[Federal Register Volume 82, Number 9 (Friday, January 13, 2017)]
[Notices]
[Pages 4430-4434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00607]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79758; File No. SR-BatsBZX-2016-89]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
Fees for Connectivity and Its Communication and Routing Service Known 
as Bats Connect

January 9, 2017.
    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 27, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 BZX Rules 
15.1(a)

[[Page 4431]]

and (c) to modify its fees for physical ports, logical ports, and for 
the use of a communication and routing service known as Bats Connect.
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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.bats.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 fees for physical ports, 
logical ports, and for the use of a communication and routing service 
known as Bats Connect. Each of these proposed changes are described 
below.
Physical Ports
    A physical port is utilized by a Member or non-Member to connect to 
the Exchange at the data centers where the Exchange's servers are 
located. 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 secondary data 
center, which is predominantly maintained for business continuity 
purposes. The Exchange currently assesses the following physical 
connectivity fees for Members and non-Members on a monthly basis: 
$2,000 per physical port that connects to the System \6\ via 1 gigabyte 
circuit; and $4,000 per physical port that connects to the System via 
10 gigabyte circuit. The Exchange proposes to increase the fee per 
physical port that connects to the System via a 10 gigabyte circuit 
from $4,000 per month to $6,000 per month in order cover its increased 
infrastructure costs associated with establishing physical ports to 
connect to the Exchange's Systems and enable it to continue to maintain 
and improve its market technology and services. The Exchange does not 
propose to amend the fee for a 1 gigabyte circuit, which will remain 
$2,000 per month.
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    \6\ The term ``System'' is defined as ``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.'' See Exchange Rule 
1.5(aa).
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Logical Ports
    The Exchange currently charges for logical ports (including 
Multicast PITCH Spin Server and GRP ports) $500 per port per month. A 
logical port 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. Logical port fees are 
limited to logical ports in the Exchange's primary data center and no 
logical port fees are assessed for redundant secondary data center 
ports. The Exchange assesses the monthly per logical port fees to all 
Members' and non-Members' logical ports. The Exchange now proposes to 
increase charges for logical ports (including Multicast PITCH Spin 
Server and GRP ports) from $500 per port per month to $550 per month. 
Like as for the proposed fee increase for physical ports described 
above, the proposed increase in logical port fees is intended to cover 
increased infrastructure costs associated with establishing ports to 
connect to the Exchange's Systems and to enable the Exchange to 
continue to maintain and improve its market technology and services.
Bats Connect
    The Exchange proposes to increase select fees related to the use of 
Bats Connect. Bats Connect is offered by the Exchange on a voluntary 
basis in a capacity similar to a vendor.\7\ In sum, Bats Connect is a 
communication service that provides subscribers an additional means to 
receive market data from and route orders to any destination connected 
to the Exchange's network. Bats Connect does not provide any advantage 
to subscribers for connecting to the Exchange's affiliates \8\ as 
compared to other methods of connectivity. The servers of the 
subscriber need not be located in the same facilities as the Exchange 
in order to subscribe to Bats Connect. Subscribers may also seek to 
utilize Bats Connect in the event of a market disruption where other 
alternative connection methods become unavailable.
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    \7\ See Exchange Rule 13.8.
    \8\ The Exchange's affiliated exchanges are Bats EDGX Exchange, 
Inc. (``EDGX''), Bats EDGA Exchange, Inc. (``EDGA''), and Bats BYX 
Exchange, Inc. (``BYX'').
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    The Exchange charges a monthly connectivity fee to subscribers 
utilizing Bats Connect to route orders to other exchanges and broker-
dealers that are connected to the Exchange's network via unicast 
access. The amount of the connectivity fee varies based solely on the 
bandwidth selected by the subscriber. Specifically, as set forth under 
the Unicast Access--Order Entry section of the fee schedule, the 
Exchange charges $350 for 1 Mb, $700 for 5 Mb, $950 for 10 Mb, $1,500 
for 25 Mb, $2,500 for 50 Mb, and $3,500 for 100 Mb. The Exchange 
proposes to increase those fees as follows: $500 for 1 Mb, $1,000 for 5 
Mb, and $1,250 for 10 Mb. The proposed increases are designed to cover 
increased costs related to hardware, installation, and testing, as well 
as increased expenses involved in maintaining and managing the service. 
The Exchange does not propose to increase the fees for the 25 Mb, 50 Mb 
and 100 Mb connections as those fees will remain $1,500, $2,500, and 
$3,500, respectively.
    Bats Connect also allows subscribers to receive market data feeds 
from the exchanges connected to the Exchange's network. In such case, 
the subscriber pays the Exchange a connectivity fee, which are set 
forth under the Market Data Connectivity section of the fee schedule 
and vary based solely on the amount of bandwidth required to transmit 
the selected data product to the subscriber.\9\ The proposed 
connectivity fees currently range from no charge to $11,500 based on 
the market data product the subscriber selects. The Exchange proposes 
to increase select connectivity fees for market data as follows:
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    \9\ Subscribers pays any fees charged by the exchange providing 
the market data feed directly to that exchange.

