Document ID: SEC-2016-1677-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ BX, Inc.
Posted Date: 2016-09-19T04:00Z

[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)]
[Notices]
[Pages 64221-64226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22416]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78819; File No. SR-BX-2016-049]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Tiers 
Related to SPY Options

September 13, 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 August 31, 2016, NASDAQ 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 its Options Pricing at Chapter XV 
Section 2, entitled ``BX Options Market--Fees and Rebates,'' which 
governs pricing for BX members using the BX Options Market (``BX 
Options''). The Exchange proposes to modify fees and rebates (per 
executed contract) for options overlying Standard and Poor's[supreg] 
Depositary Receipts/SPDRs[supreg] (``SPY'') \3\ to: (a) Adopt two 
additional rebate Tiers applicable to Rebate to Remove Liquidity, and 
modify the existing volume criteria and rebate amounts per Tier; and 
(b) modify Note 1 through Note 6; within the SPY Options Tier Schedule.
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    \3\ Options overlying SPY are based on the SPDR exchange-traded 
fund (``ETF''), and are Penny Pilot Options. The SPY ETF represents 
ownership in the SPDR S&P 500 Trust, a unit investment trust that 
generally corresponds to the price and yield performance of the SPDR 
S&P 500 Index. ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' 
``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' 
are registered trademarks of Standard & Poor's Financial Services 
LLC. The Penny Pilot was established in June 2012 and extended 
through 2016. See Securities Exchange Act Release Nos. 67256 (June 
26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) (order 
approving BX option rules and establishing Penny Pilot); and 78036 
(June 10, 2016), 81 FR 39308 (June 16, 2016) (SR-BX-2016-021) 
(notice of filing and immediate effectiveness extending the Penny 
Pilot through December 31, 2016).
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    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on September 1, 2016.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.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 Chapter XV, Section 2, to modify 
fees and rebates (per executed contract) for options overlying SPY to: 
(a) Adopt two additional rebate Tiers applicable to Rebate to Remove 
Liquidity, and modify the existing volume criteria and rebate amounts 
per Tier; and (b) modify Note 1 through Note 6; within the SPY Options 
Tier Schedule. The Tiers, described below along with the Notes, 
together make up the ``SPY Options Tier Schedule.'' The proposed SPY 
Options Tier Schedule rebates would apply to Customers \4\ that remove 
liquidity from Customers, Non-Customers,\5\ BX Options Market 
Makers,\6\ or Firms.\7\
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    \4\ 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)). BX Chapter XV. This is known as being marked in the 
Customer range.
    \5\ Note 1 to Chapter XV, Section 2 states: ``\1\A Non-Customer 
includes a Professional, Broker-Dealer and Non-BX Options Market 
Maker.''
    \6\ The term ``BX Options 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 BX Options Market Maker in at least one security. BX 
Chapter XV.
    \7\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC. BX Chapter XV.
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    Currently, Chapter XV, Section 2, subsection (1), has a SPY Options 
Tier Schedule that has three Tiers and six Notes. The Exchange proposes 
in the current filing to modify the Tiers and Notes to give BX 
Participants (``Participants'') additional rebate and fee options, and 
each specific change is described in detail below.
Change 1--Penny Pilot Options: In SPY Options Tier Schedule Adopt Two 
Additional Rebate Tiers and Modify Existing Volume Criteria and Rebate 
Amounts per Tiers [sic]
    In Change 1, the Exchange proposes modifications to its current SPY 
Options Tier Schedule \8\ to indicate that this particular schedule 
will have two additional tiers for the Rebate to Remove Liquidity, 
namely Tiers 4 and 5. The Exchange proposes also to modify existing 
Tiers 1 through 3. By doing so, the Exchange proposes to have a Rebate 
to Remove Liquidity of $0.01 to $0.52 per contract over five Tiers, 
whereas now the rebates are $0.10 to $0.51 per contract over three 
Tiers. The proposed five Tier structure for Rebate to Remove Liquidity 
offers a more graduated Tier structure to further incentivize 
Participants to bring SPY Options volume to the Exchange.
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    \8\ The Penny Pilot Options Tier Schedule, Select Symbols 
Options Tier Schedule, and Non-Penny Pilot Options Tier Schedule 
pricing will remain unchanged.
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    Today, Tier 1 to the Rebate to Remove Liquidity indicates that a 
Participant [sic] removes less than 1500 SPY Options contracts per day 
in the customer range can earn a rebate of $0.10 per contract. The 
Exchange proposes to modify Tier 1 so that going forward a Participant 
that removes less than 500 SPY Options contracts per day in the 
customer range can earn a rebate of $0.01 per contract.
    Today, Tier 2 to the Rebate to Remove Liquidity indicates that a 
Participant [sic] removes 1500 to not more than 2999 SPY Options 
contracts per day in the customer range can earn a rebate of $0.42 per 
contract. The Exchange

