Document ID: SEC-2016-0144-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2016-01-27T05:00Z

[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4721-4723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01533]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76952; File No. SR-BX-2016-003]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
SQF Port Fees

January 21, 2016.
    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 January 12, 2016, 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 modify BX Options Market (``BX Options'') 
Chapter XV, Section 3, entitled ``BX Options Market--Access Services,'' 
which governs pricing for BX members using BX Options,\3\ BX's facility 
for executing and routing standardized equity and index options. 
Specifically, the Exchange proposes to add new streaming quote 
interface (``SQF'') Port Fees.\4\
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    \3\ References in this proposal to Chapter and Series refer to 
BX Options rules, unless otherwise indicated.
    \4\ SQF Ports are described in detail below.
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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 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 Exchange proposes to amend BX Options Chapter XV, Section 3(b) 
to add new SQF Port Fees.
    Currently, BX Options Chapter XV, Section 3 lists port fees as 
follows:
    (b) Port Fees, per port, per month, per mnemonic as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Order Entry Port Fee..........................................   $200.00
CTI Port Fee..................................................    200.00
BX Depth Port Fee \1\.........................................    200.00
BX TOP Port Fee \1\...........................................    200.00
Order Entry DROP Port Fee.....................................    200.00
SQF Port Fee \1\..............................................      0.00
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\1\ BX Depth and BX Top Port fees will be assessed to non-BX
  Participants and BX Participants.

    Today, if an option participant transacting business on BX Options 
(``Participant'') \5\ has one mnemonic \6\ and 20 SQF Ports, in a month 
the Participant would not pay anything (20 x $0.00). The Exchange now 
proposes to assess an SQF Fee, which is currently set at $0.00. This 
change is described below.
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    \5\ Options Participants may transact options business via the 
Exchange Trading System. See BX Options Chapter II, Section 1.
    \6\ A ``mnemonic'' is a unique identifier consisting of a four 
character alpha code.
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    The SQF Port is a port that allows a Participant acting as a BX 
Options Market Maker (``Market Maker'') \7\ to enter his markets into 
the BX Options markets. The SQF Port also allows a Market Maker to 
access information such as execution reports and other relevant data 
through a single feed. Market Makers rely on data available through the 
SQF Port to provide them the necessary information to perform market 
making activities in a swift and meaningful way. This proposal 
establishes that SQF Ports, which are not currently fee liable, will be 
fee liable. Prospectively, fees for SQF Ports will to be assessed per 
port, per month.\8\
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    \7\ The term ``Market Maker'' or (``M'') means a Participant 
that has registered as a Market Maker on BX Options pursuant to 
Chapter VII, Section 2, and must also remain in good standing 
pursuant to Chapter VII, Section 4. In order to receive Market Maker 
pricing in all securities, the Participant must be registered as a 
Market Maker in at least one security.
    \8\ All current port fee assessments (e.g., CTI Port Fee, Order 
Entry Port Fee, and SQF Port Fee) are assessed per port, per month, 
per mnemonic. See BX Options Chapter XV, Section 3. For additional 
information regarding SQF generally, see http://www.nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/sqfnom2.0.pdf. This document applies to BX Options, 
NASDAQ Options Market (``NOM''), and NASDAQ OMX Phlx LLC (``Phlx''). 
NOM, Phlx, and BX Options are options exchanges of Nasdaq, Inc.
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Change 1--SQF Port Fees
    SQF Port Fees are currently set at $0.00 and as such are not fee 
liable for Participants that are Market Makers. The Exchange is now 
proposing in BX Options Chapter XV, Section 3(b) a fee of $500 per 
port, per month for SQF Ports. The Exchange had not initially made the 
SQF Ports fee liable in order to incentivize more Market Makers to make 
markets on the Exchange. The Exchange believes that this strategy has 
been successful in incentivizing Market Makers and that the Exchange no 
longer needs to offer SQF Ports without fee liability. Therefore, the 
Exchange is proposing a $500 SQF Port Fee that is significantly lower 
than that of other exchanges.\9\ Moreover, the Exchange is proposing 
that the SQF Port Fee will be per port, per month similarly to how the 
same fee is offered on other exchanges.\10\ The Exchange believes the 
continued availability of SQF Ports, even where fee liable as 
discussed, will continue to incentivize Market Makers to make markets 
on the Exchange. The Exchange believes that it is reasonable to impose 
an SQF Port Fee so that the Exchange may begin to partially recoup the 
costs of maintaining and enhancing SQF Ports.\11\
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    \9\ The proposed $500 SQF Port Fee is, for example, 
significantly lower than the current $750 NOM SQF Port Fee. See NOM 
Chapter XV, Section 3(b).
    \10\ For example, the NOM SQF Port Fee is similarly offered per 
port, per month. See NOM Chapter XV, Section 3(b).
    \11\ The Exchange is proposing to delete the ``1'' indicating 
applicability of note 1 to the SQF Port Fee, as note 1 is clearly 
applicable only to BX Depth and BX Top Port fees.

