Document ID: SEC-2013-1782-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-10-22T04:00Z

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62804-62807]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24657]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70664; File No. SR-BATS-2013-054]

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.

October 11, 2013.
    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 1, 2013, 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 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). Changes to the fee schedule pursuant to this proposal 
will be effective upon filing.
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    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    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.

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

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

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

1. Purpose
    The Exchange proposes to modify its fee schedule applicable to use 
of the Exchange effective October 1, 2013, in order to: (1) Increase 
the fee to remove liquidity from the Exchange's order book in all 
securities; (2) modify the tiered rebate structure applicable to adding 
liquidity to the Exchange's order book in securities priced $1.00 or 
above; (3) adopt an additional rebate incentive (subject to average 
daily volume requirements) for orders that join the national best bid 
or national best offer (the ``NBBO'') when the Exchange is not already 
at the NBBO (``NBBO Joiner'' orders); and (4) make various formatting 
changes to enhance and simplify the fee schedule.
Increase to Fee To Remove Liquidity From the Exchange
    The Exchange currently charges $0.0029 per share for all orders 
executed on the Exchange that remove liquidity from the Exchange in 
securities priced $1.00 per share or above. The Exchange proposes to 
increase this standard fee to remove liquidity from the Exchange to 
$0.0030 per share.
    Consistent with the current fee to remove liquidity, the $0.0030 
charge per share for executions that remove liquidity from the Exchange 
will not apply to executions that remove liquidity in securities priced 
under $1.00 per share. The Exchange proposes to increase the fee for 
such executions from 0.10% of the total dollar value of the execution 
to 0.30% of the total dollar value of the execution.
Modifications to Tiered Rebate Structure for Securities Priced $1.00 or 
Above
    The Exchange currently operates a tiered pricing structure through 
which Members can realize higher rebates for adding displayed 
liquidity. Specifically, the Exchange provides a standard rebate of 
$0.0025 per share for orders that add displayed liquidity for Members 
that do not qualify for a higher rebate based on their volume. The 
Exchange then provides a rebate of $0.0027 per share for orders that 
add displayed liquidity to the Exchange's order book where the Member 
has an average daily volume (``ADV''), as defined below, equal to or 
greater than 0.5% but less than 1.0% of average of total consolidated 
volume (``TCV''), as also defined below. Finally, the Exchange provides 
a rebate of $0.0029 per share for orders that add displayed liquidity 
to the Exchange's order book for any Member that has an ADV equal to or 
greater than 1.0% of TCV. The Exchange proposes to expand the number of 
tiers available and to modify the rebates associated with such tiers, 
as well as the rebates provided to Members not qualifying for tiered 
pricing.
    For purposes of the fee schedule, the definition of ADV is average 
daily volume calculated as the number of shares added or removed, 
combined, per day on a monthly basis (excluding routed volume).\6\ 
Rather than basing its

[[Page 62805]]

