[Federal Register Volume 80, Number 247 (Thursday, December 24, 2015)]
[Notices]
[Pages 80408-80414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32389]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76693; File No. SR-BX-2015-079]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
Fees and Rebates Related to BX Price Improvement Auction (PRISM)

December 18, 2015.
    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 11, 2015, 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 its Options Pricing at Chapter XV, 
Section 2, entitled ``BX Options Market--Fees and Rebates,'' which 
governs pricing for BX members using the BX Options Market (``BX 
Options''). The Exchange proposes to adopt new subsection (5) to add 
fees and rebates for BX Price Improvement Auction (``PRISM''), which is 
a mechanism for price improvement on BX Options (``Price Improvement 
Mechanism'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Chapter XV, Section 2 to adopt 
new subsection (5) to add fees and rebates for PRISM.
    Effective on or about November 16, 2015, BX Options is introducing 
PRISM, which is codified in BX Chapter VI, Section 9 (also known as the 
``PRISM Rule'').\3\ PRISM is a Price Improvement Mechanism for all-
electronic BX Options whereby a buy and sell order may be submitted in 
one order message to initiate an auction at a `stop price' and seek 
potential price improvement. Options are traded electronically on BX 
Options, and all options participants may respond to a PRISM 
Auction,\4\ the duration of which will be set at 200 milliseconds.\5\ 
PRISM includes auto-match functionality in which a Participant (an 
``Initiating Participant'') may electronically submit for execution an 
order it represents as agent on behalf of customer,\6\ broker dealer, 
or any other entity (``PRISM Order'') against principal interest or 
against any other order it represents as agent (an ``Initiating 
Order'') provided it submits the PRISM Order for electronic execution 
into the PRISM Auction pursuant to Chapter VI, Section 9.\7\ The PRISM 
Rule describes the circumstances under which an Initiating Participant 
may initiate an Auction. A PRISM Order that is for a Non-Customer 
(account of a broker-dealer or any other person or entity that is not a 
Public Customer) is always required to improve the same side of the BX 
BBO even if there is no resting limit order on the book. PRISM Orders 
that do not comply with the requirements set forth in the PRISM Rule 
are not eligible to initiate an Auction and will be immediately 
cancelled. Also, PRISM Orders submitted at or before the opening of 
trading are not eligible to initiate an Auction and will be rejected. 
PRISM Orders submitted during the final two seconds of the trading 
session in the

[[Page 80409]]

affected series are not eligible to initiate an Auction and will be 
immediately cancelled. Finally, an Initiating Order may not be a 
solicited order for the account of any BX Options Market Maker assigned 
in the affected series.\8\
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    \3\ See Securities Exchange Act Release Nos. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (approval 
order) (``PRISM Approval''); and 75827 (September 3, 2015), 80 FR 
54601 (September 10, 2015) (SR-BX-2015-032) (``PRISM Filing''). In 
the PRISM Approval the Exchange noted that it will file a rule 
change separately with the Commission to remove Price Improving and 
Post-Only Order types from its Rules. The Exchange will not commence 
offering BX PRISM until such time as it has an effective and 
operative rule in place from the Commission to remove Price 
Improving and Post-Only Orders and removes the ability to submit 
Price Improving and Post-Only Orders into the auction. In the event 
the Exchange determines to amend its order types to allow the entry 
of non-displayed order types, e.g. Price Improving or Post-Only 
Orders, the Exchange will file a proposed rule change pursuant to 
Section 19(b)(2) with the Commission to seek approval for such rule 
change. See also Options Technical Update #2015-6.
    \4\ PRISM Auction eligibility requirements and the early 
conclusion of the PRISM Auction are, with certain other PRISM 
features, subject to a pilot program scheduled to expire July 18, 
2016. See BX Chapter VI, Section 9.
    \5\ Other exchanges that have price improvement auctions have 
developed different durations. See, e.g., CBOE Rule 6.74A(b)(1)(C) 
(CBOE's AIM auction has a duration of one second); and BOX Rule 
7150(f)(1) (BOX's PIP auction has a duration of one hundred 
milliseconds, commencing on the dissemination of the PIP broadcast).
