82_FR_4951 82 FR 4941 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Fee Schedule of the Exchange's Options Platform To Adopt Fees for its Recently Adopted Bats Auction Mechanism

82 FR 4941 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Fee Schedule of the Exchange's Options Platform To Adopt Fees for its Recently Adopted Bats Auction Mechanism

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 10 (January 17, 2017)

Page Range4941-4947
FR Document2017-00782

Federal Register, Volume 82 Issue 10 (Tuesday, January 17, 2017)
[Federal Register Volume 82, Number 10 (Tuesday, January 17, 2017)]
[Notices]
[Pages 4941-4947]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-00782]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79769; File No. SR-BatsEDGX-2017-01]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Modify the Fee Schedule of the Exchange's Options Platform To Adopt 
Fees for its Recently Adopted Bats Auction Mechanism

January 10, 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 January 3, 2017, Bats EDGX Exchange, Inc. (``EDGX'' or the 
``Exchange'') 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 
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 filed a proposal to modify the Fee Schedule applicable 
to the Exchange's options platform (``EDGX Options'') to adopt fees for 
its recently adopted Bats Auction Mechanism (``BAM'', ``BAM Auction'', 
or ``Auction'').\3\
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    \3\ See Securities Exchange Act Release No. 79718 (January 3, 
2017) (SR-BatsEDGX-2016-41), available at: https://www.sec.gov/rules/sro/batsedgx.shtml.
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The Exchange proposes to modify the Fee Schedule applicable to the 
Exchange's options platform (``EDGX Options'') to adopt fees for its 
recently adopted Bats Auction Mechanism (``BAM'', ``BAM Auction'', or 
``Auction''). BAM includes functionality in which a Member (an 
``Initiating Member'') may electronically submit for execution an order 
it represents as agent on behalf of a Priority Customer,\4\ broker 
dealer, or any other person or entity (``Agency Order'') against 
principal interest or against any other order it represents as agent 
(an ``Initiating Order'') provided it submits the Agency Order for 
electronic execution into the BAM Auction pursuant Rule 21.19. All 
options traded on EDGX Options are eligible for BAM.
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    \4\ The term ``Priority Customer'' means any person or entity 
that is not: (A) A broker or dealer in securities; or (B) a 
Professional. The term ``Priority Customer Order'' means an order 
for the account of a Priority Customer. See Rule 16.1(a)(45). A 
``Professional'' is any person or entity that: (A) Is not a broker 
or dealer in securities; and (B) places more than 390 orders in 
listed options per day on average during a calendar month for its 
own beneficial account(s). All Professional orders shall be 
appropriately marked by Options Members. See Rule 16.1(a)(46).
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    As additional background for the fees described below, the Exchange 
notes that any person or entity other than the Initiating Member may 
submit responses to an Auction. A BAM Auction takes into account 
responses to the Auction as well as interest resting on the Exchange's 
order book at the conclusion of the auction (``unrelated orders''), 
regardless of whether such unrelated orders were already present on the 
Exchange's order book when the Agency Order was received by the 
Exchange or were received after the Exchange commenced the applicable 
Auction. If contracts remain from one or more unrelated orders at the 
time the Auction ends, they will be considered for participation in the 
BAM order allocation process.
Definitions
    In connection with the fee proposal, the Exchange proposes to adopt 
definitions necessary for BAM pricing. First, the Exchange proposes to 
adopt defined terms of ``BAM'' and ``BAM Auction'' to refer to Auctions 
on the Fee Schedule. Second, the Exchange proposes to adopt the defined 
term ``BAM Agency Order'', which would be

[[Page 4942]]

defined as 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. Third, the Exchange proposes to adopt the 
defined term ``BAM Contra Order'' or ``Initiating Order'',\5\ which 
would be defined as an order submitted by a Member entering a BAM 
Agency Order for execution within BAM, that will potentially execute 
against the BAM Agency Order pursuant to Rule 21.19. Fourth, the 
Exchange proposes to adopt the defined term ``BAM Customer-to-Customer 
Immediate Cross'', which would provide a cross-reference to the process 
defined in Rule 21.19(c).\6\ Finally, the Exchange proposes to adopt 
the defined term ``BAM Responder Order'', which would be defined to 
include any order submitted in response to and specifically designated 
to participate in a BAM Auction as well as unrelated orders that are 
received by the Exchange after a BAM Auction has begun.
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    \5\ The Exchange notes that it has proposed to include the term 
Initiating Order on the Fee Schedule even though it is not currently 
used elsewhere on the Fee Schedule because this is the term used for 
a BAM Contra Order within Rule 21.19.
    \6\ As set forth in Rule 21.19(c), in lieu of the procedures set 
forth in paragraphs (a) and (b) of Rule 21.10 [sic], an Initiating 
Member may enter an Agency Order for the account of a Priority 
Customer paired with an order for the account of a Priority Customer 
and such paired orders will be automatically executed without an 
Auction, subject to the conditions set forth in Rule 21.19(c)(1)-
(3).
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BAM Pricing
    The Exchange proposes to adopt six new fee codes in connection with 
BAM, which would be added to the Fee Codes and Associated Fees table of 
the Fee Schedule. These fee codes represent the fees applicable to BAM, 
as described below. In addition, the Exchange proposes to adopt new 
footnote 6, which would again summarize BAM fees and rebates in a table 
form, would provide additional details regarding the applicability of 
such fees and rebates, and would include a provision regarding BAM 
Break-Up Credits.
    The Exchange proposes to adopt two fee codes for BAM Agency Orders, 
fee code BA and fee code BC, which would be applicable to Non-Customer 
\7\ and Customer \8\ orders, respectively. As proposed, the Exchange 
would apply fee code BA to Non-Customer BAM Agency Orders that are 
executed in an Auction and would charge such orders a fee of $0.20 per 
contract. The Exchange would apply fee code BC to Customer BAM Agency 
Orders that are executed in an Auction and would provide such orders a 
rebate of $0.14 per contract.
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    \7\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
    \8\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
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    Next, the Exchange proposes to adopt fee code BB, which would apply 
to a BAM Contra Order executed in an Auction and would be charged a fee 
of $0.04 per contract.
    The Exchange also proposes to adopt fee codes BD and BE, which 
would apply to BAM Responder Orders in Penny Pilot Securities \9\ and 
Non-Penny Pilot Securities,\10\ respectively. As proposed, the Exchange 
would apply fee code BD or BE to a BAM Responder Order that is executed 
in an Auction. The Exchange proposes to charge a fee of $0.50 per 
contract for executions yielding fee code BD and to charge a fee of 
$1.05 per contract for executions yielding fee code BE.
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    \9\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
    \10\ The term ``Non-Penny Pilot Security'' applies to those 
issues that are not Penny Pilot Securities quoted pursuant to 
Exchange Rule 21.5, Interpretation and Policy .01.
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    Finally, the Exchange proposes to adopt fee code CC for all 
executions in a BAM Customer-to-Customer Immediate Cross. As proposed, 
all executions yielding fee code CC would be provided free of charge.
    As discussed above, in addition to setting forth the proposed fees 
and rebates in the Fee Codes and Associated Fees table, the Exchange 
proposes to adopt footnote 6 to again summarize BAM fees and rebates in 
a table form that is organized differently in order to provide clarity 
to Users.\11\ Footnote 6 would be organized similar to existing 
footnotes on the Fee Schedule and would first make clear that the 
footnote is applicable to the following six fee codes: BA, BB, BC, BD, 
BE and CC. The footnote would then re-state the fees applicable to BAM, 
including a lead-in to the table that would state that the fees and 
rates are applicable when a BAM Agency Order trades in a BAM Auction 
against either a BAM Contra Order or a BAM Responder Order.
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    \11\ The term ``Users'' applies to any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.
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    The proposed table would horizontally categorize the types of 
orders that could be executed within BAM, namely ``Agency'' (i.e., BAM 
Agency Orders), ``Contra'' (i.e., BAM Contra Orders) and ``Responder'' 
(i.e., BAM Responder Orders). Further, within the Responder category, 
the Exchange would differentiate between Penny Pilot Securities and 
Non-Penny Pilot Securities (whereas it would not for the other two 
categories because there is no applicable distinction). Vertically, the 
table would be organized by Customer, Non-Customer and Customer-to-
Customer Immediate Cross.
    The Exchange also proposes to make clear with respect to BAM Agency 
Orders that when a BAM Agency Order executes against one or more 
resting orders that were already on the Exchange's order book when the 
BAM Agency Order was received by the Exchange, the BAM Agency Order and 
the resting order(s) would receive the Standard Fee Rates. 
Specifically, and as described above, it is possible for unrelated 
interest that is already present on the Exchange's order book when a 
BAM Agency Order is received to be included in an Auction. As proposed, 
footnote 6 will make clear that this will not alter the fee structure 
for such execution and instead the Exchange will charge a fee or 
provide a rebate to each side of the transaction as if it were a 
transaction occurring on the Exchange's order book pursuant to the 
Exchange's normal order handling methodology and not in BAM. This 
stands in contrast to BAM Responder Orders, which, as defined, include 
unrelated orders that are received by the Exchange after a BAM Auction 
has begun and which would be charged or provided rebates based 
specifically on BAM pricing.
    The Exchange also proposes to make clear with respect to Customer 
orders that such orders will be charged or provided rebates based on 
the proposed pricing for BAM (e.g., will yield fee code BC if submitted 
as a BAM Agency Order, will yield fee code BB if submitted as a BAM 
Contra Order, etc.) but that fee code CC would be assigned when both 
the BAM Agency Order and the BAM Contra Order are Customer orders.
    In addition, the Exchange proposes to adopt under footnote 6 BAM 
Break-Up Credits. As proposed, the Exchange will apply a BAM Break-Up 
Credit to the Member that submitted a BAM Agency Order, including a 
Member who routed an order to the Exchange with a Designated Give Up 
(as described in further detail below), when the BAM Agency Order 
trades with a BAM Responder Order. As proposed, the BAM Break-Up Credit 
provided with respect to a BAM Auction in a Penny Pilot Security would 
be $0.25 per contract and the BAM Break-Up Credit provided with respect 
to a BAM Auction in a Non-Penny Pilot Security would be $0.60 per 
contract.

