[Federal Register Volume 81, Number 50 (Tuesday, March 15, 2016)]
[Notices]
[Pages 13866-13869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05750]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77329; File No. SR-EDGX-2016-16]
Self-Regulatory Organizations; Bats EDGX Exchange, Inc. f/k/a
EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Related to Fees as they Apply to the Equity
Options Platform.
March 9, 2016.
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 March 1, 2016, Bats EDGX Exchange, Inc. f/k/a EDGX Exchange,
Inc. (the ``Exchange'' or ``EDGX'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II and III below, which Items have been prepared
by the Exchange. The 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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[[Page 13867]]
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 amend its fee schedule for its equity
options platform (``EDGX Options'') to add three new tiers to its
existing tiered pricing structure and also to adopt a new, incremental
rebate per contract for orders that set or join the national best bid
or offer (``NBBO''), as further described below. The Exchange proposes
to make conforming changes to the Standard Rates and Fee Codes and
Associated Fees Table in connection with these changes.
Changes to Tiered Pricing
The Exchange currently offers two pricing tiers under footnotes 1
and 2 of the fee schedule, Customer Volume Tiers and Market Maker
Volume Tiers, respectively. Under the tiers, Members that achieve
certain volume criteria may qualify for reduced fees or enhanced
rebates for Customer \6\ and Market Maker \7\ orders. The Exchange
proposes to add an additional Customer Volume Tier and two additional
Market Maker Volume Tiers, as described below.
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\6\ The term ``Customer'' applies to any transaction identified
by a Member for clearing in the Customer range at the Options
Clearing Corporation (``OCC''), excluding any transaction for a
Broker Dealer or a ``Professional'' as defined in Exchange Rule
16.1.
\7\ The term ``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).
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Additional Customer Volume Tier. Fee code PC and NC are currently
appended to all Customer orders in Penny Pilot Securities \8\ and Non-
Penny Pilot Securities,\9\ respectively and result in a standard rebate
of $0.01 per contract. The Customer Volume Tiers in footnote 1 consist
of four separate tiers, each providing an enhanced rebate to a Member's
Customer orders that yield fee codes PC or NC upon satisfying monthly
volume criteria required by the respective tier. The Exchange's current
lowest Customer Volume Tier, current Tier 1, provides a rebate of $0.10
per contract where the Member has an ADV \10\ in Customer orders equal
to or greater than 0.20% of average TCV.\11\ To encourage the entry of
additional Customer orders to EDGX Options, the Exchange proposes to
adopt a new Tier 1 with lower qualifying criteria. Specifically, under
new Tier 1, the Exchange proposes to provide a rebate of $0.05 per
contract where the Member has an ADV in Customer orders equal to or
greater than 0.10% of average TCV.
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\8\ The term ``Penny Pilot Security'' applies to those issues
that are quoted pursuant to Exchange Rule 21.5, Interpretation and
Policy .01.
\9\ The term ``Non-Penny Pilot Security'' applies to those
issues that are not Penny Pilot Securities quoted pursuant to
Exchange Rule 21.5, Interpretation and Policy .01.
\10\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day.
\11\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges to the consolidated transaction
reporting plan for the month for which the fees apply, excluding
volume on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
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In connection with this change, the Exchange proposes to re-number
existing Tiers 1 through 4 as Tiers 2 through 5 and to update the
Standard Rates table of the fee schedule to reflect the new potential
rebate of $0.05 per contract for fee codes PC and NC.
Additional Market Maker Volume Tiers. Fee codes PM and NM are
currently appended to Market Maker orders in Penny Pilot Securities and
Non-Penny Pilot Securities, respectively and result in a standard fee
of $0.19 per contract. The Market Maker Volume Tiers in footnote 2
consist of four separate tiers, each providing a reduced fee or a
rebate to a Member's Market Maker orders that yield fee codes PM or NM
upon satisfying monthly volume criteria required by the respective
tier.
The Exchange's current lowest Market Maker Volume Tier, current
Tier 1, provides a reduced fee of $0.16 per contract where the Member
has an ADV in Market Maker orders equal to or greater than 0.05%. The
next Market Maker Volume Tier, current Tier 2, provides a reduced fee
of $0.07 per contract where the Member has an ADV in Market Maker
orders equal to or greater than 0.30%. The Exchange proposes two new
tiers with qualifying criteria that fall in between these two tiers.
Specifically, proposed new Tier 2 would provide a reduced fee of $0.13
per contract where the Member has an ADV in Market Maker orders equal
to or greater than 0.10% and proposed new Tier 3 would provide a
reduced fee of $0.10 per contract where the Member has an ADV in Market
Maker orders equal to or greater than 0.20%.
In connection with this change, the Exchange proposes to re-number
existing Tiers 2 through 4 as Tiers 4 through 6 and to update the
Standard Rates table of the fee schedule to reflect the new potential
reduced fees of $0.13 and $0.10 per contract for fee codes PM and NM.
