[Federal Register Volume 78, Number 63 (Tuesday, April 2, 2013)]
[Notices]
[Pages 19763-19766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07591]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69230; File No. SR-BX-2013-023]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Routing Fees
March 25, 2013.
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 March 19, 2013, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``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 proposes to amend Chapter XV, Section 2 entitled ``BX
Options Market--Fees and Rebates'' to amend various fees for routing
options to away markets.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on April 1, 2013.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to recoup costs that the Exchange
incurs for routing and executing certain orders in equity options to
away markets. Today, the Exchange calculates Routing Fees by assessing
certain Exchange costs related to routing orders to away markets plus
the away market's transaction fee. The Exchange assesses a $0.05 per
contract \3\ fixed Routing Fee when routing orders to The NASDAQ
Options Market LLC (``NOM'') and NASDAQ OMX PHLX LLC (``PHLX'') and a
$0.11 per contract \4\ fixed Routing Fee to all other options exchanges
in addition to the actual transaction fee or rebate paid by the away
market. The fixed Routing Fee is based on costs that are incurred by
the Exchange when routing to an away market in addition to the away
market's transaction fee. For example, the Exchange incurs a fee when
it utilizes Nasdaq Options Services LLC (``NOS''), a member of the
Exchange and the Exchange's exclusive order router,\5\ to route orders
in options listed and open for trading on the PHLX XL system to
destination markets. Each time NOS routes to away markets NOS incurs a
clearing-related cost \6\ and, in the case of certain exchanges, a
transaction fee is also charged in certain symbols, which fees are
passed through to the Exchange. The Exchange also incurs administrative
and technical costs associated with operating NOS, membership fees at
away markets, Options Regulatory Fees
[[Page 19764]]
(``ORFs'') and technical costs associated with routing options. The
transaction fee assessed by the Exchange is based on the away market's
actual transaction fee or rebate for a particular market participant at
the time that the order was entered into the Exchange's trading system.
This transaction fee is calculated on an order-by-order basis, since
different away markets charge different amounts. In the event that
there is no transaction fee or rebate assessed by the away market, the
only fee assessed is the fixed Routing Fee. With respect to the rebate,
the Exchange pays a market participant the rebate offered by an away
market where there is such a rebate. Any rebate available is netted
against a fee assessed by the Exchange.\7\
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\3\ In a previous rule filing, the Exchange discussed the manner
in which it analyzed costs related to routing to NOM and PHLX and
determined the costs are lower as compared to other away markets
because NOS is utilized by all three exchanges to route orders. In
that filing the Exchange noted that because PHLX, BX Options and NOM
all utilize NOS, the cost to the Exchange is less as compared to
routing to other away markets. In addition the fixed costs are
reduced because NOS is owned and operated by NASDAQ OMX and the
three exchanges and NOS share common technology and related
operational functions. See Securities Exchange Act Release No. 68717
(January 24, 2013), 78 FR 6368 (January 30, 2013) (SR-BX-2013-005).
\4\ The $0.11 per contract Fixed Fee would apply to all options
exchanges other than NOM and PHLX, which are discussed separately in
this proposal. The Exchange anticipates that if other options
exchanges are approved by the Commission after the filing of this
proposal, those exchanges would be assessed the $0.11 per contract
fee applicable to ``all other options exchanges.''
\5\ See BX Rules at Chapter VI, Section 11(e) (Order Routing).
\6\ The Options Clearing Corporation (``OCC'') assesses a
clearing fee of $0.01 per contract side. See Securities Exchange Act
Release No. 68025 (October 10, 2012), 77 FR 63398 (October 16, 2012)
(SR-OCC-2012-18).
\7\ For example, if a Customer order is routed to BOX, and BOX
offers a customer rebate of $0.20 per contract, the Exchange would
assess a $0.11 per contract fixed fee which would net against the
rebate ($0.20 per contract in this example). The market participant
for whom the Customer contract was routed would receive a $0.09 per
contract rebate.
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C2 recently filed a rule change to amend its transaction fees and
rebates for simple, non-complex orders, in equity options classes which
became operative on February 1, 2013.\8\ As a result of that filing the
Exchange amended its Pricing Schedule and today assesses non-Customer
simple, non-complex orders in equity options (single stock) that are
routed to C2 a Routing Fee which includes a fixed cost of $0.11 per
contract plus a flat rate of $0.85 per contract, except with respect to
Customers.\9\ With respect to Customers, the Exchange does not pass the
rebate offered by C2, rather, Customer simple, non-complex orders in
equity options (single stock) that are routed to C2 are assessed $0.00
per contract.
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\8\ See Securities Exchange Act Release No. 68792 (January 31,
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004).
