
[Federal Register Volume 82, Number 10 (Tuesday, January 17, 2017)]
[Notices]
[Pages 4941-4947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00782]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79769; File No. SR-BatsEDGX-2017-01]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Modify the Fee Schedule of the Exchange's Options Platform To Adopt 
Fees for its Recently Adopted Bats Auction Mechanism

January 10, 2017.
    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 January 3, 2017, Bats EDGX Exchange, Inc. (``EDGX'' or the 
``Exchange'') 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to modify the Fee Schedule applicable 
to the Exchange's options platform (``EDGX Options'') to adopt fees for 
its recently adopted Bats Auction Mechanism (``BAM'', ``BAM Auction'', 
or ``Auction'').\3\
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    \3\ See Securities Exchange Act Release No. 79718 (January 3, 
2017) (SR-BatsEDGX-2016-41), available at: https://www.sec.gov/rules/sro/batsedgx.shtml.
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The Exchange proposes to modify the Fee Schedule applicable to the 
Exchange's options platform (``EDGX Options'') to adopt fees for its 
recently adopted Bats Auction Mechanism (``BAM'', ``BAM Auction'', or 
``Auction''). BAM includes functionality in which a Member (an 
``Initiating Member'') may electronically submit for execution an order 
it represents as agent on behalf of a Priority Customer,\4\ broker 
dealer, or any other person or entity (``Agency Order'') against 
principal interest or against any other order it represents as agent 
(an ``Initiating Order'') provided it submits the Agency Order for 
electronic execution into the BAM Auction pursuant Rule 21.19. All 
options traded on EDGX Options are eligible for BAM.
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    \4\ The term ``Priority Customer'' means any person or entity 
that is not: (A) A broker or dealer in securities; or (B) a 
Professional. The term ``Priority Customer Order'' means an order 
for the account of a Priority Customer. See Rule 16.1(a)(45). A 
``Professional'' is any person or entity that: (A) Is not a broker 
or dealer in securities; and (B) places more than 390 orders in 
listed options per day on average during a calendar month for its 
own beneficial account(s). All Professional orders shall be 
appropriately marked by Options Members. See Rule 16.1(a)(46).
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    As additional background for the fees described below, the Exchange 
notes that any person or entity other than the Initiating Member may 
submit responses to an Auction. A BAM Auction takes into account 
responses to the Auction as well as interest resting on the Exchange's 
order book at the conclusion of the auction (``unrelated orders''), 
regardless of whether such unrelated orders were already present on the 
Exchange's order book when the Agency Order was received by the 
Exchange or were received after the Exchange commenced the applicable 
Auction. If contracts remain from one or more unrelated orders at the 
time the Auction ends, they will be considered for participation in the 
BAM order allocation process.
Definitions
    In connection with the fee proposal, the Exchange proposes to adopt 
definitions necessary for BAM pricing. First, the Exchange proposes to 
adopt defined terms of ``BAM'' and ``BAM Auction'' to refer to Auctions 
on the Fee Schedule. Second, the Exchange proposes to adopt the defined 
term ``BAM Agency Order'', which would be

[[Page 4942]]

