Document ID: SEC-2015-0913-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2015-05-28T04:00Z

[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Notices]
[Pages 30511-30514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12830]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75024; File No. SR-BX-2015-029]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Penny Pilot Options Fees and Rebates

May 21, 2015.
    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 May 11, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, entitled ``Options 
Pricing'' and Section 2, entitled ``Options Market--Fees and Rebates''. 
Specifically, the Exchange proposes to: (1) Decrease the Fee to Add 
Liquidity in Penny Pilot Options; \3\ (2) decrease the Rebate to Remove 
Liquidity in Penny Pilot Options; and (3) delete the Monthly Volume 
Tiers that apply to Lead Market Makers.
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    \3\ Penny Pilot Options are options that quote and trade 
pursuant to the Penny Pilot, an industry-wide program. The Penny 
Pilot was established on the Exchange in June 2012 and last extended 
in December 2014. See Securities Exchange Act Release Nos. 67256 
(June 26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) (order 
approving BX option rules and establishing Penny Pilot); and 73689 
(November 25, 2014), 79 FR 71488 (December 2, 2014) (SR-BX-2014-057) 
(notice of filing and immediate effectiveness extending the Penny 
Pilot through June 30, 2015).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for

[[Page 30512]]

the proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend Chapter XV, 
Section 2. Specifically, the Exchange proposes to: (1) Decrease the Fee 
to Add Liquidity in Penny Pilot Options for Customers \4\ and BX 
Options Market Makers;\5\ (2) decrease the Rebate to Remove Liquidity 
in Penny Pilot Options for Customers; and (3) delete the Monthly Volume 
Tiers (``Tiers'') that apply to Lead Market Makers (``LMMs'', also 
known as ``BX LMMs'') \6\ when adding liquidity in Penny Pilot Options 
and contra to a Customer.\7\
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    \4\ The term ``Customer'' means a Public Customer or a broker-
dealer, and the term ``Public Customer'' means a person that is not 
a broker or dealer in securities. See Chapter I, Section 1(a)(22) 
and 1(a)(50).
    \5\ The term ``BX Options Market Maker'' means an Options 
Participant registered with the Exchange for the purpose of making 
markets in options contracts traded on the Exchange and that is 
vested with the rights and responsibilities specified in Chapter VII 
of these Rules. See Chapter I, Section 1(a)(9). For discussion 
regarding Market Maker quotations, see Chapter VII, Section 6.
    \6\ The term ``Lead Market Maker'' or ``LMM'' applies to a 
registered BX Options Market Maker that is approved pursuant to 
Chapter VII, Section 13 to be the LMM in an options class (options 
classes). See also Securities Exchange Act Release No. 72883 (August 
20, 2014), 79 FR 50971 (August 26, 2014) (SR-BX-2014-035) (order 
approving introduction of LMMs on BX).
    \7\ Fees and rebates may together also be referred to as ``fees/
rebates'' or ``rates''.
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Fees and Rebates for Penny Pilot Options

    The Penny Pilot, established on the Exchange in 2012, allows 
options to quote and trade in penny increments. The Exchange's options 
pricing for execution of contracts on the BX Options Market has a 
separate section for fees and rebates for Penny Pilot Options.
    Currently, Section 2(1) of Chapter XV reflects Penny Pilot Options 
fees and rebates for Penny Pilot Options for Customer, BX Options 
Market Maker, and Non Customer \8\ as follows:
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    \8\ A Non-Customer includes a Professional, Firm, Broker-Dealer 
and Non-BX Options Market Maker.