\9\ See Securities Exchange Act Release No. 68977 (February 25,
2013), 78 FR 14141 (March 1, 2013) (SR-BX-2013-017).
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The Exchange is proposing to further simplify its Routing Fees by
assessing a flat rate of $0.95 per contract on all non-Customer orders
routed to any away market. The Exchange would no longer pass any rebate
paid by an away market for non-Customer orders. With respect to
Customer orders, the Exchange is proposing to continue to assess
Customer orders routed to NOM and PHLX a fixed fee of $0.05 per
contract (``Fixed Fee'') in addition to the actual transaction fee
assessed by the away market. These fees are not changing. The Exchange
proposes to assess a Customer Routing Fee of $0.11 per contract
(``Fixed Fee'') in addition to the actual transaction fee when routing
to an options exchange other than NOM and PHLX, as is the case today.
The Exchange is amending the payment of rebates and will no longer pay
rebates when routing Customer orders to an away market, instead the
Exchange will not assess a Routing Fee if a Customer order is routed to
an away market that pays a rebate.
2. Statutory Basis
BX believes that its proposal to amend its pricing is consistent
with Section 6(b) of the Act \10\ in general, and furthers the
objectives of Section 6(b)(4) of the Act,\11\ in particular, in that it
is an equitable allocation of reasonable fees and other charges among
its Participants.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that its proposal to amend its non-Customer
Routing Fees from a fixed fee plus actual transaction charges to a flat
rate is reasonable because the flat rate makes it easier for market
participants to anticipate the Routing Fees which they would be
assessed at any given time. The Exchange believes that assessing all
non-Customer orders the same flat rate will provide market participants
with certainty with respect to Routing Fees. While, each destination
market's transaction charge varies and there is a cost incurred by the
Exchange when routing orders to away markets, including clearing costs,
administrative and technical costs associated with operating NOS,
membership fees at away markets, ORFs and technical costs associated
with routing options, the Exchange believes that the proposed Routing
Fees will enable it to recover the costs it incurs to route non-
Customer orders away markets. Other exchanges similarly assess a fixed
rate fee to route non-Customer orders.\12\
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\12\ BATS Exchange, Inc. (``BATS'') assesses non-Customer fixed
rates of $0.57 and $0.95 per contract when routing to away markets.
See BATS BZX Exchange Fee Schedule. The Chicago Board Options
Exchange Incorporated (``CBOE'') assesses non-Customer orders a
$0.50 per contract routing fee in addition to the customary CBOE
execution charges. See CBOE's Fees Schedule.
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The Exchange believes that its proposal to amend the non-Customer
Routing Fees from a fixed fee plus actual transaction charges to a flat
rate is equitable and not unfairly discriminatory because the Exchange
would uniformly assess the same Routing Fees to all non-Customer market
participants. Under its flat fee structure, taking all costs to the
Exchange into account, the Exchange may operate at a slight gain or a
slight loss for non-Customer orders routed to and executed at away
markets. The proposed Routing Fee for non-Customer orders is an
approximation of the maximum fees the Exchange will be charged for such
executions, including costs, at away markets. As a general matter, the
Exchange believes that the proposed fees will allow it to recoup and
cover its costs of providing routing services for non-Customer orders.
The Exchange believes that the fixed rate non-Customer Routing Fee is
equitable and not unfairly discriminatory because market participants
have the ability to directly route orders to an away market and avoid
the Routing Fee. Participants may choose to mark the order as
ineligible for routing to avoid incurring these fees.\13\ The Exchange
routes orders to away markets where the Exchange's disseminated bid or
offer is inferior to the national best bid (best offer) (``NBBO'')
price and based on price first.\14\
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\13\ See BX Rules at Chapter VI, Section 11(e) (Order Routing).
\14\ Id.
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The Exchange believes that its proposal to not pass a rebate that
is offered by an away market for non-Customer orders is reasonable
because to the extent that another market is paying a rebate, the
Exchange will assess a $0.95 per contract fee as its total cost in each
instance. The Routing Fee is transparent and simple. If a market
participant desires the rebate, the market participant has the option
to direct the order to that away market. Other options exchanges today
do not pass the rebate.\15\ The Exchange believes that its proposal to
not pass a rebate that is offered by an away market for non-Customer
orders is equitable and not unfairly discriminatory because the
Exchange would not pay such a rebate on any non-Customer order.
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\15\ See CBOE's Fees Schedule and International Securities
Exchange LLC's (``ISE'') Fee Schedule.
