[Federal Register Volume 80, Number 156 (Thursday, August 13, 2015)]
[Notices]
[Pages 48600-48610]
[FR Doc No: 2015-19878]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75650; File No. SR-EDGX-2015-18]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 2,
and 3 Thereto, To Establish Rules Governing the Trading of Options on
the EDGX Options Market

August 7, 2015.

I. Introduction

    On April 30, 2015, EDGX Exchange, Inc. (``EDGX'' or ``Exchange'')
filed with the Securities and Exchange Commission (the ``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
adopt rules to govern the trading of options on the Exchange (referred
to herein as ``EDGX Options Exchange'' or ``EDGX Options''). The
proposed rule change was published for comment in the Federal Register
on May 19, 2015.\3\ On June 25, 2015, pursuant to Section 19(b)(2) of
the Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On August 3, 2015, EDGX filed Amendment No. 1
to the proposed rule change.\6\ On August 6, 2015, EDGX filed Amendment
No. 2 to the proposed rule change.\7\ On August 7, 2015, the Exchange
filed Amendment No. 3 to the proposed rule change.\8\ The Commission
received three comment letters on the proposal.\9\ On August 7, 2015,
the Exchange responded to the comment letters.\10\ The Commission is
publishing this notice to solicit comment on Amendment Nos. 1 and 2 to
the proposed rule change and is approving the proposed rule change, as
modified by Amendment Nos. 1, 2, and 3 thereto, on an accelerated
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74949 (May 13,
2015), 80 FR 28745 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 75297, 80 FR 37672
(July 1, 2015).
    \6\ Amendment No. 1 deleted proposed EDGX Options Rule
21.8(f)(2), which would have granted participation entitlements to
Directed Market Makers trading against small size orders defined as
five or fewer contracts. In addition, Amendment No. 1 provided more
detailed information regarding participation entitlements for
Directed Market Makers. Among other things, the Exchange represented
that the proposed rules provide the necessary protections against
coordinated action between a Directed Market Maker and order entry
firms and that EDGX Options will proactively conduct surveillance
for, and enforce against, such violations.
    \7\ In Amendment No. 2, the Exchange represented that it is a
participant in the Plan for the Selection and Reservation of
Securities Symbols. Amendment No. 2 also clarified that the Penny
Pilot Program (discussed below) is scheduled to expire on June 30,
2016 and the Exchange would be permitted to replace any penny pilot
issues that have been delisted with the next most actively traded
multiply listed options classes that are not yet included in the
penny pilot, based on trading activity in the previous six months.
The replacement issues may be added to the penny pilot on the second
trading day following July 1, 2015 and January 1, 2016.
    \8\ Amendment No. 3 made technical changes to Amendments Nos. 1
and 2. Because Amendment No. 3 is technical in nature, the
Commission is not required to publish it for public comment.
    \9\ See letters to Brent J. Fields, Secretary, Commission, from
Suzanne H. Shatto, dated July 7, 2015 (``Shatto Letter''); from
Michael J. Simon, Secretary and General Counsel, International
Securities Exchange, LLC (``ISE''), dated July 28, 2015 (``ISE
Letter''); and from Mark D. Wilson, Director of Technical Risk
Management & Exchange Relations and Brent E. Hippert, President and
Chief Compliance Officer, Hardcastle Trading USA, LLC, dated August
3, 2015 (``Hardcastle Letter'').
    \10\ See letter to Brent J. Fields, Secretary, Commission, from
Anders Franzon, VP, Associate General Counsel, EDGX, dated August 7,
2015 (``Response'').
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II. Comment Summary

    The Commission received three comments letters regarding the
proposal and the Exchange's Response thereto.\11\ One commenter opposed
the proposal because ``we do not need additional options exchanges.''
\12\ The commenter stated that additional options exchanges would lead
to fragmentation causing ``a thinner order book at all options
exchange[s] and allows fast intermediaries to take advantage of retail
orders.'' \13\
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    \11\ See supra notes 9 and 10. The ISE Letter focused
exclusively on the proposed five lot entitlement for Directed Market
Makers and did not address any other aspect of the proposed EDGX
Options rules. The Exchange subsequently deleted this provision from
the proposed rule change and therefore the Commission has not
addressed the ISE Letter in this order.
    \12\ See Shatto Letter, supra note 9.
    \13\ See id.
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    Another commenter stated that it opposes any priority model for an
options exchange other than price-time priority.\14\ The commenter
believed that ``pure price-time priority is the best and fairest model
for a healthy and robust market.'' \15\ The commenter further noted
that price-time priority ``is the best and fairest model because it
rewards firms who are the first people willing to trade at a better
price.'' \16\ The commenter states that exchanges with pro-rata
allocation models adopt rules which allow directed orders and
preferences without justification. According to the commenter, ``[p]ro-
rata allocation rewards firms that simply quote large size, for no
particularly clear benefit to the market.'' \17\
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    \14\ See Hardcastle Letter, supra note 9, at 1.
    \15\ Id.
    \16\ See Hardcastle Letter, supra note 9, at 3.
    \17\ See Hardcastle Letter, supra note 9, at 3. The Hardcastle
Letter was received after the expiration of the comment period and
raises broader market structure policy concerns that are outside of
the scope of the present proposal.
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    In response to the commenters' concerns, EDGX notes that both the
ISE Letter and the Hardcastle Letter ``raised concerns with proposed
paragraph (f)(2) of proposed [EDGX Options] Rule 21.8, which would have
provided a small size order . . . allocation to Directed Market Makers
. . . .'' \18\ The Exchange further notes that it eliminated that
subparagraph from the proposed rule change in Amendment No. 1.\19\ The
Response also states that the ``additional points raised in the
Hardcastle Letter and the Shatto Letter are either not responsive to
the issues raised in Proposal or are aimed at existing elements of U.S.
market structure that have been previously approved by the Commission
and are available on other exchanges and in the marketplace
generally.'' \20\ Consequently, EDGX does not believe these comments
are ``germane to the proposal.'' \21\
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    \18\ See Response, supra note 10, at 2.
    \19\ See id.
    \20\ See id.
    \21\ See id.
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III. Discussion and Commission Findings

    After careful review of the proposal, as modified by Amendment Nos.
1, 2,

and 3 thereto, and consideration of the comment letters and the
Exchange's Response thereto, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 1, 2, and 3, is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\22\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\23\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices; to promote just and
equitable principles of trade; to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, and processing
information with respect to, and facilitating transactions in
securities; to remove impediments to and perfect the mechanism of a
free and open market and a national market system; and, in general, to
protect investors and the public interest. Section 6(b)(5) also
requires that the rules of an exchange not be designed to permit unfair
discrimination among customers, issuers, brokers, or dealers. Further,
the Commission finds that the proposal is consistent with Sections
6(b)(1) of the Act,\24\ which requires, among other things, that a
national securities exchange be so organized and have the capacity to
carry out the purposes of the Act, and to comply and enforce compliance
by its members and persons associated with its members, with the
provisions of the Act, the rules and regulation thereunder, and the
rules of the exchange.
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    \22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(1).
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    This discussion does not review every detail of the proposal, but
focuses on the most significant rules and policy issues considered in
review of the proposal.

