[Federal Register Volume 78, Number 5 (Tuesday, January 8, 2013)]
[Notices]
[Pages 1293-1296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00077]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68556; File No. SR-BX-2012-074]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Non-Penny Pilot Options Fees

January 2, 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 December 18, 2012, 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 BX Options Rules, Chapter XV, 
Section 2 entitled ``BX Options Market--Fees and Rebates'' to adopt 
fees and rebates for Non-Penny Pilot Options.\3\
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    \3\ Non-Penny Pilot refers to options classes not in the Penny 
Pilot.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated these changes to be operative on January 2, 
2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/ com/NASDAQOMXBX/Filings/, 
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
    BX proposes to amend Chapter XV, Section 2(1) to adopt fees and 
rebates for Customers, BX Options Market Makers \4\ and Non-Customers 
\5\ trading in Non-Penny Pilot Options on its options market. The 
Exchange believes the addition of Non-Penny Pilot Options fees and 
rebates will allow the Exchange to compete more effectively with other 
exchanges that have similarly adopted such pricing. The Exchange plans 
to list Non-Penny Pilot Options on January 2, 2013.
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    \4\ A BX Options Market Maker 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.
    \5\ A Non-Customer includes a Professional, Firm, Broker-Dealer 
and Non-BX Options Market Maker.
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    The Exchange proposes to adopt a Fee to Add Liquidity, a Rebate to 
Remove Liquidity and a Fee to Remove Liquidity in Non-Penny Pilot 
Options. Specifically, the Exchange proposes to

[[Page 1294]]

