Document ID: SEC-2014-1564-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-09-17T04:00Z

[Federal Register Volume 79, Number 180 (Wednesday, September 17, 2014)]
[Notices]
[Pages 55864-55867]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22116]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73080; File No. SR-BATS-2014-039]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use of BATS Exchange, Inc.

September 11, 2014.
    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 August 28, 2014, 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 
are effective upon filing.
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    \5\ A 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 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's equities trading platform (``BATS Equities'') in 
order to: (i) Add two additional ``Cross-Asset Step-Up Tiers'' for 
purposes of tiered pricing applicable to BATS Equities; and (ii) modify 
fees applicable to orders routed to and executed at the New York Stock 
Exchange LLC (``NYSE'').

Additional Step-Up Tiers

    Currently, with respect to BATS Equities, the Exchange determines 
the liquidity adding rebate that it will provide to Members using the 
Exchange's tiered pricing structure, which is based on the Member 
meeting certain volume tiers based on their ADAV \6\ as a percentage of 
TCV \7\ or ADV \8\ as a percentage of TCV. Under

[[Page 55865]]

such pricing structure, a Member will receive an adding rebate of 
anywhere between $0.0020 and $0.0032 per share executed, depending on 
the volume tier for which such Member qualifies. The Exchange also 
maintains two additional types of tiers in addition to the volume tiers 
described above: Step-Up Tiers and a Cross-Asset Step-Up Tier. The 
Step-Up Tier and Cross-Asset Step-Up Tier provide Members with 
additional ways to qualify for enhanced rebates. The Cross-Asset Step-
Up Tier includes pricing based on a Member's participation on the 
Exchange's equity options platform (``BATS Options''). As proposed, the 
existing volume tiers, including the Step-Up Tiers and Cross-Asset Step 
Up Tier will remain the same. However, the Exchange proposes to add two 
new Cross-Asset Step Up Tiers to its fee schedule as Tier 1 and Tier 2, 
and to re-number the existing Cross-Asset Step Up Tier as Tier 3.
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    \6\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``ADAV'' means average daily added volume 
calculated as the number of shares added per day on a monthly basis; 
the Exchange excludes from the ADAV calculation routed shares as 
well as shares added on any day that the Exchange's system 
experiences a disruption that lasts for more than 60 minutes during 
regular trading hours (``Exchange System Disruption''), on any day 
with a scheduled early market close and on the last Friday in June 
(the ``Russell Reconstitution Day'').
    \7\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``TCV'' means 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, excluding volume on any day that the 
Exchange experiences an Exchange System Disruption, on any with a 
scheduled early market close and the Russell Reconstitution Day.
    \8\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``ADV'' means average daily volume calculated as 
the number of shares added or removed, combined, per day on a 
monthly basis; the Exchange excludes from the ADV calculation routed 
shares, and shares added on any day that the Exchange's system 
experiences an Exchange System Disruption, on any day with a 
scheduled early market close and on the Russell Reconstitution Day.
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    The existing Cross-Asset Step-Up Tier is designed to incentivize 
Members to both increase their participation on the Exchange in terms 
of their ADAV and their ADAV on BATS Options (``Options ADAV'') \9\ 
compared to their January 2014 ADAV and Options ADAV. The existing 
Cross-Asset Step-Up Tier provides a rebate of $0.0032 per share where 
the Member's Step-Up Add TCV \10\ is equal to or greater than 0.30% and 
the Member's Options Step-Up Add TCV, as described below, is greater 
than 0.40%. The Cross-Asset Step-Up Tier is similar to cross asset 
tiers employed by NYSE Arca, Inc. and the Nasdaq Stock Market, LLC.\11\ 
The new proposed Cross-Asset Step-Up Tiers are similar to the 
Exchange's existing Cross-Asset Step-Up Tier in that they are designed 
to incentivize liquidity provision on the Exchange by providing an 
enhanced rebate while also incentivizing increased participation on 
BATS Options.
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    \9\ Similar to the definition of ADAV for BATS Equities, the 
BATS Options definition of ADAV is average daily added volume 
calculated as the number of contracts added.
    \10\ A Member's Step-Up Add TCV is based on participation on 
BATS Equities and defined as a percentage of TCV in January 2014 
subtracted from current ADAV as a percentage of TCV.
    \11\ See Exchange Act Release No. 67424 (July 18, 2012), 77 FR 
42347 (July 12, 2012) (SR-NYSEArca-2012-70); Nasdaq Rule 7018(a)(1).
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    The proposed Cross-Asset Step Up Tier 1 would provide a rebate of 
$0.0027 per share where the Member's Options Step-Up Add TCV is equal 
to or greater than 0.30%. The proposed Cross-Asset Step Up Tier 2 would 
provide a rebate of $0.0028 per share where the Member's Options Step-
Up Add TCV is equal to or greater than 0.40%.
    A Member's Options Step-Up Add TCV is calculated as the increase in 
the Member's current Options ADAV as a percentage of options TCV 
(``Options TCV'') \12\ (``Current Options ADAV'') over the Member's 
Options ADAV as a percentage of Options TCV from January 2014 
(``Baseline Options ADAV''). By way of example, where a Member's 
Baseline Options ADAV is 0.04%, the Member would need to achieve a 
Current Options ADAV of 0.34% in order to qualify for Cross-Asset Step-
Up Tier 1 and its $0.0027 per share rebate or 0.44% in order to qualify 
for Cross-Asset Step-Up Tier 2 and its $0.0028 per share rebate.
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    \12\ As provided in the fee schedule, for purposes of BATS 
Options pricing, ``TCV'' means 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, 
excluding volume on any day that the Exchange experiences an 
Exchange System Disruption.
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    As is currently the case pursuant to the fee schedule, a Member 
will receive the higher of the volume rebates, step-up rebates, or 
cross-asset step-up rebates for which they qualify.

