Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices 23307 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

14 17 CFR 240.19b–4(f)(6). 

15FINRA has announced that it will implement 

the changes on April 16, 2012. See supra note 9. 

16For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

17 17 CFR 200.30–3(a)(12). 

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). 

5A Member is any registered broker or dealer that 

has been admitted to membership in the Exchange. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

does not: (i) Significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative prior to 30 days from the date 

on which it was filed, or such shorter 

time as the Commission may designate, 

if consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 12 and Rule 19b–4(f)(6) 

thereunder.13

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act 14 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6) 

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. The Exchange requests 

that the Commission waive the 30-day 

operative delay so that the proposed 

rule change may become effective on the 

same date that FINRA implements the 

changes to FINRA Rules 7440, 7450, and 

5320.15 The Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest and, 

therefore, designates the proposal 

operative upon filing.16 Waiving the 30- 

day operative delay will enable the 

Exchange to implement the proposed 

rule change on the same day that FINRA 

implements the changes to its rules on 

which the proposed rule change is 

based, thereby eliminating the potential 

for different regulatory requirements for 

members of both FINRA and the 

Exchange. 

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. 

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 rulecomments@sec.gov. Please include File 

Number SR–NYSE–2012–09 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2012–09. 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 on official business 

days between the hours of 10 a.m. and 

3 p.m. Copies of such filing also will be 

available for inspection and copying at 

NYSE’s principal office and on its 

Internet Web site at www.nyse.com. 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–NYSE–2012–09, and 

should be submitted on or before May 

9, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–9288 Filed 4–17–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66794; File No. SR–BATS– 

2012–015] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Related to Fees for Use 

of BATS Exchange, Inc. 

April 12, 2012. 

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 April 2, 

2012, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

fee schedule applicable to Members 5

and non-members of the Exchange 

pursuant to BATS Rules 15.1(a) and (c). 

Changes to the fee schedule pursuant to 

this proposal will be effective upon 

filing. 

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. 

mstockstill on DSK4VPTVN1PROD with NOTICES

23308 Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices 

6As 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’’. 

7As defined in Rule 16.1, the term ‘‘Professional’’ 

means any person or entity that (i) is not a broker 

or dealer in securities, and (ii) places more than 390 

orders in listed options per day on average during 

a calendar month for its own beneficial account(s). 8As set forth on the Exchange’s fee schedule, and 

consistent with the definition of a Customer order, 

classification as a ‘‘Firm’’ or ‘‘Market Maker’’ order 

depends on the identification by a Member of the 

applicable clearing range at the OCC. 9As defined on the Exchange’s fee schedule, TCV 

is 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. 

10For example, assume that for the fourth quarter 

of 2011, a Member has an ADV of 0.10% of average 

TCV. Such Member would not qualify for volume 

tier pricing applicable to Members with an ADV of 

0.30% of average TCV. However, if, in April of 

2012, such Member achieves an average TCV of 

0.15% on BATS Options, such Member will receive 

one-half of the economic benefit such Member 

would receive if the Member had reached the 

0.30% TCV volume tier and the Member’s new 

High Water Mark will now be 0.15%. 

11As defined on the Exchange’s fee schedule, 

ADV is average daily volume calculated as the 

number of contracts added or removed, combined, 

per day on a monthly basis. The fee schedule also 

provides that routed contracts are not included in 

ADV calculation. 

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 to: (i) Delineate fees and 

rebates applicable to executions of 

options classes subject to the penny 

pilot program as described below 

(‘‘Penny Pilot Securities’’) from the fees 

and rebates for all other options classes; 

(ii) modify the fees charged by the 

Exchange to remove liquidity from 

Exchange’s options platform (‘‘BATS 

Options’’) in Penny Pilot Securities; (iii) 

modify the rebates provided by the 

Exchange for Customer 6 orders that add 

liquidity to BATS Options; (iv) adopt 

fees and rebates for executions in nonPenny Pilot Securities; and (v) modify 

the Quoting Incentive Program (‘‘QIP’’), 

which is a program intended to 

incentivize sustained, aggressive 

quoting on BATS Options. The 

Exchange also proposes minor structural 

changes to the Options Pricing section 

of the Exchange’s fee schedule, 

including movement and re-numbering 

of certain footnotes. 

