[Federal Register Volume 79, Number 104 (Friday, May 30, 2014)]
[Notices]
[Pages 31171-31174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12519]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72239; File No. SR-BX-2014-026]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Routing Fees
May 23, 2014.
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 May 16, 2014, 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 proposed to amend Chapter XV, Section 2 entitled ``BX
Options Market--Fees and Rebates''. Specifically, the Exchange is
proposing to amend Routing Fees. While the changes proposed herein are
effective upon filing, the Exchange has designated that the amendments
be operative on June 2, 2014.
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.
[[Page 31172]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend the Routing Fees in Chapter
XV, Section 2(3) to recoup costs incurred by the Exchange to route
orders to away markets.
Today, the Exchange assesses a Non-Customer a $0.95 per contract
Routing Fee to any options exchange. The Customer \3\ Routing Fee for
option orders routed to NASDAQ OMX PHLX LLC (``PHLX'') and The NASDAQ
Options Market LLC (``NOM'') is a $0.10 per contract Fixed Fee in
addition to the actual transaction fee assessed. The Customer Routing
Fee for option orders routed to all other options exchanges \4\
(excluding PHLX and NOM) is a fixed fee of $0.20 per contract (``Fixed
Fee'') in addition to the actual transaction fee assessed. If the away
market pays a rebate, the Routing Fee is $0.10 per contract.
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\3\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Chapter I, Section
1(a)(48)).
\4\ Including BATS Exchange, Inc. (``BATS''), BOX Options
Exchange LLC (``BOX''), the Chicago Board Options Exchange,
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''),
International Securities Exchange, LLC (``ISE''), the Miami
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc.
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and ISE Gemini, LLC
(``Gemini'').
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With respect to the fixed costs, the Exchange incurs a fee when it
utilizes Nasdaq Execution Services LLC (``NES''),\5\ a member of the
Exchange and the Exchange's exclusive order router. Each time NES
routes an order to an away market, NES is charged a clearing fee \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 currently recoups clearing and transaction
charges incurred by the Exchange as well as certain other costs
incurred by the Exchange when routing to away markets, such as
administrative and technical costs associated with operating NES,
membership fees at away markets, Options Regulatory Fees (``ORFs''),
staffing and technical costs associated with routing options. The
Exchange assesses the actual away market fee at the time that the order
was entered into the Exchange's System. This transaction fee is
calculated on an order-by-order basis since different away markets
charge different amounts.
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\5\ The Exchange filed a proposed rule change to utilize Nasdaq
Execution Services, LLC (``NES'') for outbound order routing. See
Securities Exchange Act Release No. 71420 (January 28, 2014), 79 FR
6256 (February 3, 2014) (SR-BX-2014-004).
\6\ OCC assessed a $0.01 per contract side. The fee has recently
been increased from $0.01 to $0.02 per contract side. See Securities
Exchange Act Release No. 71769 (March 21, 2014), 79 FR 17214 (March
21, 2014) (SR-OCC-2014-05).
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The Exchange is proposing to increase Routing Fees to account for
increased OCC fees and other increased costs associated with clearing,
ORFs and other operational costs. The Exchange proposes to increase
Routing Fees for Non-Customer orders from $0.95 to $0.97 per contract.
The Exchange also proposes to increase Customer Routing Fees as
described herein. The Exchange proposes to increase Customer Routing
Fees to NOM and PHLX from a Fixed Fee of $0.10 to $0.12 per contract,
in addition to the actual transaction fee assessed. The Exchange also
proposes to amend Routing Fees to all other exchanges (except NOM and
PHLX) from $0.20 to $0.22 per contract, in addition to the actual
transaction fee assessed, provided the away market does not pay a
rebate. If the away market pays a rebate, the Routing Fee assessed
would be $0.12 per contract, an increase from the current $0.10 per
contract. The Exchange proposes these increases to recoup an additional
portion of the costs incurred by the Exchange for routing these orders.
