[Federal Register Volume 81, Number 157 (Monday, August 15, 2016)]
[Notices]
[Pages 54134-54137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19320]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78517; File No. SR-BatsBZX-2016-44]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use of the Exchange's Options Platform

August 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 July 29, 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) 
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 options platform (``BZX Options'') to: (i) Increase the fee 
for orders that yield fee code NP, which is appended Non-Customer \6\ 
orders in Non-Penny Pilot Securities; \7\ (ii) add three new tiers 
under new footnote 13 entitled, ``Non-Customer Non-Penny Pilot Take 
Volume Tier''; (iii) eliminate Tier 4 from footnote 5, Quoting 
Incentive Program (``QIP'') Tier; and (iv) modify the billing policy 
for the logical port fees.
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    \6\ As defined in the Exchange's fee schedule available at 
http://www.batsoptions.com/support/fee_schedule/bzx/.
    \7\ Id.
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Fee Code NP
    Fee code NP is appended to Non-Customer orders that remove 
liquidity in Non-Penny Pilot Securities on the Exchange. Orders that 
yield fee code NP currently incur a fee of $0.99 per contract. The 
Exchange is proposing to increase this fee to $1.07 per contract, which 
as explained below, is commensurate with industry standards.

[[Page 54135]]

In conjunction with this change, the Exchange also proposes to update 
the Standard Rate table.
Non-Customer Non-Penny Pilot Take Volume Tier
    The Exchange proposes to add three tiers under new footnote 13 
entitled, ``Non-Customer Non-Penny Pilot Take Volume Tier''. Under the 
proposed new tiers, orders that yield fee code NP would receive a 
discounted rate from the proposed $1.07 fee discussed above. The 
Exchange proposes to add three Non-Customer Non-Penny Pilot Take Volume 
Tiers, as set forth below.
     Tier 1, would provide a discounted rate of $1.02 in orders 
where: the (1) Member has an ADAV \8\ in Customer \9\ orders equal to 
or greater than 0.60% of average TCV \10\; (2) Member has an ADAV in 
Market Maker \11\ orders equal to or greater than 0.30% of average TCV; 
and (3) Member has on Exchange's equity platform (``BZX Equities'') an 
ADAV \12\ equal to or greater than 0.30% of average TCV.
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    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ As defined in the Exchange's fee schedule available at 
http://www.batsoptions.com/support/fee_schedule/bzx/.
    \12\ As defined in the BZX Equities' fee schedule available at 
http://batstrading.com/support/fee_schedule/bzx/.
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     Tier 2, would provide a discounted rate of $1.02 in orders 
where a Member has an ADAV in Customer orders equal to or greater than 
1.00% of average TCV.
     Tier 3, would provide a discounted rate of $1.01 in orders 
where a Member has an ADAV in Customer orders equal to or greater than 
1.30% of average TCV.
    The Exchange notes that the criteria necessary to achieve the 
discounted rate under Tiers 1, 2, and 3 proposed above mirrors the 
criteria required by the existing Non-Customer Penny Pilot Take Volume 
Tiers under footnote 3 of the Exchange's fee schedule. In conjunction 
with the addition of footnote 13, the Exchange also proposes to append 
footnote 13 to fee code NP within the Fee Codes and Associate Fees 
table and update the Standard Rates table.
Quoting Incentive Program (``QIP'') Tier
    The Exchange currently offers four QIP tiers which provide an 
additional rebate per contract for an order that adds liquidity to the 
BZX Options Book 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. Under the QIP Tiers, a Market Maker receives an 
additional rebate ranging from $0.02 to $0.06 per contract where that 
Market Maker satisfies certain ADV \13\ thresholds. Under the highest 
tier, QIP Tier 4, a Market Maker receives an additional rebate of $0.06 
per contract where that Market Maker has an ADV equal to or greater 
than 3.5% of average TCV. The Exchange proposes to eliminate QIP Tier 4 
because the rebate has not achieved the desired effect, despite being 
designed to incentivize Market Markers to add liquidity to the BZX 
Options Book.
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    \13\ As defined in the Exchange's fee schedule available at 
http://www.batsoptions.com/support/fee_schedule/bzx/.
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Logical Port Fees
    A logical port represents a port established by the Exchange within 
the Exchange's system for trading and billing purposes. Each logical 
port established is specific to a Member or non-Member and grants that 
Member or non-Member the ability to operate a specific application, 
such as FIX order entry or PITCH data receipt. The Exchange's Multicast 
PITCH data feed is available from two primary feeds, identified as the 
``A feed'' and the ``C feed'', which contain the same information but 
differ only in the way such feeds are received. The Exchange also 
offers two redundant fees, identified as the ``B feed'' and the ``D 
feed.'' The Exchange also offers a bulk-quoting interface which allows 
Users \14\ of BZX Options to submit and update multiple bids and offers 
in one message through logical ports enabled for bulk-quoting. The 
bulk-quoting application for BZX Options is a particularly useful 
feature for Users that provide quotations in many different options.
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    \14\ A User on BZX Options is either a member of BZX Options or 
a sponsored participant who is authorized to obtain access to the 
Exchange's system pursuant to BZX Rule 11.3. See Exchange Rule 
1.5(ee) [sic].
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    The Exchange currently charges for logical ports (including 
Multicast PITCH Spin Server and GRP ports) $650 per port per month and 
$1,500 per month for ports with bulk quoting capabilities. Where a User 
subscribes to more than five ports with bulk quoting capabilities, the 
Exchange charges for each port in excess of five $2,000 per logical 
port per month for logical ports with bulk quoting capabilities. 
Logical port fees are limited to logical ports in the Exchange's 
primary data center and no logical port fees are assessed for redundant 
secondary data center ports. The Exchange assesses the monthly per 
logical port fees to all Member's and non-Member's logical ports.
    The Exchange proposes to clarify within its fee schedule how fees 
for logical ports may be pro-rated. As proposed, new requests will be 
pro-rated for the first month of service. Cancellation requests are 
billed in full month increments as firms are required to pay for the 
service for the remainder of the month, unless the session is 
terminated within the first month of service.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule on August 1, 2016.
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. 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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    \15\ 15 U.S.C. 78f.
    \16\ 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 equities and 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.
Fee Code NP
    The Exchange believes that its proposal to change the standard fee 
charged for Customer orders that remove liquidity in Non-Customer Non-
Penny Pilot Securities from $0.99 to $1.07 per contract is reasonable, 
fair and equitable because, while the change marks an increase in fees 
for orders in Non-Penny Pilot Securities, such

