
[Federal Register Volume 81, Number 33 (Friday, February 19, 2016)]
[Notices]
[Pages 8558-8566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03392]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77129; File No. SR-BX-2016-010]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Fees and 
Rebates Applicable to Firms and To Adopt Tiers Applicable to Options 
Overlying SPY

February 12, 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 February 1, 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.
---------------------------------------------------------------------------

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 certain fees and rebates 
(per executed contract) to: (1) Adopt fees and rebates applicable to 
Firm \3\ and (2) adopt tiers applicable to options overlying Standard 
and Poor's Depositary Receipts/SPDRs (``SPY'').\4\
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    \3\ 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.
    \4\ SPY options are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index, and are Penny Pilot Options. The Penny Pilot was established 
in June 2012 and extended in 2015. 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 75326 (June 29, 2015), 80 FR 38481 (July 6, 2015) (SR-
BX-2015-037) (notice of filing and immediate effectiveness extending 
the Penny Pilot through June 30, 2016).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.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 8559]]

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

1. Purpose
    The Exchange proposes to amend its Chapter XV, Section 2 to modify 
subsection (1) regarding certain fees and rebates \5\ (known as ``fees 
and rebates'') to (1) adopt fees and rebates applicable to Firm; and 
(2) adopt tiers applicable to options overlying SPY (the ``SPY Option 
Tier Schedule''). The proposed modified fees and rebates (per executed 
contract) and new SPY Option Tier Schedule would apply to Customers,\6\ 
BX Options Market Makers,\7\ Non-Customers \8\ and Firms.
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    \5\ Fees and rebates are per executed contract. Chapter XV, 
Section 2(1).
    \6\ 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.
    \7\ BX Options Market Makers may also be referred to as ``Market 
Makers''. 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.
    \8\ Note 1 to Chapter XV, Section 2 states: ``\1\A Non-Customer 
includes a Professional, Firm, Broker-Dealer and Non-BX Options 
Market Maker.'' Firm is proposed to be removed from the note.
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    Each specific change is described in detail below.
    Currently, Chapter XV, Section 2 subsection (1) reads as follows:
    (1) Fees for Execution of Contracts on the BX Options Market:

                                                Fees and Rebates
                                             [Per executed contract]
----------------------------------------------------------------------------------------------------------------
                                                                                 BX Options
                                                                Customer        Market Maker    Non-Customer \1\
----------------------------------------------------------------------------------------------------------------
Penny Pilot Options:
    Rebate to Add Liquidity...............................                 #         \2\ $0.10               N/A
    Fee to Add Liquidity..................................                 #          \3\$0.39             $0.45
    Rebate to Remove Liquidity............................                 #               N/A               N/A
    Fee to Remove Liquidity...............................               N/A                 #             $0.46
Non-Penny Pilot Options:
    Rebate to Add Liquidity...............................                 *               N/A               N/A
    Fee to Add Liquidity..................................                 *   \5\ $0.50/$0.95             $0.98
    Rebate to Remove Liquidity............................                 *               N/A               N/A
    Fee to Remove Liquidity...............................               N/A                 *             $0.89
----------------------------------------------------------------------------------------------------------------
\1\ A Non-Customer includes a Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.
\2\ The Rebate to Add Liquidity will be paid to a BX Options Market Maker only when the BX Options Market Maker
  is contra to a Non-Customer or BX Options Market Maker.
\3\ The Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker
  is contra to a Customer.
\4\ Reserved
\5\ The higher Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options
  Market Maker is contra to a Customer.


                                                           # Penny Pilot Options Tier Schedule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Rebate to add                                 Rebate to remove        Fee to remove          Fee to remove
                                            liquidity         Fee to add liquidity         liquidity              liquidity              liquidity
--------------------------------------------------------------------------------------------------------------------------------------------------------
When...............................  Customer..............  Customer..............  Customer.............  BX Options Market      BX Options Market
                                                                                                             Maker.                 Maker.
Trading with.......................  Non-Customer or BX      Customer..............  Non-Customer, BX       Customer.............  Non-Customer or BX
                                      Options Market Maker.                           Options Market                                Options Market
                                                                                      Maker, or Customer.                           Maker.
Tier 1:
    Participant executes less than   $0.00.................  $0.39.................  $0.00................  $0.39................  $0.46.
     0.05% of total industry
     customer equity and ETF option
     ADV contracts per month.
Tier 2:
    Participant executes 0.05% to    $0.10.................  $0.39.................  $0.25................  $0.39................  $0.46.
     less than 0.15% of total
     industry customer equity and
     ETF option ADV contracts per
     month.
Tier 3:
    Participant executes 0.15% or    $0.20.................  $0.39.................  $0.35................  $0.30................  $0.46.
     more of total industry
     customer equity and ETF option
     ADV contracts per month.
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[[Page 8560]]


