Document ID: SEC-2017-0292-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Bats BZX Exchange, Inc.
Posted Date: 2017-02-23T05:00Z

[Federal Register Volume 82, Number 35 (Thursday, February 23, 2017)]
[Notices]
[Pages 11491-11493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03459]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80050; File No. SR-BatsBZX-2017-13]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Option Regulatory Fees as They Relate to the Equity Options 
Platform

February 16, 2017.
    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 8, 2017, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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 BZX Rules 
15.1(a) and (c) to amend its Options Regulatory Fee (``ORF'').
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify the fee schedule applicable to the 
Exchange's options platform (``BZX Options'') to amend the rate of its 
ORF.\6\ Currently, the Exchange charges an ORF in the amount of $0.0010 
per contract side. The Exchange proposes to decrease the amount of ORF 
to $0.0009 per contract side.\7\ The proposed change to ORF should 
continue to balance the Exchange's regulatory expenses against the 
anticipated revenue.
---------------------------------------------------------------------------

    \6\ The Exchange also proposes to insert a colon after the title 
``Options Regulatory Fee''.
    \7\ The Exchange notes that it previously proposed to decrease 
its ORF of $0.0008 per contract in August 2016 and to assess ORF to 
each Member and non-Member for all options transactions cleared by 
OCC in the ``customer'' range, regardless of the exchange on which 
the transaction occurred. See Securities Exchange Act Release No. 
78453 (August 1, 2016), 81 FR 51954 (August 5, 2016) (SR-BatsBZX-
2016-42). The Exchange then filed to delay the implementation of SR-
BatsBZX-2016-42 until February 1, 2017. See Securities Exchange Act 
Release No. 78746 (September 1, 2016), 81 FR 62225 (September 8, 
2016) (SR-BatsBZX-2016-52). The Commission later issued an order 
suspending and [sic] SR-BatsBZX-2016-42 and instituted proceedings 
to determine whether to approve or disapprove the proposed rule 
change asking whether the [sic] ``a sufficient regulatory nexus 
exists between the Exchange and a non-Member to justify imposition 
of the ORF on such non-Member.'' See Securities Exchange Act Release 
No. 78849 (September 15, 2016), 81 FR 64960 (September 21, 2016). On 
January 10, 2017, the Exchange withdrew SR-Bats-BZX-2016-42. The 
Exchange also proposes in this filing to remove text from its fee 
schedule adopted by SR-BatsBZX-2016-52 which delayed the 
implementation of SR-BatsBZX-2016-42 until February 1, 2017.
---------------------------------------------------------------------------

    The per-contract ORF is assessed by the Exchange on each Member for 
all options transactions executed and cleared, or simply cleared, by 
the Member, that are cleared by OCC in the ``customer'' range, 
regardless of the exchange on which the transaction occurs. The ORF is 
collected indirectly from Members through their clearing firms by OCC 
on behalf of the Exchange. The ORF is also charged for transactions 
that are not executed by a Member but are ultimately cleared by a 
Member. Thus, in the case where a non-Member executes a transaction and 
a Member clears the transaction, the ORF is assessed to the Member who 
clears the transaction. Similarly, in the case where a Member executes 
a transaction and another Member clears the transaction, the ORF is 
assessed to the Member who clears the transaction.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Members' customer 
options business, including performing routine surveillances and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees and fines, will continue to cover a material portion, but not all, 
of the Exchange's regulatory costs.\8\
---------------------------------------------------------------------------

    \8\ The Exchange notes that its regulatory responsibilities with 
respect to compliance with options sales practice rules has been 
allocated to the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') under a 17d-2 Agreement. The ORF is not designed to 
cover the cost of options sales practice regulation.
---------------------------------------------------------------------------

    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange expects to monitor its regulatory costs 
and revenues at a minimum on a semi-annual basis. If the Exchange 
determines regulatory revenues exceed or are insufficient to cover a 
material portion of its regulatory costs, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
will continue to notify Members of adjustments to the ORF at least 30

[[Page 11492]]

calendar days prior to the effective date of the change.\9\
---------------------------------------------------------------------------

    \9\ The Exchange announced the proposed changes to ORF on 
December 30, 2016. See Bats Options Exchange Regulatory Fee Schedule 
Update Effective February 1, 2017 available at http://cdn.batstrading.com/resources/fee_schedule/2017/Bats-Options-Exchange-Regulatory-Fee-Schedule-Update-Effective-February-1-2017.pdf.
---------------------------------------------------------------------------

Implementation Date
    The Exchange proposes to implement changes to the ORF 
immediately.\10\
---------------------------------------------------------------------------

    \10\ The Exchange originally filed the proposed rule change on 
January 30, 2017. (SR-BatsBZX-2017-02). On February 8, 2017, the 
Exchange withdrew SR-BatsBZX-2017-02 and submitted this filing.
---------------------------------------------------------------------------

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.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\12\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using its facilities. The Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily direct order flow to competing venues or 
providers of routing services if they deem fee levels to be excessive.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the decreased ORF is equitable and not 
unfairly discriminatory because it would be objectively allocated to 
Members in that it would be charged to all Members on all their 
transactions that clear as customer transactions at the OCC. The 
Exchange believes that decreasing the ORF is reasonable because the 
Exchange's collection of ORF needs to be balanced against the amount of 
regulatory revenue collected by the Exchange. The Exchange believes 
that the proposed adjustment noted herein will serve to continue to 
balance the Exchange's regulatory revenue against its anticipated 
regulatory costs. In addition, the Exchange believes the amount of the 
ORF is reasonable as it is significantly lower than ORFs charged by 
other exchanges. By way of comparison, MIAX charges an ORF of $0.0045 
per contract side,\13\ and both NYSE Arca and NYSE Amex charge an ORF 
of $0.0055 per contract side.\14\ The CBOE charges an ORF of $0.0081 
per contract.\15\
---------------------------------------------------------------------------

    \13\ See MIAX fee schedule available at http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_06012016.pdf (dated January 1, 2017).
    \14\ See NYSE Arca Options fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (dated January 1, 2017); and NYSE 
Amex fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (dated 
January 1, 2017).
    \15\ See CBOE fee schedule available at http://www.cboe.com/framed/pdfframed.aspx?content=/publish/feeschedule/CBOEFeeSchedule.pdf§ion=SEC_RESOURCES&title=CBOE%20Fee%20Schedule
 (dated January 3, 2017).
---------------------------------------------------------------------------

    The Exchange has designed the ORF to generate revenues that, when 
combined with all of the Exchange's other regulatory fees, will be less 
than or equal to the Exchange's regulatory costs, which is consistent 
with the Commission's view that regulatory fees be used for regulatory 
purposes and not to support the Exchange's business side. In this 
regard, the Exchange believes that the decreased level of the fee is 
reasonable and appropriate.

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. The ORF is not intended to have 
any impact on competition. Rather, it is designed to enable the 
Exchange to recover a material portion of the Exchange's cost related 
to its regulatory activities. The Exchange is obligated to ensure that 
the amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.
    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. 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. The decreased ORF continues 
to also be comparable to ORFs charged by other options exchanges.

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 \16\ and paragraph (f) of Rule 19b-4 
thereunder.\17\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 No. SR-BatsBZX-2017-13 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 No. SR-BatsBZX-2017-13. 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

[[Page 11493]]

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 No. SR-BatsBZX-2017-13, and should be submitted on or before March 
16, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03459 Filed 2-22-17; 8:45 am]
 BILLING CODE 8011-01-P