------------------------------------------------------------------------
                Data feed                   Current fee    Proposed fee
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UQDF/UTDF/OMDF..........................            $650          $1,200

[[Page 4432]]

 
CQS/CTS.................................           1,000           1,400
OPRA....................................           3,500           4,500
Nasdaq TotalView........................           1,300           1,500
Nasdaq BX TotalView.....................             650           1,000
Nasdaq PSX TotalView....................             350             750
NYSE Integrated.........................          11,500          14,500
NYSE ArcaBook...........................           1,000           1,250
NYSE MKT OpenBook Ultra.................             150             500
NYSE Alerts.............................             250             500
NYSE Imbalances.........................             100             500
NYSE Arca Trades........................             250             500
BBDS/TDDS...............................             100             500
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    The proposed increases are designed to allow the Exchange to cover 
the increased costs related to the amount of bandwidth required to 
provide connectivity to receive market data as well as the costs of 
maintaining that infrastructure.
    The Exchange also charges a discounted fee of $4,160 per month for 
subscribers who purchase connectivity to a bundle of select market data 
products, known as the U.S. Equities Select + SIP Bundle. The following 
market data products are included in the bundle: UQDF/UTDF/OMDF, CQS/
CTS, Nasdaq TotalView, Nasdaq BX TotalView, Nasdaq PSX TotalView, NYSE 
ArcaBook, NYSE MKT OpenBook Ultra, and BBDS/TTDS.\10\ Absent the 
discount, a subscriber purchasing connectivity through Bats Connect for 
each of these market data products would currently pay a total monthly 
fee of $5,200. Instead, a subscriber who purchases connectivity to each 
of the above market data products is charged a monthly fee of $4,160, 
which represents a 20% discount. The Exchange proposes to add NYSE 
OpenBook Ultra to the bundle. Also, in light of the proposed changes 
outlined above, the Exchange proposes to increase the discounted rate 
of the bundle to $5,910 per month, which would now represent a 40% 
discount from the rate of $9,850 a subscriber purchasing connectivity 
through Bats Connect for each of these market data products would be 
charged under the proposed rule change.
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    \10\ The Exchange also proposes to correct a typographical error 
in referencing BBDS/TDDS in its description of the U.S. Equity 
Select + SIP bundle.
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    Lastly, the Exchange proposes to charge a discounted fee of $6,390 
per month for subscribers who purchase connectivity to the OPRA, UQDF/
UTDF/OMDF, and CQS/CTS data feeds, to be known as the OPRA + SIP 
Bundle. Absent the discount, a subscriber purchasing connectivity 
through Bats Connect for each of these market data products would pay a 
total monthly fee of $7,100. Instead, a subscriber who purchases 
connectivity to each of the above market data products is charged a 
monthly fee of $6,390, which represents a 10% discount.
Implementation Date
    The Exchange proposes to implement this amendment to its fee 
schedule on January 3, 2017.\11\
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    \11\ The Exchange notes that the date of its fee schedule was 
previously updated to January 3, 2017 in SR-BatsBZX-2016-87 
(December 6 [sic], 2017). See Securities Exchange Act Release No. 
79636 (December 21, 2016).
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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 proposed rule change reflects a competitive 
pricing structure designed to incent market participants to direct 
their order flow to the Exchange. The Exchange believes that the 
proposed rates are equitable and non-discriminatory in that they apply 
uniformly to all Members. The Exchange believes the fees and credits 
remain competitive with those charged by other venues and therefore 
continue to be reasonable and equitably allocated to Members.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposal represents an equitable 
allocation of reasonable dues, fees, and other charges as its fees for 
physical connectivity are reasonably constrained by competitive 
alternatives. If a particular exchange charges excessive fees for 
connectivity, affected Members and non-Members may opt to terminate 
their connectivity arrangements with that exchange, and adopt a 
possible range of alternative strategies, including routing to the 
applicable exchange through another participant or market center or 
taking that exchange's data indirectly. Accordingly, if the Exchange 
charges excessive fees, it would stand to lose not only connectivity 
revenues but also revenues associated with the execution of orders 
routed to it, and, to the extent applicable, market data revenues. The 
Exchange believes that this competitive dynamic imposes powerful 
restraints on the ability of any exchange to charge unreasonable fees 
for connectivity.
    Furthermore, the proposed rule change is also an equitable 
allocation of reasonable dues, fees, and other charges as the Exchange 
believes that the increased fees obtained will enable it to cover its 
increased infrastructure costs associated with establishing physical 
ports to connect to the Exchange's Systems. The additional revenue from 
the increased fees will also enable the Exchange to continue to 
maintain and improve its market technology and services.
Physical Ports
    The Exchange believes that the proposed fees for a 10 gigabyte 
circuit of $6,000 per month is reasonable in that they are less than 
analogous fees charged by the Nasdaq Stock Market LLC (``Nasdaq'') and 
NYSE Arca, Inc. (``Arca''), which range from $10,000-$15,000 per month 
for 10 gigabyte circuits.\14\ The Exchange believes that the proposed 
rates are equitable and non-discriminatory in that they apply uniformly 
to all Members and non-Members. Members and non-Members will continue 
to choose whether they want more than one physical port and

