Document ID: SEC-2013-2223-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Topaz Exchange, LLC
Posted Date: 2013-12-26T05:00Z

[Federal Register Volume 78, Number 248 (Thursday, December 26, 2013)]
[Notices]
[Pages 78447-78450]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30770]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71149; File No. SR-Topaz-2013-16]

Self-Regulatory Organizations; Topaz Exchange, LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees

December 19, 2013.
    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 December 16, 2013, the Topaz Exchange, LLC (d/b/a ISE Gemini) 
(the ``Exchange'' or ``Topaz'') 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 self-
regulatory organization. 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 the 
Substance of the Proposed Rule Change

    Topaz is proposing to amend its Schedule of Fees to adopt various 
membership and other non-transaction fees, and to add clarifying 
language related to fees charged for Priority Customer orders executed 
during the opening rotation. The text of the proposed rule change is 
available on the Exchange's Internet Web site at http://www.ise.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 the 
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 self-regulatory organization 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule filing is to amend the Schedule of 
Fees to adopt various membership and other non-transaction fees, and to 
add clarifying language related to fees charged for Priority Customer 
orders executed during the opening rotation. The proposed non-
transaction fees include membership application fees, access and CMM 
trading right fees, network and gateway fees, session fees, and 
regulatory fees. Each of the non-transaction fees is being waived until 
January 1, 2014. The Exchange is filing these fees now to give advance 
notice to its Members.
Membership Application Fees
    The Exchange is proposing to assess a one-time application fee 
based upon the applicant's status as a Primary Market Makers (``PMM''), 
Competitive Market Maker (``CMM''), or Electronic Access Member 
(``EAM''). Applicants for Topaz membership will be assessed a one-time 
application fee of $3,000 per firm for PMMs, $2,000 per firm for CMMs, 
or $1,500 per firm for EAMs. The higher fee charged for PMMs and CMMs, 
compared to the fee for EAMs, reflects the additional review and 
processing effort needed for market maker applications, and 
particularly PMM applications, which require the most Exchange 
resources of the three types of membership applications. As this fee is 
being waived until January 1, 2014, applicants for Topaz membership 
that have already applied for membership, and those that apply for 
membership before January 1, 2014, will not be assessed a fee for their 
applications.
Access & CMM Trading Right Fees
    Under the proposed fee change, Members will also be required to pay 
a monthly access fee starting January 2014. In particular, the Exchange 
is proposing to charge EAMs and PMMs a monthly access fee [sic] $200 
for each membership, while CMMs will pay $100 per month for each 
membership.\3\

[[Page 78448]]

