[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Notices]
[Pages 35735-35738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14536]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67172; File No. SR-BATS-2012-020]


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.

June 8, 2012.
    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 May 31, 2012, 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.
---------------------------------------------------------------------------

    \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 to 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 June 1, 2012.
---------------------------------------------------------------------------

    \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) modify the rebates provided by the Exchange 
for Customer \6\ orders that add liquidity to Exchange's options 
platform (``BATS Options'') in options classes subject to the penny 
pilot program as described below (``Penny Pilot Securities''),\7\ and 
(ii) modify the BATS Options NBBO Setter Program \8\ by adopting 
enhanced rebates for liquidity resulting from orders with a significant 
level of displayed size. The Exchange also proposes minor structural 
changes to the Options Pricing section of the Exchange's fee schedule, 
including movement and re-numbering of certain footnotes.
---------------------------------------------------------------------------

    \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''), except 
for those designated as ``Professional''.
    \7\ The Exchange currently charges different fees and provides 
different rebates depending on whether an options class is an 
options class that qualifies as a Penny Pilot Security pursuant to 
Exchange Rule 21.5, Interpretation and Policy .01 or is a non-penny 
options class.
    \8\ The NBBO Setter Program is a program that provides 
additional rebates for executions resulting from orders that add 
liquidity that set either the national best bid (``NBB'') or 
national best offer (``NBO'').
---------------------------------------------------------------------------

(i) Customer Rebates for Adding Liquidity

    The Exchange currently provides rebates for Customer orders that 
add liquidity to the BATS Options order book in Penny Pilot Securities 
pursuant to a tiered pricing structure, as described below. The 
Exchange proposes to modify this tiered pricing structure, which will 
result in the potential for Customer orders to receive larger rebates 
per contract.
    The Exchange currently provides a rebate of $0.30 per contract for 
Customer orders that add liquidity to the BATS Options order book to 
the extent a Member of BATS Options does not qualify for a higher 
rebate based on

[[Page 35736]]

their average daily volume (``ADV'').\9\ The Exchange also currently 
provides Members with an ADV equal to or greater than 0.30% of average 
total consolidated volume (``TCV'') \10\ with a rebate of $0.42 per 
contract for Customer orders that add liquidity to the BATS Options 
order book in Penny Pilot Securities and a rebate of $0.44 per contract 
for Customer orders that add liquidity to the BATS Options order book 
in Penny Pilot Securities for Members with an ADV equal to or greater 
than 1% of average TCV. Finally, the Exchange currently offers its Grow 
with Us pricing program to Customer orders that add liquidity by 
providing a Member with enhanced rebates (and lower execution fees) to 
the extent such Member shows a minimum of 5 basis points TCV 
improvement over the Member's previous highest monthly TCV on BATS 
Options, or ``High Water Mark.'' The Exchange has defined High Water 
Mark as the greater of a Member's fourth quarter 2011 TCV or a Member's 
best monthly TCV on BATS Options thereafter.\11\ Under the current 
pricing structure, a Member that does not qualify for the lower tier 
applicable to Members with an ADV equal to or greater than 0.30% of 
average TCV but achieves at least a 5 basis point increase over its 
previous High Water Mark is provided a rebate of $0.36 per contract for 
Customer orders that add liquidity to the BATS Options order book in 
Penny Pilot Securities. A Member that qualifies for the lower tier 
applicable to Members with an ADV equal to or greater than 0.30% of 
average TCV but not the 1% of average TCV tier that achieves at least a 
5 basis point increase over its previous High Water Mark is provided a 
rebate of $0.43 per contract for Customer orders that add liquidity to 
the BATS Options order book in Penny Pilot Securities.
---------------------------------------------------------------------------

    \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.
    \11\ For example, assume that for the fourth quarter of 2011, a 
Member has an ADV of 0.10% of average TCV. Such Member would not 
qualify for volume tier pricing applicable to Members with an ADV of 
0.30% of average TCV. However, if, in June of 2012, such Member 
achieves an average TCV of 0.15% on BATS Options, such Member will 
receive one-half of the economic benefit such Member would receive 
if the Member had reached the 0.30% TCV volume tier and the Member's 
new High Water Mark will now be 0.15%.
---------------------------------------------------------------------------