                                                Fees and Rebates
                                             [Per executed contract]
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                                                                                    BX Options     Non- Customer
                                                                     Customer      Market Maker         \1\
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Penny Pilot Options:
    Rebate to Add Liquidity.....................................       \2\ $0.00       \2\ $0.10             N/A
    Fee to Add Liquidity........................................        \3\ 0.40      \3 4\ 0.40           $0.45
    Rebate to Remove Liquidity..................................            0.35             N/A             N/A
    Fee to Remove Liquidity.....................................             N/A            0.46            0.46
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    There is also one note applicable to the Fee to Add Liquidity for 
BX Options Market Makers section that does not change.\9\
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    \9\ Unchanged note 3 is as follows. The Fee to Add Liquidity 
will be assessed to a Customer or BX Options Market Maker only when 
the Customer or BX Options Market Maker is contra to a Customer. As 
discussed, the Exchange proposes to delete note 4, which is 
currently applicable to the Fee to Add Liquidity for BX Options 
Market Makers section.
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    The Exchange proposes to decrease by a penny the Fee to Add 
Liquidity in Penny Pilot Options for Customers and BX Options Market 
Makers, and to decrease by a penny the Rebate to Remove Liquidity in 
Penny Pilot Options for Customers.\10\ As a result, the fees for adding 
such liquidity will be the same for all Customers and BX Options Market 
Makers (as well as LMMs); and the rebates for removing such liquidity 
will be the same for all Customers. Thus, as a result of this filing 
the Fee to Add Liquidity in Penny Pilot Options for Customers and BX 
Options Market Makers will decrease to $0.39 (previously $0.40) per 
executed contract, but only when the Customer or BX Options Market 
Maker is contra to a Customer. And, as a result of this proposal, the 
Rebate to Remove Liquidity in Penny Pilot Options for Customers will 
decrease to $0.34 (previously $0.35) per executed contract, regardless 
of the contra party. The proposed fee and rebate structure will 
continue to incentivize adding liquidity on BX.
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    \10\ There continues to be no Rebate to Remove Liquidity in 
Penny Pilot Options available for BX Options Market Makers.
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    In addition to reducing the fee and rate schedule as discussed, the 
Exchange also proposes to delete note 4, which is applicable to the Fee 
to Add Liquidity in Penny Pilot Options for BX Options Market Makers 
only. Note 4, which applies to LMMs in their specifically allocated 
options classes when adding liquidity and contra to a Customer, 
currently indicates fees of $0.40, $0.38, and $0.37 depending on 
Monthly Volume Tier A, B, and C thresholds, respectively.\11\ Thus, as 
a result of the deletion of note 4, LMMs would incur, like BX Options 
Market Makers, a Fee to Add Liquidity in Penny Pilot Options of $0.39 
(previously $0.40) per executed contract. The Exchange believes that 
the current, more complex Tier structure applicable to LMMs is no 
longer needed in light of the proposed reduction of the fee and rebate, 
which continues to incentivize bringing Penny Pilot Options liquidity 
to BX. The Exchange believes that having the same fees and rebates 
across the board for all Penny Pilot Options will, as discussed, 
incentivize BX Options Market Makers and Customers to interact with a 
greater number of Penny Pilot Options orders on the Exchange.
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    \11\ Per note 4, the Tier A threshold is Total Volume up to 
0.20% of total industry customer equity and ETF option average daily 
volume (``ADV'') contracts per day; the Tier B threshold is Total 
Volume above 0.20% to 0.30%; and the Tier C threshold is Total 
Volume of 0.31% or more. ``Total Volume'' is defined in note 4 as 
Customer, BX Options Market Marker, LMM, and Non-Customer volume in 
Penny Pilot Options and/or Non-Penny Pilot Options which either adds 
or removes liquidity on BX Options. For purposes of determining 
Monthly Volume Tiers, any day that the market is not open for the 
entire trading day will be excluded from such calculation.
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    The Exchange believes that the proposed changes are consistent with 
the Act and raise no novel issues.