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[[Page 4722]]

    As proposed, BX Options Chapter XV, Section 3 will read as follows:
Sec. 3 BX Options Market--Access Services
    The following charges are assessed by BX for connectivity to the BX 
Options Market:
    (a) TradeInfo BX
     BX Options Participants using TradeInfo BX will be charged 
a fee of $95 per user per month.
    (b) Port Fees, per port, per month, per mnemonic as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Order Entry Port Fee..........................................   $200.00
CTI Port Fee..................................................    200.00
BX Depth Port Fee \1\.........................................    200.00
BX TOP Port Fee \1\...........................................    200.00
Order Entry DROP Port Fee.....................................    200.00
Port Fees, per port, per month as follows:
    SQF Port Fee..............................................    500.00
------------------------------------------------------------------------
\1\ BX Depth and BX Top Port fees will be assessed to non-BX
  Participants and BX Participants.

    With the proposed SQF Fee, if a Participant has 20 SQF Ports, the 
Participant would pay $10,000 (20 x $500).\12\
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    \12\ The number of mnemonics is not relevant for the proposed 
SQF Port Fees.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using its 
facilities which the Exchange operates or controls [sic], and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, for example, the Commission indicated that market forces should 
generally determine pricing because national market system regulation 
``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \15\ Likewise, in NetCoalition v. Securities and Exchange 
Commission \16\ (``NetCoalition'') the D.C. Circuit upheld the 
Commission's use of a market-based approach in evaluating the fairness 
of market data fees against a challenge claiming that Congress mandated 
a cost-based approach.\17\ As the court emphasized, the Commission 
``intended in Regulation NMS that `market forces, rather than 
regulatory requirements' play a role in determining the market data . . 
. to be made available to investors and at what cost.'' \18\
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    \15\ Securities Exchange Act Release No. 51808 [sic] at 37499 
(June 9, 2005) (``Regulation NMS Adopting Release'').
    \16\ NetCoalition v. Securities and Exchange Commission, No. 09-
1042 (D.C. Cir. 2010).
    \17\ See id. at 534-535.
    \18\ See id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \19\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \19\ Id. at 539 (quoting Securities Exchange Release No. 59039 
(December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-
2006-21) at 73 FR at 74782-74783).
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    The Exchange believes that its proposal should continue to provide 
opportunities for more efficient participation in orders and executions 
on the Exchange, and at the same time facilitate the ability of the 
Exchange to recoup some costs, maintain, and improve SQF Ports.
Change 1--SQF Port Fees
    SQF Ports are not currently fee liable for Participants that are 
Market Makers. The Exchange is now proposing in BX Options Chapter XV, 
Section 3(b) a fee of $500 per port, per month for SQF Ports.\20\ The 
Exchange had not initially made the SQF Ports fee liable in order to 
incentivize more BX Market Makers to make markets on the Exchange. The 
Exchange believes that this strategy has been successful in 
incentivizing Market Makers and that the Exchange no longer needs to 
offer SQF Ports without fee liability.
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    \20\ In establishing that the SQF Fee is per port, per month the 
Exchange is proposing that the Exchange SQF Port Fee will be similar 
to that of NOM. See NOM Chapter XV, Section 3(b).
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    The Exchange believes that its proposal to make the SQF Port Fee 
$500 per port, per month is reasonable because it would allow the 
Exchange to keep pace with increasing technology costs. The proposed 
SQF Port Fee reflects the desire of the Exchange to recoup costs that 
the Exchange bears with respect to maintaining ports. The proposed SQF 
Port Fee is reasonable because it enables the Exchange to offset, in 
part, its costs associated with making such ports available, including 
costs based on software and hardware enhancements and resources 
dedicated to development, quality assurance, and support. This will 
continue to incentivize Market Makers while allowing the Exchange to 
recoup its costs. The proposed SQF Port Fee is reasonable because it is 
lower than, and therefore competitive with, fees for similar ports on 
other exchanges.\21\ In addition, the proposed SQF Port Fee is in line 
with costs for other ports at other options exchanges.\22\ SQF Ports 
allow a Market Maker to access information and rely on data available 
through such ports to provide necessary information to perform market 
making activities in a swift and meaningful way. Market Makers are 
valuable market participants that provide liquidity in the marketplace 
and incur costs unlike other market participants because Market Makers 
add value through continuous quoting \23\ and the commitment of 
capital. Exchange Market Makers provide a critical liquidity function 
across thousands of individual option puts and option calls, a function 
no other market participants are obligated to perform.
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    \21\ The proposed $500 SQF Port Fee is, for example, 
significantly lower than the current $750 NOM SQF Port Fee. See NOM 
Chapter XV, Section 3(b).
    \22\ See NOM Pricing Schedule (port fees $650 or $750 per port); 
and Phlx Pricing Schedule, (port fees $650 or $1250 capped per 
port). See also ISE Gemini, LLC (``ISE Gemini'') Fee Schedule (port 
fees $750 to $15,000 depending on connectivity levels); and C2 
Options Exchange, Incorporated (``C2'') (generally assesses port 
fees $500 to $1,000 depending on connectivity levels).
    \23\ Pursuant to BX Options Chapter VII (Market Participants), 
Section 5 (Obligations of Market Makers), 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. The 
Exchange recognizes that BX Option Market Makers that utilize SQF 
Ports require more technology infrastructure and more ports than BX 
Option Participants that are not engaged in market making, and has 
built this in to the fee structure.
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    The Exchange believes that establishing the proposed SQF Port Fee 
is equitable and not unfairly discriminatory. This is because the SQF 
Port Fee is applicable to all Participants that are Market Makers on 
the Exchange and will apply uniformly to all similarly