    The Exchange proposes to increase the current Grow with Us rebates 
and to adopt a new Grow with Us rebate for Customer orders that add 
liquidity to the BATS Options order book in Penny Pilot Securities, as 
described below.
    The Exchange proposes to increase its rebate for a Member that does 
not qualify for the lower tier applicable to Members with an ADV equal 
to or greater than 0.30% of average TCV but achieves at least a 5 basis 
point increase over its previous High Water Mark from a rebate of $0.36 
per contract to a rebate of $0.38 per contract for Customer orders that 
add liquidity to BATS Options in Penny Pilot Securities. Similarly, the 
Exchange proposes to increase its rebate for a Member that qualifies 
for the lower tier applicable to Members with an ADV equal to or 
greater than 0.30% of average TCV but not the 1% of average TCV tier 
that achieves at least a 5 basis point increase over its previous High 
Water Mark from a rebate of $0.43 per contract to a rebate of $0.45 per 
contract for Customer orders that add liquidity to BATS Options in 
Penny Pilot Securities. Finally, the Exchange proposes to adopt a new 
Grow with Us rebate for Members that have an ADV greater than 1% of 
average TCV by providing a rebate to those Members that meet this tier 
but are also increasing their participation on BATS Options as 
demonstrated by achievement of at least a 5 basis point increase over 
its previous High Water Mark. The Exchange proposes to provide such 
Members with a rebate of $0.46 per contract for Customer orders that 
add liquidity to BATS Options in Penny Pilot Securities.
    The Exchange is not proposing any changes to the tiered rebate 
structure for Customer orders entered by Members that do not qualify 
for Grow with Us pricing nor is the Exchange proposing to modify the 
rebates provided for Professional,\12\ Firm and Market Maker \13\ 
orders.
---------------------------------------------------------------------------

    \12\ As defined in Rule 16.1, the term ``Professional'' means 
any person or entity that (i) is not a broker or dealer in 
securities, and (ii) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s).
    \13\ As set forth on the Exchange's fee schedule, and consistent 
with the definition of a Customer order, classification as a 
``Firm'' or ``Market Maker'' order depends on the identification by 
a Member of the applicable clearing range at the OCC.
---------------------------------------------------------------------------

(ii) Enhanced NBBO Setter Rebate for Orders Meeting Size Requirements

    The Exchange's NBBO Setter Program is a program intended to 
incentivize aggressive quoting on BATS Options by providing an 
additional rebate upon execution for all orders that add liquidity that 
set either the NBB or NBO (the ``NBBO Setter Rebate''),\14\ subject to 
certain volume requirements. The Exchange currently provides an 
additional $0.06 per contract rebate for executions of Professional, 
Firm and Market Maker orders 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 of Professional, Firm and Market Maker orders by 
Members with an ADV equal to or greater than 1% of TCV. The Exchange 
also applies its Grow with Us pricing program to the NBBO Setter 
Rebate. Accordingly, a Member that does not qualify for NBBO Setter 
Rebates applicable to Members with an ADV equal to or greater than 
0.30% of average TCV but achieves at least a 5 basis point increase 
over its previous High Water Mark receives NBBO Setter Rebates of $0.03 
per contract for qualifying executions. Similarly, a Member that 
qualifies for the lower tier applicable to Members with an ADV equal to 
or greater than 0.30% of average TCV but not the 1% of average TCV tier 
that achieves at least a 5 basis point increase over its previous High 
Water Mark is provided a NBBO Setter Rebate of $0.08 per contract for 
qualifying executions.
---------------------------------------------------------------------------

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

    In order to further incentivize aggressive liquidity by incenting 
displayed size of contracts, the Exchange proposes to provide twice the 
rebate for executions that qualify for an NBBO Setter Rebate and result 
from an order with a displayed size that equals or exceeds 25 
contracts. Accordingly, rather than NBBO Setter Rebates of $0.03, 
$0.06, $0.08 and $0.10 per contract, as described above, the Exchange 
proposes to provide enhanced NBBO Setter Rebates of $0.06, $0.12, $0.16 
and $0.20, respectively, for executions that meet the size threshold. 
The Exchange proposes to limit the enhanced rebate to executions up to 
200 contracts. For any executions above 200 contracts, the Exchange 
will provide the enhanced rebate based on order size for the first 200 
contracts executed, and the standard NBBO Setter Rebate for all 
remaining contracts executed on that order.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 35737]]