defined as an order represented as agent by a Member on behalf of 
another party, and submitted to BAM for potential price improvement 
pursuant to Rule 21.19. Third, the Exchange proposes to adopt the 
defined term ``BAM Contra Order'' or ``Initiating Order'',\5\ which 
would be defined as an order submitted by a Member entering a BAM 
Agency Order for execution within BAM, that will potentially execute 
against the BAM Agency Order pursuant to Rule 21.19. Fourth, the 
Exchange proposes to adopt the defined term ``BAM Customer-to-Customer 
Immediate Cross'', which would provide a cross-reference to the process 
defined in Rule 21.19(c).\6\ Finally, the Exchange proposes to adopt 
the defined term ``BAM Responder Order'', which would be defined to 
include any order submitted in response to and specifically designated 
to participate in a BAM Auction as well as unrelated orders that are 
received by the Exchange after a BAM Auction has begun.
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    \5\ The Exchange notes that it has proposed to include the term 
Initiating Order on the Fee Schedule even though it is not currently 
used elsewhere on the Fee Schedule because this is the term used for 
a BAM Contra Order within Rule 21.19.
    \6\ As set forth in Rule 21.19(c), in lieu of the procedures set 
forth in paragraphs (a) and (b) of Rule 21.10 [sic], an Initiating 
Member may enter an Agency Order for the account of a Priority 
Customer paired with an order for the account of a Priority Customer 
and such paired orders will be automatically executed without an 
Auction, subject to the conditions set forth in Rule 21.19(c)(1)-
(3).
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BAM Pricing
    The Exchange proposes to adopt six new fee codes in connection with 
BAM, which would be added to the Fee Codes and Associated Fees table of 
the Fee Schedule. These fee codes represent the fees applicable to BAM, 
as described below. In addition, the Exchange proposes to adopt new 
footnote 6, which would again summarize BAM fees and rebates in a table 
form, would provide additional details regarding the applicability of 
such fees and rebates, and would include a provision regarding BAM 
Break-Up Credits.
    The Exchange proposes to adopt two fee codes for BAM Agency Orders, 
fee code BA and fee code BC, which would be applicable to Non-Customer 
\7\ and Customer \8\ orders, respectively. As proposed, the Exchange 
would apply fee code BA to Non-Customer BAM Agency Orders that are 
executed in an Auction and would charge such orders a fee of $0.20 per 
contract. The Exchange would apply fee code BC to Customer BAM Agency 
Orders that are executed in an Auction and would provide such orders a 
rebate of $0.14 per contract.
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    \7\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
    \8\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
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    Next, the Exchange proposes to adopt fee code BB, which would apply 
to a BAM Contra Order executed in an Auction and would be charged a fee 
of $0.04 per contract.
    The Exchange also proposes to adopt fee codes BD and BE, which 
would apply to BAM Responder Orders in Penny Pilot Securities \9\ and 
Non-Penny Pilot Securities,\10\ respectively. As proposed, the Exchange 
would apply fee code BD or BE to a BAM Responder Order that is executed 
in an Auction. The Exchange proposes to charge a fee of $0.50 per 
contract for executions yielding fee code BD and to charge a fee of 
$1.05 per contract for executions yielding fee code BE.
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    \9\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
    \10\ 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.
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    Finally, the Exchange proposes to adopt fee code CC for all 
