Document ID: SEC-2016-0357-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2016-02-29T05:00Z

[Federal Register Volume 81, Number 39 (Monday, February 29, 2016)]
[Notices]
[Pages 10300-10305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04249]

[[Page 10300]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77211; File No. SR-EDGX-2016-10]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees as Applicable to the Equity Options Platform

February 23, 2016.
    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 February 10, 2016, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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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 EDGX 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.batstrading.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
    On November 1, 2015, the Exchange adopted an initial fee schedule 
establishing fees applicable to Members trading options on and using 
services provided by to its equity options platform (``EDGX 
Options'').\6\ As a new options exchange, the Exchange aimed to attract 
order flow by offering market participants a competitive and simplified 
pricing structure. Therefore, the Exchange did not initially propose to 
implement a tiered pricing structure under which it would provide 
enhanced rebates or reduced fees based on the Member's monthly trading 
activity. Nor did the Exchange propose to implement ``maker-taker'' 
pricing (i.e., providing a rebate to the side of the transaction that 
added liquidity and a fee to the side of the transaction that removed 
liquidity).\7\
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    \6\ See Securities Exchange Act Release No. 76453 (November 17, 
2015), 80 FR 72999 (November 23, 2015) (SR-EDGX-2015-56). On 
December 1, 2015, the Exchange amended the EDGX Options fee schedule 
to modify pricing for orders routed away and executed at various 
away options exchanges. See Securities Exchange Act Release No. 
76708 (December 21, 2015), 80 FR 80832 (December 28, 2015) (SR-EDGX-
2015-63).
    \7\ The Exchange does not propose to implement maker-taker 
pricing in this proposed rule change.
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    The Exchange has experienced an increase in order flow since it 
commenced trading in November 2015 \8\ and now seeks to amend its fee 
schedule in order to incentivize Members to send additional order flow 
to the Exchange.\9\ Therefore, the Exchange proposes to amend its fee 
schedule to amend the Standard Rates and Fee Codes and Associated Fees 
Table to delete or update existing fee codes as well as to add two new 
fee codes. The Exchange also proposes to adopt pricing tiers under 
proposed footnotes 1 and 2, Customer Volume Tiers and Market Maker 
Volume Tiers, respectively. Under the proposed tiers, Customers \10\ or 
Market Makers \11\ that achieve certain volume criteria may qualify for 
reduced fees or enhanced rebates. As a result of the proposed tiers, 
the Exchange proposes to add definitions of ADV, ADAV, and TCV, as 
described below, to the Definitions section of its fee schedule. 
Lastly, the Exchange proposes to amend its Marketing Fee to increase 
the fee for Non-Penny Pilot Securities \12\ from $0.65 per contract to 
$0.70 per contract.
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    \8\ See Market Volume Summary, available at http://www.batsoptions.com/market_summary/.
    \9\ The Exchange initially filed the proposed fee change on 
February 1, 2016, in SR-EDGX-2016-05. On February 3, 2016, the 
Exchange withdrew SR-EDGX-2016-05 and submitted SR-EDGX-2016-07. On 
February 9, 2016, the Exchange withdrew SR-EDGX-2016-07 and 
submitted this filing.
    \10\ The term ``Customer'' applies to any transaction identified 
by a Member for clearing in the Customer range at the Options 
Clearing Corporation (``OCC''), excluding any transaction for a 
Broker Dealer or a ``Professional'' as defined in Exchange Rule 
16.1.
    \11\ The term ``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).
    \12\ The term ``Non-Penny Pilot Security'' applies to those 
issues that are not Penny Pilot Securities quoted pursuant to 
Exchange Rule 21.5, Interpretation and Policy .01.