[[Page 54136]]

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.\17\ Additionally, this pricing structure 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 proposed rate change is also not unfairly 
discriminatory because it will apply equally to all Members.
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    \17\ NYSE Arca, Inc. (``NYSE Arca'') charges a fee of $1.08 to 
non-customer orders that remove liquidity in Non-Penny Pilot 
Securities. See NYSE Arca Options fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf. Similarly, the Nasdaq Stock 
Market LLC (``Nasdaq'') charges a fee of $1.10 to non-customer 
orders that remove liquidity in Non-Penny Pilot Securities. See 
Nasdaq Options fee schedule available at http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing.
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Non-Customer Non-Penny Pilot Take Volume Tier
    The Exchange believes the volume-based discounted rates offered in 
the Non-Customer Non-Penny Pilot Take Volume Tiers are reasonable, 
fair, equitable and non-discriminatory for the reasons set forth above 
with respect to volume-based pricing generally, such changes will apply 
equally to all participants, and the change is intended to incentivize 
participants to further contribute to market quality on the Exchange. 
Moreover, the proposed changes will provide Members with an increased 
incentive to interact with orders in Non-Penny Pilot securities on the 
Exchange. The Exchange believes this will enhance market quality for 
all market participants and encourage increased participation of other 
orders wanting to interact with such Non-Customer Non-Penny Pilot 
orders, to further the benefit of all market participants.
    The Exchange also believes that the proposed new tiers remain 
consistent with pricing previously offered by the Exchange as well as 
competitors of the Exchange. The Exchange notes that the criteria 
required to achieve proposed Tiers 1, 2, and 3 mirror those required to 
achieve the Non-Customer Penny-Pilot Take Volume Tiers 1, 2, and 3 
under footnote 3 of the Exchange's fee schedule. Furthermore, the 
criteria required to achieve proposed Tier 1, 2, and 3 mirrors that 
required by the Customer Add Volume Tier 5, 4, and 6, respectively.
    The Exchange further believes that the criteria necessary to 
achieve Tier 1 of the Non-Customer Non-Penny Pilot Take Volume Tier is 
reasonable, fair, equitable and non-discriminatory because to the 
extent a Member participates on the Exchange but not on BZX Equities 
[sic] based on the overall benefit to the Exchange resulting from the 
success of BZX Equities. Such success allows the Exchange to continue 
to provide and potentially expand its existing incentive programs to 
the benefit of all participants on the Exchange, whether they 
participate on BZX Equities or not. The proposed pricing program is 
also fair and equitable in that membership in BZX Equities is available 
to all Members which would provide them with access to the benefits 
provided by the proposed tier, as described above, even where a Member 
of BZX Equities is not necessarily eligible for the proposed increased 
rebates on the Exchange.
QIP Tier
    The Exchange believes that its proposal to eliminate QIP Tier 4 
under footnote 5 represents an equitable allocation of reasonable dues, 
fees, and other charges among Members and other persons using its 
facilities. As described above, the additional rebates offered under 
this tier is not affecting Members' behavior in the manner originally 
conceived by the Exchange. Additionally, the Exchange currently 
provides three other QIP Tiers which offer additional rebates to 
qualifying Members adding liquidity. While the Exchange acknowledges 
the benefit of Members entering orders which add liquidity, the 
Exchange has determined that it is providing additional rebates for 
liquidity that would be added regardless of whether the tier existed. 
By providing this rebate, the Exchange is not only offering a rebate 
for orders that would add liquidity without being incentivized to do 
so, but also bypassing the opportunity to offer other rebates or 
reduced fees which could incentivize other behavior that would enhance 
market quality on the Exchange and benefit all Members. As such, the 
Exchange believes the proposed elimination of the QIP Tier 4 would be 
non-discriminatory in that it currently applies equally to all Members 