executions in a BAM Customer-to-Customer Immediate Cross. As proposed, 
all executions yielding fee code CC would be provided free of charge.
    As discussed above, in addition to setting forth the proposed fees 
and rebates in the Fee Codes and Associated Fees table, the Exchange 
proposes to adopt footnote 6 to again summarize BAM fees and rebates in 
a table form that is organized differently in order to provide clarity 
to Users.\11\ Footnote 6 would be organized similar to existing 
footnotes on the Fee Schedule and would first make clear that the 
footnote is applicable to the following six fee codes: BA, BB, BC, BD, 
BE and CC. The footnote would then re-state the fees applicable to BAM, 
including a lead-in to the table that would state that the fees and 
rates are applicable when a BAM Agency Order trades in a BAM Auction 
against either a BAM Contra Order or a BAM Responder Order.
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    \11\ The term ``Users'' applies to any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.
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    The proposed table would horizontally categorize the types of 
orders that could be executed within BAM, namely ``Agency'' (i.e., BAM 
Agency Orders), ``Contra'' (i.e., BAM Contra Orders) and ``Responder'' 
(i.e., BAM Responder Orders). Further, within the Responder category, 
the Exchange would differentiate between Penny Pilot Securities and 
Non-Penny Pilot Securities (whereas it would not for the other two 
categories because there is no applicable distinction). Vertically, the 
table would be organized by Customer, Non-Customer and Customer-to-
Customer Immediate Cross.
    The Exchange also proposes to make clear with respect to BAM Agency 
Orders that when a BAM Agency Order executes against one or more 
resting orders that were already on the Exchange's order book when the 
BAM Agency Order was received by the Exchange, the BAM Agency Order and 
the resting order(s) would receive the Standard Fee Rates. 
Specifically, and as described above, it is possible for unrelated 
interest that is already present on the Exchange's order book when a 
BAM Agency Order is received to be included in an Auction. As proposed, 
footnote 6 will make clear that this will not alter the fee structure 
for such execution and instead the Exchange will charge a fee or 
provide a rebate to each side of the transaction as if it were a 
transaction occurring on the Exchange's order book pursuant to the 
Exchange's normal order handling methodology and not in BAM. This 
stands in contrast to BAM Responder Orders, which, as defined, include 
unrelated orders that are received by the Exchange after a BAM Auction 
has begun and which would be charged or provided rebates based 
specifically on BAM pricing.
    The Exchange also proposes to make clear with respect to Customer 
orders that such orders will be charged or provided rebates based on 
the proposed pricing for BAM (e.g., will yield fee code BC if submitted 
as a BAM Agency Order, will yield fee code BB if submitted as a BAM 
Contra Order, etc.) but that fee code CC would be assigned when both 
the BAM Agency Order and the BAM Contra Order are Customer orders.
    In addition, the Exchange proposes to adopt under footnote 6 BAM 
Break-Up Credits. As proposed, the Exchange will apply a BAM Break-Up 
Credit to the Member that submitted a BAM Agency Order, including a 
Member who routed an order to the Exchange with a Designated Give Up 
(as described in further detail below), when the BAM Agency Order 
trades with a BAM Responder Order. As proposed, the BAM Break-Up Credit 
provided with respect to a BAM Auction in a Penny Pilot Security would 
be $0.25 per contract and the BAM Break-Up Credit provided with respect 
to a BAM Auction in a Non-Penny Pilot Security would be $0.60 per 
contract.