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Standard Transaction Fees
    The Exchange currently maintains a fee structure under which 
standard rates are applied, the amount of which depend on whether the 
order is for a Customer, Non-Customer,\13\ or Market Maker as well as 
the capacity of the order with which such order trades.\14\ The 
Exchange now proposes to amend the Standard Rates table, which 
summarizes the main fees and rebates applicable to trading on the 
Exchange, including tiered pricing, as well as the Fee Codes and 
Associated Fees table, which provides detailed rates for all types of 
executions occurring on the Exchange and of orders that have been 
routed to other options exchanges, to delete or update existing fee 
codes as well as to add two new fee codes. The result of these 
amendments would result in a fee structure under which the standard 
rate that applies would depend solely on whether the order is for a 
Customer, Non-Customer, or Market Maker, and not the capacity of the 
contra-side order.
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    \13\ The term ``Non-Customer'' applies to any transaction that 
is not a Customer order.
    \14\ The standard rates and applicable fee codes apply unless a 
Member's transaction is assigned a fee code other than a standard 
fee code. A fee code other than a standard fee code is only applied 
to a Member's transaction that is routed to and executed on another 
options exchange or where it is to participate in the EDGX Options 
opening process under Exchange Rule 21.7.
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    Customer. Currently, neither side of a transaction is charged a fee 
where both sides trade in a Customer capacity. Such Customer orders 
yield either fee code PA or NA where they add liquidity and PR or NR 
where they remove liquidity, depending on whether the order is in a

[[Page 10301]]

Penny Pilot Security \15\ or not. An order that trades in a Customer 
capacity receives a rebate of $0.21 per contract where it executes 
against a contra-side order that trades in a Non-Customer capacity. 
Such Customer orders yield either fee code PY or NY where they add 
liquidity and PC or NC where they remove liquidity, depending on 
whether the order is in a Penny Pilot Security or not.
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    \15\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
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    The Exchange proposes to amend the pricing for Customer orders by 
eliminating fee codes PA, NA, PR, NR, PY, and NY. Fee codes PA and NA 
are currently appended to Customer orders in Penny Pilot Securities and 
Non-Penny Pilot Securities, respectively that add liquidity against a 
contra-side Customer order and are charged no fee. Likewise, fee codes 
PR and NR are currently appended to Customer orders in Penny Pilot 
Securities and Non-Penny Pilot Securities, respectively that remove 
liquidity against a contra-side Customer order and are charged no fee. 
Fee codes PY and NY are currently appended to Customer orders in Penny 
Pilot Securities and Non-Penny Pilot Securities, respectively that add 
liquidity against a contra-side Non-Customer order and receive a rebate 
of $0.21 per contract. The Exchange also proposes to update fee codes 
PC and NC, which are currently appended to Customer orders in Penny 
Pilot Securities and Non-Penny Pilot Securities, respectively that 
remove liquidity against a contra-side Non-Customer order and receive a 
rebate of $0.21 per contract.
    As a result of the above amendments, fee code PC would be appended 
to all Customer orders in Penny Pilot Securities. Likewise, fee code NC 
would be appended to all Customer orders in Non-Penny Pilot Securities. 
Customer orders that yield fee codes PC or NC would receive a rebate of 
$0.01 per contract, rather than $0.21 per contract, regardless of the 
counter party and whether the Customer order adds or removes liquidity.
    Market Maker. Currently, an order that trades in a Market Maker 
capacity is charged a fee of $0.21 per contract where it executes 
against a contra-side order that trades in a Customer capacity. Such 
Market Maker orders yield either fee code PM or NM where they add 
liquidity and PP or NP where they remove liquidity, depending on 
whether the order is in a Penny Pilot Security or not.
    The Exchange proposes to amend the pricing for Customer orders by 
updating fee codes PM, NM, PP, and NP. Fee code PM and NM are currently 
appended to Market Maker orders in Penny Pilot Securities and Non-Penny 
Pilot Securities, respectively that add liquidity against contra-side 
Customer orders and are charged a fee of $0.21 per contract. As 
amended, fee code PM would be appended to Market Maker orders in Penny 
Pilot Securities. Likewise, fee code NM would be appended to Market 
Maker orders in Non-Penny Pilot Securities. Market Maker orders that 
yield fee codes PM or NM would be charged a fee of $0.19 per contract, 
rather than $0.21 per contract, regardless of the counter party and 
whether the Customer order adds or removes liquidity.
