[Federal Register Volume 81, Number 149 (Wednesday, August 3, 2016)]
[Notices]
[Pages 51258-51264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18313]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78431; File No. SR-BX-2016-045]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Tiers 
Related to SPY Options

July 28, 2016.
    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 July 14, 2016, NASDAQ 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 modify fees and rebates (per 
executed contract) for certain Penny Pilot \3\ Options to: (a) Delete 
SPY Options from the Select Symbols Options Tier Schedule; and (b) 
adopt a SPY Options Tier Schedule.\4\
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    \3\ The Penny Pilot was established in June 2012 and extended 
through 2016. 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 78036 
(June 10, 2016), 81 FR 39308 (June 16, 2016) (SR-BX-2016-021) 
(notice of filing and immediate effectiveness extending the Penny 
Pilot through December 31, 2016).
    \4\ SPY, Select Symbols Options Tier Schedule, and SPY Options 
Tier Schedule are discussed below.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.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.

[[Page 51259]]

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 Chapter XV, Section 2 to modify fees 
and rebates \5\ for certain Penny Pilot Options to: (a) Delete SPY \6\ 
Options from the Select Symbols Options Tier Schedule; and (b) adopt a 
SPY Options Tier Schedule with explanatory notes. The proposed SPY 
Options Tier Schedule would apply to Customers \7\ that remove 
liquidity from Customers, Non-Customers,\8\ BX Options Market 
Makers,\9\ and Firms.\10\
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    \5\ Fees and rebates are per executed contract. Chapter XV, 
Section 2(1).
    \6\ ``SPY'' or Standard and Poor's Depositary Receipts/SPDRs 
options are Penny Pilot Options that are based on the SPDR exchange-
traded fund (``ETF''), which is designed to track the performance of 
the S&P 500. Options on SPY (``SPY Options'') are among the highest 
volume options traded on the Exchange.
    \7\ 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)). BX Chapter XV. This is known as being marked in the 
Customer range.
    \8\ Note 1 to Chapter XV, Section 2 states: ``\1\A Non-Customer 
includes a Professional, Broker-Dealer and Non-BX Options Market 
Maker.''
    \9\ 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. BX 
Chapter XV.
    \10\ The term ``Firm'' or (``F'') applies to any transaction 
that is identified by a Participant for clearing in the Firm range 
at OCC. BX Chapter XV.
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    Currently, Chapter XV, Section 2 subsection (1) has a Select 
Symbols Options Tier Schedule that includes SPY,\11\ but it does not 
have a SPY Options Tier Schedule. Both of these issues are addressed in 
the current filing and each specific change is described in detail 
below.
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    \11\ See Securities Exchange Act Release No. 77339 (March 10, 
2016), 81 FR 14155 (March 16, 2016) (SR-BX-2016-016) (notice of 
filing and immediate effectiveness to adopt Select Symbols Options 
Tier Schedule).
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Change 1--Penny Pilot Options: Remove SPY Options From Select Symbols 
Options Tier Schedule
    In Change 1, under Penny Pilot Options, the Exchange proposes to 
remove SPY Options from the Select Symbols Options Tier Schedule. The 
Exchange simultaneously proposes to establish a new SPY Options Tier 
Schedule.
    Specifically, the Exchange proposes, commensurate with establishing 
the SPY Options Tier Schedule, to delete SPY from the BX Options Select 
Symbol List. The Select Symbols on this list represent, similarly to 
SPY, some of the highest volume Penny Pilot Options traded on the 
Exchange and in the U.S. The following are currently Select Symbols: 
ASHR, DIA, DXJ, EEM, EFA, EWJ, EWT, EWW, EWY, EWZ, FAS, FAZ, FXE, FXI, 
FXP, GDX, GLD, HYG, IWM, IYR, KRE, OIH, QID, QLD, QQQ, RSX, SDS, SKF, 
SLV, SPY, SRS, SSO, TBT, TLT, TNA, TZA, UNG, URE, USO, UUP, UVXY, UYG, 
VXX, XHB, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT. 
The Select Symbol List is similar to that of other options exchanges 
(e.g., the MIAX Options Exchange (``MIAX'').\12\ Whereas the current 