    \6\ The term ``Customer'' is defined below for purposes of this 
fee proposal.
    \7\ BX PRISM will only conduct an auction for simple (non-
complex) Orders.
    \8\ See BX Chapter VI, Section 9(i)(C) through (G).
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    The Exchange believes that the PRISM Auction will be beneficial to 
market participants, and in particular will encourage BX Market Makers 
\9\ to quote at the National Best Bid or Offer (``NBBO'') with 
additional size and thereby result in tighter and deeper markets, 
resulting in more liquidity on BX. Specifically, by offering BX Market 
Makers the ability to receive priority in the proposed allocation 
during the PRISM Auction up to the size of their quote, a BX Market 
Maker will be encouraged to quote with additional size outside of the 
PRISM Auction at the best and most aggressive prices. BX believes that 
this incentive may result in a narrowing of quotes and thus further 
enhance BX's market quality. BX believes that PRISM will encourage BX 
Market Makers to compete vigorously to provide the opportunity for 
price improvement in a competitive auction process.\10\
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    \9\ BX Options Market Makers may also be referred to as ``Market 
Makers''. The term ``BX Options Market Maker'' means a Participant 
that has registered as a Market Maker on BX Options pursuant to 
Chapter VII, Section 2, and must also remain in good standing 
pursuant to Chapter VII, Section 4. In order to receive Market Maker 
pricing in all securities, the Participant must be registered as a 
BX Options Market Maker in at least one security.
    \10\ For purposes of brevity, the Exchange does not endeavor to 
describe all the nuances of PRISM within this fee proposal. 
Additional detail regarding PRISM can be found in PRISM Approval, 
PRISM Filing, and PRISM FAQs at http://nasdaqtrader.com/content/productsservices/trading/PRISMFAQs.pdf.
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    This proposal establishes the fee and rebate structure for PRISM 
(per contract), in particular two new fees and one new rebate. These 
would apply to Customers,\11\ BX Options Market Makers,\12\ and Non-
Customers:
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    \11\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation (``OCC'') which is not for 
the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Chapter I, Section 
1(a)(48)).
    \12\ BX Options Market Makers may also be referred to as 
``Market Makers''. The term ``BX Options Market Maker'' or (``M'') 
means a Participant that has registered as a Market Maker on BX 
Options pursuant to Chapter VII, Section 2, and must also remain in 
good standing pursuant to Chapter VII, Section 4. In order to 
receive Market Maker pricing in all securities, the Participant must 
be registered as a BX Options Market Maker in at least one security.
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    Change 1. The Exchange proposes to establish fees for Submitted 
PRISM Order \13\ (Agency Order and Contra-Side Order).
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    \13\ This relates to a market participant submitting an order 
into the PRISM Auction.
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    Change 2. The Exchange proposes to establish fees for Responded to 
PRISM Auction \14\ (Penny Classes \15\ and non-Penny Classes).
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    \14\ This relates to a market participant responding to a PRISM 
Auction.
    \15\ Penny Classes are options listed pursuant to the Penny 
Pilot, which was established in June 2012 and extended in 2015. See 
Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 FR 
39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX option 
rules and establishing Penny Pilot); and 75326 (June 29, 2015), 80 
FR 38481 (July 6, 2015) (SR-BX-2015-037) (notice of filing and 
immediate effectiveness extending the Penny Pilot through June 30, 
2016).
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    Change 3. The Exchange proposes to establish rebates for PRISM 
Order Traded With PRISM Response.\16\
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    \16\ This relates to a market participant submitting a PRISM 
Order pursuant to a PRISM Auction and the PRISM Order trading with 
(or being ``contra to'') PRISM Response. The rebate discussed is 
similar to the Miami International Securities Exchange (``MIAX'') 
PRIME break-up rebate. MIAX PRIME is, as discussed, similar in in 
nature to PRISM.
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    Each specific change is described in detail below.