[[Page 4943]]

Tiered Pricing Incentives
    In order to encourage the use of BAM, the Exchange proposes to 
adopt new tiers under footnotes 1 and 2 of the Fee Schedule, which are 
similar to existing tiers but with an enhanced rebated to incentivize 
the submission of BAM Agency Orders.
    Fee codes PC and NC are currently appended to all Customer orders 
in Penny Pilot Securities and Non-Penny Pilot Securities, respectively, 
and result in a standard rebate of $0.05 per contract. Instead of the 
standard rebate provided to Customer orders, Members are able to 
receive enhanced rebates for Customer orders to the extent they satisfy 
monthly volume criteria. The Exchange currently offers five Customer 
Volume Tiers pursuant to footnote 1. For instance, pursuant to Customer 
Volume Tier 5, a Member will receive an enhanced rebate of $0.21 per 
contract where the Member has an ADV \12\ in: (i) Customer orders equal 
to or greater than 0.05% of average OCV; \13\ and (ii) Customer or 
Market Maker \14\ orders equal to or greater than 0.35% of average OCV. 
To encourage the entry of BAM Agency Orders to the Exchange, the 
Exchange proposes to adopt Customer Volume Tier 6, which would be 
identical to Tier 5 but would instead provide an enhanced rebate of 
$0.25 per contract for Customer orders to the extent a Member also has 
an ADV in BAM Agency Orders equal to or greater than 1 contract (in 
addition to the volume criteria described above with respect to Tier 
5).
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    \12\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
    \13\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
    \14\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
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    Fee codes PM and NM are currently appended to all Market Maker 
orders in Penny Pilot Securities and Non-Penny Pilot Securities, 
respectively, and result in a standard fee of $0.19 per contract. The 
Market Maker Volume Tiers in footnote 2 consist of seven separate 
tiers, each providing a reduced fee or rebate to a Member's Market 
Maker orders that yield fee codes PM or NM upon satisfying the monthly 
volume criteria required by the respective tier. For instance, pursuant 
to Market Maker Volume Tier 7, a Member will be charged a reduced fee 
of $0.03 per contract where the Member has: (i) Customer orders equal 
to or greater than 0.05% of average OCV; and (ii) Customer or Market 
Maker orders equal to or greater than 0.35% of average OCV. To 
encourage the entry of BAM Agency Orders to the Exchange, the Exchange 
proposes to adopt Market Maker Volume Tier 8, which would be identical 
to Tier 7 but would instead provide a reduced fee of $0.02 per contract 
for Market Maker orders to the extent a Member also has an ADV in BAM 
Agency Orders equal to or greater than 1 contract (in addition to the 
volume criteria described above with respect to Tier 7).
Designated Give Up Footnote
    Footnote 5 of the Fee Schedule currently specifies that when order 
is submitted with a Designated Give Up, as defined in Rule 21.12(b)(1), 
the applicable rebates for such orders when executed on the Exchange 
(yielding fee code NC or PC) \15\ are provided to the Member who routed 
the order to the Exchange. Pursuant to Rule 21.12, which specifies the 
process to submit an order with a Designated Give Up, a Member acting 
as an options routing firm on behalf of one or more other Exchange 
Members (a ``Routing Firm'') is able to route orders to the Exchange 
and to immediately give up the party (a party other than the Routing 
Firm itself or the Routing Firm's own clearing firm) who will accept 
and clear any resulting transaction. Because the Routing Firm is 
responsible for the decision to route the order to the Exchange, the 
Exchange provides such Member with the rebate when orders that yield 
fee code NC or PC are executed.
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    \15\ Fee codes NC and PC are appended to Customer orders in Non-
Penny Pilot and Penny Pilot Securities, respectively. Id.
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    In connection with the adoption of fees applicable to BAM, the 
Exchange proposes to add new fee code BC to the lead-in sentence of 
footnote 5 and to append footnote 5 to fee code BC in the Fee Codes and 
Associated Fees table of the Fee Schedule. In addition, the Exchange 
proposes to include reference to Routing Firms (i.e., a Member who 
routed an order to the Exchange with a Designated Give up) in the 
proposed BAM Break-Up Credit section of footnote 6, to make clear that 
a Routing Firm will be provided any applicable BAM Break-Up Credits. 
Similar to the provision of a rebate to a Routing Firm who routed an 
order to the Exchange to execute directly on the Exchange's order book, 
the Exchange believes that a Routing Firm that routed a BAM Agency 
Order to the Exchange should be provided applicable rebates, including 
any BAM Break-Up Credits, based on the Routing Firm's decision to route 
the order to the Exchange.
Implementation Date
    The Exchange proposes to implement the proposed changes 
immediately.\16\
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    \16\ The Exchange notes that it previously adopted fee changes 
effective January 3, 2017, and thus, has not proposed to modify the 
date of the Fee Schedule. See SR-BatsEDGX-2016-75, available at: 
http://www.bats.com/us/options/regulation/rule_filings/edgx/.
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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.\17\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal establishes fees and rebates regarding BAM, 
which promotes price improvement to the benefit of market participants. 
The Exchange believes that BAM will encourage market participants, and 
in particular liquidity providers on the Exchange, to compete 
vigorously to provide opportunities for price improvement in a 
competitive auction process. The Exchange believes that its proposal 
will allow the Exchange to recoup the costs associated with BAM while 
also incentivizing its use.
    The Exchange is adopting the proposed fees and rebates at this time 
because it believes that the associated revenue will allow it to 
promote and maintain BAM, which is beneficial to market participants.
    In sum, the Exchange believes that the proposed fee and rebate 
structure is designed to promote BAM and, in particular, to attract 
Customer liquidity, which benefits all market participants by providing 
additional trading opportunities. This attracts liquidity providers and 
an increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow originating from other market 
participants.
    Moreover, the Exchange believes that charging market participants, 
other than Customers, a higher effective rate for certain BAM 
transactions is reasonable, equitable, and not unfairly discriminatory 
because these types of market participants are more

[[Page 4944]]

sophisticated and have higher levels of order flow activity and system 
usage. Facilitating this level of trading activity requires a greater 
amount of system resources than that of Customers, and thus, generates 
greater ongoing operational costs for the Exchange. The proposed fees 
and rebates, which are further discussed below, will allow the Exchange 
to promote and maintain BAM, which is beneficial to market 
participants.
BAM Agency Orders and BAM Contra Orders
    With respect to the proposal to adopt a rebate for Customer BAM 
Agency Orders ($0.14 per contract) and adopt fees for both Non-Customer 
BAM Agency Orders ($0.20 per contract) and all BAM Contra Orders ($0.04 
per contract), the Exchange believes this is reasonable because it 
encourages participation in BAM by offering rates that are equivalent 
to or better than most other price improvement auctions offered by 
other options exchanges.\19\ The rebate for Customer BAM Agency Orders 
is designed to encourage Customer orders entered into BAM, which is 
reasonable for the reasons further discussed below. The proposed fees 
for Non-Customer BAM Agency Orders and BAM Contra Orders are also 
reasonable because the associated revenue will allow the Exchange to 
promote and maintain BAM, and continue to enhance its services.
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    \19\ See Miami International Securities Exchange, LLC (``MIAX'') 
Fee Schedule; and Securities Exchange Act Release No. 72943 (August 
28, 2014), 80 [sic] FR 52785 (September 4, 2014) (SR-MIAX-2015-45 
[sic]) (notice of filing and immediate effectiveness regarding MIAX 
PRIME). See also, e.g., NYSE MKT LLC (``NYSE Amex Options'') Fee 
Schedule and NASDAQ OMX BX, Inc. (``BX Options'') Fee Schedule.
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    Providing Customers a rebate for BAM Agency Orders, while assessing 
Non-Customers a fee for BAM Agency Orders, is reasonable because of the 
desirability of Customer activity. The proposed new fees and rebates 
for BAM are generally intended to encourage greater Customer trade 
volume to the Exchange. Customer activity enhances liquidity on the 
Exchange for the benefit of all market participants and benefits all 
market participants by providing more trading opportunities, which 
attracts market makers and other liquidity providers. An increase in 
the activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The practice of incentivizing 
increased Customer order flow through a fee and rebate schedule in 
order to attract professional liquidity providers is, and has been, 
commonly practiced in the options markets, and the Exchange.\20\ The 
proposed fee and rebate schedule similarly attracts Customer order 
flow.
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    \20\ See Exchanges Fee Schedule, available at: http://www.bats.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule, Nasdaq 
Options Market (``NOM'') Fee Schedule.
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    The proposed fee and rebate schedule is reasonably designed because 
it is within the range of fees and rebates assessed by other exchanges 
employing similar fee structures for price improvement mechanisms.\21\ 
Other competing exchanges offer different fees and rebates for agency 
orders, contra-side orders, and responder orders to the auction in a 
manner similar to the proposal.\22\ Other competing exchanges also 
charge different rates for transactions in their price improvement 
mechanisms for customers versus their non-customers in a manner similar 
to the proposal.\23\ As proposed, all applicable fees and rebates are 
within the range of fees and rebates for executions in price 
improvement mechanisms assessed by other exchanges that are currently 
employing similar fee structures for price improvement mechanisms.
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    \21\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 [sic] FR 52785 (September 4, 2014) 
(SR-MIAX-2015-45 [sic]) (notice of filing and immediate 
effectiveness regarding MIAX PRIME). See also, e.g., NYSE Amex 
Options Fee Schedule and BX Options Fee Schedule.
    \22\ Id.
    \23\ Id.
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    The fee and rebate schedule as proposed continues to reflect 
differentiation among different market participants typically found in 
options fee and rebate schedules.\24\ The Exchange believes that the 
differentiation is reasonable and notes that unlike others (e.g., 
Customers) some market participants like EDGX Options Market Makers 
commit to various obligations. For example, transactions of an EDGX 
Options Market Maker must constitute a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and Market Makers should not make bids or offers or enter into 
transactions that are inconsistent with such course of dealings.\25\ 
Further, all Market Makers are designated as specialists on EDGX 
Options for all purposes under the Act or rules thereunder.\26\ For BAM 
Agency Orders, establishing a rebate for Customer orders and a fee for 
Non-Customer Orders is equitable and not unfairly discriminatory. This 
is because the Exchange's proposal to provide rebates and assess fees 
will apply the same to all similarly situated participants. Moreover, 
all similarly situated BAM Agency Orders are subject to the same 
proposed fee schedule, and access to the Exchange is offered on terms 
that are not unfairly discriminatory. In addition, the proposed fee for 
BAM Agency Orders is equitable and not unfairly discriminatory because, 
while other market participants (Non-Customers) will be assessed a fee, 
Customers will receive a rebate because an increase in Customer order 
flow will bring greater volume and liquidity, which benefits all market 
participants by providing more trading opportunities and tighter 
spreads.
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    \24\ See Exchange's Fee Schedule, available at: http://www.bats.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule, BX Options 
Fee Schedule and NOM Fee Schedule.
    \25\ See Exchange Rule 22.5, entitled ``Obligations of Market 
Makers''.
    \26\ See Exchange Rule 22.2, entitled ``Options Market Maker 
Registration and Appointment''.
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Customer-to-Customer Immediate Cross
    With respect to the Customer-to-Customer Immediate Cross, 
establishing no Customer fee or rebate for either side of the 
transaction, is also reasonable, equitably allocated and not 
unreasonably discriminatory because it still encourages the entry of 
Customer orders to the Exchange while treating, from the Exchange's 
perspective, each side of the order neutrally rather than providing one 
Customer a rebate but charging another Customer a fee.
BAM Responder Orders and Other Unrelated Orders
    For BAM Responder Orders, establishing that there will be a $0.50 
fee per contract for orders in Penny Pilot Securities and a $1.05 fee 
per contract for orders in Non-Penny Pilot Securities, is reasonable 
because the associated revenue will allow the Exchange to maintain and 
enhance its services. The proposed fee and rebate schedule is also 
reasonably designed because it is within the range of fees and rebates 
assessed by other exchanges employing similar fee structures for price 
improvement mechanisms.\27\ Other competing exchanges offer different 
fees and rebates for agency orders, contra-side order, and responders 
to the auction in a manner similar to the proposal.\28\
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    \27\ See NYSE Amex Options Fee Schedule; see also, e.g., MIAX 
Fee Schedule and BX Options Fee Schedule.
    \28\ Id.
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    For BAM Responder Orders, establishing a fee for such orders is 
equitable and not unfairly