Select Symbols Options Tier Schedule has four Tiers, the proposed SPY 
Options Tier Schedule will have three Tiers. Moreover the SPY Options 
Tier requirements as well as the proposed fees and rebates are, as 
described below, very similar to those currently applicable to Select 
Symbols.
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    \12\ See MIAX fee schedule at https://www.miaxoptions.com/content/fees.
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    As proposed, the BX Options Select Symbol List in Chapter XV, 
Section 2 subsection (1) will not include SPY and will read as follows:
BX Options Select Symbol List
    The following are Select Symbols: ASHR, DIA, DXJ, EEM, EFA, EWJ, 
EWT, EWW, EWY, EWZ, FAS, FAZ, FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR, 
KRE, OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SRS, SSO, TBT, TLT, TNA, 
TZA, UNG, URE, USO, UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF, XLI, XLK, 
XLP, XLU, XLV, XLY, XME, XOP, XRT.
Change 2--Penny Pilot Options: Add SPY Options Tier Schedule
    For Penny Pilot Options, in Change 2 the Exchange is proposing to 
modify fees and rebates for Customer and BX Options Market Maker in 
respect of SPY Options.\13\ Specifically, the Exchange is proposing to 
add a SPY Options Tier Schedule. This schedule will have three Tiers 
for Rebate to Remove Liquidity for Customer and several notes. The 
three new Tiers, described below along with several proposed notes, 
together make up the ``SPY Options Tier Schedule''.
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    \13\ The Non- Penny Pilot Options pricing will remain unchanged.
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    Proposed Tier 1 in the SPY Options Tier Schedule, which is similar 
in structure to current Tier 1 in the Select Symbols Options Tier 
Schedule Rebate to Remove Liquidity,\14\ states that a BX Participant 
(``Participant'') may earn a rebate if he removes less than 1500 SPY 
Options contracts per day in the Customer range.\15\ Proposed Tier 1 
offers a $0.10 rebate when a Customer trades with Non-Customer, BX 
Options Market Maker, Customer, or Firm. The proposed $0.10 rebate is a 
modest increase from the current $0.00 rebate in the Select Symbols 
Options Tier Schedule now applicable to SPY Options. This increase is, 
as further discussed, reasonable because it incentivizes Participants 
to bring SPY Options volume to the Exchange. Whereas the Select Symbols 
Options Tier Schedule takes into account total industry Customer volume 
per month including equity and ETF options ADV contracts, in order to 
incentivize Participants to transact more SPY Options volume on the 
Exchange, proposed Tier 1 looks only at the amount of daily SPY Options 
volume in the Customer range that is removed by the Participant.
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    \14\ Current Select Symbols Options Tiers use industry customer 
equity and ETF Option ADV to determine tier level. Rather than 
industry ADV, proposed SPY Options Tier 1 looks only at how many SPY 
Options contracts Participant removes in a day.
    \15\ For a discussion of Customer range, see note 7 above.
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    Proposed Tier 2 in the SPY Options Tier Schedule, which is similar 
in structure to current Tier 2 in the Select Symbols Options Tier 
Schedule Rebate to Remove Liquidity, states that a Participant may earn 
a rebate if he removes 1500 to not more than 2999 SPY Options contracts 
per day in the Customer range. Proposed Tier 2 offers a $0.42 rebate 
when a Customer trades with Non-Customer, BX Options Market Maker, 
Customer, or Firm. The proposed $0.42 rebate is a modest increase from 
the current $0.25 rebate in the Select Symbols Options Tier Schedule 
now applicable to SPY Options. This increase is, as further discussed, 
reasonable because it incentivizes Participants to bring SPY Options 
volume to the Exchange. Whereas the Select Symbols Options Tier 
Schedule takes into account total industry Customer volume per month 
including equity and ETF options ADV contracts, in order to incentivize 
Participants to transact more SPY Options volume on the Exchange, 
proposed Tier 2 looks only at the amount of daily SPY Options volume in 
the Customer range that is removed by the Participant.
    The highest proposed Tier 3 in the SPY Options Tier Schedule, which 
is similar in structure to current Tier 3 in

