Document ID: SEC-2013-1479-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-08-20T04:00Z

[Federal Register Volume 78, Number 161 (Tuesday, August 20, 2013)]
[Notices]
[Pages 51257-51259]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20200]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70196; File No. SR-BATS-2013-043]

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.

August 14, 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 August 2, 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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). While changes to the fee schedule pursuant to this 
proposal will be effective upon filing, the changes will become 
operative on August 5, 2013.
---------------------------------------------------------------------------

    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
---------------------------------------------------------------------------

    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 pricing applicable to the 
Exchange's options platform (``BATS Options'') with respect to orders 
routed away by the Exchange and executed at a new options exchange--an 
affiliate of the International Securities Exchange, LLC (``ISE'') that 
will be called ``ISE Gemini.'' \6\ ISE Gemini will commence trading on 
August 5, 2013.
---------------------------------------------------------------------------

    \6\ The Commission notes that the entity referred to herein as 
``ISE Gemini'' is Topaz Exchange, LLC d/b/a ISE Gemini.
---------------------------------------------------------------------------

    BATS Options currently charges certain flat rates for routing to 
other options exchanges that have been placed into groups based on the 
approximate cost of routing to such venues. The grouping of away 
options exchanges is based on the cost of transaction fees assessed by 
each venue as well as costs to the Exchange for routing (i.e., clearing 
fees, connectivity and other infrastructure costs, membership fees, 
etc.) (collectively, ``Routing Costs''). As explained below, the 
Exchange does not yet know what Routing Costs it will incur in 
connection with routing to ISE Gemini. Accordingly, the Exchange 
proposes to impose the same pricing for executions at ISE Gemini as are 
currently charged by the Exchange for orders routed to and executed at 
the NASDAQ Options Market (``NOM'') and NYSE Arca, Inc. (``ARCA'') in 
non-Penny Pilot Securities,\7\ which is the most expensive routing 
category based on Routing Costs.
---------------------------------------------------------------------------

    \7\ The Exchange currently charges different fees and provides 
different rebates depending on whether an options class is an 
options class that qualifies as a Penny Pilot Security pursuant to 
Exchange Rule 21.5, Interpretation and Policy .01 or is a non-penny 
options class. Certain other options exchanges also have different 
pricing for Penny Pilot Securities and non-Penny Pilot Securities. 
Accordingly, the Exchange's routing fees also vary with respect to 
the fees for orders executed at such exchanges.
---------------------------------------------------------------------------

    Based on applicable Routing Costs, the Exchange currently charges 
$0.90 per contract for Customer \8\ orders and $0.95 per contract for 
Professional,\9\ Firm, and Market Maker \10\ orders executed at NOM and 
ARCA in non-Penny Pilot Securities. Although ISE Gemini has announced 
its launch as effective August 5, 2013, ISE Gemini has not released 
information regarding the prices it will charge for executions. 
Accordingly, because the Exchange is unable to determine its Routing 
Costs and does not wish to subsidize executions of orders routed to ISE 
Gemini, the Exchange proposes to initially place ISE Gemini (all 
securities) in the same category as NOM and ARCA with respect to non-
Penny Pilot Securities. Thus, the Exchange proposes to charge $0.90 per 
contract for Customer orders and $0.95 per contract for Professional, 
Firm, and Market Maker orders executed at ISE Gemini.
---------------------------------------------------------------------------

    \8\ As 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''.
    \9\ The term ``Professional'' is defined in Exchange Rule 16.1 
to mean any person or entity that (A) is not a broker or dealer in 
securities, and (B) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s).
    \10\ As defined on the Exchange's fee schedule, the terms 
``Firm'' and ``Market Maker'' apply to any transaction identified by 
a member for clearing in the Firm or Market Maker range, 
respectively, at the Options Clearing Corporation (``OCC'').
---------------------------------------------------------------------------