Orders Routed to and Executed at NYSE

    The Exchange proposes to modify the ``Equities Pricing'' section of 
its fee schedule effective September 2, 2014, in order to amend the 
fees for certain routing strategies based on a change of fees at the 
NYSE.
    The Exchange has previously provided a discounted fee for 
Destination Specific Orders routed to certain of the largest market 
centers measured by volume (NYSE, NYSE Arca and NASDAQ), which, in each 
instance has been $0.0001 less per share for orders routed to such 
market centers by the Exchange than such market centers currently 
charge for removing liquidity (referred to by the Exchange as ``One 
Under'' pricing). NYSE is implementing certain pricing changes 
effective September 2, 2014, including modification from a fee to 
remove liquidity of $0.0026 per share to a fee of $0.0027 per 
share.\13\ Based on the changes in pricing at NYSE, BATS is proposing 
to increase its fee for Destination Specific Orders \14\ executed at 
NYSE so that the fee remains $0.0001 less per share for orders routed 
to NYSE. Specifically, the Exchange proposes to increase the fee 
charged for BATS + NYSE Destination Specific Orders executed at NYSE 
from $0.0025 per share to $0.0026 per share.
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    \13\ See NYSE Trader Update dated August 21, 2014, http://
www1.nyse.com/pdfs/
NYSEClientNoticeFeeChange
092014.pdf.
    \14\ As defined in Exchange Rule 11.9(c)(12).
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    In addition, the Exchange offers a variety of routing strategies, 
including ``SLIM'' and ``TRIM,'' each of which has a specific fee for 
an execution that occurs at NYSE.\15\ Consistent with its One Under 
pricing model, the Exchange currently charges $0.0025 per share for 
executions that occur at NYSE through SLIM and TRIM. Based on the 
increased fee at NYSE, the Exchange proposes to increase the fee 
charged for SLIM and TRIM orders executed at NYSE from $0.0025 per 
share to $0.0026 per share.
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    \15\ See Exchange Rule 11.13(a)(3)(G) for a description of the 
TRIM routing strategy and Exchange Rule 11.13(a)(3)(H) for a 
description of the SLIM routing strategy.
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Implementation Date