[[Page 4433]]

choose the method of connectivity based on their specific needs. All 
Exchange Members that voluntarily select various service options will 
be charged the same amount for the same services. As is true of all 
physical connectivity, all Members and non-Members have the option to 
select any connectivity option, and there is no differentiation with 
regard to the fees charged for the service.
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    \14\ See Nasdaq Rule 7034(b) and the NYSE Arca fee schedule 
available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf (dated December 2, 2016).
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Logical Ports
    The Exchange believes that the increase of fees for logical ports 
represents an equitable allocation of reasonable dues, fees and other 
charges. The Exchange believes that its proposed changes to logical 
port fees are reasonable in light of the benefits to Exchange 
participants of direct market access and receipt of data. The Exchange 
believes its proposed fees are reasonable because Nasdaq and NYSE Arca 
charge comparable rates for logical ports to access such markets.\15\
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    \15\ See Nasdaq Rule 7015(b) (charging a fee of $575 per month 
for FIX Trading Ports) and the NYSE Arca fee schedule available at 
https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf (dated December 2, 2016) (charging a 
fee of $550 per month for ports for order/quote entry).
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Bats Connect
    The Exchange also believes that its proposed fees for Bats Connect 
provide for the equitable allocation of reasonable dues, fees and other 
charges among members and other persons using its facilities. First, 
the Exchange charges a connectivity fee to subscribers utilizing Bats 
Connect to route orders to other exchanges and market centers that are 
connected to the Exchange's network, which varies based solely on the 
amount of bandwidth selected by the subscriber. The proposed increased 
connectivity fees remain reasonable and competitive as compared to 
similar fees charged by other exchanges. For purposes of order routing, 
the Exchange proposes to now charge $500 for 1 Mb, $1,000 for 5 Mb, and 
$1,250 for 10 Mb. The New York Stock Exchange, Inc. (``NYSE'') 
currently charges $300 for 1 Mb, $700 for 5 Mb, and $900 for 10 Mb.\16\ 
In addition, the proposed rates continue to be less than what a 
subscriber would pay to connect directly to another exchange.\17\ The 
Exchange notes that, overall, the connectivity fee for routing of 
orders to other market centers proposed by the Exchange is similar to 
that charged by the NYSE.
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    \16\ See Section 3.6.1 of NYSE's SFTI Americas Product and 
Service List available at http://www.nyxdata.com/docs/connectivity.
    \17\ See e.g., Nasdaq Rule 7034(b) and the Co-Location section 
of the NYSE Arca fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf 
(dated December 2, 2016).
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    Second, with regard to utilizing Bats Connect to receive market 
data products from other exchanges, the Exchange only charges 
subscribers a connectivity fee, the amount of which is based solely on 
the amount of bandwidth required to transmit that specific data product 
to the subscribers. The Exchange believes it is necessary to increase 
the rates for select market data feeds as described herein to address 
changes in bandwidth necessary to receive such feeds. The increased 
fees will also enable the Exchange to continue to cover the increased 
infrastructure costs while also enabling it to continue to maintain and 
improve the service.
    The amounts of the connectivity fees continue to be reasonable as 
compared to similar fees charged by other exchanges. For example, for 
market data connectivity, Nasdaq charges $1,412 per month for CQS/CTS 
data feed, and the Exchange proposes to charge $1,400 per month 