                                                         * Non-Penny Pilot Options Tier Schedule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Rebate to add                                 Rebate to remove        Fee to remove          Fee to remove
                                            liquidity         Fee to add liquidity         liquidity              liquidity              liquidity
--------------------------------------------------------------------------------------------------------------------------------------------------------
When...............................  Customer..............  Customer..............  Customer.............  BX Options Market      BX Options Market
                                                                                                             Maker.                 Maker.
Trading with.......................  Non-Customer or BX      Customer..............  Non-Customer, BX       Customer.............  Non-Customer or BX
                                      Options Market Maker.                           Options Market                                Options Market
                                                                                      Maker, or Customer.                           Maker.
Tier 1:
    Participant executes less than   $0.00.................  $0.85.................  $0.80................  $0.89................  $0.89.
     0.05% of total industry
     customer equity and ETF option
     ADV contracts per month.
Tier 2:
    Participant executes 0.05% to    $0.10.................  $0.85.................  $0.80................  $0.89................  $0.89.
     less than 0.15% of total
     industry customer equity and
     ETF option ADV contracts per
     month.
Tier 3:
    Participant executes 0.15% or    $0.20.................  $0.85.................  $0.80................  $0.60................  $0.89.
     more of total industry
     customer equity and ETF option
     ADV contracts per month.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Change 1--Penny Pilot Options: Modify Fees and Rebates To Add Firm 
Column
    In Change 1, the Exchange proposes modifications to its fees and 
rebates for Penny Pilot Options \9\ and for Non-Penny Pilot Options to 
add a new Firm column. The proposed Firm column would have exactly the 
same assessments or rates as the current Non-Customer column, which now 
includes Firm.\10\ The Exchange notes that by adding the new Firm 
column it is not changing any fees and rebates for Firm. Rather, all 
fees and rebates applicable to Firm are now in the new Firm column but 
remain exactly the same as they are currently for Firm when it is part 
of the Non-Customer column. Commensurate with the proposed Firm column, 
the Exchange also proposes to change notes 1 and 2 so that these notes 
read properly. The Exchange proposes to take out ``Firm'' in note 1 and 
to add ``Firm'' in note 2.
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    \9\ The greatest volume options traded on the Exchange and in 
the options market are Penny Pilot Options, and in particular SPY 
Options, and the Exchange has taken this into account when 
structuring and modifying its fee and rebate schedule.
    \10\ Currently, note 1 states: ``A Non-Customer includes a 
Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.''
---------------------------------------------------------------------------

    The proposed change keeps current fees and rebates assessments 
intact. Thus, for Penny Pilot Options: The Rebate to Add Liquidity 
would remain at N/A for Non-Customer and would be the same for Firm; 
the Fee to Add Liquidity would remain at $0.45 for Non-Customer and 
would be the same for Firm; the Rebate to Remove Liquidity would remain 
at N/A for Non-Customer and would be the same for Firm; and the Fee to 
Remove Liquidity would remain at $0.46 for non-Customer and would be 
the same for Firm. Thus, for Non-Penny Pilot Options: The Rebate to Add 
Liquidity would remain at N/A for Non-Customer and would be the same 
for Firm; the Fee to Add Liquidity would remain at $0.98 for non-
Customer and would be the same for Firm; the Rebate to Remove Liquidity 
would remain at N/A for Non-Customer and would be the same for Firm; 
and the Fee to Add Liquidity would remain at $0.89 for non-Customer and 
would be the same for Firm.
    Chapter XV, Section 2 subsection (1) reflecting the proposed new 
Firm column is set forth below.
Change 2--Penny Pilot Options: Modify Fees and Rebates To Add SPY 
Options Tiers
    In Change 2, the Exchange proposes modifications to its current 
Penny Pilot Options Tier Schedule to indicate that this particular 
schedule does not apply to SPY Options and that for SPY Options pricing 
there will be a separate SPY Options Tier Schedule. The Exchange 
proposes new The Tier 1, Tier 2, and Tier 3 requirements which will be 
similar to tiers in the current Penny Pilot Options Tier Schedule; and 
a new Tier 4.
    Specifically, the Exchange proposes to add SPY Options Tiers 1-4 
for Rebate to Add Liquidity for Customer (when trading with Non-
Customer, BX Options Market Maker, or Firm \11\), Fee to Add Liquidity 
for BX Market Maker (when trading with Customer), Rebate to Remove 
Liquidity for Customer (when trading with Non-Customer, BX Options 
Market Maker, Customer, or Firm), and Fee to Remove Liquidity for BX 
Options Market Maker (when trading with Customer). The Exchange also 
proposes several explanatory notes applicable to the SPY Option Tier 
Schedule.
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    \11\ Commensurate with establishing a Firm column, and in 
particular indicating Firm in the new SPY Options Tier Schedule, the 
Exchange proposes to add Firm in the Non-Penny Pilot Options Tier 
Schedule (e.g., Rebate to Add Liquidity, Rebate to Remove Liquidity, 
Fee to Remove Liquidity).
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    Proposed Tier 1 in the SPY Options Tier Schedule will be where a BX 
Participant (``Participant'') executes less than 0.05% of total 
industry customer equity and exchange traded fund (``ETF'') option 
average daily volume (``ADV'') contracts per month. Proposed Tier 1 
will range from a $0.00 rebate to a $0.42 fee:

--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.00 (no rebate 
will be paid); \12\
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    \12\ The new Rebate to Add Liquidity is similar to what is in 
the current Penny Pilot Options Tier Schedule. However, in the new 
rebate the Exchange proposes to add that the rebate is also 
applicable when trading with Firm, which is proposed to be separate 
from Non-Customer. For purposes of conformity, Firm is proposed to 
be added to the Rebate to Add Liquidity for Customer in the Penny 
Pilot Tier Schedule, the SPY Options Tier Schedule, and the Non-
Penny Pilot Tier Schedule.

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[[Page 8561]]

--the new Fee to Add Liquidity when BX Options Market Maker trading 
with Customer will be $0.42; \13\
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    \13\ There is no similar fee in the current Penny Pilot Options 
Tier Schedule.
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--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.00; 
\14\ and
---------------------------------------------------------------------------

    \14\ The new Rebate to Remove Liquidity is similar to what is in 
the current Penny Pilot Options Tier Schedule. However, in the new 
rebate the Exchange proposes to add that the rebate is also 
applicable when trading with Firm, which is proposed to be separate 
from Non-Customer. For purposes of conformity, Firm is proposed to 
be added to the Rebate to Add [sic] Liquidity for Customer in the 
Penny Pilot Tier Schedule, the SPY Options Tier Schedule, and the 
Non-Penny Pilot Tier Schedule.
---------------------------------------------------------------------------

--the new Fee to Remove Liquidity when BX Options Market Maker trading 
with Customer will be $0.42.\15\
---------------------------------------------------------------------------

    \15\ The Fee to Remove Liquidity is $0.39 in the current Penny 
Pilot Options Tier Schedule. However, in the new rebate the Exchange 
proposes to add that the rebate is also applicable when trading with 
Firm, which is proposed to be separate from Non-Customer. For 
purposes of conformity, Firm is proposed to be added to the Rebate 
to Add Liquidity for Customer in the Penny Pilot Tier Schedule, the 
SPY Options Tier Schedule, and the Non-Penny Pilot Tier Schedule.

    Proposed Tier 2 in the SPY Options Tier Schedule will be where 
Participant executes 0.05% to less than 0.15% of total industry 
customer equity and ETF option ADV contracts per month. Proposed Tier 2 
---------------------------------------------------------------------------
will range from a $0.25 rebate to a $0.42 fee:

--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.10.\16\
---------------------------------------------------------------------------

    \16\ The new Rebate to Add Liquidity is similar to what is in 
the current Penny Pilot Options Tier Schedule.
---------------------------------------------------------------------------

--the new Fee to Add Liquidity when BX Options Market Maker trading 
with Customer will be $0.42; \17\
---------------------------------------------------------------------------

    \17\ There is no similar fee in the current Penny Pilot Options 
Tier Schedule.
---------------------------------------------------------------------------

--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.25; 
\18\ and
---------------------------------------------------------------------------

    \18\ The new Rebate to Remove Liquidity is similar to what is in 
the current Penny Pilot Options Tier Schedule.
---------------------------------------------------------------------------

--the new Fee to Remove Liquidity when BX Options Market Maker trading 
with Customer will be $0.42.\19\
---------------------------------------------------------------------------

    \19\ The Fee to Remove Liquidity is $0.39 in the current Penny 
Pilot Options Tier Schedule.