assess the following Fees to Add Liquidity in Non-Penny Pilot Options: 
Customers a $0.25 per contract, BX Options Market Maker $0.50 per 
contract and Non-Customer $0.88 per contract. The Exchange proposes to 
assess a higher Fee to Add Liquidity in Non-Penny Pilot Options of 
$0.85 per contract to Customers and BX Options Market Makers when the 
Customer or BX Options Market Maker is contra to a Customer. Therefore, 
depending on the contra-party to the transaction, a Customer would be 
assessed either a $0.25 or $0.85 per contract Fee to Add Liquidity in 
Non-Penny Pilot Options and a BX Options Market Maker would be assessed 
either a $0.50 or $0.85 per contract Fee to Add Liquidity in Non-Penny 
Pilot Options. The Exchange proposes to add a note 4 to Section 2 of 
Chapter XV to indicate that the higher Fee to Add Liquidity would be 
assessed to a Customer or BX Options Market Maker when these market 
participants are contra to a Customer.
    The Exchange proposes to pay a Customer a $0.70 per contract Rebate 
to Remove Liquidity in Non-Penny Pilot Options. The Exchange would not 
pay a rebate to a BX Options Market Maker or Non-Customer. Finally, the 
Exchange proposes to assess a Fee to Remove Liquidity in Non-Penny 
Pilot Options of $0.88 per contract to a BX Options Market Maker and a 
Non-Customer. A Customer would not be assessed a Fee to Remove 
Liquidity in Non-Penny Pilot Options.
    The Exchange is not proposing any other changes to Section 2 of 
Chapter XV.2.
2. Statutory Basis
    BX believes that the proposed rule changes are consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(4) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to assess fees and pay 
rebates in Non-Penny Pilot Options, which pricing differs from Penny 
Pilot Options,\8\ is consistent with pricing at other options markets 
that also assess different fees and pay different rebates for Penny 
Pilot Options as compared to Non-Penny Pilot Options.\9\ The Exchange 
today assesses fees and pay rebates in Penny Pilot Options. The 
Exchange plans to list Non-Penny Pilot Options on January 2, 2013. The 
Exchange believes that establishing different pricing for Penny Pilot 
and Non-Penny Pilot Options is reasonable, equitable and not unfairly 
discriminatory because Penny Pilot Options are more liquid options as 
compared to Non-Penny Pilot Options. Additionally, other options 
exchanges differentiate pricing by security today.\10\
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    \8\ The Penny Pilot on BX Options was established in June 2012. 
See Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR 
39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX Options 
rules and establishing Penny Pilot). The Exchange filed to extend 
the Penny Pilot through December 31, 2012. See Securities Exchange 
Act Release No. 67342 (July 3, 2012), 77 FR 40666 (July 10, 2012) 
(SR-BX-2012-046).
    \9\ NASDAQ OMX PHLX LLC (``Phlx'') assesses fees and pays 
rebates in Non-Penny Pilot Options. See Phlx's Pricing Schedule. The 
Chicago Board Options Exchange Incorporated (``CBOE'') assess fees 
and pays rebates in Non-Penny Pilot Options. See CBOE's Fees 
Schedule. The NASDAQ Options Market LLC (``NOM'') assesses fees and 
pays rebates in Non-Penny Pilot Options. See NOM's Rules at Chapter 
XV, Section 2. The International Securities Exchange LLC (``ISE'') 
assesses fees and pays rebates in Non-Penny Pilot Symbols. See ISE's 
Fee Schedule.
    \10\ See supra note 8 [sic].
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    The Exchange believes that the proposed Customer Rebate to Remove 
Liquidity in Non-Penny Pilot Options is reasonable because this rebate 
will attract Customer order flow to the Exchange to the benefit of all 
market participants through increased liquidity. Today, the Exchange 
pays a Customer Rebate to Remove Liquidity in Penny Pilot Options. 
Further, the Exchange also believes it is equitable and not unfairly 
discriminatory to only offer the Rebate to Remove Liquidity to 
Customers and not offer the rebate to other market participants because 
the Exchange is offering the rebate to incentivize NOM [sic] 
Participants to send Customer order flow to the Exchange. It is an 
important Exchange function to provide an opportunity to all market 
participants to trade against Customer orders. Customer order flow 
benefits all market participants by improving liquidity, the quality of 
order interaction and executions at the Exchange.
    With respect to the Fee to Add Liquidity, the Exchange believes 
that assessing Customers and BX Options Market Makers a lower Fee to 
Add Liquidity in Non-Penny Pilot Options, when they are not contra to a 
Customer, as compared to Non-Customers is reasonable because the 
Exchange seeks to incentivize these critical market participants to add 
liquidity. Increased liquidity benefits all market participants. The 
Exchange also believes that the lower Fees to Add Liquidity in Non-
Penny Pilot Options for Customers and BX Options Market Makers as 
compared to Non-Customers are equitable and not unfairly discriminatory 
because Customer order flow benefits all market participants by 
improving liquidity, the quality of order interaction and executions at 
the Exchange. Also, BX Options Market Makers have obligations to the 
market and regulatory requirements,\11\ which normally do not apply to 
other market participants. A BX Options Market Maker has the obligation 
to make continuous markets, engage in 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 course of dealings. The proposed differentiation as 
between Customers and BX Options Market Makers and Non-Customers 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by Customers and BX Options Market 
Makers, as well as the differing mix of orders entered.
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    \11\ 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.
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    With respect to the Fee to Add Liquidity, the Exchange believes 
that assessing Customers and BX Options Market Makers a higher Fee to 
Add Liquidity in Non-Penny Pilot Options, when they are contra to a 
Customer is reasonable because the Customer is being paid a Rebate to 
Remove Liquidity of $0.70 per contract pursuant to this proposal and 
the Exchange believes that the increased fee allows the Exchange to 
offer that incentive to Customers to attract liquidity to the market. 
The Exchange also believes that the increased Customer and BX Options 
Market Maker Fees to Add Liquidity in Non-Penny Pilot Options are 
equitable and not unfairly discriminatory because the fees for 
Customers and BX Options Market Makers when contra to a Customer order 
are lower as compared to Non-Customers ($0.85 as compared to $0.88 per 
contract). For the reasons previously mentioned, the Exchange believes 
the fees are equitable and not unfairly discriminatory because these 
critical market participants add liquidity and have obligations to the