[[Page 4945]]

discriminatory. This is because the Exchange's proposal to assess such 
fee will apply the same to all participants and will vary only based on 
whether the security is a Penny Pilot Security or a Non-Penny Pilot 
Security. Moreover, all BAM Responder Orders are subject to the same 
proposed fee schedule, and access to the Exchange is offered on terms 
that are not unfairly discriminatory.
    The Exchange further believes its proposal represents a reasonable 
and equitable allocation of dues and fees in that the proposal would 
treat an unrelated order as well as a BAM Agency Order that executes 
against such order differently depending on whether the unrelated order 
was already resting on the Exchange's order book at the time the BAM 
Agency Order was received or was received after the BAM Auction had 
begun.
    As proposed, an unrelated order would be considered a BAM Responder 
Order if received after the BAM Auction had commenced. As a result, 
both the BAM Agency Order executing against such order and such order 
itself would be assessed fees and provided rebates according to the 
proposed BAM pricing. The Exchange believes this is a reasonable and 
equitable allocation of dues and fees, and is not unreasonably 
discriminatory, because it ensures that market participants are treated 
similarly with respect to their executions against BAM Agency Orders. 
To do otherwise, to the extent fees are higher pursuant to BAM pricing 
than under the Exchange's Standard Fee Rates, would incentivize a 
market participant that wishes to participate in an Auction to 
nonetheless avoid sending orders to the Exchange that are not targeted 
towards the Auction and instead send orders to the Exchange's order 
book generally, knowing that such orders would be considered in the 
Auction anyway.
    In contrast, as proposed, to the extent an unrelated order was 
already present on the Exchange's order book when a BAM Agency Order is 
received, such unrelated order, if executed in an Auction, as well as 
the BAM Agency Order against which it trades will be charged a fee or 
provided a rebate as if the transaction occurred on the Exchange's 
order book pursuant to the Exchange's normal order handling methodology 
and not in BAM. The Exchange similarly believes this is a reasonable 
and equitable allocation of dues and fees, and is not unreasonably 
discriminatory, because it will ensure that the participant that had 
established position on the Exchange's order book first, the unrelated 
order, is not impacted with respect to applicable fees or rebates 
despite the later arrival of a BAM Agency Order that commences an 
Auction.
BAM Break-Up Credits
    With respect to the proposal to adopt BAM Break-Up Credits, the 
Exchange believes this is reasonable because it encourages use of BAM 
by offering pricing that is equivalent to pricing provided pursuant to 
other price improvement auctions offered by other options exchanges. 
The proposal to offer BAM Break-Up Credits is reasonably designed 
because it is within the range of fees and rebates assessed by other 
exchanges employing similar fee structures for price improvement 
mechanisms.\29\ Further, the proposed BAM Break-Up Credits are 
reasonable and equitably allocated because such credits are different 
based on whether the Auction is for a Penny Pilot Security or a Non-
Penny Pilot Security, which is the same differentiation applicable to 
BAM Responder Orders. Thus, the Exchange has based the amount of the 
Break-Up Credit, in part, on the amount of the fee it will receive with 
respect to each BAM Responder Order. Finally, the proposed BAM Break-Up 
Credits are not unreasonably discriminatory because such credits are 
equally available to all Members submitting BAM Agency Orders to the 
Exchange.
---------------------------------------------------------------------------

    \29\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness 
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee 
Schedule and NASDAQ BX Options Fee Schedule.
---------------------------------------------------------------------------

Tiers
    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by options exchanges 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 
the value of an exchange's market quality associated with higher levels 
of market activity, such as higher levels of liquidity provision and/or 
growth patterns, and introduction of higher volumes of orders into the 
price and volume discovery processes. The proposed adoption of Customer 
Volume Tier 6 and Market Maker Volume Tier 8, are each intended to 
incentivize Members to send additional Customer and Market Maker orders 
to the Exchange as well as to participate in the Exchange's new BAM 
process in an effort to qualify for the enhanced rebate or lower fee 
made available by the tiers.
    The Exchange believes that the proposed tiers are reasonable, fair 
and equitable, and non-discriminatory, for the reasons set forth above 
with respect to volume-based pricing generally and because such changes 
will incentivize participants to further contribute to market quality. 
The proposed tiers will provide an additional way for market 
participants to qualify for enhanced rebates or reduced fees. Further, 
BAM is fully available to all Members, and the proposed threshold is 
intentionally low to encourage Members to do the development work 
necessary to participate in BAM and send BAM Agency Orders.
Designated Give Up
    In connection with the adoption of fees applicable to BAM, the 
Exchange proposes to add new fee code BC to the lead-in sentence of 
footnote 5 and to append footnote 5 to fee code BC in the Fee Codes and 
Associated Fees table of the Fee Schedule. In addition, the Exchange 
proposes to include reference to Routing Firms (i.e., a Member who 
routed an order to the Exchange with a Designated Give up) in the 
proposed BAM Break-Up Credit section of footnote 6, to make clear that 
a Routing Firm too will be provided any applicable BAM Break-Up 
Credits. The Exchange believes this proposal is a reasonable and 
equitable allocation of fees and dues and is not unreasonably 
discriminatory because, as is currently the case pursuant to footnote 
5, the proposal simply will make clear that a firm acting as a Routing 
Firm that routes BAM Agency Orders to the Exchange will be provided 
applicable rebates, including any BAM Break-Up Credits, based on the 
Routing Firm's decision to route the order to the Exchange.

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

    The Exchange believes the proposed rebate would not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rebate represents a significant departure from 
previous pricing offered by the Exchange or pricing offered by the 
Exchange's competitors. Rather, the Exchange believes the proposal will 
enhance competition as it is a competitive proposal that seeks to 
further the growth of the Exchange by encouraging Members to enter BAM 
Agency Orders, orders in response to BAM Agency Orders, and orders to 
the Exchange generally.
    The Exchange's proposal to adopt BAM was a competitive response to 
similar price improvement auctions operated by other options exchanges.

[[Page 4946]]

The Exchange believes this proposed rule change is necessary to permit 
fair competition among the options exchanges. The Exchange anticipates 
that BAM will create new opportunities for EDGX to attract new business 
and compete on equal footing with those options exchanges with 
auctions. While the proposed fees and rebates are intentionally 
aggressive in order to attract participation on the Exchange, 
particularly in BAM, the Exchange does not believe that its proposed 
pricing significantly departs from pricing in place on other options 
exchanges that operate price improvement auctions. Accordingly, the 
Exchange does not believe that the proposal creates an undue burden on 
inter-market 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. Specifically, the Exchange does 
not believe that its proposal to establish fees and rebates for BAM 
will impose any burden on competition, as discussed below.
    The Exchange operates in a highly competitive market in which many 
sophisticated and knowledgeable market participants can readily and do 
send order flow to competing exchanges if they deem fee levels or 
rebate incentives at a particular exchange to be excessive or 
inadequate. Additionally, new competitors have entered the market and 
still others are reportedly entering the market shortly. These market 
forces ensure that the Exchange's fees and rebates remain competitive 
with the fee structures at other trading platforms. In that sense, the 
Exchange's proposal is actually pro-competitive because the Exchange is 
simply establishing rebates and fees in order to remain competitive in 
the current environment.
    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. 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 charges assessed and credits 
available to member firms in respect of BAM do not impose a burden on 
competition because the Exchange's execution and routing services are 
completely voluntary and subject to extensive competition. If the 
changes proposed herein are unattractive to market participants, it is 
likely that the Exchange will lose market share as a result and/or will 
be unable to attract participants to BAM. 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. Additionally, the 
changes proposed herein are pro-competitive to the extent that they 
allow the Exchange to promote and maintain BAM, which has the potential 
to result in more efficient, price improved executions to the benefit 
of market participants.
    The Exchange believes that the proposed change would increase both 
inter-market and intra-market competition by incentivizing members to 
direct their orders, and particularly Customer orders, to the Exchange, 
which benefits all market participants by providing more trading 
opportunities, which attracts market makers. To the extent that there 
is a differentiation between proposed fees assessed and rebates offered 
to Customers as opposed to other market participants, the Exchange 
believes that this is appropriate because the fees and rebates should 
incentivize members to direct additional order flow to the Exchange and 
thus provide additional liquidity that enhances the quality of its 
markets and increases the volume of contracts traded on the Exchange.
    To the extent that this purpose is achieved, all the Exchange's 
market participants should benefit from the improved market liquidity. 
Enhanced market quality and increased transaction volume that results 
from the anticipated increase in order flow directed to the Exchange 
will benefit all market participants and improve competition on the 
Exchange. 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.
    The Exchange believes that the proposed fees and rebates for 
participation in the BAM Auction are not going to have an impact on 
intra-market competition based on the total cost for participants to 
transact as respondents to the Auction as compared to the cost for 
participants to engage in non-Auction electronic transactions on the 
Exchange.
    As noted above, the Exchange believes that the proposed pricing for 
the BAM Auction is comparable to that of other exchanges offering 
similar electronic price improvement mechanisms, and the Exchange 
believes that, based on general industry experience, market 
participants understand that the price-improving benefits offered by an 
Auction justify and offset the transaction costs associated with such 
Auction. To the extent that there is a difference between non-BAM 
transactions and BAM transactions, the Exchange does not believe this 
difference will cause participants to refrain from responding to BAM or 
submitting orders to the Exchange when a BAM Auction is underway.
    In addition, the Exchange does not believe that the proposed 
transaction fees and credits burden competition by creating a disparity 
of transaction fees between the BAM Contra Order and the transaction 
fees a Responder pays would result in certain participants being unable 
to compete with the contra side order.
    The Exchange expects to see robust competition within the BAM 
Auction. As discussed, 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. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and to attract 
order flow to the Exchange. The Exchange believes that the proposed 
rule change reflects this competitive environment because it 
establishes a fee structure in a manner that encourages market 
participants to direct their order flow, to provide liquidity, and to 
attract additional transaction volume to 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.

