
[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62815-62817]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24662]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70670; File No. SR-Topaz-2013-08]


Self-Regulatory Organizations; Topaz Exchange, LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees

October 11, 2013.
    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 October 1, 2013, the Topaz Exchange, LLC (d/b/a ISE Gemini) 
(the ``Exchange'' or ``Topaz'') 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 self-
regulatory organization. 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 the 
Substance of the Proposed Rule Change

    Topaz is proposing to amend its Schedule of Fees to increase Maker 
Rebates for Market Makers that achieve the Tier 4 ADV threshold, to 
permit Topaz to exclude from its ADV calculations any trading day on 
which the Exchange is closed for trading due to a market-wide trading 
halt, to adopt a definition of ``affiliate'' for the purpose of 
calculating affiliated Member ADV, and to make other related clarifying 
changes. The text of the proposed rule change is available on the 
Exchange's Internet Web site at http://www.ise.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 the 
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 self-regulatory organization has prepared summaries, 
set forth in Sections A, B and C below, of the most significant aspects 
of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to increase Maker Rebates for Market Makers 
\3\ that achieve the Tier 4 average daily volume (``ADV'') threshold, 
to permit Topaz to exclude from its ADV calculations any trading day on 
which the Exchange is closed for trading due to a market-wide trading 
halt, to adopt a definition of ``affiliate'' for the purpose of 
calculating affiliated Member ADV, and to make other related clarifying 
changes to its Schedule of Fees.
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    \3\ The term Market Maker refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. Market Maker 
orders sent to the Exchange by an Electronic Access Member are 
assessed fees and rebates at the same level as Market Maker orders. 
See footnote 2, Schedule of Fees, Section I and II.
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    On September 3, 2013 the Exchange filed with the Commission an 
immediately effective rule filing (the ``initial filing'') \4\ that 
established volume-based tiered rebates for adding liquidity on the 
Exchange (``Maker Rebate''). The Exchange is now proposing to increase 
the Tier 4 Maker Rebate applicable to Market Makers. Currently, Market 
Makers that achieve Tier 4 receive a Maker Rebate for Regular Orders in 
Standard Options of $0.37 per contract for Penny Symbols, $0.39 per 
contract for SPY, and $0.46 per contract for Non-Penny Symbols. For 
Regular Orders in Mini Options, the Tier 4 Maker Rebate is $0.037 per 
contract for Penny Symbols, $0.039 per contract for SPY, and $0.046 per 
contract for Non-Penny Symbols. The Exchange is proposing to increase 
the Tier 4 Maker Rebate by $0.01 per contract in Standard Options and 
$0.001 per contract in Mini Options. As such, the new Tier 4 Maker 
Rebate for Market Makers in Standard Options will be $0.38 per contract 
for Penny Symbols, $0.40 per contract for SPY, and $0.47 per contract 
for Non-Penny Symbols. For Mini Options the new Tier 4 Maker Rebate for 
Market Makers will be $0.038 per contract for Penny Symbols, $0.040 per 
contract for SPY, and $0.047 per contract for Non-Penny Symbols. The 
Exchange believes that increasing the Maker Rebate applicable to Market 
Makers that achieve the ADV threshold for Tier 4 will incentivize 
Market Makers to increase order flow to the Exchange.
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    \4\ See Securities Exchange Act Release No. 70426 (Sept. 17, 
2013), 78 FR 58359 (Sept. 23, 2013) (SR-Topaz-2013-04).
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    The Exchange is further proposing to modify its Schedule of Fees to 
permit the Exchange to exclude from its ADV calculation, when 
determining applicable rebate tiers, any day that the market is not 
open for the entire trading day. This would allow the Exchange to 
exclude days where the Exchange declares a trading halt in all 
securities or honors a market-wide trading halt declared by another 
market.\5\ For example, this would have allowed the Exchange to exclude 
August 22, 2013 when trading was halted in Nasdaq-listed securities for 
three hours across all exchanges.\6\ The Exchange will provide a 
notice, and post it on the Exchange's Web site, to inform Members of 
any day that is to be excluded from its ADV calculations in connection 
with this proposed rule change.
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    \5\ The Exchange will not be excluding days on which the 
Exchange closes early for holiday observance from its ADV 
calculation.
    \6\ Trading in Nasdaq-listed securities was halted across all 
markets on August 22, 2013 due to a systems issue experienced by the 
NASDAQ UTP SIP.
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    If the Exchange did not have the ability to exclude aberrant low 
volume days when calculating ADV for the month, as a result of the 
decreased trading volume, the numerator for the calculation (e.g., 
trading volume) would be correspondingly lower, but the denominator for 
the threshold calculations (e.g., the number of trading days) would not 
be decreased. This could result in an unintended cost increase. Absent 
the authority to exclude days that the market is not open for the 
entire trading day. Members will experience an effective decrease in 
rebates. The artificially low volumes of trading on such days could 
reduce the trading activity of Members both daily and monthly. 
Accordingly, excluding such days from the monthly calculation will 
diminish the likelihood of an effective increase in the cost of trading 
on the Exchange, a result that is unintended and undesirable to the 
Exchange and its Members.
    As stated in the initial filing, the Exchange will aggregate the 
trading activity of affiliated members in determining ADV.\7\ For 
example, a firm with market making and agency desks housed in different 
entities will be

