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)
Federal Register Volume 82, Issue 10 (January 17, 2017)
| Page Range | 4941-4947 | |
| FR Document | 2017-00782 |
[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] ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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/. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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). --------------------------------------------------------------------------- \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/. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \15\ Fee codes NC and PC are appended to Customer orders in Non- Penny Pilot and Penny Pilot Securities, respectively. Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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/. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f. \18\ 15 U.S.C. 78f(b)(4). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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''. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \27\ See NYSE Amex Options Fee Schedule; see also, e.g., MIAX Fee Schedule and BX Options Fee Schedule. \28\ Id. --------------------------------------------------------------------------- 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 CommentsUse 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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![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
sradovich on DSK3GMQ082PROD with NOTICES
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 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
sradovich on DSK3GMQ082PROD with NOTICES
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.
VerDate Sep<11>2014 18:21 Jan 13, 2017 Jkt 241001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 E:\FR\FM\17JAN1.SGM 17JAN1](https://thefederalregister.org/doc/82_FR_4951/page/7.svg)
Document Created: 2017-01-14 01:44:27
Document Modified: 2017-01-14 01:44:27
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 4941 |
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