    Fee codes PP and NP are currently appended to Market Maker orders 
in Penny Pilot Securities and Non-Penny Pilot Securities, respectively 
that remove liquidity against contra-side Customer orders and are 
charged a fee of $0.21 per contract. As discussed in more detail below, 
the Exchange proposes to amend fee codes PP and NP and to re-purpose 
such fee codes to apply instead to certain Professional orders. 
Therefore, Market Maker orders that remove liquidity would yield fee 
codes PM or NM and be charged a fee of $0.19 per contract, rather than 
$0.21 per contract, regardless of the counter party and whether the 
Customer order adds or removes liquidity.
    Non-Customer. Currently, for Penny Pilot Securities, an order that 
trades in a Non-Customer capacity, other than a Market Maker order, is 
charged a fee of $0.46 per contract where it executes against a contra-
side order that trades in a Customer capacity. Such Non-Customer orders 
in Penny Pilot Securities yield fee code PO where they add liquidity 
and PQ where they remove liquidity. Currently, Non-Customer orders in 
Non-Penny Pilot Securities are charged a fee of $0.86 per contract and 
yield fee code NO where they add liquidity and NQ where they remove 
liquidity. Neither side of a transaction is currently charged a fee 
where both sides trade in a Non-Customer capacity. Such Non-Customer 
orders yield either fee code PF or NF where they add liquidity and PN 
or NN where they remove liquidity, depending on whether the order is in 
a Penny Pilot Security or not.
    Orders that trade in a Non-Customer Capacity include Broker 
Dealer,\16\ Firm,\17\ Joint Back Office,\18\ Professional,\19\ and Away 
Marker Maker.\20\ The Exchange proposes to amend fee codes PP, NP, PO, 
PQ, NO, NQ, PF, NF, PN, and NN to apply to the specific capacities that 
a Non-Customer order may represent. Each of the proposed amendments are 
as follows:
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    \16\ The term ``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 OCC.
    \17\ The term ``Firm'' applies to any transaction identified by 
a Member for clearing in the Firm range at the OCC, excluding any 
Joint Back Office transaction.
    \18\ The term ``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.
    \19\ The term ``Professional'' applies to any transaction 
identified by a Member as such pursuant to Exchange Rule 16.1.
    \20\ The term ``Away Market Maker'' applies to any transaction 
identified by a Member for clearing in the Market Maker range at the 
OCC, where such Member is not registered with the Exchange as a 
Market Maker, but is registered as a market maker on another options 
exchange.
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     Fee Codes PP and NP. As stated above, fee codes PP and NP 
are currently appended to Market Maker orders in Penny Pilot Securities 
and Non-Penny Pilot Securities, respectively that remove liquidity 
against contra-side Customer orders and are charged a fee of $0.21 per 
contract. The Exchange proposes to amend fee codes PP and NP to instead 
apply to Professional orders. As amended, fee code PP would appended 
Professional orders in Penny Pilot Securities regardless of the counter 
party and whether the Customer order adds or removes liquidity. Orders 
that yield fee code PP would be charged a fee of $0.48 per contract. 
Fee code NP would be amended to apply to Professional orders in Non-
Penny Pilot Securities regardless of the counter party and whether the 
order adds or removes liquidity. Orders that yield fee code NP would be 
charged a fee of $0.75 per contract.
     Fee Codes PO and PQ. An order in a Penny Pilot Security 
that trades in a Non-Customer capacity, other than a Market Maker, is 
charged a fee of $0.46 per contract where it executes against a contra-
side order that trades in a Customer capacity. Such orders yield fee 
code PO where they add liquidity and PQ where they remove liquidity. 