[[Page 62816]]

permitted to aggregate ADV across both entities in determining the 
applicable rebate tiers. To provide more clarity on what ``affiliated'' 
means in this context the Exchange is now adopting a definition for 
this term. In particular, the Exchange will aggregate the trading 
activity of separate Members in calculating ADV provided there is at 
least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A. The Exchange believes that aggregating 
volume across Members that share at least 75% common ownership will 
allow Members to continue to execute trades on the Exchange through 
separate broker-dealer entities for different types of volume, while 
receiving rebates based on the aggregate volume being executed across 
such entities.
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    \7\ Aggregation is necessary and appropriate because certain 
Members conduct customer and market maker trading activity through 
separate but related broker-dealers.
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    The Exchange is also adopting clarifying text to its Schedule of 
Fees to reflect how Maker Rebates are currently provided on the 
Exchange. This clarifying text merely explains in the Schedule of Fees 
items already discussed in the initial filing, and does not make any 
substantive changes to the rebates being offered. In particular, the 
Exchange wants to clarify in the text of the Schedule of Fees that 
Total Affiliated Member ADV includes all volume in all symbols and 
order types, including both maker and taker volume, and that the 
highest tier threshold attained by a Member applies retroactively only 
in the given month. The Exchange is also changing a reference to 
``client categories'' to instead refer to ``market participants'' as 
that term is used elsewhere in the Schedule of Fees and is therefore 
clearer. The Exchange believes that adopting this new text in the 
Schedule of Fees itself will decrease confusion among its Members.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\8\ in general, and Section 
6(b)(4) of the Act,\9\ in particular, in that it is designed to provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members and other persons using its facilities.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    With respect to increasing the Tier 4 Maker Rebate for Market 
Makers, the Exchange believes that the price differentiation between 
Market Makers and other market participants is appropriate and not 
unfairly discriminatory because Market Makers have different 
requirements and obligations to the Exchange that other market 
participants do not (such as quoting requirements). The Exchange 
believes that increasing the Maker Rebate applicable to Market Makers 
that achieve Tier 4, which is the highest volume tier, will incentivize 
Market Makers to increase order flow to the Exchange.
    The Exchange notes that it has determined to charge fees and 
provide rebates in Mini Options at a rate that is 1/10th the rate of 
fees and rebates the Exchange provides for trading in Standard Options. 
The Exchange believes it is reasonable and equitable and not unfairly 
discriminatory to assess lower fees and rebates to provide market 
participants an incentive to trade Mini Options on the Exchange. The 
Exchange believes the proposed rebates are reasonable and equitable in 
light of the fact that Mini Options have a smaller exercise and 
assignment value, specifically 1/10th that of a standard option 
contract, and, as such, is providing rebates that are 1/10th of those 
applicable to Standard Options.
    The Exchange believes that it is equitable and reasonable to permit 
the Exchange to eliminate from the calculation days on which the market 
is not open the entire trading day because it preserves the Exchange's 
intent behind adopting volume-based pricing. The proposed change is 
non-discriminatory because it applies equally to all Members and to all 
volume tiers.
    The language permitting aggregation of volume amongst corporate 
affiliates for purposes of the ADV calculation is intended to avoid 
disparate treatment of firms that have divided their various business 
activities between separate corporate entities as compared to firms 
that operate those business activities within a single corporate 
entity. By way of example, many firms that are Members of the Exchange 
operate several different business lines within the same corporate 
entity. In contrast, other firms may be part of a corporate structure 
that separates those business lines into different corporate 
affiliates, either for business, compliance or historical reasons. 
Those corporate affiliates, in turn, are required to maintain separate 
memberships with the Exchange in order to access the Exchange. The 
Exchange believes that corporate affiliates should continue to be 
aggregated and is adopting a definition of affiliate to clarify when 
Members will be considered affiliated. The Exchange notes that the 
proposed definition of ``affiliate'' to be used to aggregate affiliated 
Member ADV is consistent with definitions used by other options 
exchanges, including the Chicago Board Options Exchange, Inc. 
(``CBOE'') and the MIAX Options Exchange (``MIAX'').\10\
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    \10\ See CBOE Fee Schedule, Volume Incentive Program (VIP); MIAX 
Fee Schedule, Transaction Fees, Exchange Fees, Priority Customer 
Rebate Program.
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    The Exchange further believes that it is appropriate to add the 
clarifying text to the Schedule of Fees in order to make it more 
transparent to Members and investors.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\11\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \11\ 15 U.S.C. 78f(b)(8).
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    With respect to Tier 4 Maker Rebates for Market Makers, the 
Exchange believes that the fee change will not impose any unnecessary 
burden on intramarket competition because, while it only applies to 
Market Maker orders, Market Makers take on a number of obligations and 
responsibilities that other market participants are not required to 
undertake. The proposed increase to the Tier 4 Maker Rebate applicable 
to Market Makers is intended to attract increased order flow to the 
Exchange from Market Makers, which will provide increased volume and 
greater trading opportunities for all market participants. The Exchange 
believes the proposed fee change does not impose a burden on inter-
market competition because it is consistent with fees charged by other 
exchanges.\12\ The proposed rebates, which the Exchange believes are 
comparable to those provided by its competitors for similar orders, 
will encourage competition and continue to attract additional order 
flow to the Exchange.
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    \12\ For example, NYSE Arca Options (``Arca'') provides a rebate 
in Standard Options to market makers that achieve their ``Super 
Tier'' of $0.37 per contract for Penny Pilot Issues (except SPY), 
and $0.39 per contract in SPY. See Arca Fees and Charges, Trade 
Related Charges for Standard Options.
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    With respect to ADV calculations for rebates, the Exchange notes 
that there are very few instances where the rule will actually be 
invoked, and when invoked, the Exchange believes the rule will have 
little or no impact on trading decisions or execution quality. To the 
contrary, the Exchange believes that the proposed modification to its 
ADV calculation is pro-competitive and will result in lower total costs 
to end users, a positive outcome of competitive

