Document ID: SEC-2017-1892-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2017-11-17T05:00Z

[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54443-54448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24929]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82057; File No. SR-BatsEDGX-2017-48]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt Fees for Its Recently Adopted Functionality for the Handling of 
Complex Orders on Its Equity Options Platform

November 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 October 31, 2017, Cboe EDGX Exchange, Inc. (formerly known as 
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 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

[[Page 54444]]

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.markets.cboe.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 modify the Fee Schedule applicable to the 
Exchange's equity options platform (``EDGX Options'') to adopt fees for 
its recently adopted functionality for the handling of complex orders 
on EDGX Options.\6\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 81891 (October 17, 
2017) (SR-BatsEDGX-2017-29) (order approving rules for EDGX complex 
order book).
---------------------------------------------------------------------------

    The Exchange proposes to adopt twelve new fee codes in connection 
with this new complex order functionality, which would be added to the 
Fee Codes and Associated Fees table of the Fee Schedule. These fee 
codes represent the fees applicable to complex orders, as described 
below. In addition, the Exchange proposes to adopt new footnote 8, 
which would again summarize complex order fees and rebates in a table 
form and would provide additional details regarding the applicability 
of such fees and rebates. In particular, the proposed tables for 
footnote 8 highlight that the proposed fees and rebates for complex 
orders vary depending on the contra-party for each transaction. 
Finally, the Exchange proposes a change to the Marketing Fees section 
of the Fee Schedule in connection with this proposal.
Customer Pricing for Transactions on Complex Order Book
    The Exchange proposes to adopt three fee codes for Customer \7\ 
complex orders that trade on the EDGX Options complex order book 
(``COB''), fee codes ZA, ZB, and ZC. As proposed, the Exchange would 
apply fee code ZA to Customer complex orders that are executed on the 
COB with a non-Customer \8\ as the contra-party in Penny Pilot 
Securities \9\ and would provide such orders a rebate of $0.47 per 
contract. The Exchange would apply fee code ZB to Customer complex 
orders that are executed on the COB with a non-Customer as the contra-
party in Non-Penny Pilot Securities \10\ and would provide such orders 
a rebate of $0.97 per contract. The Exchange would apply fee code ZC to 
Customer complex orders that are executed on the COB with another 
Customer as the contra-party and would not assess a fee or provide any 
rebate for such orders. There is no proposed distinction between 
pricing for such orders in Penny Pilot Securities and Non-Penny Pilot 
Securities.
---------------------------------------------------------------------------

    \7\ ``Customer'' applies to any transaction identified by a 
Member for clearing in the Customer range at the OCC, excluding any 
transaction for a Broker Dealer or a ``Professional'' as defined in 
Exchange Rule 16.1. See the Exchange's Fee Schedule available at: 
https://markets.cboe.com/us/options/membership/fee_schedule/edgx/.
    \8\ ``Non-Customer'' applies to any transaction that is not a 
Customer order. Id.
    \9\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01. Id.
    \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.
---------------------------------------------------------------------------

Market Maker Pricing--Customer as Contra-Party
    The Exchange proposes to adopt two fee codes for Market Maker \11\ 
complex orders that trade on the COB against Customer orders, fee codes 
ZM and ZN. As proposed, the Exchange would apply fee code ZM to Market 
Maker complex orders that are executed on the COB with a Customer as 
the contra-party in Penny Pilot Securities and would charge such orders 
a fee of $0.50 per contract. The Exchange would apply fee code ZN to 
Market Maker complex orders that are executed on the COB with a 
Customer as the contra-party in Non-Penny Pilot Securities and would 
charge such orders a fee of $1.10 per contract.
---------------------------------------------------------------------------

    \11\ ``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). See the Exchange's Fee Schedule available at: 
https://markets.cboe.com/us/options/membership/fee_schedule/edgx/.
---------------------------------------------------------------------------

Other Non-Customer Pricing--Customer as Contra-Party
    Next, the Exchange proposes to adopt two fee codes for non-
Customer/non-Market Maker complex orders that trade on the COB against 
Customer orders, fee codes ZT and ZR. The origin codes included in the 
category of non-Customer/non-Market Maker include: Professional,\12\ 
Firm,\13\ Broker Dealer,\14\ Joint Back Office,\15\ and Away Market 
Maker.\16\
---------------------------------------------------------------------------