    Proposed Tier 3 in the SPY Options Tier Schedule will be where 
Participant executes 0.15% or more of total industry customer equity 
and ETF option ADV contracts per month. Proposed Tier 3 will range from 
---------------------------------------------------------------------------
a $0.37 rebate to a $0.39 fee:

--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.20.\20\
---------------------------------------------------------------------------

    \20\ The Rebate to Add Liquidity is similar to what is in the 
current Penny Pilot Options Tier Schedule.
---------------------------------------------------------------------------

--the new Fee to Add Liquidity when BX Options Market Maker trading 
with Customer will be $0.39; \21\
---------------------------------------------------------------------------

    \21\ There is no similar fee in the current Penny Pilot Options 
Tier Schedule.
---------------------------------------------------------------------------

--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.37; 
\22\ and
---------------------------------------------------------------------------

    \22\ The Rebate to Remove Liquidity is $0.35 in the current 
Penny Pilot Options Tier Schedule.
---------------------------------------------------------------------------

--the new Fee to Remove Liquidity when BX Options Market Maker trading 
with Customer will be $0.39.\23\
---------------------------------------------------------------------------

    \23\ The Fee to Remove Liquidity is $0.30 in the current Penny 
Pilot Options Tier Schedule.

    Proposed Tier 4 in the SPY Options Tier Schedule, which has no 
equivalent in the Penny Pilot Options Tier Schedule, will be where 
Participant executes greater than 5,000 ADV in BX Price Improvement 
Auction (``PRISM'') Agency Contracts.\24\ If a Participant qualifies 
for Tier 4 the rates applicable to this tier will supersede any other 
SPY tier rates that the Participant may that [sic] qualify for. 
Proposed Tier 4 will range from a $0.37 rebate to a $0.32 fee:
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    \24\ PRISM is a Price Improvement Mechanism for all-electronic 
BX Options whereby a buy and sell order may be submitted in one 
order message to initiate an auction at a stop price and seek 
potential price improvement. Options are traded electronically on BX 
Options, and all options participants may respond to a PRISM 
Auction, the duration of which is set at 200 milliseconds. PRISM 
includes auto-match functionality in which a Participant (an 
``Initiating Participant'') may electronically submit for execution 
an order it represents as agent on behalf of customer, n6 [sic] 
broker dealer, or any other entity (``PRISM Order'') against 
principal interest or against any other order it represents as agent 
(an ``Initiating Order'') provided it submits the PRISM Order for 
electronic execution into the PRISM Auction pursuant [sic]. See 
Chapter VI, Section 9; and Securities Exchange Act Release No. 76301 
(October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) 
(order approving BX PRISM).

--The new Rebate to Add Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, or Firm will be $0.25.
--the new Fee to Add Liquidity when BX Options Market Maker trading 
with Customer will be $0.32;
--the new Rebate to Remove Liquidity when Customer trading with Non-
Customer, BX Options Market Maker, Customer, or Firm will be $0.37; and
--the new Fee to Remove Liquidity when BX Options Market Maker trading 
with Customer will be $0.25.

    In addition, the Exchange proposes several explanatory notes at the 
end of the SPY Options Tier Schedule:

--BX Options Market Maker fee to add liquidity in SPY Options will be 
$0.00 when trading with Firm, Non-Customer, or BX Options Market Maker;
--Firm fee to add liquidity and fee to remove liquidity in SPY Options 
will be $0.33 per contract, regardless of counterparty;
--Non-Customer fee to add liquidity and fee to remove liquidity in SPY 
Options will be $0.46 per contract, regardless of counterparty;
--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;
--Customer fee to add liquidity in SPY Options when contra to another 
Customer is $0.33 per contract; and
--Volume from all products listed on BX Options will apply to the SPY 
Options Tiers. Chapter XV, Section 2 subsection (1) reflecting all 
proposed changes will read as follows:

    (1) Fees for Execution of Contracts on the BX Options Market:

                                                Fees and Rebates
                                             [Per executed contract]
----------------------------------------------------------------------------------------------------------------
                                                                    BX Options     Non-Customer
                                                     Customer      Market Maker         \1\            Firm
----------------------------------------------------------------------------------------------------------------
Penny Pilot Options (Excluding Options in SPY):
    Rebate to Add Liquidity.....................               #       \2\ $0.10             N/A             N/A
    Fee to Add Liquidity........................               #       \3\ $0.39           $0.45           $0.45
    Rebate to Remove Liquidity..................               #             N/A             N/A             N/A