(i) Penny Pilot/Non-Penny Pilot Pricing 

The Exchange proposes to adopt 

different fees for those options classes 

that qualify as Penny Pilot Securities 

pursuant to Exchange Rule 21.5, 

Interpretation and Policy .01 and all 

other options classes. Delineating 

between classes in Penny Pilot 

Securities and all other options classes 

is consistent with pricing structures at 

most other options exchanges, and 

recognizes the fundamental difference 

in liquidity and quoted spreads between 

options that are quoted in penny 

increments and those that are not. In 

addition to the specific fees outlined 

below, the Exchange proposes to adopt 

a definition for Penny Pilot Securities, 

defining such options as those issues 

quoted pursuant to Exchange Rule 21.5, 

Interpretation and Policy .01, which is 

the Exchange Rule that codifies the 

penny pilot program for BATS Options. 

(ii) Fees To Remove Liquidity 

The Exchange currently charges $0.44 

per contract for Professional,7 Firm and 

Market Maker 8 orders that remove 

liquidity from the BATS Options order 

book. The Exchange proposes to raise 

the fee to $0.45 per contract for 

Professional, Firm and Market Maker 

orders that remove liquidity from the 

BATS Options order book and to apply 

this fee to all Penny Pilot Securities. At 

the same time, however, the Exchange 

proposes to apply the ‘‘Grow with Us’’ 

pricing program to Professional, Firm 

and Market Maker orders that remove 

liquidity from the BATS Options order 

book in Penny Pilot Securities. 

Accordingly, if a Member shows a 

minimum of 5 basis points total 

consolidated volume (‘‘TCV’’) 9

improvement over the Member’s 

previous highest monthly TCV on BATS 

Options, or ‘‘High Water Mark,’’ then 

the Exchange will continue to charge 

such Member $0.44 per contract, rather 

than the increased fee of $0.45 per 

contract, for Professional, Firm and 

Market Maker orders in Penny Pilot 

Securities. The Exchange has defined 

High Water Mark as the greater of a 

Member’s fourth quarter 2011 TCV or a 

Member’s best monthly TCV on BATS 

Options thereafter.10

With respect to Customer orders, the 

Exchange currently charges standard 

fees of $0.44 per contract for Customer 

orders that remove liquidity from BATS 

Options, subject to potential reduction 

for any Member with an average daily 

volume (‘‘ADV’’) 11 of 0.30% or more of 

average TCV or ADV equal to or greater 

than 1% average TCV on BATS Options, 

respectively. The Exchange does not 

propose to modify its standard fee of 

$0.44 per contract for Customer orders 

that remove liquidity from BATS 

Options. The Exchange is proposing, 

however, to increase the fees for 

Customer orders that remove liquidity 

from BATS Options for Members that 

meet the qualifications for a discounted 

fee pursuant to the tiered pricing 

structure, to modify the pricing for 

Members that qualify for Grow with Us 

pricing, and to apply this pricing to 

Penny Pilot Securities only, as 

described below. 

Pursuant to the Exchange’s tiered 

pricing structure Members can realize 

lower liquidity removal fees if such 

Members have an ADV equal to or 

greater than 0.30% of average TCV. For 

Members reaching this volume 

threshold, the Exchange currently 

charges a fee of $0.36 per contract for 

Customer orders that remove liquidity 

from BATS Options. The Exchange 

proposes to increase the fee for 

Members that have an ADV equal to or 

greater than 0.30% of average TCV to 

$0.40 per contract for Customer orders 

that remove liquidity from BATS 

Options in Penny Pilot Securities. 

Similarly, Members can realize lower 

liquidity removal fees if such Members 

have an ADV equal to or greater than 

1% of average TCV. For Members 

reaching this volume threshold, the 

Exchange currently charges a fee of 

$0.28 per contract for Customer orders 

that remove liquidity from BATS 

Options. The Exchange proposes to 

increase the fee for Members that have 

an ADV equal to or greater than 1% of 

average TCV to $0.36 per contract for 

Customer orders that remove liquidity 

from BATS Options in Penny Pilot 

Securities. 

