[Federal Register Volume 80, Number 202 (Tuesday, October 20, 2015)]
[Notices]
[Pages 63621-63624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26517]



[[Page 63621]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76147; File No. SR-BATS-2015-89]


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.

October 14, 2015.
    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 13, 2015, 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).
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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
    On April 17, 2014, the Exchange filed a proposal to adopt rules to 
create a Lead Market Maker Program (the ``Program'') on an immediately 
effective basis.\6\ The Program is designed to strengthen market 
quality for BATS-listed ETPs \7\ by offering enhanced rebates to market 
makers registered with the Exchange (``Market Makers'') \8\ that are 
also registered as a lead market maker (``LMM'') in an LMM Security \9\ 
and meet certain minimum quoting standards (``Minimum Performance 
Standards'').\10\ The purpose of this filing is to adopt such enhanced 
rebates and to adopt additional LMM credit tiers, effective 
immediately.\11\
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    \6\ See Securities Exchange Act Release No. 72020 (April 25, 
2014), 79 FR 24807 (May 1, 2014) (SR-BATS-2014-015).
    \7\ As defined in Rule 11.8(e)(1)(A), ETP means any security 
listed pursuant to Exchange Rule 14.11.
    \8\ See BATS Rule 11.5.
    \9\ As defined in Rule 11.8(e)(1)(C), LMM Security means an ETP 
that has an LMM.
    \10\ As defined in Rule 11.8(e)(1)(D), Minimum Performance 
Standards means a set of standards applicable to an LMM that may be 
determined from time to time by the Exchange.
    \11\ The Exchange initially filed the proposed fee change on 
October 1, 2015 (SR-BATS-2015-81). On October 9, 2015, the Exchange 
withdrew SR-BATS-2015-81 and submitted a new filing (SR-BATS-2015-
88). On October 13, 2015, the Exchange withdrew SR-BATS-2015-88 and 
submitted this filing.
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LMM Incentive Program
    The Exchange proposes to modify its fee schedule applicable to use 
of the Exchange in order to provide pricing for orders that add 
displayed liquidity in LMM Securities entered by LMMs that meet the 
Minimum Performance Standards (a ``Qualified LMM''). The Exchange is 
proposing to implement a tiered rebate structure that is based on the 
consolidated average daily volume (``CADV'') of the LMM Security.\12\ 
Specifically, the Exchange is proposing that an LMM shall receive the 
following rebates for each share of added displayed liquidity in each 
security for which they are a Qualified LMM (each an ``LMM Rebate''): 
Where the CADV is less than 1,000,000, $0.0045; where the CADV is 
1,000,000 to 5,000,000, $0.0040; where the CADV is greater than 
5,000,000, $0.0035. The Exchange also proposes to charge Qualified LMMs 
a fee of $0.0025 per share to remove liquidity in each security for 
which they are a Qualified LMM (the ``LMM Fee''). In addition, as 
proposed an LMM would not be charged or provided a rebate for 
executions occurring in the Exchange's closing auction in securities 
for which it is a Qualified LMM.
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    \12\ As defined in the proposed fee schedule, ``CADV'' means 
consolidated average daily volume calculated as the average daily 
volume reported for a security by all exchanges and trade reporting 
facilities to a consolidated transaction reporting plan for the 
three calendar months preceding the month for which the fees apply 
and excludes volume on days when the market closes early and on the 
Russell Reconstitution Day.
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    As is the case for all Members, in the event that a Qualified LMM 
is ever eligible to receive a higher per share rebate or lower per 
share fee under other pricing, the Qualified LMM will receive such 
higher rebate or fee rather than the applicable LMM Rebate or LMM Fee. 
For example, as proposed and further described below, an LMM may be 
eligible to receive a higher rebate per share under the LMM Credit 
Tiers in combination with other incentives offered by the Exchange.
    Under the proposal, CADV is calculated based on the three calendar 
months preceding the month for which the fees apply, meaning that when 
calculating the rebates that apply to a particular LMM Security, the 
CADV will be based on the three calendar months prior to the current 
trading month. For example, in calculating the rebates that will apply 
to an LMM for a particular LMM Security for October, the Exchange will 
look to the average daily volume reported for the LMM Security by all 
exchanges and trade reporting facilities to a consolidated transaction 
reporting plan for July, August, and September. If that LMM Security 
was an initial listing on BATS (not a transfer listing from another 
listing market) and was listed beginning on September 15, the 
calculation of CADV used for October pricing would include all days 
from July 1 through September 14 with zero volume each trading day. For 
transfer listings, the determination of the rebates for a month will be 
based on the CADV for the past three months, regardless of where the 
ETP was listed during that period.
    The Exchange notes that all volume, including volume in LMM 
Securities, will continue to be included in all volume calculations as 
it relates to other rebates and fees on the Exchange.
    In connection with the changes described above, the Exchange 
proposes to add definitions of Qualified LMM and CADV to the fee 
schedule consistent with the definitions provided above. As the 
proposed rebates and fees