connectivity for CQS/CTS data feed.\18\
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    \18\ See Nasdaq Rule 7034 (setting forth Nasdaq's connectivity 
fees for receipt of third party market data products).
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    The Exchange believes it is reasonable to offer such discounted 
pricing to subscribers who purchase connectivity to a bundle of market 
data products as it would enable them to reduce their overall 
connectivity costs for the receipt of market data. The Exchange is not 
required by any rule or regulation to make Bats Connect available; nor 
are subscribers required by any rule or regulation to utilize Bats 
Connect. Accordingly, subscribers can discontinue use at any time and 
for any reason, including due to an assessment of the reasonableness of 
fees charged. Moreover, the Exchange believes the proposed fees are 
reasonable and equitable because they continue to be based on the 
Exchange's costs to cover the amount of bandwidth required to provide 
connectivity to the select bundle of data feeds. The proposed fees will 
continue to allow the Exchange to recoup this cost, while providing 
subscribers with an alternative means to connect to the select bundle 
of data feeds at a discounted rate.
    Lastly, the Exchange believes the proposed fees are reasonable and 
equitable because they are based on the Exchange's costs to cover 
hardware, installation, testing and connection, as well as expenses 
involved in maintaining and managing the service. The proposed fees 
allow the Exchange to recoup these costs, while providing subscribers 
with an alternative means to connect to other exchange and market 
centers. The Exchange believes that the proposed fees are reasonable 
and equitable in that they reflect the costs and the benefit of 
providing alternative connectivity.

(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. As discussed above, the 
Exchange believes that fees for connectivity are constrained by the 
robust competition for order flow among exchanges and non-exchange 
markets. The Exchange does not believe that the proposed changes 
represent a significant departure from previous pricing offered by the 
Exchange or pricing offered by the Exchange's competitors. 
Additionally, Members may opt to disfavor the Exchange's pricing if 
they believe that alternatives offer them better value. Further, 
excessive fees for connectivity would serve to impair an exchange's 
ability to compete for order flow rather than burdening competition.
    Lastly, the Exchange does not believe the proposed fees for Bats 
Connect will result in any burden on competition. The proposed rule 
change is designed to provide subscribers with an alternative means to 
access other market centers on the Exchange's network if they choose or 
in the event of a market disruption where other alternative connection 
methods become unavailable. Bats Connect is not the exclusive method to 
connect to these market centers and subscribers may utilize alternative 
methods to connect to the product if they believe the Exchange's 
proposed pricing is unreasonable or otherwise. Therefore, the Exchange 
does not believe the proposed rule change will have any effect on 
competition.

(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 unsolicited 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)

[[Page 4434]]

of the Act \19\ and paragraph (f) of Rule 19b-4 thereunder. 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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    \19\ 15 U.S.C. 78s(b)(3)(A).
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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-BatsBZX-2016-89 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-BatsBZX-2016-89. 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 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-BatsBZX-2016-89 and 
should be submitted on or before February 3, 2017.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00607 Filed 1-12-17; 8:45 am]
 BILLING CODE 8011-01-P