[Federal Register Volume 80, Number 225 (Monday, November 23, 2015)]
[Notices]
[Pages 72999-73006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29708]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76453; File No. SR-EDGX-2015-56]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees

November 17, 2015.
    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 November 9, 2015, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated the proposed rule change as one establishing or changing 
a member due, fee, or other charge imposed by the Exchange under 
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to EDGX Rules 
15.1(a) and (c).
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 parts 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 adopt a fee schedule which would be 
applicable to the Exchange's options platform (``EDGX Options''). 
Specifically, the fee schedule would establish select fees applicable 
to Members trading options on and using services provided by EDGX 
Options. The Exchange proposes to implement these amendments to its fee 
schedule immediately.\6\
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    \6\ The Exchange initially filed the proposed fees on October 
30, 2015 (SR-EDGX-2015-54). On November 9, 2015, the Exchange 
withdrew that filing and submitted this filing.
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Definitions
    The Exchange proposes to include general defined terms in its fee 
schedule. The proposed definitions are designed to provide greater 
transparency with regard to how the Exchange assesses fees and are 
based on and nearly identical to those currently provided for in the 
fee schedule for the equity options platform operated by BATS Exchange, 
Inc. (``BZX Options'').\7\ Each of these definitions are as follows:
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    \7\ The Exchange notes that although there is no substantive 
difference between the definitions, instead of ``Away Market 
Maker'', which is the proposed term for EDGX Options, BZX Options 
uses the term ``Non-BATS Market Maker.''

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[[Page 73000]]