[[Page 4723]]

situated Participants. All Market Makers that use a SQF Port(s) will be 
assessed the SQF Port Fee in the same way.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange does 
not believe that its proposal to make changes to BX Options Chapter XV, 
Section 3(b) to add new SQF Port Fees will impose any undue 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 at a 
particular exchange to be excessive. Additionally, new competitors have 
entered the market and still others are reportedly entering the market 
shortly. These market forces ensure that the Exchange's fees remain 
competitive with the fee structures at other trading platforms. In that 
sense, the Exchange's proposal is actually pro-competitive because it 
enables the Exchange to continue offering SQF Ports to the benefit of 
market participants.
    The Exchange does not believe that the proposed rule change will 
impose any undue 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 and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to 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. 
Moreover, in terms of intra-market competition, the Exchange notes that 
the proposed assessment of an SQF Port Fee will be applied uniformly to 
all Participants that are Market Makers that use such ports but should 
have no undue burden on any particular group of users. The proposal is 
designed to ensure a fair and reasonable use of Exchange resources by 
allowing the Exchange to recoup for certain of its connectivity costs, 
while continuing to offer competitive rates to Participants.
    Furthermore, in this instance the proposed SQF Port Fee does not 
impose a burden on competition because the Exchange's execution and 
routing services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues. If 
the changes proposed herein are unattractive to market participants, it 
is likely that the Exchange will lose market share as a result. 
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 continue to allow the Exchange to promote and maintain 
order executions.

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,\24\ 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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    \24\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-2016-003 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-2016-003. 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-2016-003 and should be 
submitted on or before February 17, 2016.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Brent J. Fields,
Secretary.
[FR Doc. 2016-01533 Filed 1-26-16; 8:45 am]
 BILLING CODE 8011-01-P