[Federal Register Volume 78, Number 184 (Monday, September 23, 2013)]
[Notices]
[Pages 58359-58362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23007]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70426; File No. SR-Topaz-2013-04]


Self-Regulatory Organizations; Topaz Exchange, LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Amending the 
Schedule of Fees September 17, 2013.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 3, 2013, the Topaz Exchange, LLC (the ``Exchange'' or 
``Topaz'') 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 self-regulatory 
organization. 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 the 
Substance of the Proposed Rule Change

    Topaz is proposing to amend its Schedule of Fees to adopt volume-
based tiered rebates for adding liquidity on the Exchange (``Maker 
Rebate''), and to increase the rebate for certain participant types in 
Non-Penny Symbols. The text of the proposed rule change is available on 
the Exchange's Web site, 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 the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 self-regulatory organization 
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
    Topaz is proposing to amend its Schedule of Fees to establish 
volume-based rebates for adding liquidity in Regular Orders \3\ traded 
on the Exchange. The Exchange believes the proposed rebates will 
incentivize firms that route orders to Topaz to increase order flow to 
the Exchange. The Exchange is also proposing to increase the rebates 
applicable to Non-Topaz Market Maker,\4\ Firm Proprietary/Broker-
Dealer,\5\ and Professional Customer \6\ orders in Non-Penny 
Symbols.\7\
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    \3\ A Regular Order is an order that consists of only a single 
option series and is not submitted with a stock leg.
    \4\ A Non-Topaz Market Maker, or Far Away Market Maker 
(``FarMM''), is a market maker as defined in Section 3(a)(38) of the 
Securities Exchange Act of 1934, as amended, registered in the same 
options class on another options exchange.
    \5\ A Firm Proprietary order is an order submitted by a Member 
for its own proprietary account. A Broker-Dealer order is an order 
submitted by a Member for a non-Member broker-dealer account.
    \6\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
    \7\ Non-Penny Symbols are options overlying all symbols 
excluding Penny Symbols.
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    For Regular Orders in Penny Symbols \8\ and SPY the Exchange 
currently pays a Maker Rebate in Standard Options of $0.48 per contract 
for Priority Customer orders,\9\ $0.37 per contract ($0.39 per contract 
in SPY) for Market Maker orders,\10\ and $0.25 per contract for Non-
Topaz Market Maker, Firm Proprietary/Broker-Dealer, and Professional 
Customer orders. For Regular Orders in Non-Penny Symbols, the Exchange 
currently pays a Maker Rebate in Standard Options of $0.82 per 
contracts for Priority Customer orders, $0.40 per contract for Market 
Maker orders, and $0.10 per contract for Non-Topaz Market Maker, Firm 
Proprietary/Broker-Dealer, and Professional Customer orders. For 
Regular Orders in Mini Options,\11\ Maker Rebates are 1/10th the rate 
applicable in Standard Options.
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    \8\ Penny Symbols are options overlying all symbols listed on 
Topaz that are in the Penny Pilot Program.
    \9\ A Priority Customer is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s).
    \10\ The term Market Maker refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. Market Maker 
orders sent to the Exchange by an Electronic Access Member are 
assessed fees and rebates at the same level as Market Maker orders. 
See footnote 2, Schedule of Fees, Section I and II.
    \11\ Mini Options are options overlying ten (10) shares of AAPL, 
AMZN, GLD, GOOG and SPY.
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    The Exchange proposes to amend the rebates described above so that 
Maker Rebates will be based on a Member's average daily volume 
(``ADV'') in a given month.\12\ In particular, the Exchange proposes to 
pay a Maker Rebate based on four volume tier levels as described in the 
table below. Members may qualify for each tier based on their volume in 
the following categories: (i) Total Affiliated Member ADV,\13\ (ii) 
Priority Customer Maker ADV, or (iii) Total Affiliated Member ADV with 
a Minimum Priority Customer Maker ADV. For example, a Member can reach 
Tier 2 by sending 65,000 contracts in Total Affiliated Member ADV, 
20,000 contracts in Priority Customer Maker ADV, or 40,000

[[Page 58360]]

contracts in Total Affiliated Member ADV of which 15,000 contracts is 
Priority Customer Maker volume.
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    \12\ ADV includes all volume in all symbols and order types.
    \13\ The Total Affiliated Member ADV category includes all 
volume in all symbols and order types.
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    Maker Rebates will be paid based on the highest tier that a Member 
reaches in a given month, and this tiered rate will apply retroactively 
to all eligible traded contracts for all client categories. This means, 
for example, a Member with an ADV of 115,000 Priority Customer Maker 
contracts would also qualify for the highest rebate tier for all Market 
Maker volume it trades on the Exchange that provides liquidity.