[[Page 64222]]

proposes to modify Tier 2 to the Rebate to Remove Liquidity so that 
going forward a Participant that removes 500 to not more than 999 SPY 
Options contracts per day in the customer range can earn a rebate of 
$0.10 per contract.
    Today, Tier 3 to the Rebate to Remove Liquidity indicates that a 
Participant [sic] removes more than 2999 SPY Options contracts per day 
in the customer range can earn a rebate of $0.51 per contract. The 
Exchange proposes to modify Tier 3 to the Rebate to Remove Liquidity so 
that going forward a Participant that removes 1000 to not more than 
1999 SPY Options contracts per day in the customer range can earn a 
rebate of $0.35 per contract.
    The Exchange also proposes two new Tiers that are similar in 
structure to the existing Tiers. The Exchange proposes new Tier 4 
applicable to Rebate to Remove Liquidity so that a Participant that 
removes 2000 to not more than 3999 SPY Options contracts per day in the 
customer range can earn a rebate of $0.43 per contract. The Exchange 
also proposes new Tier 5 applicable to Rebate to Remove Liquidity so 
that a Participant that removes more than 3999 SPY Options contracts 
per day in the customer range can earn a rebate of $0.52 per contract. 
Thus, instead of offering Participants rebates of $0.10 to $0.51 per 
contract over three Tiers, as proposed Participants will be offered 
rebates of $0.01 to $0.52 per contract over five Tiers.
    The Exchange believes that proposed Change 1 is reasonable because, 
by more finely tuning the rebates to volume (e.g., $0.01 per contract 
rebate if remove less than 500 SPY Contracts per lowest Tier 1; and 
$0.52 per contract if remove more than 3999 SPY Contracts per highest 
Tier 5), the proposed five Tier system will serve to incentivize 
Participants to remove more SPY Options contracts from the Exchange.
    As proposed, the Rebate to Remove Liquidity, which is in the SPY 
Options Tier Schedule in Chapter XV, Section 2 subsection (1), will 
read as follows:

                        SPY Options Tier Schedule
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                Rebate to Remove Liquidity (per contract)
------------------------------------------------------------------------
                          Applied to: Customer
------------------------------------------------------------------------
 Non-Customer, BX Options Trading with: Market Maker, Customer, or Firm
------------------------------------------------------------------------
Tier 1.....................  Participant removes less              $0.01
                              than 500 SPY Options
                              contracts per day in the
                              customer range.
Tier 2.....................  Participant removes 500 to             0.10
                              not more than 999 SPY
                              Options contracts per day
                              in the customer range.
Tier 3.....................  Participant removes 1000 to            0.35
                              not more than 1999 SPY
                              Options contracts per day
                              in the customer range.
Tier 4.....................  Participant removes 2000 to            0.43
                              not more than 3999 SPY
                              Options contracts per day
                              in the customer range.
Tier 5.....................  Participant removes more               0.52
                              than 3999 SPY Options
                              contracts per day in the
                              customer range.
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Change 2--Penny Pilot Options: SPY Option Tier Schedule Modify Note 1 
Through Note 6
    There are currently six Notes regarding certain fees to add and 
remove liquidity within the SPY Options Tier Schedule. The language of 
each of these Notes will remain the same, but commensurate with the 
above-discussed Tier modifications the Exchange proposes to modestly 
change the fees and rebates in the Notes.
    Today, Note 1 indicates that Firm fee to add liquidity and fee to 
remove liquidity in SPY Options will be $0.33 per contract, regardless 
of counterparty. The Exchange proposes to modify Note 1 so that going 
forward the Firm fee to add liquidity and fee to remove liquidity in 
SPY Options will be $0.41 per contract, regardless of counterparty.
    Today, Note 2 indicates that Non-Customer fee to add liquidity and 
fee to remove liquidity in SPY Options will be $0.46 per contract, 
regardless of counterparty. The Exchange proposes to modify Note 2 so 
that going forward the Non-Customer fee to add liquidity and fee to 
remove liquidity in SPY Options will be $0.44 per contract, regardless 
of counterparty.
    Today, Note 3 indicates that BX Options Market Maker fee to remove 
liquidity in SPY Options will be $0.46 per contract when trading with 
Firm, Non-Customer, or BX Options Market Maker. The Exchange proposes 
to modify Note 3 so that going forward the BX Options Market Maker fee 
to remove liquidity in SPY Options will be $0.44 per contract when 
trading with Firm, Non-Customer, or BX Options Market Maker.
    Today, Note 4 indicates that Customer fee to add liquidity in SPY 
Options when contra to another Customer will be $0.33 per contract. 
There will be no fee or rebate for Customer SPY Options that add 
liquidity when contra to Firm, BX Options Market Maker or Non 
Customer.\9\ The Exchange proposes to modify Note 4 so that going 
forward the Customer fee to add liquidity in SPY Options when contra to 
another Customer will be $0.38 per contract.
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    \9\ This no fee or rebate language remains in Note 4 without 
change.
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    Today, Note 5 indicates that BX Options Market Maker fee to add 
liquidity and BX Options Market Maker fee to remove liquidity in SPY 
Options will each be $0.44 per contract when trading with Customer. The 
Exchange proposes to modify Note 5 so that going forward the BX Options 
Market Maker fee to add liquidity and BX Options Market Maker fee to 
remove liquidity in SPY Options will each be $0.39 per contract when 
trading with Customer.
    Today, Note 6 indicates that BX Options Market Maker fee to add 
liquidity in SPY Options will be $0.10 per contract when trading with 
Firm, BX Options Market Maker or Non Customer. The Exchange proposes to 
modify Note 6 so that going forward the BX Options Market Maker fee to 
add liquidity in SPY Options will be $0.14 per contract when trading 
with Firm, BX Options Market Maker or Non Customer.
    The Exchange believes that proposed Change 2, together with the 
effort in proposed Change 1 to more finely tune the Rebate to Remove 
Liquidity to volume Tiers, is reasonable in light of the overall 
Exchange effort to incentivize Participants to bring SPY Options 
liquidity to the Exchange.
    As proposed, Notes 1 through 6 to the Rebates to Remove Liquidity, 
which are in the SPY Options Tier Schedule in Chapter XV, Section 2 
subsection (1), will read as follows:
     Note 1: Firm fee to add liquidity and fee to remove 
liquidity in SPY Options will be $0.41 per contract, regardless of 
counterparty.
     Note 2: Non-Customer fee to add liquidity and fee to 
remove liquidity in SPY Options will be $0.44 per contract, regardless 
of counterparty.
     Note 3: BX Options Market Maker fee to remove liquidity in 
SPY Options will be $0.44 per contract when trading

[[Page 64223]]