     Per Contract. All references to ``per contract'' within 
the fee schedule are to mean ``per contract executed''.
     Broker Dealer. Applies to any order for the account of a 
broker dealer, including a foreign broker dealer, that clears in the 
Customer range at the Options Clearing Corporation (``OCC'').
     Customer. Applies to any transaction identified by a 
Member for clearing in the Customer range at the OCC, excluding any 
transaction for a Broker Dealer or a ``Professional'' as defined in 
Exchange Rule 16.1.
     Firm. Applies to any transaction identified by a Member 
for clearing in the Firm range at the OCC, excluding any Joint Back 
Office transaction.
     Joint Back Office. Applies to any transaction identified 
by a Member for clearing in the Firm range at the OCC that is 
identified with an origin code as Joint Back Office. A Joint Back 
Office participant is a Member that maintains a Joint Back Office 
arrangement with a clearing broker-dealer.
     Market Maker. Applies to any transaction identified by a 
Member for clearing in the Market Maker range at the OCC, where such 
Member is registered with the Exchange as a Market Maker as defined in 
Rule 16.1(a)(37).
     Non-Customer. Applies to any transaction that is not a 
Customer order.
     Away Market Maker. Applies to any transaction identified 
by a Member for clearing in the Market Maker range at the OCC, where 
such Member is not registered with the Exchange as a Market Maker, but 
is registered as a market maker on another options exchange.
     Professional. Applies to any transaction identified by a 
Member as such pursuant to Exchange Rule 16.1.
     Penny Pilot Securities. Are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01.\8\
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    \8\ Exchange Rule 21.5, Interpretation and Policy .01 states 
that the Exchange will operate a pilot program set to expire on June 
30, 2016 to permit options classes to be quoted and traded in 
increments as low as $.01. A list of option classes included in the 
pilot program is available on the Exchange's Web site.
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Standard Transaction Fees
    The Exchange proposes to implement a fee structure under which 
standard rates are applied, the amount of which depend on whether the 
order is for a Customer, Non-Customer, or Market Maker as well as the 
capacity of the order with which such order trades. The standard rates 
and applicable fee codes described below would apply unless a Member's 
transaction is assigned a fee code other than a standard fee code. A 
fee code other than a standard fee code would only be applied to a 
Member's transaction that is routed to and executed on another options 
exchange or where it is to participate in the EDGX Options opening 
process under Exchange Rule 21.7. Like on BZX Options, an order that 
participates in the EDGX Options opening process would yield fee code 
OO and would not be charged a fee nor receive any rebate.\9\
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    \9\ See the BZX Options fee schedule available at http://www.batsoptions.com/support/fee_schedule/bzx/.
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    Initially, the Exchange does not propose to implement a tiered 
pricing structure under which it would provide enhanced rebates or 
reduced fees based on the Member's monthly trading activity. Nor does 
the Exchange propose to implement ``maker-taker'' pricing (i.e., 
providing a rebate to the side of the transaction that added liquidity 
and a fee to the side of the transaction that removed liquidity).
    Customer vs. Customer. Neither side of a transaction will be 
charged a fee where both sides trade in a Customer capacity. Such 
Customer orders would yield either fee code PA or NA where they add 
liquidity and PR or NR where they remove liquidity, depending on 
whether the order is in a Penny Pilot Security or not.
    Customer vs. Non-Customer. An order that trades in a Customer 
capacity will receive a rebate of $0.21 per contract where it executes 
against a contra-side order that trades in a Non-Customer capacity. 
Such Customer orders would yield either fee code PY or NY where they 
add liquidity and PC or NC where they remove liquidity, depending on 
whether the order is in a Penny Pilot Security or not.
    Market Maker vs. Customer. An order that trades in a Market Maker 
capacity will be charged a fee of $0.21 per contract where it executes 
against a contra-side order that trades in a Customer capacity. Such 
Market Maker orders would yield either fee code PM or NM where they add 
liquidity and PP or NP where they remove liquidity, depending on 
whether the order is in a Penny Pilot Security or not.
    Non-Customer (other than Market Maker) vs. Customer. For Penny 
Pilot Securities, an order that trades in a Non-Customer capacity, 
other than a Market Maker, will be charged a fee of $0.46 per contract 
where it executes against a contra-side order that trades in a Customer 
capacity. Such Non-Customer orders in Penny Pilot Securities would 
yield fee code PO where they add liquidity and PQ where they remove 
liquidity. Such Non-Customer orders in Non-Penny Pilot Securities would 
be charged a fee of $0.86 per contract and yield fee code NO where they 
add liquidity and NQ where they remove liquidity.
    Non-Customer vs. Non-Customer. Neither side of a transaction will 
be charged a fee where both sides trade in a Non-Customer capacity. 
Such Non-Customer orders would yield either fee code PF or NF where 
they add liquidity and PN or NN where they remove liquidity, depending 
on whether the order is in a Penny Pilot Security or not.
Routing Fees
    The Exchange proposes to adopt rates for routed orders that 
approximate the cost of routing to other options exchanges based on the 
cost of transaction fees assessed by each venue as well as costs to the 
Exchange for routing (i.e., clearing fees, connectivity and other 
infrastructure costs, membership fees, etc.) (collectively, ``Routing 
Costs''). The Exchange intends to monitor the fees charged as compared 
to the costs of its routing services and adjust its routing fees to 
ensure that the Exchange's fees do indeed result in a rough 
approximation of overall Routing Costs, and are not significantly 
higher or lower in any area. The proposed rates are based on the rates 
charged by the Exchange's affiliate, BZX Options, for routing services.
Marketing Fees
    The Exchange will assess a marketing fee to all Market Makers for 
contracts they execute in their assigned classes when the contra-party 
to the execution is a Customer. The marketing fee is charged only in a 
Market Maker's assigned classes because it is in these classes that the 
Market Maker has the general obligation to attract order flow to the 
Exchange. Each Primary Market Maker (``PMM'') \10\ and Directed Market 
Maker (``DMM'') \11\ will have a marketing fee pool into which the 
Exchange will deposit the applicable per-contract marketing fee. For 
orders directed to DMMs, the applicable marketing fees are allocated to 
the DMM pool. For non-directed orders, the applicable marketing fees 
are allocated to the PMM pool. All Market Makers that participated in 
such transaction will pay the applicable marketing fees to the 
Exchange, which will allocate such funds to the Market Maker that 
controls the distribution of the marketing fee pool. Each month the 
Market Maker will provide instruction to the Exchange

[[Page 73001]]

