
[Federal Register Volume 81, Number 118 (Monday, June 20, 2016)]
[Notices]
[Pages 39981-39984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14446]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78062; File No. SR-BatsEDGX-2016-21]


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

June 14, 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 June 1, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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 EDGX Rules 
15.1(a) and (c).
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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 amend its fee schedule for its equity 
options platform (``EDGX Options'') to: (1) Increase the Exchange's 
standard rates for Customer \6\ orders executed on the EDGX Options and 
to make related changes; (2) modify the criteria to qualify for a tier 
under the Exchange's existing tiered pricing structure; and (3) modify 
the Exchange's routing fees, as further described below.
---------------------------------------------------------------------------

    \6\ The term ``Customer'' applies to any transaction identified 
by a Member for clearing in the Customer range at the Options 
Clearing Corporation (``OCC''), excluding any transaction for a 
Broker Dealer or a ``Professional'' as defined in Exchange Rule 
16.1.
---------------------------------------------------------------------------

Customer Orders
    Fee codes PC and NC are currently appended to all Customer orders 
in Penny Pilot Securities \7\ and Non-Penny Pilot Securities,\8\ 
respectively, and result in a standard rebate of $0.01 per contract. 
The Exchange proposes to increase the standard rate for all Customer 
orders in Penny Pilot Securities and Non-Penny Pilot Securities to a 
standard rebate of $0.05 per contract. In addition to reflecting the 
increase in the Fee Codes and Associated Fees portion of the Exchange's 
fee schedule for fee codes PC and NC, the Exchange proposes to delete 
the reference to the $0.01 rebate on the Standard Rates table with 
respect to fee codes PC and NC. The Standard Rates table provides a 
range of rebates and fees applicable to executions on the Exchange in 
summary form.
---------------------------------------------------------------------------

    \7\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
    \8\ The term ``Non-Penny Pilot Security'' applies to those 
issues that are not Penny Pilot Securities quoted pursuant to 
Exchange Rule 21.5, Interpretation and Policy .01.
---------------------------------------------------------------------------

    In addition to the standard rebate provided to all Customer orders, 
the Exchange offers several Customer Volume Tiers pursuant to footnote 
1. The Customer Volume Tiers currently consist of six separate tiers, 
each providing an enhanced rebate to a Member's Customer orders that 
yield fee codes PC or NC upon satisfying monthly volume criteria 
required by the respective tier. Pursuant to Customer Volume Tier 1, 
the lowest volume tier, a Member currently receives a rebate of $0.05 
per contract where the Member has an ADV \9\ in Customer orders equal 
to or greater than 0.10% of average TCV.\10\ Because the Exchange is 
increasing its standard rebate to $0.05 per share, the Exchange 
proposes to delete current Tier 1 and to re-number Tiers 2 through 6 as 
Tiers 1 through 5.
---------------------------------------------------------------------------

    \9\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \10\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan for the month for which the fees apply, excluding 
volume on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
---------------------------------------------------------------------------

Tiered Pricing Changes
    In addition to the Customer Volume Tiers described above and in 
footnote 1 of the fee schedule, the Exchange also provides reduced fees 
or enhanced rebates under the Market Maker Volume Tiers described in 
footnote 2. Fee codes PM and NM are currently appended to all Market 
Maker \11\ orders in Penny Pilot Securities and Non-Penny Pilot 
Securities, respectively, and result in a standard fee of $0.19 per 
contract. The

[[Page 39982]]

Market Maker Volume Tiers in footnote 2 consist of seven separate 
tiers, each providing a reduced fee or rebate to a Member's Market 
Maker orders that yield fee codes PM or NM upon satisfying monthly 
volume criteria required by the respective tier.
---------------------------------------------------------------------------

    \11\ The term ``Market Maker'' applies to any transaction 
identified by a Member for clearing in the Market Maker range at the 
OCC, where such Member is registered with the Exchange as a Market 
Maker as defined in Rule 16.1(a)(37).
---------------------------------------------------------------------------