[[Page 4943]]

Tiered Pricing Incentives
    In order to encourage the use of BAM, the Exchange proposes to 
adopt new tiers under footnotes 1 and 2 of the Fee Schedule, which are 
similar to existing tiers but with an enhanced rebated to incentivize 
the submission of BAM Agency Orders.
    Fee codes PC and NC are currently appended to all Customer orders 
in Penny Pilot Securities and Non-Penny Pilot Securities, respectively, 
and result in a standard rebate of $0.05 per contract. Instead of the 
standard rebate provided to Customer orders, Members are able to 
receive enhanced rebates for Customer orders to the extent they satisfy 
monthly volume criteria. The Exchange currently offers five Customer 
Volume Tiers pursuant to footnote 1. For instance, pursuant to Customer 
Volume Tier 5, a Member will receive an enhanced rebate of $0.21 per 
contract where the Member has an ADV \12\ in: (i) Customer orders equal 
to or greater than 0.05% of average OCV; \13\ and (ii) Customer or 
Market Maker \14\ orders equal to or greater than 0.35% of average OCV. 
To encourage the entry of BAM Agency Orders to the Exchange, the 
Exchange proposes to adopt Customer Volume Tier 6, which would be 
identical to Tier 5 but would instead provide an enhanced rebate of 
$0.25 per contract for Customer orders to the extent a Member also has 
an ADV in BAM Agency Orders equal to or greater than 1 contract (in 
addition to the volume criteria described above with respect to Tier 
5).
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    \12\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
    \13\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
    \14\ As defined in the Exchange's Fee Schedule, available at: 
http://www.bats.com/us/options/membership/fee_schedule/edgx/.
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    Fee codes PM and NM are currently appended to all Market Maker 
orders in Penny Pilot Securities and Non-Penny Pilot Securities, 
respectively, and result in a standard fee of $0.19 per contract. The 
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 the monthly 
volume criteria required by the respective tier. For instance, pursuant 
to Market Maker Volume Tier 7, a Member will be charged a reduced fee 
of $0.03 per contract where the Member has: (i) Customer orders equal 
to or greater than 0.05% of average OCV; and (ii) Customer or Market 
Maker orders equal to or greater than 0.35% of average OCV. To 
encourage the entry of BAM Agency Orders to the Exchange, the Exchange 
proposes to adopt Market Maker Volume Tier 8, which would be identical 
to Tier 7 but would instead provide a reduced fee of $0.02 per contract 
for Market Maker orders to the extent a Member also has an ADV in BAM 
Agency Orders equal to or greater than 1 contract (in addition to the 
volume criteria described above with respect to Tier 7).
Designated Give Up Footnote
    Footnote 5 of the Fee Schedule currently specifies that when order 
is submitted with a Designated Give Up, as defined in Rule 21.12(b)(1), 
the applicable rebates for such orders when executed on the Exchange 
(yielding fee code NC or PC) \15\ are provided to the Member who routed 
the order to the Exchange. Pursuant to Rule 21.12, which specifies the 
process to submit an order with a Designated Give Up, a Member acting 
as an options routing firm on behalf of one or more other Exchange 
Members (a ``Routing Firm'') is able to route orders to the Exchange 
and to immediately give up the party (a party other than the Routing 
Firm itself or the Routing Firm's own clearing firm) who will accept 
and clear any resulting transaction. Because the Routing Firm is 
responsible for the decision to route the order to the Exchange, the 
Exchange provides such Member with the rebate when orders that yield 
fee code NC or PC are executed.
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    \15\ Fee codes NC and PC are appended to Customer orders in Non-
Penny Pilot and Penny Pilot Securities, respectively. Id.
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    In connection with the adoption of fees applicable to BAM, the 
Exchange proposes to add new fee code BC to the lead-in sentence of 
footnote 5 and to append footnote 5 to fee code BC in the Fee Codes and 
Associated Fees table of the Fee Schedule. In addition, the Exchange 
proposes to include reference to Routing Firms (i.e., a Member who 
routed an order to the Exchange with a Designated Give up) in the 
proposed BAM Break-Up Credit section of footnote 6, to make clear that 
a Routing Firm will be provided any applicable BAM Break-Up Credits. 
Similar to the provision of a rebate to a Routing Firm who routed an 
order to the Exchange to execute directly on the Exchange's order book, 
the Exchange believes that a Routing Firm that routed a BAM Agency 
Order to the Exchange should be provided applicable rebates, including 
any BAM Break-Up Credits, based on the Routing Firm's decision to route 
the order to the Exchange.
Implementation Date
    The Exchange proposes to implement the proposed changes 
immediately.\16\
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    \16\ The Exchange notes that it previously adopted fee changes 
effective January 3, 2017, and thus, has not proposed to modify the 
date of the Fee Schedule. See SR-BatsEDGX-2016-75, available at: 
http://www.bats.com/us/options/regulation/rule_filings/edgx/.
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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.\17\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\18\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls.
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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal establishes fees and rebates regarding BAM, 
which promotes price improvement to the benefit of market participants. 
The Exchange believes that BAM will encourage market participants, and 
in particular liquidity providers on the Exchange, to compete 
vigorously to provide opportunities for price improvement in a 
competitive auction process. The Exchange believes that its proposal 
will allow the Exchange to recoup the costs associated with BAM while 
also incentivizing its use.
    The Exchange is adopting the proposed fees and rebates at this time 
because it believes that the associated revenue will allow it to 
promote and maintain BAM, which is beneficial to market participants.
    In sum, the Exchange believes that the proposed fee and rebate 
structure is designed to promote BAM and, in particular, to attract 
Customer liquidity, which benefits all market participants by providing 
additional trading opportunities. This attracts liquidity providers and 
an increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow originating from other market 
participants.
    Moreover, the Exchange believes that charging market participants, 
other than Customers, a higher effective rate for certain BAM 
transactions is reasonable, equitable, and not unfairly discriminatory 
because these types of market participants are more

