[Federal Register Volume 76, Number 196 (Tuesday, October 11, 2011)]
[Notices]
[Pages 62884-62887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26103]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65473; File No. SR-BATS-2011-043]


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.

October 3, 2011 .
    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 September 30, 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.

[[Page 62885]]

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes 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 October 
3, 2011.
---------------------------------------------------------------------------

    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
---------------------------------------------------------------------------

    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) Decrease the fees applicable to Customer \6\ 
orders that remove liquidity from the BATS options market (``BATS 
Options''); (ii) eliminate a pricing structure that provides a Firm \7\ 
or Market Maker \8\ a reduced fee to remove liquidity if such Firm or 
Market Maker satisfies certain volume thresholds; (iii) increase the 
rebate applicable to Customer orders that add liquidity to BATS 
Options; (iv) modify 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''); and (v) modify a 
program intended to incentivize sustained, aggressive quoting in 
certain specified options series (the ``Quoting Incentive Program'' or 
``QIP'').
---------------------------------------------------------------------------

    \6\ 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'').
    \7\ As defined on the Exchange's fee schedule, a ``Firm'' order 
is any transaction identified by a Member for clearing in the Firm 
range at the OCC.
    \8\ As defined on the Exchange's fee schedule, a ``Market 
Maker'' order is any transaction identified by a Member for clearing 
in the Market Maker range at the OCC.
---------------------------------------------------------------------------

(i) Decrease to Customer Liquidity Removal Fees
    The Exchange currently charges standard fees of $0.32 per contract 
for Customer orders that remove liquidity from BATS Options. The 
Exchange proposes to decrease this fee to $0.30 per contract, 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 a tiered pricing structure through 
which Members can realize lower liquidity removal fees if such Members 
have an 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 
$0.29 per contract for Customer orders. Thus, such Members currently 
save $0.03 per contract as compared to the standard fee to remove 
liquidity. While the Exchange proposes to maintain this $0.03 savings 
per contract for Customer orders for Members that reach the volume 
tier, due to the proposed decrease described above for standard 
liquidity removal, the Exchange proposes to decrease liquidity removal 
fees for Members that reach the volume tier by $0.02 per contract for 
Customer orders. Accordingly, for Members reaching the volume 
threshold, the Exchange will charge a fee of $0.27 per contract for 
Customer orders.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(ii) Elimination of Liquidity Removal Discount for Firms and Market 
Makers
    As explained above, the Exchange currently maintains a tiered 
pricing structure through which Members can realize lower liquidity 
removal fees if such Members have an ADV equal to or greater than 0.30% 
of average TCV. For Members reaching this volume threshold, the 
Exchange currently charges a fee of $0.39 per contract for Firm and 
Market Maker orders, which is $0.03 less than the standard fee of $0.42 
for such orders. The Exchange proposes to eliminate the reduced 
liquidity removal fee for Firm and Market Maker orders of Members that 
reach the volume threshold. Accordingly, the Exchange proposes to 
charge a fee of $0.42 per contract for all Firm and Market Maker orders 
that remove liquidity from BATS Options.
(iii) Increase to Customer Rebates to Add Liquidity
    The Exchange currently provides a rebate of $0.22 per contract for 
Customer orders. The Exchange proposes to increase this rebate to $0.30 
per contract. 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.
(iv) Modified 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''),\11\ subject to certain volume requirements. The NBBO 
Setter Rebate currently offered by the Exchange to such Members is 
$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. 
The NBBO Setter Rebate is currently an exclusive rebate structure, in 
that qualifying executions receive the applicable rebate irrespective 
of any other condition. For instance, an execution that qualifies for 
both the NBBO Setter Rebate and the Quoting Incentive Program (as 
described below), would simply receive the NBBO Setter

[[Page 62886]]