describing how the Exchange is to distribute the marketing fees in the 
pool to the order flow provider, who submit as agent, Customer orders 
to the Exchange.
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    \10\ See Exchange Rule 21.8(g).
    \11\ See Exchange Rule 21.8(f).
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    Undisbursed marketing fees will be reimbursed to the Market Makers 
that contributed to the pool based upon their pro-rata portion of the 
entire amount of marketing fee collected. In order to provide PMMs and 
DMMs flexibility in the timing of their disbursements to Electronic 
Exchange Members, PMMs and DMMs may choose to disburse the Market Fees 
collected in one month over a three month period. Reimbursement of 
undisbursed Marketing Fees will take this into consideration.
    The amount of the Marketing Fee would depend upon whether the 
affected option class is a Penny Pilot Security. A Marketing Fee of 
$0.25 per contract will be assessed to Market Makers for transactions 
in Penny Pilot Securities. A Marketing Fee of $0.65 per contract will 
be assessed to Market Makers for transactions in Non-Penny Pilot 
Securities. A list of option classes included in the Penny Pilot 
Program is available on the Exchange's Web site. The Exchange's 
marketing fees are the same as Miami International Securities Exchange, 
Inc. (``MIAX''), Chicago Board Options Exchange, Inc. (``CBOE''), 
International Securities Exchange, Inc. (``ISE''), the NYSE MKT LLC 
(``NYSE MKT''), and the Nasdaq OMX PHLX LLC (``PHLX'') for transactions 
in option classes that are Penny Pilot Securities. For option classes 
that are Non-Penny Pilot Securities, the Exchange's Marketing Fees is 
less than MIAX and PHLX ($0.70 each respectively) and equal to CBOE, 
ISE and the NYSE MKT ($0.65 each respectively).
Port Fees
    The Exchange proposes to: (i) offer logical ports free of charge; 
and (ii) adopt fees for physical connectivity.
    Logical Ports. The Exchange proposes to provide logical ports 
(including Multicast PITCH Spin Server and GRP ports), as well as ports 
with bulk quoting capabilities, free of charge. A logical port 
represents a port established by the Exchange within the Exchange's 
system for trading and billing purposes. Each logical port established 
is specific to a Member or non-Member and grants that Member or non-
Member the ability to operate a specific application, such as FIX order 
entry or PITCH data receipt. The Exchange's Multicast PITCH data feed 
\12\ is available from two primary feeds, identified as the ``A feed'' 
and the ``C feed'', which contain the same information but differ only 
in the way such feeds are received. The Exchange also offers two 
redundant feeds, identified as the ``B feed'' and the ``D feed.'' The 
Exchange also offers a bulk-quoting interface which allows Users \13\ 
of EDGX Options to submit and update multiple bids and offers in one 
message through logical ports enabled for bulk-quoting. The bulk-
quoting application would allow Users to provide quotations in many 
different options.
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    \12\ See Exchange Rule 21.15(b)(1).
    \13\ A User on EDGX Options is either a member of EDGX Options 
or a sponsored participant who is authorized to obtain access to the 
Exchange's system pursuant to Exchange Rule 11.3.
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    Physical Connectivity. The Exchange does, however, propose to adopt 
fees for physical connectivity. A physical port is utilized by a Member 
or non-Member to connect to the Exchange at the data centers where the 
Exchange's servers are located. The Exchange currently maintains a 
presence in two third-party data centers: (i) The primary data center 
where the Exchange's business is primarily conducted on a daily basis, 
and (ii) a secondary data center, which is predominantly maintained for 
business continuity purposes. The Exchange proposes to assess the 
following physical connectivity fees for Members and non-Members on a 