The Exchange proposes to amend fee code PO to instead apply to Joint 
Back Office orders. Fee code PO would be amended to apply to Joint Back 
Office orders in Penny Pilot Securities, regardless of the counter 
party and whether the order adds or removes liquidity. Also, orders 
that yield fee code PO would be charged a fee of $0.48

[[Page 10302]]

per contract, rather than $0.46. As a result of the proposed amendments 
to fee code PO and the general proposal in this filing to apply fees 
regardless of whether orders add or remove liquidity, fee code PQ is no 
longer necessary and the Exchange proposes to remove it from its fee 
schedule.
     Fee Code NO and NQ. Non-Customer orders in Non-Penny Pilot 
Securities are charged a fee of $0.86 per contract and yield fee code 
NO where they add liquidity and NQ where they remove liquidity against 
a contra-side Customer order. Similar to fee code PO, the Exchange 
proposes to amend fee code NO to instead apply to Joint Back Office 
orders. Fee code NO would be amended to apply to Joint Back Office 
orders in Penny Pilot Securities, regardless of the counter party and 
whether the order adds or removes liquidity. Also, orders that yield 
fee code NO would be charged a fee of $0.75 per contract, rather than 
$0.86 per contract. As a result of the proposed amendments to fee code 
NO and the general proposal in this filing to apply fees regardless of 
whether orders add or remove liquidity, fee code NQ is no longer 
necessary and the Exchange proposes to remove it from its fee schedule.
     Fee Codes PF, NF, PN, and NN. Neither side of a 
transaction is currently charged a fee where both sides trade in a Non-
Customer capacity. Such Non-Customer orders yield either fee code PF or 
NF where they add liquidity and PN or NN where they remove liquidity. 
Fee codes PF and PN are applied to Non-Customer orders in Penny Pilot 
Securities and NF and NN are applied to orders in Non-Penny Pilot 
Securities. The Exchange proposes to amend fee codes PF and NF to 
instead apply to Firm orders and fee codes PN and NN to instead apply 
to Away Market Maker orders. As amended, fee code PF would apply to 
Firm orders in Penny Pilot Securities, regardless of the counter party 
and whether the order adds or removes liquidity. Orders that yield fee 
code PF would no longer be free and would be subject to a charge of 
$0.45 per contract. Fee code NF would be amended to apply to Firm 
orders in Non-Penny Pilot Securities, regardless of the counter party 
and whether the order adds or removes liquidity. Orders that yield fee 
code NF would no longer be free and would be subject to a charge of 
$0.75 per contract. Fee code PN would be amended to apply to Away 
Market Maker orders in Penny Pilot Securities, regardless of the 
counter party and whether the order adds or removes liquidity. Orders 
that yield fee code PN would no longer be free and would be subject to 
a charge of $0.48 per contract. Fee code NN would be amended to apply 
to Away Market Maker orders in Non-Penny Pilot Securities, regardless 
of the counter party and whether the order adds or removes liquidity. 
Orders that yield fee code NN would no longer be free and would be 
subject to a charge of $0.75 per contract.
    The Exchange also proposes to add two new fee codes to its Fee 
Codes and Associated Fees table to apply to Broker Dealer orders. 
Proposed fee code NB would apply to Broker Dealer orders in Non-Penny 
Pilot Securities and proposed fee code PB would apply to Broker Dealer 
orders in Penny Pilot Securities. Orders that yield fee code NB would 
be charged a fee of $0.75 per contract. Orders that yield fee code PB 
would be charged a fee of $0.48 per contract. Fee codes NB and BB would 
be appended to Broker Dealer orders regardless of the capacity of the 
counter party or whether they add or remove liquidity.
Proposed Tiers and Definitions
    Initially, the Exchange did not propose to implement a tiered 
pricing structure under which it would provide enhanced rebates or 
reduced fees based on the Member's monthly trading activity. The 
Exchange now proposes to adopt two pricing tiers under proposed 
footnotes 1 and 2, Customer Volume Tiers and Market Maker Volume Tiers, 
respectively. Under the proposed tiers, Customers and Market Makers 
that achieve certain volume criteria may qualify for reduced fees or 
enhanced rebates.