    \12\ ``Professional'' applies to any transaction identified by a 
Member as such pursuant to Exchange Rule 16.1. Id.
    \13\ ``Firm'' applies to any transaction identified by a Member 
for clearing in the Firm range at the OCC, excluding any Joint Back 
Office transaction. Id.
    \14\ ``Broker Dealer'' applies to any order for the account of a 
broker dealer, including a foreign broker dealer, that clears in the 
Customer range at the Options Clearing Corporation (``OCC''). Id.
    \15\ ``Joint Back Office'' applies to any transaction identified 
by a Member for clearing in the Firm range at the OCC that is 
identified with an origin code as Joint Back Office. A Joint Back 
Office participant is a Member that maintains a Joint Back Office 
arrangement with a clearing broker-dealer. Id.
    \16\ ``Away Market Maker'' applies to any transaction identified 
by a Member for clearing in the Market Maker range at the OCC, where 
such Member is not registered with the Exchange as a Market Maker, 
but is registered as a market maker on another options exchange. Id.
---------------------------------------------------------------------------

    As proposed, the Exchange would apply fee code ZT to non-Customer/
non-Market Maker complex orders that are executed on the COB with a 
Customer as the contra-party in Penny Pilot Securities and would charge 
such orders a fee of $0.50 per contract. The Exchange would apply fee 
code ZR to non-Customer/non-Market Maker complex orders that are 
executed on the COB with a Customer as the contra-party in Non-Penny 
Pilot Securities and would charge such orders a fee of $1.10 per 
contract. The Exchange notes that while the pricing for non-Customer/
non-Market Maker orders executed on the COB with Customer orders as 
contra-party is the same as that proposed for Market Maker orders 
executed on the COB with Customer orders as contra-party, the Exchange 
believes it is necessary to create different fee codes in order to 
maintain the ability to later differentiate such pricing, for instance 
to encourage Market Maker participate on the COB.
Non-Customer Pricing--Non-Customer as Contra-Party
    Finally, the Exchange proposes to adopt four fee codes to cover all 
transactions between non-Customers (including Market Makers) on the 
COB, fee codes ZF, ZG, ZH, and ZJ. In contrast to the fee codes 
described above, all of which involve a Customer

[[Page 54445]]

on one side of the transaction occurring on the COB, for non-Customer 
to non-Customer transactions (including transactions involving Market 
Makers), the Exchange proposes to vary fees depending on which party to 
the transaction added liquidity and which party to the transaction 
removed liquidity. As proposed, the Exchange would apply fee code ZF to 
non-Customer complex orders executed on the COB that add liquidity in 
Penny Pilot Securities and do not have a Customer contra-party, and 
would charge such orders a fee of $0.10 per contract. The Exchange 
would apply fee code ZG to non-Customer complex orders executed on the 
COB that remove liquidity in Penny Pilot Securities and do not have a 
Customer contra-party, and would charge such orders a fee of $0.47 per 
contract. The Exchange would apply fee code ZH to non-Customer complex 
orders executed on the COB that add liquidity in Non-Penny Pilot 
Securities and do not have a Customer contra-party, and would charge 
such orders a fee of $0.10 per contract. Last, the Exchange would apply 
fee code ZJ to non-Customer complex orders executed on the COB that 
remove liquidity in Non-Penny Pilot Securities and do not have a 
Customer contra-party, and would charge such orders a fee of $0.75 per 
contract.
Pricing for ``Leg'' Transactions
    As described in Rule 21.20, in addition to complex orders executing 
against other complex orders on the COB, complex orders will, in 
certain circumstances instead ``leg'' into the EDGX Options Simple Book 
\17\ and execute against interest resting on the Simple Book. In 
addition to the pricing proposed above, the Exchange proposes to adopt 
fee code ZD, which would be applicable to Customer complex orders that 
are not executed on the COB but instead leg into the Simple Book. The 
Exchange does not propose to assess a fee or provide any rebate for 
such orders. The Exchange notes that a Customer order on the Simple 
Book is currently provided a standard rebate of $0.05 per contract, 
subject to pricing incentives that may result in higher rebates.
---------------------------------------------------------------------------