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.\15\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Volume-based rebates such as the ones maintained by the Exchange 
have been widely adopted in the cash equities markets and are 
increasingly in use by the options exchanges, and are equitable 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/or growth patterns, and 
introduction of higher volumes of orders into the price and volume 
discovery processes. Accordingly, the Exchange believes that the 
continued offering of volume-based rebates for Customer orders in Penny 
Pilot Securities is not unfairly discriminatory because it is 
consistent with the overall goals of enhancing market quality. 
Similarly, the Exchange believes that continuing to base its tiered fee 
structure 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.
    The Exchange believes that continuing to provide additional 
financial incentives to Members that demonstrate a 5 basis point 
increase over their previous High Water Mark offers an additional, 
flexible way to achieve financial incentives from the Exchange and 
encourages Members to add increasing amounts of liquidity to BATS 
Options each month. The Grow with Us pricing program, therefore, is 
reasonable in that it rewards a Member's growth patterns. Such 
increased volume increases potential revenue to the Exchange, and will 
allow the Exchange to continue to provide and potentially expand the 
incentive programs operated by the Exchange. The increased liquidity 
also benefits all investors by deepening the BATS Options liquidity 
pool, offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, promoting market 
transparency and improving investor protection. The Grow with Us 
program is also fair and equitable and not unreasonably discriminatory 
in that it is available to all Members, even for Members that do not 
meet the Exchange's volume based tiers.
    More specifically, the increase to Grow with Us rebates for 
Customer orders in Penny Pilot Securities is reasonable as it is a 
small increase that encourages growth by Members, which will, in turn, 
benefit all participants on BATS Options. The proposed rebates are fair 
and equitable and not unreasonably discriminatory due to the fact that 
Grow with Us pricing is available to all Members, even those that do 
not qualify for the Exchange's lowest volume tier. The Exchange notes 
that, as proposed, BATS Options will be providing a rebate to Members 
that qualify for the lower tier and Grow with Us pricing (such Members 
will receive a $0.45 per contract rebate for Customer orders) that is 
higher than the rebate provided to Members that qualify for the higher 
tier (1% or more) but do not qualify for Grow with Us pricing (such 
Members will receive a $0.44 per contract rebate for Customer orders). 
The Exchange believes that this pricing structure is reasonable and not 
unreasonably discriminatory because the Exchange is incentivizing 
Members to increase their activity on BATS Options, to the benefit of 
other BATS Options participants. Also, consistent with this objective, 
the Exchange has adopted a new Grow with Us category for Members that 
qualify for the higher tier and also qualify for Grow with Us pricing 
(such Members will receive a $0.46 per contract rebate for Customer 
orders).
    The enhanced NBBO Setter program that focuses on the size of 
contracts has the potential of increasing the available liquidity at 
the Exchange. Accordingly, the proposed adoption of a program to 
provide enhanced NBBO Setter Rebates for executions from orders that 
qualify based on their size is fair and equitable and not unreasonably 
discriminatory because such a program is consistent with the overall 
goals of enhancing market quality and will benefit all investors by 
deepening the BATS Options liquidity pool, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection. The Exchange notes that it does not currently 
operate any auctions through which orders are held and broadcast to its 
membership, nor does the Exchange engage in any payment for order flow 
practices. Rather, the Exchange is proposing to enhance its transparent 
market structure with an easy to understand and transparent pricing 
structure by adding incentives for aggressive quoting with size. The 
Exchange also believes that the rebates as proposed are reasonable in 
that they significantly incentivize aggressive quoting with respect to 
both price and size.

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

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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 email to [email protected]. Please include 
File

[[Page 35738]]

Number SR-BATS-2012-020 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-2012-020. 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-BATS-2012-020 and should be 
submitted on or before July 5, 2012.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14536 Filed 6-13-12; 8:45 am]
BILLING CODE 8011-01-P