In addition, pursuant to the Grow 

with Us pricing program, the Exchange 

provides a Member with one-half of the 

economic benefit such Member would 

achieve if such Member were in the next 

highest volume tier to the extent such 

Member shows a minimum of 5 basis 

points TCV improvement over the 

Member’s High Water Mark. The Grow 

with Us pricing program, as described 

above, currently applies to various fees 

and rebates, including Customer orders 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices 23309 

12The NBBO Setter Program is a program that 

provides additional rebates for executions resulting 

from orders that add liquidity that set either the 

NBB or NBO. 

that remove liquidity. The Exchange 

proposes to modify the Grow with Us 

fees to account for the changes proposed 

above. Specifically, a Member that does 

not qualify for the lower tier applicable 

to Members with an ADV equal to or 

greater than 0.30% of average TCV but 

achieves at least a 5 basis point increase 

over its previous High Water Mark is 

currently assessed a fee of $0.40 per 

contract for Customer orders that 

remove liquidity from BATS Options 

(i.e., halfway between the standard fee 

of $0.44 per contract and the fee of 

$0.36 charged to Members that reach the 

0.30% TCV tier). Due to the proposed 

changes described above, the Exchange 

proposes to modify this fee to $.042 per 

contract for Customer orders that 

remove liquidity from BATS Options in 

Penny Pilot Securities (i.e., halfway 

between the standard fee of $0.44 per 

contract and the fee of $0.40 charged to 

Members that reach the 0.30% TCV 

tier). Similarly, a Member that qualifies 

for the lower tier applicable to Members 

with an ADV equal to or greater than 

0.30% of average TCV but not the 1% 

of average TCV tier that achieves at least 

a 5 basis point increase over its previous 

High Water Mark will be assessed a fee 

of $0.38 per contract for Customer 

orders that remove liquidity from BATS 

Options in Penny Pilot Securities (i.e., 

halfway between the $0.40 per contract 

charged to Members that reach the 

0.30% TCV tier and the $0.36 per 

contract charged to Members that reach 

the 1% TCV tier). 

(iii) Customer Rebates for Adding 

Liquidity 

The Exchange currently provides a 

rebate of $0.30 per contract for 

Customer orders that add liquidity to 

the BATS Options order book. The 

Exchange proposes to maintain this 

standard rebate but to further increase 

rebates to Members pursuant to volume 

thresholds analogous to those applied to 

fees for removing liquidity. First, the 

Exchange proposes to increase the 

rebate applicable to Members with an 

ADV equal to or greater than 0.30% of 

average TCV from a rebate of $0.40 per 

contract to a rebate of $0.42 per contract 

for Customer orders that add liquidity to 

the BATS Options order book. Second, 

Exchange proposes to adopt a volume 

tier applicable to Members with an ADV 

equal to or greater than 1% of average 

TCV from a rebate of $0.42 per contract 

to a rebate of $0.44 per contract for 

Customer orders that add liquidity to 

the BATS Options order book. Finally, 

the Exchange proposes to modify its 

Grow with Us pricing program to 

Customer orders that add liquidity in 

order to ensure that all Grow with Us 

rebates are one-half of the applicable 

economic benefit received by the next 

tier. Accordingly, a Member that does 

not qualify for the lower tier applicable 

to Members with an ADV equal to or 

greater than 0.30% of average TCV but 

achieves at least a 5 basis point increase 

over its previous High Water Mark will 

be provided a rebate of $0.36 per 

contract for Customer orders that add 

liquidity to BATS Options in Penny 

Pilot Securities (i.e., halfway between 

the standard rebate of $0.30 per contract 

and the rebate of $0.42 per contract 

provided to Members that reach the 

0.30% TCV tier), which is an increase 

from the current rebate of $0.35 per 

contract. Similarly, a Member that 

qualifies for the lower tier applicable to 

Members with an ADV equal to or 

greater than 0.30% of average TCV but 

not the 1% of average TCV tier that 

achieves at least a 5 basis point increase 

over its previous High Water Mark will 

be provided a rebate of $0.43 per 

contract for Customer orders that add 

liquidity to BATS Options in Penny 

Pilot Securities (i.e., halfway between 

the $0.42 per contract provided to 

Members that reach the 0.30% TCV tier 

and the $0.44 per contract provided to 

Members that reach the 1% TCV tier). 

The Exchange is not proposing to 

modify the rebates provided for 

Professional, Firm and Market Maker 

orders, other than to make clear that 

such rebates on the fee schedule differ 

between those provided with respect to 

Penny Pilot Securities and all other 

securities. 

(iv) Pricing for Non-Penny Pilot 

Securities 

As noted above, the Exchange 

proposes to adopt separate pricing for 

Non-Penny Pilot Securities. 