monthly basis: $2,000 per physical port that connects to the System via 
1 gigabyte circuit; and $4,000 per physical port that connects to the 
System via 10 gigabyte circuit. The Exchange will pass-through in full 
any fees or costs in excess of $1,000 incurred by the Exchange to 
complete a cross-connect. These proposed fees are identical to those 
currently provided for in the fee schedule applicable to the Exchange's 
equities trading platform (``EDGX Equities'') and those of its 
affiliates, BATS Exchange, Inc. (``BZX'') (including BZX Options), EDGA 
Exchange, Inc. (``EDGA''), and BATS Y-Exchange, Inc. (``BYX'').\14\
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    \14\ See fee schedules for EDGX Equities, BZX, BZX Options, 
EDGA, and BYX.
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Market Data Definitions and Product
    The Exchange proposes to include in its fee schedule the following 
defined terms that relate to the Exchange's market data fees. The 
proposed definitions are designed to provide greater transparency with 
regard to how the Exchange provides for market data. The Exchange notes 
that none of the proposed definitions are designed to adopt any fee. 
Instead, the Exchange is adopting definitions to avoid confusion for 
Members and non-Members who are familiar with market data fees on other 
exchanges, including the Exchange's affiliates. Each of these 
definitions are identical to those currently provided for in the 
Exchange's equities fee schedule and those of its affiliates.\15\
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    \15\ Id.
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    First, a ``Distributor'' of an Exchange Market Data product would 
be defined as any entity that receives the Exchange Market Data product 
directly from the Exchange or indirectly through another entity and 
then distributes it internally or externally to a third party. An 
``Internal Distributor'' of an Exchange Market Data product would be 
defined as a Distributor that receives the Exchange Market Data product 
and then distributes that data to one or more Users within the 
Distributor's own entity. Meanwhile, an ``External Distributor'' of an 
Exchange Market Data product would be defined as a Distributor that 
receives the Exchange Market Data product and then distributes that 
data to a third party or one or more Users outside the Distributor's 
own entity.
    A ``User'' of an Exchange Market Data product would be defined as a 
natural person, a proprietorship, corporation, partnership, or entity, 
or device (computer or other automated service), that is entitled to 
receive Exchange data. A ``Non-Professional User'' of an Exchange 
Market Data product would be defined as a natural person who is not: 
(i) Registered or qualified in any capacity with the Commission, the 
Commodity Futures Trading Commission, any state securities agency, any 
securities exchange or association, or any commodities or futures 
contract market or association; (ii) engaged as an ``investment 
adviser'' as that term is defined in Section 202(a)(11) of the 
Investment Advisers Act of 1940 (whether or not registered or qualified 
under that Act); or (iii) employed by a bank or other organization 
exempt from registration under federal or state securities laws to 
perform functions that would require registration or qualification if 
such functions were performed for an organization not so exempt. 
Lastly, a ``Professional User'' of an Exchange Market Data product 
would be defined as any User other than a Non-Professional User.
    The Exchange will offer a market data product called Multicast 
PITCH.\16\ Multicast PITCH is an uncompressed data feed that offers 
depth of book quotations and execution information based on options 
orders entered into the System. The Exchange proposes to offer the 
Multicast PITCH feed free of charge.
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    \16\ See Exchange Rule 21.15(b)(1).

