[Federal Register Volume 77, Number 157 (Tuesday, August 14, 2012)]
[Notices]
[Pages 48576-48578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19861]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67623; File No. SR-BATS-2012-034]


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 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 August 1, 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.
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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 to 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 its fee schedule in order to: (i) 
Remove a venue currently included as part of the Exchange's ``TRIM'' 
routing strategy; and (ii) commence charging for certain physical ports 
used to access the Exchange at the Exchange's secondary data center. 
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 remove 
a specific venue from the Exchange's ``TRIM'' routing strategy. As 
defined in BATS Rule 11.13(a)(3)(G), TRIM is a routing option under 
which an order checks the System \6\ for available shares if so 
instructed by the entering User \7\ 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 (if instructed to do so) 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 Y-Exchange, Inc. (``BYX Exchange'') 
and certain alternative trading systems available through the 
Exchange's ``DRT'' strategy (``DRT Venues'').\8\ Effective July 2, 
2012, NASDAQ OMX PSX

[[Page 48577]]

(``NASDAQ PSX''), began to provide free executions to participants that 
met certain volume criteria. The Exchange, in turn, added NASDAQ PSX to 
the TRIM routing strategy as a low cost execution venue beginning July 
2, 2012. According to a recently announced change, as of August 1, 
2012, NASDAQ PSX will charge participants $0.0019 per share to remove 
liquidity from its order book in Tape A securities and $0.0027 per 
share to remove liquidity from its order book in Tape B and C 
securities, rather than continuing to provide executions free of 
charge.\9\ Based on this fee increase, the Exchange no longer believes 
that NASDAQ PSX should be included in the TRIM routing strategy.
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    \6\ As defined in BATS 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.
    \7\ As defined in BATS 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.
    \8\ As set forth in BATS 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.
    \9\ See Equity Trader Alert 2012-31 (July 30, 2012). 
This change was recently announced and will become operative on 
August 1, 2012.
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(ii) Physical Ports to Secondary Data Center
    The Exchange currently charges for both ``logical'' ports used for 
order entry or receipt of Exchange data, and, depending on a 
participant's connection method (i.e., the number of access points and 
bandwidth of connection), also charges for the ``physical'' ports 
needed to connect to the Exchange's system. 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 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 PITCH 
data receipt. In contrast, a physical port is the port that is used by 
a Member or non-member to physically connect to the Exchange at the 
data centers where the Exchange's servers are located (i.e., either a 
cross-connection or a private line Ethernet connection to the 
Exchange's network within the data center). Multiple logical ports can 
be created for a single physical port.
    The Exchange currently provides four (4) ``pairs'' of 1G physical 
ports without charge to any Member or non-member that has been approved 
to connect to the Exchange. A ``pair'' of ports refers to one port at 
the site of the Exchange's primary data center and one port at the site 
of the Exchange's secondary data center. The Exchange then charges 
$2,500 for each additional single 1G physical port provided by the 
Exchange to any Member or non-member in any data center. The Exchange 
proposes to modify pricing for physical ports used to connect to the 
Exchange at the Exchange's secondary data center, which the Exchange is 
in the process of migrating to Chicago, Illinois. The Exchange's 
secondary data center is operated to provide both the Exchange and 
participants that use the Exchange with a back-up facility and 
redundant operations in the event there is a disruption or event that 
affects the Exchange at the Exchange's primary data center. Thus, the 
secondary data center provides redundant connectivity to the Exchange 
for Members and non-members.
    In order to help to pay for the infrastructure and other costs 
associated with the secondary data center, the Exchange proposes to 
impose physical port fees of $1,000 per month per 1G physical port at 
the secondary data center. In connection with this change, the Exchange 
also proposes clarifying changes to its existing physical port fees as 
set forth on the Exchange's fee schedule to ensure that the fee 
schedule clearly states that the existing pricing for physical ports 
will continue to apply at the primary data center, specifically four 
free ports and $2,500 for each additional port thereafter. Based on the 
scope of the proposal, the change applies to all Exchange constituents 
with physical connections, including Members that obtain ports for 
direct access to the Exchange, non-member service bureaus that act as a 
conduit for orders entered by Exchange Members that are their 
customers, Sponsored Participants, and market data recipients.
    The Exchange currently provides the option to connect directly with 
the Exchange via 10G physical ports to any Member or non-member that 
has been approved to connect to the Exchange. Due to the infrastructure 
costs associated with providing the additional bandwidth for 10G 
physical ports, the Exchange currently charges $2,500 per month for 
each physical 10G port provided by the Exchange to any Member or non-
member. The Exchange is not proposing any changes to its pricing for 
10G physical ports but has proposed to make clear that this pricing 
applies to 10G physical ports in either data center.
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.\10\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that removing NASDAQ PSX from the TRIM 
routing option is reasonable because NASDAQ PSX will no longer provide 
executions free of charge, as described above. As such, the Exchange 
believes that the proposed change to remove NASDAQ PSX from the TRIM 
routing option is a fair and reasonable and equitable allocation of 
fees in that it is consistent with the goal of routing to low cost 
execution venues. The Exchange also believes that the proposed change 
to the TRIM routing strategy is fair and equitable and not unreasonably 
discriminatory in that it will apply equally to all Exchange Users.
    The Exchange believes that its proposed physical port fees for all 
1G physical connections to the secondary data center are equitably 
allocated among its constituents because the fees will enable the 
Exchange to recoup some of the additional infrastructure costs 
associated with establishing and maintaining physical ports that can be 
used to connect to the Exchange's systems at a secondary location. The 
Exchange notes that the physical port fees imposed by its competitors 
are similar to, and in some cases higher than, the physical port fees 
charged by the Exchange.\12\ Accordingly, the Exchange believes that 
the proposed port fees are reasonable. The Exchange also believes that 
its proposed fee for each 1G physical port used to access the secondary 
data center is reasonable due to the continued provision of up to four

[[Page 48578]]

free 1G physical ports that can be established to access the Exchange's 
primary data center. Finally, the Exchange believes that the fees 
proposed for physical ports to access the secondary data center are not 
unfairly discriminatory, in that they are uniform in application to all 
Members and non-Members, and are based on each Member's or non-Member's 
individual capacity needs and needs for redundancy.
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    \12\ See, e.g., NASDAQ Rule 7034(b) (setting forth physical 
connection charges to connect to NASDAQ, including physical 
connection fees ranging from $1,000 to $15,000 per month, depending 
on the method of connectivity).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Because the market for order execution is extremely competitive, 
Members may readily opt to disfavor the Exchange's routing services if 
they believe that alternatives offer them better value. The proposed 
change is designed to ensure that the TRIM routing strategy efficiently 
focuses on low cost execution venues, thereby allowing it to remain 
competitive. Similarly, the Exchange believes that its proposed 
physical access fees are similar to and, in some cases, less than, the 
fees imposed by competitors to the Exchange. The Exchange does not 
believe that the imposition of physical port fees to connect to the 
Exchange's secondary data center will burden competition, but, to the 
contrary, the Exchange believes that the proposal will help the 
Exchange to recoup some of its infrastructure costs and, in turn, 
compete with other venues that charge fees to access their markets, 
including their back-up data centers.

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-BATS-2012-034 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-2012-034. 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-2012-034 and should be 
submitted on or before September 4, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19861 Filed 8-13-12; 8:45 am]
BILLING CODE 8011-01-P