A. EDGX Options Members

    EDGX Options will operate an electronic trading system for trading
options (``System'') that will provide for the electronic display and
execution of orders.\25\ EDGX Options will have only one category of
members, known as ``Options Members.'' \26\ Only Options Members will
be permitted to transact business on the System.\27\ There will be two
types of Options Members: (1) Options Order Entry Firms (``OEFs'') and
(2) Options Market Makers. An Options Member must be a member of the
Exchange and another registered options exchange that is not registered
solely under Section 6(g) of the Act \28\ or the Financial Industry
Regulatory Authority (``FINRA'').\29\ Further, an OEF may only transact
business with public customers if such Options Member also is a member
of another registered national securities exchange or association with
which the Exchange has entered into an agreement under Rule 17d-2 under
the Act pursuant to which such other exchange or association shall be
the designated options examining authority for the OEF.\30\ In
addition, Options Members that transact business with Public Customers
must at all times be a member of FINRA.\31\
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    \25\ The proposed rules of EDGX Options are based on, and
virtually identical to, the rules of the Exchange's affiliate, BATS
Exchange, Inc. (``BZX Options''), with the exception of the proposed
priority model and certain other limited differences. See Notice,
supra note 3, at 28745.
    \26\ The term ``Options Member'' means a firm, or organization
that is registered with the Exchange pursuant to Chapter XVII of
EDGX Options proposed rules for purposes of participating in options
trading on EDGX Options as an Order Entry Firm or Options Market
Maker. See proposed EDGX Options Rules, Chapter XVI, Rule
16.1(a)(38). All Exchange members will be eligible to participate in
EDGX Options provided that the Exchange specifically authorizes them
to trade in the System and they become Options Members. A
prospective Options Member must be an existing member or become a
Member of the Exchange, pursuant to Chapter II (Members of the
Exchange), and continue to abide by the requirements of the Chapter
II Exchange Rules with respect to participation in EDGX Options. See
proposed EDGX Options Rules, Chapter XVII, Rule 17.1(b)(3).
    \27\ See proposed EDGX Options Rules, Chapter XVII, Rule
17.1(a).
    \28\ 15 U.S.C. 78f(g).
    \29\ See proposed EDGX Options Rules, Chapter XVII, Rule
17.2(f).
    \30\ See proposed EDGX Options Rules, Chapter XXVI, Rule 26.1.
    \31\ See proposed EDGX Options Rules, Chapter XVII, Rule
17.2(f).
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    Among other things, each Options Member must be registered as a
broker-dealer and have as the principal purpose of being an Options
Member the conduct of a securities business, which shall be deemed to
exist if and so long as: (1) The Options Member has qualified and acts
in respect of its business on EDGX Options as either an OEF or an
Options Market Maker or both; and (2) all transactions effected by the
Options Member are in compliance with Section 11(a) of the Act \32\ and
the rules and regulation adopted thereunder.\33\ Options Members may
trade options for their own proprietary accounts or, if authorized to
do so under applicable law, may conduct business on behalf of
customers.\34\
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    \32\ 15 U.S.C. 78k(a).
    \33\ See proposed EDGX Options Rules, Chapter XVII, Rule
17.2(e).
    \34\ See proposed EDGX Options Rules, Chapter XVII, Rule
17.1(a).
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    OEFs are Options Members representing customer orders as agent on
EDGX Options or non-market maker participants conducting proprietary
trading as principal.\35\ Options Market Makers are Options Members
registered with the Exchange as Options Market Makers and registered to
make markets in individual series of options.\36\ Options Market Makers
will be eligible to participate as Directed Market Makers, Primary
Market Makers and Market Makers.\37\ A Market Maker that engages in
specified Other Business Activities, or that is affiliated with a
broker-dealer that engages in Other Business Activities, including
functioning as an OEF, must have an Information Barrier between the
market making activities and the Other Business Activities.\38\ To
become an Options Market Maker, an Options Member is required to
register by filing a written application with the Exchange, which will
consider an applicant's market making ability and such other factors as
it deems appropriate in determining whether to approve an applicant's
registration as a Market Maker.\39\ An unlimited number of Market
Makers may be registered in each class unless the number of Market
Makers registered to make a market in a particular option class should
be limited whenever, in the Exchange's judgment, quotation system
capacity in an option class or classes is not sufficient to support
additional Market Makers in such class or classes.\40\ The Exchange
will not restrict access in any particular option class until such time
as the Exchange has submitted objective standards for restricting
access to the Commission for its review and approval.\41\
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    \35\ See proposed EDGX Options Rules, Chapter XVI, Rule
16.1(a)(36).
    \36\ See proposed EDGX Options Rules, Chapter XXII, Rule 22.2.
All Market Makers are designated as specialists on EDGX Options for
all purposes under the Exchange Act or Rules thereunder.
    \37\ See Notice, supra note 3, at 28746.
    \38\ See proposed EDGX Options Rules, Chapter XXII, Rule
22.10(a).
    \39\ See proposed EDGX Options Rules, Chapter XXII, Rule
22.2(a).
    \40\ See proposed EDGX Options Rules, Chapter XXII, Rule
22.2(c).
    \41\ See id.
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    In addition, the Exchange may appoint one Primary Market Maker per
option class.\42\ Market Makers may select from among any option issues
traded on the Exchange to request appointment as a Primary Market

Maker, subject to the approval of the Exchange. In considering the
approval of the appointment of a Primary Market Maker in each security,
the Exchange will consider: The Market Maker's preference; the
financial resources available to the Market Maker; the Market Maker's
experience, expertise and past performance in making markets, including
the Market Maker's performance in other securities; the Market Maker's
operational capability; and the maintenance and enhancement of
competition among Market Makers in each security in which they are
registered, including pursuant to the performance standards set forth
in proposed Rule 22.2(i).\43\ Options Market Makers are required to
electronically engage in a course of dealings to enhance liquidity
available on EDGX Options and to assist in the maintenance of fair and
orderly markets.\44\ Among other things, an Options Market Maker must:
(1) On a daily basis maintain a two-sided market on a continuous basis
in at least 75% of the individual options series in which it is
registered; (2) engage, to a reasonable degree under the existing
circumstances, in dealings for their own accounts when there exists, or
it is reasonably anticipated that there will exist, a lack of price
continuity, a temporary disparity between the supply of (or demand for)
a particular option contract, or a temporary distortion of the price
relationships between option contracts of the same class; (3) compete
with other Market Makers in all series in which the Market Maker is
registered to trade; and (4) maintain minimum net capital in accordance
with Commission and the Exchange rules.\45\ Substantial or continued
failure by an Options Market Maker to meet any of its obligations and
duties would subject the Options Market Maker to disciplinary action,
suspension, or revocation of the Options Market Maker's registration in
one or more options series.\46\
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    \42\ See id.
    \43\ See proposed EDGX Options Rules, Chapter XXII, Rule
22.2(d). The Exchange will periodically conduct an evaluation of
Primary Market Makers to determine whether they have fulfilled
performance standards relating to, among other things, quality of
markets, competition among Market Makers, observance of ethical
standards, and administrative factors. The Exchange may consider any
relevant information including, but not limited to, the results of a
Market Maker evaluation, trading data, a Market Maker's regulatory
history and such other factors and data as may be pertinent in the
circumstances. See proposed EDGX Options Rules, Chapter XXII, Rule
22.2(i).
    \44\ See proposed EDGX Options Rules, Chapter XXII, Rule 22.5.
    \45\ See, e.g., proposed EDGX Options Rules, Chapter XXII, Rule
22.5(a).
    \46\ See proposed EDGX Options Rules, Chapter XXII, Rule
22.5(c).
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    The Commission finds that the Options Market Maker qualification
requirements are consistent with the Act and notes that they are
similar to those of other options exchanges.\47\ The Commission also
finds that the Options Market Maker participation requirements are
consistent with the Act. Market makers receive certain benefits for
carrying out their responsibilities. For example, a broker-dealer or
other lender may extend ``good faith'' credit to a member of a national
securities exchange or registered broker-dealer to finance its
activities as a market maker or specialist.\48\ In addition, market
makers are exempted from the prohibition in Section 11(a) of the Act.
The Commission believes that a market maker must have sufficient
affirmative obligations, including the obligation to hold itself out as
willing to buy and sell options for its own account on a regular or
continuous basis, to justify this favorable treatment. The Commission
believes that EDGX Options Market Maker participation requirements
impose sufficient affirmative obligations on Options Market Makers and,
accordingly, that these EDGX Options requirements are consistent with
the Act.\49\
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    \47\ See, e.g., Rules of NOM, Chapter VII, Sections 4, 5, and 6;
and BATS Rules 22.4, 22.5 and 22.6.
    \48\ See 12 CFR 221.5 and 12 CFR 220.7; see also 17 CFR
240.15c3-1(a)(6) (capital requirements for market makers).
    \49\ The Commission notes that the participation requirements
are similar to those of other options exchanges. See, e.g., NOM
Rules, Chapter VII, Sections 5 and 6; and BATS Rules 22.5 and 22.6.
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B. EDGX Options Trading System

    The Exchange's options trading system will leverage the Exchange's
current technology, including its customer connectivity, messaging
protocols, quotation and execution engine, order router, data feeds,
and network infrastructure. As a result, the EDGX Options Exchange will
closely resemble the Exchange's affiliate, BZX Options, with the
exception of the proposed priority model and certain other limited
differences.\50\ As noted above, EDGX Options will maintain a pro rata
allocation model with execution priority dependent on the capacity of
an order (e.g., Customer or non-Customer) as well as status as a
Primary Market Maker or Directed Market Maker, as applicable.\51\ The
System will include a proprietary data feed, Multicast PITCH, which
will display depth of book quotations and execution information based
on orders received by EDGX Options using the minimum price variation
applicable to that security.\52\
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    \50\ See Notice, supra note 3, at 28745.
    \51\ See id. at 28747. The System includes: (1) An order
execution service that enables Users to automatically execute
transactions in System Securities; and provides Users with
sufficient monitoring and updating capability to participate in an
automated execution environment; (2) a trade reporting service that
submits ``locked-in'' trades for clearing to a registered clearing
agency for clearance and settlement; transmits last-sale reports of
transactions automatically to the Options Price Reporting Authority
for dissemination to the public and industry, and provides
participants with monitoring and risk management capabilities to
facilitate participation in a ``locked-in'' trading environment; and
(3) a data feed(s) that can be used to display with or without
attribution to Options Members' MPIDs Displayed Orders on both the
bid and offer side of the market for price levels then within EDGX
Options using the minimum price variation applicable to that
security. See proposed EDGX Options Rules, Chapter XXI, Rule
21.1(a). See Notice, supra note 3, for a more complete description
of EDGX Options operation and rules. The Commission notes that the
Plan for Reporting of Consolidated Options Last Sale Reports and
Quotation Information (``OPRA Plan'') requires each party to the
Plan to collect and promptly transmit to the OPRA all last sale
reports relating to its market. See OPRA Plan, Article V, Section
5.2(a).
    \52\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.15.
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    Options Members will be able to enter the following types of orders
into the System: Limit Orders; \53\ Minimum Quantity Orders; \54\
Market Orders; \55\ Price Improving Orders; \56\ Book Only