Change 1--Fees for Submitted PRISM Order: Agency Order and Contra-Side 
Order
    For Submitted PRISM Order the Exchange is proposing to establish 
fees for Agency Order (per contract), and fees for Contra-Side Order 
(per contract). Currently, the Exchange has no such fees.
    The fees for Submitted PRISM Order will range from $0.00 to $0.30 
for Agency Order. The fees for Submitted PRISM Order will range from 
$0.00 to $0.05 for Contra-Side Order. Specifically, for Submitted PRISM 
Order proposed Chapter XV, Section 2 subsection (5) will state that for 
Customer there will be no fee ($0.00) for Agency Order and no fee 
($0.00) for Contra-Side Order. Subsection (5) will state that for BX 
Options Market Maker there will be a $0.30 fee for Agency Order and a 
$0.05 fee for Contra-Side Order. Subsection (5) will state that for 
Non-Customer there will be a $0.30 fee for Agency Order and a $0.05 fee 
for Contra-Side Order.
Change 2--Fees for Responded to PRISM Auction: Penny Classes and Non-
Penny Classes
    For Responded to PRISM Auction the Exchange is proposing to 
establish fees for Penny Classes (per contract), and fees for non-Penny 
Classes (per contract). Currently, the Exchange has no such fees.
    The fees for Responded to PRISM Auction will be $0.49 (per executed 
contract) for Penny Classes. The fees for Responded to PRISM Auction 
will be $0.94 (per executed contract) for non-Penny Classes. 
Specifically, for Responded to PRISM Auction proposed Chapter XV, 
Section 2 subsection (5) will state that for Customer there will be a 
$0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes. 
Subsection (5) will state that for BX Options Market Maker there will 
be a $0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes. 
Subsection (5) will state that for Non-Customer there will be a $0.49 
fee for Penny Classes and a $0.94 fee for non-Penny Classes.
Change 3--Rebates for PRISM Order Traded With PRISM Response: Penny 
Classes and Non-Penny Classes
    For PRISM Order Traded with PRISM Response the Exchange is 
proposing to establish rebates for Penny Classes (per contract), and 
rebates for non-Penny Classes (per contract). Currently, the Exchange 
has no such rebates. These rebates would be applied in conjunction with 
the Agency Order fees that the Submitted PRISM Order is assessed.
    The rebates for PRISM Order Traded with PRISM Response will range 
from $0.00 to $0.35 for Penny Classes. The rebates for PRISM Order 
Traded with PRISM Response will range from $0.00 to $0.70 for non-Penny 
Classes. Only Customers will get rebates. Specifically, for PRISM Order 
Traded with PRISM Response proposed Chapter XV, Section 2 subsection 
(5) will state that for Customer there will be a $0.35 rebate for Penny 
Classes and a $0.70 rebate for non-Penny Classes. Subsection (5) will 
state that for BX Options Market Maker and for Non-Customer there will 
be no rebate ($0.00) for Penny Classes and no rebate ($0.00) for non-
Penny Classes.
    BX will apply the rebate to market participants that submitted a 
PRISM Order pursuant to a PRISM Auction and the PRISM Order Traded with 
PRISM Response. Moreover, the Agency Order fee for Submitted PRISM 
Order, which is discussed in Change 1 above, will be applicable to any 
contract(s) for which a rebate is provided (whether $0.00 or otherwise 
in the fees and rebates schedule) \17\ for PRISM Order Traded with 
PRISM Response.
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    \17\ Also known as fee and rebate schedule.
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Example 1
    A Customer PRISM Agency Order in a Penny Class (one contract) 
trades against a PRISM Response in a Penny Class (one contract). The 
Customer Agency Order is assessed a fee of $0.00 and given a rebate of 
$0.35 for a total

[[Page 80410]]

rebate of $0.35 (fee $0.00 + rebate $0.35). The market participant that 
Responded to PRISM Auction will be assessed a fee of $0.49.
