[Federal Register Volume 80, Number 95 (Monday, May 18, 2015)]
[Notices]
[Pages 28322-28325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11878]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74938; File No. SR-BATS-2015-35]


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.

May 12, 2015.
    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 1, 2015, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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 
are effective upon filing.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at 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: (1) 
Amend the rebate associated with fee code BY; (2) eliminate the NBBO 
Setter and Joiner Tiers; (3) establish a Single MPID Investor Tier; and 
(4) simplify pricing related to Physical Connection Fees.
Fee Code BY
    The Exchange currently provides a rebate of $0.0016 per share for 
Members' orders that yield fee code BY, which routes to BYX and removes 
liquidity using Destination Specific, TRIM, TRIM2, TRIM3, or SLIM 
routing strategies. The Exchange proposes to amend its Fee Schedule to 
decrease the rebate for orders that yield fee code BY to $0.0015 per 
share. The proposed change represents a pass through of the rate BATS 
Trading, Inc. (``BATS Trading''), the Exchange's affiliated routing 
broker-dealer, is provided for routing orders to BYX that remove 
liquidity. The proposed change is in response to BYX's May 2015 fee 
change where BYX decreased its rebate from $0.0016 per share to $0.0015 
per share.\6\ When BATS Trading routes to and removes liquidity from 
BYX, it will now receive a standard rebate of $0.0015 per share. BATS 
Trading will pass through the rebate provided by BYX to the Exchange 
and the Exchange, in turn, will pass through this rate to its Members.
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    \6\ See BYX Exchange Fee Schedule Changes Effective May 1, 2015 
available at http://cdn.batstrading.com/resources/fee_schedule/2015/BATS-BYX-Exchange-BZX-Exchange-EDGA-Exchange-and-EDGX-Exchange-Fee-Schedule-Changes-Effective-May-1-2015.pdf.
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NBBO Setter and Joiner Tiers
    The Exchange currently offers an additional rebate per share for 
certain orders that establish a new NBBO or that join the NBBO when the 
Exchange is not already at the NBBO. Such additional rebates range from 
$0.0001 per share to $0.0005 per share. The Exchange is proposing to 
eliminate these additional rebates because the rebates have not 
achieved the desired effect, despite being designed to incentivize 
Members to add liquidity that sets or joins the Exchange to the NBBO. 
As such, the Exchange is proposing to eliminate the text in footnote 
four related to the NBBO Setter and Joiner Tiers.
Single MPID Investor Tier
    The Exchange proposes to add new text to footnote four to establish 
a new Investor Tier under which a Member can qualify for a rebate of 
$0.0031 per share on an MPID by MPID basis if they meet the following 
criteria: (i) The MPID's ADAV \7\ as a percentage of TCV \8\ is equal 
to or greater than 0.35%; and (ii) the MPID's ADAV as a percentage of 
ADV \9\ is equal to or greater than 90%. The Exchange notes that this 
proposal is substantively identical to the ``Investor Tier'' rebate 
offered on EDGX Exchange, Inc. (``EDGX'').\10\
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    \7\ ``ADAV'' means average daily volume calculated as the number 
of shares added per day.
    \8\ ``TCV'' means 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.
    \9\ ``ADV'' means average daily volume calculated as the number 
of shares added or removed, combined, per day.
    \10\ See EDGX Exchange, Inc. Fee Schedule available at http://www.batstrading.com/support/fee_schedule/edgx/.
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Physical Connection Fees
    The Exchange currently maintains a presence in two third-party data 
centers: (i) The primary data center where the Exchange's business is 
primarily conducted on a daily basis, and (ii) a

[[Page 28323]]