[[Page 51260]]

the Select Symbols Options Tier Schedule Rebate to Remove Liquidity, 
states that a Participant may earn a rebate if he removes more than 
2999 SPY Options contracts per day in the customer range. Proposed Tier 
3 offers a $0.51 rebate when a Customer trades with Non-Customer, BX 
Options Market Maker, Customer, or Firm. The proposed $0.51 rebate is a 
modest increase from the current $0.37 rebate in the Select Symbols 
Options Tier Schedule now applicable to SPY Options. This increase is, 
as further discussed, reasonable because it incentivizes Participants 
to bring SPY Options volume to the Exchange. Whereas the Select Symbols 
Options Tier Schedule takes into account total industry Customer volume 
per month including equity and ETF options ADV contracts, in order to 
incentivize Participants to transact more SPY Options volume on the 
Exchange, proposed Tier 3 looks only at the amount of daily SPY Options 
volume in the Customer range that is removed by the Participant.
    As part of the new SPY Options Tier Schedule the Exchange proposes 
six notes regarding certain fees to add liquidity and fees to remove 
liquidity. The first four proposed notes are taken directly from the 
Select Symbols Options Tier Schedule and use the same language except 
that these proposed notes refer to SPY Options rather than Select 
Symbols. The Exchange is also adding a sentence to the fourth note to 
state: There will be no fee or rebate for Customer SPY Options that add 
liquidity when contra to Firm, BX Options Market Maker or Non 
Customer.\16\ The Exchange also proposes two additional notes. Proposed 
note 5 would state that BX Options Market Maker fee to add liquidity 
and BX Options Market Maker fee to remove liquidity in SPY Options will 
each be $0.44 per contract when trading with Customer. Proposed note 6 
would state that BX Options Market Maker fee to add liquidity in SPY 
Options will be $0.10 per contract when trading with Firm, BX Options 
Market Maker or Non Customer.
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    \16\ The Exchange believes that while the fourth note applicable 
to Select Symbols Options now states that Customer fee to add 
liquidity in when contra to another Customer is $0.33 per contract, 
the proposed change is reasonable in light of the overall Exchange 
efforts to incentivize Participants to bring SPY Options liquidity 
to the Exchange.
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    Today, when BX Options Market Maker trades in SPY Options with 
Customer, the fee to add liquidity is between $0.29 and $0.44 per 
contract and the fee to remove liquidity is between $0.25 and $0.42 per 
contract, according to Tiers. Going forward, per proposed note 5, both 
the fee to add liquidity in SPY Options and the fee to remove liquidity 
in SPY Options when BX Options Market Maker trades with Customer will 
be $0.44 per contract. Today the fee to add liquidity when BX Options 
Market maker trades in SPY Options with Non-Customer or BX Options 
Market Maker, or Firm is between $0.14 and $0.00 per contract, 
according to Tiers. Going forward per proposed note 6 the BX Options 
Market Maker fee to add liquidity will be $0.10 per contract when 
trading SPY Options with Firm, BX Options Market Maker or Non Customer. 
The Exchange believes that it is reasonable to normalize the fees 
discussed in note 5 and in note 6 so that they are the same for BX 
Options Market Makers when trading such SPY Options.
    As proposed, the SPY Options Tier Schedule in Chapter XV, Section 2 
subsection (1) will read as follows:
SPY Options Tier Schedule

