Document ID: SEC-2014-0442-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2014-03-18T04:00Z

[Federal Register Volume 79, Number 52 (Tuesday, March 18, 2014)]
[Notices]
[Pages 15163-15166]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05856]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71696; File No. SR-BX-2014-012]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Routing Fees

March 12, 2014.
    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 March 4, 2014, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, Section 2 entitled ``BX 
Options Market--Fees and Rebates.'' Specifically, the Exchange is 
proposing to amend Routing Fees. 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 purpose of this filing is to amend the Routing Fees in Chapter 
XV, Section

[[Page 15164]]

2(3) to recoup costs incurred by the Exchange to route orders to away 
markets.
    Today, the Exchange assesses a Non-Customer a $0.95 per contract 
Routing Fee to any options exchange. The Customer \3\ Routing Fee for 
option orders routed to NASDAQ OMX PHLX LLC (``PHLX'') and The NASDAQ 
Options Market LLC (``NOM'') is a $0.05 per contract Fixed Fee in 
addition to the actual transaction fee assessed. The Customer Routing 
Fee for option orders routed to all other options exchanges \4\ 
(excluding PHLX and NOM) is a fixed fee of $0.20 per contract (``Fixed 
Fee'') in addition to the actual transaction fee assessed. If the away 
market pays a rebate, the Routing Fee is $0.00 per contract.
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    \3\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation (``OCC'') which is not for 
the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Chapter I, Section 
1(a)(48)).
    \4\ Including BATS Exchange, Inc. (``BATS''), BOX Options 
Exchange LLC (``BOX''), the Chicago Board Options Exchange, 
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''), 
International Securities Exchange, LLC (``ISE''), the Miami 
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc. 
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and Topaz Exchange, 
LLC (``Gemini'').
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    With respect to the fixed costs, the Exchange incurs a fee when it 
utilizes Nasdaq Options Services LLC (``NOS''),\5\ a member of the 
Exchange and the Exchange's exclusive order router.\6\ Each time NOS 
routes an order to an away market, NOS is charged a clearing fee \7\ 
and, in the case of certain exchanges, a transaction fee is also 
charged in certain symbols, which fees are passed through to the 
Exchange. The Exchange currently recoups clearing and transaction 
charges incurred by the Exchange as well as certain other costs 
incurred by the Exchange when routing to away markets, such as 
administrative and technical costs associated with operating NOS, 
membership fees at away markets, Options Regulatory Fees (``ORFs''), 
staffing and technical costs associated with routing options. The 
Exchange assesses the actual away market fee at the time that the order 
was entered into the Exchange's trading system. This transaction fee is 
calculated on an order-by-order basis since different away markets 
charge different amounts.
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    \5\ The Exchange filed a proposed rule change to utilize Nasdaq 
Execution Services, LLC (``NES'') for outbound order routing. See 
Securities Exchange Act Release No. 71420 (January 28, 2014), 79 FR 
6256 (February 3, 2014) (SR-BX-2014-004). This filing has not yet 
been implemented. The Exchange intends to implement this filing in 
mid-March 2014.
    \6\ See BX Rules at Chapter VI, Section 11(e) (Order Routing).
    \7\ The Options Clearing Corporation (``OCC'') assesses $0.01 
per contract side.
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    The Exchange is proposing to assess market participants routing 
Customer orders to PHLX and NOM a $0.10 per contract Fixed Fee in 
addition to the actual transaction fee assessed. Today the Exchange 
assesses a $0.05 per contract Fixed Fee in addition to the actual 
transaction fee assessed with respect to Customer orders routed to PHLX 
and NOM. The Exchange would increase the Fixed Fee for Customer orders 
routed to PHLX and NOM from $0.05 to $0.10 per contract to recoup an 
additional portion of the costs incurred by the Exchange for routing 
these orders.
    Similarly, the Exchange is proposing to amend the Customer Routing 
Fee assessed when routing to all other options exchanges, if the away 
market pays a rebate, from a $0.00 to a $0.10 per contract Fixed Fee, 
in order to recoup an additional portion of the costs incurred by the 
Exchange for routing these orders. The Exchange does not assess the 
actual transaction fee assessed by the away market, rather the Exchange 
only assesses the Fixed Fee, because the Exchange would continue to 
retain the rebate to offset the cost to route orders to these away 
markets. Today, the Exchange incurs certain costs when routing to away 
markets that pay rebates. The Exchange desires to recoup additional 
costs at this time.
2. Statutory Basis
    BX believes that its proposal to amend its fees is consistent with 
Section 6(b) of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(4) and (b)(5) of the Act \9\ 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 any 
facility or system which BX operates or controls, and is not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4), (5).
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    BX believes that amending the Customer Routing Fee for orders 
routed to PHLX and NOM from a Fixed Fee of $0.05 to $0.10 per contract, 
in addition to the actual transaction fee, is reasonable because the 
Exchange desires to recoup an additional portion of the cost it incurs 
when routing Customer orders to PHLX and NOM. Today, the Exchange 
assesses orders routed to PHLX and NOM a lower Fixed Fee for routing 
Customer orders as compared to the Fixed Fee assessed to other options 
exchanges. The Exchange is proposing to increase the Fixed Fee to 
recoup additional costs that are incurred by the Exchange in connection 
with routing these orders on behalf of its members.
    The Exchange believes that continuing to assess lower Fixed Fees to 
route Customer orders to PHLX and NOM, as compared to other options 
exchanges, is reasonable as the Exchange is able to leverage certain 
infrastructure to offer those markets lower fees as explained further 
below. Similarly, the Exchange believes that amending the Customer 
Routing Fee to other away markets, other than PHLX and NOM, in the 
instance the away market pays a rebate from a Fixed Fee of $0.00 to 
$0.10 per contract, in addition to the actual transaction fee, is 
reasonable because the Exchange desires to recoup an additional portion 
of the cost it incurs when routing orders to these away markets. The 
Fixed Fee for Customer orders is an approximation of the costs the 
Exchange will be charged for routing orders to away markets. As a 
general matter, the Exchange believes that the proposed fees for 
Customer orders routed to markets which pay a rebate would allow it to 
recoup and cover a portion of the costs of providing optional routing 
services for Customer orders because it better approximates the costs 
incurred by the Exchange for routing such orders. While each 
destination market's transaction charge varies and there is a cost 
incurred by the Exchange when routing orders to away markets, including 
OCC clearing costs, administrative and technical costs associated with 
operating NOS, membership fees at away markets, ORFs and technical 
costs associated with routing options, the Exchange believes that the 
proposed Routing Fees will enable it to recover the costs it incurs to 
route Customer orders to away markets.
    The Exchange believes that amending the Customer Routing Fee for 
orders routed to PHLX and NOM from a Fixed Fee of $0.05 to $0.10 per 
contract, in addition to the actual transaction fee, is equitable and 
not unfairly discriminatory because the Exchange would assess the same 
Fixed Fee to all orders routed to PHLX and NOM in addition to the 
transaction fee assessed by that market. The Exchange would uniformly 
assess a $0.10 per contract Fixed Fee to orders routed to NASDAQ OMX 
exchanges because the Exchange is passing along the saving [sic] 
realized by leveraging NASDAQ OMX's infrastructure and scale to market 
participants when those orders are routed to PHLX or NOM and is 
providing those saving to all market participants. Furthermore, it is 
important to note that when orders are routed to an away market they 
are

