82 FR 37272 - Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use on Bats BZX Exchange, Inc.'s Equity Options Platform

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 152 (August 9, 2017)

[Federal Register Volume 82, Number 152 (Wednesday, August 9, 2017)]
[Notices]
[Pages 37272-37274]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-16738]



[[Page 37272]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81304; File No. SR-BatsBZX-2017-48]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use on Bats BZX Exchange, Inc.'s Equity Options Platform

August 3, 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 July 25, 2017 Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``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 to amend its fees and 
rebates applicable to Members \5\ and non-Members of the Exchange 
pursuant to BZX 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 modify the fee schedule applicable to the 
Exchange's equity options platform (``BZX Options'') to increase the 
fees for both Internal and External Distribution of its Multicast PITCH 
market data feed. Multicast PITCH is a market data product that offers 
depth of book quotations and execution information based on options 
orders entered into the System.
    The Exchange currently charges both Internal Distributors \6\ and 
External Distributors \7\ of Multicast PITCH a fee of $1,500 per month. 
The Exchange now proposes to increase this fee and to charge Internal 
and External Distributors different rates. Specifically, the Exchange 
proposes to charge Internal Distributors of Multicast PITCH a fee of 
$3,000 per month and External Distributors a fee of $2,000 per 
month.\8\ The Exchange also proposes to make clear in its fee schedule 
that where a Distributor acts as both an External and Internal 
Distributor of Multicast PITCH that it will pay the greater of the two 
Distribution fees for internal or external use and not be charged both 
fees each month.
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    \6\ See Exchange Rule 21.15(b)(1). The term ``System'' is 
defined as ``the electronic communications and trading facility 
designated by the Board through which securities orders of Users are 
consolidated for ranking, execution and, when applicable, routing 
away. A Distributor ``is any entity that receives the Exchange 
Market Data product directly from the Exchange or indirectly through 
another entity and then distributes it internally or externally to a 
third party.'' See the Exchange's fee schedule available at http://www.bats.com/us/options/membership/fee_schedule/bzx/. An Internal 
Distributor of an Exchange Market Data product is a Distributor that 
receives the Exchange Market Data product and then distributes that 
data to one or more Users within the Distributor's own entity. Id.
    \7\ An External Distributor of an Exchange Market Data product 
is a Distributor that receives the Exchange Market Data product and 
then distributes that data to a third party or one or more Users 
outside the Distributor's own entity. Id.
    \8\ The Exchange issued a notice on June 1, 2017 describing the 
proposed fee increase. See Bats BZX Options Fee Schedule Changes 
Effective July 3, 2017 and August 1, 2017, available at http://cdn.batstrading.com/resources/fee_schedule/2017/Bats-BZX-Options-Fee-Schedule-Changes-Effective-July-1-2017.pdf.
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    The Exchange proposes to implement these amendments to its fee 
schedule on August 1, 2017.
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 recipients of 
Exchange data. The Exchange believes that the proposed rates are 
equitable and non-discriminatory in that they apply uniformly to all 
recipients of Exchange data. The Exchange believes the proposed fees 
are competitive with those charged by other venues and, therefore, 
reasonable and equitably allocated to recipients. Lastly, the Exchange 
also believes that the proposed fees are reasonable and non-
discriminatory because they will apply uniformly to all recipients of 
Exchange data.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \11\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets; and 
(ii) the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities. 
Furthermore, the proposed rule change is consistent with Rule 603 of 
Regulation NMS,\12\ which provides that any national securities 
exchange that distributes information with respect to quotations for or 
transactions in an NMS stock do so on terms that are not unreasonably 
discriminatory. In adopting Regulation NMS, the Commission granted 
self-regulatory organizations and broker-dealers increased authority 
and flexibility to offer new and unique market data to the public. It 
was believed that this authority would expand the amount of data 
available to consumers, and also spur innovation and competition for 
the provision of market data.
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    \11\ 15 U.S.C. 78k-1.
    \12\ 17 CFR 242.603.
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    In addition, the proposed fees would not permit unfair 
discrimination because all of the Exchange's subscribers will be 
subject to the proposed fees on an equivalent basis. The Multicast 
PITCH is distributed and purchased on a voluntary basis, in that 
neither the Exchange nor the market data Distributors are required by 
any rule or regulation to make this data available. Accordingly, 
Distributors can

