[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Notices]
[Pages 42350-42352]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67422; File No. SR-BYX-2012-013]


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

July 12, 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 February 8, 2012, BATS Y-Exchange, Inc. (``BYX'' or ``Exchange'') 
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 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 the fee schedule applicable to 
Members \3\ and non-members of the Exchange pursuant to BYX Rules 
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal 
will be effective upon filing.
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    \3\ 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 its fee schedule in order to: (i) 
Accommodate an additional venue as part of the Exchange's ``TRIM'' 
routing strategy; and (ii) commence charging for logical ports used to 
enter orders into Exchange systems and to receive data from the 
Exchange. Each of these proposed changes is described in further detail 
below.
(i) TRIM Routing Strategy
    The Exchange proposes to modify its fee schedule in order to 
accommodate an additional venue as part of the Exchange's ``TRIM'' 
routing strategy. As defined in BYX Rule 11.13(a)(3)(G), TRIM is a 
routing option under which an order checks the System \4\ for available 
shares and then is sent to destinations on the System routing table. 
The TRIM routing strategy is focused on seeking execution of orders 
while minimizing execution costs by routing to certain low cost 
execution venues on the Exchange's routing table. Accordingly, the 
Exchange's current TRIM routing strategy will check the Exchange's 
order book and then route to various venues on the Exchange's routing 
table, including NASDAQ OMX BX, Inc. (``NASDAQ BX''), EDGA EXCHANGE, 
Inc. (``EDGA''), the New York Stock Exchange LLC (``NYSE''), BATS 
Exchange, Inc. (``BZX Exchange'') and certain alternative trading 
systems available through the Exchange's ``DRT'' strategy (``DRT 
Venues'').\5\ As of July 2, 2012, the Exchange plans to add an 
additional execution venue, NASDAQ OMX PSX (``NASDAQ PSX''), to the 
TRIM routing strategy. The TRIM routing strategy generally passes the 
same execution fee assessed by the applicable market center back to 
Exchange Users.\6\ In order to add NASDAQ PSX to the TRIM routing 
strategy, the Exchange is proposing to adopt pricing for executions 
through the TRIM routing strategy of orders routed to NASDAQ PSX.
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    \4\ As defined in BYX Rule 1.5(aa), the System is the electronic 
communications and trading facility designated by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing away.
    \5\ As set forth in BYX Rule 11.13(a)(3)(E), DRT is a routing 
option in which the entering firm instructs the System to route to 
alternative trading systems included in the System routing table. 
Unless otherwise specified, DRT can be combined with and function 
consistent with all other routing options.
    \6\ As defined in BYX Rule 1.5(cc), a User is any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3. A Sponsored Participant is a firm that 
is sponsored by a Member of the Exchange to access the Exchange and 
that meets the criteria of Exchange Rule 11.3.
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    Based on a recently filed proposal, as of July 2, 2012, NASDAQ PSX 
does not assess any charge to remove liquidity from its order book for 
participants that reach certain volume tiers.\7\ Because the Exchange 
anticipates being able to reach such tiers based on its routing 
practices, the Exchange proposes neither to assess any fee nor to 
provide any rebate for TRIM orders that remove liquidity from NASDAQ 
PSX.
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    \7\ See SR-Phlx-2012-87 (June 27, 2012). This proposal was 
recently filed and will become operative on July 2, 2012.
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(ii) Logical Port Fees
    The Exchange also proposes to commence charging fees to Members and 
non-members for logical ports used to enter orders into Exchange 
systems and to receive data from the Exchange. A logical port is also 
commonly referred to as a TCP/IP port, and represents a port 
established by the Exchange within the Exchange's system for trading 
and billing purposes. Each logical port

[[Page 42351]]