[[Page 1295]]

market which differentiates them from Non-Customers.
    The Exchange believes that not assessing a Fee to Remove Liquidity 
in Non-Penny Pilot Options to Customers is reasonable because the 
Exchange seeks to incentivize NOM [sic] Participants to send Customer 
order flow to the Exchange. In addition, the Exchange does not assess a 
Customer Fee to Remove Liquidity in Penny Pilot Options. The Exchange 
believes that not assessing a Fee to Remove Liquidity in Non-Penny 
Pilot Options to Customers is equitable and not unfairly discriminatory 
because Customer order flow brings liquidity to the market which 
benefits all market participants.
    The Exchange believes that assessing a Fee to Remove Liquidity in 
Non-Penny Pilot Options of $0.88 per contract to BX Options Market 
Makers and Non-Customers is reasonable because the fee allows the 
Exchange to reward Customers that remove liquidity with a rebate. The 
advantage of increased Customer order flow benefits all market 
participants. In addition, the proposed Fees to Remove Liquidity in 
Non-Penny Pilot Options are in the range of fees assessed by other 
options exchanges.\12\ The Exchange believes that assessing a Fee to 
Remove Liquidity in Non-Penny Pilot Options of $0.88 per contract to BX 
Options Market Makers and Non-Customers is equitable and not unfairly 
discriminatory because all market participants, BX Options Market 
Makers, Professionals, Firms, Broker-Dealers and Non-BX Options Market 
Makers, excluding Customers, would be assessed the same Fee to Remove 
Liquidity in Non-Penny Pilot Options on every transaction.
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    \12\ NOM assesses Professionals, Firms, non-NOM Market Makers 
and NOM Market Makers Non-Penny Pilot Options Fees to Remove 
Liquidity of $0.89 per contract. See NOM Chapter XV, Section 2. The 
BATS Exchange, Inc. (``BATS'') assesses Professional, Firms and 
Market Makers $0.84 per contract to remove liquidity in Non-Penny 
Pilot Options. See also BATS BZX Exchange Fee Schedule. NYSE Arca, 
Inc. (``NYSE Arca'') assesses Firms and Broker Dealers an $0.85 per 
contract Take Liquidity Fee and NYSE Arca Market Makers are assessed 
an $0.80 take liquidity fee. See NYSE Arca Options Fee Schedule.
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    In the current U.S. options market, many of the contracts are 
quoted in pennies. Under this pricing structure, the minimum penny tick 
increment equates to a $1.00 economic value difference per contract, 
given that a single standardized U.S. option contract covers 100 shares 
of the underlying stock. Where contracts are quoted in $0.05 increments 
(non-pennies), the value per tick is $5.00 in proceeds to the investor 
transacting in these contracts. Liquidity rebate and access fee 
structures on the make-take exchanges for securities quoted in penny 
increments are commonly in the $0.30 to $0.45 per contract range. A 
$0.30 per contract rebate in a penny quoted security is a rebate 
equivalent to 30% of the value of the minimum tick. A $0.45 per 
contract fee in a penny quoted security is a charge equivalent to 45% 
of the value of that minimum tick. In other words, in penny quoted 
securities, where the price is improved by one tick with an access fee 
of $0.45 per contract, an investor paying to access that quote is still 
$0.55 better off than trading at the wider spread, even without the 
access fee ($1.00 of price improvement - $0.45 access fee = $0.55 
better economics). This computation is equally true for securities 
quoted in wider increments. By comparison, rebates and access fees near 
the $0.88 per contract level equate to only 17.6% of the value of the 
minimum tick in Non-Penny Pilot Options, less than the experience today 
in Penny Pilot Options. Accordingly, the Exchange believes that the 
proposed Fees to Add Liquidity and Fees to Remove Liquidity in Non-
Penny Pilot Options are reasonable, equitable and not unfairly 
discriminatory.
    The Exchange operates in a highly competitive market comprised of 
eleven 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 fee and rebate scheme for Non-Penny 
Pilot Options 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. The Exchange believes that the proposed fee/rebate pricing 
structure for Non-Penny Pilot Options 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.\13\ 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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    \13\ 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-2012-074 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-2012-074. 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

[[Page 1296]]

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 20549-1090, 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 BX's principal office. 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-2012-074, and should be 
submitted on or before January 29, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00077 Filed 1-7-13; 8:45 am]
BILLING CODE 8011-01-P