Document ID: SEC-2014-0313-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Topaz Exchange, LLC
Posted Date: 2014-02-19T05:00Z

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9547-9550]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03558]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71527; File No. SR-Topaz-2014-07]

Self-Regulatory Organizations; Topaz Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees

February 12, 2014.
    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 3, 2014, the Topaz Exchange, LLC (d/b/a ISE Gemini) 
(the ``Exchange'' or ``Topaz'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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

    Topaz is proposing to amend its Schedule of Fees. The text of the 
proposed rule change is available on the Exchange's Internet Web site 
at http://www.ise.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 the 
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 self-regulatory organization 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
    The purpose of the proposed rule change is to amend the Schedule of 
Fees to (1) introduce volume-based tiered rebates for Firm Proprietary/
Broker-Dealer and Professional Customer orders, (2) increase Maker 
Rebates provided to Priority Customer orders in Non-Penny Symbols, and 
(3) increase the Taker Fee and Fee for Responses to Crossing Orders 
charged for Market Maker orders in Non-Penny Symbols. The fee changes 
discussed apply to both Standard Options and Mini Options traded on 
Topaz. The Exchange's Schedule of Fees has separate tables for fees 
applicable to Standard Options and Mini Options. The Exchange notes 
that while the discussion below relates to fees for Standard Options, 
the fees for Mini Options, which are not discussed below, are and shall 
continue to be 1/10th of the fees for Standard Options.
    On September 3, 2013 the Exchange filed with the Commission an 
immediately effective rule filing that established volume-based tiered 
rebates for adding liquidity on the Exchange (``Maker Rebates'').\3\ 
Specifically, that filing established Maker Rebates applicable to 
Market Maker \4\ and Priority Customer \5\ orders based on a Member's 
average daily volume (``ADV'') in a given month. Topaz now proposes to 
amend its Schedule of Fees to introduce similar tiered Maker Rebates 
for Firm Proprietary/Broker-Dealer \6\ and Professional Customer \7\ 
orders that add liquidity on the Exchange. The proposed tiered Maker 
Rebates will replace the current uniform Maker Rebate of $0.25 per 
contract that is currently provided to all Firm Proprietary/Broker-
Dealer and Professional Customer orders in all symbols regardless of 
the volume executed by a Member.
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    \3\ See Securities Exchange Act Release No. 70426 (September 17, 
2013), 78 FR 58359 (September 23, 2013) (SR-Topaz-2013-04).
    \4\ The term Market Maker refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. Market Maker 
orders sent to the Exchange by an Electronic Access Member are 
assessed fees and rebates at the same level as Market Maker orders. 
See footnote 2, Schedule of Fees, Section I and II.
    \5\ A Priority Customer is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s).
    \6\ A Firm Proprietary order is an order submitted by a Member 
for its own proprietary account. A Broker-Dealer order is an order 
submitted by a Member for a non-Member broker-dealer account.
    \7\ A Professional Customer is a person who is not a broker/
dealer and is not a Priority Customer.
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    A Member's tier will be based on its ``maker'' ADV in Firm 
Proprietary/Broker-Dealer and Professional Customer orders, which must 
be from 0-9,999 contracts for Tier 1, from 10,000-24,999 contracts for 
Tier 2, from 25,000-39,999 contracts for Tier 3, and

[[Page 9548]]