[[Page 8562]]

 
    Fee to Remove Liquidity.....................             N/A               #           $0.46           $0.46
Non-Penny Pilot Options:
    Rebate to Add Liquidity.....................               *             N/A             N/A             N/A
    Fee to Add Liquidity........................               *      \5\ $0.50/           $0.98           $0.98
                                                                           $0.95
    Rebate to Remove Liquidity..................               *             N/A             N/A             N/A
    Fee to Remove Liquidity.....................             N/A               *           $0.89           $0.89
----------------------------------------------------------------------------------------------------------------
\1\ A Non-Customer includes a Professional, Broker-Dealer and Non-BX Options Market Maker.
\2\ The Rebate to Add Liquidity will be paid to a BX Options Market Maker only when the BX Option Market Maker
  is contra to a Non-Customer, Firm, or BX Options Market Maker.
\3\ The Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options Market Maker
  is contra to a Customer.
\4\ Reserved.
\5\ The higher Fee to Add Liquidity will be assessed to a BX Options Market Maker only when the BX Options
  Market Maker is contra to a Customer.


                                                           # Penny Pilot Options Tier Schedule
                                                                 [Excluding SPY Options]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Rebate to add                                 Rebate to remove        Fee to remove          Fee to remove
                                            liquidity         Fee to add liquidity         liquidity              liquidity              liquidity
--------------------------------------------------------------------------------------------------------------------------------------------------------
When:                                Customer..............  Customer..............  Customer.............  BX Options Market      BX Options Market
                                                                                                             Maker.                 Maker.
Trading with:                        Non-Customer, BX        Customer..............  Non-Customer, BX       Customer.............  Non-Customer, BX
                                      Options Market Maker,                           Options Market                                Options Market
                                      or Firm.                                        Maker, Customer, or                           Maker, or Firm.
                                                                                      Firm.
Tier 1:
    Participant executes less than   $0.00.................  $0.39.................  $0.00................  $0.39................  $0.46.
     0.05% of total industry
     customer equity and ETF option
     ADV contracts per month.
Tier 2:
    Participant executes 0.05% to    $0.10.................  $0.39.................  $0.25................  $0.39................  $0.46.
     less than 0.15% of total
     industry customer equity and
     ETF option ADV contracts per
     month.
Tier 3:
    Participant executes 0.15% or    $0.20.................  $0.39.................  $0.35................  $0.30................  $0.46.
     more of total industry
     customer equity and ETF option
     ADV contracts per month.
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                            SPY Options Tier Schedule
----------------------------------------------------------------------------------------------------------------
                                     Rebate to add        Fee to add       Rebate to remove      Fee to remove
                                       liquidity           liquidity           liquidity           liquidity
----------------------------------------------------------------------------------------------------------------
When:                             Customer..........  BX Options Market   Customer..........  BX Options Market
                                                       Maker.                                  Maker.
Trading with:                     Non-Customer, BX    Customer..........  Non-Customer, BX    Customer.
                                   Options Market                          Options Market
                                   Maker, or Firm.                         Maker, Customer,
                                                                           or Firm.
Tier 1:
    Participant executes less     $0.00.............  $0.42.............  $0.00.............  $0.42.
     than 0.05% of total
     industry customer equity
     and ETF option ADV
     contracts per month.
Tier 2:
    Participant executes 0.05%    $0.10.............  $0.42.............  $0.25.............  $0.42.
     to less than 0.15% of total
     industry customer equity
     and ETF option ADV
     contracts per month.
Tier 3:
    Participant executes 0.15%    $0.20.............  $0.39.............  $0.37.............  $0.39.
     or more of total industry
     customer equity and ETF
     option ADV contracts per
     month.

[[Page 8563]]

 
Tier 4:
    Participant executes greater  $0.25.............  $0.32.............  $0.37.............  $0.25.
     than 5,000 ADV in PRISM
     Agency Contracts.
----------------------------------------------------------------------------------------------------------------
 BX Options Market Maker fee to add liquidity in SPY Options will be $0.00 when trading with Firm, Non-
  Customer, or BX Options Market Maker.
 Firm fee to add liquidity and fee to remove liquidity in SPY Options will be $0.33 per contract,
  regardless of counterparty.
 Non-Customer fee to add liquidity and fee to remove liquidity in SPY Options will be $0.46 per
  contract, regardless of counterparty.
 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.
 Customer fee to add liquidity in SPY Options when contra to another Customer is $0.33 per contract.
 Volume from all products listed on BX Options will apply to the SPY Options Tiers.


