[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76355-76357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29896]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71041; File No. SR-BATS-2013-061]


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

December 11, 2013.
    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 December 2, 2013, 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 filed a proposal 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 pricing charged by the Exchange's 
options platform (``BATS Options'') for orders routed away from the 
Exchange and executed at the International Securities Exchange, LLC 
(``ISE'') and the NASDAQ OMX PHLX LLC (``PHLX'').
Background
    The Exchange currently charges certain flat rates for routing to 
other options exchanges that have been placed into groups based on the 
approximate cost of routing to such venues. The grouping of away 
options exchanges is based on the cost of transaction fees assessed by 
each venue as well as costs to the Exchange for routing (i.e., clearing 
fees, connectivity and other infrastructure costs, membership fees, 
etc.) (collectively, ``Routing Costs''). To address different fees at 
various other options exchanges, the Exchange in most instances 
differentiates between either securities subject to the options penny 
pilot program (``Penny Pilot Securities'') and non-Penny Pilot 
Securities or between ``Make/Take issues'' and ``Classic issues.'' As 
set forth on the Exchange's fee schedule, pricing in Make/Take issues 
is for executions at the identified exchange under which rebates to 
post liquidity (i.e., ``Make'') are credited by that exchange and fees 
to take liquidity (i.e., ``Take'') are charged by that exchange; 
pricing in Classic issues applies to all other executions at such 
exchanges.
ISE Routing Fees
    The Exchange currently charges $0.30 per contract for Customer \6\ 
orders and $0.57 per contract for Professional,\7\ Firm, and Market 
Maker \8\ orders executed at ISE in Make/Take issues. Based on 
execution fees charged by ISE, which currently exceed the fee charged 
for Customer orders even without taking other Routing Costs into 
consideration, the Exchange proposes to increase fees for Customer 
orders routed to and executed at ISE in Make/Take issues. Specifically, 
the Exchange proposes to charge $0.52 per contract for Customer orders 
executed at ISE in Make/Take issues. This is the same fee charged for 
executions in Penny Pilot Securities for Customer orders routed to and 
executed at the Topaz Exchange, LLC (``ISE Gemini''), the NASDAQ 
Options Market (``NOM''), and NYSE Arca, Inc. (``ARCA''). Also, for 
consistency with such other markets, because the ISE's pricing model is 
now clearly differentiated between Penny Pilot Securities and non-Penny 
Pilot

[[Page 76356]]