with Firm, Non-Customer, or BX Options Market Maker.
     Note 4: Customer fee to add liquidity in SPY Options when 
contra to another Customer will be $0.38 per contract. There will be no 
fee or rebate for Customer SPY Options that add liquidity when contra 
to Firm, BX Options Market Maker or Non Customer.
     Note 5: BX Options Market Maker fee to add liquidity and 
BX Options Market Maker fee to remove liquidity in SPY Options will 
each be $0.39 per contract when trading with Customer.
     Note 6: BX Options Market Maker fee to add liquidity in 
SPY Options will be $0.14 per contract when trading with Firm, BX 
Options Market Maker or Non Customer.
    The Exchange is proposing the changes because it believes that they 
will provide even greater incentives for execution of SPY Options 
contracts on the BX Options Market. The Exchange believes that its 
proposal should provide increased opportunities for participation in 
SPY Options executions on the Exchange, facilitating the ability of the 
Exchange to bring together participants and encourage more robust 
competition for orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\10\ in general, and with Section 6(b)(4) and 
6(b)(5) of the Act,\11\ 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 the Exchange operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
Attracting order flow to the Exchange benefits all Participants who 
have the opportunity to interact with this order flow.
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    \10\ 15 U.S.C. 78f.
    \11\ 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, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
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    \12\ Securities Exchange Act Release No. 51808 (June 29, 2005), 
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\13\ (``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.\14\ 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.'' \15\
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    \13\ Net Coalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See id. At 534-535.
    \15\ 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'. . . .'' \16\ 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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    \16\ See id. At 539 (quoting Securities Exchange Act Commission 
at [sic] Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-
74783 (December 9, 2008) (SR-NYSEArca-2006-21)).
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    The Exchange believes that its proposal should provide increased 
opportunities for participation in SPY Options executions on the 
Exchange, facilitating the ability of the Exchange to bring together 
participants and encourage more robust competition for orders.
    The Exchange believes that the proposed change is reasonable, 
equitable and not unfairly discriminatory for the following reasons.
Change 1--Penny Pilot Options: In SPY Options Tier Schedule Adopt Two 
Additional Rebate Tiers and Modify Existing Volume Criteria and Rebate 
Amounts per Tiers [sic]
    In Change 1, the Exchange proposes modifications to its current SPY 
Options Tier Schedule to indicate that this particular schedule will 
have additional Tiers 4 and 5 to Rebate to Remove Liquidity. The 
Exchange proposes also to modify existing Tiers 1 through 3 to Rebate 
to Remove Liquidity. These proposed changes will enable rebates of 
$0.01 to $0.52 per contract over five Tiers in terms of Rebate to 
Remove Liquidity, whereas now the rebates are $0.10 to $0.51 per 
contract over three Tiers. The proposed five Tier structure for Rebate 
to Remove Liquidity is reasonable because it offers a more graduated 
Tier structure to further incentivize Participants to bring SPY Options 
volume to the Exchange. The Exchange believes it is equitable and not 
unfairly discriminatory to modify the Tiers because they will be 
applied uniformly to all similarly situated Participants. This is 
further discussed below.
    Tier 1 would offer the smallest Rebate to Remove Liquidity ($0.01 
per contract) for removing the smallest number or [sic] SPY Options 
contracts, and the Tiers would be graduated so that Tier 5 would offer 
the largest Rebate to Remove Liquidity ($0.52 per contract) for 
removing the largest number or [sic] SPY Options contracts. Going 
forward, as discussed in detail above, the proposed Tiers would be as 
follows: Tier 1--a Participant that removes less than 500 (now 1,500) 
SPY Options contracts per day in the customer range can earn a rebate 
of $0.01 per contract (now $0.10 per contract); Tier 2--a Participant 
that removes 500 to not more than 999 (now 1500 to not more than 2999) 
SPY Options contracts per day in the customer range can earn a rebate 
of $0.10 per contract (now $0.42 per contract); Tier 3--a Participant 
that removes 1000 to not more than 1999 (now more than 2999) SPY 
Options contracts per day in the customer range can earn a rebate of 
$0.35 per contract (now $0.51 per contract); new Tier 4--a Participant 
that removes 2000 to not more than 3999 SPY Options contracts per day 
in the customer range can earn a rebate of $0.43 per contract; and new 
Tier 5--a Participant that removes more than 3999 SPY Options contracts 
per day in the customer range can earn a rebate of $0.52 per contract. 
Thus, as proposed, Participants will be offered rebates of $0.01 per 
contract to $0.52 per contract over five Tiers.
    The Exchange believes that proposed Change 1 is reasonable because, 
by more finely graduating the Customer Rebate to Remove Liquidity to 
volume (e.g., $0.01 rebate per contract if remove less than 500 SPY 
Contracts per lowest Tier 1; and $0.52 rebate per contract if remove 
more than 3999 SPY Contracts per highest Tier 5), the proposed five 
Tier system will serve to further incentivize Participants to remove 
more

[[Page 64224]]

