[Federal Register Volume 76, Number 70 (Tuesday, April 12, 2011)]
[Notices]
[Pages 20414-20416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8628]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64211; File No. SR-BATS-2011-012]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Fees for Use of BATS Exchange, Inc.

April 6, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on April 1, 2011, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a due, fee, or other charge imposed by the Exchange under 
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes [sic] amend the fee schedule applicable to 
Members \5\ and non-members of the Exchange pursuant to BATS Rules 
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal 
will be effective upon filing.
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    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify the ``Options Pricing'' section of 
its fee schedule to: (i) Adopt a definition for Total Consolidated 
Volume (``TCV''), to be used for purposes of the tiered pricing 
structure offered by the BATS options market (``BATS Options''); (ii) 
modify the fees applicable to removing liquidity from BATS Options; 
(iii) modify the program that provides a rebate specifically for orders 
that set either the national best bid (the ``NBB'') or the national 
best offer (the ``NBO'') subject to average daily volume requirements; 
and (iv) adopt other changes to other definitions used for purposes of 
the fee schedule.
(i) Definition and Use of Total Consolidated Volume for Pricing
    Rather than basing its pricing structure on a static number of 
contracts, the Exchange proposes to modify its tiered pricing structure 
such that it is based on Total Consolidated Volume, or TCV, and is thus 
variable

[[Page 20415]]

based on overall volumes in the options industry. In order to achieve 
this change, the Exchange proposes to adopt the definition of TCV as 
meaning ``total consolidated volume calculated as the volume reported 
by all exchanges to the consolidated transaction reporting plan for the 
month for which the fees apply.'' To illustrate the Exchange's 
application of TCV, if the overall volume of options contracts traded 
as reported by all options exchanges is 200 million contracts in a 
given month, this amount will be used as the TCV against which the 
Exchange's tiered pricing will be measured for all trading activity 
during the month. The amount of overall TCV in the month will be 
divided by the number of trading days to determine average TCV; for 
instance, 200 million contracts divided by 20 trading days is an 
average TCV of 10 million contracts per day. Using these volumes as an 
example, to reach the Exchange's highest proposed tier, which, as 
described in further detail below will be 1% or more of average TCV, a 
Member would need to have an ADV of at least 100,000 contracts traded 
on BATS Options per day. If, in the next month, options volumes 
doubled, and the TCV for the month was 400 million contracts, then a 
Member would need to have an ADV of at least 200,000 contracts traded 
on BATS Options to have an ADV equal to 1% of average TCV. The Exchange 
believes that basing its tiered pricing on TCV rather than a specific 
number of contracts is a preferable measure of overall activity given 
the fluctuation of volumes in the options industry.
(ii) Fees To Remove Liquidity
    The Exchange currently charges standard fees of $0.28 per contract 
for customer orders and $0.38 per contract for Firm and Market Maker 
orders that remove liquidity from BATS Options. The Exchange proposes 
to increase this fee to $0.30 per contract for customer orders and 
$0.40 per contract for Firm and Market Maker orders that remove 
liquidity from BATS Options, subject to potential reduction for any 
Member with an ADV of 0.30% or more of average TCV on BATS Options, as 
described below.
    The Exchange currently maintains two tiers through which Members 
can realize lower liquidity removal fees. The first tier is available 
for any Member with an ADV \6\ of 50,000 or more contracts; such 
Members are currently charged a fee of $0.25 per contract for customer 
orders and $0.35 per contract for Firm and Market Maker orders, and 
thus realize savings of $0.03 per contract as compared to the current 
standard fees. The second tier is available for any member with an ADV 
of 15,000 or more, but less than 50,000, contracts; such Members are 
currently charged a fee of $0.27 per contract for customer orders and 
$0.37 per contract for Firm and Market Maker orders, and thus realize 
savings of $0.01 per contract as compared to the current standard fees.
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    \6\ As currently defined, ADV means average daily volume 
calculated as the number of contracts added or removed, combined, 
per day on a monthly basis. ADV does not include contracts routed 
away from the Exchange and executed at a different options exchange.
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    The Exchange proposes to modify its tiered pricing structure to 
apply a single, reduced liquidity removal rate to all Members with an 
ADV equal to or greater than 0.30% of average TCV. For Members reaching 
this volume threshold, the Exchange will charge a fee of $0.27 per 
contract for customer orders and $0.37 per contract for Firm and Market 
Maker orders. Thus, such Members will save $0.03 per contract as 
compared to the standard fee to remove liquidity. Using examples set 
forth above, during a month with a total of 200 million contracts 
traded, in order to receive the discounted removal fee based on a 
requirement of 0.30% of average TCV, a Member would be required to 
trade 600,000 contracts on BATS Options during the month (an ADV 
requirement of 30,000 contracts).
(iii) Expansion and Modification of NBBO Setter Rebate Program
    The Exchange currently offers a rebate upon execution for all 
orders that add liquidity that sets either the NBB or NBO (the ``NBBO 
Setter Rebate'') \7\ so long as the Member submitting the order 
achieves either an ADV of between 15,000 and 49,999 contracts or an ADV 
of 50,000 or more contracts during the calendar month. The NBBO Setter 
Rebate currently offered by the Exchange to such Members is $0.40 per 
contract and $0.50 per contract, respectively. The Exchange proposes to 
modify the threshold to meet the ADV requirement for the $0.40 NBBO 
Setter Rebate to 0.30% of average TCV and to modify the threshold to 
meet the ADV requirement for the $0.50 NBBO Setter Rebate to 1% of 
average TCV. As explained above, assuming a monthly TCV of 200 million 
contracts in a month with 20 trading days, a Member would need an ADV 
of at least 30,000 contracts to receive the $0.40 NBBO Setter Rebate, 
and an ADV of at least 100,000 contracts to receive the $0.50 NBBO 
Setter Rebate.
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    \7\ An order that is entered at the most aggressive price both 
on the BATS Options book and according to then current OPRA data 
will be determined to have set the NBB or NBO for purposes of the 
NBBO Setter Rebate without regard to whether a more aggressive order 
is entered prior to the original order being executed.
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(iv) Other Changes to Definitions
    In addition to the changes described above, including adoption of a 
definition for TCV, the Exchange proposes to modify other definitions 
contained in the Options Pricing section of the fee schedule. First, 
the Exchange proposes to modify the definition of ADV to allow 
affiliated entities to aggregate their order flow for purposes of the 
Exchange's pricing tiers if such entities provide prior notice to the 
Exchange. Specifically, to the extent two or more affiliated companies 
maintain separate BATS Options memberships and can demonstrate their 
affiliation by showing they control, are controlled by, or are under 
common control with each other, the Exchange will permit such Members 
to count overall volume of the affiliates in calculating ADV. In 
addition, the Exchange proposes to capitalize the term ``Member'' 
throughout the definitions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\8\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\9\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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    The changes to Exchange execution fees and rebates proposed by this 
filing are intended to attract order flow to BATS Options by continuing 
to offer competitive pricing while also permitting the Exchange to 
avoid significant monetary losses.
    The Exchange believes that basing its tiered pricing structure on 
overall TCV, rather than a static number irrespective of overall 
options volumes, is a fair and equitable approach to pricing. Volume-
based discounts such as the liquidity removal fee tiers proposed in 
this filing have been widely adopted in the cash