[[Page 4947]]

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 \30\ and paragraph (f) of Rule 19b-4 
thereunder.\31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 rule-comments@sec.gov. Please include 
File Number SR-BatsEDGX-2017-01 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BatsEDGX-2017-01. 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-2017-01, and should 
be submitted on or before February 7, 2017.
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00782 Filed 1-13-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                                              Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices                                                       4941

                                                Applicant states that the Contributor’s                 SECURITIES AND EXCHANGE                                A. Self-Regulatory Organization’s
                                                violation of the Policy and the Rule                    COMMISSION                                             Statement of the Purpose of, and the
                                                resulted from the Contributor’s failure to                                                                     Statutory Basis for, the Proposed Rule
                                                                                                        [Release No. 34–79769; File No. SR–
                                                appreciate the regulatory significance of               BatsEDGX–2017–01]
                                                                                                                                                               Change
                                                the Contribution, which was intended                                                                           1. Purpose
                                                as a friendly gesture toward a social                   Self-Regulatory Organizations; Bats
                                                acquaintance.                                           EDGX Exchange, Inc.; Notice of Filing                  Background
                                                   12. Applicant submits that neither the               and Immediate Effectiveness of a                          The Exchange proposes to modify the
                                                Adviser nor the Contributor sought to                   Proposed Rule Change To Modify the                     Fee Schedule applicable to the
                                                interfere with the Clients’ merit-based                 Fee Schedule of the Exchange’s                         Exchange’s options platform (‘‘EDGX
                                                selection process for advisory services,                Options Platform To Adopt Fees for its                 Options’’) to adopt fees for its recently
                                                nor did they seek to negotiate higher                   Recently Adopted Bats Auction                          adopted Bats Auction Mechanism
                                                fees or greater ancillary benefits than                 Mechanism                                              (‘‘BAM’’, ‘‘BAM Auction’’, or
                                                would be achieved in arms’ length                                                                              ‘‘Auction’’). BAM includes functionality
                                                transactions. Applicant further submits                 January 10, 2017.                                      in which a Member (an ‘‘Initiating
                                                that there was no violation of the                         Pursuant to Section 19(b)(1) of the                 Member’’) may electronically submit for
                                                Adviser’s fiduciary duty to deal fairly or              Securities Exchange Act of 1934                        execution an order it represents as agent
                                                disclose material conflicts given the                   (‘‘Act’’) 1 and Rule 19b–4 thereunder,2                on behalf of a Priority Customer,4 broker
                                                absence of any intent or action by the                  notice is hereby given that on January 3,              dealer, or any other person or entity
                                                Adviser or the Contributor to influence                 2017, Bats EDGX Exchange, Inc.                         (‘‘Agency Order’’) against principal
                                                the selection process. Applicant                        (‘‘EDGX’’ or the ‘‘Exchange’’) filed with              interest or against any other order it
                                                contends that in the case of the                        the Securities and Exchange                            represents as agent (an ‘‘Initiating
                                                Contribution, imposition of the two-year                Commission (‘‘Commission’’) the                        Order’’) provided it submits the Agency
                                                prohibition on compensation does not                    proposed rule change as described in                   Order for electronic execution into the
                                                achieve the Rule’s purposes and would                   Items I, II, and III below, which Items                BAM Auction pursuant Rule 21.19. All
                                                result in consequences disproportionate                 have been prepared by the Exchange.                    options traded on EDGX Options are
                                                to the mistake that was made.                           The Commission is publishing this                      eligible for BAM.
                                                                                                        notice to solicit comments on the                         As additional background for the fees
                                                Applicant’s Conditions                                  proposed rule change from interested                   described below, the Exchange notes
                                                   The Applicant agrees that any order of               persons.                                               that any person or entity other than the
                                                the Commission granting the requested                   I. Self-Regulatory Organization’s                      Initiating Member may submit
                                                relief will be subject to the following                 Statement of the Terms of Substance of                 responses to an Auction. A BAM
                                                conditions:                                             the Proposed Rule Change                               Auction takes into account responses to
                                                   1. The Contributor will be prohibited                                                                       the Auction as well as interest resting
                                                from discussing the business of the                        The Exchange filed a proposal to                    on the Exchange’s order book at the
                                                Applicant with any ‘‘government                         modify the Fee Schedule applicable to                  conclusion of the auction (‘‘unrelated
                                                entity’’ client for which the Official is               the Exchange’s options platform                        orders’’), regardless of whether such
                                                an ‘‘official,’’ each as defined in Rule                (‘‘EDGX Options’’) to adopt fees for its               unrelated orders were already present
                                                206(4)–5(f), until January 12, 2017.                    recently adopted Bats Auction                          on the Exchange’s order book when the
                                                   2. The Contributor will receive a                    Mechanism (‘‘BAM’’, ‘‘BAM Auction’’,                   Agency Order was received by the
                                                written notification of the conditions                  or ‘‘Auction’’).3                                      Exchange or were received after the
                                                                                                           The text of the proposed rule change
                                                and will provide a quarterly certificate                                                                       Exchange commenced the applicable
                                                                                                        is available at the Exchange’s Web site
                                                of compliance until January 12, 2017.                                                                          Auction. If contracts remain from one or
                                                                                                        at www.bats.com, at the principal office
                                                Copies of the certifications will be                                                                           more unrelated orders at the time the
                                                                                                        of the Exchange, and at the
                                                maintained and preserved in an easily                                                                          Auction ends, they will be considered
                                                                                                        Commission’s Public Reference Room.
                                                accessible place for a period of not less                                                                      for participation in the BAM order
                                                than five years, the first two years in an              II. Self-Regulatory Organization’s                     allocation process.
                                                appropriate office of the Applicant, and                Statement of the Purpose of, and                       Definitions
                                                be available for inspection by the staff                Statutory Basis for, the Proposed Rule
                                                of the Commission.                                      Change                                                    In connection with the fee proposal,
                                                   3. The Applicant will conduct testing                                                                       the Exchange proposes to adopt
                                                                                                           In its filing with the Commission, the              definitions necessary for BAM pricing.
                                                reasonably designed to prevent                          Exchange included statements
                                                violations of the conditions of the Order                                                                      First, the Exchange proposes to adopt
                                                                                                        concerning the purpose of and basis for                defined terms of ‘‘BAM’’ and ‘‘BAM
                                                and maintain records regarding such                     the proposed rule change and discussed
                                                testing, which will be maintained and                                                                          Auction’’ to refer to Auctions on the Fee
                                                                                                        any comments it received on the                        Schedule. Second, the Exchange
                                                preserved in an easily accessible place                 proposed rule change. The text of these
                                                for a period of not less than five years,                                                                      proposes to adopt the defined term
                                                                                                        statements may be examined at the                      ‘‘BAM Agency Order’’, which would be
                                                the first two years in an appropriate                   places specified in Item IV below. The
                                                office of the Applicant, and be available               Exchange has prepared summaries, set                      4 The term ‘‘Priority Customer’’ means any person
                                                for inspection by the staff of the                      forth in Sections A, B, and C below, of                or entity that is not: (A) A broker or dealer in
                                                Commission.                                             the most significant parts of such                     securities; or (B) a Professional. The term ‘‘Priority
sradovich on DSK3GMQ082PROD with NOTICES




                                                  For the Commission, by the Division of                statements.                                            Customer Order’’ means an order for the account of
                                                Investment Management, under delegated                                                                         a Priority Customer. See Rule 16.1(a)(45). A
                                                                                                                                                               ‘‘Professional’’ is any person or entity that: (A) Is
                                                authority.                                                1 15  U.S.C. 78s(b)(1).                              not a broker or dealer in securities; and (B) places
                                                Eduardo A. Aleman,                                        2 17  CFR 240.19b–4.                                 more than 390 orders in listed options per day on
                                                                                                           3 See Securities Exchange Act Release No. 79718     average during a calendar month for its own
                                                Assistant Secretary.
                                                                                                        (January 3, 2017) (SR–BatsEDGX–2016–41),               beneficial account(s). All Professional orders shall
                                                [FR Doc. 2017–00778 Filed 1–13–17; 8:45 am]             available at: https://www.sec.gov/rules/sro/           be appropriately marked by Options Members. See
                                                BILLING CODE 8011–01–P                                  batsedgx.shtml.                                        Rule 16.1(a)(46).



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                                                4942                          Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices

                                                defined as an order represented as agent                $0.20 per contract. The Exchange would                 Pilot Securities (whereas it would not
                                                by a Member on behalf of another party,                 apply fee code BC to Customer BAM                      for the other two categories because
                                                and submitted to BAM for potential                      Agency Orders that are executed in an                  there is no applicable distinction).
                                                price improvement pursuant to Rule                      Auction and would provide such orders                  Vertically, the table would be organized
                                                21.19. Third, the Exchange proposes to                  a rebate of $0.14 per contract.                        by Customer, Non-Customer and
                                                adopt the defined term ‘‘BAM Contra                        Next, the Exchange proposes to adopt                Customer-to-Customer Immediate Cross.
                                                Order’’ or ‘‘Initiating Order’’,5 which                 fee code BB, which would apply to a                       The Exchange also proposes to make
                                                would be defined as an order submitted                  BAM Contra Order executed in an
                                                                                                                                                               clear with respect to BAM Agency
                                                by a Member entering a BAM Agency                       Auction and would be charged a fee of
                                                                                                                                                               Orders that when a BAM Agency Order
                                                Order for execution within BAM, that                    $0.04 per contract.
                                                                                                                                                               executes against one or more resting
                                                will potentially execute against the                       The Exchange also proposes to adopt
                                                                                                        fee codes BD and BE, which would                       orders that were already on the
                                                BAM Agency Order pursuant to Rule
                                                                                                        apply to BAM Responder Orders in                       Exchange’s order book when the BAM
                                                21.19. Fourth, the Exchange proposes to
                                                                                                        Penny Pilot Securities 9 and Non-Penny                 Agency Order was received by the
                                                adopt the defined term ‘‘BAM
                                                Customer-to-Customer Immediate                          Pilot Securities,10 respectively. As                   Exchange, the BAM Agency Order and
                                                Cross’’, which would provide a cross-                   proposed, the Exchange would apply fee                 the resting order(s) would receive the
                                                reference to the process defined in Rule                code BD or BE to a BAM Responder                       Standard Fee Rates. Specifically, and as
                                                21.19(c).6 Finally, the Exchange                        Order that is executed in an Auction.                  described above, it is possible for
                                                proposes to adopt the defined term                      The Exchange proposes to charge a fee                  unrelated interest that is already present
                                                ‘‘BAM Responder Order’’, which would                    of $0.50 per contract for executions                   on the Exchange’s order book when a
                                                be defined to include any order                         yielding fee code BD and to charge a fee               BAM Agency Order is received to be
                                                submitted in response to and                            of $1.05 per contract for executions                   included in an Auction. As proposed,
                                                specifically designated to participate in               yielding fee code BE.                                  footnote 6 will make clear that this will
                                                a BAM Auction as well as unrelated                         Finally, the Exchange proposes to                   not alter the fee structure for such
                                                orders that are received by the Exchange                adopt fee code CC for all executions in                execution and instead the Exchange will
                                                after a BAM Auction has begun.                          a BAM Customer-to-Customer                             charge a fee or provide a rebate to each
                                                                                                        Immediate Cross. As proposed, all                      side of the transaction as if it were a
                                                BAM Pricing                                             executions yielding fee code CC would                  transaction occurring on the Exchange’s
                                                  The Exchange proposes to adopt six                    be provided free of charge.                            order book pursuant to the Exchange’s
                                                new fee codes in connection with BAM,                      As discussed above, in addition to                  normal order handling methodology and
                                                which would be added to the Fee Codes                   setting forth the proposed fees and                    not in BAM. This stands in contrast to
                                                and Associated Fees table of the Fee                    rebates in the Fee Codes and Associated                BAM Responder Orders, which, as
                                                Schedule. These fee codes represent the                 Fees table, the Exchange proposes to                   defined, include unrelated orders that
                                                fees applicable to BAM, as described                    adopt footnote 6 to again summarize                    are received by the Exchange after a
                                                below. In addition, the Exchange                        BAM fees and rebates in a table form                   BAM Auction has begun and which
                                                proposes to adopt new footnote 6,                       that is organized differently in order to              would be charged or provided rebates
                                                which would again summarize BAM                         provide clarity to Users.11 Footnote 6                 based specifically on BAM pricing.
                                                fees and rebates in a table form, would                 would be organized similar to existing                    The Exchange also proposes to make
                                                provide additional details regarding the                footnotes on the Fee Schedule and                      clear with respect to Customer orders
                                                applicability of such fees and rebates,                 would first make clear that the footnote
                                                                                                                                                               that such orders will be charged or
                                                and would include a provision                           is applicable to the following six fee
                                                                                                                                                               provided rebates based on the proposed
                                                regarding BAM Break-Up Credits.                         codes: BA, BB, BC, BD, BE and CC. The
                                                  The Exchange proposes to adopt two                                                                           pricing for BAM (e.g., will yield fee
                                                                                                        footnote would then re-state the fees
                                                fee codes for BAM Agency Orders, fee                                                                           code BC if submitted as a BAM Agency
                                                                                                        applicable to BAM, including a lead-in
                                                code BA and fee code BC, which would                                                                           Order, will yield fee code BB if
                                                                                                        to the table that would state that the fees
                                                be applicable to Non-Customer 7 and                     and rates are applicable when a BAM                    submitted as a BAM Contra Order, etc.)
                                                Customer 8 orders, respectively. As                     Agency Order trades in a BAM Auction                   but that fee code CC would be assigned
                                                proposed, the Exchange would apply fee                  against either a BAM Contra Order or a                 when both the BAM Agency Order and
                                                code BA to Non-Customer BAM Agency                      BAM Responder Order.                                   the BAM Contra Order are Customer
                                                Orders that are executed in an Auction                     The proposed table would                            orders.
                                                and would charge such orders a fee of                   horizontally categorize the types of                      In addition, the Exchange proposes to
                                                                                                        orders that could be executed within                   adopt under footnote 6 BAM Break-Up
                                                  5 The Exchange notes that it has proposed to
                                                                                                        BAM, namely ‘‘Agency’’ (i.e., BAM                      Credits. As proposed, the Exchange will
                                                include the term Initiating Order on the Fee
                                                Schedule even though it is not currently used
                                                                                                        Agency Orders), ‘‘Contra’’ (i.e., BAM                  apply a BAM Break-Up Credit to the
                                                elsewhere on the Fee Schedule because this is the       Contra Orders) and ‘‘Responder’’ (i.e.,                Member that submitted a BAM Agency
                                                term used for a BAM Contra Order within Rule            BAM Responder Orders). Further,                        Order, including a Member who routed
                                                21.19.                                                  within the Responder category, the                     an order to the Exchange with a
                                                  6 As set forth in Rule 21.19(c), in lieu of the
                                                                                                        Exchange would differentiate between                   Designated Give Up (as described in
                                                procedures set forth in paragraphs (a) and (b) of
                                                Rule 21.10 [sic], an Initiating Member may enter an     Penny Pilot Securities and Non-Penny                   further detail below), when the BAM
                                                Agency Order for the account of a Priority Customer                                                            Agency Order trades with a BAM
                                                paired with an order for the account of a Priority        9 The term ‘‘Penny Pilot Security’’ applies to
                                                                                                                                                               Responder Order. As proposed, the
sradovich on DSK3GMQ082PROD with NOTICES




                                                Customer and such paired orders will be                 those issues that are quoted pursuant to Exchange
                                                automatically executed without an Auction, subject      Rule 21.5, Interpretation and Policy .01.              BAM Break-Up Credit provided with
                                                to the conditions set forth in Rule 21.19(c)(1)–(3).      10 The term ‘‘Non-Penny Pilot Security’’ applies     respect to a BAM Auction in a Penny
                                                  7 As defined in the Exchange’s Fee Schedule,          to those issues that are not Penny Pilot Securities    Pilot Security would be $0.25 per
                                                available at: http://www.bats.com/us/options/           quoted pursuant to Exchange Rule 21.5,                 contract and the BAM Break-Up Credit
                                                membership/fee_schedule/edgx/.                          Interpretation and Policy .01.
                                                  8 As defined in the Exchange’s Fee Schedule,            11 The term ‘‘Users’’ applies to any Member or
                                                                                                                                                               provided with respect to a BAM
                                                available at: http://www.bats.com/us/options/           Sponsored Participant who is authorized to obtain      Auction in a Non-Penny Pilot Security
                                                membership/fee_schedule/edgx/.                          access to the System pursuant to Rule 11.3.            would be $0.60 per contract.


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                                                                              Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices                                                     4943

                                                Tiered Pricing Incentives                               To encourage the entry of BAM Agency                   Implementation Date
                                                   In order to encourage the use of BAM,                Orders to the Exchange, the Exchange                     The Exchange proposes to implement
                                                the Exchange proposes to adopt new                      proposes to adopt Market Maker                         the proposed changes immediately.16
                                                tiers under footnotes 1 and 2 of the Fee                Volume Tier 8, which would be
                                                                                                        identical to Tier 7 but would instead                  2. Statutory Basis
                                                Schedule, which are similar to existing
                                                tiers but with an enhanced rebated to                   provide a reduced fee of $0.02 per                        The Exchange believes that the
                                                incentivize the submission of BAM                       contract for Market Maker orders to the                proposed rule change is consistent with
                                                Agency Orders.                                          extent a Member also has an ADV in                     the requirements of the Act and the
                                                   Fee codes PC and NC are currently                    BAM Agency Orders equal to or greater                  rules and regulations thereunder that
                                                appended to all Customer orders in                      than 1 contract (in addition to the                    are applicable to a national securities
                                                Penny Pilot Securities and Non-Penny                    volume criteria described above with                   exchange, and, in particular, with the
                                                Pilot Securities, respectively, and result              respect to Tier 7).                                    requirements of Section 6 of the Act.17
                                                in a standard rebate of $0.05 per                                                                              Specifically, the Exchange believes that
                                                                                                        Designated Give Up Footnote
                                                contract. Instead of the standard rebate                                                                       the proposed rule change is consistent
                                                provided to Customer orders, Members                       Footnote 5 of the Fee Schedule                      with Section 6(b)(4) of the Act,18 in that
                                                are able to receive enhanced rebates for                currently specifies that when order is                 it provides for the equitable allocation
                                                Customer orders to the extent they                      submitted with a Designated Give Up, as                of reasonable dues, fees and other
                                                satisfy monthly volume criteria. The                    defined in Rule 21.12(b)(1), the                       charges among Members and other
                                                Exchange currently offers five Customer                 applicable rebates for such orders when                persons using any facility or system
                                                Volume Tiers pursuant to footnote 1.                    executed on the Exchange (yielding fee                 which the Exchange operates or
                                                For instance, pursuant to Customer                      code NC or PC) 15 are provided to the                  controls.
                                                Volume Tier 5, a Member will receive                    Member who routed the order to the                        The Exchange’s proposal establishes
                                                an enhanced rebate of $0.21 per contract                Exchange. Pursuant to Rule 21.12,                      fees and rebates regarding BAM, which
                                                where the Member has an ADV 12 in: (i)                  which specifies the process to submit an               promotes price improvement to the
                                                Customer orders equal to or greater than                order with a Designated Give Up, a                     benefit of market participants. The
                                                0.05% of average OCV; 13 and (ii)                       Member acting as an options routing                    Exchange believes that BAM will
                                                Customer or Market Maker 14 orders                      firm on behalf of one or more other                    encourage market participants, and in
                                                equal to or greater than 0.35% of                       Exchange Members (a ‘‘Routing Firm’’)                  particular liquidity providers on the
                                                average OCV. To encourage the entry of                  is able to route orders to the Exchange                Exchange, to compete vigorously to
                                                BAM Agency Orders to the Exchange,                      and to immediately give up the party (a                provide opportunities for price
                                                the Exchange proposes to adopt                          party other than the Routing Firm itself               improvement in a competitive auction
                                                Customer Volume Tier 6, which would                     or the Routing Firm’s own clearing firm)               process. The Exchange believes that its
                                                be identical to Tier 5 but would instead                who will accept and clear any resulting                proposal will allow the Exchange to
                                                provide an enhanced rebate of $0.25 per                 transaction. Because the Routing Firm is               recoup the costs associated with BAM
                                                contract for Customer orders to the                     responsible for the decision to route the              while also incentivizing its use.
                                                extent a Member also has an ADV in                                                                                The Exchange is adopting the
                                                                                                        order to the Exchange, the Exchange
                                                BAM Agency Orders equal to or greater                                                                          proposed fees and rebates at this time
                                                                                                        provides such Member with the rebate
                                                than 1 contract (in addition to the                                                                            because it believes that the associated
                                                                                                        when orders that yield fee code NC or                  revenue will allow it to promote and
                                                volume criteria described above with                    PC are executed.
                                                respect to Tier 5).                                                                                            maintain BAM, which is beneficial to
                                                   Fee codes PM and NM are currently                       In connection with the adoption of                  market participants.
                                                appended to all Market Maker orders in                  fees applicable to BAM, the Exchange                      In sum, the Exchange believes that the
                                                Penny Pilot Securities and Non-Penny                    proposes to add new fee code BC to the                 proposed fee and rebate structure is
                                                Pilot Securities, respectively, and result              lead-in sentence of footnote 5 and to                  designed to promote BAM and, in
                                                in a standard fee of $0.19 per contract.                append footnote 5 to fee code BC in the                particular, to attract Customer liquidity,
                                                The Market Maker Volume Tiers in                        Fee Codes and Associated Fees table of                 which benefits all market participants
                                                footnote 2 consist of seven separate                    the Fee Schedule. In addition, the                     by providing additional trading
                                                tiers, each providing a reduced fee or                  Exchange proposes to include reference                 opportunities. This attracts liquidity
                                                rebate to a Member’s Market Maker                       to Routing Firms (i.e., a Member who                   providers and an increase in the activity
                                                orders that yield fee codes PM or NM                    routed an order to the Exchange with a                 of these market participants in turn
                                                upon satisfying the monthly volume                      Designated Give up) in the proposed                    facilitates tighter spreads, which may
                                                criteria required by the respective tier.               BAM Break-Up Credit section of                         cause an additional corresponding
                                                For instance, pursuant to Market Maker                  footnote 6, to make clear that a Routing               increase in order flow originating from
                                                Volume Tier 7, a Member will be                         Firm will be provided any applicable                   other market participants.
                                                charged a reduced fee of $0.03 per                      BAM Break-Up Credits. Similar to the                      Moreover, the Exchange believes that
                                                contract where the Member has: (i)                      provision of a rebate to a Routing Firm                charging market participants, other than
                                                Customer orders equal to or greater than                who routed an order to the Exchange to                 Customers, a higher effective rate for
                                                0.05% of average OCV; and (ii)                          execute directly on the Exchange’s order               certain BAM transactions is reasonable,
                                                Customer or Market Maker orders equal                   book, the Exchange believes that a                     equitable, and not unfairly
                                                to or greater than 0.35% of average OCV.                Routing Firm that routed a BAM Agency                  discriminatory because these types of
                                                                                                        Order to the Exchange should be                        market participants are more
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                                                  12 As defined in the Exchange’s Fee Schedule,         provided applicable rebates, including
                                                available at: http://www.bats.com/us/options/           any BAM Break-Up Credits, based on                       16 The Exchange notes that it previously adopted

