[Federal Register Volume 78, Number 5 (Tuesday, January 8, 2013)]
[Notices]
[Pages 1293-1296]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00077]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68556; File No. SR-BX-2012-074]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Non-Penny Pilot Options Fees
January 2, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 18, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BX Options Rules, Chapter XV,
Section 2 entitled ``BX Options Market--Fees and Rebates'' to adopt
fees and rebates for Non-Penny Pilot Options.\3\
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\3\ Non-Penny Pilot refers to options classes not in the Penny
Pilot.
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While the changes proposed herein are effective upon filing, the
Exchange has designated these changes to be operative on January 2,
2013.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/ com/NASDAQOMXBX/Filings/,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
BX proposes to amend Chapter XV, Section 2(1) to adopt fees and
rebates for Customers, BX Options Market Makers \4\ and Non-Customers
\5\ trading in Non-Penny Pilot Options on its options market. The
Exchange believes the addition of Non-Penny Pilot Options fees and
rebates will allow the Exchange to compete more effectively with other
exchanges that have similarly adopted such pricing. The Exchange plans
to list Non-Penny Pilot Options on January 2, 2013.
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\4\ A BX Options Market Maker must be registered as such
pursuant to Chapter VII, Section 2 of the BX Options Rules, and must
also remain in good standing pursuant to Chapter VII, Section 4.
\5\ A Non-Customer includes a Professional, Firm, Broker-Dealer
and Non-BX Options Market Maker.
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The Exchange proposes to adopt a Fee to Add Liquidity, a Rebate to
Remove Liquidity and a Fee to Remove Liquidity in Non-Penny Pilot
Options. Specifically, the Exchange proposes to
[[Page 1294]]
assess the following Fees to Add Liquidity in Non-Penny Pilot Options:
Customers a $0.25 per contract, BX Options Market Maker $0.50 per
contract and Non-Customer $0.88 per contract. The Exchange proposes to
assess a higher Fee to Add Liquidity in Non-Penny Pilot Options of
$0.85 per contract to Customers and BX Options Market Makers when the
Customer or BX Options Market Maker is contra to a Customer. Therefore,
depending on the contra-party to the transaction, a Customer would be
assessed either a $0.25 or $0.85 per contract Fee to Add Liquidity in
Non-Penny Pilot Options and a BX Options Market Maker would be assessed
either a $0.50 or $0.85 per contract Fee to Add Liquidity in Non-Penny
Pilot Options. The Exchange proposes to add a note 4 to Section 2 of
Chapter XV to indicate that the higher Fee to Add Liquidity would be
assessed to a Customer or BX Options Market Maker when these market
participants are contra to a Customer.
The Exchange proposes to pay a Customer a $0.70 per contract Rebate
to Remove Liquidity in Non-Penny Pilot Options. The Exchange would not
pay a rebate to a BX Options Market Maker or Non-Customer. Finally, the
Exchange proposes to assess a Fee to Remove Liquidity in Non-Penny
Pilot Options of $0.88 per contract to a BX Options Market Maker and a
Non-Customer. A Customer would not be assessed a Fee to Remove
Liquidity in Non-Penny Pilot Options.
The Exchange is not proposing any other changes to Section 2 of
Chapter XV.2.
2. Statutory Basis
BX believes that the proposed rule changes are consistent with the
provisions of Section 6 of the Act,\6\ in general, and with Section
6(b)(4) of the Act,\7\ in particular, in that they provide for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility or system
which BX operates or controls.
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that its proposal to assess fees and pay
rebates in Non-Penny Pilot Options, which pricing differs from Penny
Pilot Options,\8\ is consistent with pricing at other options markets
that also assess different fees and pay different rebates for Penny
Pilot Options as compared to Non-Penny Pilot Options.\9\ The Exchange
today assesses fees and pay rebates in Penny Pilot Options. The
Exchange plans to list Non-Penny Pilot Options on January 2, 2013. The
Exchange believes that establishing different pricing for Penny Pilot
and Non-Penny Pilot Options is reasonable, equitable and not unfairly
discriminatory because Penny Pilot Options are more liquid options as
compared to Non-Penny Pilot Options. Additionally, other options
exchanges differentiate pricing by security today.\10\
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\8\ The Penny Pilot on BX Options was established in June 2012.
See Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR
39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX Options
rules and establishing Penny Pilot). The Exchange filed to extend
the Penny Pilot through December 31, 2012. See Securities Exchange
Act Release No. 67342 (July 3, 2012), 77 FR 40666 (July 10, 2012)
(SR-BX-2012-046).
\9\ NASDAQ OMX PHLX LLC (``Phlx'') assesses fees and pays
rebates in Non-Penny Pilot Options. See Phlx's Pricing Schedule. The
Chicago Board Options Exchange Incorporated (``CBOE'') assess fees
and pays rebates in Non-Penny Pilot Options. See CBOE's Fees
Schedule. The NASDAQ Options Market LLC (``NOM'') assesses fees and
pays rebates in Non-Penny Pilot Options. See NOM's Rules at Chapter
XV, Section 2. The International Securities Exchange LLC (``ISE'')
assesses fees and pays rebates in Non-Penny Pilot Symbols. See ISE's
Fee Schedule.
\10\ See supra note 8 [sic].
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The Exchange believes that the proposed Customer Rebate to Remove
Liquidity in Non-Penny Pilot Options is reasonable because this rebate
will attract Customer order flow to the Exchange to the benefit of all
market participants through increased liquidity. Today, the Exchange
pays a Customer Rebate to Remove Liquidity in Penny Pilot Options.
Further, the Exchange also believes it is equitable and not unfairly
discriminatory to only offer the Rebate to Remove Liquidity to
Customers and not offer the rebate to other market participants because
the Exchange is offering the rebate to incentivize NOM [sic]
Participants to send Customer order flow to the Exchange. It is an
important Exchange function to provide an opportunity to all market
participants to trade against Customer orders. Customer order flow
benefits all market participants by improving liquidity, the quality of
order interaction and executions at the Exchange.
With respect to the Fee to Add Liquidity, the Exchange believes
that assessing Customers and BX Options Market Makers a lower Fee to
Add Liquidity in Non-Penny Pilot Options, when they are not contra to a
Customer, as compared to Non-Customers is reasonable because the
Exchange seeks to incentivize these critical market participants to add
liquidity. Increased liquidity benefits all market participants. The
Exchange also believes that the lower Fees to Add Liquidity in Non-
Penny Pilot Options for Customers and BX Options Market Makers as
compared to Non-Customers are equitable and not unfairly discriminatory
because Customer order flow benefits all market participants by
improving liquidity, the quality of order interaction and executions at
the Exchange. Also, BX Options Market Makers have obligations to the
market and regulatory requirements,\11\ which normally do not apply to
other market participants. A BX Options Market Maker has the obligation
to make continuous markets, engage in course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, and not make bids or offers or enter into transactions that are
inconsistent with course of dealings. The proposed differentiation as
between Customers and BX Options Market Makers and Non-Customers
recognizes the differing contributions made to the liquidity and
trading environment on the Exchange by Customers and BX Options Market
Makers, as well as the differing mix of orders entered.
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\11\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a Market Maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on BX for all purposes under
the Act or rules thereunder. See Chapter VII, Section 5.
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With respect to the Fee to Add Liquidity, the Exchange believes
that assessing Customers and BX Options Market Makers a higher Fee to
Add Liquidity in Non-Penny Pilot Options, when they are contra to a
Customer is reasonable because the Customer is being paid a Rebate to
Remove Liquidity of $0.70 per contract pursuant to this proposal and
the Exchange believes that the increased fee allows the Exchange to
offer that incentive to Customers to attract liquidity to the market.
The Exchange also believes that the increased Customer and BX Options
Market Maker Fees to Add Liquidity in Non-Penny Pilot Options are
equitable and not unfairly discriminatory because the fees for
Customers and BX Options Market Makers when contra to a Customer order
are lower as compared to Non-Customers ($0.85 as compared to $0.88 per
contract). For the reasons previously mentioned, the Exchange believes
the fees are equitable and not unfairly discriminatory because these
critical market participants add liquidity and have obligations to the
[[Page 1295]]
market which differentiates them from Non-Customers.
The Exchange believes that not assessing a Fee to Remove Liquidity
in Non-Penny Pilot Options to Customers is reasonable because the
Exchange seeks to incentivize NOM [sic] Participants to send Customer
order flow to the Exchange. In addition, the Exchange does not assess a
Customer Fee to Remove Liquidity in Penny Pilot Options. The Exchange
believes that not assessing a Fee to Remove Liquidity in Non-Penny
Pilot Options to Customers is equitable and not unfairly discriminatory
because Customer order flow brings liquidity to the market which
benefits all market participants.
