Document ID: SEC-2017-0771-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Bats BZX Exchange, Inc.
Posted Date: 2017-05-15T04:00Z

[Federal Register Volume 82, Number 92 (Monday, May 15, 2017)]
[Notices]
[Pages 22368-22370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09712]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80629; File No. SR-BatsBZX-2017-29]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use on the Exchange's Equity Options Platform

May 9, 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 May 1, 2017, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 BZX Rules 
15.1(a) and (c).
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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.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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its fee schedule for its equity 
options platform (``BZX Options'') to: (i) Decrease the standard rebate 
provided by fee code PF; and (ii) amend certain (A) Customer Penny 
Pilot Add Tiers under footnote 1; (B) Quoting Incentive Program 
(``QIP'') Tiers under footnote 5; and (C) Customer Non-Penny Pilot Add 
Volume Tiers under footnote 12.
Fee Code PF
    Currently, fee code PF provides a standard rebate of $0.26 per 
contract for Firm,\6\ Broker Dealer \7\ and Joint Back Office \8\ 
orders that add liquidity on the Exchange in Penny-Pilot securities.\9\ 
The Exchange proposes to reduce this srebate [sic] to $0.25 per 
contract. The Exchange also proposes to update the Standard Rates table 
accordingly to reflect new rate.
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    \6\ ``Firm'' applies to any transaction identified by a Member 
for clearing in the Firm range at the OCC, excluding any Joint Back 
Office transaction. See the Exchange's fee schedule available at 
http://www.bats.com/us/options/membership/fee_schedule/bzx/.
    \7\ ``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.
    \8\ ``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.
    \9\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01. Id.
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Customer Penny Pilot Add Tiers
    The Exchange currently offers seven Customer \10\ Penny Pilot Add 
Tiers under footnote 1, which provide an enhanced rebate ranging from 
$0.40 to $0.53 per contract for qualifying Customer orders that add 
liquidity in Penny Pilot Securities and yield fee code PY. The Exchange 
now proposes to modify Tier 3' [sic] required criteria and rebateas 
[sic] well as to add new Tier 7.
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    \10\ ``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. Id.
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     Currently under Tier 3, a Member may receive a rebate of 
$0.50 per contract where they have an ADV \11\ greater than or equal to 
1.30% of average OCV.\12\ As amended, a Member may receive a rebate of 
$0.51 per contract where they have an: (i) ADAV \13\ in Customer orders 
greater than or equal to 0.50% of average OCV; and (ii) ADAV in Market 
Maker \14\ orders greater than or equal to 2.75% of average OCV.
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    \11\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day. See the Exchange's 
fee schedule available at http://www.bats.com/us/options/membership/fee_schedule/bzx/.
    \12\ ``OCV'' means the total equity and ETF options volume that 
clears in the Customer range at the Options Clearing Corporation 
(``OCC'') for the month for which the fees apply, excluding volume 
on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close. Id.
    \13\ ``ADAV'' means average daily added volume calculated as the 
number of contracts added and ``ADV'' means average daily volume 
calculated as the number of contracts added or removed, combined, 
per day. Id.
    \14\ ``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). Id.
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     Under proposed Tier 7, a Member would receive a rebate of 
$0.53 per contract where they have an: (i) ADAV in Customer orders 
greater than or equal to 0.50% of average OCV; (ii) ADAV in Market 
Maker orders greater than or equal to 2.75% of average OCV; and (iii) 
ADAV in Firm orders in Non-Penny Pilot Securities greater than or equal 
to 0.05% of average OCV.
QIP Tiers
    The Exchange currently offers four QIP Tiers under footnote 5, 
which provide an additional rebate ranging from $0.02 to $0.05 per 
contract for qualifying Market Maker orders that add liquidity in: (i) 
Penny Pilot Securities that yield fee code PM and; (ii) Non-Penny Pilot 
Securities that yield fee code NM. The additional rebate per contract 
is for an order that adds liquidity to the BZX Options in options 
classes in which a Member is a Market Maker registered pursuant to 
Exchange Rule 22.2. A Market Maker must be registered with BZX Options 
in an average of 20% or more of the

[[Page 22369]]