Example 2
    A Non-Customer PRISM Agency Order in a Penny Class (one contract) 
trades against a PRISM Response in a Penny Class (one contract). The 
Non-Customer Agency Order is assessed a fee of $0.30 and given a rebate 
of $0.00 for a total fee of $0.30 (fee $0.30 + rebate $0.00). The 
market participant that Responded to PRISM Auction will be assessed a 
fee of $0.49.
    As proposed, Chapter XV, Section 2 subsection (5) will read as 
follows:
    (5) Fees and rebates for BX Price Improvement Auction (``PRISM'')

                                         Fees and Rebates (Per Contact)
----------------------------------------------------------------------------------------------------------------
                                     Submitted PRISM  order      Responded to PRISM      PRISM order traded with
                                               fee                   auction fee          PRISM response rebate
    Type of market participants    -----------------------------------------------------------------------------
                                       Agency    Contra-side     Penny      Non-penny      Penny      Non-penny
                                       order        order       classes      classes      classes      classes
----------------------------------------------------------------------------------------------------------------
Customer..........................        $0.00        $0.00        $0.49        $0.94        $0.35        $0.70
BX Options Market Maker...........         0.30         0.05         0.49         0.94         0.00         0.00
Non-Customer......................         0.30         0.05         0.49         0.94         0.00         0.00
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BX will apply the rebate to market participants that submitted a PRISM Order pursuant to a PRISM Auction and the
  PRISM Order Traded with PRISM Response. The Agency Order fee for Submitted PRISM Order will be applicable to
  any contract(s) for which a rebate is provided (whether $0.00 or otherwise in this fees and rebates schedule)
  for PRISM Order Traded with PRISM Response.

    The Exchange is adopting these fees and rebates at this time 
because it believes that they will allow the Exchange to recoup some of 
the costs associated with PRISM, which promotes price improvement to 
the benefit of market participants, while also incentivizing the use of 
PRISM.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\18\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\19\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility or system which the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, for example, the Commission indicated that market forces should 
generally determine the price of non-core market data because national 
market system regulation ``has been remarkably successful in promoting 
market competition in its broader forms that are most important to 
investors and listed companies.'' \20\ Likewise, in NetCoalition v. 
NYSE Arca, Inc.\21\ (``NetCoalition'') the D.C. Circuit upheld the 
Commission's use of a market-based approach in evaluating the fairness 
of market data fees against a challenge claiming that Congress mandated 
a cost-based approach.\22\ As the court emphasized, the Commission 
``intended in Regulation NMS that `market forces, rather than 
regulatory requirements' play a role in determining the market data . . 
. to be made available to investors and at what cost.'' \23\
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    \20\ Securities Exchange Act Release No. 51808 at 37499 (June 9, 
2005) (``Regulation NMS Adopting Release'').
    \21\ NetCoalition v. NYSE Arca, Inc. 615 F.3d 525 (D.C. Cir. 
2010).
    \22\ See NetCoalition, at 534.
    \23\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . .'' \24\ Although the court and the 
SEC were discussing the cash equities markets, the Exchange believes 
that these views apply with equal force to the options markets.
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    \24\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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    The Exchange's proposal establishes fees and rebates regarding 
PRISM, which promotes price improvement to the benefit of market 
participants. The Exchange believes that PRISM will encourage market 
participants, and in particular BX Market Makers, to compete vigorously 
to provide the opportunity for price improvement in a competitive 
auction process. The Exchange believes that its proposal will allow the 
Exchange to recoup costs associated with PRISM while also incentivizing 
its use.
Change 1--Fees for Submitted PRISM Order: Agency Order and Contra-Side 
Order
    For Submitted PRISM Order, establishing that there will be no fee 
for Customer for Agency Order, while establishing a $0.30 fee per 
contract for BX Options Market Maker for Agency Order and a $0.30 fee 
per contract for Non-Customer for Agency Order, is reasonable because 
it encourages the desired Customer behavior. The fee is also reasonable 
because the associated revenue will allow the Exchange to maintain and 
enhance its services. For Submitted PRISM Order, establishing no 
Customer fee, while establishing a $0.05 fee per contract for BX 
Options Market Maker for Contra-Side Order and a $0.05 fee per contract 
fee for Non-Customer for Contra-Side Order, is reasonable because it 
encourages the desired Customer behavior. The fee is also reasonable 
because the associated revenue will allow the Exchange to maintain and 
enhance its services.