[[Page 20416]]

equities markets, and are equitable and not unreasonably discriminatory 
because they are open to all members on an equal basis and provide 
discounts that are reasonably related to the value to an exchange's 
market quality associated with higher levels of market activity, such 
as higher levels of liquidity provision and introduction of higher 
volumes of orders into the price and volume discovery process. 
Accordingly, the Exchange believes that the proposal is not 
unreasonably discriminatory because it is consistent with the overall 
goals of enhancing market quality. Additionally, the Exchange believes 
that the NBBO Setter Rebate, now in place on BATS Options for three 
months, has and will continue to incentivize the entry of more 
aggressive orders that will create tighter spreads, benefitting both 
Members and public investors.
    The proposed increase in fees to remove liquidity will have 
variable affects on Members of BATS Options, dependent on the volume of 
transaction activity they conduct on BATS Options. The Exchange notes 
that only a small subset of Members currently meeting the ADV tier of 
15,000 to 49,999 will not be impacted by any increase in fees. Despite 
this increase in fees for most Members, the Exchange believes that its 
proposed fee structure is fair and equitable as the Exchange's standard 
removal fees (either $0.30 or $0.40 per contract) and the reduced 
removal fees (either $0.27 or $0.37 per contract) still remain lower 
than other markets with similar fee structures, such as the NASDAQ 
Options Market and NYSE Arca in Make/Take Issues. The increase in 
liquidity removal fees so that the Exchange is earning a slightly 
greater fee will provide the Exchange with additional revenue to both 
fund the NBBO Setter Rebate and to fund its operations generally.
    The proposed language permitting aggregation of volume amongst 
corporate affiliates for purposes of the ADV calculation is intended to 
avoid disparate treatment of firms that have divided their various 
business activities between separate corporate entities as compared to 
firms that operate those business activities within a single corporate 
entity. By way of example, subject to appropriate information barriers, 
many firms that are Members of the Exchange operate both a market 
making desk and a public customer business within the same corporate 
entity. In contrast, other firms may be part of a corporate structure 
that separates those business lines into different corporate 
affiliates, either for business, compliance or historical reasons. 
Those corporate affiliates, in turn, are required to maintain separate 
memberships with the Exchange in order to access BATS Options. Absent 
the proposed policy, such corporate affiliates would not receive the 
same treatment as firms operating similar business lines within a 
single entity that is a Member of the Exchange. Accordingly, the 
Exchange believes that its proposed policy is fair and equitable, and 
not unreasonably discriminatory. In addition to ensuring fair and equal 
treatment of its Members, the Exchange does not want to create 
incentives for its Members to restructure their business operations or 
compliance functions simply due to the Exchange's pricing structure.
    Finally, the Exchange believes that the adoption of a definition 
for TCV will help to avoid potential confusion regarding the Exchange's 
fee schedule.

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

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ and Rule 19b-
4(f)(2) thereunder,\11\ the Exchange has designated this proposal as 
establishing or changing a due, fee, or other charge applicable to the 
Exchange's Members and non-members, which renders the proposed rule 
change effective upon filing.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 e-mail to [email protected]. Please include 
File Number SR-BATS-2011-012 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-BATS-2011-012. This file 
number should be included on the subject line if e-mail 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 
a.m. and 3 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-BATS-2011-012 and should be 
submitted on or before May 3, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8628 Filed 4-11-11; 8:45 am]
BILLING CODE 8011-01-P