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[[Page 73002]]

BATS Connect
    In December 2014, the Exchange filed a proposed rule change with 
the Commission to adopt a communication and routing service now known 
as BATS Connect.\17\ The Exchange now proposes to adopt fees related to 
the use of BATS Connect that are equal to the fees charged for an 
identical service, also called BATS Connect, offered by the Exchange's 
affiliates. The Exchange notes that BATS Connect is offered by all of 
the Exchange's affiliated exchanges. The Exchange believes that the 
fees should also be appropriately set forth on the fee schedule of EDGX 
Options because BATS Connect will be offered to all Exchange Members, 
including Members that participate primarily or exclusively on EDGX 
Options.
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    \17\ See the EDGX equities fee schedule available at http://batstrading.com/support/fee_schedule/edgx/. See also Securities 
Exchange Act Release Nos. 73780 (December 8, 2014), 79 FR 73942 
(December 12, 2014) (SR-EDGX-2014-28); and 75150 (June 11, 2015), 80 
FR 34772 (June 17, 2015) (SR-EDGX-2015-27).
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    BATS Connect is offered by the Exchange on a voluntary basis in a 
capacity similar to a vendor. In sum, BATS Connect is a communication 
service that provides subscribers an additional means to receive market 
data from and route orders to any destination connected to the 
Exchange's network. BATS Connect does not provide any advantage to 
subscribers for connecting to the Exchange's affiliates as compared to 
other methods of connectivity available to subscribers. The servers of 
the subscriber need not be located in the same facilities as the 
Exchange in order to subscribe to BATS Connect. Subscribers may also 
seek to utilize BATS Connect in the event of a market disruption where 
other alternative connection methods become unavailable.
    The Exchange will charge a monthly connectivity fee to subscribers 
utilizing BATS Connect to route orders to other exchanges and broker-
dealers that are connected to the Exchange's network. The amount of the 
connectivity fee varies based solely on the bandwidth selected by the 
subscriber. Specifically, the Exchange proposes to charge $350 for 1 
Mb, $700 for 5 Mb, $950 for 10 Mb, $1,500 for 25 Mb, $2,500 for 50 Mb, 
and $3,500 for 100 Mb.
    BATS Connect allows subscribers to receive market data feeds from 
the exchanges connected to the Exchange's network. In such case, the 
subscriber would pay the Exchange a connectivity fee, which varies and 
is based solely on the amount of bandwidth required to transmit the 
selected data product to the subscriber. The proposed connectivity fees 
are set forth in the Exhibit 5 attached hereto and range from no charge 
to $11,500 based on the market data product the subscriber selects.
    The Exchange also proposes to adopt a discounted fee of $4,160 per 
month for subscribers who purchase connectivity to a bundle of select 
market data products. The following market data products would be 
included in the bundle: UQDF/UTDF/OMDF, CQS/CTS, Nasdaq TotalView, 
Nasdaq BX TotalView, Nasdaq PSX TotalView, NYSE ArcaBook, NYSE MKT 
OpenBook Ultra, and BBS/TTDS. Absent the discount, a subscriber 
purchasing connectivity through BATS Connect for each of these market 
data products would pay a total monthly fee of $5,200. As proposed, a 
subscriber who purchases connectivity to each of the above market data 
products would be charged a monthly fee of $4,160, which represents a 
20% discount. The subscribers would pay any fees charged by the 
exchange providing the market data feed directly to that exchange.
    The Exchange notes that it will not charge a fee to subscribers 
utilizing BATS Connect to route orders to or receive market data 
products from the Exchange's affiliates, EDGA, BZX (including BZX 
Options), and BYX. BATS Connect provides subscribers a means to access 
exchanges and market centers on the Exchange's network. In all cases, 
BATS Connect subscribers would continue to be liable for the necessary 
fees charged by that exchange or market center, including any required 
connectivity fees. Market participants who chose a method other than 
BATS Connect to connect to another exchange or market center would also 
pay any required connectivity fees directly to that exchange or market 
center. Likewise, BATS Connect subscribers would be liable for any 
connectivity fees charged by the Exchange's affiliate.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\18\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\19\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4).
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Standard Rates and Routing Rates
    The Exchange believes its proposed standard rates as well as rates 
for routed orders are equitable and reasonable. The Exchange will 
operate in a highly competitive market in which market participants may 
readily send order flow to any of twelve competing venues if they deem 
fees at the Exchange to be excessive. Initially, the Exchange does not 
propose to implement a tiered pricing structure under which it would 
provide enhanced rebates or reduced fees based on the Member's monthly 
trading activity. Nor does the Exchange propose to implement ``maker-
taker'' pricing. As a new options exchange, the proposed fee structure 
is intended to attract order flow to the Exchange by offering market 
participants a competitive and simplified pricing structure.
    The Exchange believes it is equitable, reasonable and non-
discriminatory to implement a fee structure under which standard rates 
are applied, the amount of which depend on whether the order is for a 
Customer, Non-Customer, or Market Maker as well as the capacity of the 
order with which such order trades. The Exchange believes that 
application of a simple pricing structure that groups participants 
together is advantageous to all Members of EDGX Options.
    The Exchange believes it is equitable, reasonable and non-
discriminatory to charge fees to Non-Customers (including Market 
Makers) and provide a rebate to Customers when their orders execute 
against each other. Non-Customer accounts generally engage in increased 
trading activity as compared to Customer accounts. This level of 
trading activity draws on a greater amount of Exchange system resources 
than that of Customers. Simply, the more orders submitted to the 
Exchange, the more messages sent to and received from the Exchange, and 
the more Exchange system resources utilized. This level of trading 
activity by Non-Customer accounts results in greater ongoing 
operational costs to the Exchange.\20\ As such, the Exchange aims to 
recover its costs by fees to Non-Customers when they execute against a 
Customer order. Sending orders to and trading on the Exchange are 
entirely voluntary. Under these circumstances, Exchange transaction 
fees must be competitive to attract order flow, execute orders, and 
grow its market. Other options