                                                         * Non-Penny Pilot Options Tier Schedule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Rebate to add                                 Rebate to remove        Fee to remove          Fee to remove
                                            liquidity         Fee to add liquidity         liquidity              liquidity              liquidity
--------------------------------------------------------------------------------------------------------------------------------------------------------
When:                                Customer..............  Customer..............  Customer.............  BX Options Market      BX Options Market
                                                                                                             Maker.                 Maker.
Trading with:                        Non-Customer, BX        Customer..............  Non-Customer, BX       Customer.............  Non-Customer, BX
                                      Options Market Maker,                           Options Market                                Options Market
                                      or Firm.                                        Maker, Customer, or                           Maker, or Firm.
                                                                                      Firm.
Tier 1:
    Participant executes less than   $0.00.................  $0.85.................  $0.80................  $0.89................  $0.89.
     0.05% of total industry
     customer equity and ETF option
     ADV contracts per month.
Tier 2:
    Participant executes 0.05% to    $0.10.................  $0.85.................  $0.80................  $0.89................  $0.89.
     less than 0.15% of total
     industry customer equity and
     ETF option ADV contracts per
     month.
Tier 3:
    Participant executes 0.15% or    $0.20.................  $0.85.................  $0.80................  $0.60................  $0.89.
     more of total industry
     customer equity and ETF option
     ADV contracts per month.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange is proposing fees and rebate changes and adopting the 
SPY Options Tier Schedule at this time because it believes that this 
will provide incentives for execution of contracts, and in particular 
SPY Options contracts, on the BX Options Market.
    The Exchange also believes that its proposal should provide 
increased opportunities for participation in 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 its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act,\25\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the 
Act,\26\ 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(4), (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 current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues* [sic] 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.'' \27\ Likewise, 
in NetCoalition v. Securities and Exchange Commission \28\ 
(``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.\29\ 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.'' \30\
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    \27\ Securities Exchange Act Release No. 51808 at 37499 (June 9, 
2005) (``Regulation NMS Adopting Release'').
    \28\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \29\ See id. at 534-535.
    \30\ 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';

[[Page 8564]]

[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'. . . .'' 
\31\ 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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    \31\ Id. at 539 (quoting Securities Exchange [sic] Release No. 
59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-
NYSEArca-2006-21) at 73 FR at 74782-74783).
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    The Exchange proposes to amend its Chapter XV, Section 2 to modify 
subsection (1) to adopt fees and rebates applicable to Firm, and to 
adopt a new SPY Option Tier Schedule. The proposed modified fees and 
rebates and new SPY Option Tier Schedule would, as discussed, apply to 
Customers, BX Options Market Makers, Non-Customers, and Firms. The 
Exchange believes that its proposal is reasonable, equitable, and not 
unfairly discriminatory and should provide increased opportunities for 
participation in executions on the Exchange, facilitating the ability 
of the Exchange to bring together participants and encourage more 
robust competition for orders.
Change 1--Penny Pilot Options: Modify Fees and Rebates To Add Firm 
Column
    In Change 1, the Exchange proposes modifications to its fees and 
rebates for Penny Pilot Options and for Non-Penny Pilot Options to add 
a new Firm column; and to make changes to notes to properly reflect the 
use of the new Firm column. The proposed Firm column would have exactly 
the same assessments or rates as the current Non-Customer column, which 
now includes Firm.
    The proposed change is reasonable because it simply establishes a 
new Firm column but keeps current fees and rebate assessments intact. 
The proposed rule change is reasonable because it continues to 
encourage market participant behavior through the fees and rebates 
system, which is an accepted methodology among options exchanges.\32\ 
The proposed change is also reasonable because it continues, through 
the fees and rebates schedule, to incentivize Participants to direct 
Penny Pilot Options liquidity\33\ and Non-Penny Pilot Options liquidity 
to the Exchange.
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    \32\ 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'').
    \33\ Penny Pilot Options, and in particular SPY Options, 
represent the greatest volume options traded on the Exchange and in 
the options market and the Exchange has taken this into account when 
structuring and modifying its fee and rebate schedule.
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    The proposed rule change to fees and rebates for Penny Pilot 
Options and for Non-Penny Pilot Options to add a new Firm column, and 
to make changes to notes to properly reflect the use of the new Firm 
column, is equitable and not unfairly discriminatory. This is because 
the Exchange's proposal keeps current fees and rebate assessments 
intact, and the fees and rebates schedule will continue to apply 
uniformly to all similarly situated Participants.
    The fees and rebates 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 some market 
participants like BX Options Market Makers commit to various 
obligations. For example, transactions of a BX Options Market Maker 
must constitute a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and BX 
Options Market Makers should not make bids or offers or enter into 
transactions that are inconsistent with such course of dealings. 
Further, all BX Options Market Makers are designated as specialists on 
BX for all purposes under the Act or rules thereunder.\34\
---------------------------------------------------------------------------

