[Federal Register Volume 81, Number 93 (Friday, May 13, 2016)]
[Notices]
[Pages 29932-29936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11293]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77784; File No. SR-BatsBZX-2016-14]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees as They Apply to the Equity Options Platform

May 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 May 2, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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)

[[Page 29933]]

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 BZX 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 modify its fee schedule applicable to the 
Exchange's equity options platform (``BZX Options'') to: (1) Modify the 
standard fee for Non-Customer \6\ orders that remove liquidity in Non-
Penny Pilot Securities \7\ and to adopt a new tier in connection with 
such executions; (2) modify an existing tier and add a new tier to its 
tiered pricing structure for the Exchange's Quoting Incentive Program 
(``QIP''); and (3) simplify the Exchange's routing fees, as further 
described below.
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    \6\ The term ``Non-Customer'' applies to any transaction that is 
not a Customer order. In turn, 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 ``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.
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Non-Customer Orders That Remove Liquidity in Non-Penny Pilot Securities
    The Exchange is proposing to modify the standard fee for Non-
Customer orders that remove liquidity in Non-Penny Pilot Securities. 
Such orders when executed on the Exchange currently yield fee code NP 
and are assessed a standard fee of $0.94 per contract. The Exchange is 
proposing to increase the standard fee for Non-Customer orders that 
remove liquidity in Non-Penny Pilot Securities under fee code NP from 
$0.94 to $0.99 per contract.
    In addition, the Exchange proposes to adopt a new tier that would 
apply to Non-Customer orders that remove liquidity in Non-Penny Pilot 
Securities that result in a reduced fee for Members that meet the 
qualifications of the tier. Specifically, the Exchange is proposing to 
create a new footnote 13 entitled ``Non-Customer Non-Penny Pilot Take 
Volume Tier,'' which would apply to orders that receive fee code NP. 
Under the proposed new tier, Non-Customer orders that remove liquidity 
in Non-Penny Pilot Securities would be assessed a reduced fee of $0.95 
per contract where the Member has: (1) an ADAV \8\ in Customer orders 
in Non-Penny Pilot Securities equal to or greater than 0.05% of average 
TCV; \9\ and (2) an ADV \10\ in Non-Customer Orders that remove 
liquidity in Non-Penny Pilot Securities equal to or greater than 0.10% 
of average TCV.
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    \8\ ``ADAV'' means average daily volume calculated as the number 
of contracts added per day.
    \9\ ``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.
    \10\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
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    In addition to the modification to the Fee Codes and Associated 
Fees table and the addition of footnote 13 described above, the 
Exchange proposes to update the Standard Rates table of the fee 
schedule to reflect these changes.
QIP Tiers
    The Exchange currently offers three QIP tiers that provide an 
additional rebate per contract for an order that adds liquidity to the 
BZX Options Book \11\ in options classes in which a Member is a Market 
Maker registered on BZX Options pursuant to Rule 22.2. The Market Maker 
must be registered with BZX Options in an average of 20% or more of the 
associated options series in a class in order to qualify for QIP 
rebates for that class. The Exchange proposes to amend QIP Tier 3 and 
to add a new QIP Tier 4, as further described below.
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    \11\ ``BZX Options Book'' is defined as ``the electronic book of 
options orders maintained by the Trading System. See Exchange Rule 
16.1(a)(9).
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    Under QIP Tier 3, a Market Maker receives an additional rebate of 
$0.06 per contract where that Market Maker has an ADV equal to or 
greater than 2.5% of average TCV. The Exchange proposes to decrease the 
rebate provided pursuant to QIP Tier 3 from an additional rebate of 
$0.06 per contract to an additional rebate of $0.05 per contract. The 
Exchange does not propose to amend the qualifying criteria for QIP Tier 
3.
    In addition, the Exchange proposes to adopt new QIP Tier 4. Under 
proposed QIP Tier 4, a Market Maker will receive an additional rebate 
of $0.06 per contract where the Member has an ADV equal to or greater 
than 3.5% of average TCV. Thus, QIP Tier 4 will provide the same rebate 
as is provided under current QIP Tier 3.
Routing Fees
    The Exchange proposes to modify the fees charged for orders routed 
away from the Exchange and executed at various away options exchanges. 
The Exchange currently has specific rates and associated fee codes for 
each away options exchange.\12\ Such rates are further divided at each 
options exchange into either two categories in order to differentiate 
between Customer and Non-Customer orders or into four categories in 
order to differentiate between Customer and Non-Customer orders and 
then into Penny Pilot Securities \13\ and Non-Penny Pilot 
Securities.\14\ In order to simplify routing fees for executions at 
away options exchanges, the Exchange proposes to charge flat rates for 
routing to other options exchanges that have been placed into groups 
based on the

