[Federal Register Volume 81, Number 51 (Wednesday, March 16, 2016)]
[Notices]
[Pages 14155-14160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05854]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77339; File No. SR-BX-2016-016]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Regarding Fees and
Rebates To Adopt the Select Symbols Options Tier Schedule
March 10, 2016.
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 1, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') \3\ 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.
\3\ The Exchange notes that it has legally changed its name to
NASDAQ BX, Inc. with the state of Delaware and filed Form 1
reflecting the change, and is in the process of changing its rules
to reflect the new name.
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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 its Options Pricing at Chapter XV
Section 2, entitled ``BX Options Market--Fees and Rebates,'' which
governs pricing for BX members using the BX Options Market (``BX
Options''). The Exchange proposes to modify certain fees and rebates
(per executed contract) to adopt the Select Symbol Options Tier
Schedule for certain Penny Pilot \4\ Options (each a ``Select Symbol''
and together the ``Select Symbols'').
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\4\ The Penny Pilot was established in June 2012 and extended in
2015. See Securities Exchange Act Release Nos. 67256 (June 26,
2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) (order approving
BX option rules and establishing Penny Pilot); and 75326 (June 29,
2015), 80 FR 38481 (July 6, 2015) (SR-BX-2015-037) (notice of filing
and immediate effectiveness extending the Penny Pilot through June
30, 2016).
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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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Chapter XV, Section 2, to modify
certain fees and rebates \5\ to adopt the Select Symbol Options Tier
Schedule for certain Penny Pilot Options. The proposed Select Symbol
Options Tier Schedule would apply to Customers,\6\ BX Options Market
Makers,\7\ Non-Customers,\8\ and Firms.\9\
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\5\ Fees and rebates are per executed contract. BX Chapter XV,
Section 2(1).
\6\ 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)). BX Chapter XV.
\7\ BX Options Market Makers may also be referred to as ``Market
Makers''. The term ``BX Options Market Maker'' or (``M'') means a
Participant that has registered as a Market Maker on BX Options
pursuant to Chapter VII, Section 2, and must also remain in good
standing pursuant to Chapter VII, Section 4. In order to receive
Market Maker pricing in all securities, the Participant must be
registered as a BX Options Market Maker in at least one security. BX
Chapter XV.
\8\ Note 1 to Chapter XV, Section 2, states: ``\1\ A Non-
Customer includes a Professional, Broker-Dealer and Non-BX Options
Market Maker.''
\9\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC. BX Chapter XV.
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Currently, Chapter XV, Section 2, subsection (1), contains a SPY
\10\ Options Tier Schedule (``SPY Schedule'') that has four tiers. The
Exchange proposes to convert the SPY Schedule into the Select Symbols
Options Tier Schedule, as discussed in detail below.
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\10\ ``SPY'' or Standard and Poor's Depositary Receipts/SPDRs
options are Penny Pilot Options that are based on the SPDR exchange-
traded fund (``ETF''), which is designed to track the performance of
the S&P 500.
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Change 1--Penny Pilot Options: Modify Fees and Rebates To Add the
Select Symbols Options Tier Schedule
In Change 1, the Exchange proposes modifications to convert its
current SPY Schedule to the Select Symbols Options Tier Schedule. The
proposed change keeps the great majority of the current SPY Schedule
fees and rebates assessments (twelve out of sixteen) and tiers (three
out of four) exactly the same in the new Select Symbols Options Tier
Schedule; and updates the fees and rebates schedule to indicate
``Select Symbols'' rather than ``SPY.''
Specifically, the Exchange proposes, commensurate with renaming the
SPY Options Tier Schedule the Select Symbols Options Tier Schedule, to
set forth the BX Options Select Symbol List. The Select Symbols \11\ on
this list represent, similarly to SPY, some of the highest volume Penny
Pilot Options traded on the Exchange and in the U.S. The proposed
Select Symbols are similar to those of other options exchanges (e.g.,
the MIAX Options Exchange (``MIAX'').\12\ Like the SPY
[[Page 14156]]
Options Tier Schedule, the Select Symbols Options Tier Schedule will
have four tiers.