Specifically, the Exchange proposes to 

adopt a fee of $0.75 per contract for 

Customer orders that remove liquidity 

from the BATS Options order book in 

non-Penny Pilot Securities and a rebate 

of $0.75 per contract for Customer 

orders that add liquidity to the BATS 

Options order book in non-Penny Pilot 

Securities. The Exchange proposes to 

adopt a fee of $0.80 per contract for 

Professional, Firm and Market Maker 

orders that remove liquidity from the 

BATS Options order book in non-Penny 

Pilot Securities and a rebate of $0.70 per 

contract for Professional, Firm and 

Market Maker orders that add liquidity 

to the BATS Options order book in nonPenny Pilot Securities. The Exchange 

will apply additive rebates that are 

earned through the QIP (as described 

below) and/or the Exchange’s NBBO 

Setter Program 12 to executions in nonPenny Pilot Securities. However the 

Exchange is not currently proposing to 

adopt other tiered pricing for non-Penny 

Pilot Securities. 

As described in further detail below, 

the Exchange’s proposal to implement 

the above-described fees is intended to 

attract better priced liquidity to the 

Exchange by incenting liquidity 

providers to post aggressively priced 

liquidity on the Exchange with an 

enhanced rebate structure. The 

Exchange believes that the differences 

that can be achieved by narrowing 

spreads in non-Penny Pilot Securities 

will justify the increased fees to remove 

liquidity. 

(v) Modification to Quoting Incentive 

Program 

BATS Options offers a Quoting 

Incentive Program (‘‘QIP’’), through 

which Professional, Firm and Market 

Maker orders receive a rebate of $0.05 

per contract, in addition to any other 

applicable liquidity rebate, for 

executions subject to the QIP. 

Qualifying Customer order executions 

in products subject to the QIP currently 

receive an additional rebate of $0.03 per 

contract. The Exchange proposes to 

reduce the rebate for Customer orders 

receiving executions in products subject 

to the QIP from an additional rebate of 

$0.03 per contract to an additional 

rebate of $0.01 per contract. This 

modification in pricing will allow the 

Exchange to increase the tiered rebate 

structure for Customer orders as 

described above, which will result in 

increases of either $0.01 or $0.02 per 

contract on all executions in Penny Pilot 

Securities for Members reaching any 

volume tier or qualifying for Grow with 

Us pricing. 

To qualify for the QIP a BATS 

Options Market Maker must be at the 

NBB or NBO 60% of the time for series 

trading between $0.03 and $5.00 for the 

front three (3) expiration months in that 

underlying during the current trading 

month. A Member not registered as a 

BATS Options Market Maker can also 

qualify for the QIP by quoting at the 

NBB or NBO 70% of the time in the 

same series. The Exchange proposes to 

add additional clarity regarding the QIP 

qualification by making clear that $0.03 

and $5.00 price range qualification is 

determined by the last trade in an 

option series each day. Option series 

which do not have an execution are 

removed from the following day’s 

Quoting Incentive Program calculations. 

mstockstill on DSK4VPTVN1PROD with NOTICES

23310 Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices 

13 15 U.S.C. 78f. 

14 15 U.S.C. 78f(b)(4). 

All other aspects of the QIP currently 

in place will remain the same. As is true 

under the current operation of the QIP, 

the Exchange will determine whether a 

Member qualifies for QIP rebates at the 

end of each month by looking back at 

each Member’s (including BATS 

Options Market Makers) quoting 

statistics during that month. If at the 

end of the month a Market Maker meets 

the 60% criteria or a Member that is not 

registered as a Market Maker meets the 

70% criteria, the Exchange will provide 

the additional rebate for all executions 

subject to the QIP executed by that 

Member during that month. The 

Exchange will provide Members with a 

report on a daily basis with quoting 

statistics so such Members can 

determine whether or not they are 

meeting the QIP criteria. The Exchange 

is not proposing to impose any ADV 

requirements in order to qualify for the 

QIP at this time. 

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) 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. 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. 

The Exchange believes that 

continuing to provide additional 

financial incentives to Members that 

demonstrate a 5 basis point increase 

over their previous High Water Mark 

offers an additional, flexible way to 

achieve financial incentives from the 

Exchange and encourages Members to 

add increasing amounts of liquidity to 

BATS Options each month. The Grow 

with Us pricing program thereby 

rewards a Member’s growth patterns. 