Orders; \57\ Post Only Orders; \58\ and Intermarket Sweep Orders; \59\
with characteristics and functionality similar to what is currently
approved for use on BZX Options.\60\ Orders entered into the System
will be designated for display (price and size) on either an
attributable or non-attributable basis in the order display service of
the System.\61\ Options Members will be permitted to enter multiple
orders at single or multiple price levels.\62\
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    \53\ Limit Orders are orders to buy or sell an option at a
specified price or better. A limit order is marketable when, for a
limit order to buy, at the time it is entered into the System, the
order is priced at the current inside offer or higher, or for a
limit order to sell, at the time it is entered into the System, the
order is priced at the inside bid or lower. See proposed EDGX
Options Rules, Chapter XXI, Rule 21.1(d)(2).
    \54\ Minimum Quantity Orders are orders that require that a
specified minimum quantity of contracts be obtained, or the order is
cancelled. Minimum Quantity Orders will only execute against
multiple, aggregated orders if such execution would occur
simultaneously. The Exchange will only honor a specified minimum
quantity on a Book Only Order entered with a time-in-force
designation of Immediate or Cancel and will disregard a minimum
quantity on any other order. See proposed EDGX Options Rules,
Chapter XXI, Rule 21.1(d)(3).
    \55\ Market Orders are orders to buy or sell at the best price
available at the time of execution. Market Orders to buy or sell an
option traded on EDGX Options will be rejected if they are received
when the underlying security is subject to a ``Limit State'' or
``Straddle State'' as defined in the Plan to Address Extraordinary
Market Volatility Pursuant to Rule 608 of Regulation NMS under the
Act (the ``Limit Up-Limit Down Plan''). Any portion of a Market
Order that would execute at a price more than $0.50 or 5 percent
worse than the NBBO at the time the order initially reaches EDGX
Options, whichever is greater, will be cancelled. See proposed EDGX
Options Rules, Chapter XXI, Rule 21.1(d)(5).
    \56\ Price Improving Orders are orders to buy or sell an option
at a specified price at an increment smaller than the minimum price
variation in the security. Price Improving Orders may be entered in
increments as small as (1) one cent. Price Improving Orders shall be
displayed at the minimum price variation in that security and shall
be rounded up for sell orders and rounded down for buy orders.
Unless a User has entered instructions not to do so, Price Improving
Orders will be subject to the display-price sliding process as set
forth in proposed EDGX Options Rule 21.1(h). See proposed EDGX
Options Rules, Chapter XXI, Rule 21.1(d)(6).
    \57\ Book Only Orders are orders that are to be ranked and
executed on the Exchange pursuant to Rule 21.8 (Order Display and
Book Processing) or cancelled, as appropriate, without routing away
to another options exchange. A Book Only Order will be subject to
the display-price sliding process unless a User has entered
instructions not to use the display-price sliding process as set
forth in proposed EDGX Options Rule 21.1(h). See proposed EDGX
Options Rules, Chapter XXI, Rule 21.1(d)(7).
    \58\ Post Only Orders are orders that are to be ranked and
executed on the Exchange pursuant to Rule 21.8 (Order Display and
Book Processing) or cancelled, as appropriate, without routing away
to another options exchange except that the order will not remove
liquidity from the EDGX Options Book. A Post Only Order cannot be
designated with instructions to use the display-price sliding
process described in proposed EDGX Options Rule 21.1(h), and any
such order will be rejected. A Post Only Order that is not subject
to the Price Adjust process that would lock or cross a Protected
Quotation of another options exchange or the Exchange will be
cancelled. See proposed EDGX Options Rules, Chapter XXI, Rule
21.1(d)(8). The Exchange notes that Post Only Orders on BZX Options
are permitted to remove liquidity under certain circumstances and
can be designated for the display-price sliding process under BZX
Options Rules. The Exchange has not proposed to adopt these
features. See Notice, supra note 3, at 28748.
    \59\ Intermarket Sweep Orders (``ISOs'') means a limit order for
an options series that: (1) When routed to an eligible exchange, the
order is identified as an ISO; and (2) simultaneously with the
routing of the order, one or more additional ISOs, as necessary, are
routed to execute against the full displayed size of any Protected
Bid, in the case of a limit order to sell, or any Protected Offer,
in the case of a limit order to buy, for the options series with a
price that is superior to the limit price of the ISO, which such
additional orders also marked as ISOs. See proposed EDGX Options
Rules, Chapter XXVII, Rule 27.1(a)(9). See also proposed EDGX
Options Rules, Chapter XXI, Rule 21.1(d)(10).
    \60\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.1.
Options Members entering orders into the System may designate such
orders to remain in force and available for display and/or potential
execution for varying periods of time. Unless cancelled earlier,
once these time periods expire, the order (or the unexecuted portion
thereof) is returned to the entering party.
    \61\ See Notice, supra note 3, at 28749.
    \62\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.6(a).
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    All trading interest on the System will be automatically
executable. The System shall execute trading interest within the System
in price priority, meaning it will execute all trading interest at the
best price level within the System before executing trading interest at
the next best price. After considering price priority, all orders will
be matched according to pro-rata priority. In addition, Customer,
Primary Market Maker and/or Directed Market Maker priority overlays are
also available at the Exchange's discretion on a class-by-class
basis.\63\ For example, (i) the Customer Overlay provides Customers
with priority over all non-Customer interest at the same price; (ii)
the Directed Market Maker overlay (which may only be in effect if the
Customer Overlay is also in effect) provides the Directed Market Maker
with priority over other Market Makers for a certain percentage of
contracts allocated at the same price (60% or 40% depending upon the
number of other Market Makers at the NBBO); and (iii) the Primary
Market Maker overlay (which may only be in effect if the Customer
Overlay is also in effect) provides Primary Market Makers with priority
over other Market Makers for a certain percentage of contracts
allocated at the same price (60% or 40% depending upon the number of
other Market Makers at the NBBO) and for small size orders.\64\
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    \63\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.8(d).
    \64\ See Amendment 1, supra note 6, at 1.
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    After executions resulting from the priority overlays, orders and
quotes within the System for the accounts of non-Customers, including
Professional Customers, have next priority.\65\ If there is more than
one highest bid or more than one lowest offer in the Consolidated Book
for the account of a non-Customer, then such bids or offers will be
afforded priority on a ``size pro rata'' basis.\66\ Any price
improvement resulting from an execution in the System will accrue to
the party taking liquidity.\67\
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    \65\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.8.
    \66\ Id.
    \67\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.8(i).
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    The Exchange notes that a Directed Market Maker will have to be
quoting at or improving the NBBO at the time the order is received to
capitalize on the participation entitlement and will only receive a
participation entitlement at one such price point. The Directed Market
Maker must be publicly quoting at that price when the order is
received. In this regard, the proposal prohibits an order flow provider
from notifying a Directed Market Maker regarding its intention to
submit a Directed Order so that such Directed Market Maker could change
its quotation immediately prior to submission of the directed order.
The Exchange believes the proposed rules provide the necessary
protections against coordinated action as between a Directed Market
Maker and an order entry firm.\68\ Furthermore, the Exchange has
represented that it will proactively conduct surveillance for, and
enforce against, such violations.\69\
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    \68\ See proposed EDGX Rule 22.10, Limitation on Dealings. The
proposed rule would prohibit an order flow provider from notifying a
Directed Market Maker of its intention to submit a Directed Order so
that the Directed Market Maker could change its quotation to match
the national best bid or offer (``NBBO'') immediately prior to the
submission of the Directed Order.
    \69\ See letter to Ted Venuti, Senior Special Counsel,
Commission, from Anders Franzon, VP, Associate General Counsel,
EDGX, dated August 7, 2015 (``Surveillance Letter'').
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    Any incoming order designated with a Match Trade Prevention
(``MTP'') modifier will be prevented from executing against a resting
opposite side order also designated with an MTP modifier and
originating from the same market participant identifier (``MPID''),
Exchange Member identifier, trading group identifier, or Exchange
Sponsored Participant identifier.\70\ In such a case, the MTP modifier
on the incoming order controls the interaction between two orders
marked with MTP modifiers.\71\
---------------------------------------------------------------------------

    \70\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.1(g).
    \71\ See id. An exception exists for orders marked with the MTP
Decrement and Cancel (``MDC'') modifier. See proposed EDGX Options
Rules, Chapter XXI, Rule 21.1(g)(3).
---------------------------------------------------------------------------

    The Commission believes that EDGX Options' proposed execution
priority rules and order types are consistent with the Act, and in
particular, with the requirements in Section 6(b)(5) of the Act, which
requires an exchange's rules be, among other things, designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest, and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
    The Commission notes that a Directed Market Maker on EDGX Options
will have to be quoting at, or better than, the NBBO at the time a
Directed Order is received in order to obtain the guarantee. The
Commission believes that it is critical that a Directed Market Maker
must not be permitted to step up and match the NBBO after it receives a
directed order in order to receive the participation entitlement. In
this regard, the Exchange's proposal prohibits notifying a Directed
Market Maker of an intention to submit a Directed Order so that such
Directed Market Maker could change its quotation to match the NBBO
immediately prior to submission of the Directed Order, and then fade
its quote.