    Assessing Customers a lesser fee for Agency Order and for Contra-
Side Order (in both cases $0.00) is reasonable because of the 
desirability of Customer activity. The proposed new fees and rebates 
for PRISM schedule is set up to encourage greater Customer trade volume 
to the Exchange. Customer activity enhances liquidity on the Exchange 
for the benefit of all market participants and benefits all market 
participants by providing more trading

[[Page 80411]]

opportunities, which attracts market makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The practice of incentivizing 
increased Customer order flow through a fee and rebate schedule in 
order to attract professional liquidity providers (market-makers) is, 
and has been, commonly practiced in the options markets.\25\ The 
proposed fee and rebate schedule similarly attracts Customer order 
flow.
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    \25\ See, e.g., MIAX Fee Schedule, NYSE Arca Fee Schedule, 
Nasdaq Options Market (``NOM'') Fee Schedule.
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    The proposed fee and rebate schedule is reasonably designed because 
it is within the range of fees and rebates assessed by other exchanges 
employing similar fee structures for price improvement mechanisms.\26\ 
Other competing exchanges offer different fees and rebates for agency 
orders, contra-side order, and responders to the auction in a manner 
similar to the proposal.\27\ Other competing exchanges also charge 
different rates for transactions in their price improvement mechanisms 
for customers versus their non-customers in a manner similar to the 
proposal.\28\ As proposed, all applicable fees and rebates are within 
the range of fees and rebates for executions in price improvement 
mechanisms assessed by other exchanges employing similar fee structures 
for price improvement mechanisms.
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    \26\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness 
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee 
Schedule; International Securities Exchange Fee Schedule; and BOX 
Options Exchange Fee Schedule.
    \27\ Id.
    \28\ Id.
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    The fee and rebate schedule as proposed continues to reflect 
differentiation among different market participants typically found in 
options fee and rebate schedules.\29\ The Exchange believes that the 
differentiation is reasonable and notes that unlike others (e.g. 
Customers) some market participants like BX Options Market Makers 
commit to various obligations. For example, transactions of a BX Market 
Maker must constitute a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and Market 
Makers should not make bids or offers or enter into transactions that 
are inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on BX for all purposes under the 
Act or rules thereunder.\30\
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    \29\ See, e.g., NOM Chapter XV, Section 2 and BX Chapter XV, 
Section 2. See also MIAX Fee Schedule.
    \30\ See Chapter VII, Section 5, entitled ``Obligations of 
Market Makers''.
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    For Submitted PRISM Order, establishing no fee for Customer (Agency 
Order and Contra-Side Order) and a fee for BX Market Maker and Non-
Customer (Agency Order and Contra-Side Order) is equitable and not 
unfairly discriminatory. This is because the Exchange's proposal to 
assess such fee will apply the same to all similarly situated 
participants. Moreover, all similarly situated Submitted PRISM Orders 
are subject to the same proposed fee schedule, and access to the 
Exchange is offered on terms that are not unfairly discriminatory. In 
addition, fees for Submitted Prism Order are equitable and not unfairly 
discriminatory because, while each market participant (Customer, BX 
Options Market Maker, non-Customer) is assessed a fee the Customer fee 
is lowest because an increase in Customer order flow will bring greater 
volume and liquidity, which benefits all market participants by 
providing more trading opportunities and tighter spreads.
Change 2--Fees for Responded to PRISM Auction: Penny Classes and Non-
Penny Classes
    For Responded to PRISM Auction, establishing that there will be a 
$0.49 fee per contract for Customer for Agency Order, and the same fee 
for BX Options Market Maker and for Non-Customer for Agency Order, is 
reasonable because the associated revenue will allow the Exchange to 
maintain and enhance its services. The practice of incentivizing 
increased Customer order flow through a fee and rebate schedule in 
order to attract professional liquidity providers (market-makers) is, 
and has been, commonly practiced in the options markets.\31\ The 
proposed fee and rebate schedule similarly attracts Customer order 
flow.