Securities, the Exchange proposes to change the references for such 
pricing from Make/Take pricing to Penny Pilot Security pricing.
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    \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 term ``Professional'' is defined in Exchange Rule 16.1 
to mean any person or entity that (A) is not a broker or dealer in 
securities, and (B) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s).
    \8\ As defined on the Exchange's fee schedule, the terms 
``Firm'' and ``Market Maker'' apply to any transaction identified by 
a member for clearing in the Firm or Market Maker range, 
respectively, at the Options Clearing Corporation (``OCC'').
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    The Exchange does not propose any change to the fee of $0.57 per 
contract for Professional, Firm, and Market Maker orders executed at 
ISE other than to re-designate such pricing as applicable to Penny 
Pilot Securities rather than Make/Take issues. The Exchange also 
proposes to change the references for ISE pricing in Classic issues to 
refer to pricing in non-Penny Pilot Securities. The Exchange is not 
proposing any changes to the actual pricing for orders executed at ISE 
in non-Penny Pilot Securities, which will remain at $0.11 per contract 
for Customer orders and $0.57 per contract for Professional, Firm, and 
Market Maker orders.
PHLX Routing Fees
    The Exchange currently charges $0.11 per contract for Customer 
orders and $0.57 per contract for Professional, Firm, and Market Maker 
orders routed to and executed at PHLX in both Classic and Make/Take 
issues. Based on changes to pricing at PHLX that will set the fee to 
remove liquidity in options overlying the SPDR[supreg] S&P 500[supreg] 
exchange-traded fund (``SPY'') for all participants at $0.45 per 
contract effective December 2, 2013, the Exchange proposes to increase 
its fees for all Customer orders routed to and executed at PHLX from 
$0.11 to $0.45 per contract. The Exchange believes that this increase 
will allow it to cover applicable Routing Costs for all Customer orders 
routed to and executed at PHLX, as further described below. Effective 
December 2, 2013, PHLX also adopted increased rates to remove liquidity 
in Classic issues to $0.60 per contract. Based on this increase for 
Routing Costs for Professional, Firm, and Market Maker orders routed to 
and executed at PHLX in Classic issues, the Exchange proposes to 
increase the routing rate for all Professional, Firm, and Market Maker 
orders from $0.57 to $0.65 per contract. The Exchange believes that 
this increase will allow it to cover applicable Routing Costs for all 
Professional, Firm, and Market Maker orders routed to and executed at 
PHLX.
    The Exchange notes that while the Exchange will be charging 
significantly more for certain Customer orders routed to and executed 
at PHLX than the PHLX charges directly for such Customer orders, in 
other instances the Exchange will be charging less than the total 
Routing Costs incurred by the Exchange for routing Customer orders to 
PHLX, namely in the most actively traded options contract, SPY. Because 
options on SPY account for a significant amount of volume routed to 
away markets (as well as executed on the Exchange), the Exchange does 
not want to charge less than the actual fee for executions of SPY 
options on PHLX. Also, in order to continue to maintain a relatively 
simple routing table and fee schedule, the Exchange does not want to 
charge a routing fee specific to one underlying security at this time. 
Similarly, with respect to Professional, Firm, and Market Maker orders, 
the Exchange's proposal to charge $0.65 per contract for all such 
orders will allow the Exchange to cover its Routing Costs for such 
orders routed to PHLX while also maintaining a simple pricing 
structure.
    As it has done before, despite identical fees, the Exchange is 
maintaining separate references to Make/Take and Classic pricing for 
orders routed to and executed PHLX because it believes that 
participants that are accustomed to this distinction will be less 
confused if it continues to separately list each category.
    The Exchange currently charges $0.60 per contract for Directed ISOs 
routed and executed at away destinations, with the exception of: (i) 
Directed ISOs in Mini Options, for which the Exchange charges $0.15 per 
contract; and (ii) in the following situations, for which the Exchange 
charges $0.95 per contract: (1) Orders in non-Penny Pilot Securities 
executed at NOM, ARCA and ISE Gemini; (2) Professional, Firm and Market 
Maker orders executed at BX Options in non-Penny Pilot Securities; and 
(3) Professional, Firm and Market Maker orders executed at C2. In order 
to cover anticipated Routing Costs for such orders taking recent PHLX 
pricing changes into account, the Exchange proposes to charge $0.95 per 
contract for Professional, Firm, and Market Maker orders if such orders 
are Directed ISOs routed to and executed at PHLX.
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 or providers of routing services 
if they deem fee levels to be excessive.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    As explained above, the Exchange generally attempts to approximate 
the cost of routing to other options exchanges, including other 
applicable costs to the Exchange for routing. The Exchange believes 
that a pricing model based on approximate Routing Costs is a 
reasonable, fair and equitable approach to pricing. Specifically, the 
Exchange believes that its proposal to modify fees to ISE and PHLX is 
fair, equitable and reasonable because the fees are generally an 
approximation of the cost to the Exchange for routing orders to such 
exchanges. The Exchange believes that its flat fee structure for orders 
routed to various venues is a fair and equitable approach to pricing, 
as it provides certainty with respect to execution fees at groups of 
away options exchanges. Under its flat fee structure, taking all costs 
to the Exchange into account, the Exchange may operate at a slight gain 
or slight loss for orders routed to and executed at both ISE and PHLX. 
As a general matter, the Exchange believes that the proposed fees will 
allow it to recoup and cover its costs of providing routing services to 
such exchanges. The Exchange also believes that the proposed fee 
structure for orders routed to and executed at these away options 
exchanges is fair and equitable and not unreasonably discriminatory in 
that it applies equally to all Members.
    As explained above, other than Directed ISOs sent to ISE and PHLX 
that are Customer orders, for which pricing remains unchanged, the 
Exchange has proposed to charge increased fees for Customer orders 
routed to ISE and for all orders routed to PHLX. The Exchange believes 
that the proposed fee structure for Customer orders routed to and 
executed at ISE is fair, equitable and reasonable because the fees are 
an approximation of the cost to the Exchange for routing such orders 
and will allow the Exchange to recoup and cover the costs of providing 
routing services to ISE. The Exchange also believes that the proposed 
fee structure for Customer orders routed to and executed at ISE is fair 
and equitable and not unreasonably discriminatory in that it applies 
equally to all Members. The Exchange also believes that the change of 
references for ISE routing pricing from Classic and Make/Take to non-
Penny Pilot Securities and Penny Pilot Securities is consistent with 
the Act

