[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)]
[Notices]
[Pages 64221-64226]
[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

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

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

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.

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<EMAIL_ADDRESS>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

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