and, upon elimination, would no longer be available to any Members. 
Further, it will allow the Exchange to explore other ways in which it 
may enhance market quality for all Members.
Logical Port Fees
    The Exchange believes that the proposed clarification on how 
logical port fees may be pro-rated is consistent with Section 6(b)(4) 
of the Act,\18\ 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 proposed rule change seeks to provide clarity to subscribers 
regarding the Exchange's pro-rata billing policy for logical ports by 
describing how logical port fees may be pro-rated for a new request and 
upon cancellation. The Exchange believes that the proposed pro-rata 
billing of fees for logical ports is reasonable in that it is similar 
to how port fees are pro-rated by the Nasdaq Stock Market LLC 
(``Nasdaq'').\19\
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    \18\ 15 U.S.C. 78f(b)(4).
    \19\ See Nasdaq Price List--Trade Connectivity available at 
http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#connectivity. The Exchange notes 
that, unlike as proposed by the Exchange, Nasdaq does not pro-rate 
where the session is terminated within the first month of service.
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    The Exchange operates in a highly competitive market in which 
exchanges offer connectivity services as a means to facilitate the 
trading activities of Members and other participants. Accordingly, fees 
charged for connectivity are constrained by the active competition for 
the order flow of such participants as well as demand for market data 
from the Exchange. If a particular exchange charges excessive fees for 
connectivity, affected Members will opt to terminate their connectivity 
arrangements with that exchange, and adopt a possible range of 
alternative strategies, including routing to the applicable exchange 
through another participant or market center or taking that exchange's 
data indirectly. Accordingly, an exchange charging excessive fees would 
stand to lose not only connectivity revenues, but also revenues 
associated with the execution of orders routed to it by affected 
members, and, to the extent applicable, market data revenues. The 
Exchange believes that this competitive dynamic imposes powerful 
restraints on the ability of any exchange to charge unreasonable fees 
for connectivity.

(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. To the contrary, 
the Exchange has designed the proposed amendments to its fee schedule 
to enhance its ability to compete with other exchanges. Rather, the 
proposal as a whole is a competitive

[[Page 54137]]

proposal that is seeking to further the growth of the Exchange. The 
Exchange has structured certain fees and rebates proposed herein to 
attract certain additional volume in both Customer and certain Non-
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. 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 changes to the Exchange's tiered pricing 
structure burdens competition, but instead enhances competition by 
increasing the competitiveness of the Exchange. The Exchange believes 
that the price changes contribute to, rather than burden competition, 
as such changes are broadly intended to incentivize participants to 
increase their participation on the Exchange, which will increase the 
liquidity and market quality on the Exchange and further enhance the 
Exchange's ability to compete with other exchanges.
    With regard to the proposed logical port fee amendment, the 
Exchange believes that fees for connectivity are constrained by the 
robust competition for order flow among exchanges and non-exchange 
markets. Further, excessive fees for connectivity, including logical 
port fees, would serve to impair an exchange's ability to compete for 
order flow rather than burdening competition. The Exchange also does 
not believe the proposed rule change would impact intramarket 
competition as it would apply to all Members and non-Members equally.

(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 \20\ and paragraph (f) of Rule 19b-4 
thereunder.\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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-2016-44 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-2016-44. 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-BatsBZX-2016-44 and should 
be submitted on or before September 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19320 Filed 8-12-16; 8:45 am]
 BILLING CODE 8011-01-P