                                           Rebate To Remove Liquidity
                                                 [per contract]
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                                              Applied to: Customer
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                     Trading with: Non-Customer, BX Options Market Maker, Customer, or Firm
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Tier 1...................................  Participant removes less than 1500 SPY Options                  $0.10
                                            contracts per day in the customer range.
Tier 2...................................  Participant removes 1500 to not more than 2999 SPY               0.42
                                            Options contracts per day in the customer range.
Tier 3...................................  Participant removes more than 2999 SPY Options                   0.51
                                            contracts per day in the customer range.
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 Note 1: Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.33 per
  contract, regardless of counterparty.
 Note 2: Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.46 per
  contract, regardless of counterparty.
 Note 3: BX Options Market Maker fee to remove liquidity in SPY Options will be $0.46 per contract when
  trading with Firm, Non-Customer, or BX Options Market Maker.
 Note 4: Customer fee to add liquidity in SPY Options when contra to another Customer will be $0.33 per
  contract. There will be no fee or rebate for Customer SPY Options that add liquidity when contra to Firm, BX
  Options Market Maker or Non Customer.
 Note 5: BX Options Market Maker fee to add liquidity and BX Options Market Maker fee to remove
  liquidity in SPY Options will each be $0.44 per contract when trading with Customer.
 Note 6: BX Options Market Maker fee to add liquidity in SPY Options will be $0.10 per contract when
  trading with Firm, BX Options Market Maker or Non Customer.

    The Exchange is adopting a separate SPY Options Tier Schedule 
because it believes that it will provide even greater incentives for 
execution of SPY Options contracts on the BX Options Market. The 
Exchange believes that its proposal should provide increased 
opportunities for participation in SPY Options executions on the 
Exchange, facilitating the ability of the Exchange to bring together 
participants and encourage more robust competition for orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\17\ in general, and with Section 6(b)(4) and 
6(b)(5) of the Act,\18\ 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. 
Attracting order flow to the Exchange benefits all Participants who 
have the opportunity to interact with this order flow.
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    \17\ 15 U.S.C. 78f.
    \18\ 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, while adopting a series of steps to improve the

[[Page 51261]]