    \34\ See Chapter VII, Section 5, entitled ``Obligations of 
Market Makers.''
---------------------------------------------------------------------------

    The Exchange believes that by making the proposed Firm column 
change, it is continuing to incentivize Participants to execute more 
volume on the Exchange to further enhance liquidity in this market.
Change 2--Penny Pilot Options: Modify Fees and Rebates To Add SPY 
Options Tiers
    In Change 2, the Exchange proposes modifications to its current 
Penny Pilot Options Tier Schedule to indicate that this particular 
schedule does not apply to SPY Options, and that for SPY Options 
pricing there will be a separate SPY Options Tier Schedule. The Tier 1, 
Tier 2, and Tier 3 requirements in the proposed SPY Options Tier 
Schedule will be similar to the current Penny Pilot Options Tier 
Schedule. The Exchange also proposes a new Tier 4 for the SPY Options 
Tier Schedule. Specifically, the Exchange proposes to add SPY Options 
Tiers 1-4 for Rebate to Add Liquidity for Customer (when trading with 
Non-Customer, BX Options Market Maker, or Firm), Fee to Add Liquidity 
for BX Market Maker (when trading with Customer), Rebate to Remove 
Liquidity for Customer (when trading with Non-Customer, BX Options 
Market Maker, Customer, or Firm), and Fee to Remove Liquidity or [sic] 
BX Options Market Maker (when trading with Customer). The Exchange also 
proposes several explanatory notes applicable to the SPY Option Tier 
Schedule.
    The Exchange believes that excluding SPY Options pricing form the 
Penny Pilot Options Tier Schedule and establishing a separate SPY 
Options Tier Schedule is reasonable because of the nature of SPY 
options. These are most heavily traded options on the Exchange as well 
as in the industry.
    The Exchange believes that the proposed SPY Options Tier Schedule 
is reasonable because it is not a novel, untested structure but rather 
is similar to what is offered by other options markets,\35\ and, is 
based on the Exchange's Penny Pilot Options Tier Schedule. 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. This 
encourages market participant behavior through progressive tiered fees 
and rebates using an accepted methodology among options exchanges.\36\ 
Tier 1 in the SPY Options Tier Schedule is, similarly to Tier 1 in the 
Penny Pilot Options Tier Schedule, set up to enable a Participant to 
earn a Rebate to Add Liquidity or pay a Fee to Add Liquidity in SPY 
where the Participant executes less than 0.05% of total industry 
customer equity and ETF option ADV contracts per month. Tier 2 in the 
SPY Options Tier Schedule is, similarly to Tier 2 in the Penny Pilot 
Options Tier Schedule, set up to enable a Participant to earn a Rebate 
to Add Liquidity or pay a Fee to Add Liquidity in SPY where the 
Participant executes 0.05% to less than 0.15% of total industry 
customer equity and ETF option ADV contracts per month. And Tier 3 in 
the SPY Options Tier Schedule is, similarly to Tier 3 in the Penny 
Pilot Options Tier Schedule, set up to [sic] Participant executes 0.15% 
or more of total industry customer equity and ETF option ADV contracts 
per month. The fees and rebates that BX Options Market Makers and 
Customers are assessed are, as has been discussed at length, comparable 
to

