
[Federal Register Volume 82, Number 32 (Friday, February 17, 2017)]
[Notices]
[Pages 11081-11083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03178]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80025; File No. SR-BatsEDGX-2017-04]


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

February 13, 2017.
    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 January 30, 2017, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-Members of the Exchange pursuant to Exchange 
Rules 15.1(a) and (c) to adopt an Options Regulatory Fee (``ORF'').
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The Exchange proposes to modify its fee schedule applicable to its 
equity options platform (``EDGX Options'') to adopt an ORF in the 
amount of $0.0004 per contract side.\6\ The per-contract ORF will be 
assessed by the Exchange to each Member for all options transactions 
executed and cleared, or simply cleared, by the Member, that are 
cleared by OCC in the ``customer'' range, regardless of the exchange on 
which the transaction occurs.\7\ The ORF will be collected indirectly 
from Members through their clearing firms by OCC on behalf of the 
Exchange.
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    \6\ The Exchange notes that it previously proposed to adopt an 
ORF of $0.0002 per contract in August 2016 which would have been 
assessed to each Member and non-Member for all options transactions 
cleared by OCC in the ``customer'' range, regardless of the exchange 
on which the transaction occurred. See Securities Exchange Act 
Release No. 78452 (August 1, 2016), 81 FR 51951 (August 5, 2016) 
(SR-BatsEDGX-2016-33). The Exchange then filed to delay the 
implementation of SR-BatsEDGX-2016-33 until February 1, 2017. See 
Securities Exchange Act Release No. 78745 (September 1, 2016), 81 FR 
62185 (September 8, 2016) (SR-BatsEDGX-2016-48). The Commission 
later issued an order suspending and [sic] SR-BatsEDGX-2016-33 and 
instituted proceedings to determine whether to approve or disapprove 
the proposed rule change asking whether the [sic] ``a sufficient 
regulatory nexus exists between the Exchange and a non-Member to 
justify imposition of the ORF on such non-Member.'' See Securities 
Exchange Act Release No. 78850 (September 15, 2016), 81 FR 64963 
(September 21, 2016). On January 10, 2017, the Exchange withdrew SR-
Bats-EDGX-2016-33. The Exchange also proposes in this filing to 
remove text from its fee schedule adopted in SR-BatsEDGX-2016-48 
which delayed the implementation of SR-Bats-EDGX-2016-33 until 
February 1, 2017.
    \7\ The Exchange also proposes to insert a colon after the title 
``Options Regulatory Fee''.
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    The ORF also will be charged for transactions that are not executed 
by a Member but are ultimately cleared by a Member. In the case where a 
non-Member executes a transaction and a Member clears the transaction, 
the ORF will be assessed to the Member who clears the transaction. In 
the case where a Member executes a transaction and another Member 
clears the transaction, the ORF will be assessed to the Member who 
clears the transaction.
    Clearing members, however, are distinguished from executing 
participants because they remain identified to the Exchange regardless 
of the identity of the initiating executing participant, their 
location, and the market center on which they execute transactions. 
Therefore, the Exchange believes it is more efficient for the operation 
of the Exchange and for the marketplace as a whole to assess the ORF to 
clearing members.
    The Exchange believes it is appropriate to charge the ORF only to 
transactions that clear as customer at the OCC. The Exchange believes 
that its broad regulatory responsibilities with respect to a Member's 
activities supports applying the ORF to transactions cleared but not 
executed by a Member. The Exchange's regulatory responsibilities are 
the same regardless of whether a Member executes a transaction or 
clears a transaction executed on its behalf. The Exchange regularly 
reviews all such activities, including performing surveillance for 
position limit violations, manipulation, front-running, contrary 
exercise advice

[[Page 11082]]