Rebate and the Quoting Incentive Program would not alter the amount of 
the rebate. The Exchange proposes to modify the NBBO Setter Rebate such 
that it is additive, and thus, can be combined with other incentives 
and structures offered by the Exchange. Specifically, the Exchange 
proposes to provide an additional $0.06 per contract for executions 
that qualify for the NBBO Setter Rebate by Members with an ADV equal to 
or greater than 0.30% of average TCV but less than 1% of average TCV 
and an additional $0.10 per contract for qualifying executions by 
Members with an ADV equal to or greater than 1% of TCV. Accordingly, a 
Member with an execution in an option that qualifies for both an NBBO 
Setter Rebate and a QIP rebate (as described below) will receive the 
applicable initial rebate of $0.22, $0.30, or $0.32 (depending on the 
capacities of the party or parties to the trade), plus the proposed QIP 
rebate of $0.05 per contract plus the applicable NBBO Setter Rebate of 
either $0.06 per contract or $0.10 per contract. As such, whether the 
NBBO Setter Rebate is an increase or decrease for any particular Member 
or any particular transaction depends on a number of factors, including 
the level of a Member's monthly trading activity on the Exchange, 
whether such Member qualifies for the QIP in the applicable option, the 
capacity of the orders sent by the Member and, in the case of Firms and 
Market Makers, the capacity of the party against which such orders 
execute.
---------------------------------------------------------------------------

    \11\ 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.
---------------------------------------------------------------------------

(v) Modification of Quoting Incentive Program (QIP)
    BATS Options currently offers a Quoting Incentive Program (QIP), 
through which Members receive 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 
currently applies only 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 Options 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 proposes two changes to the QIP. First, the Exchange 
proposes to increase the rebate provided pursuant to the QIP from $0.03 
per contract to $0.05 per contract. Second, the Exchange proposes to 
expand the QIP from executions in options overlying specified 
securities (XLF, CSCO, PFE, ORCL, and XRT) to all options traded on 
BATS Options. All other aspects of the QIP currently in place will 
remain the same, though the Exchange does propose changing the 
description of the QIP on the Exchange's fee schedule because, as 
described above, the Exchange proposes to permit QIP rebates to be 
combined with NBBO Setter Rebates. Accordingly, a Member with an 
execution in an option that qualifies for both the QIP and an NBBO 
Setter Rebate will receive the applicable initial rebate of $0.22, 
$0.30, or $0.32 (depending on the capacities of the party or parties to 
the trade), plus the $0.05 per contract QIP rebate plus the applicable 
NBBO Setter Rebate of either $0.06 per contract or $0.10 per contract.
    As is true under the current operation of the QIP, 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. The Exchange is not 
proposing to impose any ADV requirements in order to qualify for the 
QIP at this time.
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.\12\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\13\ 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    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. The proposed changes 
to Customer pricing, including the increase to the rebate provided for 
Customer orders and decrease to the fee to take liquidity from the 
Exchange are designed to incentivize firms to send additional Customer 
orders to the Exchange. While certain Members that currently reach the 
volume threshold and remove liquidity from the Exchange with Firm and 
Market Maker orders will pay higher fees 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, 
including Customer liquidity, and thus improve the depth of liquidity 
available on the Exchange. Accordingly, the Exchange believes that the 
higher access fees for Firm and Market Maker orders will benefit 
Members' results in trading on the Exchange to the extent the pricing 
structure offered by the Exchange with respect to Customer orders, the 
continued operation of the NBBO Setter Program, and the expansion to 
the Quoting Incentive Program (QIP) incentivize liquidity providers to 
provide more aggressively priced liquidity.
    Despite the increase in fees for Members that currently receive a 
discount when removing liquidity with Firm or Market Maker orders, the 
Exchange also believes that its proposed fee structure is fair and 
equitable as the Exchange's standard fees generally still remain lower 
than standard fees charged by other markets with similar fee 
structures, such as NYSE Arca and Nasdaq.
    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

[[Page 62887]]

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 expansion of 
the Quoting Incentive Program, which is similar to a fee structure in 
place on at least one of the Exchange's competitors,\14\ will further 
incentivize the provision of competitively priced, sustained liquidity 
that will create tighter spreads, benefitting both Members and public 
investors. The Exchange also 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.
---------------------------------------------------------------------------

    \14\ 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).
---------------------------------------------------------------------------

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 \15\ and Rule 19b-
4(f)(2) thereunder,\16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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-2011-043 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-2011-043. 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 such filing will also 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 No. SR-BATS-2011-043 and should be 
submitted on or before November 1, 2011.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26103 Filed 10-7-11; 8:45 am]
BILLING CODE 8011-01-P