Payment of the proposed monthly access fee will entitle Members to 
trade on the Exchange as a PMM, CMM, or EAM based on their membership 
type. In order to receive appointments to quote in options classes, 
CMMs will also be required to pay for CMM trading rights. CMM trading 
rights entitle a CMM to enter quotes in options symbols that comprise a 
certain percentage of industry volume. A CMM's first trading right 
entitles that CMM to quote in 20 percent of volume, and each subsequent 
right provides the ability to quote an additional 10 percent of 
volume.\4\ In order to encourage CMMs to quote on the Exchange, Topaz 
launched without any fees associated with obtaining CMM trading rights, 
allowing CMMs to freely quote in all options classes. We are now 
proposing to adopt a monthly CMM trading right fee. Under the proposed 
fee structure, the first CMM trading right obtained by a CMM will cost 
$850 per month, and will entitle the CMM to quote in 20 percent of 
volume. Each additional CMM trading right obtained will cost $500 per 
month, and will entitle the CMM to quote an additional 10 percent of 
volume.
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    \3\ In the case where a single member firm has multiple Topaz 
memberships, the monthly access fee is charged for each membership. 
For example, if a single member firm is both an EAM and a CMM, or 
owns multiple CMM memberships, the firm is subject to the access fee 
for each of those memberships.
    \4\ See Topaz Rule 804(c) [sic] for a complete description of 
Topaz trading rights. CMMs can select the options classes to which 
they seek appointment, but the Exchange retains the authority to 
make such appointments and to remove appointments from CMMs based on 
their performance.
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Network & Gateway Fees
    The Exchange is proposing to charge Members and non-Members certain 
network and gateway fees as described in more detail below. The 
Exchange offers four different Ethernet connection options: a 1 Gigabit 
(``Gb'') connection, a 10 Gb connection, a 10 Gb low latency 
connection, and a 40 Gb low latency connection.\5\ In addition, the 
Exchange offers both shared and dedicated gateways to facilitate Member 
access to the Exchange. While Topaz launched without connectivity or 
gateway fees in order to attract order flow to Exchange, the Exchange 
now proposes to charge fees for these connectivity and gateway options. 
In particular, the Exchange will charge a connectivity fee of $500 per 
month for a 1 Gb connection, $4,000 per month for a 10 Gb connection, 
$7,000 per month for a 10 Gb low latency connection, and $12,500 for a 
40 Gb low latency connection. With respect to gateway fees, the 
Exchange proposes to charge a monthly fee of $250 per shared gateway, 
and $2,000 per dedicated gateway pair for Members that elect to use 
their own dedicated gateways as an alternative to using shared 
gateways.\6\ The Exchange notes that these proposed fees are the same 
as fees charged by the International Securities Exchange, LLC 
(``ISE''),\7\ as the network and gateway options provide connectivity 
to both Topaz and the ISE. Market participants that connect to Topaz 
and the ISE will be able to access both exchanges for a single fee for 
each of the listed connectivity options.
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    \5\ The low latency connections are available to Members only, 
whereas the regular connections are available to both Members and 
non-Members.
    \6\ While the shared gateways provide for full redundancy and 
the same latency, these Members nevertheless desire their own 
dedicated gateways as a risk management alternative. For redundancy 
and load balancing purposes, Members that choose the dedicated 
gateway option are connected to a pair of dedicated gateways for 
which the Exchange proposes to charge one fee.
    \7\ See ISE Schedule of Fees, Section VIII, Access Services.
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Session Fees
    Topaz Members can connect to the Exchange via an Application 
Programming Interface (``API'') session. The Exchange uses an open API 
which Members program to in order to develop applications that send 
trading commands and/or queries to, and receive broadcasts and/or 
transactions from, the trading system. The API processes quotes, 
receives orders from Members, tracks activity in the underlying 
markets, when applicable, executes trades in the matching engine, and 
broadcasts trade details to the participating Members. The Exchange is 
proposing to charge Members a monthly API fee of $100 per session for 
each authorized login that a Member utilizes for quoting, order entry, 
or ``listening'' to system broadcasts.\8\ Each login allows the user to 
enter quotes, orders, and perform other miscellaneous functions, such 
as setting risk management parameters, pulling quotes, and performing 
linkage functions. In addition, EAMS can connect to Topaz via a 
Financial Information eXchange (``FIX'') session.\9\ EAMS that choose 
to connect to Topaz via FIX will be charged a monthly FIX session fee 
of $50 per session. The Exchange notes that Members may connect to both 
Topaz and the ISE through a single FIX session.\10\ For Members that 
are also members of the ISE and wish to connect to both exchanges, the 
Exchange will charge a monthly fee of $250 per session for the first 
two sessions and $50 per session for the third and additional sessions. 
This is consistent with the tiered pricing and level of fees on the 
ISE.\11\ The Exchange is charging a higher fee for the first two 
sessions for Members that connect to both exchanges as these Members 
will be allowed to access both markets through a single FIX session.
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    \8\ Quoting functionalities are available only to Market Makers, 
i.e., PMMs and CMMs, while order entry and listening functionalities 
are available to all Members.
    \9\ Market Makers, i.e., PMMs and CMMs, must connect to the 
Exchange via API as the FIX connection does not supporting [sic] 
quoting.
    \10\ API session fees are separate for Topaz and the ISE.
    \11\ See ISE Schedule of Fees, Section VII, Trading Application 
Software, FIX Session/API Session Fees.
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Regulatory Fees
    The Exchange is proposing to charge an annual regulatory fee to all 
PMMs and CMMs in order to recover the cost of surveilling these members 
and performing other regulatory responsibilities. In particular, the 
Exchange proposes to charge $1,000 per year for a PMM membership, and, 
for PMMs that are also CMMs, $250 per year for each CMM membership. For 
CMMs that are not also PMMs the proposed regulatory fee is $500 per 
year for the first CMM membership, and $250 per year for each 
additional CMM membership. The Exchange is not proposing to charge a 
regulatory fee to EAMs.
Clarifying Text
    On December 2, 2013 the Exchange filed an immediately effective 
rule change that amended the Schedule of Fees to specify that the 
Exchange will charge its ``taker'' fee for non-Priority Customer orders 
executed during the opening rotation.\12\ As explained in that filing, 
Priority Customers [sic] orders executed during the opening rotation 
will continue to receive the applicable ``maker'' rebate. Since the 
current language for Priority Customer orders does not explicitly state 
that it applies to orders executed during the opening rotation, the 
Exchange proposes to clarify this in the Schedule of Fees. In 
particular, the Exchange proposes to revise the relevant language in 
its Schedule of Fees to state that Priority Customer orders executed 
during the opening rotation will receive the applicable maker rebate. 
The Exchange believes that this change will add further clarity to its 
Schedule of Fees.
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    \12\ See ISE-2013-14 (citation pending publication by the SEC). 
[sic]
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\14\