SPY Options order flow in the customer range on the Exchange. The 
Exchange believes that proposed Change 2 [sic] is equitable and not 
unfairly discriminatory because the new Tiers and graduated Tier 
modifications will be applied uniformly to all similarly situated 
Participants.
    SPY Options are among the very highest volume options traded on the 
Exchange. The Exchange believes that the proposed new and modified 
Tiers to the Rebate to Remove Liquidity in the SPY Options Tier 
Schedule applicable to these high-volume options are reasonable because 
they continue to reflect a structure that is not novel in the options 
markets but rather is similar to that of other options markets and 
competitive with what is offered by other exchanges.\17\ In addition, 
the Exchange believes that making changes to add Tiers applicable to 
the Customer in terms of Rebate to Remove Liquidity is reasonable 
because it encourages the desired Customer behavior by marking [sic] 
the Tier structure more graduated and attracting Customer interest to 
the Exchange. Customer activity enhances liquidity on the Exchange for 
the benefit of all market participants and benefits all market 
participants by providing more trading opportunities, which attracts 
market makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
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    \17\ See, e.g., the MIAX fee schedule at https://www.miaxoptions.com/content/fees, the BATS EDGX fee schedule at 
http://www.bats.com/us/options/membership/fee_schedule/edgx/, and 
the BOX fee schedule at http://boxoptions.com/fee-schedule/.
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    Expanding SPY Option Tiers for Rebate to Remove Liquidity is 
reasonable because it encourages market participant behavior through 
progressive tiered fees and rebates using an accepted methodology among 
options exchanges.\18\ The proposed Tiers applicable to the Rebate to 
Remove Liquidity in the SPY Options Tier Schedule clearly reflect the 
progressively increasing nature of Participant executions structured 
for the purpose of attracting order flow to the Exchange. That is, as 
discussed if a Participant removes more SPY Options contracts per day 
in the customer range, the Participant can earn higher rebates. For 
example, in the highest proposed SPY Options Tier 5 Rebate to Remove 
Liquidity, for which Participant must remove more than 3999 SPY Options 
contracts per day in the customer range, the Participant can earn the 
highest $0.52 rebate (per contract). And in the lowest proposed SPY 
Options Tier 1 Rebate to Remove Liquidity, for which Participant must 
remove less than 500 SPY Options contracts per day in the customer 
range, the Participant can earn the lowest $0.01 rebate (per contract).
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    \18\ See, e.g., fee and rebate schedules of other options 
exchanges, including, but not limited to, NASDAQ Options Market 
(``NOM''), NASDAQ PHLX LLC (``Phlx''), and Chicago Board Options 
Exchange (``CBOE'').
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Change 2--Penny Pilot Options: In SPY Option Tier Schedule Modify Note 
1 Through Note 6
    In Change 2 the Exchange proposes to modify six Notes regarding 
certain fees to add liquidity and fees to remove liquidity. The 
language of each of these Notes will remain the same, but the Exchange 
proposes to modestly increase or decrease the amount of the fees and 
rebates [sic] as discussed below. The Exchange believes that this is 
reasonable. The Exchange believes it is equitable and not unfairly 
discriminatory to update the Notes because they will be applied 
uniformly to all similarly situated Participants.
    Going forward, as discussed in detail above, the proposed Notes 
would be as follows: Note 1--Firm fee to add liquidity and fee to 
remove liquidity in SPY Options will be $0.41 (now $0.33) per contract, 
regardless of counterparty; Note 2--Non-Customer fee to add liquidity 
and fee to remove liquidity in SPY Options will be $0.44 (now $0.46) 
per contract, regardless of counterparty; Note 3--BX Options Market 
Maker fee to remove liquidity in SPY Options will be $0.44 (now $0.46) 
per contract when trading with Firm, Non-Customer, or BX Options Market 
Maker. [sic]; Note 4--Customer fee to add liquidity in SPY Options when 
contra to another Customer will be $0.38 (now $0.33) per contract; \19\ 
Note 5--BX Options Market Maker fee to add liquidity and BX Options 
Market Maker fee to remove liquidity in SPY Options will each be $0.39 
(today $0.44) per contract when trading with Customer; and Note 6--BX 
Options Market Maker fee to add liquidity in SPY Options will be $0.14 
(now $0.10) per contract when trading with Firm, BX Options Market 
Maker or Non Customer.
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    \19\ The following language in Note 4 remains without change: 
There will be no fee or rebate for Customer SPY Options that add 
liquidity when contra to Firm, BX Options Market Maker or Non 
Customer.
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    The fee and rebate schedule as proposed continues to reflect 
differentiation among different market participants. The Exchange 
believes that the differentiation is equitable and not unfairly 
discriminatory, as well as reasonable, and notes that unlike others 
(e.g., Non-Customers) some market participants like BX Options Market 
Makers commit to various obligations. Despite the fact that certain BX 
Options Market Maker fees to add liquidity are proposed to be increased 
as discussed earlier, the BX Options Market Maker fees to add and 
remove will be lower as compared to other non-Customer market 
participants. Unlike other non-Customer market participants, BX Options 
Market Makers have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\20\ A BX Options Market Maker has the obligation to make 
continuous markets, engage in course [sic] 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 [sic] of dealings. Customers will continue to 
be assessed the lowest fees because Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attracts market makers. An increase in the activity of these market 
participants in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants.
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    \20\ 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.'' [sic]
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    The Exchange believes that proposed Change 2, together with the 
effort in proposed Change 1 to more finely tune the Rebate to Remove 
Liquidity to volume Tiers, is reasonable in light of the overall 
Exchange effort to incentivize Participants to bring SPY Options 
liquidity to the Exchange. The Exchange believes that proposed Change 2 
to modify the Notes applicable to SPY Options Tier Schedule is 
equitable and not unfairly discriminatory because it will be applied 
uniformly to all similarly situated Participants.\21\
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    \21\ Because the Notes are in the Rebate to Remove Liquidity 
section of the SPY Options Tier Schedule, the additional reasonable, 
equitable, and not unfairly discriminatory arguments immediately 
above in respect of proposed Change 1 are likewise applicable to 
proposed Change 2.
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    The Exchange believes that by making the proposed changes it is 
incentivizing Participants to trade more SPY Options volume to the 
Exchange to further enhance liquidity in this market.