[[Page 4944]]

sophisticated and have higher levels of order flow activity and system 
usage. Facilitating this level of trading activity requires a greater 
amount of system resources than that of Customers, and thus, generates 
greater ongoing operational costs for the Exchange. The proposed fees 
and rebates, which are further discussed below, will allow the Exchange 
to promote and maintain BAM, which is beneficial to market 
participants.
BAM Agency Orders and BAM Contra Orders
    With respect to the proposal to adopt a rebate for Customer BAM 
Agency Orders ($0.14 per contract) and adopt fees for both Non-Customer 
BAM Agency Orders ($0.20 per contract) and all BAM Contra Orders ($0.04 
per contract), the Exchange believes this is reasonable because it 
encourages participation in BAM by offering rates that are equivalent 
to or better than most other price improvement auctions offered by 
other options exchanges.\19\ The rebate for Customer BAM Agency Orders 
is designed to encourage Customer orders entered into BAM, which is 
reasonable for the reasons further discussed below. The proposed fees 
for Non-Customer BAM Agency Orders and BAM Contra Orders are also 
reasonable because the associated revenue will allow the Exchange to 
promote and maintain BAM, and continue to enhance its services.
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    \19\ See Miami International Securities Exchange, LLC (``MIAX'') 
Fee Schedule; and Securities Exchange Act Release No. 72943 (August 
28, 2014), 80 [sic] FR 52785 (September 4, 2014) (SR-MIAX-2015-45 
[sic]) (notice of filing and immediate effectiveness regarding MIAX 
PRIME). See also, e.g., NYSE MKT LLC (``NYSE Amex Options'') Fee 
Schedule and NASDAQ OMX BX, Inc. (``BX Options'') Fee Schedule.
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    Providing Customers a rebate for BAM Agency Orders, while assessing 
Non-Customers a fee for BAM Agency Orders, is reasonable because of the 
desirability of Customer activity. The proposed new fees and rebates 
for BAM are generally intended to encourage greater Customer trade 
volume 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 and other liquidity providers. 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 practice of incentivizing 
increased Customer order flow through a fee and rebate schedule in 
order to attract professional liquidity providers is, and has been, 
commonly practiced in the options markets, and the Exchange.\20\ The 
proposed fee and rebate schedule similarly attracts Customer order 
flow.
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    \20\ See Exchanges Fee Schedule, available at: http://www.bats.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule, Nasdaq 
Options Market (``NOM'') Fee Schedule.
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    The proposed fee and rebate schedule is reasonably designed because 
it is within the range of fees and rebates assessed by other exchanges 
employing similar fee structures for price improvement mechanisms.\21\ 
Other competing exchanges offer different fees and rebates for agency 
orders, contra-side orders, and responder orders to the auction in a 
manner similar to the proposal.\22\ Other competing exchanges also 
charge different rates for transactions in their price improvement 
mechanisms for customers versus their non-customers in a manner similar 
to the proposal.\23\ As proposed, all applicable fees and rebates are 
within the range of fees and rebates for executions in price 
improvement mechanisms assessed by other exchanges that are currently 
employing similar fee structures for price improvement mechanisms.
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    \21\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 [sic] FR 52785 (September 4, 2014) 