[[Page 37273]]

discontinue their use at any time and for any reason, including due to 
an assessment of the reasonableness of fees charged. Firms have a wide 
variety of alternative market data products from which to choose, such 
as similar proprietary data products offered by other exchanges and 
consolidated data. Moreover, the Exchange is not required to make any 
proprietary data products available or to offer any specific pricing 
alternatives to any customers.
    In addition, the fees that are the subject of this rule filing are 
constrained by competition. As explained below in the Exchange's 
Statement on Burden on Competition, the existence of alternatives to 
the Multicast PITCH further ensures that the Exchange cannot set 
unreasonable fees, or fees that are unreasonably discriminatory, when 
subscribers can elect such alternatives. That is, the Exchange competes 
with other exchanges (and their affiliates) that provide similar market 
data products. If another exchange (or its affiliate) were to charge 
less to consolidate and distribute its similar product than the 
Exchange charges to consolidate and distribute the Multicast PITCH, 
prospective users likely would not subscribe to, or would cease 
subscribing to the Multicast PITCH.
    The Exchange notes that the Commission is not required to undertake 
a cost-of-service or rate-making approach. The Exchange believes that, 
even if it were possible as a matter of economic theory, cost-based 
pricing for non-core market data would be so complicated that it could 
not be done practically.\13\
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    \13\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties, including the Commission, to cost-regulate a large 
number of participants and standardize and analyze extraordinary 
amounts of information, accounts, and reports. In addition, it is 
impossible to regulate market data prices in isolation from prices 
charged by markets for other services that are joint products. Cost-
based rate regulation would also lead to litigation and may distort 
incentives, including those to minimize costs and to innovate, 
leading to further waste. Under cost-based pricing, the Commission 
would be burdened with determining a fair rate of return, and the 
industry could experience frequent rate increases based on 
escalating expense levels. Even in industries historically subject 
to utility regulation, cost-based ratemaking has been discredited. 
As such, the Exchange believes that cost-based ratemaking would be 
inappropriate for proprietary market data and inconsistent with 
Congress's direction that the Commission use its authority to foster 
the development of the national market system, and that market 
forces will continue to provide appropriate pricing discipline. See 
Appendix C to NYSE's comments to the Commission's 2000 Concept 
Release on the Regulation of Market Information Fees and Revenues, 
which can be found on the Commission's Web site at http://www.sec.gov/rules/concept/s72899/buck1.htm. See also Securities 
Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200 
(December 17, 2014) (SR-NYSE-2014-64) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Establish an 
Access Fee for the NYSE Best Quote and Trades Data Feed, Operative 
December 1, 2014).
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    The proposed amendment to the Internal Distributor fee for 
Multicast PITCH is also equitable and reasonable as, despite the 
increase, the proposed fees continues to be similar to fees currently 
charged by the Nasdaq Stock Market LLC (``Nasdaq'') for their options 
depth-of-book data product. Nasdaq currently charges external 
distributors of ITTO,\14\ $2,000 per month.\15\ Nasdaq's fee for 
external distribution is identical to that proposed by the Exchange 
herein. In addition, the Chicago Board Options Exchange, Incorporated 
(``CBOE'') charges a monthly fee of $7,000 to internal and external 
distributors of its depth-of-book data.\16\
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    \14\ ITTO stands for NASDAQ ITCH to Trade Options, and is a data 
feed that provides quotation information for individual orders on 
the NOM book, last sale information for trades executed on NOM, and 
Order Imbalance Information as set forth in NOM Rules Chapter VI, 
Section 8 [sic]. See Nasdaq Sec. 4(a), NASDAQ Options Market Data 
Distributor Fees. Available at http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing.
    \15\ See Nasdaq Sec. 4(a), NASDAQ Options Market Data 
Distributor Fees. Available at http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing.
    \16\ See CBOE Market Data Express, LLC (MDX) CBOE Streaming 