Such increased volume increases 

potential revenue to the Exchange, and 

will allow the Exchange to continue to 

provide and potentially expand the 

incentive programs operated by the 

Exchange. The increased liquidity also 

benefits all investors by deepening the 

BATS Options 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. The Grow with Us 

program is also fair and equitable in that 

it is available to all Members and will 

expand the applicability of the 

Exchange’s tiered pricing structure, 

even for Members that do not meet the 

Exchange’s volume based tiers. The 

increase to fees for Professional, Firm 

and Market Maker orders that remove 

liquidity in Penny Pilot Securities is fair 

and equitable because it will allow the 

Exchange to offer a financial incentive 

to those Members who qualify for the 

Grow with Us program based on 

increased liquidity on BATS Options 

and such Members will not realize any 

increase to fees. The fee increase is 

reasonable in that it is a small increase 

and the fee to remove liquidity from 

BATS Options for Professional, Firm 

and Market Maker orders is still 

equivalent to the standard fee charged 

by other markets with similar fee 

structures, such as NYSE Arca Options 

and the Nasdaq Options Market 

(‘‘NOM’’). 

Volume-based rebates such as the 

ones maintained by the Exchange have 

been widely adopted in the cash 

equities markets and are increasingly in 

use by the options exchanges, 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/or growth 

patterns, and introduction of higher 

volumes of orders into the price and 

volume discovery processes. 

Accordingly, the Exchange believes that 

the continued offering of volume-based 

rebates for Customer orders in Penny 

Pilot Securities is not unfairly 

discriminatory because it is consistent 

with the overall goals of enhancing 

market quality. Similarly, the Exchange 

believes that continuing to base its 

tiered fee structure based on overall 

TCV, rather than a static number of 

contracts irrespective of overall volume 

in the options industry, is a fair and 

equitable approach to pricing. 

Despite the increases in fees for 

Customer orders in Penny Pilot 

Securities that remove liquidity 

applicable to Members that meet one of 

the Exchange’s tier levels or qualify for 

Grow with Us pricing, the Exchange 

believes that its proposed fee structure 

is reasonable as the Exchange’s standard 

fees generally still remain equivalent to 

or slightly lower than standard fees 

charged by other markets with similar 

fee structures, such as NYSE Arca 

Options and NOM. Further, the 

Exchange believes that the increases are 

fair and equitable because the various 

programs offered by the Exchange to 

receive reduced fees and enhanced 

rebates provide all Members with 

several different ways to offset the 

increase in fees or receive a reduction in 

fees. The increase in fees is also 

reasonable because the Exchange has 

also proposed to increase the rebates 

available for Customer orders from 

Members that qualify for volume-based 

tier or the Grow with Us program. The 

increase to rebates for Customer orders 

in Penny Pilot Securities is reasonable 

as it will permit certain Customer orders 

to qualify for higher rebates, and is fair 

and equitable because the volume-based 

tiers are available to all Members on an 

equal basis. As noted above, the 

Exchange believes that such volumebased tiers are fair and equitable and not 

unreasonably discriminatory because 

they are consistent with the overall 

goals of enhancing market quality. Also 

due to the increased levels of rebates for 

Customer orders in Penny Pilot 

Securities, the Exchange believes that 

the proposed modification to the 

Quoting Incentive Program is fair and 

equitable and not unreasonably 

discriminatory. Although the proposed 

QIP rebate for qualifying Customer 

orders is slightly lower than is currently 

offered and will continue to be lower 

than the QIP rebate provided to 

Professional, Firm and Market Maker 

orders, the Exchange believes that this 

distinction is reasonable and not 

unreasonably discriminatory because of 

the offsetting increase to rebates on 

Customer orders. The Exchange also 

believes that continuing to maintain a 

slightly lower threshold for meeting the 

QIP for registered BATS Options Market 

Makers appropriately incentivizes 

Members of BATS Options to register 

with the Exchange as Options Market 

Makers. While the Exchange does wish 

to allow participation in the QIP by all 

Members, the Exchange believes that 

registration by additional Members as 

Market Makers will help to continue to 

increase the breadth and depth of 

quotations available on the Exchange. 