violations and insider trading. These activities span across multiple 
exchanges.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Members' customer 
options business, including performing routine surveillances and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees and fines, will cover a material portion, but not all, of the 
Exchange's regulatory costs. The Exchange notes that its regulatory 
responsibilities with respect to Member compliance with options sales 
practice rules have been allocated to the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') under a 17d-2 Agreement. The ORF is not 
designed to cover the cost of options sales practice regulation.
    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange expects to monitor its regulatory costs 
and revenues at a minimum on a semi-annual basis. If the Exchange 
determines regulatory revenues exceed or are insufficient to cover a 
material portion of its regulatory costs, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
will notify Members of adjustments to the ORF at least 30 calendar days 
prior to the effective date of the change.\8\
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    \8\ The Exchange announced its intent to charge an ORF on 
December 30, 2016. See Bats Options Exchange Regulatory Fee Schedule 
Update Effective February 1, 2017, available at http://cdn.batstrading.com/resources/fee_schedule/2017/Bats-Options-Exchange-Regulatory-Fee-Schedule-Update-Effective-February-1-2017.pdf. The semi-annual review and notice provisions are similar 
to those adopted by NYSE Arca, Inc. (``NYSE Arca''). See Securities 
Exchange Act Release No. 70500 (September 25, 2013), 78 FR 60361 
(October 1, 2013) (SR-NYSEArca-2013-91).
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    The Exchange believes it is reasonable and appropriate for the 
Exchange to charge the ORF for options transactions regardless of the 
exchange on which the transactions occur. The Exchange has a statutory 
obligation to enforce compliance by Members and their associated 
persons under the Act and the rules of the Exchange and to surveil for 
other manipulative conduct by market participants (including non-
Members) trading on the Exchange. The Exchange cannot effectively 
surveil for such conduct without looking at and evaluating activity 
across all options markets. Many of the Exchange's market surveillance 
programs require the Exchange to look at and evaluate activity across 
all options markets, such as surveillance for position limit 
violations, manipulation, front-running and contrary exercise advice 
violations/expiring exercise declarations. Also, the Exchange and the 
other options exchanges are required to populate a consolidated options 
audit trail (``COATS'') \9\ system in order to surveil a Member's 
activities across markets.
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    \9\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
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    In addition to its own surveillance programs, the Exchange works 
with other SROs and exchanges on intermarket surveillance related 
issues. Through its participation in the Intermarket Surveillance Group 
(``ISG''),\10\ the Exchange shares information and coordinates 
inquiries and investigations with other exchanges designed to address 
potential intermarket manipulation and trading abuses. The Exchange's 
participation in ISG helps it to satisfy the requirement that it has 
coordinated surveillance with markets on which security futures are 
traded and markets on which any security underlying security futures 
are traded to detect manipulation and insider trading.\11\
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    \10\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by co-operatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
    \11\ See Section 6(h)(3)(I) of the Act.
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    The Exchange believes that charging the ORF across markets will 
avoid having Members direct their trades to other markets in order to 
avoid the fee and to thereby avoid paying for their fair share for 
regulation. If the ORF did not apply to activity across markets then a 
Member would send their orders to the least cost, least regulated 
exchange. Other exchanges do impose a similar fee on their member's 
activity, including the activity of those members on the Exchange.\12\
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    \12\ Similar regulatory fees have been instituted by PHLX, ISE, 
and MIAX. See Securities Exchange Act Release Nos. 61133 (December 
9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100); 61154 
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105); and 68711 (January 23, 2013), 78 FR 6155 (January 29, 2013) 
(SR-MIAX-2013-01).
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    The Exchange notes that there is established precedent for an SRO 
charging a fee across markets, namely, FINRAs Trading Activity Fee \13\ 
and the MIAX, NYSE Amex, NYSE Arca, CBOE, PHLX, ISE and BOX ORFs. While 
the Exchange does not have all of the same regulatory responsibilities 
as FINRA, the Exchange believes that, like other exchanges that have 
adopted an ORF, its broad regulatory responsibilities with respect to a 
Member's activities, irrespective of where their transactions take 
place, support a regulatory fee applicable to transactions on other 
markets. Unlike FINRA's Trading Activity Fee, the ORF would apply only 
to a Member's customer options transactions.
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    \13\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 34021 (June 6, 2003).
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Implementation Date
    The Exchange proposes to implement the ORF on February 1, 2017.
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.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using its facilities. The Exchange 
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.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the ORF is equitable and not unfairly 
discriminatory because it would be objectively allocated to Members in 
that it would be charged to all Members on all their transactions that 
clear as customer transactions at the OCC. Moreover, the Exchange 
believes the ORF ensures fairness by assessing fees to those Members 
that are directly based on the amount of customer options business they 
conduct. Regulating customer trading activity is much more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity, which tends to 
be more automated and less labor-intensive. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the

[[Page 11083]]

costs associated with administering the non-customer component (e.g., 
Member proprietary transactions) of its regulatory program. In 
addition, the Exchange believes the amount of the ORF is reasonable as 
it is lower than ORFs charged by other exchanges. By way of comparison, 
MIAX charges an ORF of $0.0045 per contract side,\16\ and both NYSE 
Arca and NYSE Amex charge an ORF of $0.0055 per contract side.\17\
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    \16\ See MIAX fee schedule available at http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_01012017.pdf (last visited January 10, 
2017).
    \17\ See NYSE Arca Options fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited January 10, 2017); 
and NYSE Amex fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (last visited January 10, 2017).
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    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Members' customer options business including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. The Exchange will monitor, on at least a semi-
annual basis the amount of revenue collected from the ORF to ensure 
that it, in combination with its other regulatory fees and fines, does 
not exceed the Exchange's total regulatory costs. If the Exchange 
determines regulatory revenues exceed or are insufficient to cover a 
material portion of its regulatory costs, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
will notify Members of adjustments to the ORF via regulatory circular.
    The Exchange has designed the ORF to generate revenues that, when 
combined with all of the Exchange's other regulatory fees, will be less 
than or equal to the Exchange's regulatory costs, which is consistent 
with the Commission's view that regulatory fees be used for regulatory 
purposes and not to support the Exchange's business side. In this 
regard, the Exchange believes that the initial level of the fee is 
reasonable.

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. The ORF is not intended to have 
any impact on competition. Rather, it is designed to enable the 
Exchange to recover a material portion of the Exchange's cost related 
to its regulatory activities. The Exchange is obligated to ensure that 
the amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.
    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. The proposed ORF is also 
comparable to ORF charged by other options exchanges for the same or 
similar service.

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 \18\ and paragraph (f) of Rule 19b-4 
thereunder.\19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 No. SR-BatsEDGX-2017-04 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 No. SR-BatsEDGX-2017-04. 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 No. SR-BatsEDGX-2017-04, and should be 
submitted on or before March 10, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03178 Filed 2-16-17; 8:45 am]
BILLING CODE 8011-01-P