EDGX submitted a letter to the Commission representing that it will
provide the necessary protections against that type of conduct, and
will proactively conduct surveillance for, and enforce against, such
violations.\72\
---------------------------------------------------------------------------

    \72\ See Surveillance Letter, supra note 69.
---------------------------------------------------------------------------

    The Commission further finds that EDGX Options' proposed trading
rules are consistent with the requirements of the Options Order
Protection and Locked/Crossed Market Plan (``Linkage Plan'').
Specifically, subject to the exceptions contained in proposed EDGX
Options Rules, Chapter XXVII, the System will ensure that an order is
not executed at a price that trades through another options
exchange.\73\ In this regard, the Commission notes that EDGX Options is
required under Rule 608(c) of Regulation NMS to comply with and enforce
compliance by its members with the Linkage Plan, including the
requirement to avoid trading through better prices available on other
markets.\74\ As noted below, EDGX Options will be a participant in the
Linkage Plan. To meet their regulatory responsibilities under the
Linkage Plan, including the requirement to avoid trading through
better-priced protected quotations available on other markets, other
options exchanges that are Linkage Plan participants must have
sufficient notice of new protected quotations, as well as all necessary
information (such as final technical specifications). Therefore, the
Commission believes that it would be a reasonable policy and procedure
under the Linkage Plan for options exchanges to begin treating EDGX
Options' best bid and best offer as a protected quotation within 60
days after the date of this order.
---------------------------------------------------------------------------

    \73\ See proposed EDGX Options Rules, Chapter XXVII, Rule 27.2.
    \74\ See 17 CFR 242.608(c). See also EDGX Options Rules, Chapter
XXVII, Rule 27.2(a).
---------------------------------------------------------------------------

    Proposed EDGX Options Rules, Chapter XXII, Rule 22.12, prohibits
Options Members from executing, as principal, orders they represent as
agent unless the agency order is first exposed on EDGX Options for at
least one second or the Options Members has been bidding or offering on
EDGX Options for at least one second prior to receiving an agency order
that is executable against such bid or offer.
    The Commission believes that in the electronic environment of EDGX
Options, a one second exposure period could facilitate the prompt
execution of orders while continuing to provide Options Members with an
opportunity to compete for exposed bids and offers. In addition, the
EDGX Options System is based upon technology and functionality
currently approved for use in the Exchange's equities trading system
and the Exchange's affiliate, BZX Options and this order exposure
requirement is comparable to that which currently applies on other
registered options exchanges.\75\ Accordingly, the Commission believes
this proposed rule of EDGX Options is consistent with the Act.
---------------------------------------------------------------------------

    \75\ See, e.g., Rules of NOM, Chapter VII, Section 12. In
addition, the proposed rules governing priority on the System are
consistent with other options exchanges that have similar market
models, including Amex and MIAX. See, e.g., Amex Rule 964NY and MIAX
Rule 514.
---------------------------------------------------------------------------

C. Opening and Halt Cross

    The System will determine a single price at which a particular
option series will be opened (the ``Opening Price'') as calculated by
the System within 30 seconds of the first transaction on the primary
listing market after 9:30 a.m. Eastern Time in the securities
underlying the options as reported on the first print disseminated
pursuant to an effective national market system plan (``First Listing
Market Transaction') or immediately after a halt in an option series
due to the primary listing market for the applicable underlying
security declaring a regulatory trading halt, suspension, or pause with
respect to such security (``Regulatory Halt'') has been lifted.\76\
---------------------------------------------------------------------------

    \76\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.7.
---------------------------------------------------------------------------

    Specifically, EDGX Options will accept market and limit orders and
quotes for inclusion in the opening process (the ``Opening Process'')
beginning at 8:00 a.m. Eastern Time or immediately upon trading being
halted in an option series due Regulatory Halt) and will continue to
accept market and limit orders and quotes until such time as the
Opening Process is initiated in that option series (the ``Order Entry
Period''), other than index options.\77\ Orders may be entered and
cancelled throughout the Order Entry Period.
---------------------------------------------------------------------------

    \77\ The Exchange will not accept IOC or FOK orders for queuing
prior to the completion of the Opening Process. The Exchange will
convert all ISOs entered for queuing prior to the completion of the
Opening Process into non-ISOs.
---------------------------------------------------------------------------

    After establishing an Opening Price,\78\ orders and quotes in the
System that are priced equal to or more aggressively than the Opening
Price will be matched based on the Exchange's proposed priority
rules.\79\ After the matching concludes, orders will be handled in time
sequence, beginning with the order with the oldest time stamp and may,
in whole or in part, be placed on the EDGX Options Book, cancelled,
executed, or routed.\80\ Other than the differences with respect to the
market model described above, the Opening Process or re-opening after a
Regulatory Halt are nearly identical to those that exist on the
Exchange's affiliate, BZX Options.
---------------------------------------------------------------------------

    \78\ An Opening Price must be a Valid Price as defined in
proposed EDGX Options Chapter XXI, Rule 21.7(a)(2).
    \79\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.7(a)(3). See also proposed EDGX Options Rules, Chapter XXI, Rule
21.8.
    \80\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.7(a)(3). See also proposed EDGX Options Rules, Chapter XXI, Rule
21.9.
---------------------------------------------------------------------------

    The Commission believes that the proposed EDGX Options Rules
regarding the opening of trading on EDGX Options are reasonably
designed to provide for an orderly opening and are consistent with the
Act. The Commission further believes that the procedure for re-opening
trading in an option following the conclusion of a trading halt in the
underlying security is reasonably designed to provide for an orderly
re-opening of trading in the option and is consistent with the Act.

D. Routing

    EDGX Options Members may designate orders to be routed to another
options exchange when trading interest is not available on EDGX Options
or to execute only on the Exchange. The Exchange proposed that its
routing functionality will be limited to only routing System
securities, which are options listed for trading on EDGX Options.\81\
The Exchange has proposed to offer a variety of routing options:
Parallel D,\82\ Parallel 2D,\83\ Destination Specific \84\ and Directed
ISO,\85\ which may be combined with all available order types and time-
in-force designations, with the exception of

order types and time-in-force designations whose terms are inconsistent
with the terms of a particular routing option.\86\ The Exchange also
proposes to offer two optional Re-Route instructions: Aggressive Re-
Route \87\ and Super Aggressive Re-Route,\88\ either of which can be
assigned to routable orders. An order that is designated as routable
will be routed to other options exchanges to be executed when EDGX
Options is not at the NBBO consistent with the Options Order Protection
and Locked/Crossed Market Plan.\89\ Orders routed to other options
exchanges do not retain time priority with respect to orders in the
System, and the System will continue to execute orders while routed
orders are away at another exchange.\90\ If a routed order is returned,
in whole or in part, that order (or its remainder) will receive a new
time stamp reflecting the time of its return to the System.\91\ Options
members whose orders are routed away will be obligated to honor trades
executed on other options exchanges to the same extent they would be
obligated to honor a trade executed on EDGX Options.\92\
---------------------------------------------------------------------------

    \81\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.9(a).
    \82\ Parallel D is a routing option under which an order checks
the System for available contracts and then is sent to destinations
on the System routing table. The System may route to multiple
destinations at a single price level simultaneously through Parallel
D routing. See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(a)(2)(A).
    \83\ Parallel 2D is a routing option under which an order checks
the System for available contracts and then is sent to destinations
on the System routing table. The System may route to multiple
destinations and at multiple price levels simultaneously through
Parallel 2D routing. See proposed EDGX Options Rules, Chapter XXI,
Rule 21.9(a)(2)(B).
    \84\ Destination Specific is a routing option under which an
order checks the System for available contracts and then is sent to
a specified away options exchange. See proposed EDGX Options Rules,
Chapter XXI, Rule 21.9(a)(2)(C).
    \85\ Directed ISO is a routing option under which an ISO entered
by a User bypasses the System and is sent by the System to another
options exchange specified by the User. It is the entering Member's
responsibility, not the Exchange's responsibility, to comply with
the requirements relating to Intermarket Sweep Orders. See proposed
EDGX Options Rules, Chapter XXI, Rule 21.9(a)(2)(D).
    \86\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(a)(2). These routing options are identical to the routing
options offered on BZX. See Notice, supra note 3, at 28750.
    \87\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(a)(3)(A). To the extent the unfilled balance of a routable
order has been posted to the EDGX Options Book, should the order
subsequently be crossed by another accessible options exchange, the
System shall route the order to the crossing options exchange if the
User has selected the Aggressive Re-Route instruction.
    \88\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(a)(3)(B). To the extent the unfilled balance of a routable
order has been posted to the EDGX Options Book, should the order
subsequently be locked or crossed by another accessible options
exchange, the System shall route the order to the locking or
crossing options exchange if the User has selected the Super
Aggressive Re-Route instruction.
    \89\ See Notice, supra note 3, at 28750.
    \90\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.9(b).
    \91\ See id.
    \92\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.9(c).
---------------------------------------------------------------------------

    The Exchange will route options orders via BATS Trading, Inc.
(``BATS Trading''), which serves as the Outbound Router of the
Exchange, as defined in Rule 2.11.\93\ The function of the Outbound
Router will be to route orders in options listed and open for trading
on EDGX Options to other exchanges pursuant to EDGX Options rules
solely on behalf of EDGX Options.\94\ The Outbound Router will be
subject to regulation as a facility of the Exchange, including the
requirement to file proposed rule changes under Section 19 of the
Act.\95\
---------------------------------------------------------------------------

    \93\ See Notice, supra note 3, at 28750.
    \94\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.9(d).
    \95\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.9(d).
---------------------------------------------------------------------------

    Pursuant to Rule 2.11, BATS Trading is required to be a member of
an SRO unaffiliated with EDGX that is its designated examining
authority, and BATS Trading is required to establish and maintain
procedures and internal controls reasonably designed to restrict the
flow of confidential and proprietary information between EDGX and its
facilities, including BATS Trading, and any other entity.\96\ In
addition, the books, records, premises, officers, directors, agents,
and employees of BATS Trading, as a facility of EDGX, are deemed to be
those of the Exchange for purposes of and subject to oversight pursuant
to the Act.\97\
---------------------------------------------------------------------------