[[Page 63622]]

will be included in footnote 14 of the fee schedule, the Exchange also 
proposes to append footnote 14 to fee codes applicable to the 
Exchange's closing auction, fee codes AC, AL and AN, the fee code 
applicable to adding liquidity in Tape B securities, fee code B, and 
the fee code applicable to removing liquidity in Tape B securities, fee 
code BB.
LMM Credit Tiers for Tape B
    The Exchange proposes to adopt tier-based incremental credits for 
Members that are LMMs for their orders that provide displayed liquidity 
in Tape B securities. Specifically, Members that are LMMs for LMM 
Securities would receive an additional credit (an ``LMM Credit'') for 
orders that provide displayed liquidity in Tape B securities traded on 
the Exchange, including non-BATS-listed securities, except that such 
LMM Credits will not be applied to the LMM Rebates proposed above. As 
proposed, the LMM Credits and volume thresholds associated therewith 
would be as follows: (i) An LMM Credit of $0.0001 per share where an 
LMM is a Qualified LMM in at least 50 ETPs; (ii) an LMM Credit of 
$0.0002 per share where an LMM is a Qualified LMM in at least 75 ETPs; 
(iii) an LMM Credit of $0.0003 per share where an LMM is a Qualified 
LMM in at least 150 ETPs; and (iv) an LMM Credit of $0.0004 per share 
where an LMM is a Qualified LMM in at least 250 ETPs. The number of 
ETPs in which the Member is a Qualified LMM for the billing month will 
be based on whether the LMM met the Minimum Performance Standards for 
an LMM Security during the applicable billing month.
    For example, a Member that is a Qualified LMM in 100 ETPs would be 
eligible to receive an LMM Credit of $0.0002 per share in Tape B 
securities for which it is not a Qualified LMM, in addition to the 
rebate it would normally receive in accordance with the Exchange's fee 
schedule (``Normal Rebate''). For securities in which the Member is a 
Qualified LMM, the Member would instead receive the LMM Rebates 
proposed above. Where the LMM Credit plus the Normal Rebate would be 
greater than the LMM Rebate, the Member will receive this higher rebate 
instead of the LMM Rebate, which is consistent with the treatment of 
all other fees and rebates, as provided in the General Note that states 
``to the extent a Member qualifies for higher rebates and/or lower fees 
than those provided by a tier for which such Member qualifies, the 
higher rebates and/or lower fees shall apply.'' For instance, a Member 
could be eligible to receive a Normal Rebate of $0.0032 per share along 
with an additional $0.0004 per share in LMM Credit for an LMM Security 
with a CADV greater than 5,000,000. For such security the LMM Rebate 
would be $0.0035 per share. In such an instance, because the Normal 
Rebate combined with the LMM Credit would be $0.0036 per share and 
greater than the LMM Rebate of $0.0035 per share, the Member would 
receive a $0.0036 per share rebate in the LMM Security.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule effective immediately.
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.\13\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) and 6(b)(5) of the Act,\14\ 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 and it does not unfairly 
discriminate between customers, issuers, brokers or dealers. 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.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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LMM Incentive Program
    The Exchange believes that the proposed LMM Rebates are equitable 
and not unfairly discriminatory because they will incentivize and 
reward LMMs that make tangible commitments to enhancing market quality 
for securities listed on the Exchange. The Exchange also believes that 
the proposed LMM Rebates are reasonable because they are substantially 
similar to the rebates offered in a comparable lead market maker 
program currently offered by NYSE Arca, Inc. (``Arca''). The Exchange 
further believes that the proposal will provide a better trading 
environment for investors in ETPs and generally encourage greater 
competition between listing venues.
    As described above, the Exchange proposes to provide rebates to 
Qualified LMMs for adding displayed liquidity ranging from $0.0035 to 
$0.0045 per share. This range is based on an LMM Security's CADV such 
that as the CADV increases, the proposed rebate decreases. Typically, 
the lower a security's CADV, the higher the risks and costs to a market 
maker associated with making markets in the security, such as holding 
inventory in the security. As the CADV for a security increases, and 
thus the liquidity increases, typically these same costs associated 
with making markets in a security decrease. Similarly, the lower a 
security's CADV, the wider the bid-ask spread in that security will 
typically be, which means that anyone that wants to buy (sell) the 
security will have to pay a higher (receive a lower) price for the 
security. As a security's CADV increases, the narrower the bid-ask 
spread typically becomes, which means that a buyer (seller) pays 
(receives) a lower (higher) price when buying (selling) the security. 
As such, the Exchange's proposal to pay rebates between $0.0035 and 
$0.0045 per share to Qualified LMMs as the CADV of the LMM Security 
increases is designed to provide higher rebates to Qualified LMMs for 
meeting the Minimum Quoting Standards in securities that are most 
likely to cost them the most to make a market, which the Exchange 
believes will have the effect of shrinking the bid-ask spread in such 
securities and reducing (increasing) the price for anyone that wants to 
buy (sell) the security. As the CADV of a security increases, the cost 
of making markets in the security decreases, which is why the Exchange 
is proposing to offer smaller rebates to Qualified LMMs for LMM 
Securities with higher CADV, while still having the effect of 
tightening spreads. The Exchange believes that the tightened spreads 
and the increased liquidity from the proposal will benefit 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. Similarly, the Exchange 
believes that providing the proposed LMM Fee and the ability to 
participate in closing auctions without charge will incentivize LMMs to 
participate in the program generally and will assist them in actively 
providing liquidity on the Exchange consistent with the Minimum 
Performance Standards.
    Based on the foregoing, the Exchange believes that these rebates 
and fees will incent Qualified LMMs to narrow