Markets Fee Schedule available at https://www.cboe.org/publish/mdxfees/mdxfeescheduleforcboedatafeeds.pdf.
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    The increased fees for Internal and External Distributors are also 
equitable and reasonable in that they ensure that heavy users of the 
Multicast PITCH pay an equitable share of the total fees. The Exchange 
proposes to charge External Distributors lower fees than Internal 
Distributors to promote broader distribution of exchange data. The 
Exchange notes that External Distributors redistribute Multicast PITCH 
to those outside of their organization while Internal Distributors 
distribute Multicast PITCH within their own organization. Charging 
lower fees for external distribution should encourage Distributors, 
such as market data vendors who solely redistribute market data, to 
subscribe to Multicast PITCH as an External Distributor, therefore, 
expanding the distribution network of the Exchange's data.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange's ability to price Multicast PITCH are constrained by: (i) 
Competition among exchanges, other trading platforms, and Trade 
Reporting Facilities (``TRF'') that compete with each other in a 
variety of dimensions; (ii) the existence of inexpensive real-time 
consolidated data and market-specific data and free delayed data; and 
(iii) the inherent contestability of the market for proprietary data. 
This competitive pressure is evidenced by the Exchange's proposal to 
increase fees as described herein.
    The Exchange and its market data products are subject to 
significant competitive forces and the proposed fees represent 
responses to that competition. To start, the Exchange competes 
intensely for order flow. It competes with the other national 
securities exchanges that currently trade equities, with electronic 
communication networks, with quotes posted in FINRA's Alternative 
Display Facility, with alternative trading systems, and with securities 
firms that primarily trade as principal with their customer order flow.
    In addition, Multicast PITCH competes with a number of alternative 
products. For instance, Multicast PITCH do not provide a complete 
picture of all trading activity in a security. Rather, the other 
national securities exchanges, the several TRFs of FINRA, and 
Electronic Communication Networks (``ECN'') that produce proprietary 
data all produce trades and trade reports. Each is currently permitted 
to produce depth-of-book products, and many currently do, including 
Nasdaq and NYSE. In addition, market participants can gain access to 
BZX Options' last sale prices and top-of-book quotations, though 
integrated with the prices of other markets, on feeds made available 
through the SIPs.
    In sum, the availability of a variety of alternative sources of 
information imposes significant competitive pressures on the Exchange's 
data products and the Exchange's compelling need to attract order flow 
impose significant competitive pressure on the Exchange to act 
equitably, fairly, and reasonably in setting the proposed data product 
fees. The proposed data product fees are, in part, responses to that 
pressure. The Exchange believes that the proposed fees would reflect an 
equitable allocation of its overall costs to users of its facilities.
    In addition, when establishing the proposed fees, the Exchange 
considered the competitiveness of the market for proprietary data and 
all of the implications of that competition. The Exchange believes that 
it has considered all relevant factors and has not

[[Page 37274]]

considered irrelevant factors in order to establish fair, reasonable, 
and not unreasonably discriminatory fees and an equitable allocation of 
fees among all users. The existence of alternatives to Multicast PITCH, 
including existing similar feeds by other exchanges, consolidated data, 
and proprietary data from other sources, ensures that the Exchange 
cannot set unreasonable fees, or fees that are unreasonably 
discriminatory, when vendors and subscribers can elect these 
alternatives or choose not to purchase a specific proprietary data 
product if its cost to purchase is not justified by the returns any 
particular vendor or subscriber would achieve through the purchase.

(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 \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 No. SR-BatsBZX-2017-48 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-BatsBZX-2017-48. 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 will also 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-2017-48 and should 
be submitted on or before August 30, 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. 2017-16738 Filed 8-8-17; 8:45 am]
 BILLING CODE 8011-01-P