    \96\ See EDGX Rules, Chapter II, Rule 2.11(a)(5).
    \97\ See EDGX Rules, Chapter II, Rule 2.11(b).
---------------------------------------------------------------------------

    In the event the Exchange is not able to provide order routing
services through its affiliated broker-dealer, the Exchange will route
orders to other options exchanges in conjunction with one or more
routing brokers that are not affiliated with the Exchange (``Routing
Services'').\98\ The Exchange will determine the logic that provides
when, how, and where orders are routed away to other options
exchanges.\99\ The routing broker will receive routing instructions
from the Exchange to route orders to other options exchanges and report
the executions back to the Exchange.\100\ The routing broker cannot
change the terms of an order or the routing instructions, nor does the
routing broker have any discretion about where to route an order.\101\
The Exchange would enter into an agreement with each routing broker
used by the Exchange that would, among other things, restrict the use
of any confidential and proprietary information that the routing broker
receives to legitimate business purposes necessary for the routing of
the order at the direction of the Exchange.\102\ Further, the Exchange
would establish and maintain procedures and internal controls
reasonably designed to adequately restrict the flow of confidential and
proprietary information between (1) the Exchange and the routing
broker, and any other entity, including any affiliate of the routing
broker, and (2) if the routing broker or any of its affiliates engage
in any other business activities, other than providing routing services
to the Exchange, between the segment of the routing broker or affiliate
that provides the other business activities and the segment of the
routing broker that provides the routing services.\103\
---------------------------------------------------------------------------

    \98\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.9(e).
    \99\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(5).
    \100\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(6).
    \101\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(6).
    \102\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(1).
    \103\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(2).
---------------------------------------------------------------------------

    The Exchange may not use a routing broker for which the Exchange or
any affiliate of the Exchange is the designated examining
authority.\104\ In addition, the Exchange will provide its Routing
Services in compliance with the provisions of the Act and the rules
thereunder, including but not limited to, the requirements in Section
6(b)(4) and (5) of the Act that the rules of a national securities
exchange provide for the equitable allocation of reasonable dues, fees,
and other charges among its members and issuers and other persons using
its facilities, and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.\105\ Any bid or offer
entered on the Exchange routed to another options exchange through a
routing broker that results in an execution shall be binding on the
Options Member that entered such bid or offer.\106\
---------------------------------------------------------------------------

    \104\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(3).
    \105\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(4).
    \106\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(e)(7).
---------------------------------------------------------------------------

    Use of BATS Trading or the Routing Services to route orders to
other market centers is optional.\107\ Parties that do not desire to
use BATS Trading for routing or other Routing Services provided by the
Exchange must designate orders as not available for routing.\108\
---------------------------------------------------------------------------

    \107\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.9(d).
    \108\ See id.
---------------------------------------------------------------------------

    In light of these protections, for both the use of BATS Trading or
an unaffiliated router, the Commission believes that the EDGX Options
rules and procedures regarding the use of BATS Trading or an
unaffiliated router to route order to away exchanges are consistent
with the Act.

E. Minimum Quoting and Trading Increments

    The Exchange is proposing to apply the following minimum quoting
increments: (1) If the option price is less than $3.00, five (5) cents;
and (2) if the option price is $3.00 or higher, ten (10) cents.\109\ In
addition, the Exchange

proposes to participate in a pilot program, until June 30, 2016, to
allow quoting in certain options in smaller increments (``Pilot
Program'').\110\ The Exchange will include in the Pilot Program all
classes that are included by other options exchanges in substantially
similar pilot programs. If an options class is included in the Pilot
Program, the Exchange will allow quoting in one (1) cent increments any
option priced less than $3.00 or options on QQQQs, IWM, and SPY.\111\
Options priced at $3.00 or higher that are in the Pilot Program will be
quoted in five (5) cent increments.\112\ In addition, the Exchange is
proposing that the minimum trading increment for options contracts
traded on EDGX Options would be one (1) cent for all series.\113\ The
Exchange is also proposing to offer trading in Mini Options, and the
minimum trading increment for Mini Options will be the same as the
minimum trading increment permitted for standard options on the same
underlying security.\114\
---------------------------------------------------------------------------

    \109\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.5(a).
    \110\ See proposed EDGX Options Rules, Chapter XXI, Rule 21.5,
Interpretations and Policies .01. See also Amendment No. 2, supra
note 7.
    \111\ See proposed EDGX Options Rules, Chapter XXI, Rule
21.5(a).
    \112\ See id.
    \113\ See EDGX Options Rules, Chapter XXI, Rule 21.5(b).
    \114\ See EDGX Options Rules, Chapter XXI, Rule 21.5(c).
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposed minimum
quoting and trading increments, including its proposal to commence
quoting pursuant to the Pilot Program, which are consistent with the
rules of the other options exchanges,\115\ are consistent with the Act.
As the Commission noted in approving the latest expansion of the Pilot
Program, allowing market participants to quote in smaller increments in
Pilot options has been shown to reduce spreads, thereby lowering costs
to investors.\116\ In addition, permitting options to be quoted in
smaller increments pursuant to the Pilot Program provides the
opportunity for reduced spreads for a significant amount of trading
volume.\117\ Further, although the Commission anticipates that the
Exchange's proposal will contribute to further increases in quotation
message traffic, the Commission believes that the Exchange's proposal
is sufficiently limited such that it is unlikely on its own to increase
quotation message traffic beyond the capacity of market participants'
systems.
---------------------------------------------------------------------------

    \115\ See, e.g., Rules of NOM, Chapter VI, Section 5.
    \116\ See Securities Exchange Act Release No. 60711 (September
23, 2009), 74 FR 49419, 49424 (September 28, 2009) (SR-NYSEArca-
2009-44) (partially approving a proposed rule change to expand the
Pilot Program).
    \117\ See id.
---------------------------------------------------------------------------

F. Securities Traded on EDGX Options

    The Exchange proposes to adopt initial and continued listing
standards for equity and index options traded on EDGX Options that are
substantially similar to the listing standards adopted by other options
exchanges.\118\ The Commission believes that the Exchange's proposed
initial and continued listing standards are consistent with the Act,
including Section 6(b)(5), in that they are designed to protect
investors and the public interest and to promote just and equitable
principles of trade. EDGX's operation of the EDGX Options Exchange is
conditioned on EDGX becoming a Plan Sponsor in the Plan for the Purpose
of Developing and Implementing Procedures designed to Facilitate the
Listing and Trading of Standardized Options Submitted Pursuant to
Section 11A(a)(3)(B) of the Act (``OLPP''). The Exchange has
represented that it will join the OLPP.\119\ In addition, EDGX has
represented that it will become an exchange member in the Options
Clearing Corporation (``OCC'').\120\
---------------------------------------------------------------------------

    \118\ See Notice, supra note 3, at 28751. See, e.g., Rules of
BZX Options, Chapters XIX and XXIX.
    \119\ See Notice, supra note 3, at 28753.
    \120\ See Notice, supra note 3, at 28747.
---------------------------------------------------------------------------

G. Participation in National Market System Plans

    The Exchange represented that it will operate as a participant in
various national market system plans for options trading established
under Section 11A of the Act.\121\ Specifically, the Exchange
represented that EDGX Options Exchange will become a member of the
Options Order Protection and Locked/Crossed Market Plan, the Options
Price Reporting Authority (``OPRA''), and the Options Regulatory
Surveillance Authority (``ORSA''). EDGX further represented that it is
currently a participant in the Plan for the Selection and Reservation
of Securities Symbols, and the OLPP.\122\
---------------------------------------------------------------------------

    \121\ See Notice, supra note 3, at 28753.
    \122\ See id. See also Amendment No. 2, supra note 7.
---------------------------------------------------------------------------

H. Regulation

    According to the Exchange, the Exchange will regulate EDGX Options
using the Exchange's existing regulatory structure. The Exchange's
Chief Regulatory Officer will have general supervision of the
regulatory operations of EDGX Options, including responsibility for
overseeing the surveillance, examination, and enforcement functions and
for administering all regulatory services agreements applicable to EDGX
Options.\123\ Similarly, the Exchange's existing Regulatory Oversight
Committee (``ROC'') will be responsible for overseeing the adequacy and
effectiveness of the Exchange's regulatory and SRO responsibilities,
including those applicable to EDGX Options.\124\
---------------------------------------------------------------------------

    \123\ See Notice, supra note 3, at 28754.
    \124\ See id. Pursuant to a regulatory services agreement, FINRA
would perform certain regulatory functions on behalf of the
Exchange. See infra note 133 and accompanying text.
---------------------------------------------------------------------------

    As members of the Exchange, the Exchange's existing rules governing
members will apply to Options Members and their associated persons. The
Exchange's By-laws provide that it has disciplinary jurisdiction over
its members, including Options Participants, so that it can enforce its
members' compliance with its rules and the federal securities
laws.\125\ The Exchange's rules also permit it to sanction members,
including Options Members, for violations of its rules and of the
federal securities laws by, among other things, expelling or suspending
members, limiting members' activities, functions, or operations, fining
or censuring members, or suspending or barring a person from being
associated with a member.\126\ The Exchange's rules also provide for
the imposition of fines for minor rule violations in lieu of commencing
disciplinary proceedings.\127\
---------------------------------------------------------------------------

    \125\ See, e.g., Fourth Amended and Restated By-laws of EDGX
Exchange, Inc., Article X, Section 2.
    \126\ See, e.g., EDGX Rules, Chapter II, Rule 2.2.
    \127\ See proposed EDGX Options Rules, Chapter XXV, Rule 25.3
and infra notes 145-148 and accompanying text. See also EDGX Options
Rules, Chapter VIII, Rule 8.15.
---------------------------------------------------------------------------

    Moreover, the Exchange will: (1) Join the existing options industry
agreements pursuant to Section 17(d) of the Act; (2) amend, as
necessary, the Exchange's existing Regulatory Services Agreement
(``RSA'') with FINRA to cover many aspects of the regulation and
discipline of the Exchange's Options Members that participate in
options trading on EDGX Options; (3) perform options listing
regulation, as well as authorize Options Members to trade on EDGX
Options; and (4) perform automated surveillance of trading on EDGX
Options for the purpose of maintaining a fair and orderly market at all
times.\128\
---------------------------------------------------------------------------

    \128\ See Notice, supra note 3, at 28753-54. EDGX Options will
be monitored to identify unusual trading patterns and determine
whether particular trading activity requires further regulatory
investigation by FINRA. See id. at 28754.