[[Page 15165]]

routed based on price first.\10\ The Exchange believes that it is 
equitable and not unfairly discriminatory to assess a fixed cost of 
$0.10 per contract to route orders to PHLX and NOM because the cost, in 
terms of actual cash outlays, to the Exchange to route to those markets 
is lower. For example, costs related to routing to PHLX and NOM are 
lower as compared to other away markets because NOS is utilized by all 
three exchanges to route orders.\11\ NOS and the three NASDAQ OMX 
options markets have a common data center and staff that are 
responsible for the day-to-day operations of NOS. Because the three 
exchanges are in a common data center, Routing Fees are reduced because 
costly expenses related to, for example, telecommunication lines to 
obtain connectivity are avoided when routing orders in this instance. 
The costs related to connectivity to route orders to other NASDAQ OMX 
exchanges are lower than the costs to route to a non-NASDAQ OMX 
exchange. When routing orders to non-NASDAQ OMX exchanges, the Exchange 
incurs costly connectivity charges related to telecommunication lines, 
membership and access fees, and other related costs when routing 
orders.
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    \10\ See note 6.
    \11\ See PHLX Rule 1080(m)(iii)(A). See also NOM Rules at 
Chapter VI, Section 11.
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    The Exchange believes that amending the Customer Routing Fee to 
other away markets, other than PHLX and NOM, in the instance the away 
market pays a rebate from a Fixed Fee of $0.00 to $0.10 per contract is 
equitable and not unfairly discriminatory because the Exchange would 
assess a lower Routing Fee because the Exchange retains the rebate that 
is paid by that market. These proposals would apply uniformly to all 
market participants when routing to an away market that pays a rebate, 
other than PHLX and NOM. Market participants may submit orders to the 
Exchange as ineligible for routing or ``DNR'' to avoid Routing 
Fees.\12\ Also, orders are routed to an away market based on price 
first.\13\
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    \12\ See note 6.
    \13\ See note 6.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    BX 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. The Exchange does not believe that the 
proposal creates a burden on intra-market competition because the 
Exchange is applying the same Routing Fees to all market participants 
in the same manner dependent on the routing venue, with the exception 
of Customers. The Exchange will continue to assess separate Customer 
Routing Fees. Customers will continue to receive the lowest fees as 
compared to non-Customers when routing orders, as is the case today. 
Other options exchanges also assess lower Routing Fees for customer 
orders as compared to non-customer orders.\14\
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    \14\ BATS assesses lower customer routing fees as compared to 
non-customer routing fees per the away market. For example BATS 
assesses ISE customer routing fees of $0.30 per contract and an ISE 
non-customer routing fee of $ 0.57 per contract. See BATS BZX 
Exchange Fee Schedule.
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    The Exchange's proposal would allow the Exchange to continue to 
recoup its costs when routing Customer orders to PHLX or NOM as well as 
away markets that pay a rebate when such orders are designated as 
available for routing by the market participant. The Exchange continues 
to pass along savings realized by leveraging NASDAQ OMX's 
infrastructure and scale to market participants when Customer orders 
are routed to PHLX or NOM and is providing those savings to all market 
participants. Today, other options exchanges also assess fixed routing 
fees to recoup costs incurred by the exchange to route orders to away 
markets.\15\
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    \15\ See CBOE's Fees Schedule and ISE's Fee Schedule.
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    Market participants may submit orders to the Exchange as ineligible 
for routing or ``DNR'' to avoid Routing Fees.\16\ It is important to 
note that when orders are routed to an away market they are routed 
based on price first.\17\
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    \16\ See note 6.
    \17\ See note 6.
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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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\18\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-BX-2014-012 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-2014-012. 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-2014-012 and should be 
submitted on or before April 8, 2014.

[[Page 15166]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05856 Filed 3-17-14; 8:45 am]
BILLING CODE 8011-01-P