pricing structure on a static number of shares executed by a Member 
each day, the Exchange operates its tiered pricing structure such that 
it is based on total consolidated volume, or TCV, and is thus variable 
based on overall volumes in the securities industry. TCV is defined as 
total consolidated volume calculated as the volume reported by all 
exchanges and trade reporting facilities to a consolidated transaction 
reporting plan for the month for which the fees apply.\7\
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    \6\ The Exchange allows affiliated entities to aggregate their 
order flow for purposes of the Exchange's determination of ADV with 
respect to pricing tiers if such entities provide prior notice to 
the Exchange. Specifically, to the extent two or more affiliated 
companies maintain separate memberships with the Exchange and can 
demonstrate their affiliation by showing they control, are 
controlled by, or are under common control with each other, the 
Exchange permits such Members to count overall volume of the 
affiliates in calculating ADV. The Exchange verifies such 
affiliation using a Member's Form BD, which lists control 
affiliates.
    \7\ The Exchange notes that it also excludes the last Friday of 
June from the calculation of ADV and average daily TCV. The last day 
of June is the day that Russell Investments reconstitutes its family 
of indexes (``Russell Reconstitution''), resulting in particularly 
high trading volumes, much of which the Exchange believes derives 
from market participants who are not generally as active entering 
the market to rebalance their holdings in-line with the Russell 
Reconstitution.
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    In connection with the proposed changes described below, the 
Exchange proposes to add a definition of ``ADAV'' to the fee schedule, 
which term will mean average daily volume calculated as the number of 
shares added per day on a monthly basis (excluding routed volume). 
Accordingly, ADAV measures a Member's average daily added volume only, 
and Member's will be able to qualify for applicable tiers with a lower 
ADAV than ADV.\8\
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    \8\ The Exchange proposes to calculate ADAV in the same way that 
it calculates ADV, including permitting aggregation amongst 
affiliated entities and the exclusion of Russell Reconstitution day. 
See supra notes 6 and 7.
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    The Exchange proposes to replace the two existing tiers with six 
tiers, each of which, in turn, can be reached through either a Member's 
ADAV (added liquidity only) or a Member's ADV (added and removed volume 
combined). In part to fund such expansion, the Exchange proposes to 
reduce its standard rebate for Members that do not qualify for a tiered 
rebate from $0.0025 per share to $0.0020 per share. Further, the 
Exchange proposes to adopt the following tiers and rebates.

----------------------------------------------------------------------------------------------------------------
                                                     Member's
                                                      ADAV is
                                                     equal to                Member's ADV is
                                                        or                     equal to or
                    Volume tier                       greater                 greater than      Rebate per share
                                                       than                  average TCV of:
                                                      average
                                                      TCV of:
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Tier 1.............................................   0.10%           or               0.25%           ($0.0025)
Tier 2.............................................    0.20           or               0.50             (0.0028)
Tier 3.............................................    0.30           or               0.75             (0.0029)