    Definitions. As a result of the proposed tiers, the Exchange 
proposes to add definitions of ADV, ADAV, and TCV to the Definitions 
section of its fee schedule. The proposed definitions are designed to 
provide transparency with regard to the criteria necessary to achieve 
the proposed Customer Volume Tier and Market Maker Volume Tier and are 
based on and nearly identical to those currently provided for in the 
fee schedule for the equity options platform operated by BATS Exchange, 
Inc. (``BZX Options'').\21\ ``ADAV'' would be defined as the average 
daily added volume calculated as the number of contracts added and 
``ADV'' would be defined as the average daily volume calculated as the 
number of contracts added or removed, combined, per day. The 
definitions of ADAV and ADV would further state that ADAV and ADV would 
be calculated on a monthly basis and would exclude contracts added or 
removed on any day that the Exchange's system experienced a disruption 
that lasted for more than 60 minutes during regular trading hours 
(``Exchange System Disruption'') and on any day with a scheduled early 
market close. The definitions would further state that routed contracts 
would also not be included in ADAV or ADV calculation. The definitions 
would also permit, with prior notice to the Exchange, a Member to 
aggregate their ADAV or ADV with other Members that control, are 
controlled by, or are under common control with such Member. ``TCV'' 
would be defined as the total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan 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.
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    \21\ See the BZX Options' fee schedule available at http://www.batsoptions.com/support/fee_schedule/bzx/.
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    Customer Volume Tiers. As described above, fee code PC and NC would 
be appended to all Customer orders in Penny Pilot and Non-Penny Pilot 
Securities, respectively and would receive a rebate of $0.01 per 
contract. The proposed Customer Volume Tier in footnote 1 shall consist 
of four separate tiers, each providing an enhanced rebate to Member's 
Customer orders that yield fee codes PC or NC upon satisfying monthly 
volume criteria required by the respective tier. The amount of the 
rebate is in relation to the volume required to achieve their tier. The 
rebates and required criteria available to Member's Customer orders 
that yield fee codes PC or NC are as follows:
     Tier 1. A rebate of $0.10 per contract will be provided 
where the Member has an ADV in Customer orders equal to or greater than 
0.20% of average TCV.
     Tier 2. A rebate of $0.16 per contract will be provided 
where the Member has an ADV in Customer orders equal to or greater than 
0.30% of average TCV.
     Tier 3. A rebate of $0.21 per contract will be provided 
where the Member has an ADV in Customer orders equal to or greater than 
0.50% of average TCV.
     Tier 4. A rebate of $0.25 per contract will be provided 
where the Member has an ADV in Customer orders equal to or greater than 
0.80% of average TCV.
    Market Maker Volume Tiers. As described above, fee codes PM and NM 
would be appended to Market Maker orders in Penny Pilot Securities and 
Non-Penny Pilot Securities,

[[Page 10303]]

respectively. Market Maker orders that yield fee codes PM or NM would 
be charged a fee of $0.19 per contract. The proposed Market Maker 
Volume Tier in footnote 2 shall consist of four separate tiers, each 
providing a reduced fee or rebate to Member's Market Maker orders that 
yield fee codes PM or NM upon satisfying monthly volume criteria 
required by the respective tier. The amount of the reduced fee or 
rebate is in relation to the volume required to achieve their tier. The 
rebates and required criteria available to Member's Market Maker orders 
that yield fee codes PM or NM are as follows:
     Tier 1. A reduced fee of $0.16 per contract will be 
provided where the Member has an ADV in Market Maker orders equal to or 
greater than 0.05%.
     Tier 2. A reduced fee of $0.07 per contract will be 
provided where the Member has an ADV in Market Maker orders equal to or 
greater than 0.30%.