40,000 or more contracts for Tier 4.\8\ Instead of the uniform Maker 
Rebates currently provided, Firm Proprietary/Broker Dealer and 
Professional Customer orders will now qualify for tiered Maker Rebates, 
which are proposed to be $0.25 per contract in Penny Symbols and $0.35 
per contract in Non-Penny Symbols for Tier 1, $0.30 per contract in 
Penny Symbols and $0.45 per contract in Non-Penny Symbols for Tier 2, 
$0.35 per contract in Penny Symbols and $0.55 per contract in Non-Penny 
Symbols for Tier 3, and $0.40 per contract in Penny Symbols and $0.65 
per contract in Non-Penny Symbols for Tier 4. The highest tier 
threshold attained by a Member will apply retroactively in a given 
month to all eligible traded contracts and for all eligible market 
participants. These tiers, however, will be completely separate from 
the tiers currently in place for Market Maker and Priority Customer 
orders. Thus, for example, if a Member executes sufficient volume to 
qualify for Tier 2 rebates for its Firm Proprietary/Broker-Dealer and 
Professional Customer orders that Member will not thereby qualify for 
Tier 2 rebates for its Market Maker or Priority Customer orders, and 
vice versa. Market Maker and Priority Customer orders will continue to 
be eligible for tiers based exclusively on achieving volume thresholds 
in the current table of qualifying tier thresholds, which has been 
relabeled ``Table 1.'' Firm Proprietary/Broker-Dealer and Professional 
Customer orders will be eligible for higher tiers based exclusively on 
achieving volume thresholds in new ``Table 2.'' Members who do not 
achieve a higher tier based on the applicable table will receive Tier 1 
rates.
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    \8\ All eligible volume from affiliated Members will be 
aggregated in determining applicable tiers, provided there is at 
least 75% common ownership between the Members as reflected on each 
Member's Form BD, Schedule A. ADV thresholds will be based on 
Standard and Mini volume, but their respective rebates/fees will 
apply. Any day that the market is not open for the entire trading 
day may be excluded from the ADV calculation.
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    In connection with the new tiered Maker Rebates described above, 
the Exchange is also proposing to make non-substantive edits to the 
text of its Schedule of Fees to clarify which items are included in the 
various ADV categories. In particular, the Exchange proposes to adopt 
amended text that states that: (1) The Total Affiliated Member ADV 
category includes all volume in all symbols and order types, including 
both maker and taker volume and volume executed in the PIM, 
Facilitation, Solicitation, and QCC mechanisms; \9\ and (2) the 
Priority Customer Maker ADV category includes all Priority Customer 
volume that adds liquidity in all symbols. This amended language will 
supplement new text indicating, as explained above, that the Firm 
Proprietary/Broker-Dealer and Professional Customer Maker ADV category 
includes all Firm Proprietary/Broker-Dealer and Professional Customer 
volume that adds liquidity in all symbols.
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    \9\ Only the Total Affiliated Member ADV category includes 
volume executed in the PIM, Facilitation, Solicitation, and QCC 
mechanisms as orders executed in the Exchange's crossing mechanisms 
are not considered ``maker'' volume.
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    The Exchange is also proposing to increase the Maker Rebates 
applicable to Priority Customer orders in Non-Penny Symbols. Currently, 
Priority Customer orders in Non-Penny Symbols receive a Maker Rebate of 
$0.70 per contract for Tier 1, $0.75 per contract for Tier 2, $0.80 per 
contract for Tier 3, and $0.82 per contract for Tier 4. The Exchange 
proposes to increase the Maker Rebate for Priority Customer orders in 
Non-Penny Symbols to be $0.75 per contract for Tier 1, $0.80 per 
contract for Tier 2, $0.82 per contract for Tier 3, and $0.85 per 
contract for Tier 4.
    Finally, the Exchange is proposing to increase the Taker Fee and 
Fee for Responses to Crossing Orders applicable to Market Maker orders 
in Non-Penny Symbols. Currently, Market Maker orders in Non-Penny 
Symbols that remove liquidity or respond to a Crossing Order pay a fee 
of $0.84 per contract. The Exchange is proposing to increase both of 
these fees to $0.86 per contract.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and 
Section 6(b)(4) of the Act,\11\ in particular, in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and other persons using its facilities.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed tiered Maker Rebates are 
reasonable, equitable, and not unfairly discriminatory because Topaz 
has already established volume-based pricing for Market Maker and 
Priority Customer orders, and is merely proposing to adopt a similar 
pricing model for Firm Proprietary/Broker-Dealer and Professional 
Customer orders in order to incentivize Members to send this order flow 
to the Exchange. The new Maker Rebate tiers will allow Members to 
receive increased rebates for their Firm Proprietary/Broker-Dealer and 
Professional Customer orders. In Penny Symbols, Members that bring this 
order flow to the Exchange will receive the same $0.25 per contract 
Maker Rebate that they receive today at the lowest tier, and an 
additional $0.15 per contract above the current rebate at the highest 
tier. In Non-Penny Symbols, Members will receive an additional $0.10 
per contract above the current rebate at the lowest tier, and an 
additional $0.40 per contract above the current rebate at the highest 
tier. As noted above, Market Maker and Priority Customer orders 
currently benefit from tiered rebates, and the Exchange believes that 
these rebates have been successful in attracting that order flow to 
Topaz. This proposal is designed to attract additional order flow from 
certain market participants that are not incentivized by the current 
tiers for Market Maker and Priority Customer orders. The Exchange 
believes that providing higher rebates for Firm Proprietary/Broker-
Dealer and Professional Customer orders executed by Members that have 
achieved specified volume thresholds will attract that order flow to 
Topaz, and thereby create additional liquidity to the benefit of all 
market participants who trade on the Exchange. While non-Topaz Market 
Makers will not be eligible for the proposed tiers, the Exchange does 
not believe that this is unfairly discriminatory as the proposal is not 
intended to incentivize additional flow from non-Members who will 
continue to receive Maker Rebates at the current rate. In addition, the 
Exchange believes that it is appropriate, in connection with this 
change, to make non-substantive amendments to the text of the Schedule 
of Fees in order to make the current and proposed rebate programs more 
transparent to Members and investors.
    The Exchange also believes that it is reasonable, equitable, and 
not unfairly discriminatory to increase Maker Rebates provided to 
Priority Customer orders in Non-Penny Symbols. As with the new Maker 
Rebates discussed above for Firm Proprietary/Broker-Dealer and 
Professional Customer orders, the Exchange believes that providing 
higher rebates for Priority Customer orders attracts that order flow to 
Topaz and thereby creates liquidity to the benefit of all market 
participants who trade on the Exchange. While the proposed rule change 
increases Maker Rebates for both Priority and Professional Customer 
orders the Exchange notes that Priority Customer orders will remain 
entitled to higher rebates than Professional