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\11\ The following are Select Symbols: ASHR, DIA, DXJ, EEM, EFA,
EWJ, EWT, EWW, EWY, EWZ, FAS, FAZ, FXE, FXI, FXP, GDX, GLD, HYG,
IWM, IYR, KRE, OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SPY, SRS,
SSO, TBT, TLT, TNA, TZA, UNG, URE, USO, UUP, UVXY, UYG, VXX, XHB,
XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT.
\12\ See MIAX fee schedule at http://www.miaxoptions.com/sites/default/files/fee-schedules/MIAX_Options_Fee_Schedule_10012015.pdf.
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Proposed Tier 1 in the Select Symbols Options Tier Schedule, which
has the same requirements as the current Tier I in the SPY Options Tier
Schedule will be where a BX Participant (``Participant'') executes less
than 0.05% of total industry customer equity and exchange traded fund
(``ETF'') option average daily volume (``ADV'') contracts per month.
Proposed Tier 1 will range from a $0.00 rebate to a $0.44 fee:
--The Rebate to Add Liquidity when Customer trading with Non-Customer,
BX Options Market Maker, or Firm will be $0.00 (no rebate will be
paid); \13\
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\13\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the Fee to Add Liquidity when BX Options Market Maker trading with
Customer will be $0.44; \14\
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\14\ Proposed $0.44 is a modest fee increase from the current
SPY Options Tier Schedule, which is $0.42.
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--the Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.00;
\15\ and
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\15\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the Fee to Remove Liquidity when BX Options Market Maker trading with
Customer will be $0.42.\16\
\16\ This is the same as the fee in the current SPY Options Tier
Schedule.
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Proposed Tier 2 in the Select Symbols Options Tier Schedule, which
has the same requirements as current Tier 2 in the SPY Options Tier
Schedule, will be where Participant executes 0.05% to less than 0.15%
of total industry customer equity and ETF option ADV contracts per
month. Proposed Tier 2 will range from a $0.25 rebate to a $0.44 fee:
--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.10; \17\
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\17\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the new Fee to Add Liquidity when BX Options Market Maker trading
with Customer will be $0.44; \18\
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\18\ Proposed $0.44 is a modest fee increase from the current
SPY Options Tier Schedule, which is $0.42.
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--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.25;
\19\ and
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\19\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the new Fee to Remove Liquidity when BX Options Market Maker trading
with Customer will be $0.42.\20\
\20\ This is the same as the fee in the current SPY Options Tier
Schedule.
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Proposed Tier 3 in the Select Symbols Options Tier Schedule, which
has the same requirements the current Tier 3 in the SPY Options Tier
Schedule, will be where Participant executes 0.15% or more of total
industry customer equity and ETF option ADV contracts per month.
Proposed Tier 3 will range from a $0.37 rebate to a $0.40 fee:
--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.20; \21\
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\21\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the new Fee to Add Liquidity when BX Options Market Maker trading
with Customer will be $0.40; \22\
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\22\ Proposed $0.40 is a modest fee increase from the current
SPY Options Tier Schedule, which is $0.39.
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--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.37;
\23\ and
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\23\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the new Fee to Remove Liquidity when BX Options Market Maker trading
with Customer will be $0.39.\24\
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\24\ This is the same as the fee in the current SPY Options Tier
Schedule.
