[Federal Register Volume 77, Number 179 (Friday, September 14, 2012)]
[Notices]
[Pages 56883-56886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22688]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67822; File No. SR-BX-2012-060]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Transaction Fees

September 10, 2012.
    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 August 30, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, Section 2 entitled ``BX 
Options Market--Fees and Rebates'' to amend rebates and fees relating 
to various options and make technical corrections to this section.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=BXRulefilings, at 
the

[[Page 56884]]

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 purpose of the proposed rule change is to amend Chapter XV, 
Section 2(1) to amend rebates and fees for Customers, BX Options Market 
Makers \3\ and Non-Customers \4\ in various options,\5\ as well as 
remove certain options from the Fees and Rebates schedule below,\6\ as 
follows:
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    \3\ A BX Options Market Makers must be registered as such 
pursuant to Chapter VII, Section 2 of the BX Options Rules, and must 
also remain in good standing pursuant to Chapter VII, Section 4.
    \4\ A Non-Customer includes a Professional, Firm, Broker-Dealer 
and Non-BX Options Market Maker.
    \5\ The Exchange is proposing to amend fees and rebates for 
options overlying iShares Russell 2000 (``IWM''), PowerShares QQQ 
Trust (``QQQ'')[supreg]; Standard and Poor's Depositary Receipts/
SPDRs (``SPY''); and all other Penny Pilot Options.
    \6\ The Exchange is proposing to eliminate fees and rebates for 
Bank of America Corporation (``BAC''), Citigroup, Inc. (``C''), 
Cisco Systems, Inc. (``CSCO''), Ford Motor Company Common Stock 
(``F''), Intel Corp (``INTC''), Microsoft Corporation (``MSFT''), JP 
Morgan Chase & Co. (``JPM''), SPDR Gold Shares (``GLD''), iShares 
Silver Trust (``SLV'') and United States Oil Fund LP Units (``USO'') 
(``Deleted Symbols'').

                                                Fees and Rebates
                                             [Per executed contract]
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                                                                                BX Options
                                                              Customer         market maker     Non-customer \1\
----------------------------------------------------------------------------------------------------------------
IWM, QQQ and SPY:
    Rebate to Add Liquidity............................      \2\ $0.[15]00          \2\ $0.15        [$0.00] N/A
    Fee to Add Liquidity...............................        \3\ 0.1[5]8        \3\ 0.1[5]8            0.4[3]5
    Rebate to Remove Liquidity.........................               0.12         [0.00] N/A         [0.00] N/A
    Fee to Remove Liquidity............................         [0.00] N/A            0.4[3]5            0.4[3]5
[BAC, C, CSCO, F, INTC, MSFT, JPM, GLD, SLV and USO:
    Rebate to Add Liquidity............................           \2\ 0.15           \2\ 0.15               0.00
    Fee to Add Liquidity...............................           \3\ 0.37           \3\ 0.37               0.43
    Rebate to Remove Liquidity.........................               0.32               0.00               0.00
    Fee to Remove Liquidity............................               0.00               0.43              0.43]
All Other Penny Pilot Options:
    Rebate to Add Liquidity............................        \2\ 0.[1]00           \2\ 0.10         [0.00] N/A
    Fee to Add Liquidity...............................           \3\ 0.40           \3\ 0.40            0.4[3]5
    Rebate to Remove Liquidity.........................               0.32         [0.00] N/A         [0.00] N/A
    Fee to Remove Liquidity............................         [0.00] N/A            0.4[3]5            0.4[3]5
----------------------------------------------------------------------------------------------------------------
\1\ A Non-Customer includes a Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.
\2\ The Rebate to Add Liquidity will be paid to a Customer or BX Options Market Maker only when the Customer or
  BX Options Market Maker is contra to a Non-Customer or BX Options Market Maker.
\3\ The Fee to Add Liquidity will be assessed to a Customer or BX Options Market Maker only when the Customer or
  BX Options Market Maker is contra to a Customer.

