[Federal Register Volume 76, Number 157 (Monday, August 15, 2011)]
[Notices]
[Pages 50525-50528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20699]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65076; File No. SR-BATS-2011-024]


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.

August 9, 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 July 29, 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 member 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). While changes to the fee schedule pursuant to this 
proposal will be effective upon filing, the changes will become 
operative on August 1, 2011.
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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, at the Commission's Public Reference Room, and on the 
Commission's Web site at http://www.sec.gov.

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) Increase the fees applicable to removing 
liquidity from the BATS options market (``BATS Options''); (ii) 
decrease the rebates applicable to adding liquidity to BATS Options; 
(iii) decrease the rebates paid, subject to average daily volume 
requirements, for orders that set either the national best bid (the 
``NBB'') or the national best offer (the ``NBO''); (iv) adopt a program 
to incentivize sustained, aggressive quoting in certain specified 
options series (the ``Quoting Incentive Program'' or ``QIP''); and (v) 
adopt a change to the standard routing fee for the CYCLE, RECYCLE, 
Parallel D, Parallel 2D, and Destination Specific routing strategies 
\6\ charged for routing Customer \7\ orders to certain markets.
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    \6\ As defined in BATS Rules 21.1(d)(7) and 21.9(a)(2).
    \7\ As defined on the Exchange's fee schedule, a ``Customer'' 
order is any transaction identified by a Member for clearing in the 
Customer range at the Options Clearing Corporation (``OCC'').
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(i) Increase to Liquidity Removal Fees
    The Exchange currently charges standard fees of $0.30 per contract 
for Customer orders and $0.40 per contract for Firm and Market Maker 
\8\ orders that remove liquidity from BATS Options. The Exchange 
proposes to increase this fee to $0.32 per contract for Customer orders 
and $0.42 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.
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    \8\ As set forth on the Exchange's fee schedule, and consistent 
with the definition of a Customer order, classification as Firm and 
Market Maker orders depends on the identification by a Member of the 
applicable clearing range at the OCC.
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    The Exchange currently maintains a tiered pricing structure through 
which Members can realize lower liquidity removal fees if such Members 
have an

[[Page 50526]]

