[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