(SR-MIAX-2015-45 [sic]) (notice of filing and immediate 
effectiveness regarding MIAX PRIME). See also, e.g., NYSE Amex 
Options Fee Schedule and BX Options Fee Schedule.
    \22\ Id.
    \23\ Id.
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    The fee and rebate schedule as proposed continues to reflect 
differentiation among different market participants typically found in 
options fee and rebate schedules.\24\ The Exchange believes that the 
differentiation is reasonable and notes that unlike others (e.g., 
Customers) some market participants like EDGX Options Market Makers 
commit to various obligations. For example, transactions of an EDGX 
Options 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.\25\ 
Further, all Market Makers are designated as specialists on EDGX 
Options for all purposes under the Act or rules thereunder.\26\ For BAM 
Agency Orders, establishing a rebate for Customer orders and a fee for 
Non-Customer Orders is equitable and not unfairly discriminatory. This 
is because the Exchange's proposal to provide rebates and assess fees 
will apply the same to all similarly situated participants. Moreover, 
all similarly situated BAM Agency Orders are subject to the same 
proposed fee schedule, and access to the Exchange is offered on terms 
that are not unfairly discriminatory. In addition, the proposed fee for 
BAM Agency Orders is equitable and not unfairly discriminatory because, 
while other market participants (Non-Customers) will be assessed a fee, 
Customers will receive a rebate because an increase in Customer order 
flow will bring greater volume and liquidity, which benefits all market 
participants by providing more trading opportunities and tighter 
spreads.
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    \24\ See Exchange's Fee Schedule, available at: http://www.bats.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule, BX Options 
Fee Schedule and NOM Fee Schedule.
    \25\ See Exchange Rule 22.5, entitled ``Obligations of Market 
Makers''.
    \26\ See Exchange Rule 22.2, entitled ``Options Market Maker 
Registration and Appointment''.
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Customer-to-Customer Immediate Cross
    With respect to the Customer-to-Customer Immediate Cross, 
establishing no Customer fee or rebate for either side of the 
transaction, is also reasonable, equitably allocated and not 
unreasonably discriminatory because it still encourages the entry of 
Customer orders to the Exchange while treating, from the Exchange's 
perspective, each side of the order neutrally rather than providing one 
Customer a rebate but charging another Customer a fee.
BAM Responder Orders and Other Unrelated Orders
    For BAM Responder Orders, establishing that there will be a $0.50 
fee per contract for orders in Penny Pilot Securities and a $1.05 fee 
per contract for orders in Non-Penny Pilot Securities, is reasonable 
because the associated revenue will allow the Exchange to maintain and 
enhance its services. The proposed fee and rebate schedule is also 
reasonably designed because it is within the range of fees and rebates 
assessed by other exchanges employing similar fee structures for price 
improvement mechanisms.\27\ Other competing exchanges offer different 
fees and rebates for agency orders, contra-side order, and responders 
to the auction in a manner similar to the proposal.\28\
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    \27\ See NYSE Amex Options Fee Schedule; see also, e.g., MIAX 
Fee Schedule and BX Options Fee Schedule.
    \28\ Id.
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    For BAM Responder Orders, establishing a fee for such orders is 
equitable and not unfairly