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

    In addition, the Exchange will oversee the process for determining
and implementing trading halts, identifying and responding to unusual
market conditions, and administering the Exchange's process for
identifying and remediating ``obvious errors'' by and among its Options
Members.\129\ The proposed EDGX Options rules (Chapter XX) regarding
halts, unusual market conditions, extraordinary market volatility,
obvious errors, and audit trail are identical to the rules of BZX
Options.\130\
---------------------------------------------------------------------------

    \129\ See Notice, supra note 3, at 28754.
    \130\ See, e.g., Rules of BZX, Chapter XX, see also Rules of
NOM, Chapter V, and BOX, Chapter V.
---------------------------------------------------------------------------

    The Commission finds that the Exchange's proposed rules and
regulatory structure with respect to EDGX Options are consistent with
the requirements of the Act, and in particular with Section 6(b)(1) of
the Act, which requires an exchange to be so organized and have the
capacity to be able to carry out the purposes of the Act and to comply,
and to enforce compliance by its members and persons associated with
its members, with the Act and the rules and regulations thereunder, and
the rules of the Exchange,\131\ and with Section 6(b)(6) and 6(b)(7) of
the Act,\132\ which require an Exchange to provide fair procedures for
the disciplining of members and persons associated with members.
---------------------------------------------------------------------------

    \131\ 15 U.S.C. 78f(b)(1).
    \132\ 15 U.S.C. 78f(b)(6) and (b)(7).
---------------------------------------------------------------------------

1. Regulatory Services Agreement
    Currently, the Exchange and FINRA are parties to an existing RSA,
pursuant to which FINRA personnel operate as agents for the Exchange in
performing certain functions. The Exchange represented that it intends
to amend the existing RSA in order to capture certain aspects of
regulation specifically applicable to EDGX Options and the regulation
and discipline of Options Members.\133\ The Exchange further represents
that it will supervise FINRA and continue to bear ultimate regulatory
responsibility for functions performed on the Exchange's behalf under
the RSA.\134\ Further, the Exchange will retain ultimate legal
responsibility for the regulation of its Options Members and its
market.
---------------------------------------------------------------------------

    \133\ See Notice, supra note 3 at 28754.
    \134\ See id.
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the Act to allow
the Exchange to contract with FINRA to perform functions relating to
the regulation and discipline of members and the regulation of EDGX
Options.\135\ These functions are fundamental elements to a regulatory
program and constitute core self-regulatory functions. The Commission
believes that FINRA has the expertise and experience to perform these
functions on behalf of the Exchange.\136\
---------------------------------------------------------------------------

    \135\ See, e.g., Regulation of Exchanges and Alternative Trading
Systems, Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844 (December 22, 1998). See also, e.g., Securities
Exchange Act Release Nos. 50122 (July 29, 2004), 69 FR 47962 (August
6, 2004) (SR-Amex-2004-32) (approving rule that allowed Amex to
contract with another SRO for regulatory services) (``Amex
Regulatory Services Approval Order''); 57478 (March 12, 2008), 73 FR
14521 (March 18, 2008) (SR-NASDAQ-2007-004) (``NOM Approval
Order''); 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006)
(File No. 10-131) (``Nasdaq Exchange Registration Order''); and
61419 (January 26, 2010), 75 FR 5157 (February 1, 2010) (SR-BATS-
2009-031) (``BATS Options Approval Order'').
    \136\ See Amex Regulatory Services Approval Order; NOM Approval
Order; Nasdaq Exchange Registration Order, and BATS Options Approval
Order, id. The Commission notes that the RSA is not before the
Commission and, therefore, the Commission is not acting on it.
---------------------------------------------------------------------------

    As noted, unless relieved by the Commission of its
responsibility,\137\ the Exchange bears the responsibility for self-
regulatory conduct and primary liability for self-regulatory failures,
not the SRO retained to perform regulatory functions on the Exchange's
behalf. In performing these functions, however, FINRA may nonetheless
bear liability for causing or aiding and abetting the failure of the
Exchange to perform its regulatory functions.\138\ Accordingly,
although FINRA will not act on its own behalf under its SRO
responsibilities in carrying out these regulatory services for the
Exchange relating to the operation of EDGX Options, FINRA also may have
secondary liability if, for example, the Commission finds the
contracted functions are being performed so inadequately as to cause a
violation of the federal securities laws by the Exchange.\139\
---------------------------------------------------------------------------

    \137\ See Section 17(d)(1) of the Act and Rule 17d-2 thereunder
(15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2).
    \138\ For example, if failings by FINRA have the effect of
leaving the Exchange in violation of any aspect of the Exchange's
self-regulatory obligations, the Exchange would bear direct
liability for the violation, while FINRA may bear liability for
causing or aiding and abetting the violation. See Nasdaq Exchange
Registration Order, supra note 135. See also Securities Exchange Act
Release No. 42455 (February 24, 2000), 65 FR 11388 (March 2, 2000)
(File No. 10-127) (approving the International Securities Exchange
LLC's application for registration as a national securities
exchange).
    \139\ See id.
---------------------------------------------------------------------------

2. 17d-2 Agreements
    Rule 17d-2 under the Act permits SROs to file with the Commission
plans under which the SROs allocate among each other the responsibility
to receive regulatory reports from, and examine and enforce compliance
with specified provisions of the Act and rules thereunder and SRO rules
by, firms that are members of more than one SRO (``common members'').
If such a plan is declared effective by the Commission, an SRO that is
a party to the plan is relieved of regulatory responsibility as to any
common member for whom responsibility is allocated under the plan to
another SRO.\140\
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    \140\ Rule 17d-2 provides that any two or more SROs may file
with the Commission a plan for allocating among such SROs the
responsibility to receive regulatory reports from persons who are
members or participants of more than one of such SROs to examine
such persons for compliance, or to enforce compliance by such
persons, with specified provisions of the Act, the rules and
regulations thereunder, and the rules of such SROs, or to carry out
other specified regulatory functions with respect to such persons.
See 17 CFR 240.17d-2.
---------------------------------------------------------------------------

    Pursuant to Rule 17d-2 under the Act, all of the options exchanges,
FINRA, and the New York Stock Exchange LLC (``NYSE'') have entered into
the Options Sales Practices Agreement, a Rule 17d-2 Agreement, which
allocates to certain SROs (``examining SROs'') regulatory
responsibility for common members with respect to certain options-
related sales practice matters.\141\ Under this Agreement, the
examining SROs would examine firms that are common members of the
Exchange and the particular examining SRO for compliance with certain
provisions of the Act, certain of the rules and regulations adopted
thereunder, certain examining SRO rules, and certain Exchange Rules.
The Exchange's rules contemplate participation in this Agreement by
requiring that any Options Member also be a member of at least one of
the examining SROs.\142\
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    \141\ See Securities Exchange Act Release No. 57987 (June 18,
2008), 73 FR 36156 (June 25, 2008) (File No. S7-966).
    \142\ See proposed EDGX Options Rule, Chapter XVII, Rule
17.2(f).
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    Moreover, pursuant to Rule 17d-2 under the Act, all of the options
exchanges and FINRA have entered into the Options Related Market
Surveillance Agreement, which allocates regulatory responsibility for
certain options-related market surveillance matters among the
participants.\143\ Under this agreement, the examining SRO would assume
regulatory responsibility with respect to firms that are common members
of the Exchange and the particular examining SRO for compliance with
applicable common rules for certain accounts. As a condition to
operation, the Exchange must be a party to each of these 17d-2
Agreements, which will cover EDGX members that are Options Members.