Tier 4.............................................    0.50           or               1.00             (0.0030)
Tier 5.............................................    0.75           or               1.40             (0.0031)
Tier 6.............................................    1.00           or               1.75             (0.0032)
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    Accordingly, the Exchange proposes to offer the current standard 
rebate of $0.0025 per share to all Members that can achieve Tier 1, 
which is available to Members with ADAV of 0.10% or more of average TCV 
or ADV of 0.25% or more of average TCV. Members that do not currently 
qualify for any tiered rebates today may be able to qualify either 
under this tier, Tier 1, or if their ADAV (added liquidity only) 
qualifies for one of the Tiers. With respect to Members that qualify 
for tiered pricing today, with ADV of at least 0.5% of average TCV, all 
such Members will receive higher rebates than they do under the current 
pricing structure. For instance, Members qualifying for Tier 2 with 
between 0.5% and 0.75% of ADV and 0.75% and 1% of ADV will receive 
rebates of $0.0028 per share and $0.0029 per share (as compared to 
$0.0027 for Members with between 0.5% and 1.0% of ADV under the current 
rebate structure). Members will also be able to qualify for these two 
tiers at lower levels of ADAV, namely 0.2% and 0.3%, respectively. 
Further, the Exchange proposes to offer three tiers at which a higher 
rebate is available than is currently available for reaching the 
Exchange's current highest tier. Specifically, Members reaching Tier 4 
will receive a rebate of $0.0030 per share, Members reaching Tier 5 
will receive a rebate of $0.0031 per share and Members reaching the 
highest tier, Tier 6, will receive a rebate of $0.0032 per share.
Adoption of NBBO Joiner Rebates
    Consistent with programs offered by the Exchange for orders that 
set the NBBO when received by the Exchange (``NBBO Setter'' orders), 
the Exchange proposes to adopt a program to attract aggressively priced 
displayed liquidity by providing an additional rebate for orders that 
join the NBBO when the Exchange is not already at the NBBO. To the 
extent such an order is displayed and executed on the Exchange, a NBBO 
Joiner order will receive an additional rebate of $0.0001 per share. 
This rebate is in addition to the rebate a Member would otherwise 
receive under the tiered pricing structure, as described above. 
Consistent with the current NBBO Setter program, the Exchange proposes 
to limit the ability to qualify for NBBO Joiner rebates to Members that 
have ADV equal to or greater than 0.5% of TCV. Because the Exchange has 
expanded the tiered pricing structure such that Members can qualify for 
rebates at the same level as those with ADV equal to or greater than 
0.5% of TCV if they achieve ADAV of 0.2% or higher, the Exchange 
proposes to use this tier level as the eligibility requirement. 
Accordingly, the Exchange proposes to provide NBBO Setter and NBBO 
Joiner rebates to all qualifying orders entered by Members qualifying 
for Tier 2 or higher.
Additional Formatting Changes
    In order to adopt the new tiered pricing structure, the Exchange 
has proposed to add much of the new pricing as part of a chart format. 
The Exchange proposes to convert other portions of its ``Equities 
Pricing'' section to charts, even though the substance of such fees 
will not change. In this connection, the Exchange has also further 
differentiated between the liquidity rebates for displayed liquidity, 
as described above, and those for non-displayed liquidity, which the 
Exchange does not propose to substantively modify. The Exchange notes 
that it intends to further convert the remainder of the fee schedule to 
a chart format in the near future. In order to reduce text later in the 
fee schedule, the Exchange also proposes to make clear up-front that 
all references on the fee schedule to ``adding'' and ``removing'' 
liquidity mean adding liquidity or removing liquidity from the 
Exchange's order book.