secondary data center, which is predominantly maintained for business 
continuity purposes. The Exchange currently assesses fees to Members 
and non-Members of $1,000 for any 1G physical port connection at either 
data center and of $2,500 for any 10G physical port connection at 
either data center. The Exchange also provides market participants with 
the ability to access the Exchange's network through another data 
center entry point, or Point of Presence (``PoP''), at a data center 
other than the Exchange's primary or secondary data center.\11\ The 
Exchange currently charges $2,000 for any 1G physical port to connect 
to the Exchange in any data center where the Exchange maintains a PoP 
other than the Exchange's primary or secondary data center and $5,000 
per month for each single physical 10G port provided by the Exchange to 
any Member or non-member in any data center where the Exchange 
maintains a PoP other than the Exchange's primary or secondary data 
center.
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    \11\ See Securities Exchange Act Release No. 70199 (August 14, 
2013), 78 FR 51250 (August 20, 2013) (SR-BATS-2013-036) (Order 
Approving a Proposed Rule Change to Introduce a Connectivity Option 
Through Points of Presence).
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    The Exchange proposes to simplify its pricing structure by imposing 
a uniform rate for physical ports regardless of the data center in 
which the port connection is made. Specifically, the Exchange proposes 
to charge $1,000 per month for all 1G physical port connections and 
$2,500 per month for all 10G physical ports in any location where the 
Exchange offers the ability to connect to Exchange systems, including 
the secondary data center and any PoP location. In conjunction with the 
proposed change, the Exchange also proposes minor changes to re-format 
the chart that sets forth physical connection fees and also proposes to 
re-locate such chart and the accompanying text such that physical 
connection fees directly follow logical port fees.
Implementation Date
    The Exchange proposes to implement the amendments to its fee 
schedule effective immediately.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4),\13\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and other persons using its 
facilities. The Exchange also 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 believes that the proposed rates 
are equitable and non-discriminatory in that they apply uniformly to 
all Members.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
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Fee Code BY
    The Exchange believes that its proposal to decrease the rebate for 
orders that yield fee code BY represents an equitable allocation of 
reasonable dues, fees, and other charges among Members and other 
persons using its facilities. Prior to the BYX's May 2015 fee change, 
BYX provided BATS Trading a rebate of $0.0016 per share to remove 
liquidity, which BATS Trading passed through to the Exchange and the 
Exchange provided its Members. When BATS Trading routes to BYX, it will 
now be provided a rebate of $0.0015 per share. The Exchange does not 
levy additional fees or offer additional rebates for orders that it 
routes to BYX through BATS Trading. Therefore, the Exchange believes 
that the proposed change to fee code BY is equitable and reasonable 
because it accounts for the pricing changes on BYX, which enables the 
Exchange to provide its Members the applicable pass-through rebate. 
Lastly, the Exchange notes that routing through BATS Trading is 
voluntary and believes that the proposed change is non-discriminatory 
because it would apply uniformly to all Members.
NBBO Setter and Joiner Tiers
    The Exchange believes that the proposed elimination of the NBBO 
Setter and Joiner Tiers represents an equitable allocation of 
reasonable dues, fees, and other charges among Members and other 
persons using its facilities because, as described above, the 
additional rebates offered under these tiers are not affecting Members' 
behavior in the manner originally conceived by the Exchange. While the 
Exchange acknowledges the benefit of Members entering orders that set 
or join the NBBO, the Exchange has generally determined that it is 
providing additional rebates for liquidity that would be added on the 
Exchange regardless of whether the tiers existed. By paying these 
rebates, the Exchange is not only offering rebates for orders that 
would set or join the NBBO without being incentivized to do so, but 
also missing out on the opportunity to offer other rebates or reduced 
fees that could incentivize other behavior that would enhance market 
quality on the Exchange, which would benefit all Members. As such, the 
Exchange also believes that the proposed elimination of the NBBO Setter 
and Joiner Tiers would be non-discriminatory in that it currently 
applies equally to all Members and, upon elimination, would no longer 
be available to any Members. Further, it will allow the Exchange to 
explore other ways in which it may enhance market quality for all 
Members.
Single MPID Investor Tier
    The Exchange believes that the proposed addition of the Single MPID 
Investor Tier represents an equitable allocation of reasonable dues, 
fees, and other charges among Members and other persons using its 
facilities because it rewards Members with order flow characteristics 
that contribute meaningfully to price discovery on the Exchange. In 
other words, Members that post a substantial amount of liquidity and 
primarily post liquidity are valuable Members to the Exchange and the 
marketplace in terms of liquidity provision. By applying the tier on a 
single MPID rather than across a Member's entire trading activity, the 
Exchange is also allowing more Members to potentially receive the 
enhanced rebates for their trading activity related to liquidity 
provision. The Single MPID Investor Tier also encourages Members to 
primarily add liquidity in order to satisfy the ADAV as a percentage of 
ADV of at least 90%. Such increased volume increases potential revenue 
to the Exchange, and would allow the Exchange to spread its 
administrative and infrastructure costs over a greater number of 
shares, leading to lower per share costs. These lower per share costs 
would allow the Exchange to pass on the savings to Members in the form 
of higher rebates. The increased liquidity also benefits all investors 
by deepening the Exchange's 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. Volume-based rebates such as the ones proposed 
herein have been widely adopted in the cash equities markets, 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 introduction 
of higher volumes of orders into the price and volume discovery 
processes.
    In addition, the rebate is also reasonable in that other exchanges