current market model, the Commission highlighted the importance of 
market forces in determining prices and SRO revenues and, also, 
recognized that current regulation of the market system ``has been 
remarkably successful in promoting market competition in its broader 
forms that are most important to investors and listed companies.'' \19\
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    \19\ Securities Exchange Act Release No. 51808 (June 29, 2005), 
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\20\ (``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.\21\ 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.'' \22\
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    \20\ Net Coalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \21\ See id. At 534-535.
    \22\ See 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'. . . .'' \23\ 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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    \23\ See id. At 539 (quoting Securities Exchange Act Commission 
at [sic] Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-
74783 (December 9, 2008) (SR-NYSEArca-2006-21)).
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    The Exchange believes that its proposal should provide increased 
opportunities for participation in SPY Options executions on the 
Exchange, facilitating the ability of the Exchange to bring together 
participants and encourage more robust competition for orders.
    The Exchange believes that the proposed change is reasonable, 
equitable and not unfairly discriminatory for the following reasons.
Change 1--Penny Pilot Options: Remove SPY Options From Select Symbols 
Options Tier Schedule
    For Penny Pilot Options, in Change 1, the Exchange proposes 
modifications to remove SPY Options from the Select Symbols Options 
Tier Schedule. The Exchange simultaneously proposes to establish a new 
SPY Options Tier Schedule.
    Deleting SPY Options from the Select Symbols Options Tier Schedule 
of rebates and fees is reasonable because SPY Options are proposed to 
have their own new Tier structure to further incentivize Participants 
to send SPY Options order flow to the Exchange. The Exchange believes 
it is equitable and not unfairly discriminatory to delete SPY Options 
from Select Symbols and establish the SPY Options Tier Schedule because 
this schedule will be applied uniformly to all similarly situated 
Participants. This is further discussed below.
Change 2--Penny Pilot Options: Add SPY Options Tier Schedule
    For Penny Pilot Options, in Change 2 the Exchange is proposing to 
modify fees and rebates for Customer and BX Options Market Maker in 
respect of SPY Options.\24\ Specifically, the Exchange is proposing to 
add a SPY Options Tier Schedule as discussed. In adding the new Tiers 
in the SPY Options Tier Schedule, the current SPY Options pricing in 
the Select Symbols Options Tier Schedule will be replaced with the 
proposed SPY Options Tier Schedule specifically applicable to SPY 
Options, which are among the very highest volume options traded on the 
Exchange. The proposed SPY Options Tier Schedule will have three Tiers 
for Rebate to Remove Liquidity for Customer as well as several notes. 
The three new Tiers, which make up the ``SPY Options Tier Schedule,'' 
are similar in structure to the current Select Symbols Options Tier 
Schedule Rebate to Remove Liquidity.\25\
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    \24\ Fees and rebates, as well as Tiers, for all other Select 
Symbols options will remain unchanged.
    \25\ Unlike the Select Symbols Options Tier Schedule, in the SPY 
Options Tier Schedule there is no tier 4, which in the Select 
Symbols Options Tier Schedule for a rebate requires an even higher 
amount of volume or volume associated with the Price Improvement 
Mechanism Auction (``PRISM'').
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    The Exchange believes that it is reasonable to establish separate 
SPY Options Tiers to attract SPY Options volume to the Exchange while 
separately setting forth fees and rebates related to SPY Options. The 
Exchange believes that the proposed Tiers in the SPY Options Tier 
Schedule are reasonable in that they reflect a structure that is not 
novel in the options markets but rather is similar to that of other 
options markets and competitive with what is offered by other 
exchanges.\26\ In addition, the Exchange believes that making changes 
to add Tiers applicable to the Customer in terms of Rebate to Remove 
Liquidity is reasonable because it encourages the desired Customer 
behavior by attracting Customer interest 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 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.
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    \26\ See, e.g., the MIAX fee schedule at https://www.miaxoptions.com/content/fees and the BOX fee schedule at http://boxoptions.com/fee-schedule/ schedule/.
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    Establishing SPY Option Tiers for Rebate to Remove Liquidity is 
reasonable because it encourages market participant behavior through 
progressive tiered fees and rebates using an accepted methodology among 
options exchanges.\27\ The proposed Tiers in the SPY Options Tier 
Schedule clearly reflect the progressively increasing nature of 
Participant executions structured for the purpose of attracting order 
flow to the Exchange. That is, as discussed if a Participant removes 
more SPY Options contracts per day in the customer range he can earn 
higher rebates. For example, in the highest proposed SPY Options Tier 3 
Rebate to Remove Liquidity, for which Participant must remove more than 
2999 SPY Options contracts per day in the customer range, the 
Participant can earn the highest $0.51 rebate (per contract). And in 
the lowest proposed SPY Options Tier 1 Rebate to Remove Liquidity, for 
which Participant must remove less than 1500 SPY Options contracts per 
day in the customer range, the Participant can earn the lowest $0.10 
rebate (per contract).
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    \27\ See, e.g., fee and rebate schedules of other options 
exchanges, including, but not limited to, NASDAQ Options Market 
(``NOM''), NASDAQ PHLX LLC (``Phlx''), and Chicago Board Options 
Exchange (``CBOE'').
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    For Penny Pilot Options, establishing the Customer-related and BX 
Options Market Maker-related fee and rebate changes in respect of SPY 
Options, which includes the new SPY Options Tiers with notes, is 
equitable and not unfairly discriminatory because the Exchange's 
proposal to assess fees and pay rebates according to the SPY

[[Page 51262]]