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The Exchange believes that it is reasonable to also not assess a
Customer Routing Fee when routing to all other options exchanges,
except NOM and PHLX,\16\ if the away market pays a rebate. The Exchange
will continue to assess a Fixed Fee of $0.11 per contract plus the
actual transaction charge assessed by the away market when routing to
all other options exchanges, except NOM and PHLX, but instead of paying
the rebate, as is the case today, the Exchange will not assess a
Customer
[[Page 19765]]
Routing Fee to that away market because the Exchange will collect a
rebate to offset the fee. The Exchange believes that market
participants will have more certainty as to the Customer Routing Fee
that will be assessed by the Exchange. The Exchange believes that the
proposed pricing for the Customer Routing Fee to all other away
markets, except NOM and PHLX, is equitable and not unfairly
discriminatory because while the Exchange may operate at a slight gain
or a slight loss when routing Customer orders to the away market,
depending on the rebate paid by the away market, the proposal would
apply uniformly to all market participants when routing to an away
market that pays a rebate.
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\16\ The Exchange is not proposing to amend the Routing Fees
that will be assessed when routing orders to NOM and PHLX. The
Exchange will continue to assess a $0.05 per contract Fixed Fee in
addition to the actual transaction charge when routing Customer
orders to those markets.
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The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to continue to assess Customer orders that are
routed to NOM and PHLX a Fixed Fee of $0.05 per contract and orders
that are routed to other away markets, other than NOM and PHLX, a Fixed
Fee of $0.11 per contract because the cost, in terms of actual cash
outlays, to the Exchange to route to NOM and PHLX is lower. For
example, costs related to routing to NOM and PHLX are lower as compared
to other away markets because NOS is utilized by all three exchanges to
route orders.\17\ NOS and the three NASDAQ OMX options markets have a
common data center and staff that are responsible for the day-to-day
operations of NOS. Because the three exchanges are in a common data
center, Routing Fees are reduced because costly expenses related to,
for example, telecommunication lines to obtain connectivity are avoided
when routing orders in this instance. The costs related to connectivity
to route orders to other NASDAQ OMX exchanges are de minimis. When
routing orders to non-NASDAQ OMX exchanges, the Exchange incurs costly
connectivity charges related to telecommunication lines and other
related costs when routing orders. The Exchange believes it is
reasonable, equitable and not unfairly discriminatory to pass along
savings realized by leveraging NASDAQ OMX's infrastructure and scale to
market participants when those orders are routed to NOM and PHLX.
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\17\ See Chapter VI, Section 11 of the NASDAQ and BX Options
Rules and PHLX Rule 1080(m)(iii)(A).
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Finally, the Exchange believes that it is reasonable, equitable and
not unfairly discriminatory to assess different fees for Customers
orders as compared to non-Customer orders because the Exchange has
traditionally assessed lower fees to Customers as compared to non-
Customers. Customers will continue to receive the lowest fees or no
fees when routing orders, as is the case today. Other options exchanges
also assess lower Routing Fees for customer orders as compared to non-
customer orders.\18\
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\18\ BATS assesses lower customer routing fees as compared to
non-customer routing fees per the away market. For example BATS
assesses ISE customer routing fees of $0.30 per contract and an ISE
non-customer routing fee of $0.57 per contract. See BATS BZX
Exchange Fee Schedule.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposal creates intra-market competition because the Exchange
is applying the same Routing Fees and credits to all market
participants in the same manner dependent on the routing venue, with
the exception of Customers. The Exchange has proposed separate Customer
Routing Fees. Customers will continue to receive the lowest fees or no
fees when routing orders, as is the case today. Other options exchanges
also assess lower Routing Fees for customer orders as compared to non-
customer orders.\19\
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\19\ Id.
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The Exchange's proposal would allow the Exchange to recoup its
costs when routing orders to away markets when such orders are
designated as available for routing by the market participant. The
Exchange is passing along savings realized by leveraging NASDAQ OMX's
infrastructure and scale to market participants when those orders are
routed to NOM and PHLX and is providing those saving to all market
participants. Participants may choose to mark the order as ineligible
for routing to avoid incurring these fees.\20\ Today, other options
exchanges also assess fixed routing fees to recoup costs incurred by
the Exchange to route orders to away markets.\21\
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\20\ See supra note 13.
\21\ See CBOE's Fees Schedule and ISE's Fee Schedule.
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The Exchange operates in a highly competitive market, comprised of
eleven exchanges, in which market participants can easily and readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive. Accordingly, the fees that are
assessed by the Exchange must remain competitive with fees charged by
other venues and therefore must continue to be reasonable and equitably
allocated to those Participants that opt to direct orders to the
Exchange rather than competing venues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\22\ 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. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\22\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2013-023 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2013-023. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements
[[Page 19766]]
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-BX-2013-023, and should be
submitted on or before April 23, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07591 Filed 4-1-13; 8:45 am]
BILLING CODE 8011-01-P