average daily volume (``ADV'') \9\ equal to or greater than 0.30% of 
average total consolidated volume (``TCV'').\10\ For Members reaching 
this volume threshold, the Exchange currently charges a fee of $0.27 
per contract for Customer orders and $0.37 per contract for Firm and 
Market Maker orders. Thus, such Members currently save $0.03 per 
contract as compared to the standard fee to remove liquidity. While the 
Exchange proposes [sic] maintain this $0.03 savings per contract for 
those reaching the volume tier, due to the proposed increase described 
above for standard liquidity removal, the Exchange proposes to increase 
liquidity removal fees for Members that reach the volume tier by $0.02 
per contract. Accordingly, for Members reaching the volume threshold, 
the Exchange will charge a fee of $0.29 per contract for Customer 
orders and $0.39 per contract for Firm and Market Maker orders.
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    \9\ As defined on the Exchange's fee schedule, ADV is average 
daily volume calculated as the number of contracts added or removed, 
combined, per day on a monthly basis. The fee schedule also provides 
that routed contracts are not included in ADV calculation.
    \10\ As defined on the Exchange's fee schedule, TCV is 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.
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(ii) Decrease to Liquidity Adding Rebate
    The Exchange currently provides a rebate of $0.25 per contract for 
all Customer orders that add liquidity to BATS Options. The Exchange 
proposes to reduce the rebate for adding liquidity to $0.22 for 
Customer orders.
    The Exchange currently provides a rebate of $0.25 per contract for 
Firm and Market Maker orders that are removed by Customer orders and 
$0.35 per contract for orders that are removed by Firm or Market Maker 
orders. The removing Member's fee is determined without regard to the 
capacity of the adding party. Consistent with the reduction of Customer 
rebates described above, the Exchange proposes to reduce each of these 
liquidity adding rebates by $0.03. Accordingly, the Exchange proposes 
to provide a rebate of $0.22 per contract for Firm and Market Maker 
orders that are removed by Customer orders and $0.32 per contract for 
orders that are removed by Firm or Market Maker orders. As is the case 
under the current pricing structure, the removing Member's fee will be 
determined without regard to the capacity of the adding party.
    The Exchange believes that, because Members can neither see the 
capacity of orders in the Exchange's order book nor determine the 
capacity of the Member that removes an order, the proposal will not 
disadvantage public investors or Members. Lastly, the Exchange believes 
that the proposed change to the fee schedule is substantively similar 
to a pricing plan in place at NASDAQ OMX PHLX.\11\
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    \11\ See Securities Exchange Act Release No. 57253 (February 1, 
2008), 73 FR 7352 (February 7, 2008) (SR-Phlx-2008-08) (notice of 
filing and immediate effectiveness to amend fees applicable to the 
Philadelphia Stock Exchange, including adopting a tiered subsidy 
that does not apply to Customer-to-Customer transactions).
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(iii) Decrease to Rebates for 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''),\12\ subject to certain volume requirements. The NBBO 
Setter Rebate currently offered by the Exchange to such Members is 
$0.40 per contract for Members with an ADV equal to or greater than 
0.30% of average TCV but less than 1% of average TCV and $0.50 per 
contract for Members with an ADV equal to or greater than 1% of TCV. 
The Exchange proposes to reduce the rebates paid to Members under the 
NBBO Setter Program by $0.05 per contract. Accordingly, the Exchange 
will provide an NBBO Setter Rebate of $0.35 per contract for Members 
with an ADV equal to or greater than 0.30% of average TCV but less than 
1% of average TCV and $0.45 per contract for Members with an ADV equal 
to or greater than 1% of TCV.
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    \12\ 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) Adoption of Quoting Incentive Program (QIP)
    BATS Options proposes to introduce a Quoting Incentive Program 
(QIP), through which BATS Options will provide a rebate of $0.03 per 
contract, in addition to any other liquidity rebate other than an NBBO 
Setter Program liquidity rebate, for executions subject to the QIP. The 
QIP will only apply to executions in options overlying XLF, CSCO, PFE, 
ORCL, and XRT. To qualify for the QIP a BATS Options Market Maker must 
be at the NBB or NBO 70% of the time for series trading between $0.03 
and $5.00 for the front three (3) expiration months in that underlying 
during the current trading month. A Member not registered as a BATS 
Market Maker can also qualify for the QIP by quoting at the NBB or NBO 
80% of the time in the same series.
    The Exchange will determine whether a market maker qualifies for 
QIP rebates at the end of each month by looking back at each Member's 
(including BATS Options Market Makers) quoting statistics during that 
month. If at the end of the month a Market Maker meets the 70% criteria 
or a Member that is not registered as a BATS Options Market Maker meets 
the 80% criteria, the Exchange will provide the additional rebate for 
all executions subject to the QIP executed by that Market Maker or 
Member during that month. The Exchange will provide Members with a 
report on a daily basis with quoting statistics so such Members can 
determine whether or not they are meeting the QIP criteria. As noted 
above, the QIP will not be additive to NBBO Setter Program rebates. The 
Exchange is not proposing to impose any ADV requirements in order to 
qualify for the QIP at this time.
(v) Change to Standard Routing Fee
    The Exchange currently charges a flat fee per contract of $0.06 for 
all executions of Customer orders routed through the CYCLE, RECYCLE, 
Parallel D, Parallel 2D and Destination Specific routing strategies in 
non-``Make/Take'' issues,\13\ if applicable, routed to NYSE Amex, NYSE 
Arca, the Boston Options Exchange, the Chicago Board Options Exchange, 
the International Securities Exchange, or NASDAQ OMX PHLX. The 
Exchange's current fee of $0.06 per contract is the same amount per 
contract as the direct clearing costs paid by the Exchange in 
connection with the routing of Customer orders. However, there are 
additional infrastructure costs, including membership fees and 
connectivity costs, that are not captured by this fee. In order to 
recover additional fees to account for infrastructure costs related to 
routing, the Exchange proposes to increase this routing fee to $0.10 
per contract. In contrast to Customer orders, the Exchange's fees for 
Firm and Market Maker orders already provide the Exchange with some 
additional revenue to cover infrastructure costs. Accordingly, the 
Exchange is not proposing to adjust its fees for routed Firm or Market 
Maker orders at this time.
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    \13\ As defined on the fee schedule, Make/Take pricing refers to 
executions at the identified Exchange under which ``Post Liquidity'' 
or ``Maker'' rebates (``Make'') are credited by that exchange and 
``Take Liquidity'' or ``Taker'' fees (``Take'') are charged by that 
exchange.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 50527]]