Proposed Tier 4 in the Select Symbols Options Tier Schedule, which
is modified from the current Tier 4 in the SPY Options Tier Schedule,
will be where Participant executes more than 10,000 BX Price
Improvement Auction (``PRISM'') \25\ Agency Contracts per month; or
Participant executes BX Options Market Maker volume of 0.30% or more of
total industry customer equity and ETF options ADV per month. If a
Participant qualifies for Tier 4 the rates applicable to this tier will
supersede any other Select Symbols tier rates that the Participant may
qualify for. Proposed Tier 4 will range from a $0.37 rebate to a $0.29
fee:
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\25\ PRISM is a Price Improvement Mechanism for all-electronic
BX Options whereby a buy and sell order may be submitted in one
order message to initiate an auction at a stop price and seek
potential price improvement. Options are traded electronically on BX
Options, and all options participants may respond to a PRISM
Auction, the duration of which is set at 200 milliseconds. PRISM
includes auto-match functionality in which a Participant (an
``Initiating Participant'') may electronically submit for execution
an order it represents as agent on behalf of customer, broker
dealer, or any other entity (``PRISM Order'') against principal
interest or against any other order it represents as agent (an
``Initiating Order'') provided it submits the PRISM Order for
electronic execution into the PRISM Auction pursuant [sic]. See
Chapter VI, Section 9; and Securities Exchange Act Release No. 76301
(October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032)
(order approving BX PRISM).
--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.25; \26\
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\26\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the new Fee to Add Liquidity when BX Options Market Maker trading
with Customer will be $0.29; \27\
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\27\ Proposed $0.29 is, in order to further promote liquidity on
the Exchange, a modest fee decrease from the current SPY Options
Tier Schedule, which is $0.32.
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--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.37;
\28\ and
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\28\ This is the same as the rebate in the current SPY Options
Tier Schedule.
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--the new Fee to Remove Liquidity when BX Options Market Maker trading
with Customer will be $0.25.\29\
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\29\ This is the same as the fee in the current SPY Options Tier
Schedule.
In addition, there are currently six explanatory notes in the SPY
Options Tier Schedule. In each such note the Exchange will, as
elsewhere in the fees and rebates schedule, replace ``SPY'' with
``Select Symbols.'' The Exchange proposes to also establish a fee on
one note that is not currently fee liable in the SPY Options Tier
Schedule. Specifically, the Exchange proposes to state that BX Options
Market Maker fee to add liquidity in SPY [sic] Options will be $0.04
when trading with Firm, Non-Customer, or BX Options Market Maker.
Chapter XV, Section 2 subsection (1) reflecting the proposed Select
Symbols Options Tier Schedule will read as follows:
Sec. 2 BX Options Market--Fees and Rebates
The following charges shall apply to the use of the order execution
and routing services of the BX Options market for all securities.
(1) Fees for Execution of Contracts on the BX Options Market:
* * * * *
[[Page 14157]]
Select Symbols Options Tier Schedule
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Rebate to add Fee to add Rebate to remove Fee to remove
liquidity liquidity liquidity liquidity
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When: Customer BX Options Customer BX Options
market maker market maker
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Trading with: Non-Customer, Customer Non-Customer, Customer
BX options BX options
market maker, market maker,
or firm customer,
or firm
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Tier 1:
Participant executes less than 0.05% $0.00 $0.44 $0.00 $0.42
of total industry customer equity and
ETF option ADV contracts per month...
Tier 2:
Participant executes 0.05% to less 0.10 0.44 0.25 0.42
than 0.15% of total industry customer
equity and ETF option ADV contracts
per month............................
Tier 3:
Participant executes 0.15% or more of 0.20 0.40 0.37 0.39
total industry customer equity and
ETF option ADV contracts per month...
Tier 4:
Participant executes more than 10,000 0.25 0.29 0.37 0.25
PRISM Agency Contracts per month; or
Participant executes BX Options
Market Maker volume of 0.30% or more
of total industry customer equity and
ETF options ADV per month............
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BX Options Select Symbol List
The following are Select Symbols: ASHR, DIA, DXJ, EEM, EFA, EWJ,
EWT, EWW, EWY, EWZ, FAS, FAZ, FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR,
KRE, OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SPY, SRS, SSO, TBT, TLT,
TNA, TZA, UNG, URE, USO, UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF, XLI,
XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT
BX Options Market Maker fee to add liquidity in Select
Symbols Options will be $0.04 when trading with Firm, Non-Customer, or
BX Options Market Maker.
Firm fee to add liquidity and fee to remove liquidity in
Select Symbols Options will be $0.33 per contract, regardless of
counterparty.