[[Page 4945]]

discriminatory. This is because the Exchange's proposal to assess such 
fee will apply the same to all participants and will vary only based on 
whether the security is a Penny Pilot Security or a Non-Penny Pilot 
Security. Moreover, all BAM Responder Orders are subject to the same 
proposed fee schedule, and access to the Exchange is offered on terms 
that are not unfairly discriminatory.
    The Exchange further believes its proposal represents a reasonable 
and equitable allocation of dues and fees in that the proposal would 
treat an unrelated order as well as a BAM Agency Order that executes 
against such order differently depending on whether the unrelated order 
was already resting on the Exchange's order book at the time the BAM 
Agency Order was received or was received after the BAM Auction had 
begun.
    As proposed, an unrelated order would be considered a BAM Responder 
Order if received after the BAM Auction had commenced. As a result, 
both the BAM Agency Order executing against such order and such order 
itself would be assessed fees and provided rebates according to the 
proposed BAM pricing. The Exchange believes this is a reasonable and 
equitable allocation of dues and fees, and is not unreasonably 
discriminatory, because it ensures that market participants are treated 
similarly with respect to their executions against BAM Agency Orders. 
To do otherwise, to the extent fees are higher pursuant to BAM pricing 
than under the Exchange's Standard Fee Rates, would incentivize a 
market participant that wishes to participate in an Auction to 
nonetheless avoid sending orders to the Exchange that are not targeted 
towards the Auction and instead send orders to the Exchange's order 
book generally, knowing that such orders would be considered in the 
Auction anyway.
    In contrast, as proposed, to the extent an unrelated order was 
already present on the Exchange's order book when a BAM Agency Order is 
received, such unrelated order, if executed in an Auction, as well as 
the BAM Agency Order against which it trades will be charged a fee or 
provided a rebate as if the transaction occurred on the Exchange's 
order book pursuant to the Exchange's normal order handling methodology 
and not in BAM. The Exchange similarly believes this is a reasonable 
and equitable allocation of dues and fees, and is not unreasonably 
discriminatory, because it will ensure that the participant that had 
established position on the Exchange's order book first, the unrelated 
order, is not impacted with respect to applicable fees or rebates 
despite the later arrival of a BAM Agency Order that commences an 
Auction.
BAM Break-Up Credits
    With respect to the proposal to adopt BAM Break-Up Credits, the 
Exchange believes this is reasonable because it encourages use of BAM 
by offering pricing that is equivalent to pricing provided pursuant to 
other price improvement auctions offered by other options exchanges. 
The proposal to offer BAM Break-Up Credits is reasonably designed 
because it is within the range of fees and rebates assessed by other 
exchanges employing similar fee structures for price improvement 
mechanisms.\29\ Further, the proposed BAM Break-Up Credits are 
reasonable and equitably allocated because such credits are different 
based on whether the Auction is for a Penny Pilot Security or a Non-
Penny Pilot Security, which is the same differentiation applicable to 
BAM Responder Orders. Thus, the Exchange has based the amount of the 
Break-Up Credit, in part, on the amount of the fee it will receive with 
respect to each BAM Responder Order. Finally, the proposed BAM Break-Up 
Credits are not unreasonably discriminatory because such credits are 
equally available to all Members submitting BAM Agency Orders to the 
Exchange.
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    \29\ See MIAX Fee Schedule; and Securities Exchange Act Release 
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness 
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee 
Schedule and NASDAQ BX Options Fee Schedule.
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Tiers
    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 adoption of Customer 
Volume Tier 6 and Market Maker Volume Tier 8, are each intended to 
incentivize Members to send additional Customer and Market Maker orders 
to the Exchange as well as to participate in the Exchange's new BAM 
process in an effort to qualify for the enhanced rebate or lower fee 
made available by the tiers.
    The Exchange believes that the proposed tiers 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. Further, 
BAM is fully available to all Members, and the proposed threshold is 
intentionally low to encourage Members to do the development work 
necessary to participate in BAM and send BAM Agency Orders.
Designated Give Up
    In connection with the adoption of fees applicable to BAM, the 
Exchange proposes to add new fee code BC to the lead-in sentence of 
footnote 5 and to append footnote 5 to fee code BC in the Fee Codes and 
Associated Fees table of the Fee Schedule. In addition, the Exchange 
proposes to include reference to Routing Firms (i.e., a Member who 
routed an order to the Exchange with a Designated Give up) in the 
proposed BAM Break-Up Credit section of footnote 6, to make clear that 
a Routing Firm too will be provided any applicable BAM Break-Up 
Credits. The Exchange believes this proposal is a reasonable and 
equitable allocation of fees and dues and is not unreasonably 
discriminatory because, as is currently the case pursuant to footnote 
5, the proposal simply will make clear that a firm acting as a Routing 
Firm that routes BAM Agency Orders to the Exchange will be provided 
applicable rebates, including any BAM Break-Up Credits, based on the 
Routing Firm's decision to route the order to the Exchange.

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

    The Exchange believes the proposed rebate would not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rebate represents a significant departure from 
previous pricing offered by the Exchange or pricing offered by the 
Exchange's competitors. Rather, the Exchange believes the proposal will 
enhance competition as it is a competitive proposal that seeks to 
further the growth of the Exchange by encouraging Members to enter BAM 
Agency Orders, orders in response to BAM Agency Orders, and orders to 
the Exchange generally.
    The Exchange's proposal to adopt BAM was a competitive response to 
similar price improvement auctions operated by other options exchanges.