EDGX represented that it will join the existing options industry
agreements pursuant to Section 17d of the Act.\144\
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    \143\ See Securities Exchange Act Release No. 58765 (October 9,
2008), 73 FR 62344 (October 20, 2008) (File No. 4-551).
    \144\ See Notice, supra note 3 at 28753.
---------------------------------------------------------------------------

3. Minor Rule Violation Plan
    The Commission approved the EDGX Exchange's Minor Rule Violation
Plan (``MRVP'') in 2010.\145\ The Exchange's MRVP specifies those
uncontested minor rule violations with sanctions not exceeding $2,500
that would not be subject to the provisions of Rule 19d-1(c)(1) under
the Act \146\ requiring that an SRO promptly file notice with the
Commission of any final disciplinary action taken with respect to any
person or organization.\147\ The Exchange's MRVP includes the policies
and procedures included in Exchange Rule 8.15 (Imposition of Fines for
Minor Violation(s) of Rules) and in Rule 8.15, Interpretation and
Policy .01.
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    \145\ See Securities Exchange Act Release No. 62036 (May 5,
2010), 75 FR 26822 (May 12, 2010) (File No. 4-594) (``MRVP Order'').
    \146\ 17 CFR 240.19d-1(c)(1).
    \147\ The Commission adopted amendments to paragraph (c) of Rule
19d-1 to allow SROs to submit for Commission approval plans for the
abbreviated reporting of minor disciplinary infractions. See
Securities Exchange Act Release No. 21013 (June 1, 1984), 49 FR
23828 (June 8, 1984) (File No. S7-983A). Any disciplinary action
taken by an SRO against any person for violation of a rule of the
SRO which has been designated as a minor rule violation pursuant to
such a plan filed with and declared effective by the Commission
would not be considered ``final'' for purposes of Section 19(d)(1)
of the Act if the sanction imposed consists of a fine not exceeding
$ 2,500 and the sanctioned person has not sought an adjudication,
including a hearing, or otherwise exhausted his administrative
remedies.
---------------------------------------------------------------------------

    The Exchange proposes to amend its MRVP and Rule 8.15,
Interpretation and Policy .01 to include proposed Rule 25.3 (Penalty
for Minor Rule Violations).\148\ The Commission believes that this
change is consistent with the Act because it clarifies that the
proposed rules listed in Rule 25.3 of the proposed EDGX Options Rules
will be included in EDGX's MRVP.
---------------------------------------------------------------------------

    \148\ In the MRVP Order, the Commission noted that the Exchange
proposed that any amendments to Rule 8.15.01 made pursuant to a rule
filing submitted under Rule 19b-4 of the Act would automatically be
deemed a request by the Exchange for Commission approval of a
modification to its MRVP. See MRVP Order, supra note 145, at note 5.
---------------------------------------------------------------------------

    The Commission notes that the rules included in proposed Rule 25.3
are similar to rules included in the MRVPs of other options
exchanges.\149\ The Commission finds that the EDGX MRVP, as amended to
include the rules listed in proposed EDGX Options Rule 25.3, is
consistent with Sections 6(b)(1), 6(b)(5), and 6(b)(6) of the Act,
which require, in part, that an exchange have the capacity to enforce
compliance with, and provide appropriate discipline for, violations of
the rules of the Commission and of the exchange.\150\ In addition,
because EDGX Rule 8.15 will offer procedural rights to a person
sanctioned for a violation listed in proposed EDGX Options Rule 25.3,
the Commission believes that the Exchange's rules provide a fair
procedure for the disciplining of members and associated persons,
consistent with Section 6(b)(7) of the Act.\151\
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    \149\ See, e.g., Rules of NOM, Chapter X, Section 7.
    \150\ 15 U.S.C. 78f(b)(1), 78f(b)(5), and 78f(b)(6).
    \151\ 15 U.S.C. 78f(b)(7).
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    The Commission also finds that the proposal to include the
provisions in proposed EDGX Options Rule 25.3 in EDGX's MRVP is
consistent with the public interest, the protection of investors, or
otherwise in furtherance of the purposes of the Act, as required by
Rule 19d-1(c)(2) under the Act,\152\ because it should strengthen the
Exchange's ability to carry out its oversight and enforcement
responsibilities as an SRO in cases where full disciplinary proceedings
are unsuitable in view of the minor nature of the particular violation.
---------------------------------------------------------------------------

    \152\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    In approving the proposed change to the Exchange's MRVP, the
Commission in no way minimizes the importance of compliance with the
Exchange's rules and all other rules subject to the imposition of fines
under the Exchange's MRVP. The Commission believes that the violation
of any SRO rules, as well as Commission rules, is a serious matter.
However, the Exchange's MRVP provides a reasonable means of addressing
rule violations that do not rise to the level of requiring formal
disciplinary proceedings, while providing greater flexibility in
handling certain violations. The Commission expects that the Exchange
will continue to conduct surveillance with due diligence and make a
determination based on its findings, on a case-by-case basis, whether a
fine of more or less than the recommended amount is appropriate for a
violation under the Exchange's MRVP or whether a violation requires a
formal disciplinary action.

I. Section 11(a) of the Act

    Section 11(a)(1) of the Act \153\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises discretion
(collectively, ``covered accounts'') unless an exception applies. Rule
11a2-2(T) under the Act,\154\ known as the ``effect versus execute''
rule, provides exchange members with an exemption from the Section
11(a)(1) prohibition. Rule 11a2-2(T) permits an exchange member,
subject to certain conditions, to effect transactions for covered
accounts by arranging for an unaffiliated member to execute
transactions on the exchange. To comply with Rule 11a2-2(T)'s
conditions, a member: (i) Must transmit the order from off the exchange
floor; (ii) may not participate in the execution of the transaction
once it has been transmitted to the member performing the execution;
\155\ (iii) may not be affiliated with the executing member; and (iv)
with respect to an account over which the member has investment
discretion, neither the member nor its associated person may retain any
compensation in connection with effecting the transaction except as
provided in the Rule.
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    \153\ 15 U.S.C. 78k(a)(1).
    \154\ 17 CFR 240.11a2-2(T).
    \155\ The member may, however, participate in clearing and
settling the transaction.
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    In a letter to the Commission, the Exchange requests that the
Commission concur with the Exchange's conclusion that Options Members
that enter orders into the System satisfy the requirements of Rule
11a2-2(T).\156\ For the reasons set forth below, the Commission
believes that Options Members entering orders into the System would
satisfy the conditions of the Rule.
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    \156\ See Letter to Brent J. Fields, Secretary, Commission, from
Anders Franzon, VP, Associate General Counsel, EDGX, dated August 3,
2015 (``EDGX 11(a) Letter'').
---------------------------------------------------------------------------

    The Rule's first condition is that orders for covered accounts be
transmitted from off the exchange floor. The System will receive orders
electronically through remote terminals or computer-to-computer
interfaces. In the context of other automated trading systems, the
Commission has found that the off-floor transmission requirement is met
if a covered account order is transmitted from a remote location
directly to an exchange's floor by electronic means.\157\ Because the
System receives orders electronically through remote terminals or
computer-to-computer interfaces, the Commission

believes that the System satisfies the off-floor transmission
requirement.
---------------------------------------------------------------------------

    \157\ See, e.g., NOM Approval Order, supra note 135; Securities
Exchange Act Release Nos. 53128 (January 13, 2006), 71 FR 3550
(January 23, 2006) (File No. 10-131) (approving Nasdaq Stock Market
LLC); 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (SR-
PCX-00-25) (approving Archipelago Exchange); 29237 (May 24, 1991),
56 FR 24853 (May 31, 1991) (SR-NYSE-90-52 and SR-NYSE-90-53)
(approving NYSE's Off-Hours Trading Facility); and 15533 (January
29, 1979), 44 FR 6084 (January 31, 1979) (``1979 Release'').
---------------------------------------------------------------------------

    Second, the Rule requires that the member not participate in the
execution of its order once it has been transmitted to the member
performing the execution. The Exchange represented that at no time
following the submission of an order is an Options Members able to
acquire control or influence over the result or timing of an order's
execution.\158\ According to the Exchange, the execution of a member's
order is determined solely by what other orders, bids, or offers are
present in the System at the time the Options Member submits the order
and on the priority of those orders, bids, and offers.\159\
Accordingly, the Commission believes that an Options Member does not
participate in the execution of an order submitted to the System.
---------------------------------------------------------------------------

    \158\ See EDGX 11(a) Letter, supra note 156, at 6.
    \159\ See id. The member may cancel or modify the order, or
modify the instruction for executing the order, but only from off
the floor. The Commission has stated that the non-participation
requirement is satisfied under such circumstances, so long as such
modifications or cancellations are also transmitted from off the
floor. See Securities Exchange Act Release No. 14713 (April 27,
1978), 43 FR 18557 (May 1, 1978) (``1978 Release'') (stating that
the ``non-participation requirement does not prevent initiating
members from canceling or modifying orders (or the instructions
pursuant to which the initiating member wishes orders to be
executed) after the orders have been transmitted to the executing
member, provided that any such instructions are also transmitted
from off the floor'').
---------------------------------------------------------------------------

    Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member who is unaffiliated with the member initiating the
order. The Commission has stated that this requirement is satisfied
when automated exchange facilities are used, as long as the design of
these systems ensures that members do not possess any special or unique
trading advantages in handling their orders after transmitting them to
the exchange.\160\ EDGX represented that the design of the System
ensures that no Options Member has any special or unique trading
advantage in the handling of its orders after transmitting its orders
to the Exchange.\161\ Based on the Exchange's representation, the
Commission believes that the System satisfies this requirement.
---------------------------------------------------------------------------