                                                membership/fee_schedule/edgx/.                          the Routing Firm’s decision to route the               fee changes effective January 3, 2017, and thus, has
                                                  13 As defined in the Exchange’s Fee Schedule,                                                                not proposed to modify the date of the Fee
                                                available at: http://www.bats.com/us/options/
                                                                                                        order to the Exchange.                                 Schedule. See SR–BatsEDGX–2016–75, available at:
                                                membership/fee_schedule/edgx/.                                                                                 http://www.bats.com/us/options/regulation/
                                                  14 As defined in the Exchange’s Fee Schedule,           15 Fee codes NC and PC are appended to               rule_filings/edgx/.
                                                                                                                                                                 17 15 U.S.C. 78f.
                                                available at: http://www.bats.com/us/options/           Customer orders in Non-Penny Pilot and Penny
                                                membership/fee_schedule/edgx/.                          Pilot Securities, respectively. Id.                      18 15 U.S.C. 78f(b)(4).




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                                                4944                          Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices

                                                sophisticated and have higher levels of                 in order to attract professional liquidity             purposes under the Act or rules
                                                order flow activity and system usage.                   providers is, and has been, commonly                   thereunder.26 For BAM Agency Orders,
                                                Facilitating this level of trading activity             practiced in the options markets, and                  establishing a rebate for Customer
                                                requires a greater amount of system                     the Exchange.20 The proposed fee and                   orders and a fee for Non-Customer
                                                resources than that of Customers, and                   rebate schedule similarly attracts                     Orders is equitable and not unfairly
                                                thus, generates greater ongoing                         Customer order flow.                                   discriminatory. This is because the
                                                operational costs for the Exchange. The                    The proposed fee and rebate schedule                Exchange’s proposal to provide rebates
                                                proposed fees and rebates, which are                    is reasonably designed because it is                   and assess fees will apply the same to
                                                further discussed below, will allow the                 within the range of fees and rebates                   all similarly situated participants.
                                                Exchange to promote and maintain                        assessed by other exchanges employing                  Moreover, all similarly situated BAM
                                                BAM, which is beneficial to market                      similar fee structures for price                       Agency Orders are subject to the same
                                                participants.                                           improvement mechanisms.21 Other                        proposed fee schedule, and access to the
                                                                                                        competing exchanges offer different fees               Exchange is offered on terms that are
                                                BAM Agency Orders and BAM Contra                        and rebates for agency orders, contra-                 not unfairly discriminatory. In addition,
                                                Orders                                                  side orders, and responder orders to the               the proposed fee for BAM Agency
                                                   With respect to the proposal to adopt                auction in a manner similar to the                     Orders is equitable and not unfairly
                                                a rebate for Customer BAM Agency                        proposal.22 Other competing exchanges                  discriminatory because, while other
                                                Orders ($0.14 per contract) and adopt                   also charge different rates for                        market participants (Non-Customers)
                                                fees for both Non-Customer BAM                          transactions in their price improvement                will be assessed a fee, Customers will
                                                Agency Orders ($0.20 per contract) and                  mechanisms for customers versus their                  receive a rebate because an increase in
                                                all BAM Contra Orders ($0.04 per                        non-customers in a manner similar to                   Customer order flow will bring greater
                                                contract), the Exchange believes this is                the proposal.23 As proposed, all                       volume and liquidity, which benefits all
                                                reasonable because it encourages                        applicable fees and rebates are within                 market participants by providing more
                                                participation in BAM by offering rates                  the range of fees and rebates for                      trading opportunities and tighter
                                                that are equivalent to or better than most              executions in price improvement                        spreads.
                                                other price improvement auctions                        mechanisms assessed by other                           Customer-to-Customer Immediate Cross
                                                offered by other options exchanges.19                   exchanges that are currently employing
                                                The rebate for Customer BAM Agency                      similar fee structures for price                          With respect to the Customer-to-
                                                Orders is designed to encourage                         improvement mechanisms.                                Customer Immediate Cross, establishing
                                                Customer orders entered into BAM,                          The fee and rebate schedule as                      no Customer fee or rebate for either side
                                                which is reasonable for the reasons                     proposed continues to reflect                          of the transaction, is also reasonable,
                                                further discussed below. The proposed                   differentiation among different market                 equitably allocated and not
                                                fees for Non-Customer BAM Agency                        participants typically found in options                unreasonably discriminatory because it
                                                Orders and BAM Contra Orders are also                   fee and rebate schedules.24 The                        still encourages the entry of Customer
                                                reasonable because the associated                       Exchange believes that the                             orders to the Exchange while treating,
                                                revenue will allow the Exchange to                      differentiation is reasonable and notes                from the Exchange’s perspective, each
                                                promote and maintain BAM, and                           that unlike others (e.g., Customers) some              side of the order neutrally rather than
                                                continue to enhance its services.                       market participants like EDGX Options                  providing one Customer a rebate but
                                                   Providing Customers a rebate for BAM                 Market Makers commit to various                        charging another Customer a fee.
                                                Agency Orders, while assessing Non-                     obligations. For example, transactions of              BAM Responder Orders and Other
                                                Customers a fee for BAM Agency                          an EDGX Options Market Maker must                      Unrelated Orders
                                                Orders, is reasonable because of the                    constitute a course of dealings
                                                                                                                                                                  For BAM Responder Orders,
                                                desirability of Customer activity. The                  reasonably calculated to contribute to
                                                                                                                                                               establishing that there will be a $0.50
                                                proposed new fees and rebates for BAM                   the maintenance of a fair and orderly
                                                                                                                                                               fee per contract for orders in Penny Pilot
                                                are generally intended to encourage                     market, and Market Makers should not
                                                                                                                                                               Securities and a $1.05 fee per contract
                                                greater Customer trade volume to the                    make bids or offers or enter into
                                                                                                                                                               for orders in Non-Penny Pilot Securities,
                                                Exchange. Customer activity enhances                    transactions that are inconsistent with                is reasonable because the associated
                                                liquidity on the Exchange for the benefit               such course of dealings.25 Further, all                revenue will allow the Exchange to
                                                of all market participants and benefits                 Market Makers are designated as                        maintain and enhance its services. The
                                                all market participants by providing                    specialists on EDGX Options for all                    proposed fee and rebate schedule is also
                                                more trading opportunities, which                                                                              reasonably designed because it is within
                                                                                                           20 See Exchanges Fee Schedule, available at:
                                                attracts market makers and other                                                                               the range of fees and rebates assessed by
                                                                                                        http://www.bats.com/us/options/membership/
                                                liquidity providers. An increase in the                 fee_schedule/edgx/; see also, e.g., MIAX Fee           other exchanges employing similar fee
                                                activity of these market participants in                Schedule, NYSE Amex Options Fee Schedule,              structures for price improvement
                                                turn facilitates tighter spreads, which                 Nasdaq Options Market (‘‘NOM’’) Fee Schedule.          mechanisms.27 Other competing
                                                may cause an additional corresponding                      21 See MIAX Fee Schedule; and Securities
                                                                                                                                                               exchanges offer different fees and
                                                increase in order flow from other market                Exchange Act Release No. 72943 (August 28, 2014),
                                                                                                        80 [sic] FR 52785 (September 4, 2014) (SR–MIAX–        rebates for agency orders, contra-side
                                                participants. The practice of                           2015–45 [sic]) (notice of filing and immediate         order, and responders to the auction in
                                                incentivizing increased Customer order                  effectiveness regarding MIAX PRIME). See also, e.g.,   a manner similar to the proposal.28
                                                flow through a fee and rebate schedule                  NYSE Amex Options Fee Schedule and BX Options             For BAM Responder Orders,
                                                                                                        Fee Schedule.
                                                                                                                                                               establishing a fee for such orders is
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                                                                                                           22 Id.
                                                   19 See Miami International Securities Exchange,
                                                                                                           23 Id.                                              equitable and not unfairly
                                                LLC (‘‘MIAX’’) Fee Schedule; and Securities
                                                                                                           24 See Exchange’s Fee Schedule, available at:
                                                Exchange Act Release No. 72943 (August 28, 2014),
                                                                                                                                                                 26 See Exchange Rule 22.2, entitled ‘‘Options
                                                80 [sic] FR 52785 (September 4, 2014) (SR–MIAX–         http://www.bats.com/us/options/membership/
                                                2015–45 [sic]) (notice of filing and immediate          fee_schedule/edgx/; see also, e.g., MIAX Fee           Market Maker Registration and Appointment’’.
                                                effectiveness regarding MIAX PRIME). See also, e.g.,    Schedule, NYSE Amex Options Fee Schedule, BX             27 See NYSE Amex Options Fee Schedule; see

                                                NYSE MKT LLC (‘‘NYSE Amex Options’’) Fee                Options Fee Schedule and NOM Fee Schedule.             also, e.g., MIAX Fee Schedule and BX Options Fee
                                                Schedule and NASDAQ OMX BX, Inc. (‘‘BX                     25 See Exchange Rule 22.5, entitled ‘‘Obligations   Schedule.
                                                Options’’) Fee Schedule.                                of Market Makers’’.                                      28 Id.