    The Exchange is proposing to eliminate the Rebate to Add Liquidity, 
in any symbol, to a Customer. The Exchange is also proposing to 
increase the Fee to Add Liquidity in IWM, QQQ and SPY from $0.15 to 
$0.18 per executed contract for Customers and BX Options Market Makers. 
For Non-Customers the Fee to Add or to Remove Liquidity in IWM, QQQ and 
SPY and for all other Penny Pilot Options would increase from $0.43 to 
$0.45 per executed contract. Additionally, for BX Options Market Makers 
the Fee to Remove Liquidity in IWM, QQQ and SPY and for all other Penny 
Pilot Options would increase from $0.43 to $0.45 per executed contract. 
The Exchange is also proposing to remove entirely from the Fees and 
Rebates schedule certain other options.\7\
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    \7\ Id. As a result, the pricing for the Deleted Symbols 
currently in place will be eliminated and revert to the current fees 
and rebates for all other Penny Pilot Options. The Rebate to Add 
Liquidity will decrease for Customers and BX Options Market Makers 
from $0.15 to $0.00 and from $0.15 to $0.10 per contract, 
respectively. A Non-Customer will continue not to be paid a Rebate 
for Adding Liquidity. The Rebate to Remove Liquidity will remain 
unchanged, a Customer will continue to be paid a $0.32 per contract 
rebate and BX Options Market Makers and Non-Customers will not be 
entitled to a Rebate to Remove Liquidity. The Fee to Remove 
Liquidity will remain unchanged for Customers as they will not be 
assessed this fee as is the case today. The Fee for Removing 
Liquidity will increase for BX Options Market Makers and Non-
Customers from $0.43 to $0.45 per contract because the Exchange is 
proposing to increase this fee.
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    The Exchange is also proposing to make technical corrections in 
Chapter XV, Section 2 by replacing ``$0.00'' with ``N/A'' for several 
categories. This is not a change to these fees and rebates, but a 
technical amendment since in these instances ``N/A'' better reflects 
that a fee is not relevant for this category rather than ``$0.00'' 
which simply reflects that no fee is currently being charged for this 
category.
    The Exchange believes that the proposed amended fees and rebates 
are competitive and will encourage BX members to transact business on 
the Exchange. Despite the reduction of the Customer rebate to $0.00, 
the Exchange believes that the fees remain competitive with other 
options exchanges and that market participants will continue to send 
order flow to the Exchange.

[[Page 56885]]

2. Statutory Basis
    BX believes that the proposed rule changes are consistent with the 
provisions of Section 6 of the Act,\8\ in general, and with Section 
6(b)(4) of the Act,\9\ in particular, in that they provide for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which BX operates or controls.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to assess different fees 
and rebates for IWM, QQQ and SPY as compared to all other Penny Pilot 
Options is reasonable given the fact that certain symbols such as IWM, 
QQQ and SPY are highly liquid Penny Pilot Options as compared to other 
Penny Pilot Options. Additionally, other options exchanges 
differentiate pricing by security today.\10\
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    \10\ See NASDAQ OMX PHLX LLC's (``Phlx'') Pricing Schedule, 
which has different pricing for its Select Symbols and different 
pricing for other Multiply Listed Options. See also the NASDAQ 
Options Market LLC (``NOM'') at Chapter XV, Section 2(1), which 
distinguishes pricing for NDX and MNX. See also the International 
Securities Exchange LLC's Fee Schedule, which distinguishes pricing 
for Special Non-Select Penny Pilot Symbols. See also the Chicago 
Board Options Exchange, Incorporated's Fees Schedule, which 
distinguishes index products.
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    The Exchange believes that its proposal to assess different fees 
and rebates for IWM, QQQ and SPY as compared to all other Penny Pilot 
Options is equitable and not unfairly discriminatory as described 
hereafter. With respect to the proposed elimination of the Rebate to 
Add Liquidity \11\ for IWM, QQQ, SPY and all other Penny Pilot Options, 
the Exchange believes it is critical to incentivize BX Options Market 
Makers because they have obligations to the market and regulatory 
requirements,\12\ which normally do not apply to other market 
participants. A BX Options Market Maker has the obligation to make 
continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings. The Exchange is proposing to 
eliminate the Customer Rebate to Add Liquidity because the Exchange 
believes that Customers do not require a similar incentive as do BX 
Options Market Makers because they post liquidity on the Exchange for 
reasons other than the opportunity to receive rebates and additionally, 
Customers, unlike BX Options Market Makers, are not assessed a Fee to 
Remove Liquidity.\13\ BX Options Market Makers would continue to 
receive the opportunity to earn a $0.10 per contract (all other Penny 
Pilot Options) or $0.15 per contract (IWM, QQQ, and SPY) Rebate to Add 
Liquidity only when they are contra to a Non-Customer or BX Options 
Market Maker. The proposed differentiation as between Customers and BX 
Options Market Makers and other market participants recognizes the 
differing contributions made to the liquidity and trading environment 
on the Exchange by BX Options Market Makers, as well as the differing 
mix of orders entered. This is not to say that Customer order flow is 
not important, to the contrary, the Exchange believes that the pursuit 
of such order flow by BX Options Market Makers and other market 
participants because of the valuable liquidity Customer order flow 
brings to the marketplace is the very reason that at this time, the 
Exchange desires to incentivize and reward BX Options Market Makers to 
make continuous markets and pursue Customer Order which can be freely 
removed at no expense. Also, it is important to note that BX Options 
Market Makers are unaware at the time the order is entered whether they 
would be entitled to a $0.10 or $0.15 per contract Rebate to Add 
Liquidity, depending on the security, because they are unaware of the 
identity of the contra-party, which would determine whether they 
receive a rebate. Because of anonymity of the contra-parties, BX 
Options Market Makers aggressively pursue order flow which benefits all 
market participants.
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    \11\ The Exchange proposes to eliminate for Customers the Rebate 
to Add Liquidity for IWM, QQQ, and SPY of $0.15 per contract and of 
$0.10 per contract for other Penny Pilot Options.
    \12\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a Market Maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity 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. Further, all Market 
Makers are designated as specialists on BX for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
    \13\ Today, Customers are not assessed a Fee to Remove Liquidity 
unlike other market participants.
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    The Exchange's proposal to increase the Fee to Add Liquidity for 
IWM, QQQ, SPY for all market participants and for Non-Customers in all 
other Penny Pilot Options, as well as to increase the Fee to Remove 
Liquidity for IWM, QQQ, SPY and all other Penny Pilot Options for BX 
Options Market Makers and for Non-Customers is reasonable because the 
increased fees would allow the Exchange to continue to reward Customers 
for removing liquidity, and BX Options Market Makers for providing 
liquidity with rebates. The advantage of increased Customer order flow 
benefits all market participants. In addition, the proposed amended 
Fees to Add or to Remove Liquidity are no greater than the rates 
assessed by other exchanges for similar fees.\14\ Attracting Customer, 
BX Options Market Maker, and Non-Customer order flow to the Exchange 
benefits all market participants. BX Options Market Makers have burdens 
that do not apply to other market participants. The Exchange is also 
uniformly assessing all Non-Customer market participants 
(Professionals, Firms, Broker-Dealers, Non-BX Options Market Makers and 
BX Options Market Makers) the same $0.45 per executed contract Fee to 
Add or to Remove Liquidity on every transaction.
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    \14\ See BATS Exchange, Inc.'s Fee Schedule. See also NOM 
Chapter XV, Section 2 (the Penny Pilot Fees to Remove Liquidity are 
$0.45 per contract for all market participants).
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    The Exchange's proposal to increase the Fee to Add Liquidity for 
IWM, QQQ, SPY for all market participants and for Non-Customers of all 
other Penny Pilot Options is equitable and not unfairly discriminatory 
because the Exchange is increasing all market participant Fees to Add 
Liquidity. Specifically, while Customers and BX Options Market Makers 
are being increased by $0.03 per executed contract, Non-Customers are 
being increased by $0.02 per executed contract because they are 
assessed higher fees. The Exchange is assessing higher fees to all 
participants and not a select group of market participants. The 
Exchange's proposal to increase the Fee to Remove Liquidity for BX 
Options Market Makers and Non-Customers for IWM, QQQ, SPY and for all 
other Penny Pilot Options is equitable and not unfairly discriminatory 
because the Exchange is uniformly assessing all market participants, 
except Customers,\15\ a $0.45 per executed contract Fee to Remove 
Liquidity.
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    \15\ Customers are not assessed a Fee to Remove Liquidity today 
in either Penny Pilot or all other Penny Pilot Options.
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    The Exchange believes that its proposal to eliminate the fees and 
rebates currently in place for Deleted Symbols and instead include 
these symbols in all other Penny Pilot Options and assess those fees 
and pay those rebates is reasonable because the Exchange does not 
believes [sic] it is necessary to incentivize BX Options Participants 
with higher rebates and lower fees as compare [sic] to other Non-Penny 
[sic] Pilot Options. The Exchange believes that the fee [sic] and