[[Page 29934]]

approximate cost of routing to such venues. The grouping of away 
options exchanges is 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''). To address different fees at 
various other options exchanges, the Exchange proposes to adopt five 
different fees and associated fee codes applicable to routing to away 
options exchanges, as further described below.
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    \12\ Other options exchanges to which the Exchange routes 
include: BOX Options Exchange LLC (``BOX''), Chicago Board Options 
Exchange, Inc. (``CBOE''), C2 Options Exchange, Inc. (``C2''), Bats 
EDGX Exchange, Inc. (``EDGX Options''), International Securities 
Exchange, Inc. (``ISE''), ISE Gemini, LLC (``ISE Gemini''), ISE 
Mercury, LLC (``ISE Mercury''), Miami International Securities 
Exchange, LLC (``MIAX''), Nasdaq Options Market LLC (``NOM''), 
Nasdaq OMX BX LLC (``BX Options''), Nasdaq OMX PHLX LLC (``PHLX''), 
NYSE Arca, Inc. (``ARCA''), and NYSE MKT LLC (``AMEX'').
    \13\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
    \14\ The Exchange notes that it still applies a single rate for 
orders routed to and executed at the newest options exchange, ISE 
Mercury.
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    With respect to Non-Customer orders, the Exchange proposes to adopt 
two fee codes: (1) Fee code RN, which would result in a fee of $0.85 
per contract and would apply to all Non-Customer orders in Penny Pilot 
Securities; and (2) fee code RO, which would result in a fee of $1.20 
per contract and would apply to all Non-Customer orders in Non-Penny 
Pilot Securities. The Exchange notes that the current range of fees 
applicable to Non-Customer orders routed to other options exchanges is 
from $0.56 per contract (fee code RF, applicable to Non-Customer orders 
in Penny Pilot Securities executed at EDGX Options) to $1.25 per 
contract (fee code QG, applicable to Non-Customer orders executed at 
NOM in Non-Penny Pilot Securities).
    With respect to Customer orders, the Exchange proposes to adopt 
three fee codes: (1) Fee code RP, which would result in a fee of $0.25 
per contract and would apply to all Customer orders routed to and 
executed at AMEX, BOX, BX Options, CBOE, EDGX Options, ISE Mercury, 
MIAX or PHLX; (2) fee code RQ, which would result in a fee of $0.70 per 
contract and would apply to all Customer orders in Penny Pilot 
Securities routed to and executed at ARCA, C2, ISE, ISE Gemini or NOM; 
and (3) fee code RR, which would result in a fee of $0.90 per contract 
and would apply to all Customer orders in Non-Penny Pilot Securities 
routed to and executed at ARCA, C2, ISE, ISE Gemini or NOM. The 
Exchange notes that the current range of fees applicable to Customer 
orders routed to other options exchanges is from no charge per contract 
(fee codes BD, applicable to Customer orders in Non-Penny Pilot 
Securities executed at BX Options, and fee codes RC and RD, applicable 
to Customer orders in Penny Pilot Securities and Non-Penny Pilot 
Securities, respectively, executed at EDGX Options) to $0.90 per 
contract (fee codes AD, GD and QD, applicable to Customer orders 
executed at ARCA, ISE Gemini, and NOM, respectively, in Non-Penny Pilot 
Securities).\15\
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    \15\ The Exchange again notes that it currently applies a single 
rate for orders routed to and executed at the newest options 
exchange, ISE Mercury. As such, Customer orders execute at ISE 
Mercury technically pay the highest rate today, a fee of $0.99 per 
contract.
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    As a general matter, the groupings described above in most 
instances attempt to differentiate between the Routing Costs applicable 
to either executions of orders in Penny Pilot Securities versus those 
in Non-Penny Pilot Securities or between fee ranges typical of 
exchanges that operate primarily a maker/taker or price/time market 
model (generally imposing higher fees, including for Customer orders) 
versus exchanges that operate primarily a pro rata or customer priority 
market model (generally imposing lower fees, especially for Customer 
orders).
    As set forth above, the Exchange's proposed approach to routing 
fees is to set forth in a simple manner certain flat fees that 
approximate the cost of routing to other options exchanges. The 
Exchange will then monitor the fees charged as compared to the costs of 
its routing services, as well as monitoring for specific fee changes by 
other options exchanges, and intends to adjust its flat routing fees 
and/or groupings 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. Although there may be 
instances where the Exchanges fee to a particular options exchange is 
indeed significantly higher than the fee charged by such options 
exchange, the Exchange believes that this is appropriate for several 
reasons discussed in further detail below, including the simplicity 
that it will provide Users of the Exchange's routing services.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule immediately.
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.\16\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with section 6(b)(4) of the Act,\17\ 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. The Exchange notes 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.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4).
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    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by options exchanges, including the 
Exchange, 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 Exchange believes that its proposal to change the standard fee 
charged for Non-Customer orders that remove liquidity in Non-Penny 
Pilot Securities under fee code NP from $0.94 to $0.99 per contract is 
reasonable, fair and equitable and non-discriminatory, because the 
change will apply equally to all participants, and because, while the 
change marks an increase in fees for orders in Non-Penny Pilot 
Securities, such proposed fees remain consistent with pricing 
previously offered by the Exchange as well as competitors of the 
Exchange and does not represent a significant departure from the 
Exchange's general pricing structure and will allow the Exchange to 
earn additional revenue that can be used to offset the addition of new 
pricing incentives, including those introduced as part of this 
proposal. The Exchange also believes that its proposal to adopt a 
tiered pricing structure that will result in a reduced fee for all 
Members qualifying for the tier mitigates the increased fee. The tier 
is itself reasonable, fair and equitable and non-discriminatory for the 
reasons set forth above with respect to volume-based pricing generally, 
and also because the change will apply equally to all participants, the 
proposed fee under the tier remains consistent with pricing previously 
offered by the Exchange as well as competitors of the Exchange and does 
not represent a significant departure from the Exchange's general 
pricing structure.
    The Exchange believes that its proposal to amend QIP Tier 3 and add 
a new QIP Tier 4 under footnote 5 is reasonable, fair and equitable and 
non-discriminatory, for the reasons set forth above with respect to 
volume-based