Non-Customer fee to add liquidity and fee to remove
liquidity in Select Symbols Options will be $0.46 per contract,
regardless of counterparty.
BX Options Market Maker fee to remove liquidity in Select
Symbols Options will be $0.46 per contract when trading with Firm, Non-
Customer, or BX Options Market Maker.
Customer fee to add liquidity in Select Symbols Options
when contra to another Customer is $0.33 per contract.
Volume from all products listed on BX Options will apply
to the Select Symbols Options Tiers.
* * * * *
The Exchange is proposing fees and rebate changes and adopting the
Select Symbols Options Tier Schedule at this time because it believes
that this will provide incentives for execution of contracts, and in
particular Select Symbols Options contracts, on the BX Options Market.
The Exchange also believes that its proposal should provide
increased opportunities for participation in executions on the
Exchange, facilitating the ability of the Exchange to bring together
participants and encourage more robust competition for orders.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act,\30\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the
Act,\31\ 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 the
Exchange operates or controls, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(4), (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \32\
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\32\ Securities Exchange Act Release No. 51808 at 37499 (June 9,
2005) (``Regulation NMS Adopting Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\33\ (``NetCoalition'') the DC Circuit upheld the Commission's use of a
market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\34\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \35\
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\33\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\34\ See id. at 534-535.
\35\ See id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker
[[Page 14158]]
dealers'. . . .'' \36\ Although the court and the SEC were discussing
the cash equities markets, the Exchange believes that these views apply
with equal force to the options markets.
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\36\ See id. at 539 (quoting Securities Exchange [sic] Release
No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-
NYSEArca-2006-21) at 73 FR at 74782-74783).
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The Exchange proposes to amend its Chapter XV, Section 2 to modify
certain fees and rebates to adopt the Select Symbol Options Tier
Schedule for certain Penny Pilot Options. The proposed modified fees
and rebates and new Select Symbols Options Tier Schedule would, as
discussed, apply to Customers, BX Options Market Makers, Non-Customers,
and Firms. The Exchange believes that its proposal is reasonable,
equitable, and not unfairly discriminatory and should provide increased
opportunities for participation in executions on the Exchange,
facilitating the ability of the Exchange to bring together participants
and encourage more robust competition for orders.
Change 1--Penny Pilot Options: Modify Fees and Rebates To Add the
Select Symbols Options Tier Schedule
In Change 1, the Exchange proposes to convert its current SPY
Options Tier Schedule to the Select Symbols Options Tier Schedule and
to set forth the BX Options Select Symbol List. The Select Symbols on
this list represent, similarly to SPY, some of the highest volume Penny
Pilot Options traded on the Exchange and in the U.S and are similar to
those of other options exchanges (e.g., the MIAX).
As discussed, the proposed change updates the fees and rebates
schedule to indicate ``Select Symbols'' rather than ``SPY'' and keeps
the great majority of the current SPY Schedule fees and rebates
assessments and tiers exactly the same in the new Select Symbols
Options Tier Schedule. The proposed fee changes are in respect of the
Fee to Add Liquidity when BX Options Market Maker trades with Customer.
Each of the Tier 1, 2, and 3 changes is a modest fee increase from the
current schedule, not exceeding two pennies. The Tier 4 change is a fee
decrease from the current fee schedule in order to further promote
liquidity on the Exchange.\37\ The Exchange also proposes to change one
explanatory note applicable to the Select Symbols to make it fee
liable.
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\37\ Tier 4 is updated from the current SPY Options Tier
Schedule to give additional ways to achieve the tier requirements
through specified PRISM volume as well as options volume.
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The proposed rule change is reasonable because it continues to
encourage market participant behavior through the fees and rebates
system, which is an accepted methodology among options exchanges.\38\
Converting SPY Options Tier Schedule to the Select Symbols Options Tier
Schedule is reasonable because of the nature of Select Symbol options,
which are the most heavily traded options on the Exchange as well as in
the industry. By expanding from SPY Options to Select Symbol Options,
the Exchange is further promoting options liquidity [sic] the Exchange.