[[Page 76357]]

because this change is consistent with the current ISE pricing 
structure.
    Consistent with the Exchange's general approach to routing fees, as 
described above, the Exchange believes that maintaining a simple 
routing table with respect to orders routed to PHLX despite recent 
changes by PHLX that will increase overall Routing Costs to the 
Exchange is also a fair and equitable approach to pricing. While the 
Exchange has proposed to maintain reference to both Classic and Make/
Take pricing with respect to PHLX routing fees, the Exchange's proposal 
will actually maintain a single routing fee for all Customer orders 
executed at PHLX and a single routing fee for all Professional, Firm, 
and Market Maker orders executed at PHLX. The Exchange believes that 
this simple routing structure is fair, equitable and reasonable for the 
reasons describe above, including the certainty it provides market 
participants that choose to utilize the Exchange's routing services. 
The Exchange also believes that the proposed fee structure for orders 
routed to and executed at PHLX is fair and equitable and not 
unreasonably discriminatory in that it applies equally to all Members.
    The Exchange has also proposed an increased fee for Directed ISOs 
routed to and executed at PHLX to the extent such orders are 
Professional, Firm, or Market Maker orders. This increase is proposed 
because without adjustment, the Routing Costs incurred by the Exchange 
for Directed ISOs in certain securities sent on behalf of Professional, 
Firm, and Market Maker participants to PHLX would exceed the fee 
charged by the Exchange for Directed ISOs. The Exchange believes that 
the proposed fee structure for Directed ISOs routed to and executed at 
PHLX is fair, equitable and reasonable because the fees are an 
approximation of the cost to the Exchange for routing such orders and 
will allow the Exchange to recoup and cover the costs of providing 
routing services to PHLX. The Exchange also believes that the proposed 
fee structure for Directed ISOs routed to and executed at PHLX is fair 
and equitable and not unreasonably discriminatory in that it applies 
equally to all Members.
    The Exchange reiterates 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 to be excessive or providers 
of routing services if they deem fee levels to be excessive. Finally, 
the Exchange notes that it constantly evaluates its routing fees, 
including profit and loss attributable to routing, as applicable, in 
connection with the operation of a flat fee routing service, and would 
consider future adjustments to the proposed pricing structure to the 
extent it was recouping a significant profit or loss from routing to 
either ISE or PHLX.

(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. The proposed changes will 
assist the Exchange in recouping costs for routing orders to other 
options exchanges on behalf of its participants in a manner that is a 
better approximation of actual costs than is currently in place and 
that reflects recent pricing changes by such options exchanges. The 
Exchange also notes that Members may choose to mark their orders as 
ineligible for routing to avoid incurring routing fees.\11\ As stated 
above, 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 to be excessive or providers 
of routing services if they deem fee levels to be excessive.
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    \11\ See BATS Rule 21.1(d)(8) (describing ``BATS Only'' orders 
for BATS Options) and BATS Rule 21.9(a)(1) (describing the BATS 
Options routing process, which requires orders to be designated as 
available for routing).
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(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and paragraph (f) of Rule 19b-4 
thereunder.\13\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-BATS-2013-061 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 No. SR-BATS-2013-061. 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 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-2013-061 and should be 
submitted on or before January 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-29896 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P