[[Page 73003]]

exchanges also provide for varying rates based on the capacity of the 
order.\21\ As such, the Exchange believes its proposed trading fees are 
fair and reasonable.
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    \20\ The Exchange, however, does not propose to assess ongoing 
fess for EDGX Options market data or fees related to order 
cancellation.
    \21\ See Nasdaq OMX PHLX LLC (``PHLX'') fee schedule available 
at http://nasdaqtrader.com/Micro.aspx?id=PHLXPricing (charging no 
fee to customer orders and variable rates non-customer orders). See 
also Nasdaq OMX BX, Inc. fee schedule available at http://nasdaqtrader.com/Micro.aspx?id=BXOptionsPricing.
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    While Non-Customer orders will be assessed transaction fees when 
executing against Customer orders, as proposed, Non-Customer orders 
will be charged no fee when executing against other Non-Customer 
orders. The Exchange believes it is equitable, reasonable and not 
unfairly discriminatory to charge no fee to a Non-Customer order that 
interacts with another Non-Customer order. Providing the opportunity 
for a Non-Customer, including a Market Maker, to be charged no fee in 
such scenarios is designed to encourage Non-Customers to add liquidity 
to the Exchange. In turn, increased liquidity attracts should help 
attract Customer order flow, which is beneficial to all other market 
participants on the Exchange that seek executions against those 
Customer orders. As a new entrant into the options marketplace, the 
Exchange believes such a pricing incentive for Non-Customers is a 
reasonable means to attract order flow by offering market participants 
a competitive pricing structure.
    The Exchange also believes it is equitable, reasonable and not 
unfairly discriminatory to charge Market Makers lower fees than Non-
Customers who are not Market Makers when executing against a Customer 
order. The proposed differentiation between Market Makers and other 
market participants such as Non-Customers recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. Market Makers, unlike other 
market participants, have obligations to the market and regulatory 
requirements,\22\ which normally do not apply to other market 
participants. A 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 such course of dealings. On the other hand, Non-Customers and non-
Market Makers, do not have such obligations on the Exchange.
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    \22\ See Exchange Rule 21.5, Obligations of Market Makers.
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    Moreover, the Exchange believes it is equitable, reasonable and not 
unfairly discriminatory to charge no fee or provide a rebate to 
Customer orders that interacts with another Customer order. The 
securities markets generally, and the Exchange in particular, have 
historically aimed to improve markets for investors and develop various 
features within the market structure for Customer benefit. Like 
charging no fee to Non-Customer orders that execute against other Non-
Customer orders described above, charging no fee or providing a rebate 
to Customers is designed to encourage Customers to add liquidity to the 
Exchange. In turn, increased liquidity is beneficial to all other 
market participants on the Exchange that seek executions against those 
Customer orders. As such, the Exchange believes the proposed Customer 
transaction pricing is equitably allocated, reasonable and not unfairly 
discriminatory.
    As explained above, the Exchange's proposal with respect to routing 
rates is to approximate the cost of routing to other options exchanges, 
including other applicable costs to the Exchange for routing. The 
Exchange believes that a pricing model based on approximate Routing 
Costs is a reasonable, fair and equitable approach to pricing. 
Specifically, the Exchange believes that its proposal to modify fees is 
fair, equitable and reasonable because the proposed fees are generally 
an approximation of the cost to the Exchange for routing orders to such 
exchanges. As a general matter, the Exchange believes that the proposed 
fees will allow it to recoup and cover its costs of providing routing 
services to such exchanges. The Exchange notes that routing through the 
Exchange is voluntary. The Exchange also believes that the proposed fee 
structure for orders routed to and executed at these away options 
exchanges is fair and equitable and not unreasonably discriminatory in 
that it applies equally to all Members.
    The Exchange reiterates that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels to be excessive or providers 
of routing services if they deem fee levels to be excessive. Finally, 
the Exchange notes that it will continually evaluate its routing fees, 
including profit and loss attributable to routing, as applicable, and 
would consider future adjustments to the proposed pricing structure to 
the extent it was recouping a significant profit or loss from routing 
to away options exchanges.
Marketing Fees
    The Exchange notes that the U.S. options markets are highly 
competitive, and the marketing fee is intended to provide an incentive 
for Market Makers to enter into marketing agreements with Members so 
that they will provide order flow to the Exchange. The marketing fee is 
charged only in a Market Maker's assigned classes because it is in 
these classes that the Market Maker has the general obligation to 
attract order flow to the Exchange. The Exchange believes that its 
program of marketing fees, which is similar to marketing fee programs 
that have previously been implemented on other options exchanges,\23\ 
will enhance the Exchange's competitive position and will result in 
increased liquidity on the Exchange, thereby providing more of an 
opportunity for customers to receive best executions. The Exchange 
believes that its marketing fee is reasonable since the amount of the 
Exchange's marketing fee is the same as other exchanges for Penny Pilot 
Securities and less than or equal to other exchanges for Non-Penny 
Pilot Securities.
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    \23\ See e.g., Securities Exchange Act Release Nos. 98415 
(December 12, 2012), 77 FR 74905 (December 18, 2012) (SR-MIAX-2012-
01); 53969 (June 9, 2006), 71 FR 34973 (June 16, 2006) (SR-CBOE-
2006-53); 55265 (February 9, 2007), 72 FR 7697 (February 16, 2007) 
(SR-CBOE-2007-11); 55271 (February 12, 2007), 72 FR 7699 (February 
16, 2007) (SR-ISE-2007-08); and 54152 (July 14, 2006), 71 FR 41488 
(July 21, 2006). See also, Securities Exchange Act Release Nos. 
53841 (May 19, 2006), 71 FR 30461 (May 26, 2006) (SR-Phlx-2006-33); 
54297 (August 9, 2006), 71 FR 47280 (August 16, 2006) (SR-Phlx-2006-
47); 54485 (September 22, 2006), 71 FR 57017 (September 28, 2006) 
(SR-Phlx-2006-56); 55290 (February 13, 2007), 72 FR 8051 (February 
22, 2007) (SR-Phlx-2007-05); and 55473 (March 14, 2007), 72 FR 13338 
(March 21, 2007) (SR-Phlx-2007-12).
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Port Fees
    The Exchange believes that the proposed logical port and physical 
connection fees further the objectives of Section 6(b)(4),\24\ as 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. The Exchange believes that the proposal represents an 
equitable allocation of reasonable dues, fees, and other charges as its 
fees for physical connectivity are reasonably constrained by 
competitive alternatives. If a particular exchange charges excessive 
fees for connectivity, affected Members and non-Members may opt to 
terminate their connectivity arrangements with that exchange, and