[[Page 30513]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. BX operates in an intensely 
competitive environment and seeks to offer the same services that its 
competitors offer and in which its customers find value.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that applying the same fees to add liquidity 
for Customers and BX Options Market Makers in all Penny Pilot Options, 
and applying the same rebates to remove liquidity for Customers in all 
Penny Pilot Options, promotes just and equitable principles of trade, 
and fosters cooperation and coordination with persons engaged in 
facilitating transactions in Penny Pilot Options. As a result, the fees 
for adding such liquidity will be the same for all Customers and BX 
Options Market Makers (as well as LMMs); and the rebates for removing 
such liquidity will be the same for all Customers.
    The proposed rule change also protects investors and the public 
interest and seeks to establish and promote just and equitable 
principles of trade by creating more uniformity and consistency related 
to fees and rebates for Penny Pilot Options. The Exchange believes that 
the proposal will not diminish, and in fact may increase, market making 
activity on the Exchange by ensuring fees and rebates that are 
reasonable and provide incentive for trading Penny Pilot Options on the 
Exchange. With this proposal, the same fees for adding Penny Pilot 
Options liquidity will be applicable for Customers and BX Options 
Market Makers; and the same rebates for removing Penny Pilot Options 
liquidity will be applicable for Customers.
    The proposal to moderately decrease the Fee to Add Liquidity in 
Penny Pilot Options and the Rebate to Remove Liquidity in Penny Pilot 
Options, and to delete the Tiers that apply to LMMs, is reasonable, 
equitable, and not unfairly discriminatory.
Fees and Rebates for Penny Pilot Options
    The Exchange's proposal to decrease the Customer and BX Options 
Market Maker Fee for Removing Liquidity in Penny Pilot Options from 
$0.40 to $0.39, and to decrease the Customer Rebate for Removing 
Liquidity in Penny Pilot Options from $0.35 to $0.34 per contract, is 
reasonable because it will continue to incentivize bringing Penny Pilot 
Options liquidity to the Exchange. This should benefit all market 
participants through increased liquidity and order interaction. The 
Exchange believes that the proposed fee/rebate change will incentivize 
market participants to select the Exchange as a venue to post liquidity 
and attract additional order flow to the benefit of all market 
participants. Increased liquidity provides more trading opportunities, 
which attracts other market participants, including market makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Moreover, in constructing the Exchange's fee and rebate program, the 
Exchange aims to remain competitive with other venues so that it is a 
superior choice for market participants.
    The Exchange believes that its proposal to decrease the Customer 
and BX Options Market Maker Fee for Removing Liquidity in Penny Pilot 
Options from $0.40 to $0.39, and to decrease the Customer Rebate for 
Removing Liquidity in Penny Pilot Options from $0.35 to $0.34 per 
contract, is equitable and not unfairly discriminatory because the 
Exchange will assess the fees and rebates uniformly to all members 
[sic], as applicable regardless of activity level. The fees for adding 
Penny Pilot Options liquidity will be the same for all Customers and BX 
Options Market Makers; and the rebates for removing Penny Pilot Options 
liquidity will be the same for all Customers.
    The Exchange will continue to assess all Non-Customers a higher 
$0.45 fee to Add Liquidity in Penny Pilot Options. The Exchange 
believes that this is equitable and not unfairly discriminatory. The 
proposed differentiation between BX Options Market Makers and other 
market participants such as Non-Customers recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. BX Options Market Makers, unlike 
other market participants, have obligations to the market and 
regulatory requirements,\14\ which normally do not apply to other 
market participants. A BX Options Market Maker has the obligation to 
make continuous markets, engage in course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with such course of dealings. On the other hand, Non-
Customers, including Professionals, Firms, Broker-Dealers and Non-BX 
Options Market Makers, do not have such obligations on the Exchange.
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    \14\ Chapter VII, Section 5 indicates that in registering as a 
Market Maker, an Options Participant commits himself to various 
obligations. Transactions of a Market Maker in its market making 
capacity 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. 
Further, all such Market Makers are designated as specialists on BX 
for all purposes under the Act or rules thereunder. See Chapter VII, 
Sections 5 and 6.
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    The Exchange further believes that is reasonable to delete the 
Tiers applicable to LMMs in respect of the Rebate to Remove Liquidity 
in Penny Pilot Options. The Exchange believes that in light of the 
proposed reduced fees/rebates discussed herein the Tiers are no longer 
necessary to incentivize LMMs to provide liquidity. The Exchange 
believes that under such circumstances it is reasonable and desirable 
to treat all uniformly in terms of the rates, as discussed.\15\
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    \15\ Unlike Customers, BX Options Market Makers and Non-
Customers continue not being eligible for any Rebate to Remove 
Liquidity in Penny Pilot Options.
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    The Exchange believes that its proposal to delete the Tiers 
applicable to LMMs is equitable and not unfairly discriminatory because 
the Exchange will assess the fees and rebates uniformly to all members 
[sic], as applicable.
    The Exchange operates in a highly competitive market, comprised of 
twelve exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange, as described in the proposal, are influenced by these robust 
market forces and therefore must remain competitive with fees charged 
and rebates paid by other venues; that is, the Exchange's fees and 
rebates must continue to be reasonable and equitably allocated to those 
members that opt to

[[Page 30514]]

direct orders to the Exchange rather than competing venues.

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

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. To the contrary, BX has designed its fees and rebates to 
compete effectively for the execution and routing of Penny Pilot 
Options contracts on the Exchange.
    The Exchange believes that the proposed amended fees and rebates 
will attract market participants and BX Options Market Makers to engage 
in market making activities at the Exchange, which results in tighter 
markets and order interaction and benefits all market participants. 
Moreover, BX Options Market Makers have obligations to the market and 
regulatory requirements, which normally do not apply to other market 
participants.\16\ While BX Options Market Makers will continue to pay a 
Fee to Add Liquidity in all Penny Pilot Options that will not be higher 
than for Customers, Customers will pay a fee which is lower than that 
assessed to Non-Customers. The Exchange believes that this does not 
present an undue burden on competition because the pricing seeks to 
reward liquidity providers, which in turn benefits all market 
participants.
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    \16\ In registering as a BX Options Market Maker, an Options 
Participant commits himself to various obligations. See Chapter VII, 
Sections 5 and 6.
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    The Exchange believes the proposals discussed herein do not pose an 
undue burden on intermarket competition. The Exchange operates in a 
highly competitive market comprised of twelve U.S. options exchanges in 
which sophisticated and knowledgeable market participants can and do 
send order flow to competing exchanges if they deem fee levels at a 
particular exchange to be excessive. The Exchange believes that the 
proposed fee and rebate scheme discussed herein is competitive. The 
Exchange believes that this competitive marketplace materially impacts 
the fees and rebates present on the Exchange today and substantially 
influences the proposal set forth above.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\17\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2015-029 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-BX-2015-029. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BX-2015-029 and should be 
submitted on or before June 18, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12830 Filed 5-27-15; 8:45 am]
 BILLING CODE 8011-01-P