[[Page 78449]]

in particular, in that it provides for an equitable allocation of 
reasonable fees and other charges among Exchange Members and other 
persons using its facilities.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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Membership Application Fees
    The Exchange believes the proposed one-time membership application 
fees are reasonable and equitable as they are similar to, and generally 
lower than, one time application fees in place at other options 
exchanges. For example, MIAX Options (``MIAX'') charges a one-time 
application fee of $2,500 for electronic exchange members and $3,000 
for market makers,\15\ compared to the proposed $1,500 fee for EAMs, 
and proposed $2,000 and $3,000 fees for CMMs and PMMs, respectively. 
Furthermore, the Exchange does not believe that it is unfairly 
discriminatory to assess different fees for PMMs, CMMs, and EAMs. The 
one-time application fees are designed to recover costs associated with 
the processing of such applications, which are lowest for EAM 
applications, and greater for Market Maker applications, and PMM 
applications particularly. Charging a higher application fee for Market 
Makers is consistent with the fees charged by other options exchanges, 
including, for example, the MIAX application fee discussed above.\16\
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    \15\ See MIAX Fee Schedule, Section 3, Membership Fees, 
Application for MIAX Membership.
    \16\ Id.
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Access & CMM Trading Right Fees
    The Exchange believes its proposed access fees and CMM trading 
right fees are reasonable, equitable and not unfairly discriminatory. 
The proposed fees compare favorably with those of other options 
exchanges. For example, a market maker on NYSE Arca Options (``Arca'') 
has to purchase at least one trading permit for $6,000 per month, and 
up to four trading permits that total $18,000 per month in order to 
quote in all options classes.\17\ By comparison, under the proposed fee 
structure, a CMM could quote on the Exchange for as little as $950 per 
month (i.e., a $100 access fee and an $850 trading right), and could 
quote in all options classes on the Exchange by paying the access fee 
and purchasing nine CMM trading rights for a total of $4,950 per month. 
The Exchange notes that its tiered model for CMM trading rights is 
consistent with the pricing practices of other exchanges, such as Arca, 
which charges $6,000 per month for the first market maker trading 
permit, as mentioned above, down to $1,000 per month for the fifth and 
additional trading permits, with various tier in-between. Like other 
options exchanges, the Exchange is proposing this tiered pricing model 
because the first CMM trading right requires the most support from the 
Exchange, with each additional trading right requiring an incremental 
increase in the amount of support provided. The Exchange also believes 
that a tiered price structure for successive CMM trading rights may 
encourage CMM firms to purchase additional trading rights and quote 
more issues, thereby enhancing liquidity on the Exchange. For PMMs on 
Topaz the fees required to access the Exchange are substantially lower 
than those on competing exchanges. For example, a PMM could quote on 
the Exchange for only $200 (i.e., the access fee), compared with the 
minimum $6,000 per month trading permit fee charged by Arca. The 
Exchange notes that it is not proposing trading right fees for PMMs as 
the Exchange wishes to encourage Members to act as PMMs, which will 
benefit the market through, for example, more robust quoting 
requirements. Similarly, the Exchange is proposing only to charge the 
$200 access fee to EAMs as the technical, regulatory, and 
administrative costs associated with an EAM's use of the Exchange are 
not as high as those associated with Market Makers.
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    \17\ See Arca Fees and Charges, General Options and Trading 
Permit (OTP) Fees.
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Network & Gateway Fees
    The Exchange believes that its proposed network and gateway fees 
are fair, reasonable, and not unfairly discriminatory. The Exchange 
notes that these fees are the same as applicable to trading on the ISE. 
Because market participants may connect to both ISE and Topaz through 
each of the available options, the Exchange is proposing the same fees 
for connectivity to Topaz as applicable to ISE. The Exchange believes 
that it is reasonable to charge the same fees as ISE since market 
participants are able to access both ISE and Topaz through their 
selected connectivity options. With respect to network fees, the 
Exchange believes that it is fair to charge higher fees for higher 
bandwidth allocations, and for access to the Exchange's low latency 
connections, which are priced to allow the Exchange to recoup the 
hardware, installation, testing and connection costs to maintain and 
manage enhanced connections. The Exchange notes that its proposed 
connectivity fees, which are the same as fees charged by the ISE, are 
also lower than those charged by other options exchanges for similar 
connectivity services. For example, Arca charges a monthly fee of 
$5,000 per connection for a 1 Gb liquidity center network connection 
with a $6,000 per connection initial charge, and up to $20,000 per 
month plus a $15,000 per connection initial charge for their 40 Gb 
offering,\18\ compared to the proposed monthly fees for Topaz, which 
range from $500 per month to $12,500 per month for the 1 Gb and 40 Gb 
connections, respectively. With respect to gateway fees, the Exchange 
notes that Members may choose whichever option is appropriate for their 
firm as the shared gateways provide for full redundancy and the same 
latency as the dedicated gateways. The Exchange believes that it is 
fair to charge more to Members that desire their own dedicated gateways 
for risk management purposes, as all similarly situated Members will be 
charged the same amount, based on their preference for either a shared 
gateway or a dedicated gateway.
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    \18\ See Arca Fees and Charges, Floor and Equipment and Co-
location Fees.
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Session Fees
    The Exchange believes that its proposed API/FIX session fees are 
fair and equitable as they compare favorably with, and are generally 
lower than, fees charged by other options exchanges. For example, Arca 
charges a port fee for order/quote entry ports of $200 per month for 
ports 6-100, and $100 per month for additional ports, with the first 
five ports offered at no charge.\19\ Moreover, the Exchange believes 
that the proposed fees are not unreasonably discriminatory as each 
Member that connects to the Exchange will pay the same per session fee, 
regardless of whether that Member is a PMM, CMM, or EAM, or whether 
that Member uses its connection for quoting, order entry, or listening 
only. While the cheaper FIX option does not support quoting, and is 
therefore available only to EAMs, the Exchange does not believe that 
this is unfairly discriminatory as FIX is a free, industry-wide 
messaging protocol, whereas the Exchange pays a licensing fee for the 
use of the API, which provides additional quoting functionality for 
Market Makers. As with network and gateway fees described above, EAMs 
have the option to connect to both ISE and Topaz through a single FIX 
session. The Exchange believes that it is fair and equitable to charge 
a higher fee to Members that wish to connect to both Topaz and the ISE 
as such Members will benefit from access to both markets. Members that 
only connect to Topaz