[[Page 73004]]

adopt a possible range of alternative strategies, including routing to 
the applicable exchange through another participant or market center or 
taking that exchange's data indirectly. Accordingly, if the Exchange 
charges excessive fees, it would stand to lose not only connectivity 
revenues but also revenues associated with the execution of orders 
routed to it, and, to the extent applicable, market data revenues. The 
Exchange believes that this competitive dynamic imposes powerful 
restraints on the ability of any exchange to charge unreasonable fees 
for connectivity. The Exchange believes that the proposed fees are 
reasonable in that they are identical to those included on the 
Exchange's equities fee schedule and those of its affiliates.\25\
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    \24\ 15 U.S.C. 78f(b)(4).
    \25\ See fee schedules for EDGX Equities, BZX, BZX Options, 
EDGA, and BYX (charging fees for 1 gigabyte circuit of $2,000 per 
month and for 10 gigabyte circuit of $4,000 per month).
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    Finally, the Exchange believes that the proposed rates are 
equitable and non-discriminatory in that they apply uniformly to all 
Members and non-Members. Members and non-Members will continue to 
choose whether they want more than one physical port and choose the 
method of connectivity based on their specific needs. All Exchange 
Members that voluntarily select various service options will be charged 
the same amount for the same services. As is true of all physical 
connectivity, all Members and non-Members have the option to select any 
connectivity option, and there is no differentiation with regard to the 
fees charged for the service.
Market Data Definitions and Products
    The Exchange believes that the proposed definitions are reasonable 
because they are designed to provide greater transparency to Members 
and non-Members with regard to how the Exchange provides for market 
data. The Exchange believes that Members would benefit from clear 
guidance in its fee schedule that describes the manner in which the 
Exchange may assess fees if such fees are proposed in the future. These 
definitions are intended to make the fee schedule clearer and less 
confusing for Members and non-Members and eliminate potential 
confusion, thereby removing impediments to and perfecting the mechanism 
of a free and open market and a national market system, and, in 
general, protecting investors and the public interest. Lastly, the 
proposed definitions are identical to those included in the Exchange's 
equities fee schedule and those of its affiliates.\26\
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    \26\ See fee schedules for EDGX Equities, BZX, BZX Options, 
EDGA, and BYX.
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    The Exchange believes that its proposal to provide its Multicast 
PITCH feed free of charge is consistent with Section 6(b)(4) of the Act 
\27\ because it provides for an equitable allocation of reasonable 
dues, fees, and other charges among its members and other recipients of 
Exchange data. The Exchange also believes the proposal to provide 
Multicast PITCH free of charge is reasonable and equitable in light of 
the Exchange being a new entrant into the options exchange space and 
would enable the Exchange to attract additional order flow. Lastly, the 
Exchange also believes that the proposed amendments to its fee schedule 
are reasonable and non-discriminatory because it will apply uniformly 
to all Members.
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    \27\ 15 U.S.C. 78f(b)(4).
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BATS Connect
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(4) of the Act,\28\ in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among members and 
other persons using its facilities. The Exchange notes that its fees 
proposed for BATS Connect are identical to those currently charged by 
its affiliates, all of which have been published for comment by the 
Commission.\29\
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    \28\ 15 U.S.C. 78f(b)(4).
    \29\ See fee schedules for EDGX Equities, BZX, BZX Options, 
EDGA, and BYX (charging identical fees to those proposed herein for 
the BATS Connect service).
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    First, the Exchange will charge a connectivity fee to subscribers 
utilizing BATS Connect to route orders to other exchanges and market 
centers that are connected to the Exchange's network, which varies 
based solely on the amount of bandwidth selected by the subscriber. 
Second, with regard to utilizing BATS Connect to receive market data 
products from other exchanges, the Exchange would only charge 
subscribers a connectivity fee, the amount of which is based solely on 
the amount of bandwidth required to transmit that specific data product 
to the subscribers.
    The Exchange believes it is reasonable to offer such discounted 
pricing to subscribers who purchase connectivity to a bundle of market 
data products as it would enable them to reduce their overall 
connectivity costs for the receipt of market data. As stated above, 
BATS Connect is offered and purchased on a voluntary basis and 
subscribers can discontinue use at any time and for any reason, 
including due to an assessment of the reasonableness of fees charged. 
Moreover, the Exchange believes the proposed fees are reasonable and 
equitable because they continue to be based on the Exchange's costs to 
cover the amount of bandwidth required to provide connectivity to the 
select bundle of data feeds. The proposed fees will continue to allow 
the Exchange to recoup this cost, while providing subscribers with an 
alternative means to connect to the select bundle of data feeds at a 
discounted rate.
    The subscribers would pay any fees: (i) Charged by the exchange 
providing the market data feed directly to that exchange (ii) charged 
by a market center to which they routed an order and an execution 
occurred directly to that market center. The Exchange itself would not 
charge any additional fees.\30\ BATS Connect is offered and purchased 
on a voluntary basis, in that neither the Exchange nor subscribers are 
required by any rule or regulation to make this product available. 
Accordingly, subscribers can discontinue use at any time and for any 
reason, including due to an assessment of the reasonableness of fees 
charged.
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    \30\ The Exchange's rules and fees would not address the fees or 
manner of operation of any destination to which the subscriber asked 
that an order be routed.
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    Moreover, the Exchange believes the proposed fees are reasonable 
and equitable because they are based on the Exchange's costs to cover 
hardware, installation, testing and connection, as well as expenses 
involved in maintaining and managing the service. The proposed fees 
allow the Exchange to recoup these costs, while providing subscribers 
with an alternative means to connect to other exchange and market 
centers. The Exchange believes that the proposed fees are reasonable 
and equitable in that they reflect the costs and the benefit of 
providing alternative connectivity.
    The Exchange also believes it is equitable and reasonable to 
provide BATS Connect to subscribers for no charge to route orders to or 
receive market data products from the Exchange's affiliates. BATS 
Connect provides subscribers a means to access exchanges and market 
centers on the Exchange's network. In all cases, BATS Connect 
subscribers would continue to be liable for the necessary fees charged 
by the Exchange, its affiliate, or another exchange or market center, 
including any required connectivity fees. As stated above, BATS Connect 
is offered and purchased on a voluntary basis, and