The Exchange is proposing to increase Non-Customer and Customer
Routing Fees by $0.02 per contract to cover the increased costs of
offering its members the opportunity to route to other options
exchanges. With the recent increase by OCC \7\ as well as increases in
ORFs and BX's operational expenses, the Exchange seeks to further
recoup a portion of increased costs with the increase to its Routing
Fees.
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\7\ Id.
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The Exchange is proposing to amend the Customer Routing Fee
assessed when routing to all other options exchanges, if the away
market pays a rebate, from a $0.10 to a $0.12 per contract Fixed Fee,
in order to recoup an additional portion of the costs incurred by the
Exchange for routing these orders. The Exchange does not assess the
actual transaction fee assessed by the away market, rather the Exchange
only assesses the Fixed Fee, because the Exchange would continue to
retain the rebate to offset the cost to route orders to these away
markets. This will remain the same.
2. Statutory Basis
BX believes that its proposal to amend its Pricing Schedule is
consistent with Section 6(b) of the Act \8\ in general, and furthers
the objectives of Section 6(b)(4) and (b)(5) of the Act \9\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system which it operates or
controls, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes that amending the Non-Customer and Customer
Routing Fees by $0.02 per contracts is reasonable because the Exchange
desires to recoup an additional portion of the cost it incurs when
routing Non-Customer and Customer orders. Specifically, the Exchange's
proposal to increase Non-Customer fees from $0.95 to $0.97 per contract
is reasonable because the additional $0.02 per contract fee will recoup
increased costs borne by BX.
The Exchange believes that amending the Customer Routing Fees for
orders routed to NOM and PHLX from a Fixed Fee of $0.10 to $0.12 per
contract is reasonable because the Exchange desires to recoup an
additional portion of the cost it incurs when routing Customer orders
to NOM or PHLX. The Exchange will continue to also assess actual
transaction fees assessed by NOM and PHLX for Customer orders.
The Exchange believes that continuing to assess lower Fixed Fees to
route Customer orders to NOM and PHLX, as compared to other options
exchanges, is reasonable as the Exchange is able to leverage certain
infrastructure to offer those markets lower fees as explained further
below.
The Exchange believes that increasing the fee for routing to all
other options exchanges (other than NOM and PHLX) from $0.20 to $0.22
per contact is reasonable because the increased fee would recoup costs
associated with routing Customer orders, in addition to the actual
transaction fee when no rebate is paid. Similarly, the Exchange
believes that amending the Customer Routing Fee to other away markets,
other than NOM and PHLX, in the instance the away market pays a rebate
from $0.10 to $0.12 per contract is reasonable because the Exchange
desires to recoup an additional portion of the cost it incurs when
routing orders to these away markets. While the Exchange would continue
to retain any rebate paid by these away markets, the Exchange does not
assess the actual transaction fee that is charged by the away market
for Customer orders. The
[[Page 31173]]
Fixed Fee for Customer orders is an approximation of the costs the
Exchange will be charged for routing orders to away markets. As a
general matter, the Exchange believes that the proposed fees for
Customer orders routed to markets which pay a rebate would allow it to
recoup and cover a portion of the costs of providing optional routing
services for Customer orders because it better approximates the costs
incurred by the Exchange for routing such orders. While each
destination market's transaction charge varies and there is a cost
incurred by the Exchange when routing orders to away markets,
including, OCC clearing costs, administrative and technical costs
associated with operating NES, 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
increased costs it incurs to route Customer orders to away markets.
The Exchange believes that amending the Non-Customer Routing Fees
from $0.95 to $0.97 per contract is equitable and not unfairly
discriminatory because the Exchange would assess the same Non-Customer
Routing Fee to all Non-Customer orders routed away. The Exchange
believes that amending the Customer Routing Fee for orders routed to
NOM and PHLX from a Fixed Fee of $0.10 to $0.12 per contract, in
addition to the actual transaction fee, is equitable and not unfairly
discriminatory because the Exchange would assess the same Fixed Fee to
all orders routed to NOM or PHLX in addition to the transaction fee
assessed by that market.