    \160\ In considering the operation of automated execution
systems operated by an exchange, the Commission has noted that while
there is not an independent executing exchange member, the execution
of an order is automatic once it has been transmitted into the
system. Because the design of these systems ensures that members do
not possess any special or unique trading advantages in handling
their orders after transmitting them to the exchange, the Commission
has stated that executions obtained through these systems satisfy
the independent execution requirement of Rule 11a2-2(T). See 1979
Release, supra note 157.
    \161\ See EDGX 11(a) Letter, supra note 156, at 6.
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    Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person thereof may retain any compensation in connection
with effecting the transaction, unless the person authorized to
transact business for the account has expressly provided otherwise by
written contract referring to Section 11(a) of the Act and Rule 11a2-
2(T)(a)(2)(iv).\162\ EDGX Options Members trading for covered accounts
over which they exercise investment discretion must comply with this
condition in order to rely on the rule's exemption.\163\
---------------------------------------------------------------------------

    \162\ 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written
contract to retain compensation, in connection with effecting
transactions for covered accounts over which such member or
associated persons thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member in connection with effecting
transactions for the account during the period covered by the
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release, supra
note 159 (stating ``[t]he contractual and disclosure requirements
are designed to assure that accounts electing to permit transaction-
related compensation do so only after deciding that such
arrangements are suitable to their interests'').
    \163\ See EDGX 11(a) Letter, supra note 156, at 6.
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IV. Exemption From Section 19(b) of the Act With Regard to CBOE, NYSE,
and FINRA Rules Incorporated by Reference

    The Exchange proposes to incorporate by reference as EDGX Options
Rules certain rules of the CBOE, NYSE, and FINRA.\164\ Thus, for
certain EDGX Options rules, Exchange members will comply with an EDGX
Options rule by complying with the CBOE, NYSE, or FINRA rule
referenced. In connection with its proposal to incorporate CBOE, NYSE,
and FINRA rules by reference, the Exchange requested, pursuant to Rule
240.0-12 under the Act,\165\ an exemption under Section 36 of the Act
from the rule filing requirements of Section 19(b) of the Act for
changes to those EDGX Options rules that are effected solely by virtue
of a change to a cross-referenced CBOE, NYSE, or FINRA rule.\166\ The
Exchange proposes to incorporate by reference categories of rules
(rather than individual rules within a category) that are not trading
rules. The Exchange agrees to provide written notice to Options Member
prior to the launch of EDGX Options of the specific CBOE, NYSE, and
FINRA rules that it will incorporate by reference.\167\ In addition,
the Exchange will notify Options Members whenever CBOE, NYSE, or FINRA
proposes a change to a cross-referenced CBOE, NYSE, or FINRA rule.\168\
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    \164\ Specifically, the Exchange proposes to incorporate by
reference: (1) CBOE rules governing position and exercise limits for
equity and index options, which are referenced in proposed EDGX
Options Rules 18.7, 18.9, 29.5, and 29.7; (2) the margin rules of
the CBOE or the NYSE, which are referenced in proposed EDGX Options
Rule 28.3; and (3) FINRA's rules governing communications with the
public, which are referenced in proposed EDGX Options Rule 26.16.
    \165\ 17 CFR 240.0-12.
    \166\ See Letter to Brent J. Fields, Secretary, Commission, from
Anders Franzon, VP, Associate General Counsel, EDGX, dated August 3,
2015 (``Exemption Request Letter'').
    \167\ See id.
    \168\ The Exchange will provide such notice through a posting on
the same Web site location where the Exchange will post its own rule
filings pursuant to Rule 19b-4(l) under Act, within the time frame
required by that rule. The Web site posting will include a link to
the location on the CBOE, NYSE, or FINRA Web site where the proposed
rule change is posted. See id.
---------------------------------------------------------------------------

    Using its authority under Section 36 of the Act, the Commission
previously exempted certain SROs from the requirement to file proposed
rule changes under Section 19(b) of the Act.\169\ Each such exempt SRO
agreed to be governed by the incorporated rules, as amended from time
to time, but is not required to file a separate proposed rule change
with the Commission each time the SRO whose rules are incorporated by
reference seeks to modify its rules. In addition, each SRO incorporated
by reference only regulatory rules (e.g., margin, suitability,
arbitration), not trading rules, and incorporated by reference whole
categories of rules (i.e., did not ``cherry-pick'' certain individual
rules within a category). Each exempt SRO had reasonable procedures in
place to provide written notice to its members each time a change is
proposed to the incorporated rules of another SRO in order to provide
its members with notice of a proposed rule change that affects their
interests, so that they would have an opportunity to comment on it.
---------------------------------------------------------------------------

    \169\ See Securities Exchange Act Release No. 49260 (February
17, 2004), 69 FR 8500 (February 24, 2004). See also Securities
Exchange Act Release Nos. 57478 (March 12, 2008), 73 FR 14521,
14539-40 (March 18, 2008) (order approving SR-NASDAQ-2007-004 and
SR-NASDAQ-2007-080) and 53128 (January 13, 2006), 71 FR 3550, 3565-
66 (January 23, 2006) (File No. 10-131) (approving The NASDAQ Stock
Market LLC's exchange application).
---------------------------------------------------------------------------

    The Commission is granting the Exchange's request for exemption,
pursuant to Section 36 of the Act, from the rule filing requirements of
Section 19(b) of the Act with respect to the rules that the Exchange
proposes to incorporate by reference into EDGX

Options Rules. The Commission believes that this exemption is
appropriate in the public interest and consistent with the protection
of investors because it will promote more efficient use of Commission
and SRO resources by avoiding duplicative rule filings based on
simultaneous changes to identical rule text sought by more than one
SRO. Consequently, the Commission grants the Exchange's exemption
request for EDGX Options. This exemption is conditioned upon the
Exchange providing written notice to Options Members whenever the CBOE,
NYSE, or FINRA proposes to change a rule that EDGX Options has
incorporated by reference.\170\
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    \170\ As discussed above, the Exchange has represented that it
will notify Options Members whenever the CBOE, NYSE, or FINRA
proposes a change to a cross-referenced CBOE, NYSE, or FINRA rule.
See supra note 168 and accompanying text.
---------------------------------------------------------------------------

V. Solicitation of Comments on Amendment Nos. 1 and 2

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment Nos. 1
and 2 to the proposed rule change are 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-EDGX-2015-18 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 Number SR-EDGX-2015-18. 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 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 Number SR-EDGX-2015-18 and should be
submitted on or before September 3, 2015.

VI. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment Nos. 1, 2, and 3

    The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 1, 2, and 3 \171\ thereto, prior
to the 30th day after the date of publication of notice of Amendment
Nos. 1 and 2 in the Federal Register. As discussed above, Amendment No.
1 revised the proposed rule change by deleting proposed EDGX Options
Rule 21.8(f)(2), which would have granted participation entitlements to
Directed Market Makers trading against small size orders defined as
five or fewer contracts in addition to providing more detailed
information regarding participation entitlements for Directed Market
Makers. The Commission believes that the revisions in Amendment No. 1
are being made in response to concerns raised by commenters regarding
internalization in the options market. As discussed above, Amendment
No. 2 revised the proposed rule change by representing that the
Exchange is a participant in the Plan for the Selection and Reservation
of Securities Symbols and clarified that the Penny Pilot is scheduled
to expire on June 30, 2016. The Commission believes Amendment Nos. 1
and 2 are consistent with the purpose of the proposed rule change and
are consistent with the protection of investors and the public
interest. Accordingly, the Commission finds good cause, pursuant to
Section 19(b)(2) of the Act,\172\ to approve the proposed rule change,
as modified by Amendment Nos. 1, 2, and 3 thereto, on an accelerated
basis.
---------------------------------------------------------------------------

    \171\ As noted above, because Amendment No. 3 is technical in
nature, the Commission is not required to publish it for public
comment. See supra note 8.
    \172\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\173\ that the proposed rule change (SR-EDGX-2015-18), as modified
by Amendment Nos. 1, 2, and 3 thereto, be, and hereby is, approved on
an accelerated basis.
---------------------------------------------------------------------------

    \173\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Although the Commission's approval of the proposed rule change is
final, and the proposed rules are therefore effective, it is further
ordered that the operation of EDGX Options is conditioned on the
satisfaction of the requirements below:
    A. Participation in National Market System Plans Relating to
Options Trading. EDGX must join: (1) The OPRA Plan; (2) the OLPP; (3)
the Linkage Plan; and (4) the Plan of the Options Regulatory
Surveillance Authority.
    B. RSA and Rule 17d-2 Agreements. EDGX must ensure that all
necessary changes are made to its Regulatory Services Agreement with
FINRA and must be a party to the multi-party Rule 17d-2 agreements
concerning options sales practice regulation and market
surveillance.\174\
---------------------------------------------------------------------------

    \174\ See supra notes 141 and 143 and accompanying text. See
also 17 CFR 240.17d-2.
---------------------------------------------------------------------------

    C. Participation in the Options Clearing Corporation. EDGX must
join the Options Clearing Corporation.
    D. Participation in the Intermarket Surveillance Group. EDGX must
be a member of the Intermarket Surveillance Group.
    It is further ordered, pursuant to Section 36 of the Act,\175\ that
EDGX shall be exempted from the rule filing requirements of Section
19(b) of the Act with respect to the CBOE, FINRA, and NYSE rules that
EDGX proposes to incorporate by reference, subject to the conditions
specified in this Order.
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    \175\ 15 U.S.C. 78mm.
    \176\ 17 CFR 200.30(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\176\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-19878 Filed 8-12-15; 8:45 am]
BILLING CODE 8011-01-P