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\38\ See, e.g., fee and rebate schedules of other options
exchanges, including, but not limited to, NASDAQ Options Market
(``NOM''), NASDAQ PHLX LLC (``Phlx''), and Chicago Board Options
Exchange (``CBOE'').
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The Exchange believes that the proposed Select Symbol Options Tier
Schedule is reasonable because it is not a novel, untested structure
but rather is similar to what is offered by other options markets, such
as MIAX, and is based on the Exchange's existing SPY Options Tier
Schedule. The proposed Tiers in the Select Symbols Options Tier
Schedule clearly reflect the progressively increasing nature of
Participant executions structured for the purpose of attracting order
flow to the Exchange. This encourages market participant behavior
through progressive tiered fees and rebates using an accepted
methodology among options exchanges.\39\
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\39\ Id.
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Tier 1 in the Select Symbols Options Tier Schedule is, similarly to
Tier 1 in the current SPY Options Tier Schedule, set up to enable a
Participant to earn a Rebate to Add Liquidity or pay a Fee to Add
Liquidity in Select Symbols where the Participant executes less than
0.05% of total industry customer equity and ETF option ADV contracts
per month.
Tier 2 in the Select Symbols Options Tier Schedule is, similarly to
Tier 2 in the current SPY Options Tier Schedule, set up to enable a
Participant to earn a Rebate to Add Liquidity or pay a Fee to Add
Liquidity in the Select Symbols where the Participant executes 0.05% to
less than 0.15% of total industry customer equity and ETF option ADV
contracts per month.
And Tier 3 in the Select Symbols Options Tier Schedule is,
similarly to Tier 3 in the SPY Options Tier Schedule, set up to enable
a Participant to earn a Rebate to Add Liquidity or pay a Fee to Add
Liquidity in the Select Symbols to Participant [sic] executes 0.15% or
more of total industry customer equity and ETF option ADV contracts per
month. The fees and rebates that BX Options Market Makers and Customers
are assessed are, as has been discussed, almost all comparable to the
fees and rebates in the SPY Options Tier Schedule.
The Exchange believes that it is reasonable to also adjust the
current Tier 4 in the SPY Options Tier Schedule as reflected in the new
Tier 4 in the Select Symbols Options Tier Schedule, in order to enable
a Participant to earn a Rebate to Add Liquidity or pay a Fee to Add
Liquidity in Select Symbols where the Participant executes more than
10,000 PRISM Agency Contracts per month; or Participant executes BX
Options Market Maker volume of 0.30% or more of total industry customer
equity and ETF options ADV per month. By so doing, the Exchange
encourages Participants to trade PRISM and/or make markets on the
exchange.
In addition, the Exchange believes that making changes to add the
Select Symbols Options Tier Schedule in terms of Rebate to Add
Liquidity and Fee to Add Liquidity, and Rebate to Remove Liquidity and
Fee to Remove Liquidity, is reasonable because it encourages the
desired Customer behavior by attracting Customer interest in Select
Symbols 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. 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 Select Symbols Options Tier Schedule is reasonable in that it
is, similarly to the current SPY Options Tier Schedule, set up to
incentivize Participants to direct liquidity to the Exchange; using
volume from all products listed on BX Options will further incentivize
Participants. As Participants execute more of total industry customer
equity and ETF option ADV contracts per month on the Exchange, they can
in certain categories earn higher rebates and be assessed lower fees.
For example, in the Select Symbols Options Tier Schedule the Tier 3
Rebate to Add Liquidity when Customer trading with Non-Customer, BX
Options Market Maker, or Firm is higher ($0.20) than the Tier 1 Rebate
to Add Liquidity ($0.00); and the Tier 3 Rebate to Remove Liquidity
when Customer trading with Non-Customer, BX Options Market Maker,
Customer, or Firm is higher ($0.37) that the Tier 2 Rebate to Remove
Liquidity ($0.25).