    \17\ As defined in Rule 21.20, the Simple Book is the Exchange's 
regular electronic book of orders. The Exchange notes that it 
proposes to include this definition in proposed footnote 8 for 
clarity.
---------------------------------------------------------------------------

    Other than the proposed fee code specific to Customer complex 
orders that leg into the Simple Book, fee code ZD, as described above, 
the Exchange does not propose to adopt any specific pricing for complex 
orders that leg into the Simple Book. Instead, the Exchange proposes to 
apply standard pricing applicable to transactions on the Simple Book 
for complex orders that leg into the Simple Book. For instance, the 
Exchange currently applies fee code PT to Market Maker orders that 
remove liquidity from EDGX Options in Penny Pilot Securities and 
charges a standard fee of $0.19 per contract for such orders, subject 
to tiered pricing incentives offered by the Exchange as described in 
footnote 3 of the Fee Schedule. The Exchange proposes to apply fee code 
PT to Market Maker complex orders that leg into the Simple Book and 
remove liquidity and does not propose to change the pricing with 
respect to fee code PT. Accordingly, the Exchange proposes to state in 
proposed footnote 8 that with the exception of fee code ZD, standard 
fee codes shall apply for orders that leg into the Simple Book.
Other Changes
    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 8 to again summarize fees and rebates for 
complex orders in a table form that is organized differently in order 
to provide clarity to market participants. Footnote 8 would be 
organized similar to existing footnotes on the Fee Schedule and would 
first make clear that the footnote is applicable to the following 
twelve fee codes: ZA, ZB, ZC, ZD, ZM, ZN, ZT, ZR, ZF, ZG, ZH, and ZJ, 
and that the rates provided in the tables apply to executions on the 
Exchange's complex order book. The footnote would then re-state the 
fees applicable to complex orders, including the statement described 
above that other than fee code ZD, standard fee codes shall apply for 
orders that leg into the Simple Book as well as the proposed inclusion 
of the definition of the term ``Simple Book'' from Rule 21.20.
    The first proposed table would represent fees for an order that 
interacts with a Customer order with three rows for each origin code or 
set of origin codes that yields a different fee code when interacting 
with a Customer Order: (i) Customer; (ii) Market Maker; and (iii) 
Professional Customer (or ``Pro''), Firm, Broker Dealer (or ``BD''), 
Joint Back Office (or ``JBO''), and Away Market Maker. The table would 
then have four columns, first a pair of columns to provide the fee code 
and rate for Penny Pilot Securities and second a pair of columns to 
provide the fee code and rate for Non-Penny Pilot Securities.
    The second proposed table would represent fees for an order that 
interacts with a Non-Customer order with three rows for each origin 
code or set of origin codes that yields a different fee code when 
interacting with a Non-Customer Order, with the additional detail that 
for the two Non-Customer groupings the distinction is between an order 
that adds liquidity and an order that removes liquidity. Thus, the 
table would have the following rows: (i) Customer; (ii) Non-Customer 
Add; and (iii) Non-Customer Remove. The table would then again have 
four columns, first a pair of columns to provide the fee code and rate 
for Penny Pilot Securities and second a pair of columns to provide the 
fee code and rate for Non-Penny Pilot Securities.
    The fee codes and rates included in each table of proposed footnote 
8 are the same as proposed and described above but the Exchange 
believes that presenting them in a table format will assist market 
participants in understanding the rates applicable to executions on the 
COB.
Marketing Fees
    The Fee Schedule currently contains a section entitled ``Marketing 
Fees'' that specifies that marketing fees are charged to all Market 
Makers who are counterparties to a trade with a Customer. In connection 
with the adoption of fees applicable to complex orders, the Exchange 
proposes to specify that marketing fees shall not apply to executions 
of complex orders on the COB.
Implementation Date
    The Exchange proposes to implement the proposed changes 
immediately.\18\
---------------------------------------------------------------------------