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    \31\ See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee 
Schedule.
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    The proposed fee and rebate schedule is reasonably designed because 
it is within the range of fees and rebates assessed by other exchanges 
employing similar fee structures for price improvement mechanisms.\32\ 
Other competing exchanges offer different fees and rebates for agency 
orders, contra-side order, and responders to the auction in a manner 
similar to the proposal.\33\ Other competing exchanges also charge 
different rates for transactions in their price improvement mechanisms 
for customers versus their non-customers in a manner similar to the 
proposal.\34\ As proposed, all applicable fees and rebates are within 
the range of fees and rebates for executions in price improvement 
mechanisms assessed by other exchanges employing similar fee structures 
for price improvement mechanisms.
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    \32\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness 
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee 
Schedule; International Securities Exchange Fee Schedule; and BOX 
Options Exchange Fee Schedule.
    \33\ Id.
    \34\ Id.
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    For Responded to PRISM Auction, establishing that there will be a 
$0.94 fee per contract for Customer for Contra-Side Order, and the same 
fee for BX Options Market Maker and for Non-Customer for Contra-Side 
Order, is reasonable because the associated revenue will allow the 
Exchange to maintain and enhance its services. The practice of 
incentivizing increased Customer order flow through a fee and rebate 
schedule in order to attract professional liquidity providers (market-
makers) is, and has been, commonly practiced in the options 
markets.\35\ The proposed fee and rebate schedule similarly attracts 
Customer order flow.
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    \35\ See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee 
Schedule.
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    The proposed fee and rebate schedule is reasonably designed because 
it is within the range of fees and rebates assessed by other exchanges 
employing similar fee structures for price improvement mechanisms.\36\ 
Other competing exchanges offer different fees and rebates for agency 
orders, contra-side order, and responders to the auction in a manner 
similar to the proposal.\37\ Other competing exchanges also charge 
different rates for transactions in their price improvement mechanisms 
for customers versus their non-customers in a manner similar to the 
proposal.\38\ As proposed, all applicable fees and rebates are within 
the range of fees and rebates for executions in price improvement 
mechanisms assessed by other

[[Page 80412]]

exchanges employing similar fee structures for price improvement 
mechanisms.
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    \36\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness 
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee 
Schedule; International Securities Exchange Fee Schedule; and BOX 
Options Exchange Fee Schedule.
    \37\ Id.
    \38\ Id.
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    For Responded to PRISM Auction, establishing a fee for Customer, BX 
Market Maker and Non-Customer (Agency Order and Contra-Side Order) is 
equitable and not unfairly discriminatory. This is because the 
Exchange's proposal to assess such fee will apply the same to all 
similarly situated participants. Moreover, all similarly situated 
Submitted PRISM Orders are subject to the same proposed fee schedule, 
and access to the Exchange is offered on terms that are not unfairly 
discriminatory.
Change 3--Rebates for PRISM Order Traded With PRISM Response: Penny 
Classes and Non-Penny Classes
    For PRISM Order Traded with PRISM Response, establishing that there 
will be no rebate for BX Options Market Maker and Non-Customer for 
Penny Classes, while establishing a $0.35 rebate per contract for 
Customer for Penny Classes and a $0.70 rebate per contract for Customer 
for non-Penny Pilot Classes, is reasonable because it encourages the 
desired Customer behavior. The rebate is also reasonable because paying 
the rebate only to Customers will allow the Exchange to maintain and 
enhance its services. The rebate is also reasonable because paying the 
rebate only to Customers will allow the Exchange to maintain and 
enhance its services.\39\
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    \39\ As noted, such rebate would be applied in conjunction with 
any Agency Order fee that the Submitted PRISM Order is assessed.