Similarly, the proposed Fee to Add Liquidity when BX Option Market
Maker trading with Customer is lower for Tier 3 ($0.40) than for Tier 1
($0.44);
[[Page 14159]]
and, the Fee to Remove Liquidity when BX Option Market Maker trading
with Customer is lower for Tier 3 ($0.39) than for Tier 1 ($0.42).
The Exchange believes that it is reasonable to indicate a $0.04 fee
assessment in the discussed BX Options Market Maker explanatory note.
This explanatory note, which is currently not fee liable for options on
SPY, will be fee liable for Select Symbols. The Exchange believes that
this is in line with its continued effort to promote liquidity on the
Exchange while covering costs through fees and rebates.
Establishing the Select Symbol Options Tier Schedule is equitable
and not unfairly discriminatory. This is because the Exchange's
proposal to assess fees and pay rebates according to Tiers 1, 2, 3, and
4 as proposed to be amended will apply uniformly to all similarly
situated Participants. Customers would earn a Rebate to Add Liquidity
and a Rebate to Remove Liquidity according to the Tiers,\40\ and BX
Market Makers would be assessed a Fee to Add Liquidity and a Fee to
Remove Liquidity according to the same Tiers per the Select Symbols
Options Tier Schedule; and certain fees would be the same regardless of
counterparty. The fee and rebate schedule as proposed continues to
reflect differentiation among different market participants. The
Exchange believes that the differentiation is equitable and not
unfairly discriminatory, as well as reasonable, because transactions of
a BX Options Market Maker must constitute a course of dealings
reasonably calculated to contribute to the maintenance of a fair and
orderly market, and BX Options Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. Further, all BX Options Market Makers are
designated as specialists on BX for all purposes under the Act or rules
thereunder.\41\
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\40\ Per a note to the Select Symbol Options Tier Schedule,
Customer fee to add liquidity in Select Symbols Options when contra
to another Customer is $0.33 per contract. The only change in this
note, which is currently applicable to the SPY Options Tier
Schedule, is that the note will be applicable to the Select Symbol
Options Tier Schedule.
\41\ See Chapter VII, Section 5, entitled ``Obligations of
Market Makers.''
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The Exchange believes that by making the proposed changes it is
continuing to incentivize Participants to execute more volume on the
Exchange to further enhance liquidity in this market.
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. Specifically, the Exchange does
not believe that its proposal to make changes to its Penny Pilot
Options to establish a Select Symbols Options Tiers Schedule will
impose any undue 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 continuing its fees and rebates for Penny Pilot Options and
establishing a Select Symbols Options Tiers Schedule 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 and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to 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 terms of intra-market competition, the Exchange notes that price
differentiation among different market participants operating on the
Exchange (e.g., Customer and BX Options Market Maker) is reasonable.
Customer activity, for example, 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. An increase in the activity of these market participants
(particularly in response to pricing) in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants.
Moreover, unlike others market participants each BX Options Market
Maker commits to various obligations. These obligations include, for
example, transactions of a BX 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.\42\ In this instance, the proposed changes to the
fees and rebates to establish a Select Symbols Options Tiers Schedule,
does not impose a burden on competition because the Exchange's
execution and routing services are completely voluntary and subject to
extensive competition both from other exchanges and from off-exchange
venues. If the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. 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 continue to allow the Exchange to promote and maintain
order executions.
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\42\ See Chapter VII, Section 5.
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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
Pursuant to Section 19(b)(3)(A)(ii) of the Act,\43\ the Exchange
has designated this proposal as establishing or changing a due, fee, or
other charge imposed by the self-regulatory organization on any person,
whether or not the person is a member of the self-regulatory
organization, which renders the proposed rule change effective upon
filing.
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\43\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the
[[Page 14160]]
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is: (i) Necessary or
appropriate in the public interest; (ii) for the protection of
investors; or (iii) 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.
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-2016-016 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-2016-016. 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-2016-016 and
should be submitted on or before April 6, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05854 Filed 3-15-16; 8:45 am]
BILLING CODE 8011-01-P