established is specific to a Member or non-member and grants that 
Member or non-member the ability to operate a specific application, 
such as FIX order entry or Multicast PITCH data receipt.
    In contrast to its affiliate, BZX Exchange, and most of its 
competitors, the Exchange currently provides logical ports free of 
charge to Members and non-members that have access to or receive data 
from the Exchange. Pursuant to the proposed rule change, the Exchange 
will begin charging a monthly fee for ports used to enter orders in the 
Exchange's trading system and to receive data from the Exchange. The 
Exchange proposes to charge $400.00 per month per pair \8\ of any port 
type other than a Multicast PITCH Spin Server Port or a GRP Port. Thus, 
this proposed charge will apply to all Exchange FIX, FIXDROP, BOE, 
DROP, TCP PITCH, and TOP ports. In addition, the Exchange proposes to 
provide all Exchange constituents that receive the Exchange's Multicast 
PITCH Feed with 32 Multicast PITCH Spin Server Ports free of charge 
and, if such ports are used, one free pair of GRP Ports. The Exchange 
proposes to charge such customers $400.00 per month per additional pair 
of GRP Ports or additional set of 32 Multicast PITCH Spin Server Ports. 
The Exchange's proposal to provide certain ports free of charge to 
Multicast Pitch customers is designed to encourage use of the 
Exchange's Multicast PITCH Feed because the Exchange believes that the 
feed is its most efficient feed, and thus, will reduce infrastructure 
costs for both the Exchange and those who utilize the feed. Any Member 
or non-member that has entered into the appropriate agreements with the 
Exchange is permitted to receive Multicast PITCH Spin Server Ports and 
GRP Ports from the Exchange.
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    \8\ Each pair of ports will consist of one port at the 
Exchange's primary data center and one port at the Exchange's 
secondary data center.
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    Based on the proposal, the change applies to Members that obtain 
ports for direct access to the Exchange, Sponsored Participants 
sponsored by Members to receive direct access to the Exchange, non-
member service bureaus that act as a conduit for orders entered by 
Exchange Members that are their customers, and market data recipients. 
The Exchange has previously provided ports free of charge to all 
Members and non-members that use such ports for order entry to the 
Exchange or for receipt of market data. However, over time, the 
Exchange's infrastructure costs have increased. In addition, the 
Exchange believes that providing ports free of charge has not 
encouraged Members and non-members to reserve and maintain ports 
efficiently, but rather, has led to a significant number of ports that 
are reserved and enabled by such market participants but are never used 
or are under used. Accordingly, the Exchange believes that the 
imposition of port fees will help the Exchange to continue to maintain 
and improve its infrastructure, while also encouraging Exchange 
customers to request and enable only the ports that are necessary for 
their operations related to the Exchange. The Exchange also notes that 
its affiliated national securities exchange, BZX Exchange, charges for 
ports to access its cash equity securities platform on exactly the same 
terms as are proposed herein.
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.\9\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\10\ 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. The Exchange also notes that with 
respect to the routing changes proposed in this filing, although 
routing options are available to all Users, Users 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 venues or can utilize a myriad of other routing 
solutions that are available to market participants.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fee for executions at 
NASDAQ PSX under the TRIM routing option is reasonable in that it is 
the same fee as the fee charged directly by NASDAQ PSX, as described 
above. As such, the Exchange believes that the proposed routing fee is 
competitive, fair and reasonable, and non-discriminatory in that it is 
generally designed to mirror the fee applicable to the execution if 
such routed orders were executed directly by the Member at NASDAQ PSX. 
The Exchange also believes that the proposed fees for the TRIM routing 
strategy are fair and equitable and not unreasonably discriminatory in 
that they apply equally to all Exchange Users.
    The Exchange believes that its proposed logical port fees are 
reasonable in light of the benefits to Members of direct market access 
and receipt of data, which data, other than the proposed logical port 
fee, is currently provided free of charge. In addition, the Exchange 
believes that its fees are equitably allocated among its constituents 
based upon the number of access ports that they require to submit 
orders to the Exchange or receive data from the Exchange. The Exchange 
believes that its fees for access services will enable it to better 
cover its infrastructure costs and to improve its technology and 
services.
    The Exchange also believes that providing financial incentives to 
use Exchange technology that the Exchange believes is the most 
technologically efficient for the Exchange and its constituents is a 
fair and equitable approach to pricing. Accordingly, the Exchange 
believes that promotion of its Multicast PITCH data feed through the 
offering of free logical ports is fair and equitable. The Multicast 
PITCH data feed is available to all Members, and as such, all Members 
have the ability to receive applicable Multicast PITCH ports free of 
charge. Based on the foregoing, the Exchange believes that the proposed 
pricing structure for logical ports is not unreasonably discriminatory.

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

    The Exchange 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, the Exchange 
will not assess any routing fee for orders routed to NASDAQ PSX, 
consistent with NASDAQ PSX pricing. The Exchange also notes that Users 
may choose to mark their orders as ineligible for routing to avoid 
incurring routing fees.\11\ With respect to port fees, fees for access 
to the Exchange will be a component of the overall fees charged by the 
Exchange to execute and route orders through the Exchange. As the 
Commission has

[[Page 42352]]

recognized, the market for execution and routing services is extremely 
competitive.\12\ Market participants that choose not to connect 
directly to the Exchange can readily access liquidity available on the 
Exchange by directing their order flow to other venues that, under 
Regulation NMS, must route to the Exchange if it has posted the best 
price. Accordingly, the Exchange must set its fees, including access 
service fees, at a level that will not deter market participants from 
connecting to the Exchange; otherwise, potential users of the 
Exchange's services will simply direct order flow to the Exchange's 
multiple competitors. In addition, the Exchange believes that the 
proposed port fees are consistent with or less than the port fees 
charged by its competitors. With respect to market data, the Exchange 
does not currently charge any fees for such data. Although it will now 
begin imposing a fee related to access to such data, for market 
participants that receive such data directly from the Exchange, the 
Exchange believes that its free provision of data justifies such market 
participants paying some amount in order to help the Exchange offset 
the infrastructure costs of providing such data.
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    \11\ See, e.g., BYX Rule 11.9(c)(4) (describing ``BATS Only'' 
orders) and BYX Rule 11.13(a)(2) (describing the routing process, 
which is dependent on User instruction).
    \12\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
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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 \13\ and Rule 19b-
4(f)(2) thereunder,\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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 email to [email protected]. Please include 
File Number SR-BYX-2012-013 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-BYX-2012-013. 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 such 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 publicly available. All 
submissions should refer to File Number SR-BYX-2012-013 and should be 
submitted on or before August 8, 2012.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17421 Filed 7-17-12; 8:45 am]
BILLING CODE 8011-01-P