    \18\ The Exchange initially filed the proposed rule changes on 
October 23, 2017 (SR-BatsEDGX-2017-42). On October 31, 2017 the 
Exchange withdrew SR-BatsEDGX-2017-42 and then subsequently 
submitted this filing (SR-BatsEDGX-2017-48).
---------------------------------------------------------------------------

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.\19\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\20\ 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

[[Page 54446]]

which the Exchange operates or controls.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange's proposal establishes fees and rebates regarding 
complex orders, which is new functionality adopted by the Exchange.\21\ 
The Exchange's launch of a complex order book is a competitive 
offering, and believes that its proposed pricing will allow the 
Exchange to recoup the costs associated with developing the COB while 
also incentivizing its use.
---------------------------------------------------------------------------

    \21\ See supra, note 6.
---------------------------------------------------------------------------

    In sum, the Exchange believes that the proposed fee and rebate 
structure is designed to promote the entry of complex orders to the 
Exchange 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 complex order 
transactions is reasonable, equitable, and not unfairly discriminatory 
because these types of market participants are more 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 the COB, which is beneficial to market 
participants.
    With respect to the proposal to adopt a rebate for Customer orders 
that interact with non-Customer orders on the COB, the Exchange 
believes this is reasonable because it encourages participation on the 
COB by entry of Customer orders to the Exchange. The rebate for 
Customer complex orders is designed to encourage Customer orders 
entered into the Exchange, which is reasonable for the reasons further 
discussed below. The proposed fees for Market Maker orders and other 
non-Customer complex orders that trade with Customer orders are also 
reasonable because the associated revenue will allow the Exchange to 
promote and maintain the COB, and continue to enhance its services.
    Providing Customers a rebate for complex orders, while assessing 
Non-Customers a fee for complex orders, is reasonable because of the 
desirability of Customer activity. The proposed new fees and rebates 
for complex orders 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.\22\ The 
proposed fee and rebate schedule similarly attracts Customer order 
flow. Other competing exchanges offer different fees and rebates for 
orders executed on behalf of different market participants (i.e., 
orders with different origin codes).\23\ Other competing exchanges also 
charge different rates for transactions on their complex order books 
for customers versus their non-customers in a manner similar to the 
proposal, including the provision of rebates to customers.\24\
---------------------------------------------------------------------------

    \22\ See the Exchange's Fee Schedule, available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule.
    \23\ Id.
    \24\ Id.
---------------------------------------------------------------------------

    The fee and rebate schedule as proposed continues to reflect 
differentiation among different market participants typically found in 
options fee and rebate schedules.\25\ 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.\26\ 
Further, all Market Makers are designated as specialists on EDGX 
Options for all purposes under the Act or rules thereunder.\27\
---------------------------------------------------------------------------

    \25\ Id; see also, e.g., MIAX Fee Schedule, NYSE Amex Options 
Fee Schedule, BX Options Fee Schedule and Nasdaq Options Market Fee 
Schedule.
    \26\ See Exchange Rule 22.5, entitled ``Obligations of Market 
Makers''.
    \27\ See Exchange Rule 22.2, entitled ``Options Market Maker 
Registration and Appointment''.
---------------------------------------------------------------------------

    Establishing a rebate for Customer orders and a fee for Non-
Customer Orders is also 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 complex 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 complex 
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.
    Similarly, the Exchange believes that fees include different rates 
for Penny Pilot Securities and Non-Penny Pilot Securities is well-
established in the options industry, including on the Exchange's 
current fee schedule.\28\ The Exchange believes it is reasonable, 
equitably allocated and non-discriminatory to impose higher fees and 
provide higher rebates in Non-Penny Pilot Securities than Penny Pilot 
Securities because Penny Pilot Securities and Non-Penny Pilot 
Securities have different liquidity, spread and trading 
characteristics. In particular, spreads in Penny Pilot Securities are 
tighter than those in Non-Penny Pilot Securities (which trade in 
increments of $0.05 or greater). The wider spreads in Non-Penny Pilot 
Securities allow for greater profit potential.
---------------------------------------------------------------------------