The Exchange notes that in addition to 

the fact that the QIP is available to all 

Members, the proposal is not unfairly 

discriminatory despite a slightly higher 

quotation requirement for non-Market 

Makers due to the fact that registration 

as a BATS Options Market Maker is 

equally available to all Members. 

The Exchange believes that its 

proposed fees for non-Penny Pilot 

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Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices 23311 

15 15 U.S.C. 78s(b)(3)(A)(ii). 

16 17 CFR 240.19b–4(f)(2). 17 17 CFR 200.30–3(a)(12). 

Securities are reasonable in light of the 

benefits to Members to the extent the 

corresponding rebates, which are 

significantly higher than rebates 

available from the Exchange’s 

competitors, incentivize aggressive 

quoting that will result in better 

execution prices, as described in further 

detail below. The Exchange also 

believes that providing financial 

incentives to achieve aggressive quoting 

and incentivize liquidity providers to 

narrow the spread while charging more 

to those who realize the economic 

benefit of that narrower spread is a fair 

and equitable approach to pricing. 

Finally, the Exchange notes that in nonPenny Pilot Securities it is charging 

slightly more for, and rebating slightly 

less to, non-Customer orders than 

Customer orders. The Exchange believes 

that this proposed pricing structure for 

non-Penny Pilot Securities is not 

unreasonably discriminatory because it 

accounts for the difference of assumed 

information and sophistication level 

between the different trading capacities. 

Since Professional, Firm and Market 

Maker capacity members are assumed to 

have more informed (and hence less 

desirable to counterparties) orders, 

those orders have a slightly higher 

transaction cost associated with them. 

The Exchange further notes that the 

charges and rebates to all non-Customer 

orders is equivalent regardless of 

capacity and therefore nondiscriminatory. 

In the current U.S. options market, 

many of the contracts are quoted in 

pennies. Under this pricing structure, 

the minimum penny tick increment 

equates to a $1.00 economic value 

difference per contract, given that a 

single standardized U.S. option contract 

covers 100 shares of the underlying 

stock. Where contracts are quoted in 

$0.05 increments, the value per tick is 

$5.00 in proceeds to the investor 

transacting in these contracts. Liquidity 

rebate and access fee structures on the 

make-take exchanges, including BATS, 

for securities quoted in penny 

increments are commonly in the $0.30 

to $0.45 range. A $0.30 rebate in a 

penny quoted security is a rebate 

equivalent to 30% of the value of the 

minimum tick. A $0.45 charge in a 

penny quoted security is a charge 

equivalent to 45% of the value of that 

minimum tick. In other words, in penny 

quoted securities, where the price is 

improved by one tick with an access fee 

of $0.45, an investor paying to access 

that quote is still $0.55 better off than 

trading at the wider spread, even 

without the access fee ($1.00 of price 

improvement ¥$0.45 access fee = $0.55 

better economics). This math is equally 

true for securities quoted in wider 

increments. Rebates and access fees near 

the $0.80 level equate to only 20% of 

the value of the minimum tick. An 

investor transacting a single contract in 

a non-penny quoted security quoted a 

single tick tighter than the rest of the 

market, and paying an access fee of 

$0.80, is receiving economic benefit of 

$4.20 ($0.05 improved tick = $5.00 in 

proceeds¥$0.80 access fee = $4.20). 

The Exchange believes that encouraging 

liquidity providers to quote more 

aggressively and narrow the spread in 

non-Penny Pilot Securities will benefit 

investors by improving the overall 

economics of the resulting transactions 

that occur on the Exchange, even if the 

access fee paid in connection with such 

transactions is higher. Accordingly, the 

Exchange believes that the proposed 

fees and rebates for non-Penny Pilot 

Securities are reasonable. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change imposes any 

burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Pursuant to Section 19(b)(3)(A)(ii) of 

the Act 15 and Rule 19b–4(f)(2) 

thereunder,16 the Exchange has 

designated this proposal as establishing 

or changing a due, fee, or other charge 

applicable to the Exchange’s Members 

and non-members, which renders the 

proposed rule change effective upon 

filing. 

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. 

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 rulecomments@sec.gov. Please include File 

Number SR–BATS–2012–015 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–BATS–2012–015. 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 

a.m. and 3 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–BATS– 

2012–015 and should be submitted on 

or before May 9, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–9286 Filed 4–17–12; 8:45 am] 

BILLING CODE 8011–01–P 

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