[[Page 9549]]

Customer orders. The Exchange believes that it is equitable and not 
unfairly discriminatory to provide higher rebates to Priority Customer 
orders than to Professional Customer orders. A Priority Customer is by 
definition not a broker or dealer in securities, and does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). This limitation does 
not apply to participants on the Exchange whose behavior is 
substantially similar to that of market professionals, including 
Professional Customers, who will generally submit a higher number of 
orders (many of which do not result in executions) than Priority 
Customers.
    Finally, the Exchange believes that it is reasonable, equitable, 
and not unfairly discriminatory to increase the Taker Fee and Fee for 
Responses to Crossing Orders charged for Market Maker orders in Non-
Penny Symbols as these fees are still within the range of fees 
currently charged on other options exchanges. For example, the NASDAQ 
Options Market currently charges a fee for removing liquidity of $0.89 
per contract for Market Maker orders in Non-Penny Symbols, which is 
higher than the $0.86 per contract fee proposed here.\12\ The Exchange 
notes that it is increasing response fees in tandem with its Taker Fees 
as an execution resulting from a Response to a Crossing Order is akin 
to taking liquidity.
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    \12\ See NASDAQ Options Rules, Chapter XV Options Pricing, 
Section 2, NASDAQ Options Market--Fees and Rebates.
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    The Exchange notes that it has determined to charge fees and 
provide rebates in Mini Options at a rate that is 1/10th the rate of 
fees and rebates the Exchange provides for trading in Standard Options. 
The Exchange believes it is reasonable and equitable and not unfairly 
discriminatory to assess lower fees and rebates to provide market 
participants an incentive to trade Mini Options on the Exchange. The 
Exchange believes the proposed fees and rebates are reasonable and 
equitable in light of the fact that Mini Options have a smaller 
exercise and assignment value, specifically 1/10th that of a standard 
option contract, and, as such, is providing fees and rebates for Mini 
Options that are 1/10th of those applicable to Standard Options.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\13\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on inter-market or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the Exchange believes that the proposed changes will promote 
competition as they are designed to allow Topaz to better compete for 
order flow by offering higher rebates to market participants that add 
liquidity on the Exchange. While the Exchange proposes to increase 
taker and response fees for a subset of orders, the Exchange believes 
that this will not impose a burden on competition because the new fees 
are consistent with those charged by other options exchanges.\14\ 
Furthermore, the Exchange believes that the clarifying text being added 
to the Schedule of Fees is non-substantive, and therefore does not 
impact the competition analysis. The Exchange operates in a highly 
competitive market in which market participants can readily direct 
their order flow to competing venues. In such an environment, the 
Exchange must continually review, and consider adjusting, its fees and 
rebates to remain competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed fee changes 
reflect this competitive environment.
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    \13\ 15 U.S.C. 78f(b)(8).
    \14\ See supra note 12.
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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 unsolicited 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)(ii) of the Act,\15\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\16\ because it establishes a due, fee, or other charge 
imposed by Topaz.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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.

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-Topaz-2014-07 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-Topaz-2014-07. 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 offices 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-Topaz-2014-07, and 
should be submitted on or before March 12, 2014.

[[Page 9550]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03558 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P