[[Page 29935]]

pricing generally. In addition, the Exchange believes the reduction of 
the rebate offered under QIP Tier 3 is equitable and reasonable because 
of the adoption of QIP Tier 4, which will still provide Members with 
the ability to earn the current rebate provided by QIP Tier 3, albeit 
only if such Members satisfy the increased criteria. The Exchange also 
notes that although registration as a Market Maker is required to 
qualify for QIP, such registration is available to all Members on an 
equal basis. The Exchange also believes that proposed QIP Tier 4 is 
reasonable, fair and equitable, and non-discriminatory because it, like 
the QIP generally, is aimed to incentivize active market making on the 
Exchange.
    With respect to the proposed routing structure, the Exchange again 
notes that it operates in a highly competitive market in which market 
participants can readily direct order flow to competing venues or 
providers of routing services if they deem fee levels to be excessive. 
As explained above, the Exchange proposes to approximate the cost of 
routing to other options exchanges, including other applicable costs to 
the Exchange for routing, in order to provide a simplified and easy to 
understand pricing model. 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 
fees are generally an approximation of the cost to the Exchange for 
routing orders to such exchanges. The Exchange believes that its flat 
fee structure for orders routed to various venues is a fair and 
equitable approach to pricing, as it will provide certainty with 
respect to execution fees at groups of away options exchanges. In order 
to achieve its flat fee structure, taking all costs to the Exchange 
into account, the Exchange will necessarily charge a higher premium to 
route to certain options exchanges than to others. 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 and 
to make some additional profit in exchange for the services it 
provides. 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. Finally, the Exchange notes that it 
intends to consistently evaluate its routing fees, including profit and 
loss attributable to routing, as applicable, in connection with the 
operation of a flat fee routing service, 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.

(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. Rather, the 
proposal is a competitive proposal that is seeking to further the 
growth of the Exchange and to simplify the Exchange's fees for routing 
orders to away options exchanges. With respect to the tiered pricing 
changes, the Exchange has structured the proposed fees and rebates to 
attract additional volume to the Exchange based on pricing that is 
competitive with that offered by other options exchanges. In 
particular, by offering tiered pricing the Exchange is incentivizing 
Members to maintain and/or increase the liquidity provided to the 
Exchange, which is representative of the competitive nature of the 
options markets. With respect to the proposed routing fee structure, 
the Exchange believes that the proposed fees are competitive in that 
they will provide a simple approach to routing pricing that some 
Members may favor. Additionally, Members may opt to disfavor the 
Exchange's pricing, including pricing for transactions on the Exchange 
as well as routing fees, if they believe that alternatives offer them 
better value. In particular, with respect to routing services, such 
services are available to Members from other broker-dealers as well as 
other options exchanges. The Exchange also notes that Members may 
choose to mark their orders as ineligible for routing to avoid 
incurring routing fees.\18\ 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.
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    \18\ See Exchange Rule 21.1(d)(7) (describing ``Book Only'' 
orders) and Exchange Rule 21.9(a)(1) (describing the Exchange's 
routing process, which requires orders to be designated as available 
for routing).
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(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 \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-BatsBZX-2016-14 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-BatsBZX-2016-14. 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.,

[[Page 29936]]

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-BatsBZX-2016-14 and should 
be submitted on or before June 3, 2016.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11293 Filed 5-12-16; 8:45 am]
 BILLING CODE 8011-01-P