Options Tier Schedule will apply uniformly to all similarly situated 
Participants. Thus, for example, certain Participants would earn a 
Rebate to Remove Liquidity according to the same Tiers per the SPY 
Options Tier Schedule.
    The fee and rebate schedule as proposed continues to reflect 
differentiation among different market participants. The Exchange 
believes that the differentiation is equitable and not unfairly 
discriminatory, as well as reasonable, and notes that unlike others 
(e.g. Non-Customers) some market participants like BX Options Market 
Makers commit to various obligations. Despite the fact that certain BX 
Options Market Maker fees to add and remove liquidity are proposed to 
be increased as discussed, the BX Options Market Maker fees to add and 
remove will be lower as compared to other non-Customer market 
participants. Unlike other non-Customer market participants, BX Options 
MMs have obligations to the market and regulatory requirements, which 
normally do not apply to other market participants.\28\ A BX Options 
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 course [sic] of 
dealings. Customers will continue to be assessed the lowest fees 
because Customer liquidity 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.
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    \28\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a Market Maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity 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. See Chapter VII, Section 5.''
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    As part of the new SPY Options Tier Schedule the Exchange proposes 
six notes regarding certain fees to add liquidity and fees to remove 
liquidity. The Exchange believes that this is reasonable. The first 
four proposed notes are taken directly from the Select Symbols Options 
Tier Schedule and use the same language except that these proposed 
notes refer to SPY Options rather than Select Symbols; and note four 
has one proposed added sentence.\29\ Proposed note 4 would state that 
Customer fee to add liquidity in SPY Options when contra to another 
Customer will be $0.33 per contract. There will be no fee or rebate for 
Customer SPY Options that add liquidity when contra to Firm, BX Options 
Market Maker or Non Customer.\30\ The Exchange also proposes two 
additional notes. Proposed note 5 would state that BX Options Market 
Maker fee to add liquidity and the BX Options Market Maker fee to 
remove liquidity in SPY Options will each be $0.44 per contract when 
trading with Customer. Proposed note 6 would state that BX Options 
Market Maker fee to add liquidity in SPY Options will be $0.10 per 
contract when trading with Firm, BX Options Market Maker or Non 
Customer.
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    \29\ The sentence proposed to be added to the fourth note would 
state: There will be no fee or rebate for Customer SPY Options that 
add liquidity when contra to Firm, BX Options Market Maker or Non 
Customer.
    \30\ Previously, as part of the Select Symbol Tier Schedule, a 
Customer, when trading with Firm, BX Options Market Maker or Non 
Customer could receive a Rebate to add liquidity ($0.00 to $0.25 
rebate); and now there is no fee or rebate when a Customer adds 
liquidity in SPY Options when trading with Firm, BX Options Market 
Maker or Non Customer. The Exchange believes this change is 
reasonable and not inequitable or unfairly discriminatory in light 
of the overall Exchange efforts to incentivize Participants to bring 
SPY Options liquidity to the Exchange.
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    Today, when BX Options Market Maker trades in SPY Options with 
Customer, the fee to add liquidity is between $0.29 and $0.44 per 
contract and the fee to remove liquidity is between $0.25 and $0.42 per 
contract, according to Tiers. Going forward, per proposed note 5, both 
the fee to add liquidity in SPY Options and the fee to remove liquidity 
in SPY Options when BX Options Market Maker trades with Customer will 
be $0.44 per contract. Today the fee to add liquidity when BX Options 
Market maker trades in SPY Options with Non-Customer or BX Options 
Market Maker, or Firm is between $0.14 and $0.00 per contract, 
according to Tiers. Going forward per proposed note 6 the BX Options 
Market Maker fee to add liquidity will be $0.10 per contract when 
trading SPY Options with Firm, BX Options Market Maker or Non 
Customer.\31\ The Exchange believes that it is reasonable to normalize 
the fees discussed in note 5 and in note 6 so that they are the same 
for BX Options Market Makers when trading such SPY Options. The 
Exchange believes that to incentivize bringing SPY Options liquidity to 
the Exchange it is reasonable to make the proposed change in notes 1, 
2, 3, and 4 (with the added sentence in note 4 as noted) to refer to 
SPY Options rather than the Select Symbol Tier Schedule. The Exchange 
believes that to incentivize bringing SPY Options liquidity to the 
Exchange it is reasonable to normalize note 5 and note 6 fees so that 
they are the same under all circumstances for BX Options Market Makers 
when trading such SPY Options.\32\
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    \31\ Previously, as part of the Select Symbol Tier Schedule, BX 
Options Market Maker when trading with Customer would be assessed a 
fee to remove liquidity in SPY Options ($0.25 to $0.42), and BX 
Options Market Maker when trading with Customer would be assessed a 
fee to add liquidity ($0.29 to $0.44); and as proposed there will be 
a $0.44 fee to remove liquidity and a $0.44 fee to add liquidity in 
SPY Options for all Tiers. The Exchange believes this change is 
reasonable and not inequitable or unfairly discriminatory in light 
of the overall Exchange efforts to incentivize Participants to bring 
SPY Options liquidity to the Exchange.
    \32\ As part of the Select Symbol Tier Schedule a BX Options 
Market Maker, when trading with a Customer, would be assessed a fee 
to add liquidity between $0.29 to $0.44 depending on tier; and as 
proposed in note 5 there will be a $0.44 fee to add liquidity in SPY 
options for all Tiers. As part of the Select Symbol Tier Schedule a 
BX Options Market Maker, when trading with a Non-Customer or BX 
Options Market Maker, or Firm, would be assessed a fee to add 
liquidity between $0.00 to $0.14 depending on tier, and as proposed 
in note 5 [sic] there will be a $0.10 fee to add liquidity in SPY 
options for all Tiers.
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    For Penny Pilot Options, establishing the Customer-related and BX 
Options Market Maker-related fee and rebate changes in respect of SPY 
Options, which includes the new SPY Options Tiers with notes, is 
equitable and not unfairly discriminatory. This is because the 
Exchange's proposal to assess fees and pay rebates according to the SPY 
Options Tier Schedule will apply uniformly to all similarly situated 
Participants. Thus, for example, Participants would earn a Rebate to 
Remove Liquidity according to the same Tiers per the SPY Options Tier 
Schedule. It is equitable and not unfairly discriminatory to assess the 
same fee and rebate in respect of SPY Options regardless of industry 
trade volume where this is applied uniformly to all similarly situated 
Participants.
    The Exchange believes that by making the proposed changes it is 
incentivizing Participants to bring more SPY Options volume to the 
Exchange to further enhance liquidity in this market.
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,