[[Page 4946]]

The Exchange believes this proposed rule change is necessary to permit 
fair competition among the options exchanges. The Exchange anticipates 
that BAM will create new opportunities for EDGX to attract new business 
and compete on equal footing with those options exchanges with 
auctions. While the proposed fees and rebates are intentionally 
aggressive in order to attract participation on the Exchange, 
particularly in BAM, the Exchange does not believe that its proposed 
pricing significantly departs from pricing in place on other options 
exchanges that operate price improvement auctions. Accordingly, the 
Exchange does not believe that the proposal creates an undue burden on 
inter-market 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 establish fees and rebates for BAM 
will impose any 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 establishing rebates and fees 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. 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 this instance, the proposed charges assessed and credits 
available to member firms in respect of BAM do not impose a burden on 
competition because the Exchange's execution and routing services are 
completely voluntary and subject to extensive competition. If the 
changes proposed herein are unattractive to market participants, it is 
likely that the Exchange will lose market share as a result and/or will 
be unable to attract participants to BAM. 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 
allow the Exchange to promote and maintain BAM, which has the potential 
to result in more efficient, price improved executions to the benefit 
of market participants.
    The Exchange believes that the proposed change would increase both 
inter-market and intra-market competition by incentivizing members to 
direct their orders, and particularly Customer orders, to the Exchange, 
which benefits all market participants by providing more trading 
opportunities, which attracts market makers. To the extent that there 
is a differentiation between proposed fees assessed and rebates offered 
to Customers as opposed to other market participants, the Exchange 
believes that this is appropriate because the fees and rebates should 
incentivize members to direct additional order flow to the Exchange and 
thus provide additional liquidity that enhances the quality of its 
markets and increases the volume of contracts traded on the Exchange.
    To the extent that this purpose is achieved, all the Exchange's 
market participants should benefit from the improved market liquidity. 
Enhanced market quality and increased transaction volume that results 
from the anticipated increase in order flow directed to the Exchange 
will benefit all market participants and improve competition on the 
Exchange. 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.
    The Exchange believes that the proposed fees and rebates for 
participation in the BAM Auction are not going to have an impact on 
intra-market competition based on the total cost for participants to 
transact as respondents to the Auction as compared to the cost for 
participants to engage in non-Auction electronic transactions on the 
Exchange.
    As noted above, the Exchange believes that the proposed pricing for 
the BAM Auction is comparable to that of other exchanges offering 
similar electronic price improvement mechanisms, and the Exchange 
believes that, based on general industry experience, market 
participants understand that the price-improving benefits offered by an 
Auction justify and offset the transaction costs associated with such 
Auction. To the extent that there is a difference between non-BAM 
transactions and BAM transactions, the Exchange does not believe this 
difference will cause participants to refrain from responding to BAM or 
submitting orders to the Exchange when a BAM Auction is underway.
    In addition, the Exchange does not believe that the proposed 
transaction fees and credits burden competition by creating a disparity 
of transaction fees between the BAM Contra Order and the transaction 
fees a Responder pays would result in certain participants being unable 
to compete with the contra side order.
    The Exchange expects to see robust competition within the BAM 
Auction. As discussed, 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. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and to attract 
order flow to the Exchange. The Exchange believes that the proposed 
rule change reflects this competitive environment because it 
establishes a fee structure in a manner that encourages market 
participants to direct their order flow, to provide liquidity, and to 
attract additional transaction volume to the Exchange.

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.

[[Page 4947]]

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 \30\ and paragraph (f) of Rule 19b-4 
thereunder.\31\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BatsEDGX-2017-01 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-BatsEDGX-2017-01. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsEDGX-2017-01, and should 
be submitted on or before February 7, 2017.
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00782 Filed 1-13-17; 8:45 am]
 BILLING CODE 8011-01-P