[[Page 63623]]

spreads, increase liquidity, and generally enhance the quality of 
quoting in all LMM Securities, particularly in lower CADV LMM 
Securities, which will reduce trading costs and benefit investors 
generally. Accordingly, the Exchange believes that the proposal is 
equitably allocated and not unfairly discriminatory because the 
proposal is consistent with the overall goals of enhancing market 
quality.
    The Exchange notes that the proposed pricing structure is not 
dissimilar from volume-based rebates and fees (``Volume Tiers'') that 
have been widely adopted, including those maintained on the Exchange, 
and are equitable and not unfairly discriminatory because they are open 
to all members on an equal basis and provide higher rebates and lower 
fees that are reasonably related to the value to an exchange's market 
quality. While Volume Tiers are generally designed to incentivize 
higher levels of liquidity provision and/or growth patterns on the 
Exchange across all securities, the proposal is designed to more 
precisely garner the same benefits specifically in LMM Securities. 
Stated another way, while Volume Tiers aim to enhance market quality 
generally, the proposed rebates are designed to enhance market quality 
on a security by security basis and particularly in securities with a 
lower CADV. As such, the Exchange believes that the proposed changes 
will strengthen its market quality for BATS-listed securities by 
enhancing the quality of quoting in such securities and will further 
assist the Exchange in competing as a listing venue for issuers seeking 
to list ETPs. Accordingly, the Exchange believes that the proposal will 
complement the Exchange's program for listing securities on the 
Exchange, which will, in turn, provide issuers with another option for 
raising capital in the public markets, thereby promoting the principles 
discussed in Section 6(b)(5) of the Act.\15\
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    \15\ 15 U.S.C. 78f(b)(5).
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LMM Credit Tiers for Tape B
    The proposed fee change to adopt the LMM Credit Tiers for Tape B is 
intended to encourage Members to promote price discovery and market 
quality across all BATS-listed securities for the benefit of all market 
participants. The Exchange believes that the proposed credits are 
reasonable and appropriate in that they are based on the amount of 
business transacted on the Exchange. The Exchange notes that the 
proposed fee change is similar to market quality incentive programs 
already in place on other markets, such as the Qualified Market Maker 
incentive on the NASDAQ Stock Market LLC (``NASDAQ''), which requires a 
member on that exchange to provide meaningful and consistent support to 
market quality and price discovery by quoting at the NBBO in a large 
number of securities. In return, NASDAQ provides such member with an 
incremental rebate.\16\ Arca also provides enhanced credits to market 
makers on a tiered basis based on the number of ``Less Active ETP 
Securities'' in which it is a registered lead market maker, which it 
defines as those securities with a CADV in the previous month of less 
than 100,000 shares. The more Less Active ETP Securities in which an 
LMM is registered and the higher the tier achieved, the greater the 
incremental rebate Arca provides to the LMM for orders that provide 
liquidity in Tape B securities.\17\ The Exchange believes that 
providing increased credits to Members that are LMMs that add liquidity 
in Tape B securities to the Exchange is reasonable because the Exchange 
believes that by providing increased rebates to such Members, more LMMs 
will register to quote and trade in as many BATS-listed ETPs as 
possible. In particular, by providing enhanced rebates tiered based on 
the number of securities for which a Member is registered as an LMM, it 