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    Offering a rebate only for Customer ($0.35 or $0.70) is reasonable 
because of the significance of Customer activity. Customer activity 
enhances liquidity on the Exchange for the benefit of all market 
participants and benefits all market participants by providing more 
trading opportunities, which attracts market makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The practice of incentivizing 
increased Customer order flow through a fee and rebate schedule in 
order to attract professional liquidity providers (market-makers) is, 
and has been, commonly practiced in the options markets.\40\ The 
proposed fee and rebate schedule similarly attracts Customer order 
flow.
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    \40\ See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee 
Schedule.
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    The proposed fee and rebate schedule is reasonably designed because 
it is within the range of fees and rebates assessed by other exchanges 
employing similar fee structures for price improvement mechanisms.\41\ 
Other competing exchanges offer different fees and rebates for agency 
orders, contra-side order, and responders to the auction in a manner 
similar to the proposal.\42\ Other competing exchanges also charge 
different rates for transactions in their price improvement mechanisms 
for customers versus their non-customers in a manner similar to the 
proposal.\43\ As proposed, all applicable fees and rebates are within 
the range of fees and rebates for executions in price improvement 
mechanisms assessed by other exchanges employing similar fee structures 
for price improvement mechanisms.
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    \41\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness 
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee 
Schedule; International Securities Exchange Fee Schedule; and BOX 
Options Exchange Fee Schedule.
    \42\ Id.
    \43\ Id.
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    For PRISM Order Traded with PRISM Response, establishing a rebate 
for Customer (Penny Classes and non-Penny Classes) and no rebate for BX 
Market Maker and Non-Customer (Penny Classes and non-Penny Classes) is 
equitable and not unfairly discriminatory. This is because the 
Exchange's proposal to pay such rebate will apply the same to all 
similarly situated participants. The Exchange is adopting the proposed 
fees and rebates at this time because it believes that the associated 
revenue will allow it to continue and enhance PRISM, which is 
beneficial to market participants. Moreover, all similarly situated 
PRISM Order Traded with PRISM Response are subject to the same proposed 
rebate schedule, and access to the Exchange is offered on terms that 
are not unfairly discriminatory. In addition, rebates for PRISM Order 
Traded with PRISM Response are equitable and not unfairly 
discriminatory because, while only Customer, can earn a rebate, 
Customer order flow will bring greater volume and liquidity, which 
benefits all market participants by providing more trading 
opportunities and tighter spreads.
    The rebate schedule as proposed continues to reflect 
differentiation among different market participants typically found in 
options fee and rebate schedules.\44\ The Exchange believes that the 
differentiation is reasonable and notes that unlike others (e.g. 
Customers) some market participants like BX Options Market Makers 
commit to various obligations. For example, transactions of a BX Market 
Maker must constitute a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and Market 
Makers should not make bids or offers or enter into transactions that 
are inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on BX for all purposes under the 
Act or rules thereunder.\45\
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    \44\ See, e.g., NOM Chapter XV, Section 2 and BX Chapter XV, 
Section 2.
    \45\ See Chapter VII, Section 5, entitled ``Obligations of 
Market Makers''.
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    In sum the Exchange believes that the proposed fee and rebate 
structure is designed to attract Customer liquidity, which benefits all 
market participants by providing more trading opportunities. This 
attracts BX Market Makers and an increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants. Moreover, the Exchange believes that assessing 
market participants other than Customers a higher effective rate for 
certain PRISM Order transactions is reasonable, equitable, and not 
unfairly discriminatory because these types of market participants are 
more sophisticated and have higher levels of order flow activity and 
system usage. This level of trading activity draws on a greater amount 
of system resources than that of Customers, and thus, generates greater 
ongoing operational costs. The proposed fees and rebates will allow it 
to continue and enhance PRISM, which is beneficial to market 
participants.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange does 
not believe that its proposal to establish fees and rebates for PRISM 
will impose any burden on competition, as discussed below.