NBBO Setter/Joiner Tier
The Exchange also proposes to adopt enhanced rebates to incentivize
aggressive quoting by Market Makers on EDGX Options. Specifically, the
Exchange proposes to adopt a NBBO Setter/Joiner Tier that would provide
an additional rebate of $0.02 per contract for any Market Maker order
that adds liquidity and establishes a new NBBO or that joins the NBBO
when EDGX Options is not already at the NBBO (the ``NBBO Setter/Joiner
Rebate'').\12\ The Exchange notes that while the specific details
related to the proposed NBBO Setter/Joiner Rebate differ, the proposal
to offer an enhanced rebate for orders that set the NBBO is consistent
with a pricing incentive currently offered by the equity options
platform operated by Bats BZX Exchange, Inc. (``BZX Options'').\13\ The
Exchange also notes that the cash equities platform operated by Bats
BZX Exchange, Inc. (``BZX Equities'') has previously offered an
[[Page 13868]]
enhanced rebate for orders that join the NBBO.\14\
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\12\ An order that is entered at a price that sets the NBBO or
causes EDGX Options to join the NBBO according to then current OPRA
data will be determined to have set or joined the NBBO for purposes
of the NBBO Setter/Joiner Rebate without regard to whether a more
aggressive order is entered prior to the original order being
executed.
\13\ See the BZX Options' fee schedule available at http://www.batsoptions.com/support/fee_schedule/bzx/.
\14\ See, e.g., Securities Exchange Act Release No. 70664
(October 11, 2013), 78 FR 62804, 62805 (October 22, 2013) (SR-BATS-
2013-054) (proposing various modifications to fees including
adoption of the ``NBBO Joiner'' incentive).
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In connection with this change the Exchange proposes to append
footnote 3 to fee codes NM and PM.
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.\15\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\16\ 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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\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(4).
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The Exchange believes its proposed fees and rebates are reasonable,
fair and equitable, and non-discriminatory. The Exchange operates in a
highly competitive market in which market participants may readily send
order flow to many competing venues if they deem fees at the Exchange
to be excessive. As a new options exchange, the proposed fee structure
remains intended to attract order flow to the Exchange by offering
market participants a competitive yet simple pricing structure. At the
same time, the Exchange believes it is reasonable to incrementally
adopt incentives intended to help to contribute to the growth of the
Exchange.
Additional Customer Volume Tier and Market Maker Volume Tiers
Volume-based rebates such as those currently maintained on the
Exchange have been widely adopted by options exchanges and are
equitable because they are open to all Members on an equal basis and
provide additional benefits or discounts that are reasonably related to
the value to an exchange's market quality associated with higher levels
of market activity, such as higher levels of liquidity provision and/or
growth patterns, and introduction of higher volumes of orders into the
price and volume discovery processes. The proposed additional Customer
Volume Tier and Market Maker Volume Tiers are intended to incentivize
Members to send additional orders to the Exchange in an effort to
qualify for the enhanced rebate available by the respective tier.
The Exchange believes that the proposed tiers are reasonable, fair
and equitable, and non-discriminatory, for the reasons set forth with
respect to volume-based pricing generally and because such change will
incentivize participants to further contribute to market quality. The
proposed tiers will provide additional ways for market participants to
qualify for enhanced rebates or reduced fees. The Exchange also
believes that the proposed tiered pricing structure is consistent with
pricing previously offered by the Exchange as well as competitors of
the Exchange and does not represent a significant departure from such
pricing structures.
NBBO Setter/Joiner Tier
The Exchange also believes it is equitable, reasonable and not
unfairly discriminatory to provide an enhanced rebate to Market Maker
orders that either set the NBBO or join the NBBO when EDGX Options is
not already at the NBBO. Similar to the pricing tiers discussed above,
this incentive is reasonably related to the value to the Exchange's
market quality associated with higher levels of market activity,
including liquidity provision and the introduction of higher volumes of
orders into the price and volume discovery processes. In particular,
the enhanced rebate will encourage Market Maker orders at the NBBO, and
is therefore directly focused on encouraging aggressively priced
liquidity provision on EDGX Options. The proposed differentiation
between Market Makers and other market participants 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,\17\ 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, other market
participants do not have such obligations on the Exchange. For the same
reasons, the Exchange believes it is reasonable to provide an
additional incentive to Market Makers in the form of the proposed NBBO
Setter/Joiner Rebate.
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\17\ See Exchange Rule 22.5, Obligations of Market Makers.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the 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. Rather, the proposal is a
competitive proposal that is seeking to further the growth of the
Exchange. The Exchange has structured the proposed fees and rebates to
attract certain additional volume in Market Maker and Customer orders,
however, the Exchange believes that its pricing for all capacities is
competitive with that offered by other options exchanges. 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 does not believe that the proposed
tiered pricing structure or NBBO Setter/Joiner Tier burden competition,
but instead, that these incentives enhance competition as they are
intended to increase the competitiveness of the Exchange by
incentivizing certain participants to increase their participation on
the Exchange.
(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 \18\ and paragraph (f) of Rule 19b-4
thereunder.\19\ 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
[[Page 13869]]
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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 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-EDGX-2016-16 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-2016-16. 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-2016-16 and should be
submitted on or before April 5, 2016.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05750 Filed 3-14-16; 8:45 am]
BILLING CODE 8011-01-P