[[Page 28324]]

likewise employ similar pricing mechanisms. For example, EDGX offers a 
substantively identical investor tier that provides enhanced rebates 
for its members that meet certain thresholds that are based on the same 
metrics proposed by the Exchange, which are designed to encourage price 
discovery and market transparency. As stated above, EDGX's investor 
tier is substantively identical to the Single MPID Investor Tier 
proposed by the Exchange except that on EDGX a member will receive a 
$0.0032 per share rebate for orders that add liquidity where the member 
has an ADAV of at least 0.15% of TCV and an ADAV as a percentage of ADV 
of at least 85%. Finally, the Exchange also believes that the proposed 
Single MPID Investor Tier is non-discriminatory in that it would apply 
equally to all Members.
Physical Connection Fees
    The Exchange believes that providing uniform rates for all 1G and 
10G physical connections to Exchange is reasonable because such change 
represents a reduction in fees for any Member that connects to the 
Exchange at a PoP location and no change to fees for any Member located 
in the Exchange's primary or secondary data center. The Exchange also 
believes that the proposal is equitably allocated and not unreasonably 
discriminatory because, as proposed, market participants will be able 
to access the Exchange at uniform rates regardless of whether such 
access is at the Exchange's primary or secondary data center location 
or another location where the Exchange offers access.

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

    The Exchange does not believe its proposed amendments to its fee 
schedule would impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.
Fee Code BY
    The Exchange believes that its proposal to pass through the amended 
rebate for orders that yield fee code BY would increase intermarket 
competition because it offers customers an alternative means to route 
to BYX for the same rebate that they would be provided if they entered 
orders on that trading center directly. The Exchange believes that its 
proposal would not burden intramarket competition because the proposed 
rebate would apply uniformly to all Members.
NBBO Setter and Joiner Tiers
    The Exchange does not believe that its proposal to eliminate the 
NBBO Setter and Joiner Tiers would burden competition, but, rather, 
enhance the Exchange's ability to compete with other market centers. As 
described above, the Exchange believes that it is offering enhanced 
rebates for orders that would be submitted to the Exchange without the 
enhanced rebate, which prevents the Exchange from being able to offer 
other rebates or reduced fees that might be able to enhance market 
quality to the benefit of all Members. As such, eliminating the NBBO 
Setter and Joiner Tiers will allow the Exchange other opportunities to 
enhance market quality on the Exchange and ultimately, better compete 
with other market centers.
Single MPID Investor Tier
    The Exchange believes that its proposal to adopt the Single MPID 
Investor Tier would increase intramarket competition by rewarding 
Members with order flow characteristics that contribute meaningfully to 
price discovery on the Exchange. In other words, the proposal is a 
competitive proposal in that it is designed to incentivize the entry of 
orders to the Exchange that will provide liquidity to other Members. 
The Exchange does not believe that its proposal would burden 
intramarket competition because the proposed rebate would apply 
uniformly to all Members that achieve the objective criteria of the 
Single MPID Investor Tier.
Physical Connection Fees
    The Exchange does not believe that the proposed change to physical 
port fees represents a significant departure from previous pricing 
offered by the Exchange or pricing offered by the Exchange's 
competitors. Rather, as described above, the Exchange is simply 
normalizing its fees for physical access to the Exchange regardless of 
the location where a physical connection is made. The offering is 
consistent with the Exchange's own economic incentives to facilitate as 
many market participants as possible in connecting to its market. 
Accordingly, the Exchange does not believe that the proposed change 
will impair the ability of Members or competing venues to maintain 
their competitive standing in the financial markets. The Exchange does 
not believe that its proposal would burden intramarket competition 
because the fees for physical connections would apply uniformly to all 
Members.

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 \14\ and paragraph (f) of Rule 19b-4 
thereunder.\15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 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-2015-35 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BATS-2015-35. 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

[[Page 28325]]

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 offices 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-2015-35, and should be submitted on or before June 
8, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11878 Filed 5-15-15; 8:45 am]
 BILLING CODE 8011-01-P