[[Page 64225]]

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 its SPY Options fees 
and rebates to add new Tiers 4 and 5 and modify existing Tiers 1, 2, 
and 3 to Rebate to Remove Liquidity, and to adjust applicable Notes 1 
through 6, 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 or 
rebate incentives at a particular exchange to be excessive or 
inadequate. 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 and rebates remain competitive 
with the fee structures at other trading platforms. In that sense, the 
Exchange's proposal is actually pro-competitive because the Exchange is 
simply continuing its fees and rebates and enhancing Tiers with Notes 
applicable to Rebate to Remove Liquidity for SPY Options in order to 
attract trading such options on the Exchange and remain competitive in 
the current environment.
    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. 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. In 
terms of intra-market competition, the Exchange notes that price 
differentiation among different market participants operating on the 
Exchange (e.g., Customer, BX Options Market Maker, and Non-Customer) is 
reasonable. Customer activity, for example, enhances liquidity on the 
Exchange for the benefit of all market participants and benefits all 
market participants by providing more trading opportunities, which 
attracts market makers. An increase in the activity of these market 
participants (particularly in response to pricing) in turn facilitates 
tighter spreads, which may cause an additional corresponding increase 
in order flow from other market participants. Moreover, unlike others 
(e.g., Non-Customers) each BX Options Market Maker commits to various 
obligations. These obligations include, for example, transactions of a 
BX Market Maker 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.
    In this instance, the proposed changes to the fees and rebates for 
execution of contracts on the Exchange, and establishing SPY Options 
Tiers with Notes for such fees and rebates, do not impose a burden on 
competition because the Exchange's execution and routing services are 
completely voluntary and subject to extensive competition from other 
exchanges.. [sic] 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\22\
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    \22\ 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-2016-049 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2016-049. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from

[[Page 64226]]

submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-BX-
2016-049, and should be submitted on or before October 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22416 Filed 9-16-16; 8:45 am]
 BILLING CODE 8011-01-P