
Purpose of, and Statutory Basis for, the addition to its CNS Accounting
Self-Regulatory Organizations; The Proposed Rule Change Operation) or (ii) are delivery
Options Clearing Corporation; Notice obligations arising from Stock Futures
1. Purpose that have reached maturity and are
of Filing of Proposed Rule Change
Concerning the Adoption of a New Background
5 The Existing Accord and the proposed changes
Stock Options and Futures Settlement OCC issues and clears U.S.-listed
Agreement Between The Options thereunder were previously approved by the
options and futures on a number of Commission. See Securities Exchange Act Release
Clearing Corporation and the National underlying financial assets including No. 37731 (September 26, 1996), 61 FR 51731
Securities Clearing Corporation common stocks, currencies and stock (October 3, 1996) (SR–OCC–96–04 and SR–NSCC–
96–11) (Order Approving Proposed Rule Change
June 15, 2017. indices. OCC’s Rules, however, provide Related to an Amended and Restated Options
Pursuant to Section 19(b)(1) of the that delivery of, and payment for, Exercise Settlement Agreement Between the
Securities Exchange Act of 1934 securities underlying certain physically Options Clearing Corporation and the National
settled stock options and single stock Securities Clearing Corporation); Securities
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 Exchange Act Release No. 43837 (January 12, 2001),
notice is hereby given that on June 1, futures cleared by OCC are effected 66 FR 6726 (January 22, 2001) (SR–OCC–00–12)
2017, The Options Clearing Corporation (Order Granting Accelerated Approval of a
3 OCC has filed an advance notice with the Proposed Rule Change Relating to the Creation of
(‘‘OCC’’) filed with the Securities and Commission in connection with the New Accord. a Program to Relieve Strains on Clearing Members’
Exchange Commission (‘‘Commission’’) See SR–OCC–2017–804. NSCC also has filed Liquidity in Connection With Exercise Settlements);
the proposed rule change as described proposed rule change and advance notice filings and Securities Exchange Act Release No. 58988
in Items I, II and III below, which Items with the Commission in connection with the New (November 20, 2008), 73 FR 72098 (November 26,
Accord. See NSCC filings SR–NSCC–2017–007 and 2008) (SR–OCC–2008–18 and SR–NSCC–2008–09)
sradovich on DSK3GMQ082PROD with NOTICES
have been prepared by OCC. The SR–NSCC–2017–803, respectively. (Notice of Filing and Order Granting Accelerated
Commission is publishing this notice to 4 OCC’s By-Laws and Rules can be found on Approval of Proposed Rule Changes Relating to
solicit comments on the proposed rule OCC’s public Web site: http://optionsclearing.com/ Amendment No. 2 to the Third Amended and
change from interested persons. about/publications/bylaws.jsp. Other terms not Restated Options Exercise Settlement Agreement).
defined herein or in the OCC By-Laws and Rules 6 A firm that is both an OCC Clearing Member and
can be found in the Rules & Procedures of NSCC an NSCC Member, or is an OCC Clearing Member
15 17 CFR 200.30–3(a)(12). (‘‘NSCC Rules’’), available at http://www.dtcc.com/ that has designated an NSCC Member to act on its
1 15 U.S.C. 78s(b)(1). ∼/media/Files/Downloads/legal/rules/nscc_ behalf is referred to herein as a ‘‘Common
2 17 CFR 240.19b–4. rules.pdf, as the context implies. Member.’’
VerDate Sep<11>2014 18:01 Jun 19, 2017 Jkt 241001 PO 00000 Frm 00165 Fmt 4703 Sfmt 4703 E:\FR\FM\20JNN1.SGM 20JNN1](https://thefederalregister.org/doc/82_FR_28321/page/4.svg)
Document Created: 2017-06-20 02:20:28
Document Modified: 2017-06-20 02:20:28
| 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 | 82 FR 28204 |
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