[[Page 62817]]

markets. Moreover, other options exchanges have adopted rules that are 
substantially similar to the change in ADV calculation being proposed 
by the Exchange.\13\
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    \13\ See, e.g., Securities Exchange Act Release Nos. 70472 
(Sept. 23, 2013) (PHLX-2013-93); 70470 (Sept. 23, 2013) (NASDAQ-
2013-117).
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    The Exchange also notes that other exchanges have substantially 
similar requirements for aggregating affiliated Member ADV in 
determining applicable tiered rebates. As provided in the initial 
filing, the Exchange currently aggregates affiliated Member ADV in 
calculating rebate tiers, and this proposed rule change merely explains 
the how affiliate status is determined for that purpose, which will 
have no competitive impact.
    Furthermore, the Exchange believes that the clarifying text being 
added to the Schedule of Fees is non-substantive, and therefore does 
not impact the competition analysis.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct their order flow to competing 
venues. In such an environment, the Exchange must continually review, 
and consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.

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 unsolicited 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)(ii) of the Act,\14\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\15\ because it establishes a due, fee, or other charge 
imposed by Topaz.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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. 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 rule-comments@sec.gov. Please include 
File No. SR-Topaz-2013-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-Topaz-2013-08. 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 offices 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 No. SR-Topaz-2013-08, and should be 
submitted on or before November 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24662 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P


