[Federal Register Volume 79, Number 203 (Tuesday, October 21, 2014)]
[Notices]
[Pages 62985-62988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24947]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73359; File No. SR-BATS-2014-047]


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

October 15, 2014.
    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 October 6, 2014, 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 
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.
---------------------------------------------------------------------------

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

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \3\ and non-members of the Exchange pursuant to BATS Rules 
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal 
are effective upon filing.
---------------------------------------------------------------------------

    \3\ A Member is defined as ``any registered broker or dealer 
that has been admitted to membership in the Exchange.'' See Exchange 
Rule 1.5(n).
---------------------------------------------------------------------------

    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 effective immediately, in order to modify pricing 
charged by the Exchange's options platform (``BATS Options'') for 
orders routed away from the Exchange and executed at various away 
options exchanges.
    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

[[Page 62986]]

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. Routing charges are also 
differentiated depending on whether they are for Customer \4\ orders or 
for Professional,\5\ Firm, and Market Maker \6\ orders (collectively, 
``non-Customer orders'').
---------------------------------------------------------------------------

    \4\ 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''.
    \5\ 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).
    \6\ 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'').
---------------------------------------------------------------------------

    As noted previously and as set forth above, the Exchange's current 
approach to routing fees is to set forth in a simple manner certain 
flat fees that approximate the cost of routing to other options 
exchanges. The Exchange then monitors the fees charged as compared to 
the costs of its routing services, as well as monitoring for specific 
fee changes by other options exchanges, and adjusts its flat routing 
fees and/or groupings to ensure that the Exchange's fees do indeed 
result in a rough approximation of overall Routing Costs, and are not 
significantly higher or lower in any area. Over the last several 
months, due to various increases in fees assessed by other options 
exchanges as well as increases experienced by the Exchange with respect 
to fees charged for clearing services and fees charged by the OCC, the 
Exchange's overall Routing Costs have increased. As a result, and in 
order to avoid subsidizing routing to away options exchanges and to 
continue providing quality routing services, the Exchange proposes 
relatively modest increases and adjustments to the charges assessed for 
most orders routed to most options exchanges, as set forth below.
    The Exchange currently charges $0.10 per contract for all orders 
(i.e., Customer and non-Customer) to buy or sell option contracts 
overlying 10 shares of a security (``Mini Options'') that are routed to 
and executed at an away options exchange. Due to the recent increases 
in Routing Costs, the Exchange proposes to increase the fee for Mini 
Options routed to and executed at an away options exchange to $0.12 per 
contract.
    The Exchange currently charges $0.57 per contract for non-Customer 
orders routed to and executed at the BOX Options Exchange LLC 
(``BOX''). Due to the recent increases in Routing Costs, the Exchange 
proposes to increase this fee to $0.65 per contract. This proposed 
increase will also align such fee with the fee charged for most non-
Customer orders routed to and executed at other options exchanges, as 
described below.
    The Exchange currently charges $0.11 per contract for Customer 
orders and $0.60 per contract for non-Customer orders routed to and 
executed at: (i) NYSE MKT LLC (``AMEX''); (ii) Chicago Board Options 
Exchange, Incorporated (``CBOE''); (iii) the Miami International 
Securities Exchange, LLC (``MIAX''); (iv) NASDAQ OMX BX, Inc. (``BX 
Options'') in Penny Pilot Securities; and (v) the International 
Securities Exchange, LLC (``ISE'') in non-Penny Pilot Securities. Due 
to the recent increases in Routing Costs, the Exchange proposes to 
increase the fee charged for orders routed to and executed at these 
options exchanges to $0.12 per contract for Customer orders and $0.65 
per contract for non-Customer orders.
    The Exchange currently charges $0.45 per contract for Customer 
orders and $0.65 per contract for non-Customer orders routed to and 
executed at NASDAQ OMX PHLX LLC (``PHLX'').\7\ In addition, the 
Exchange currently charges $0.52 per contract for Customer orders and 
$0.57 per contract for non-Customer orders routed to and executed at: 
(i) NYSE Arca, Inc. (``ARCA'') in Penny Pilot Securities; (ii) the 
NASDAQ Options Market (``NOM'') in Penny Pilot Securities; (iii) ISE in 
Penny Pilot Securities; and (iv) Topaz Exchange, LLC (``ISE Gemini'') 
in Penny Pilot Securities. The Exchange believes it is appropriate 
based on a general similarity in Routing Costs for orders routed to and 
executed at PHLX and these venues to add PHLX to this grouping. The 
Exchange also proposes to increase the fee charged for non-Customer 
orders from $0.57 per contract to $0.65 per contract. Thus, for 
Customer orders routed to and executed at PHLX there will be an 
increase from $0.45 per contract to $0.52 but no increase for non-
Customer orders, which are currently charged $0.65 per contract. 
Similarly, there will be no fee increase for Customer orders to all 
other options exchanges in the group, which are already charged $0.52 
per contract, but non-Customer orders will be charged a fee of $0.65 
per contract, which is an increase from the current fee of $0.57 per 
contract.
---------------------------------------------------------------------------

    \7\ 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.
---------------------------------------------------------------------------

    Finally, the Exchange currently charges a standard fee of $0.60 per 
contract for directed intermarket sweep orders (``Directed ISOs'') 
executed at most Member directed destinations when bypassing the BATS 
Options order book. The Exchange proposes to increase its standard fee 
for Directed ISOs to $0.65 per contract for reasons consistent with 
those set forth above related to increasing Routing Costs incurred by 
the Exchange. The Exchange also notes that, 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 would exceed the fee charged by the Exchange for Directed 
ISOs. The Exchange notes that it is not proposing to modify fees for 
Directed ISOs other than the proposed increase to the standard fee. 
Thus, the Exchange is not proposing any changes to the lower than 
standard charge per contract for Directed ISOs sent in Mini Options or 
the higher than standard charge per contract for certain Directed ISOs 
sent to certain away options exchanges.
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.\8\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\9\ 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

[[Page 62987]]

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

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    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 is fair, equitable 
and reasonable because the fees are generally an approximation of the 
cost to the Exchange for routing orders to such exchanges, and the 
proposal is in response to various increases in fees assessed by other 
options exchanges as well as increases experienced by the Exchange with 
respect to fees charged for clearing services and fees charged by the 
OCC. Accordingly, the Exchange believes that the proposed increases are 
fair, equitable and reasonable because they will help the Exchange to 
avoid subsidizing routing to away options exchanges and to continue 
providing quality routing services. 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 away options exchanges. 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.
    The Exchange has also proposed an increased fee for most Directed 
ISOs routed to and executed at away options exchanges. 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 would exceed the fee 
charged by the Exchange for Directed ISOs. The Exchange believes that 
the proposed fee structure for Directed ISOs 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. The Exchange also 
believes that the proposed fee structure for Directed ISOs 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 
away options exchanges.

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 pricing changes by various options exchanges as well as 
increases to other Routing Costs incurred by the Exchange. The Exchange 
also notes that Members may choose to mark their orders as ineligible 
for routing to avoid incurring routing fees.\10\ 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.
---------------------------------------------------------------------------

    \10\ 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).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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 \11\ and paragraph (f) of Rule 19b-4 
thereunder.\12\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2014-047 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

    All submissions should refer to File Number SR-BATS-2014-047. 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 at 100 F Street NE.,

[[Page 62988]]

Washington, DC 20549-1090 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 
available publicly. All submissions should refer to File Number SR-
BATS-2014-047, and should be submitted on or before November 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24947 Filed 10-20-14; 8:45 am]
BILLING CODE 8011-01-P