     Tier 3. A reduced fee of $0.02 per contract will be 
provided where the Member has an ADV in Market Maker orders equal to or 
greater than 0.70%.
     Tier 4. A rebate of $0.01 per contract will be provided 
where the Member has an ADV in Market Maker orders equal to or greater 
than 1.10%.
Marketing Fees
    The Exchange assesses a Marketing Fee to all Market Makers for 
contracts they execute in their assigned classes when the contra-party 
to the execution is a Customer. The Marketing Fee is charged only in a 
Market Maker's assigned classes because it is in these classes that the 
Market Maker has the general obligation to attract order flow to the 
Exchange. Each Primary Market Maker (``PMM'') \22\ and Directed Market 
Maker (``DMM'') \23\ have a Marketing Fee pool into which the Exchange 
deposits the applicable per-contract Marketing Fee. For orders directed 
to DMMs, the applicable Marketing Fees are allocated to the DMM pool. 
For non-directed orders, the applicable Marketing Fees are allocated to 
the PMM pool. All Market Makers that participated in such transaction 
pay the applicable Marketing Fees to the Exchange, which will allocate 
such funds to the Market Maker that controls the distribution of the 
marketing fee pool. Each month the Market Maker provides instruction to 
the Exchange describing how the Exchange is to distribute the Marketing 
Fees in the pool to the order flow provider, who submit as agent, 
Customer orders to the Exchange.
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    \22\ See Exchange Rule 21.8(g).
    \23\ See Exchange Rule 21.8(f).
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    The amount of the Marketing Fee depends upon whether the affected 
option class is a Penny Pilot Security. A Marketing Fee of $0.25 per 
contract is assessed to Market Makers for transactions in Penny Pilot 
Securities. A Marketing Fee of $0.65 per contract is currently assessed 
to Market Makers for transactions in Non-Penny Pilot Securities. The 
Exchange now proposes to increase the Marketing Fee assessed to Market 
Makers for transactions in Non-Penny Pilot Securities from $0.65 per 
contract to $0.70 per contract. For option classes that are Non-Penny 
Pilot Securities, the Exchange's proposed Marketing Fee is equal to 
other options exchanges, such as PHLX, which also charges $0.70 per 
contract.\24\
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    \24\ See Nasdaq OMX PHLX LLC (``PHLX'') fee schedule available 
at http://nasdaqtrader.com/Micro.aspx?id=PHLXPricing.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\25\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\26\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls.
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    \25\ 15 U.S.C. 78f.
    \26\ 15 U.S.C. 78f(b)(4).
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Standard Transaction Fees
    The Exchange believes its proposed standard rates are equitable and 
reasonable. The Exchange operates in a highly competitive market in 
which market participants may readily send order flow to any of twelve 
competing venues if they deem fees at the Exchange to be excessive. As 
a new options exchange, the proposed fee structure remains intended to 
attract order flow to the Exchange by offering market participants a 
competitive and simplified pricing structure. To that end, the Exchange 
believes it is reasonable to remove fee codes for orders that add and 
remove liquidity, as the rates are the same whether an order adds or 
removes liquidity under both the prior fee structure and the proposed 
fee structure. Accordingly, having one fee code dependent on the 
capacity of the order and whether the issue is a Penny Pilot Security 
or not will result in a simpler fee schedule.
    The Exchange believes it is equitable, reasonable and non-
discriminatory to charge fees to Non-Customers (including Market Makers 
other than those qualifying for Market Maker Volume Tier 4) and provide 
a rebate to Customers under the proposed fee structure. Non-Customer 
accounts generally engage in increased trading activity as compared to 
Customer accounts. This level of trading activity draws on a greater 
amount of Exchange system resources than that of Customers. Simply, the 
more orders submitted to the Exchange, the more messages sent to and 
received from the Exchange, and the more Exchange system resources 
utilized. This level of trading activity by Non-Customer accounts 
results in greater ongoing operational costs to the Exchange.\27\ As 
such, the Exchange generally aims to recover its costs by fees to Non-
Customers executed on the Exchange. Sending orders to and trading on 
the Exchange are entirely voluntary. Under these circumstances, 
Exchange transaction fees must be competitive to attract order flow, 
execute orders, and grow its market. Other options exchanges also 
provide for varying rates based on the capacity of the order.\28\ As 
such, the Exchange believes its proposed trading fees are fair and 
reasonable.