                                           Qualifying Tier Thresholds
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                                    Total affiliated    Priority customer   Total affiliated member ADV/minimum
               Tier                    member ADV           maker ADV           priority customer maker ADV
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Tier 1...........................            0-64,999            0-19,999  0-39,999/0+
Tier 2...........................      65,000-149,999       20,000-64,999  40,000-114,999/15,000+
Tier 3...........................     150,000-274,999      65,000-114,999  115,000-224,999/45,000+
Tier 4...........................            275,000+            115,000+  225,000+/65,000+
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    Volume in Standard Options and Mini Options will be combined to 
calculate the tier a Member has reached. For example, a Member can 
reach Tier 2 under Total Affiliated Member ADV by sending an ADV of 
50,000 contracts in Standard Options and 15,000 contracts in Mini 
Options. Based on the tier achieved, the Member will be rebated for 
that tier for all the Standard Options traded at the Standard Option 
rebate amount, and for all the Mini Options traded at the Mini Option 
rebate amount. In addition, all eligible volume from affiliated Topaz 
Members will be aggregated in determining applicable tiers.\14\
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    \14\ Each Member would be responsible for notifying the Exchange 
of its affiliations so that volume of the Member and its affiliates 
may be aggregated.
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    The proposed Maker Rebates for each tier and participant type are 
as follows:

                        I. Regular Order Rebates for Adding Liquidity in Standard Options
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                                                                                               Firm proprietary,
                                                                                                 B/D, FarMM &
                        Tier                          Priority  customer  Topaz market maker     professional
                                                                                                   customer
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                               Penny Symbols and SPY Maker Rebates (per contract)
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Tier 1..............................................             ($0.25)             ($0.30)             ($0.25)
Tier 2..............................................              (0.40)              (0.32)              (0.25)
Tier 3..............................................              (0.45)              (0.34)              (0.25)
Tier 4..............................................              (0.48)              (0.37)              (0.25)
Tier 4 SPY..........................................              (0.48)              (0.39)              (0.25)
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                                 Non-Penny Symbols Maker Rebates (per contract)
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Tier 1..............................................              (0.70)              (0.40)              (0.25)
Tier 2..............................................              (0.75)              (0.42)              (0.25)
Tier 3..............................................              (0.80)              (0.44)              (0.25)
Tier 4..............................................              (0.82)              (0.46)              (0.25)
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                         II. Regular Order Rebates for Adding Liquidity in Mini Options
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                                                                                               Firm proprietary,
                                                                                                 B/D, FarMM &
                        Tier                          Priority  customer  Topaz market maker     professional
                                                                                                   customer
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                               Penny Symbols and SPY Maker Rebates (per contract)
----------------------------------------------------------------------------------------------------------------
Tier 1..............................................            ($0.025)            ($0.030)            ($0.025)
Tier 2..............................................             (0.040)             (0.032)             (0.025)
Tier 3..............................................             (0.045)             (0.034)             (0.025)
Tier 4..............................................             (0.048)             (0.037)             (0.025)
Tier 4 SPY..........................................             (0.048)             (0.039)             (0.025)
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                                 Non-Penny Symbols Maker Rebates (per contract)
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Tier 1..............................................             (0.070)             (0.040)             (0.025)
Tier 2..............................................             (0.075)             (0.042)             (0.025)
Tier 3..............................................             (0.080)             (0.044)             (0.025)
Tier 4..............................................             (0.082)             (0.046)             (0.025)
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[[Page 58361]]