associated options series in a class in order to qualify for QIP 
rebates for that class. The Exchange now proposes to delete the current 
Tier 2 and to decrease the rebate Tier 3 and renumber it as Tier 2.
     Under the current Tier 2, a Member may receive an 
additional rebate of $0.04 per contract where they have an ADV greater 
than or equal to 1.30% of average OCV. The Exchange proposes to delete 
Tier 2.
     Under Tier 3, a Member may receive an additional rebate of 
$0.05 per contract where they have an ADV in greater than or equal to 
3.25% of average OCV. The Exchange proposes to decrease the rebate 
provided by Tier 3 from $0.05 per contract to $0.04 per contract. The 
Exchange also proposes to renumber Tier 3 as Tier 2 to reflect the 
above deletion of the current Tier 2.\15\
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    \15\ The Exchange also proposes to renumber Tier 4 as Tier 3 to 
reflect the above deletion of the current Tier 2.
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Customer Non-Penny Pilot Add Volume Tiers
    The Exchange currently offers two Customer Non-Penny Pilot Add 
Volume Tiers under footnote 12, which provide an enhanced rebate of 
$1.00 or $1.05 per contract for qualifying Customer orders which add 
liquidity in Non-Penny Pilot Securities and yield fee code NY. The 
Exchange proposes to add two new Customer Non-Penny Pilot Add Volume 
Tiers under footnote 12.
     Under the newly proposed Tier 1, a Member would receive a 
rebate of $0.92 per contract where they have an: (i) ADAV in Customer 
orders greater than or equal to 0.50% of average OCV; and (ii) ADAV in 
Market Maker orders greater than or equal to 2.75% of average OCV. In 
connection with this change, the Exchange proposes to renumber current 
Tier 1 as Tier 2.. [sic] The Exchange also proposes to update the 
Standard Rates table accordingly to reflect new rebate.
     Under the newly proposed Tier 3, a Member may receive a 
rebate of $1.02 per share where they have an: (i) ADAV in Customer 
orders greater than or equal to 0.50% of average OCV; (ii) an ADAV in 
Market Maker orders greater than or equal to 2.75% of average OCV; and 
(iii) an ADAV in Firm, Non-Penny orders greater than or equal to 0.05% 
of average OCV. In connection with this change and the addition of new 
Tier 1 described above, the Exchange proposes to renumber current Tier 
2 as Tier 4.. [sic] The Exchange also proposes to update the Standard 
Rates table accordingly to reflect new rebate.
Implementation Date
    The Exchange proposes to implement the above changes to its fee 
schedule on May 1, 2017.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of Section 6 of the Act,\16\ in general, and 
furthers the objectives of Section 6(b)(4),\17\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and other persons using its 
facilities. The Exchange also notes that it operates in a highly-
competitive market in which market participants can readily direct 
order flow to competing venues if they deem fee levels at a particular 
venue to be excessive or incentives to be insufficient. The proposed 
rule changes reflect a competitive pricing structure designed to 
incentivize market participants to direct their order flow to the 
Exchange.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4).
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Fee Codes PF
    The Exchange believes that its proposal to reduce the rebate 
provided by fee code PF is fair and equitable and reasonable because 
the proposed rebate remains consistent with pricing previously offered 
by the Exchange as well as its competitors and does not represent a 
significant departure from the Exchange's general pricing structure. 
Specifically, the lower rebate to $0.25 per contract for Firm, Broker 
Dealer and Joint Back Office orders which add liquidity in Penny Pilot 
Securities under fee code PF is identical to NYSE Arca, Inc. (``NYSE 
Arca''), which provides a standard rebate of $0.25 per contract for 
similar orders.\18\ Lastly, the proposed change to fee code PF is not 
unfairly discriminatory because it will apply equally to all Members.
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    \18\ See the NYSE Arca fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
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Tier Modifications
    The Exchange believes that the proposed modifications to the tiered 
pricing structure are reasonable, fair and equitable, and non-
discriminatory. The Exchange operates in a highly competitive market in 
which market participants may readily send order flow to many competing 
venues if they deem fees at the Exchange to be excessive or incentives 
provided to be insufficient. The proposed structure remains intended to 
attract order flow to the Exchange by offering market participants a 
competitive pricing structure. The Exchange believes it is reasonable 
to offer and incrementally modify incentives intended to help to 
contribute to the growth of the Exchange.
    Volume-based pricing such as that proposed herein have been widely 
adopted by exchanges, including the Exchange, 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: (i) The value to 
an exchange's market quality; (ii) associated higher levels of market 
activity, such as higher levels of liquidity provisions and/or growth 
patterns; and (iii) introduction of higher volumes of orders into the 
price and volume discovery processes. In particular, the proposed 
changes to footnotes 1, 5, and 12 are intended to further incentivize 
Members to send increased order flow to the Exchange in an effort to 
qualify for the enhanced rebates made available by the tiers, in turn 
contributing to the growth of the Exchange. The proposed changes to the 
tiered pricing structure are not unfairly discriminatory because they 
will apply equally to all Members.
    Lastly, the Exchange believes that eliminating Tier 2 under 
footnote 5 is reasonable, fair, and equitable because this tier was not 
providing the desired result of incentivizing Members to increase their 
participation on the Exchange. As such, the Exchange also believes that 
the proposed elimination of this tier would be non-discriminatory in 
that it currently applies equally to all Members and, upon elimination, 
would no longer be available to any Members. Further, its elimination 
could allow the Exchange to explore other pricing mechanisms such as 
those described herein, in which it may enhance market quality for all 
Members.

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

    The Exchange believes the proposed amendment to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed changes represent a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Additionally, Members may opt to 
disfavor the Exchange's pricing if they believe that alternatives offer 
them better value. Accordingly, the Exchange does not believe that the 
proposed changes will impair the ability of Members or competing venues 
to

[[Page 22370]]

maintain their competitive standing in the financial markets. The 
Exchange does not believe that the proposed changes to the Exchange's 
standard fees, rebates and tiered pricing structure burdens 
competition, but instead, enhances competition as it is intended to 
increase the competitiveness of 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.

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 \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-BatsBZX-2017-29 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-BatsBZX-2017-29. 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-BatsBZX-2017-29 and should 
be submitted on or before June 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09712 Filed 5-12-17; 8:45 am]
BILLING CODE 8011-01-P