[[Page 78450]]

will pay a lower fee equal to the incremental fee for the third and 
additional sessions for Members that connect to both exchanges.
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    \19\ Id.
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Regulatory Fees
    The Exchange believes the proposed market maker regulatory fees are 
reasonable and equitable as they are designed to recoup costs 
associated with performing surveillance and other regulatory 
obligations with respect to PMMs and CMMs. The Exchange does not 
believe that it is unfairly discriminatory to charge a higher 
regulatory fee to PMMs than CMMs, or to not charge any regulatory fee 
to EAMs, as the resources dedicated to surveilling the activities of a 
Member vary [sic] on the type of membership. For example, the Exchange 
has rules that apply to a PMM that do not apply to a CMM or an EAM, and 
which necessitate surveillance by the Exchange. Generally, PMMs are 
subject to greater obligations than CMMs are and CMMs are subject to 
more obligations than EAMs are. As such, the Exchange believes that a 
tiered fee system is the most equitable method of assessing these fees.
Clarifying Text
    The Exchange believes that the proposed clarifying text to its 
Schedule of Fees is reasonable, equitable, and not unfairly 
discriminatory as it is intended to increase transparency for Members 
and investors. The Exchange notes that this is a non-substantive change 
and, as described in the original filing, non-Priority Customer orders 
will continue to be charged the ``taker'' fee while Priority Customer 
orders will receive the applicable ``maker'' rebate for trades executed 
during the opening rotation.

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

    In accordance with Section 6(b)(8) of the Act,\20\ the Exchange 
does not believe that the proposed rule change will 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 rule change will impose an unnecessary burden on intermarket 
competition as the proposed fees are comparable to, and generally lower 
than, fees charged by other options exchanges. With respect to 
intramarket competition, the Exchange notes that the proposed fees 
apply equally to all similarly situated Members based on their 
membership type. As noted above, the Exchange believes that any 
differences in the treatment of PMMs, CMMs, and EAMs are reasonably 
based on the differences between those membership types, and are 
consistent with differentiation that exists on other options exchanges, 
including, for example, the ISE. With respect to the clarifying text 
being adopted, the Exchange notes that this is non-substantive and will 
therefore have no competitive impact. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
their order flow to competing venues. In such an environment, the 
Exchange must continually review, and consider adjusting, its fees and 
rebates to remain competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed fee changes 
reflect this competitive environment.
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    \20\ 15 U.S.C. 78f(b)(8).
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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 unsolicited 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)(ii) of the Act,\21\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\22\ because it establishes a due, fee, or other charge 
imposed by Topaz.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 No. SR-Topaz-2013-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
All submissions should refer to File No. SR-Topaz-2013-16. 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 offices 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-Topaz-2013-16, and should be 
submitted on or before January 16, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30770 Filed 12-24-13; 8:45 am]
BILLING CODE 8011-01-P