    The Exchange proposes to modify the qualifying criteria for 
Customer Volume Tier 6 (as described above, the Exchange proposes to 
re-number such tier as Customer Volume Tier 5, hereafter ``current 
Customer Volume Tier 6'') under footnote 1 and for Market Maker Volume 
Tier 7 under footnote 2, as further described below.
    Pursuant to current Customer Volume Tier 6, a Member currently will 
receive a rebate of $0.21 per contract where: (1) The Member has an ADV 
in Customer orders equal to or greater than 0.20% of average TCV; and 
(2) the Member has an ADV in Market Maker orders equal to or greater 
than 0.15% of average TCV. Similarly, pursuant to Market Maker Volume 
Tier 7, the Exchange provides a reduced fee of $0.10 per contract 
where: (1) The Member has an ADV in Customer orders equal to or greater 
than 0.20% of average TCV; and (2) the Member has an ADV in Market 
Maker orders equal to or greater than 0.15% of average TCV. Thus, the 
qualifying criteria for current Customer Volume Tier 6 and Market Maker 
Volume Tier 7 are identical.
    In order to encourage the entry of additional orders to the 
Exchange, the Exchange proposes to modify current Customer Volume Tier 
6 and Market Maker Volume Tier 7 to reduce the criteria necessary to 
qualify. Specifically, the Exchange proposes to provide the same 
rebate, $0.21 per contract, and reduced fee, $0.10 per contract, as it 
currently provides for these tiers, respectively, and to provide such 
rebate or fee where: (1) The Member has an ADV in Customer orders equal 
to or greater than 0.20% of average TCV; and (2) the Member has an ADV 
in Market Maker orders equal to or greater than 0.10% of average TCV. 
Thus, the Exchange proposes to reduce the criteria of the second prong 
from 0.15% of average TCV to 0.10% of average TCV. The Exchange 
believes that this change will make current Customer Volume Tier 6 and 
Market Maker Volume Tier 7 more attainable for additional Members.
Routing Fees
    The Exchange proposes to modify the fees charged for orders routed 
away from the Exchange and executed at various away options 
exchanges.\12\ The Exchange currently charges flat rate routing fees 
for executions at away options exchanges that have been placed into 
groups based on the approximate cost of routing to such venues. The 
grouping of away options exchanges is based on the cost of transaction 
fees assessed by each venue as well as costs to the Exchange for 
routing (i.e., clearing fees, connectivity and other infrastructure 
costs, membership fees, etc.) (collectively, ``Routing Costs''). To 
address different fees at various other options exchanges, the Exchange 
proposes to increase fees applicable to routing to certain away options 
exchanges in Non-Penny Securities, as further described below.
---------------------------------------------------------------------------

    \12\ Other options exchanges to which the Exchange routes 
include: Bats BZX Exchange, Inc. (``BZX Options''), BOX Options 
Exchange LLC (``BOX''), Chicago Board Options Exchange, Inc. 
(``CBOE''), C2 Options Exchange, Inc. (``C2''), International 
Securities Exchange, Inc. (``ISE''), ISE Gemini, LLC (``ISE 
Gemini''), ISE Mercury, LLC (``ISE Mercury''), Miami International 
Securities Exchange, LLC (``MIAX''), Nasdaq Options Market LLC 
(``NOM''), Nasdaq OMX BX LLC (``BX Options''), Nasdaq OMX PHLX LLC 
(``PHLX''), NYSE Arca, Inc. (``ARCA''), and NYSE MKT LLC (``AMEX'').
---------------------------------------------------------------------------

    With respect to Non-Customer orders in Non-Penny Pilot Securities, 
the Exchange appends fee code RO to all such orders routed to and 
executed at other options exchanges. Pursuant to fee code RO, the 
Exchange charges a fee of $1.20 per contract. The Exchange proposes to 
increase this fee from $1.20 per contract to $1.25 per contract to 
account for additional Routing Costs incurred by the Exchange.
    With respect to Customer orders in Non-Penny Pilot Securities the 
Exchange applies one of two fee codes: (1) Fee code RP, which results 
in a fee of $0.25 per contract and applies to all Customer orders 
(including orders in Penny Pilot Securities) routed to and executed at 
AMEX, BOX, BX Options, CBOE, ISE Mercury, MIAX or PHLX; or (2) fee code 
RR, which results in a fee of $0.90 per contract and applies to all 
Customer orders in Non-Penny Pilot Securities routed to and executed at 
ARCA, BZX Options, C2, ISE, ISE Gemini or NOM. The Exchange proposes to 
increase the fee under fee code RR from $0.90 per contract to $1.00 per 
contract to account for additional Routing Costs incurred by the 
Exchange. The Exchange does not propose any change to fee code RP.
    As set forth above, the Exchange's proposed approach to routing 
fees is to set forth in a simple manner certain flat fees that 
approximate the cost of routing to other options exchanges. The 
Exchange then monitors the fees charged as compared to the costs of its 
routing services, as well as monitoring for specific fee changes by 
other options exchanges, and intends to adjust its flat routing fees 
and/or groupings to ensure that the Exchange's fees do indeed result in 
a rough approximation of overall Routing Costs, and are not 
significantly higher or lower in any area. The increases are proposed 
primarily in order to account for increased Routing Costs incurred by 
the Exchange.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule immediately.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\13\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes its proposed increase to the standard rebate 
provided to Customer orders executed on the Exchange (as well as the 
related changes) is reasonable, fair and equitable, and non-
discriminatory in that the rebate will provide additional incentive to 
all Members to enter Customer orders to the Exchange. The Exchange also 
believes the rebate for Customer orders remains consistent with pricing 
previously offered by the Exchange as well as other options exchanges 
and does not represent a significant departure from such pricing.
    Further, the Exchange believes that the proposed modifications to 
the tiered pricing structure are reasonable, fair and equitable, and 
non-discriminatory. The Exchange operates in a highly competitive 
market in which market participants may readily send order flow to many 
competing venues if they deem fees at the Exchange to be excessive. As 
a relatively new options exchange, the proposed fee structure remains 
intended to attract order flow to the Exchange by offering market 
participants a competitive yet simple pricing structure. At the same 
time, the Exchange believes it is reasonable to