    The Exchange operates in a highly competitive market in which many 
sophisticated and knowledgeable market participants can readily and do 
send order flow to competing exchanges if they deem fee levels or 
rebate incentives at a particular exchange to be excessive or 
inadequate. Additionally, new competitors have entered the market and 
still others are reportedly entering the market shortly. These market 
forces ensure that the Exchange's fees and rebates remain competitive

[[Page 80413]]

with the fee structures at other trading platforms. In that sense, the 
Exchange's proposal is actually pro-competitive because the Exchange is 
simply establishing rebates and fees in order to remain competitive in 
the current environment.
    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed changes to the charges assessed and 
credits available to member firms in respect of PRISM do not impose a 
burden on competition because the Exchange's execution and routing 
services are completely voluntary and subject to extensive competition 
both from other exchanges and from off-exchange venues. If the changes 
proposed herein are unattractive to market participants, it is likely 
that the Exchange will lose market share as a result. Accordingly, the 
Exchange does not believe that the proposed changes will impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets. Additionally, the 
changes proposed herein are pro-competitive to the extent that they 
continue to allow the Exchange to promote and maintain PRISM, which has 
the potential to result in more efficient, price improved executions to 
the benefit of market participants.
    The Exchange believes that the proposed change would increase both 
inter-market and intra-market competition by incentivizing members to 
direct their orders, and particularly Customer orders, to the Exchange, 
which benefits all market participants by providing more trading 
opportunities, which attracts market makers. To the extent that there 
is a differentiation between proposed fees assessed and rebates offered 
to Customers as opposed other market participants, the Exchange 
believes that this is appropriate because the fees and rebate should 
incentivize members to direct additional order flow to the Exchange and 
thus provide additional liquidity that enhances the quality of its 
markets and increases the volume of contracts traded on the Exchange. 
To the extent that this purpose is achieved, all the Exchange's market 
participants should benefit from the improved market liquidity. 
Enhanced market quality and increased transaction volume that results 
from the anticipated increase in order flow directed to the Exchange 
will benefit all market participants and improve competition on the 
Exchange. The Exchange notes that it operates in a highly competitive 
market in which market participants can readily favor competing venues 
if they deem fee levels at a particular venue to be excessive.
    The Exchange believes that the proposed fees and rebates for 
participation in the PRISM Auction are not going to have an impact on 
intra-market competition based on the total cost for participants to 
transact as respondents to the Auction as compared to the cost for 
participants to engage in non-Auction electronic transactions on the 
Exchange. As noted above, the Exchange believes that the proposed 
pricing for the PRISM Auction is comparable to that of other exchanges 
offering similar electronic price improvement mechanisms, and the 
Exchange believes that, based on experience with electronic price 
improvement crossing mechanisms on other markets, market participants 
understand that the price-improving benefits offered by the Auction 
justify and offset the transaction costs associated with Auction. To 
the extent that there is a difference between non-PRISM transactions 
and PRISM transactions, the Exchange does not believe this difference 
will cause participants to refrain from submitting or responding to 
PRISM. In addition, the Exchange does not believe that the proposed 
transaction fees and credits burden competition by creating a disparity 
of transaction fees between the PRISM Order and the transaction fees a 
responder pays would result in certain participants being unable to 
compete with the contra side order. The Exchange expects to see robust 
competition within the PRISM Auction. As discussed, the Exchange notes 
that it operates in a highly competitive market in which market 
participants can readily favor competing venues if they deem fee levels 
at a particular venue to be excessive. In such an environment, the 
Exchange must continually adjust its fees to remain competitive with 
other exchanges and to attract order flow to the Exchange. The Exchange 
believes that the proposed rule change reflects this competitive 
environment because it establishes a fee structure in a manner that 
encourages market participants to direct their order flow, to provide 
liquidity, and to attract additional transaction volume to the 
Exchange.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\46\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \46\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2015-079 on the subject line.

[[Page 80414]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2015-079. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BX-2015-079 and should be 
submitted on or before January 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-32389 Filed 12-23-15; 8:45 am]
 BILLING CODE 8011-01-P