    By way of example, under the new tiered rebate structure a Member 
that executed an ADV of 20,000 Priority Customer contracts in all 
classes listed on the Exchange that added liquidity in a given month 
would be entitled to receive the proposed Tier 2 Maker Rebate of $0.40 
per contract for Standard Options and $0.040 per contract for Mini 
Options in Penny Symbols. If the Member executed an ADV of 65,000 
Priority Customer contracts that added liquidity in the same month, the 
Exchange would instead pay the proposed Tier 3 Maker Rebate of $0.45 
per contract for Standard Options and $0.045 per contract for Mini 
Options in Penny Symbols. The applicable tier reached will similarly 
affect the maker rebates paid on non-Priority Customer maker volume as 
reflected in the tables.
    The Exchange notes that the Maker Rebates currently being paid on 
Topaz are equivalent to Tier 4 rebates under the new structure, with a 
few exceptions. During the initial rollout of symbols on Topaz, the 
Exchange could not adopt the proposed tiered structure due to the 
impossibility of calculating appropriate ADV thresholds for each tier 
when symbols were being listed on the Exchange each week. The Exchange, 
therefore, opted to provide a higher introductory rate for Maker 
Rebates in order to attract orders to the Exchange during the initial 
rollout phase. By adopting the proposed tiered structure now, the 
Exchange seeks to incentivize Members to send additional order flow to 
the Exchange in order to qualify for the higher Maker Rebates.
    At this time the Exchange is not modifying the Maker Rebates 
applicable to Non-Topaz Market Maker, Firm Proprietary/Broker-Dealer, 
or Professional Customer orders in Penny Symbols and SPY. Although the 
Exchange is adopting a tiered structure for these orders, the amount of 
the applicable Maker Rebate remains unchanged from current levels of 
$0.25 per contract for Standard Options and $0.025 per contract for 
Mini Options, regardless of the tier achieved. In order to increase 
order flow from these market participants in Non-Penny symbols, the 
Exchange is increasing the Maker Rebate for these market participants 
so that the rebate is now equivalent to the rebate offered in Penny 
Symbols and SPY. As such, Non-Topaz Market Maker, Firm Proprietary/
Broker-Dealer, and Professional Customer orders in Non-Penny Symbols 
will be provided an increased Maker Rebate of $0.25 per contract for 
Standard Options and $0.025 per contract for Mini Options, up from 
$0.10 per contract and $0.010 per contract, respectively.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\15\ in general, and 
Section 6(b)(4) of the Act,\16\ in particular, in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities.
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    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed rebates are reasonable and 
equitably allocated because Topaz has already established Maker Rebates 
for Members that provide liquidity on the Exchange, and is merely 
proposing to adopt volume-based tiers designed to incentivize Members 
to send additional order flow to the Exchange. The Exchange believes 
that the proposed Maker Rebates are not unfairly discriminatory because 
the rebate structure is competitive with tiered rebate structures that 
exist today at other options exchanges such as the NASDAQ Options 
Market (``NOM'').\17\ For example, NOM provides its members with a 
rebate for adding liquidity in Penny Symbols that ranges between $0.25 
per contract and $0.48 per contract for customer and professional 
orders, and between $0.25 per contract and $0.32 per contract for 
Market Maker orders.\18\ As proposed, Topaz will also offer Priority 
Customers the same range of rebates as currently provided by NOM, and 
will actually offer more competitive rebates for Market Makers, from 
$0.30 per contract for the base tier and as high as $0.37 per contract 
for the highest tier. Topaz also compares competitively with respect to 
the thresholds required to achieve higher levels of rebates. For 
example, a Member executing an ADV of 275,000 contracts on Topaz would 
qualify for the highest $0.48 rebate for Priority Customer orders, 
whereas the same firm would have to execute an extra 50,000 contracts 
in ADV to qualify for that level of rebate on NOM. Topaz also does not 
separate out thresholds for different participant types, meaning that a 
Member that qualifies for a higher tier in Priority Customer volume 
would also earn the higher rebate amount for any Market Maker volume it 
trades on the Exchange that provides liquidity.
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    \17\ See NASDAQ Options Rules, Chapter XV Options Pricing, 
Section 2, NASDAQ Options Market--Fees and Rebates.
    \18\ Both Topaz and NOM provide higher rebates than those listed 
here for market maker orders in certain specific symbols (e.g. SPY).
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    While the Exchange is lowering the current Maker Rebate provided to 
Members that have not achieved the highest volume tier, the Exchange 
believes that Members will in fact be incentivized to bring additional 
order flow to the Exchange to obtain higher rebates. Additionally, the 
Exchange believes that the proposed Maker Rebates are fair, equitable 
and not unfairly discriminatory because they are consistent with rebate 
differentiation that exists today at other option exchanges.
    With respect to rebates for Market Makers, the Exchange believes 
that the price differentiation between the various market participants 
is appropriate and not unfairly discriminatory because Market Makers 
have different requirements and obligations to the Exchange that other 
market participants do not (such as quoting requirements). The Exchange 
believes that it is equitable and not unfairly discriminatory to 
provide a lower rebate to market participants that do not have such 
requirements and obligations that Exchange Market Makers do.
    The Exchange also believes that providing higher rebates to 
Priority Customer orders, and creating ADV thresholds specifically for 
Members that send such orders to Topaz, attracts that order flow to the 
Exchange and thereby creates liquidity to the benefit of all market 
participants who trade on the Exchange. Further, the Exchange believes 
that it is equitable and not unfairly discriminatory to provide higher 
rebates to Priority Customer orders than to Professional Customer 
orders. A Priority Customer is by definition not a broker or dealer in 
securities, and does not place more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). This limitation does not apply to participants on the 
Exchange whose behavior is substantially similar to that of market 
professionals, including Professional Customers, who will generally 
submit a higher number of orders (many of which do not result in 
executions) than Priority Customers. Further, Professional Customers 
engage in trading activity similar to that conducted by market makers 
and proprietary traders. For example, Professional Customers join bids 
and offers on the Exchange and thus compete for incoming order flow.
    The Exchange has determined to charge fees and provide rebates for 
Regular Orders in Mini Options at a rate

