[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7665-7668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02752]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74214; File No. SR-BATS-2015-08]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
an Options Regulatory Fee

February 5, 2015.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on January 30, 2015, BATS Exchange, Inc. (the ``Exchange'' 
or ``BATS'') filed with the Securities and Exchange Commission (the 
``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 proposal effective upon filing with 
the Commission. The Commission is publishing this notice to

[[Page 7666]]

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 the 
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) to adopt an Options Regulatory Fee (``ORF'') in the 
amount of $0.0010 per contract side.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer, or any person associated with a registered broker or dealer, 
that has been admitted to membership in the Exchange. A Member will 
have the status of a ``member'' of the Exchange as that term is 
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify the ``Options Pricing'' section of 
its fee schedule to adopt an ORF in the amount of $0.0010 per contract 
side. The per-contract ORF will be assessed by the Exchange to each 
Member for all options transactions executed and cleared, or simply 
cleared, by the Member, that are cleared by OCC in the ``customer'' 
range, regardless of the exchange on which the transaction occurs. The 
ORF will be collected indirectly from Members through their clearing 
firms by OCC on behalf of the Exchange.
    The ORF also will be charged for transactions that are not executed 
by a Member but are ultimately cleared by a Member. In the case where a 
non-Member executes a transaction and a Member clears the transaction, 
the ORF will be assessed to the Member who clears the transaction. In 
the case where a Member executes a transaction and another Member 
clears the transaction, the ORF will be assessed to the Member who 
clears the transaction. As a practical matter, it is not feasible or 
reasonable for the Exchange (or any SRO) to identify each executing 
member that submits an order on a trade-by-trade basis. There are 
countless executing market participants, and each day such participants 
can and often do drop their connection to one market center and 
establish themselves as participants on another. It is virtually 
impossible for any exchange to identify, and thus assess fees such as 
an ORF on, each executing participant on a given trading day.
    Clearing members, however, are distinguished from executing 
participants because they remain identified to the Exchange regardless 
of the identity of the initiating executing participant, their 
location, and the market center on which they execute transactions. 
Therefore, the Exchange believes it is more efficient for the operation 
of the Exchange and for the marketplace as a whole to assess the ORF to 
clearing members.
    The Exchange believes it is appropriate to charge the ORF only to 
transactions that clear as customer at the OCC. The Exchange believes 
that its broad regulatory responsibilities with respect to a Member's 
activities supports applying the ORF to transactions cleared but not 
executed by a Member. The Exchange's regulatory responsibilities are 
the same regardless of whether a Member executes a transaction or 
clears a transaction executed on its behalf. The Exchange regularly 
reviews all such activities, including performing surveillance for 
position limit violations, manipulation, front-running, contrary 
exercise advice violations and insider trading. These activities span 
across multiple exchanges.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of Members' customer 
options business, including performing routine surveillances and 
investigations, as well as policy, rulemaking, interpretive and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees and fines, will cover a material portion, but not all, of the 
Exchange's regulatory costs. The Exchange notes that its regulatory 
responsibilities with respect to Member compliance with options sales 
practice rules have been allocated to the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') under a 17d-2 Agreement. The ORF is not 
designed to cover the cost of options sales practice regulation.
    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange expects to monitor its regulatory costs 
and revenues at a minimum on a semi-annual basis. If the Exchange 
determines regulatory revenues exceed or are insufficient to cover a 
material portion of its regulatory costs, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
will notify Members of adjustments to the ORF at least 30 calendar days 
prior to the effective date of the change.\6\
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    \6\ The Exchange announced its intent to charge an ORF on 
October 7, 2014. See BATS Global Markets Access Services Fee Changes 
for 2015 available at http://cdn.batstrading.com/resources/fee_schedule/2015/BATS-Global-Markets-Access-Services-Fee-Changes-for-2015.pdf. The semi-annual review and notice provisions are 
similar to those adopted by NYSE Arca, Inc. (``NYSE Arca''). See 
Securities Exchange Act Release No. 70500 (September 25, 2013), 78 
FR 60361 (October 1, 2013) (SR-NYSEArca-2013-91).
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    The Exchange believes it is reasonable and appropriate for the 
Exchange to charge the ORF for options transactions regardless of the 
exchange on which the transactions occur. The Exchange has a statutory 
obligation to enforce compliance by Members and their associated 
persons under the Act and the rules of the Exchange and to surveil for 
other manipulative conduct by market participants (including non-
Members) trading on the Exchange. The Exchange cannot effectively 
surveil for such conduct without looking at and evaluating activity 
across all options markets. Many of the Exchange's market surveillance 
programs require the Exchange to look at and evaluate activity across 
all options markets, such as surveillance for position limit 
violations, manipulation, front-running and contrary exercise advice 
violations/expiring exercise declarations. Also, the Exchange and the 
other options exchanges are required to populate a consolidated options 
audit trail (``COATS'') \7\ system in order to surveil a Member's 
activities across markets.
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    \7\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
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    In addition to its own surveillance programs, the Exchange works 
with