would provide an incentive for such Members not only to register as an 
LMM in more liquid securities, but also to register to quote in lower 
volume ETPs, which are traditionally less profitable for market makers 
than more liquid ETPs. The Exchange believes that the proposed 
incremental credit for adding liquidity is also reasonable because it 
will encourage liquidity and competition in Tape B securities quoted 
and traded on the Exchange. Moreover, the Exchange believes that the 
proposed fee change will incentivize LMMs to register as an LMM in more 
ETPs, including less liquid ETPs and, thus, add more liquidity in these 
and other Tape B securities to the benefit of all market participants.
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    \16\ See NASDAQ Rule 7014.
    \17\ See SR-NYSEArca-2015-87, available at: https://www.nyse.com/regulation/rule-filings?market=NYSE%20Arca.
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    The Exchange believes that the proposed incremental credits are 
equitable and not unfairly discriminatory because they are open to all 
Members on an equal basis and provide discounts that are reasonably 
related to the value to the Exchange's market quality associated with 
higher volumes. The Exchange further believes that the proposed 
incremental rebate is not unfairly discriminatory because it is 
consistent with the market quality and competitiveness benefits 
associated with the proposed fee program and because the magnitude of 
the additional rebate is not unreasonably high in comparison to the 
rebate paid with respect to other displayed liquidity-providing orders. 
The Exchange does not believe that it is unfairly discriminatory to 
offer increased rebates to LMMs as LMMs are subject to additional 
requirements and obligations (such as quoting requirements) that other 
market participants are not. The Exchange believes that it is also not 
unfairly discriminatory to provide increased rebates to Members based 
on the number of securities for which they are registered as an LMM 
because it will encourage broader registration as LMMs in all BATS-
listed ETPs which will enhance liquidity and market quality in such 
BATS-listed ETPs to the benefit of all participants.

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. With 
respect to the proposed new LMM Rebates, LMM Fee, pricing for LMMs 
participating in Exchange closing auctions, and the proposed LMM Credit 
Tier, the Exchange does not believe that the changes burden 
competition, but instead, enhance competition, as these changes are 
intended to increase the competitiveness of the Exchange's listings 
program. The Exchange also believes the proposed changes would enhance 
competition because they are similar to pricing incentives provided by 
both Arca and NASDAQ, as noted 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 the deem fee 
structures to be unreasonable or excessive. The proposed changes are 
generally intended to enhance the fees and rebates in LMM Securities 
for Qualified LMMs and for those Members that are Qualified LMMs in 
multiple ETPs, which is intended to enhance market quality in BATS-
listed securities. As such, the proposal is a competitive proposal that 
is intended to add additional liquidity to the Exchange, which will, in 
turn, benefit the Exchange and all Exchange participants.

[[Page 63624]]

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 \18\ and paragraph (f) of Rule 19b-4 
thereunder.\19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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-2015-89 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-2015-89. 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 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 Number SR-BATS-2015-89 and should be 
submitted on or before November 10, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26517 Filed 10-19-15; 8:45 am]
BILLING CODE 8011-01-P