[[Page 56886]]

rebates in place for all other Penny Pilot Options will continue to 
incentivize NOM Participants to transact business on the Exchange 
because despite the increase to the fees and the rebate reduction, the 
pricing for these Non-Penny [sic] Pilot Options remains competitive. 
The Exchange also believes that it is equitable and not unfairly 
discriminatory to assess the Deleted Symbols the fees and rebates 
currently assessed and paid all other Penny Pilot Options because the 
fees and rebates would be the same as those assessed and paid for all 
other Non-Penny [sic] Pilot Options today. The Exchange would assess 
and pay fees and rebates for the Deleted Symbols, which are Non-Penny 
[sic] Pilot symbols, the same pricing as is assessed and paid for all 
other Non-Penny [sic] Pilot symbols options.
    The Exchange's proposal to make technical corrections in Chapter 
XV, Section 2, by replacing ``$0.00'' with ``N/A'' for several 
categories is reasonable, equitable and not unfairly discriminatory 
because this is not a change to these fees and rebates, but a 
clarification that in these instances ``N/A'' better reflects that a 
fee is not relevant for this category rather than using ``$0.00'' which 
simply reflects that no fee is currently being charged for this 
category.
    The Exchange operates in a highly competitive market comprised of 
ten U.S. options exchanges in which sophisticated and knowledgeable 
market participants can and do send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive. The 
Exchange believes that the proposed amended fee and rebate scheme is 
competitive and similar to other fees and rebates in place on other 
exchanges. The Exchange believes that this competitive marketplace 
materially impacts the fees and rebates present on the Exchange today 
and substantially influences the proposal set forth above.

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. To the contrary, BX has designed its fees and 
rebates to compete effectively for the execution and routing of options 
contracts and to reduce the overall cost to investors of options 
trading. The Exchange believes that the proposed fee/rebate pricing 
structure would attract liquidity to and benefit order interaction at 
the Exchange to the benefit of all market participants.

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.\16\ 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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    \16\ 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-2012-060 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-2012-060. 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-2012-060 and should be 
submitted on or before October 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22688 Filed 9-13-12; 8:45 am]
BILLING CODE 8011-01-P