The Exchange believes that assessing a Fee to Remove Liquidity in
Non-Penny Pilot Options of $0.88 per contract to BX Options Market
Makers and Non-Customers is reasonable because the fee allows the
Exchange to reward Customers that remove liquidity with a rebate. The
advantage of increased Customer order flow benefits all market
participants. In addition, the proposed Fees to Remove Liquidity in
Non-Penny Pilot Options are in the range of fees assessed by other
options exchanges.\12\ The Exchange believes that assessing a Fee to
Remove Liquidity in Non-Penny Pilot Options of $0.88 per contract to BX
Options Market Makers and Non-Customers is equitable and not unfairly
discriminatory because all market participants, BX Options Market
Makers, Professionals, Firms, Broker-Dealers and Non-BX Options Market
Makers, excluding Customers, would be assessed the same Fee to Remove
Liquidity in Non-Penny Pilot Options on every transaction.
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\12\ NOM assesses Professionals, Firms, non-NOM Market Makers
and NOM Market Makers Non-Penny Pilot Options Fees to Remove
Liquidity of $0.89 per contract. See NOM Chapter XV, Section 2. The
BATS Exchange, Inc. (``BATS'') assesses Professional, Firms and
Market Makers $0.84 per contract to remove liquidity in Non-Penny
Pilot Options. See also BATS BZX Exchange Fee Schedule. NYSE Arca,
Inc. (``NYSE Arca'') assesses Firms and Broker Dealers an $0.85 per
contract Take Liquidity Fee and NYSE Arca Market Makers are assessed
an $0.80 take liquidity fee. See NYSE Arca Options Fee Schedule.
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In the current U.S. options market, many of the contracts are
quoted in pennies. Under this pricing structure, the minimum penny tick
increment equates to a $1.00 economic value difference per contract,
given that a single standardized U.S. option contract covers 100 shares
of the underlying stock. Where contracts are quoted in $0.05 increments
(non-pennies), the value per tick is $5.00 in proceeds to the investor
transacting in these contracts. Liquidity rebate and access fee
structures on the make-take exchanges for securities quoted in penny
increments are commonly in the $0.30 to $0.45 per contract range. A
$0.30 per contract rebate in a penny quoted security is a rebate
equivalent to 30% of the value of the minimum tick. A $0.45 per
contract fee in a penny quoted security is a charge equivalent to 45%
of the value of that minimum tick. In other words, in penny quoted
securities, where the price is improved by one tick with an access fee
of $0.45 per contract, an investor paying to access that quote is still
$0.55 better off than trading at the wider spread, even without the
access fee ($1.00 of price improvement - $0.45 access fee = $0.55
better economics). This computation is equally true for securities
quoted in wider increments. By comparison, rebates and access fees near
the $0.88 per contract level equate to only 17.6% of the value of the
minimum tick in Non-Penny Pilot Options, less than the experience today
in Penny Pilot Options. Accordingly, the Exchange believes that the
proposed Fees to Add Liquidity and Fees to Remove Liquidity in Non-
Penny Pilot Options are reasonable, equitable and not unfairly
discriminatory.
The Exchange operates in a highly competitive market comprised of
eleven U.S. options exchanges in which sophisticated and knowledgeable
market participants can and do send order flow to competing exchanges
if they deem fee levels at a particular exchange to be excessive. The
Exchange believes that the proposed fee and rebate scheme for Non-Penny
Pilot Options is competitive and similar to other fees and rebates in
place on other exchanges. The Exchange believes that this competitive
marketplace materially impacts the fees and rebates present on the
Exchange today and substantially influences the proposal set forth
above.
B. Self-Regulatory Organization's Statement on Burden on Competition
BX does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. To the contrary, BX has designed its fees and
rebates to compete effectively for the execution and routing of options
contracts. The Exchange believes that the proposed fee/rebate pricing
structure for Non-Penny Pilot Options would attract liquidity to and
benefit order interaction at the Exchange to the benefit of all market
participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\13\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2012-074 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2012-074. 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
[[Page 1296]]
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 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be
available for inspection and copying at BX's principal office. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2012-074, and should be
submitted on or before January 29, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00077 Filed 1-7-13; 8:45 am]
BILLING CODE 8011-01-P