[[Page 58362]]

that is 1/10th the rate of fees and rebates the Exchange currently 
provides for trading in Standard Options. The Exchange believes it is 
reasonable and equitable and not unfairly discriminatory to assess 
lower fees and rebates to provide market participants an incentive to 
trade Mini Options on the Exchange. The Exchange believes the proposed 
rebates are reasonable and equitable in light of the fact that Mini 
Options have a smaller exercise and assignment value, specifically 1/
10th that of a standard option contract, and, as such, is providing 
rebates that are 1/10th of those applicable to Standard Options.
    The Exchange notes that the proposed rule filing is intended to 
establish Topaz as an attractive venue for market participants to 
direct their order flow as the proposed rebates are competitive with 
those established by other exchanges. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
order flow to another exchange if they deem rebates at a particular 
exchange to be too low. For the reasons noted above, the Exchange 
believes that the proposed rebates are fair, equitable and not unfairly 
discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\19\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on inter-market competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The tiered rebate structure 
that the Exchange proposes to adopt here is similar to that currently 
in effect on other maker/taker options exchanges such as NOM,\20\ and 
will increase competition between Topaz and other markets.
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    \19\ 15 U.S.C. 78f(b)(8).
    \20\ See NASDAQ Options Rules, Chapter XV Options Pricing, 
Section 2, NASDAQ Options Market--Fees and Rebates.
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    In establishing tiered rebates for providing liquidity, the 
Exchange is not imposing any burden on intra-market competition. The 
established volume tiers are transparent and offer Members a variety of 
ways to reach different levels of rebates on the exchange, similar to 
levels and differentials these same participants are familiar with on 
several other exchanges. Volume tiers are not new to the options 
industry and generally reward Members for submitting additional volume 
to the Exchange, with Topaz now seeking to introduce a similar 
structure.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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 \21\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\22\ because it establishes a due, fee, or other charge 
imposed by Topaz.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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.

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-Topaz-2013-04 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-Topaz-2013-04. 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 such filing also will be available for inspection 
and copying at the principal offices 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-Topaz-2013-04, and should be 
submitted on or before October 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23007 Filed 9-20-13; 8:45 am]
BILLING CODE 8011-01-P