[[Page 39983]]

offer and incrementally modify incentives intended to help to 
contribute to the growth of the Exchange.
    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by 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 of an exchange's market quality associated with higher levels 
of market activity, such as higher levels of liquidity provision and/or 
growth patterns, and introduction of higher volumes of orders into the 
price and volume discovery processes. The proposed modification to the 
criteria required to qualify for current Customer Volume Tier 6 and 
Market Maker Volume Tier 7 is intended to incentivize Members to send 
additional Customer orders and Market Maker orders to the Exchange in 
an effort to qualify for the enhanced rebate or lower fee made 
available by the tiers.
    The Exchange believes that the proposed tiers, as proposed to be 
amended are reasonable, fair and equitable, and non-discriminatory, for 
the reasons set forth above with respect to volume-based pricing 
generally and because such changes will incentivize participants to 
further contribute to market quality. The proposed tiers will provide 
an additional way for market participants to qualify for enhanced 
rebates or reduced fees. The Exchange also believes that the tiered 
pricing structure remains consistent with pricing previously offered by 
the Exchange as well as other options exchanges and does not represent 
a significant departure from such pricing structures.
    With respect to the proposed increases under the Exchange's routing 
structure, the Exchange again notes that it operates in a highly 
competitive market in which market participants can readily direct 
order flow to competing venues or providers of routing services if they 
deem fee levels to be excessive. As explained above, the Exchange seeks 
to approximate the cost of routing to other options exchanges, 
including other applicable costs to the Exchange for routing, in order 
to provide a simplified and easy to understand pricing model. The 
Exchange believes that a pricing model based on approximate Routing 
Costs is a reasonable, fair and equitable approach to pricing. 
Specifically, the Exchange believes that its proposal to modify fees is 
fair, equitable and reasonable because the fees are generally an 
approximation of the cost to the Exchange for routing orders to such 
exchanges. The Exchange believes that its flat fee structure for orders 
routed to various venues is a fair and equitable approach to pricing, 
as it will provide certainty with respect to execution fees at groups 
of away options exchanges. In order to achieve its flat fee structure, 
taking all costs to the Exchange into account, the Exchange will in 
some instances charge a higher premium to route to certain options 
exchanges than to others. As a general matter, the Exchange believes 
that the proposed fees will allow it to recoup and cover its costs of 
providing routing services to such exchanges and to make some 
additional profit in exchange for the services it provides. The 
Exchange also believes that the proposed increase to the fee structure 
for orders routed to and executed at these away options exchanges is 
fair and equitable and not unreasonably discriminatory in that it 
applies equally to all Members. Finally, the Exchange notes that it 
intends to consistently evaluate its routing fees, including profit and 
loss attributable to routing, as applicable, in connection with the 
operation of a flat fee routing service, and would consider future 
adjustments to the proposed pricing structure to the extent it was 
recouping a significant profit or loss from routing to away options 
exchanges.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Rather, the 
proposal is a competitive proposal that is seeking to further the 
growth of the Exchange and to update the Exchange's fees for routing 
orders to away options exchanges based on Routing Costs. With respect 
to the increase to the standard Customer rebate and other tiered 
pricing changes, the Exchange has structured the proposed fees and 
rebates to attract additional volume to the Exchange. With respect to 
the proposed changes to the routing fee structure, the Exchange 
believes that the proposed fees are competitive in that they will 
continue to provide a simple approach to routing pricing that some 
Members may favor. Additionally, Members may opt to disfavor the 
Exchange's pricing, including pricing for transactions on the Exchange 
as well as routing fees, if they believe that alternatives offer them 
better value. In particular, with respect to routing services, such 
services are available to Members from other broker-dealers as well as 
other options exchanges. The Exchange also notes that Members may 
choose to mark their orders as ineligible for routing to avoid 
incurring routing fees.\15\ 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.
---------------------------------------------------------------------------

    \15\ See Exchange Rule 21.1(d)(7) (describing ``Book Only'' 
orders) and Exchange Rule 21.9(a)(1) (describing the Exchange's 
routing process, which requires orders to be designated as available 
for routing).
---------------------------------------------------------------------------

(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 \16\ and paragraph (f) of Rule 19b-4 
thereunder.\17\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-BatsEDGX-2016-21 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-BatsEDGX-2016-21. This 
file number should be included on the subject line if email is used. To 
help the

[[Page 39984]]

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-BatsEDGX-2016-21 and should 
be submitted on or before July 11, 2016.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14446 Filed 6-17-16; 8:45 am]
 BILLING CODE 8011-01-P