    \28\ See the Exchange's Fee Schedule, available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, NYSE Amex Options Fee Schedule.
---------------------------------------------------------------------------

    With respect to the fees applicable to non-Customer complex orders, 
the Exchange believes the proposed fees are reasonable and equitably 
allocated as they are similar to fees charged on the Exchange for 
certain other orders executed, such as orders executed through the Bats 
Auction Mechanism (``BAM''), and on other options exchanges, and 
because the associated revenue will allow the Exchange to maintain and 
enhance its services. The proposed fees are not unreasonably 
discriminatory as compared to Customer orders for the reasons described 
above, and vis-[agrave]-vis other non-Customers

[[Page 54447]]

because all types of non-Customers will be charged identical fees as 
proposed.
    The Exchange also believes the proposed fees are reasonable, 
equitably allocated and not unreasonably discriminatory despite a 
proposed distinction between fees for non-Customer complex orders that 
add liquidity and those that remove liquidity. The Exchange currently 
applies this distinction to Market Maker orders on the Simple Book, and 
this pricing structure, the ``make-take'' pricing structure, is common 
on other options exchanges as well.\29\ The make-take pricing structure 
is designed to incentivize market participants to provide liquidity on 
an exchange, and such liquidity in turn, benefits all market 
participants. Thus, the proposal to charge a higher rate to Non-
Customer orders that remove liquidity than those that add liquidity is 
reasonable, equitably allocated and not unreasonably discriminatory 
despite a proposed distinction between orders that add liquidity and 
those that remove liquidity.
---------------------------------------------------------------------------

    \29\ See the Exchange's Fee Schedule, available at: https://markets.cboe.com/us/options/membership/fee_schedule/edgx/; see also, 
e.g., MIAX Fee Schedule, BX Options Fee Schedule and Nasdaq Options 
Market Fee Schedule.
---------------------------------------------------------------------------

    With respect to the Customer against Customer transactions, 
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. Similarly, 
providing that Customer orders that leg into the Simple Book will be 
executed without application of any fee and rebate is reasonable, 
equitably allocated, and not unreasonably discriminatory because it 
provides fee certainty to Customer orders, as such orders are 
guaranteed to either pay no fee or to receive a rebate, again 
encouraging the entry of Customer orders to the Exchange.
    In connection with the adoption of fees applicable to complex 
orders, the Exchange proposes to modify the description of Marketing 
Fees applicable on the Exchange to make clear that such fees do not 
apply to complex orders. The Exchange believes this proposal is a 
reasonable and equitable allocation of fees and dues and is not 
unreasonably discriminatory because the proposed initial rates for 
Market Makers on the complex order book are designed to be consistent 
with pricing with other non-Customers and adding an additional 
marketing fee to Market Maker transactions would instead increase such 
rates to a level higher than that paid by other non-Customers.

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 pricing for complex orders 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 complex orders.
    The Exchange's proposal to adopt complex order functionality was a 
competitive response to complex order books operated by other options 
exchanges. The Exchange believes this proposed rule change is necessary 
to permit fair competition among the options exchanges. The Exchange 
anticipates that the COB will create new opportunities for EDGX to 
attract new business to the Exchange. While the proposed fees and 
rebates are intended to attract participation on the Exchange, 
particularly complex orders, the Exchange does not believe that its 
proposed pricing significantly departs from pricing in place on other 
options exchanges that accept complex orders. 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 complex 
orders 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 
consistently in recent years. 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 complex orders do not impose a 
burden on competition because the Exchange's execution 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 the COB. 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 the COB, which has the 
potential to result in efficient 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

[[Page 54448]]

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.
    As noted above, while the Exchange has proposed to establish 
different fee codes for Market Maker complex orders that interact with 
Customer orders on the COB and other non-Customer complex orders that 
interact with Customer orders on the COB, the Exchange has not proposed 
to differentiate the pricing applicable to these fee codes at this 
time.

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 \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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 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 [email protected]. Please include 
File Number SR-BatsEDGX-2017-48 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-2017-48. 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsEDGX-2017-48, and should 
be submitted on or before December 8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24929 Filed 11-16-17; 8:45 am]
 BILLING CODE 8011-01-P