    In order to cover the cost of removing liquidity, including Routing 
Costs, in non-Penny Pilot Securities at NOM and ARCA, and for 
Professional Firm and Market Maker Orders executed at BX Options and 
C2, the Exchange currently charges a flat fee of $0.95 per contract for 
all executions of Directed ISOs routed to such options exchanges in 
such securities. The Exchange proposes to charge this same rate, $0.95 
per contract, for all executions of Directed ISOs routed to ISE Gemini. 
This is the same fee as the Exchange proposes to charge for executions 
of Professional,

[[Page 51258]]

Firm and Market Maker orders routed to ISE Gemini generally. The fee of 
$0.95 per contract is slightly more than the Exchange's proposed fee of 
$0.90 per contract for Customer orders executed at ISE Gemini.
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.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\12\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    As explained above, the Exchange generally attempts to approximate 
the cost of routing to other options exchanges, including other 
applicable costs to the Exchange for routing. The Exchange believes 
that a pricing model based on approximate Routing Costs is a 
reasonable, fair and equitable approach to pricing. In this context, 
the Exchange believes that its proposal to adopt fees for routing to a 
new options exchange that has not disclosed its fees to market 
participants is fair, equitable and reasonable because it will allow 
the Exchange to commence routing to such exchange without incurring 
losses from such routing. The Exchange believes that its flat fee 
structure for orders routed to various venues is a fair and equitable 
approach to pricing, as it provides certainty with respect to execution 
fees at groups of away options exchanges. Under its flat fee structure, 
taking all costs to the Exchange into account once fees at ISE Gemini 
are publically available, the Exchange may operate at a gain or loss 
for orders routed to and executed at ISE Gemini. As a general matter, 
the Exchange believes that the proposed fees will allow it to recoup 
and cover its costs of providing routing services to such exchanges. 
The Exchange also believes that the proposed fee structure for orders 
routed to and executed at this away options exchange is fair and 
equitable and not unreasonably discriminatory in that it applies 
equally to all Members. Although the Routing Costs to the Exchange for 
routing orders routed to ISE Gemini will likely be less than $0.90 or 
$0.95 per contract, the Exchange believes it is a reasonable fee in 
that it will allow the Exchange to maintain a relatively simple routing 
fee structure while it assesses the actual Routing Costs that it incurs 
for routing to ISE Gemini.
    As explained above, the Exchange has also proposed to impose fees 
for Directed ISOs to ISE Gemini at the same rate as its standard 
removal fee for Professional, Firm and Market Maker orders executed at 
ISE Gemini. The Exchange believes that this proposed fee is fair, 
equitable and reasonable because the fee will allow the Exchange to 
recoup and cover the costs of providing routing services to ISE Gemini. 
The Exchange also believes that the proposed fee structure for Directed 
ISOs routed to and executed at ISE Gemini is fair and equitable and not 
unreasonably discriminatory in that it applies equally to all Members.
    The Exchange reiterates 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 to be excessive or providers 
of routing services if they deem fee levels to be excessive. Finally, 
the Exchange notes that it constantly evaluates its routing fees, 
including profit and loss attributable to routing, as applicable, in 
connection with the operation of a flat fee routing service, and would 
consider future adjustments to the proposed pricing structure to the 
extent it was recouping a significant profit from routing to ISE 
Gemini.

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 proposed changes will 
assist the Exchange in recouping costs for routing orders to other 
options exchanges on behalf of its participants. The Exchange also 
notes that Members may choose to mark their orders as ineligible for 
routing to avoid incurring routing fees.\13\ 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 they deem fee levels to be excessive or providers of routing 
services if they deem fee levels to be excessive.
---------------------------------------------------------------------------

    \13\ 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).
---------------------------------------------------------------------------

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 \14\ and paragraph (f) of Rule 19b-4 
thereunder.\15\ 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2013-043 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.

All submissions should refer to File Number SR-BATS-2013-043. 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

[[Page 51259]]

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-2013-043 and should be 
submitted on or before September 10, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20200 Filed 8-19-13; 8:45 am]
BILLING CODE 8011-01-P