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.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f.
    \15\ 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 the Exchange by continuing 
to offer competitive pricing while also creating incentives to 
providing aggressively priced displayed liquidity. While Members that 
remove liquidity from the Exchange and/or route Customer orders through 
the Exchange's standard routing strategies will pay higher fees and 
Members that add liquidity to the Exchange will receive lower rebates 
due to the proposal, the increased revenue received by the Exchange 
will be used to fund programs that the Exchange believes will attract 
additional liquidity and thus improve the depth of liquidity available 
on the Exchange. Accordingly, the Exchange believes that the higher 
access and routing fees and lower rebates will benefit Members' results 
in trading on the Exchange to the extent the tiered rebate structure 
offered by the Exchange for adding liquidity, the continued operation 
of the NBBO Setter Program, and the adoption of the Quoting Incentive 
Program (QIP) incentivize liquidity providers to provide more 
aggressively priced liquidity.
    Despite the increase in fees and decrease in rebates for all 
Members, the Exchange also believes that its proposed fee structure is 
fair and equitable as the Exchange's standard fees generally still 
remain lower, and standard rebates generally still remain higher, than 
standard fees charged and rebates paid by other markets with similar 
fee structures, such as NYSE Arca and Nasdaq. The Exchange further 
believes that the proposed change to the Exchange's standard routing 
fee for Customer orders to certain venues is competitive, fair and 
reasonable, and non-discriminatory in that the increase will allow the 
Exchange to cover additional infrastructure costs attendant with 
offering routing services. The Exchange also notes that although 
routing options are available to all Members, Members are not required 
to use the Exchange's routing services, but instead, the Exchange's 
routing services are completely optional. Members can manage their own 
routing to different options exchanges or can utilize a myriad of other 
routing solutions that are available to market participants. Additional 
revenue generated through the increased liquidity removal and routing 
fees as well as reduction of certain rebates, as described above, will 
allow the Exchange to offer competitive pricing and incentives, such as 
the NBBO Setter Program and QIP.
    The Exchange believes that continuing to base its tiered fee 
structure and NBBO Setter Program based on overall TCV, rather than a 
static number of contracts irrespective of overall volume in the 
options industry, is a fair and equitable approach to pricing. Volume-
based tiers such as the tiers in place on the Exchange have been widely 
adopted in the equities markets, and are equitable and not unfairly 
discriminatory because they are open to all members on an equal basis 
and provide rebates 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 
unfairly discriminatory because it is consistent with the overall goals 
of enhancing market quality.
    Additionally, the Exchange believes that the proposed Quoting 
Incentive Program, similar to a fee structure in place on at least one 
of the Exchange's competitors,\16\ will incentivize the provision of 
competitively priced, sustained liquidity that will create tighter 
spreads, benefitting both Members and public investors. The Exchange 
further believes that conditioning a Member's ability to receive the 
QIP's additional rebate on reaching one of the Exchange's quoting tiers 
is consistent with the Act for the reasons described above with respect 
to volume-based tiers. The Exchange also believes that providing a 
slightly lower threshold for meeting the QIP to registered BATS Options 
Market Makers appropriately incentivizes Members of BATS Options to 
register with the Exchange as Options Market Makers. While the Exchange 
does wish to allow participation in the QIP by all Members, the 
Exchange believes that registration by additional Members as Market 
Makers will help to continue to increase the breadth and depth of 
quotations available on the Exchange. The Exchange notes that in 
addition to the fact that the QIP will be available to all Members, the 
proposal is not unfairly discriminatory despite a slightly higher 
quotation requirement for non-Market Makers due to the fact that 
registration as a BATS Options Market Maker is equally available to all 
Members.
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    \16\ See Securities Exchange Act Release No. 61869 (April 7, 
2010), 75 FR 19449 (April 14, 2010) (SR-ISE-2010-25) (notice of 
filing and immediate effectiveness of changes to fees and rebates 
including adoption of specific rebates for market makers qualifying 
for the Market Maker Plus program).
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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 \17\ and Rule 19b-
4(f)(2) thereunder,\18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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:

[[Page 50528]]

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-2011-024 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-2011-024. 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-2011-024 and should be 
submitted on or before September 6, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20699 Filed 8-12-11; 8:45 am]
BILLING CODE 8011-01-P