Document ID: SEC-2013-1738-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2013-10-03T04:00Z

[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Notices]
[Pages 61418-61420]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24157]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70539; File No. SR-BX-2013-052]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Pricing for Certain Options Symbols

September 27, 2013.
    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 September 23, 2013, 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 BX Options Rules, Chapter XV, 
Section 2 entitled ``BX Options Market--Fees and Rebates'' to amend 
fees and rebates for various options.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated these changes to be operative on October 1, 
2013.
    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, on the Commission's Web site at http://www.sec.gov, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    BX proposes to amend certain rebates and fees in Chapter XV, 
Section 2(1) pertaining to Penny Pilot \3\ Options overlying the 
following stocks: Bank of America Corporation (``BAC''), iShares 
Russell 2000 Index (``IWM''), PowerShares QQQ (``QQQ''), SPDR S&P 500 
(``SPY''), and iPath S&P 500 VIX St Futures ETN (``VXX'') (collectively 
the ``Specified Penny Pilot Options''). Specifically, the Exchange 
proposes to amend the BX Options Market Maker \4\ Rebate to Add 
Liquidity and the Fee to Add Liquidity in the Specified Penny Pilot 
Options.
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    \3\ The Penny Pilot on BX Options was established in June 2012, 
and was expanded and extended through December 31, 2013. See 
Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 FR 
39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX Options 
rules and establishing Penny Pilot); 67342 (July 3, 2012), 77 FR 
40666 (July 10, 2012) (SR-BX-2012-046) (notice of filing and 
immediate effectiveness expanding and extending Penny Pilot); 68518 
(December 21, 2012), 77 FR 77152 (December 31, 2012) (SR-BX-2012-
076) (notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 69784 (June 18, 2013), 78 FR 37873 (June 24, 
2013) (SR-BX-2013-039).
    \4\ A BX Options Market Maker must be registered as such 
pursuant to Chapter VII, Section 2 of the BX Options Rules, and must 
also remain in good standing pursuant to Chapter VII, Section 4.
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    The Exchange proposes to decrease the BX Options Market Maker 
Rebate to Add Liquidity in the Specified Penny Pilot Options from $0.20 
to $0.00 per contract.\5\ The Exchange also proposes to decrease the BX 
Options Market Maker Fee to Add Liquidity in the Specified Penny Pilot 
Options from $0.10 to $0.00 per contract.\6\ The fee schedule after the 
proposed rule change will reflect the fees and rebates as follows:
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    \5\ The Rebate to Add Liquidity is paid to a BX Options Market 
Maker only when the BX Options Market Maker is contra to a Non-
Customer or BX Options Market Maker. A Non-Customer includes a 
Professional, Firm, Broker-Dealer and Non-BX Options Market Maker.
    \6\ The Fee to Add Liquidity is assessed to a BX Options the BX 
Options Market Maker is contra to a Customer.

                                                Fees and Rebates
                                             [Per executed contract]
----------------------------------------------------------------------------------------------------------------
                                                                                    BX options     Non- customer
                                                                     Customer      market maker         \1\
----------------------------------------------------------------------------------------------------------------
BAC, IWM, QQQ and SPY:
    Rebate to Add Liquidity.....................................           $0.00           $0.00             N/A

[[Page 61419]]