    The Exchange proposes to implement these amendments to its fee 
schedule on September 2, 2014.
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.\16\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that providing additional financial 
incentives on BATS Equities to Members that demonstrate an increase 
over their Options Baseline ADAV through the new proposed Cross-Asset 
Step-Up Tiers offer additional, flexible ways to achieve financial 
incentives from the Exchange and encourage Members to add liquidity to 
both BATS Equities and BATS Options. The Exchange believes that these 
incentives are reasonable, fair and equitable because the liquidity 
from each of these proposals also benefits all investors by deepening 
the BATS Equities and BATS Options liquidity pools, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market

[[Page 55866]]

transparency and improving investor protection. Such pricing programs 
thereby reward a Member's growth pattern and such increased volume 
increase potential revenue to the Exchange, and will allow the Exchange 
to continue to provide and potentially expand the incentive programs 
operated by the Exchange. These pricing programs are also fair and 
equitable in that they are available to all Members and will result in 
Members receiving either the same or an increased rebate than they 
would currently receive. The Exchange also notes that the proposed 
step-up tier are similar to pricing tiers currently available on Arca 
and Nasdaq.\18\
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    \18\ See supra note 11.
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    Volume-based rebates and fees such as the ones maintained on BATS 
Equities, including the Cross-Asset Step-Up Tiers proposed herein, have 
been widely adopted by equities and options exchanges and are equitable 
because they are open to all Members on an equal basis and provide 
additional benefits or 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. Further, the Exchange believes 
that the Cross-Asset Step-Up Tiers will provide such enhancements in 
market quality on both BATS Equities and BATS Options by incentivizing 
participation on both platforms. Although the new tiers to not require 
a certain amount of growth on BATS Equities in order to qualify for the 
enhanced rebate, the enhanced rebate is intended to incentivize 
enhanced participation on BATS Equities while both incentivizing and 
rewarding Members for additional participation on BATS Options. The 
Exchange notes that it is not proposing to modify any existing tiers 
(other than to re-number the Equities Cross-Asset Step-Up Tier), but 
rather to add new tiers that will provide Members with additional ways 
to receive higher rebates. Accordingly, under the proposal a Member 
will receive either the same or a higher rebate than they would receive 
today. Accordingly, the Exchange believes that the proposed additions 
to the Exchange's tiered pricing structure and incentives are not 
unfairly discriminatory because they will apply uniformly to all 
Members and are consistent with the overall goals of enhancing market 
quality on both BATS Equities and BATS Options.
    Finally, the Exchange believes that the proposed changes to certain 
of the Exchange's non-standard routing fees and strategies are 
equitably allocated, fair and reasonable, and non-discriminatory in 
that they are equally applicable to all Members and are designed to 
provide a reduced fee for orders routed to NYSE through Exchange 
routing strategies as compared to applicable fees for executions if 
such routed orders were instead executed directly by the Member at 
NYSE.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. With 
respect to the proposed new tiered rebates, the Exchange does not 
believe that any such changes burden competition, but instead, enhance 
competition, as they are intended to increase the competitiveness of 
and draw additional volume to both BATS Equities and BATS Options. The 
Exchange also believes the proposed step-up tiers would enhance 
competition because they are similar to pricing tiers currently 
available on Arca and Nasdaq.\19\ 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. Finally, because 
the market for order execution is extremely competitive, Members may 
readily opt to disfavor the Exchange's routing services if they believe 
that alternatives offer them better value. For an order routed through 
the Exchange and executed at NYSE through the applicable routing 
strategies, the proposed fee change is designed to maintain a slight 
discount compared to the fee the Member would have paid if such routed 
order was instead executed directly by a Member at NYSE.\20\
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    \19\ See supra note 11.
    \20\ See BATS Rule 21.1(d)(8) (describing ``BATS Only'' orders 
for BATS Options) and BATS Rule 21.9(a)(1) (describing the BATS 
Options routing process, which requires orders to be designated as 
available for routing).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \21\ and paragraph (f) of Rule 19b-4 
thereunder.\22\ 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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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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-2014-039 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-BATS-2014-039. 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

[[Page 55867]]

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-2014-039 and should be submitted on or before 
October 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22116 Filed 9-16-14; 8:45 am]
BILLING CODE 8011-01-P