With respect to routing Customer orders to all other away markets
(except NOM and PHLX) the Exchange believes that amending the Customer
Routing Fee from $0.20 to $0.22 per contract, in addition to the actual
transaction fee assessed) is equitable and not unfairly discriminatory
because the Exchange would assess the same fee to all Customer orders
routed to away markets, provided the away market does not pay a rebate.
The Exchange believes that increasing the Routing Fee to away markets
(other than NOM and PHLX), when the away market pays a rebate, from
$0.10 to $0.12 per contract is equitable and not unfairly
discriminatory because all Customer orders routed to away markets
(other than NOM and PHLX) would be assessed the same fee, provided the
away market paid a rebate.
The Exchange would uniformly assess a $0.12 per contract Fixed Fee
to orders routed to NASDAQ OMX exchanges because the Exchange is
passing along the saving realized by leveraging NASDAQ OMX's
infrastructure and scale to market participants when those orders are
routed to NOM or PHLX and is providing those savings to all market
participants. Furthermore, it is important to note that when orders are
routed to an away market they are routed based on price first.\10\ The
Exchange believes that it is equitable and not unfairly discriminatory
to assess a fixed cost of $0.12 per contract to route orders to NOM and
PHLX because the cost, in terms of actual cash outlays, to the Exchange
to route to those markets is lower. For example, costs related to
routing to NOM and PHLX are lower as compared to other away markets
because NES is utilized by all three exchanges to route orders.\11\ NES
and the three NASDAQ OMX options markets have a common data center and
staff that are responsible for the day-to-day operations of NES.
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 lower than the costs to route
to a non-NASDAQ OMX exchange. When routing orders to non-NASDAQ OMX
exchanges, the Exchange incurs costly connectivity charges related to
telecommunication lines, membership and access fees, and other related
costs when routing orders. Market participants may submit orders to the
Exchange as ineligible for routing or ``DNR'' to avoid Routing
Fees.\12\ Also, orders are routed to an away market based on price
first.\13\
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\10\ See BX Rules at Chapter VI, Section 11(e) (Order Routing).
\11\ See Chapter VI, Section 11 of the NOM and BX Rules and PHLX
Rule 1080(m)(iii).
\12\ See note 11.
\13\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
BX 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 a burden on intra-market competition because the
Exchange is applying the same Routing Fee increase of $0.02 per
contract to all market participants. The Exchange will continue to
assess separate Customer Routing Fees. Customers will continue to
receive the lowest fees as compared to Non-Customers 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.\14\ Market participants may submit orders to the Exchange as
ineligible for routing or ``DNR'' to avoid Routing Fees.\15\ Also,
orders are routed to an away market based on price first.\16\
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\14\ BATS assesses lower customer routing fees as compared to
non-customer routing fees per the away market. For example BATS
assesses Phlx customer routing fees of $0.45 per contract and an ISE
non-customer routing fee of $0.65 per contract. See BATS BZX
Exchange Fee Schedule.
\15\ See note 11.
\16\ Id.
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The Exchange's proposal would allow the Exchange to continue to
recoup its costs when routing both Non-Customer and Customer orders.
The Exchange continues to pass along savings realized by leveraging
NASDAQ OMX's infrastructure and scale to market participants when
Customer orders are routed to NOM and PHLX and is providing those
savings to all market participants. Today, other options exchanges also
assess fixed routing fees to recoup costs incurred by the exchange to
route orders to away markets.\17\
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\17\ See CBOE's Fees Schedule and ISE's Fee Schedule.
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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.\18\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. 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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\18\ 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.
[[Page 31174]]
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-2014-026 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2014-026. 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 the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-BX-2014-026 and
should be submitted on or before June 20, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12519 Filed 5-29-14; 8:45 am]
BILLING CODE 8011-01-P