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    \27\ The Exchange, however, does not propose to assess ongoing 
fess for EDGX Options market data or fees related to order 
cancellation.
    \28\ See Nasdaq OMX PHLX LLC (``PHLX'') fee schedule available 
at http://nasdaqtrader.com/Micro.aspx?id=PHLXPricing (charging no 
fee to customer orders and variable rates non-customer orders). See 
also Nasdaq OMX BX, Inc. fee schedule available at http://nasdaqtrader.com/Micro.aspx?id=BXOptionsPricing.
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    The Exchange also believes it is equitable, reasonable and not 
unfairly discriminatory to charge Market Makers lower fees than other 
Non-Customers who participate on the Exchange. The proposed 
differentiation between Market Makers and other market participants, 
such as Broker Dealers and Firms, recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. Market Makers, unlike other 
market participants, have obligations to the market and regulatory 
requirements,\29\ which normally do not apply to other market 
participants. A 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

[[Page 10304]]

inconsistent with such course of dealings. On the other hand, other 
Non-Customers do not have such obligations on the Exchange. For the 
same reasons, the Exchange believes it is reasonable to provide an 
additional incentive to Market Makers in the form of the proposed 
Market Maker Volume Tiers.
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    \29\ See Exchange Rule 22.5, Obligations of Market Makers.
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    Moreover, the Exchange believes it is equitable, reasonable and not 
unfairly discriminatory to provide a rebate to Customer orders that 
execute on the Exchange. The securities markets generally, and the 
Exchange in particular, have historically aimed to improve markets for 
investors and develop various features within the market structure for 
Customer benefit. Providing a rebate to Customers is designed to 
encourage Customers to add liquidity to the Exchange. In turn, 
increased liquidity is beneficial to all other market participants on 
the Exchange that seek executions against those Customer orders. As 
such, the Exchange believes the proposed Customer transaction pricing 
is equitably allocated, reasonable and not unfairly discriminatory. For 
the same reasons, the Exchange believes it is reasonable to provide an 
additional incentive to Customers in the form of the proposed Customer 
Volume Tiers.
    Although the proposal will result in an increased fee for certain 
participants, including all Non-Customers other than Firms and Market 
Makers in Penny Pilot Securities, or will result in a lower rebate for 
others, namely all Customers other than those qualifying for Customer 
Volume Tier 3 or 4, the Exchange still believes that its proposed 
pricing structure is fair and equitable, reasonable, and not unfairly 
discriminatory. As noted above, while the Exchange is seeking to 
encourage additional participation particularly from those representing 
Customer orders and Market Maker orders, the Exchange believes that its 
pricing as a whole remains competitive with other options exchanges, 
offering rates that are generally equal to or better than incumbent 
exchanges. Additional revenue earned from the increases to pricing will 
be used to fund additional initiatives and incentives that are all 
intended to further grow EDGX Options, which, as noted above, is a new 
options exchange. As has also been noted above, the proposed changes in 
many ways simplify the pricing structure of EDGX Options. Further, the 
proposed pricing also eliminates uncertainty that came with variable 
rates that were based on counter-party. Instead, the proposed fees and 
rebates provide certainty to market participants regarding the cost of 
trading in certain capacities and in both Penny Pilot Securities and 
Non-Penny Pilot Securities. Also, the proposed fee structure does 
provide cost savings for some participants, including all Non-Customers 
in Non-Penny Pilot Securities (when executing against Customers given 
that executions against Non-Customers were free) and Market Makers. 