[[Page 62806]]

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.\9\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\10\ 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.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    The changes to Exchange execution fees and rebates proposed by this 
filing are intended to attract order flow to the Exchange by continuing 
to offer competitive pricing while also creating additional incentives 
to providing aggressively priced displayed liquidity. While Members 
that remove liquidity from the Exchange will be paying higher fees due 
to the proposal, the increased revenue received by the Exchange will be 
used to fund programs that the Exchange believes will attract 
additional liquidity and thus improve the depth of liquidity available 
on the Exchange. Accordingly, the Exchange believes that the higher 
access fees for both securities priced $1.00 and above and securities 
priced below $1.00 will benefit Members' results in trading on the 
Exchange to the extent the tiered rebate structure maintained by the 
Exchange for adding displayed liquidity, the continued offering of the 
NBBO Setter rebate, and the adoption of the NBBO Joiner rebate 
incentivize liquidity providers to provide more aggressively priced 
liquidity. Thus, the Exchange believes that the slight increases to the 
fees to remove liquidity from the Exchange are reasonable and equitably 
allocated. Further, the Exchange does not believe that the proposed 
increases to the fees to remove liquidity from the Exchange are 
unfairly discriminatory as they will be uniformly applied to all 
Members.
    The Exchange believes that continuing to base its tiered rebate 
structure on overall TCV, rather than a static number irrespective of 
overall volume in the securities industry, is a fair and equitable 
approach to pricing. Volume-based tiers such as the expanded liquidity 
rebate tiers proposed in this filing have been widely adopted in the 
equities markets, and are equitable and not unreasonably discriminatory 
because they are open to all members on an equal basis and provide 
rebates that are reasonably related to the value to an exchange's 
market quality associated with higher levels of market activity, such 
as higher levels of liquidity provision and introduction of higher 
volumes of orders into the price and volume discovery process. 
Accordingly, the Exchange believes that the proposal is not 
unreasonably discriminatory because it is consistent with the overall 
goals of enhancing market quality.
    The proposed modification to the Exchange's rebate structure will 
have variable affects on Members of the Exchange, dependent on the 
volume of transaction activity they conduct on the Exchange. The 
Exchange notes that Members currently qualifying for tiered rebates 
will receive higher rebates in all cases. The Exchange also notes that 
additional Members will be able to qualify for tiered rebates based on 
a lower threshold of ADV (i.e., Tier 1 at ADV of 0.25% of TCV) or based 
on the new classification of ADAV, which measures added volume only but 
allows Members to qualify at lower percentages of TCV (e.g., ADAV of 
0.1%, 0.2%, or 0.3% of TCV, respectively, for Tiers 1, 2, and 3). Those 
Members qualifying for volume Tier 1 will not be impacted by any 
decrease in rebates, but will continue to receive the same rebates that 
they do today. Despite the decrease in rebate for all Members that do 
not qualify for the lowest tier, the Exchange believes that its 
proposed fee structure is fair and equitable for the reasons described 
above related to market quality. The Exchange reiterates that the 
volume tiers are open to all Members on an equal basis, and are 
therefore equitable and not unreasonably discriminatory.
    The proposed addition of the definition of ADAV and, in turn, the 
ability to qualify for volume-based enhanced rebate based on ADAV is 
reasonable as it is another method of measuring a Member's contribution 
to the overall market quality on the Exchange. While all order flow 
contributing to the Exchange is important, the Exchange has 
consistently offered programs to incentivize the addition of 
aggressively priced displayed liquidity to the Exchange due to the 
value of such liquidity. Accordingly, the Exchange believes that its 
proposed policy to measure ADAV and permit tier qualification at lower 
levels than ADV is fair and equitable, and not unreasonably 
discriminatory.
    Additionally, the Exchange believes that the proposed NBBO Joiner 
rebate, similar to rebates offered by the Exchange under the NBBO 
Setter program, will incentivize the entry on the Exchange of more 
aggressive orders that will maintain tight spreads, benefitting both 
Members and public investors. The Exchange further believes that 
conditioning a Member's ability to receive the NBBO Joiner rebate on 
reaching a volume tier of Tier 2 or higher is consistent with the Act 
for the reasons described above with respect to volume-based tiers 
generally. The Exchange notes that by proposing qualification at Tier 2 
or higher it is maintaining the same volume requirement to qualify for 
the NBBO Setter rebate (i.e., ADV 0.5% or more of TCV) as it previously 
required, though Members may potentially also qualify based on ADAV of 
0.2%, and thus, additional Members may qualify for NBBO Setter rebates 
or the new NBBO Joiner rebates.
    Finally, the Exchange believes that the proposed changes to further 
simplify the fee schedule and to move towards a fee schedule that is in 
a chart format are fair and reasonable, and non-discriminatory in that 
they are designed to be more easily understood by Members.

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. As 
noted above, the changes to Exchange execution fees and rebates 
proposed by this filing are intended to attract order flow to the 
Exchange by continuing to offer competitive pricing while also creating 
additional incentives to provide aggressively priced displayed 
liquidity. Thus, while the Exchange is slightly increasing the fees to 
remove liquidity from the Exchange, the Exchange is offsetting such 
increase with additional rebates designed to enhance the liquidity 
available on the Exchange. Similarly, while some Members will recognize 
a decrease rebate for liquidity added to the Exchange, the Exchange has 
offered a lower volume tier in order to maintain the current rebate 
level as well as additional ways to reach the various volume tiers 
(with lower volume levels) based on added liquidity only. The 
Exchange's proposed NBBO Joiner rebate will benefit competition by

[[Page 62807]]

rewarding Members that help the Exchange to join other market centers 
at the NBBO. Promotion of displayed liquidity at the NBBO enhances 
market quality for all market participants and promotes competition 
amongst market centers. The Exchange believes that the proposed changes 
as a whole will contribute to additional displayed liquidity on the 
Exchange, which will, in turn, benefit competition due to the 
improvements to the overall market quality of the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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 \11\ and paragraph (f) of Rule 19b-4 
thereunder.\12\ 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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 rule-comments@sec.gov. Please include 
File Number SR-BATS-2013-054 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-2013-054. 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-2013-054 and should be 
submitted on or before November 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24657 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P