[[Page 8565]]

the fees and rebates in the Penny Pilot Options Tier Schedule. The 
Exchange believes that it is reasonable to also establish Tier 4 in the 
in the [sic] SPY Options Tier Schedule in order to enable a Participant 
to earn a Rebate to Add Liquidity or pay a Fee to Add Liquidity in SPY 
where the Participant executes greater than 5,000 ADV in certain PRISM 
Contracts. By so doing, the Exchange encourages Participants to trade 
Prism Contracts, which have been recently approved for trading.\37\
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    \35\ See, e.g., the pricing schedule of Phlx. See also, e.g., 
the pricing schedule of NASDAQ Options Market (``NOM'').
    \36\ See, e.g., fee and rebate schedules of other options 
exchanges, including, but not limited to, NOM, Phlx, and Chicago 
Board Options Exchange (``CBOE'').
    \37\ See Securities Exchange Act Release No. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (order 
approving BX PRISM).
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    In addition, the Exchange believes that making changes to add the 
SPY Options Tier Schedule in terms of Rebate to Add Liquidity and Fee 
to Add Liquidity, and Rebate to Remove Liquidity and Fee 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.
    The SPY Options Tier Schedule is reasonable in that it is, like the 
Penny Pilot Options Tier Schedule, set up to incentivize Participants 
to direct liquidity to the Exchange; using volume from all products 
listed on BX Options will further incentivize Participants. As 
Participants execute more of total industry customer equity and ETF 
option ADV contracts per month on the Exchange, they can in certain 
categories earn higher rebates and be assessed lower fees. For example, 
in the SPY Options Tier Schedule the Tier 3 Rebate to Add Liquidity 
when Customer trading with Non-Customer, BX Options Market Maker, or 
Firm is higher ($0.20) than the Penny Pilot [sic] Tier 1 Rebate to Add 
Liquidity ($0.00); and the Tier 3 Rebate to Remove Liquidity when 
Customer trading with Non-Customer, BX Options Market Maker, Customer, 
or Firm is higher ($0.37) that [sic] the Tier 2 Rebate to Remove 
Liquidity ($0.25). Similarly, the Fee to Add Liquidity when BX Option 
Market Maker trading with Customer is lesser for Tier 3 ($0.39) than 
for Tier 1 ($0.42); and the Fee to Remove Liquidity when BX Option 
Market Maker trading with Customer is less for Tier 3 ($0.39) than for 
Tier 1 ($0.42).
    The Exchange believes that it is reasonable to add notes to the SPY 
Options Tier Schedule as they are explanatory in nature. Five such 
notes explain that unlike how new Tiers 1-4 function, certain fees 
(e.g. BX Options Market Maker, Firm, Non-Customer, and Customer) remain 
the same regardless of counterparty. The Exchanges believes that it is 
also reasonable for conformity to indicate Firm across fees and 
rebates, the new SPY Options Tier Schedule, the Penny Pilot Options 
Tier Schedule, and the Non-Penny Pilot Options Tier Schedule.
    Establishing the SPY Options Tier Schedule, which includes new 
Tiers 1-4, is equitable and not unfairly discriminatory. This is 
because the Exchange's proposal to assess fees and pay rebates 
according to Tiers 1, 2, 3, and 4 will apply uniformly to all similarly 
situated Participants. Customers would earn a Rebate to Add Liquidity 
and be assessed a Fee to Add Liquidity according to the Tiers, and BX 
Market Makers would earn a Rebate to Remove Liquidity [sic] and a Fee 
to Remove Liquidity according to the same Tiers per the SPY Options 
Tier Schedule; and certain fees would be the same regardless of 
counterparty. 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, because some market 
participants like BX Options Market Makers commit to obligations such 
as that transactions must constitute a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and BX Options Market Makers should not make bids or offers or 
enter into transactions that are inconsistent with such course of 
dealings.
    The Exchange believes that by making the proposed Penny Pilot 
Options changes it is incentivizing Participants to execute more volume 
on 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, the Exchange does 
not believe that its proposal to make changes to its Penny Pilot 
Options and Non-Penny Pilot Options fees and rebates and to establish a 
SPY Options Tiers Schedule 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 [sic] for Penny Pilot 
Options and Non-Penny Pilot Options and establishing a SPY Options 
Tiers Schedule 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 and BX Options Market Maker) 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

[[Page 8566]]

corresponding increase in order flow from other market participants.
    Moreover, unlike others market participants 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.\38\
---------------------------------------------------------------------------

    \38\ See Chapter VII, Section 5, entitled ``Obligations of 
Market Makers''.
---------------------------------------------------------------------------

    In this instance, the proposed changes to the fees and rebates for 
Penny Pilot Options and for Non-Penny Pilot Options to add a new Firm 
column, and establishing a SPY Options Tiers Schedule, 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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\39\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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 rule-comments@sec.gov. Please include 
File Number SR-BX-2016-010 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-2016-010. 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 the 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-2016-010 and should be 
submitted on or before March 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03392 Filed 2-18-16; 8:45 am]
BILLING CODE 8011-01-P