[[Page 51263]]

the Exchange does not believe that its proposal to make changes to its 
Penny Pilot Options fees and rebates and to establish the SPY Options 
Tier Schedule with notes for such fees and rebates will impose any 
undue 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 
with the fee structures at other trading platforms. In that sense, the 
Exchange's proposal is actually pro-competitive because the Exchange is 
simply continuing its fees and rebates and establishing separate Tiers 
for SPY Options 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 
terms of intra-market competition, the Exchange notes that price 
differentiation among different market participants operating on the 
Exchange (e.g., Customer, BX Options Market Maker, and Non-Customer) is 
reasonable. Customer activity, for example, 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 (particularly in response to pricing) in turn facilitates 
tighter spreads, which may cause an additional corresponding increase 
in order flow from other market participants. Moreover, unlike others 
(e.g., Non-Customers) each BX Options Market Maker commits to various 
obligations. These obligations include, 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.
    In this instance, the proposed changes to the fees and rebates for 
execution of contracts on the Exchange, and establishing SPY Options 
Tiers with notes for such fees and rebates, 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 order 
executions.
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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\33\
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    \33\ 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-2016-045 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2016-045. 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 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-2016-045, and should be 
submitted on or before August 24, 2016.


[[Page 51264]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18313 Filed 8-2-16; 8:45 am]
 BILLING CODE 8011-01-P