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                                                                              Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices                                            4945

                                                discriminatory. This is because the                     or rebates despite the later arrival of a              equitable, and non-discriminatory, for
                                                Exchange’s proposal to assess such fee                  BAM Agency Order that commences an                     the reasons set forth above with respect
                                                will apply the same to all participants                 Auction.                                               to volume-based pricing generally and
                                                and will vary only based on whether the                                                                        because such changes will incentivize
                                                                                                        BAM Break-Up Credits
                                                security is a Penny Pilot Security or a                                                                        participants to further contribute to
                                                Non-Penny Pilot Security. Moreover, all                    With respect to the proposal to adopt               market quality. The proposed tiers will
                                                BAM Responder Orders are subject to                     BAM Break-Up Credits, the Exchange                     provide an additional way for market
                                                the same proposed fee schedule, and                     believes this is reasonable because it                 participants to qualify for enhanced
                                                access to the Exchange is offered on                    encourages use of BAM by offering                      rebates or reduced fees. Further, BAM is
                                                terms that are not unfairly                             pricing that is equivalent to pricing                  fully available to all Members, and the
                                                discriminatory.                                         provided pursuant to other price                       proposed threshold is intentionally low
                                                   The Exchange further believes its                    improvement auctions offered by other                  to encourage Members to do the
                                                proposal represents a reasonable and                    options exchanges. The proposal to offer               development work necessary to
                                                equitable allocation of dues and fees in                BAM Break-Up Credits is reasonably                     participate in BAM and send BAM
                                                that the proposal would treat an                        designed because it is within the range                Agency Orders.
                                                unrelated order as well as a BAM                        of fees and rebates assessed by other
                                                Agency Order that executes against such                 exchanges employing similar fee                        Designated Give Up
                                                order differently depending on whether                  structures for price improvement                          In connection with the adoption of
                                                the unrelated order was already resting                 mechanisms.29 Further, the proposed                    fees applicable to BAM, the Exchange
                                                on the Exchange’s order book at the time                BAM Break-Up Credits are reasonable                    proposes to add new fee code BC to the
                                                the BAM Agency Order was received or                    and equitably allocated because such                   lead-in sentence of footnote 5 and to
                                                was received after the BAM Auction had                  credits are different based on whether                 append footnote 5 to fee code BC in the
                                                begun.                                                  the Auction is for a Penny Pilot Security              Fee Codes and Associated Fees table of
                                                   As proposed, an unrelated order                      or a Non-Penny Pilot Security, which is                the Fee Schedule. In addition, the
                                                would be considered a BAM Responder                     the same differentiation applicable to                 Exchange proposes to include reference
                                                Order if received after the BAM Auction                 BAM Responder Orders. Thus, the                        to Routing Firms (i.e., a Member who
                                                had commenced. As a result, both the                    Exchange has based the amount of the                   routed an order to the Exchange with a
                                                BAM Agency Order executing against                      Break-Up Credit, in part, on the amount                Designated Give up) in the proposed
                                                such order and such order itself would                  of the fee it will receive with respect to             BAM Break-Up Credit section of
                                                be assessed fees and provided rebates                   each BAM Responder Order. Finally,                     footnote 6, to make clear that a Routing
                                                according to the proposed BAM pricing.                  the proposed BAM Break-Up Credits are                  Firm too will be provided any
                                                The Exchange believes this is a                         not unreasonably discriminatory                        applicable BAM Break-Up Credits. The
                                                reasonable and equitable allocation of                  because such credits are equally                       Exchange believes this proposal is a
                                                dues and fees, and is not unreasonably                  available to all Members submitting                    reasonable and equitable allocation of
                                                discriminatory, because it ensures that                 BAM Agency Orders to the Exchange.                     fees and dues and is not unreasonably
                                                market participants are treated similarly                                                                      discriminatory because, as is currently
                                                with respect to their executions against                Tiers                                                  the case pursuant to footnote 5, the
                                                BAM Agency Orders. To do otherwise,                        Volume-based rebates such as those                  proposal simply will make clear that a
                                                to the extent fees are higher pursuant to               currently maintained on the Exchange                   firm acting as a Routing Firm that routes
                                                BAM pricing than under the Exchange’s                   have been widely adopted by options                    BAM Agency Orders to the Exchange
                                                Standard Fee Rates, would incentivize a                 exchanges and are equitable because                    will be provided applicable rebates,
                                                market participant that wishes to                       they are open to all Members on an                     including any BAM Break-Up Credits,
                                                participate in an Auction to nonetheless                equal basis and provide additional                     based on the Routing Firm’s decision to
                                                avoid sending orders to the Exchange                    benefits or discounts that are reasonably              route the order to the Exchange.
                                                that are not targeted towards the                       related to the value of an exchange’s                  B. Self-Regulatory Organization’s
                                                Auction and instead send orders to the                  market quality associated with higher
                                                Exchange’s order book generally,                                                                               Statement on Burden on Competition
                                                                                                        levels of market activity, such as higher
                                                knowing that such orders would be                       levels of liquidity provision and/or                     The Exchange believes the proposed
                                                considered in the Auction anyway.                       growth patterns, and introduction of                   rebate would not impose any burden on
                                                   In contrast, as proposed, to the extent              higher volumes of orders into the price                competition that is not necessary or
                                                an unrelated order was already present                  and volume discovery processes. The                    appropriate in furtherance of the
                                                on the Exchange’s order book when a                     proposed adoption of Customer Volume                   purposes of the Act. The Exchange does
                                                BAM Agency Order is received, such                      Tier 6 and Market Maker Volume Tier                    not believe that the proposed rebate
                                                unrelated order, if executed in an                      8, are each intended to incentivize                    represents a significant departure from
                                                Auction, as well as the BAM Agency                      Members to send additional Customer                    previous pricing offered by the
                                                Order against which it trades will be                   and Market Maker orders to the                         Exchange or pricing offered by the
                                                charged a fee or provided a rebate as if                Exchange as well as to participate in the              Exchange’s competitors. Rather, the
                                                the transaction occurred on the                         Exchange’s new BAM process in an                       Exchange believes the proposal will
                                                Exchange’s order book pursuant to the                   effort to qualify for the enhanced rebate              enhance competition as it is a
                                                Exchange’s normal order handling                        or lower fee made available by the tiers.              competitive proposal that seeks to
                                                methodology and not in BAM. The                            The Exchange believes that the                      further the growth of the Exchange by
                                                Exchange similarly believes this is a
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                                                                                                        proposed tiers are reasonable, fair and                encouraging Members to enter BAM
                                                reasonable and equitable allocation of                                                                         Agency Orders, orders in response to
                                                dues and fees, and is not unreasonably                    29 See MIAX Fee Schedule; and Securities             BAM Agency Orders, and orders to the
                                                discriminatory, because it will ensure                  Exchange Act Release No. 72943 (August 28, 2014),      Exchange generally.
                                                that the participant that had established               80 FR 52785 (September 4, 2014) (SR–MIAX–2015–           The Exchange’s proposal to adopt
                                                                                                        45) (notice of filing and immediate effectiveness
                                                position on the Exchange’s order book                   regarding MIAX PRIME). See also, e.g., NYSE Amex
                                                                                                                                                               BAM was a competitive response to
                                                first, the unrelated order, is not                      Options Fee Schedule and NASDAQ BX Options             similar price improvement auctions
                                                impacted with respect to applicable fees                Fee Schedule.                                          operated by other options exchanges.


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                                                4946                          Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices

                                                The Exchange believes this proposed                     Exchange believes that the degree to                   not going to have an impact on intra-
                                                rule change is necessary to permit fair                 which fee changes in this market may                   market competition based on the total
                                                competition among the options                           impose any burden on competition is                    cost for participants to transact as
                                                exchanges. The Exchange anticipates                     extremely limited.                                     respondents to the Auction as compared
                                                that BAM will create new opportunities                     In this instance, the proposed charges              to the cost for participants to engage in
                                                for EDGX to attract new business and                    assessed and credits available to                      non-Auction electronic transactions on
                                                compete on equal footing with those                     member firms in respect of BAM do not                  the Exchange.
                                                options exchanges with auctions. While                  impose a burden on competition
                                                                                                        because the Exchange’s execution and                      As noted above, the Exchange
                                                the proposed fees and rebates are
                                                                                                        routing services are completely                        believes that the proposed pricing for
                                                intentionally aggressive in order to
                                                attract participation on the Exchange,                  voluntary and subject to extensive                     the BAM Auction is comparable to that
                                                particularly in BAM, the Exchange does                  competition. If the changes proposed                   of other exchanges offering similar
                                                not believe that its proposed pricing                   herein are unattractive to market                      electronic price improvement
                                                significantly departs from pricing in                   participants, it is likely that the                    mechanisms, and the Exchange believes
                                                place on other options exchanges that                   Exchange will lose market share as a                   that, based on general industry
                                                operate price improvement auctions.                     result and/or will be unable to attract                experience, market participants
                                                Accordingly, the Exchange does not                      participants to BAM. Accordingly, the                  understand that the price-improving
                                                believe that the proposal creates an                    Exchange does not believe that the                     benefits offered by an Auction justify
                                                undue burden on inter-market                            proposed changes will impair the ability               and offset the transaction costs
                                                competition.                                            of members or competing order                          associated with such Auction. To the
                                                   The Exchange does not believe that                   execution venues to maintain their                     extent that there is a difference between
                                                the proposed rule change will impose                    competitive standing in the financial                  non-BAM transactions and BAM
                                                any burden on competition not                           markets. Additionally, the changes                     transactions, the Exchange does not
                                                necessary or appropriate in furtherance                 proposed herein are pro-competitive to                 believe this difference will cause
                                                of the purposes of the Act. Specifically,               the extent that they allow the Exchange                participants to refrain from responding
                                                the Exchange does not believe that its                  to promote and maintain BAM, which                     to BAM or submitting orders to the
                                                proposal to establish fees and rebates for              has the potential to result in more                    Exchange when a BAM Auction is
                                                BAM will impose any burden on                           efficient, price improved executions to                underway.
                                                competition, as discussed below.                        the benefit of market participants.
                                                   The Exchange operates in a highly                       The Exchange believes that the                         In addition, the Exchange does not
                                                competitive market in which many                        proposed change would increase both                    believe that the proposed transaction
                                                sophisticated and knowledgeable                         inter-market and intra-market                          fees and credits burden competition by
                                                market participants can readily and do                  competition by incentivizing members                   creating a disparity of transaction fees
                                                send order flow to competing exchanges                  to direct their orders, and particularly               between the BAM Contra Order and the
                                                if they deem fee levels or rebate                       Customer orders, to the Exchange,                      transaction fees a Responder pays
                                                incentives at a particular exchange to be               which benefits all market participants                 would result in certain participants
                                                excessive or inadequate. Additionally,                  by providing more trading                              being unable to compete with the contra
                                                new competitors have entered the                        opportunities, which attracts market                   side order.
                                                market and still others are reportedly                  makers. To the extent that there is a                     The Exchange expects to see robust
                                                entering the market shortly. These                      differentiation between proposed fees                  competition within the BAM Auction.
                                                market forces ensure that the Exchange’s                assessed and rebates offered to                        As discussed, the Exchange notes that it
                                                fees and rebates remain competitive                     Customers as opposed to other market                   operates in a highly competitive market
                                                with the fee structures at other trading                participants, the Exchange believes that               in which market participants can
                                                platforms. In that sense, the Exchange’s                this is appropriate because the fees and               readily favor competing venues if they
                                                proposal is actually pro-competitive                    rebates should incentivize members to                  deem fee levels at a particular venue to
                                                because the Exchange is simply                          direct additional order flow to the                    be excessive. In such an environment,
                                                establishing rebates and fees in order to               Exchange and thus provide additional                   the Exchange must continually adjust its
                                                remain competitive in the current                       liquidity that enhances the quality of its             fees to remain competitive with other
                                                environment.                                            markets and increases the volume of                    exchanges and to attract order flow to
                                                   The Exchange does not believe that                   contracts traded on the Exchange.                      the Exchange. The Exchange believes
                                                the proposed rule change will impose                       To the extent that this purpose is
                                                                                                                                                               that the proposed rule change reflects
                                                any burden on competition not                           achieved, all the Exchange’s market
                                                                                                                                                               this competitive environment because it
                                                necessary or appropriate in furtherance                 participants should benefit from the
                                                                                                                                                               establishes a fee structure in a manner
                                                of the purposes of the Act. In terms of                 improved market liquidity. Enhanced
                                                                                                                                                               that encourages market participants to
                                                inter-market competition, the Exchange                  market quality and increased
                                                                                                                                                               direct their order flow, to provide
                                                notes that it operates in a highly                      transaction volume that results from the
                                                competitive market in which market                                                                             liquidity, and to attract additional
                                                                                                        anticipated increase in order flow
                                                participants can readily favor competing                                                                       transaction volume to the Exchange.
                                                                                                        directed to the Exchange will benefit all
                                                venues if they deem fee levels at a                     market participants and improve                        C. Self-Regulatory Organization’s
                                                particular venue to be excessive, or                    competition on the Exchange. The                       Statement on Comments on the
                                                rebate opportunities available at other                 Exchange notes that it operates in a                   Proposed Rule Change Received From
                                                venues to be more favorable. In such an
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                                                                                                        highly competitive market in which                     Members, Participants, or Others
                                                environment, the Exchange must                          market participants can readily favor
                                                continually adjust its fees to remain                   competing venues if they deem fee                        The Exchange has not solicited, and
                                                competitive with other exchanges.                       levels at a particular venue to be                     does not intend to solicit, comments on
                                                Because competitors are free to modify                  excessive.                                             this proposed rule change. The
                                                their own fees in response, and because                    The Exchange believes that the                      Exchange has not received any written
                                                market participants may readily adjust                  proposed fees and rebates for                          comments from members or other
                                                their order routing practices, the                      participation in the BAM Auction are                   interested parties.


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                                                                                 Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices                                              4947

                                                III. Date of Effectiveness of the                          inspection and copying at the principal                below. Proposed new language is
                                                Proposed Rule Change and Timing for                        office of the Exchange. All comments                   italicized; deleted text is in brackets.
                                                Commission Action                                          received will be posted without change;                *      *    *     *     *
                                                   The foregoing rule change has become                    the Commission does not edit personal
                                                                                                           identifying information from                           5910. The Nasdaq Global Market
                                                effective pursuant to Section 19(b)(3)(A)                                                                         (including the Nasdaq Global Select
                                                of the Act 30 and paragraph (f) of Rule                    submissions. You should submit only
                                                                                                           information that you wish to make                      Market)
                                                19b–4 thereunder.31 At any time within
                                                60 days of the filing of the proposed rule                 available publicly. All submissions                    *       *    *    *     *
                                                change, the Commission summarily may                       should refer to File Number SR–
                                                                                                           BatsEDGX–2017–01, and should be                        IM–5910–1. All-Inclusive Annual
                                                temporarily suspend such rule change if                                                                           Listing Fee
                                                it appears to the Commission that such                     submitted on or before February 7, 2017.
                                                action is necessary or appropriate in the                    For the Commission, by the Division of                 (a)–(c) No change.
                                                public interest, for the protection of                     Trading and Markets, pursuant to delegated               (d) The All-Inclusive Annual Listing
                                                investors, or otherwise in furtherance of                  authority.32                                           Fee will be calculated on total shares
                                                the purposes of the Act.                                   Eduardo A. Aleman,                                     outstanding according to the following
                                                                                                           Assistant Secretary.
                                                                                                                                                                  schedules:
                                                IV. Solicitation of Comments                                                                                        (1)–(3) No change.
                                                                                                           [FR Doc. 2017–00782 Filed 1–13–17; 8:45 am]
                                                  Interested persons are invited to                                                                                 (4) Limited Partnerships (effective
                                                                                                           BILLING CODE 8011–01–P                                 January 1, 2017):
                                                submit written data, views, and
                                                arguments concerning the foregoing,                                                                               Up to 75 million shares $37,500
                                                including whether the proposed rule                        SECURITIES AND EXCHANGE                                75+ to 100 million shares $50,000
                                                change is consistent with the Act.                                                                                100+ to 125 million shares $62,500
                                                                                                           COMMISSION
                                                Comments may be submitted by any of                                                                               125+ to 150 million shares $67,500
                                                the following methods:                                                                                            Over 150 million shares $77,500
                                                                                                           [Release No. 34–79770; File No. SR–                      (e) No change.
                                                Electronic Comments                                        NASDAQ–2016–173]
                                                                                                                                                                  *     *     *    *    *
                                                  • Use the Commission’s Internet
                                                comment form (http://www.sec.gov/                          Self-Regulatory Organizations; The                     5920. The Nasdaq Capital Market
                                                rules/sro.shtml); or                                       NASDAQ Stock Market LLC; Notice of
                                                                                                           Filing and Immediate Effectiveness of                  *     *     *    *    *
                                                  • Send an email to rule-comments@                                                                                 IM–5920–1. All-Inclusive Annual
                                                sec.gov. Please include File Number SR–                    Proposed Rule Change To Reduce the
                                                                                                           All-Inclusive Annual Listing Fee for                   Listing Fee
                                                BatsEDGX–2017–01 on the subject line.                                                                               (a)–(c) No change.
                                                                                                           Limited Partnerships Listed on Nasdaq
                                                Paper Comments                                                                                                      (d) The All-Inclusive Annual Listing
                                                                                                           January 10, 2017                                       Fee will be calculated on total shares
                                                   • Send paper comments in triplicate                                                                            outstanding according to the following
                                                to Brent J. Fields, Secretary, Securities                     Pursuant to Section 19(b)(1) of the
                                                                                                           Securities Exchange Act of 1934                        schedules:
                                                and Exchange Commission, 100 F Street                                                                               (1)–(3) No change.
                                                NE., Washington, DC 20549–1090.                            (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                                                                           notice is hereby given that, on December                 (4) Limited Partnerships (effective
                                                All submissions should refer to File                                                                              January 1, 2017):
                                                Number SR–BatsEDGX–2017–01. This                           28, 2016, The NASDAQ Stock Market
                                                                                                           LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed                 Up to 50 million shares $30,000
                                                file number should be included on the                                                                             Over 50 million shares $37,500
                                                subject line if email is used. To help the                 with the Securities and Exchange
                                                                                                           Commission (‘‘SEC’’ or ‘‘Commission’’)                   (e) No change.
                                                Commission process and review your
                                                comments more efficiently, please use                      the proposed rule change as described                  *     *     *    *    *
                                                only one method. The Commission will                       in Items I, II, and III below, which Items             II. Self-Regulatory Organization’s
                                                post all comments on the Commission’s                      have been prepared by the Exchange.                    Statement of the Purpose of, and
                                                Internet Web site (http://www.sec.gov/                     The Commission is publishing this                      Statutory Basis for, the Proposed Rule
                                                rules/sro.shtml). Copies of the                            notice to solicit comments on the                      Change
                                                submission, all subsequent                                 proposed rule change from interested
                                                                                                           persons.                                                  In its filing with the Commission, the
                                                amendments, all written statements
                                                                                                                                                                  Exchange included statements
                                                with respect to the proposed rule                          I. Self-Regulatory Organization’s                      concerning the purpose of and basis for
                                                change that are filed with the                             Statement of the Terms of Substance of                 the proposed rule change and discussed
                                                Commission, and all written                                the Proposed Rule Change                               any comments it received on the
                                                communications relating to the
                                                                                                              The Exchange proposes to reduce the                 proposed rule change. The text of these
                                                proposed rule change between the
                                                                                                           fees for limited partnerships listed on                statements may be examined at the
                                                Commission and any person, other than
                                                                                                           Nasdaq.                                                places specified in Item IV below. The
                                                those that may be withheld from the
                                                                                                              While these amendments are effective                Exchange has prepared summaries, set
                                                public in accordance with the
                                                                                                           upon filing, the Exchange has                          forth in sections A, B, and C below, of
                                                provisions of 5 U.S.C. 552, will be
                                                                                                           designated the proposed amendments to                  the most significant aspects of such
                                                available for Web site viewing and
                                                                                                           be operative on January 1, 2017.                       statements.
                                                printing in the Commission’s Public
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                                                Reference Room, 100 F Street NE.,                             A notice of the proposed rule change                A. Self-Regulatory Organization’s
                                                Washington, DC 20549 on official                           for publication in the Federal Register                Statement of the Purpose of, and
                                                business days between the hours of                         is attached as Exhibit 1 [sic]. The text of            Statutory Basis for, the Proposed Rule
                                                10:00 a.m. and 3:00 p.m. Copies of such                    the proposed rule change is set forth                  Change
                                                filing also will be available for
                                                                                                             32 17
                                                                                                                                                                  1. Purpose
                                                                                                                   CFR 200.30–3(a)(12).
                                                  30 15   U.S.C. 78s(b)(3)(A).                               1 15 U.S.C. 78s(b)(1).                                 Nasdaq proposes to reduce the fees for
                                                  31 17   CFR 240.19b–4(f).                                  2 17 CFR 240.19b–4.                                  limited partnerships listed on Nasdaq.


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Document Created: 2017-01-14 01:44:27
Document Modified: 2017-01-14 01:44:27
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 4941 

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