[[Page 7667]]

other SROs and exchanges on intermarket surveillance related issues. 
Through its participation in the Intermarket Surveillance Group 
(``ISG''),\8\ the Exchange shares information and coordinates inquiries 
and investigations with other exchanges designed to address potential 
intermarket manipulation and trading abuses. The Exchange's 
participation in ISG helps it to satisfy the requirement that it has 
coordinated surveillance with markets on which security futures are 
traded and markets on which any security underlying security futures 
are traded to detect manipulation and insider trading.\9\
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    \8\ ISG is an industry organization formed in 1983 to coordinate 
intermarket surveillance among the SROs by co-operatively sharing 
regulatory information pursuant to a written agreement between the 
parties. The goal of the ISG's information sharing is to coordinate 
regulatory efforts to address potential intermarket trading abuses 
and manipulations.
    \9\ See Section 6(h)(3)(I) of the Act.
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    The Exchange believes that charging the ORF across markets will 
avoid having Members direct their trades to other markets in order to 
avoid the fee and to thereby avoid paying for their fair share for 
regulation. If the ORF did not apply to activity across markets then a 
Member would send their orders to the least cost, least regulated 
exchange. Other exchanges do impose a similar fee on their member's 
activity, including the activity of those members on BATS.\10\
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    \10\ Similar regulatory fees have been instituted by PHLX, ISE, 
and MIAX. See Securities Exchange Act Release Nos. 61133 (December 
9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100); 61154 
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105); and 68711 (January 23, 2013), 78 FR 6155 (January 29, 2013) 
(SR-MIAX-2013-01).
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    The Exchange notes that there is established precedent for an SRO 
charging a fee across markets, namely, FINRAs Trading Activity Fee \11\ 
and the MIAX, NYSE Amex, NYSE Arca, CBOE, PHLX, ISE and BOX ORFs. While 
the Exchange does not have all of the same regulatory responsibilities 
as FINRA, the Exchange believes that, like other exchanges that have 
adopted an ORF, its broad regulatory responsibilities with respect to a 
Member's activities, irrespective of where their transactions take 
place, support a regulatory fee applicable to transactions on other 
markets. Unlike FINRA's Trading Activity Fee, the ORF would apply only 
to a Member's customer options transactions.
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    \11\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 3402 (June 6, 2003).
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Implementation Date
    The Exchange proposes to implement the ORF on February 2, 2015.
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.\12\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\13\ 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 or providers of routing services 
if they deem fee levels to be excessive.
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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 the ORF is equitable and not unfairly 
discriminatory because it would be objectively allocated to Members in 
that it would be charged to all Members on all their transactions that 
clear as customer transactions at the OCC. Moreover, the Exchange 
believes the ORF ensures fairness by assessing fees to those Members 
that are directly based on the amount of customer options business they 
conduct. Regulating customer trading activity is much more labor 
intensive and requires greater expenditure of human and technical 
resources than regulating non-customer trading activity, which tends to 
be more automated and less labor-intensive. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the costs 
associated with administering the non-customer component (e.g., Member 
proprietary transactions) of its regulatory program. In addition, the 
Exchange believes the amount of the ORF is reasonable as it is lower 
than ORFs charged by other exchanges. By way of comparison, MIAX 
charges an ORF of $0.0045 per contract side,\14\ and both NYSE Arca and 
NYSE Amex charge an ORF of $0.0055 per contract side.\15\
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    \14\ See MIAX fee schedule available at http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_02012015.pdf (last visited January 30, 
2015).
    \15\ See NYSE Arca Options fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited January 30, 2015); 
and NYSE Amex fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (last visited January 30, 2015).
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    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Members' customer options business including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. The Exchange will monitor, on at least a semi-
annual basis the amount of revenue collected from the ORF to ensure 
that it, in combination with its other regulatory fees and fines, does 
not exceed the Exchange's total regulatory costs. If the Exchange 
determines regulatory revenues exceed or are insufficient to cover a 
material portion of its regulatory costs, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
will notify Members of adjustments to the ORF via regulatory circular.
    The Exchange has designed the ORF to generate revenues that, when 
combined with all of the Exchange's other regulatory fees, will be less 
than or equal to the Exchange's regulatory costs, which is consistent 
with the Commission's view that regulatory fees be used for regulatory 
purposes and not to support the Exchange's business side. In this 
regard, the Exchange believes that the initial level of the fee is 
reasonable.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The ORF is not intended to have 
any impact on competition. Rather, it is designed to enable the 
Exchange to recover a material portion of the Exchange's cost related 
to its regulatory activities. The proposed ORF is also comparable to 
fees charged by other options exchanges for the same or similar 
service. As stated above, the Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues if the deem fee structures to be 
unreasonable or excessive.

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

[[Page 7668]]

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 \16\ and paragraph (f) of Rule 19b-4 
thereunder.\17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
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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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#fc8e899099d19f9391919992888fbc8f999fd29b938a"><span class="__cf_email__" data-cfemail="88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe">[email protected]</span></a>. Please include 
File Number SR-BATS-2015-08 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BATS-2015-08. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BATS-2015-08, and should be 
submitted on or before March 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Brent J. Fields
Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-02752 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P


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