 
    Fee to Add Liquidity........................................            0.10            0.00           $0.45
    Rebate to Remove Liquidity..................................            0.00             N/A             N/A
    Fee to Remove Liquidity.....................................             N/A            0.45            0.45
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    The Exchange believes that the proposed amended BX Options Market 
Maker fee and rebate for the Specified Penny Pilot Options is 
competitive and will encourage BX members to transact business on the 
Exchange. While the Exchange is reducing the Rebate to Add Liquidity it 
is also not assessing a Fee to Add Liquidity to BX Options Market 
Makers which will enable the Exchange to remain competitive with other 
options exchanges and encourage BX Options Market Makers to make 
markets at the Exchange.
2. Statutory Basis
    BX believes that the proposed rule changes are consistent with the 
provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(4) and 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that pricing by symbol is reasonable, 
equitable and not unfairly discriminatory because it is not novel as 
other options exchanges differentiate pricing by security today.\9\ 
Further, the Specified Penny Pilot Options are highly liquid as 
compared to other Penny Pilot Options and therefore it is reasonable to 
assess different pricing for these symbols. The Exchange believes that 
its proposal to assess different fees and rebates for the Specified 
Penny Pilot Options as compared to all other Penny Pilot Options is 
equitable and not unfairly discriminatory as described hereafter.
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    \9\ See NASDAQ OMX PHLX LLC's (``Phlx'') Pricing Schedule, which 
has different pricing for SPY. See also the Chicago Board Options 
Exchange, Incorporated's Fees Schedule, which distinguishes index 
products.
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    The Exchange believes that for Specified Penny Pilot Options the 
proposed decrease of the Rebate to Add Liquidity for BX Options Market 
Makers from $0.20 (available only when they are contra to a Non-
Customer or BX Options Market Maker) to $0.00 per contract is 
reasonable because the Exchange is also proposing not to assess BX 
Options Market Makers a Fee to Add Liquidity in the Specified Penny 
Pilot Options. The Exchange believes that BX Options Market Makers will 
be encouraged to make markets at the Exchange which in turn will 
benefit other market participants through tighter markets and order 
interaction. The Exchange believes that for Specified Penny Pilot 
Options the proposed decrease of the Rebate to Add Liquidity for BX 
Options Market Makers from $0.20 (available only when they are contra 
to a Non-Customer or BX Options Market Maker) to $0.00 per contract is 
equitable and not unfairly discriminatory because no market participant 
on BX Options would be entitled to a Rebate to Add Liquidity in the 
Specified Penny Pilot Options.
    The Exchange believes that for Specified Penny Pilot Options the 
proposed decrease of the Fee to Add Liquidity for BX Options Market 
Makers from $0.10 (available only when they are contra to a Customer) 
to $0.00 per contract is reasonable because the Exchange would no 
longer assess a fee to BX Options Market Makers which should encourage 
these participants to offer more aggressive markets at the Exchange. 
The Exchange believes that for Specified Penny Pilot Options the 
proposed decrease of the Fee to Add Liquidity for BX Options Market 
Makers from $0.10 (available only when they are contra to a Customer) 
to $0.00 per contract is equitable and not unfairly discriminatory 
because BX Options Market Makers, unlike other market participants, 
have obligations to the market and regulatory requirements,\10\ which 
normally do not apply to other market participants. A BX Options 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 inconsistent with course of dealings. Non-
Customers, including Professionals, Firms, Broker-Dealers and Non-BX 
Options Market Makers, are assessed a Fee to Add Liquidity of $0.45 per 
contract in the Specified Penny Pilot Options. Customers are assessed a 
Fee to Add Liquidity in the Specified Penny Pilot Options of $0.10 per 
contract only when they are contra to a Customer.
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    \10\ Pursuant to 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. Further, all Market 
Makers are designated as specialists on BX for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
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    Assessing Customers Fees to Add Liquidity in the Specified Penny 
Pilot Options, which are lower than other Non-Customer market 
participants, and not assessing BX Options Market Makers the fee is 
reasonable, equitable and not unfairly discriminatory because the model 
seeks to reward liquidity providers by assessing takers. Other options 
exchanges similarly provide benefits to liquidity providers.\11\ The 
Exchange believes that lowering costs will incentivize BX Options 
Market Makers to interact with a greater number of Specified Penny 
Pilot Options orders on the Exchange. The proposed differentiation 
between BX Options Market Makers and other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by these market participants. 
Customers would continue to not be assessed a Fee to Remove Liquidity 
in the Specified Penny Pilot Options while BX Options Market Makers and 
Non-Customers are assessed a $0.45 per contract Fee to Remove Liquidity 
in the Specified Penny Pilot Options. The Exchange would continue to 
uniformly assess the

[[Page 61420]]

Fee to Add Liquidity in Specified Penny Pilot Options to all Non-
Customers.\12\
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    \11\ Phlx pays a Simple Order Rebate for Adding Liquidity to 
Market Makers but not Customers and assesses a Simple Order Fee for 
Removing Liquidity to all market participants thereby creating a 
$0.24 per contract fee differential as between Customers and Market 
Makers in Simple Orders. See Section I of Phlx's Pricing Schedule.
    \12\ No market participant is entitled to a Rebate to Remove 
Liquidity in the Specified Penny Pilot Options.
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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. To the contrary, BX has designed its fees and 
rebates to compete effectively for the execution and routing of options 
contracts.
    The Exchange believes that the proposed amended fees and rebates to 
add liquidity for the Specified Penny Pilot Options will attract BX 
Options Market Makers to engage in market making activities at the 
Exchange which results in tighter markets and order interaction and 
benefits all market participants. As described herein, BX Options 
Market Makers have obligations to the market and regulatory 
requirements,\13\ which normally do not apply to other market 
participants. While BX Options Market Makers will not be paying a Fee 
to Add Liquidity in the Specified Penny Pilot Options, Customers will 
pay a fee which is lower than that assessed to Non-Customers. The 
Exchange believes that this does not present an undue burden on 
competition because the pricing seeks to reward liquidity providers, 
which in turn benefits all market participants. The proposed 
differentiation between BX Options Market Makers and other market 
participants recognizes the differing contributions made to the 
liquidity and trading environment on the Exchange by these market 
participants.
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    \13\ Pursuant to 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. Further, all Market 
Makers are designated as specialists on BX for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
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    Additionally, since the fees and rebates are comparable to those 
present at other options venues,\14\ the Exchange believes the 
proposals discussed herein do not pose an undue burden on intermarket 
competition. The Exchange operates in a highly competitive market 
comprised of twelve U.S. options exchanges in which sophisticated and 
knowledgeable market participants can and do send order flow to 
competing exchanges if they deem fee levels at a particular exchange to 
be excessive. The Exchange believes that the proposed fee and rebate 
scheme discussed herein is competitive. The Exchange believes that this 
competitive marketplace materially impacts the fees and rebates present 
on the Exchange today and substantially influences the proposal set 
forth above.
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    \14\ See PHLX's Pricing Schedule.
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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.\15\ 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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    \15\ 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-2013-052 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 Number SR-BX-2013-052. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090 on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also 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-
2013-052 and should be submitted on or before October 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24157 Filed 10-2-13; 8:45 am]
BILLING CODE 8011-01-P