[[Page 73005]]

subscribers and market participants may choose an alternative method to 
connect to the Exchange, its affiliates, or another exchange or market 
center connected to the Exchange's network. Such other services may 
also offer at no charge connectivity to certain exchanges or a group of 
exchanges.\31\ Therefore, the Exchange believes that providing BATS 
Connect to subscribers at no charge to route orders to or receive 
market data products from the Exchange's affiliates is reasonable and 
equitable as they will continue to be liable to the Exchange or its 
affiliate for any required connectivity fees.
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    \31\ See NYSE's SFTI Americas Product and Service List available 
at http://www.nyxdata.com/docs/connectivity (offering at no charge 
connectivity to the NYSE, NYSE MKT LLC, and NYSE Arca, Inc.).
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    Lastly, the Exchange also believes that the proposed fees for BATS 
Connect are non-discriminatory because they will apply uniformly to all 
subscribers. All subscribers that voluntarily select various service 
options will be charged the same amount for the same services. All 
subscribers have the option to select any connectivity option, and 
there is no differentiation among subscribers with regard to the fees 
charged for the service. Further, the benefits of selecting such 
services are the same for all subscribers, irrespective of whether 
their servers are located in the same facility as the Exchange.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed change represents a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Additionally, Members may opt to 
disfavor the Exchange's pricing if they believe that alternatives offer 
them better value. Accordingly, the Exchange does not believe that the 
proposed change will impair the ability of Members or competing venues 
to maintain their competitive standing in the financial markets. The 
Exchange believes that its proposed pass through rates for orders 
routed to and executed on an away options exchange would increase 
competition because they offer customers an alternative means to route 
to those destinations.
    The Exchange believes that its program of marketing fees, which is 
similar to marketing fee programs that have previously been implemented 
on other options exchanges,\32\ will enhance the Exchange's competitive 
position and will result in increased liquidity on the Exchange, 
thereby providing more of an opportunity for customers to receive best 
executions.
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    \32\ See supra note 23.
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    The Exchange believes that fees for connectivity are constrained by 
the robust competition for order flow among exchanges and non-exchange 
markets. Further, excessive fees for connectivity, would serve to 
impair an exchange's ability to compete for order flow rather than 
burdening competition. The Exchange also does not believe the proposed 
rule change would impact intramarket competition as it would apply to 
all Members and non-Members equally.
    Lastly, the Exchange does not believe the proposed fees for BATS 
Connect will result in any burden on competition. The proposed rule 
change is designed to provide subscribers with an alternative means to 
access other market centers on the Exchange's network if they choose or 
in the event of a market disruption where other alternative connection 
methods become unavailable. BATS Connect is not the exclusive method to 
connect to these market centers and subscribers may utilize alternative 
methods to connect to the product if they believe the Exchange's 
proposed pricing is unreasonable or otherwise. Therefore, the Exchange 
does not believe the proposed rule change will have any effect on 
competition.

(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 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) of the Act \33\ and paragraph (f) of Rule 19b-4 
thereunder.\34\ 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.
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    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f).
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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 proposal 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 No. SR-EDGX-2015-56 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-EDGX-2015-56. 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 will also 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-EDGX-2015-56 and should be 
submitted on or before December 14, 2015.


[[Page 73006]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29708 Filed 11-20-15; 8:45 am]
BILLING CODE 8011-01-P