Based on the foregoing, the Exchange believes that the proposed fees 
and rebates to replace the Exchange's initial fee structure for 
executions on the Exchange is fair and equitable, reasonable, and not 
unfairly discriminatory.
Proposed Tiers and Definitions
    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by equities and options exchanges 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 the value to an exchange's market quality associated with 
higher levels of market activity, such as higher levels of liquidity 
provision and/or growth patterns, and introduction of higher volumes of 
orders into the price and volume discovery processes. The proposed 
Customer Volume Tiers and Market Maker Volume Tiers are intended to 
incentivize Members to send additional orders to the Exchange in an 
effort to qualify for the enhanced rebate available by the respective 
tier.
    The Exchange believes that the proposed tiers are reasonable, fair 
and equitable, and non-discriminatory, for the reasons set forth with 
respect to volume-based pricing generally and because such change will 
either incentivize participants to further contribute to market 
quality. The Exchange also believes that the proposed tiered pricing 
structure is consistent with pricing previously offered by the Exchange 
for its equity securities trading platform as well as options 
competitors of the Exchange and does not represent a significant 
departure from such pricing structures.
    The Exchange believes that the proposed definitions of ADV, ADAV 
and TCV are reasonable, fair and equitable, and non-discriminatory as 
they are based on the rules of the Exchange's affiliated options 
exchange, BZX Options, and will provide transparency to Members 
regarding the calculations used to determine volume levels for purposes 
of the proposed tiered pricing model.
Marketing Fees
    The Exchange notes that the U.S. options markets are highly 
competitive, and the marketing fee is intended to provide an incentive 
for Market Makers to enter into marketing agreements with Members so 
that they will provide order flow to the Exchange. The marketing fee is 
charged only in a Market Maker's assigned classes because it is in 
these classes that the Market Maker has the general obligation to 
attract order flow to the Exchange. The Exchange believes that the 
proposed increase to marketing fees for Non-Penny Pilot Securities is 
equitably allocated and reasonable because it will enhance the 
Exchange's competitive position and will result in increased liquidity 
on the Exchange, thereby providing more of an opportunity for customers 
to receive best executions. The Exchange also believes that its 
proposed increase to the marketing fee for Non-Penny Pilot Securities 
is reasonable since the amount of the Exchange's marketing fee is the 
same as other exchanges for Non-Penny Pilot Securities.\30\ Further, as 
the marketing fee will be applied to all Market Makers, the Exchange 
believes that the proposed fee is not unfairly discriminatory.
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    \30\ See supra note 24 and accompanying text.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments 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 change represents a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Rather, the proposal is a 
competitive proposal that is seeking to further the growth of the 
Exchange. The Exchange has structured its proposed fees and rebates to 
attract certain additional order flow from Market Makers and Customers, 
however, as noted above, the Exchange believes that its pricing for all 
capacities is competitive with that offered by other options exchanges. 
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 change will impair the 
ability of Members or competing venues to maintain their competitive 
standing in the financial markets.
    The Exchange does not believe that the proposed tiered pricing 
structure burdens competition, but instead, enhances competition as it 
is intended to increase the competitiveness of the Exchange by 
incentivizing certain

[[Page 10305]]

participants to increase their participation on the Exchange.
    The Exchange believes that its program of marketing fees, which is 
similar to marketing fee programs that have previously been implemented 
on other options exchanges, will enhance the Exchange's competitive 
position and will result in increased liquidity on the Exchange, 
thereby providing more of an opportunity for customers to receive best 
executions.

(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 \31\ and paragraph (f) of Rule 19b-4 
thereunder.\32\ 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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    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 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-EDGX-2016-10 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-EDGX-2016-10. 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-EDGX-2016-10 and should be 
submitted on or before March 21, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04249 Filed 2-26-16; 8:45 am]
BILLING CODE 8011-01-P