Document ID: SEC-2015-1544-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2015-09-18T04:00Z

[Federal Register Volume 80, Number 181 (Friday, September 18, 2015)]
[Notices]
[Pages 56508-56511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23399]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75915; File No. SR-BATS-2015-71]

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 14, 2015.
    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 September 2, 2015, 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 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).
---------------------------------------------------------------------------

    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
---------------------------------------------------------------------------

    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 effective immediately, in order to: (i) Modify pricing 
charged by the Exchange's options platform (``BATS Options'') including 
for orders routed away from the Exchange and executed at various away 
options exchanges; (ii) amend the thresholds related to meeting certain 
pricing tiers and to increase the rebate associated with such tiers; 
(iii) amend the fee for Customer \6\ orders that remove liquidity in 
Penny Pilot Securities; \7\ and (iv) make two non-substantive clean up 
changes.
---------------------------------------------------------------------------

    \6\ ``Customer'' applies to any transaction identified by a 
Member for clearing in the Customer range at the OCC, excluding any 
transaction for a Broker Dealer or a ``Professional'' as defined in 
Exchange Rule 16.1.
    \7\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01.
---------------------------------------------------------------------------

Routing Fees
    The Exchange currently charges the following rates for orders 
routed to certain other options exchanges: (i) Customer orders routed 
to C2 Options Exchange, Incorporated (``C2''), which yield the fee code 
2C, are charged $0.47 per contract; (ii) non-Customer orders routed to 
C2, which yield fee code 2F, are charged $0.95 per contract; (iii) 
Customer orders in Penny Pilot Securities routed to NYSE Arca, Inc. 
(``Arca''), which yield fee code AC, are charged $0.52 per contract; 
and (iv) Customer orders in Penny Pilot Securities routed to Nasdaq 
Options Market LLC (``NOM''), which yield fee code QC, are charged 
$0.52 per contract. In an effort to continue to offer routing services 
to its Members at prices that approximate the cost to the Exchange, 
BATS Options is proposing to amend those rates as follows: (i) The fee 
for Customer orders routed to C2 and any Customer orders in Penny Pilot 
Securities routed to Arca or NOM (fee codes 2C, AC, and QC, 
respectively) would be increased to $0.70 per contract; and (ii) the 
fee for non-Customer orders routed to C2 (fee code 2F) would be reduced 
to $0.72 per contract.

[[Page 56509]]

    As noted previously and as set forth above, the Exchange's current 
approach to routing fees is to set forth in a simple manner certain 
sub-categories of fees that approximate the cost of routing to other 
options exchanges 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''). The Exchange then monitors the 
fees charged as compared to the costs of its routing services and 
adjusts its routing fees and/or sub-categories to ensure that the 
Exchange's fees do indeed result in a rough approximation of overall 
Routing Costs, and are not significantly higher or lower in any area. 
In performing this analysis, the Exchange has concluded that certain 
orders that it was routing to other options exchanges were costing more 
than it was charging, and in one case, were significantly less than it 
was charging. As a result, and in order to avoid subsidizing routing to 
away options exchanges and to continue providing quality routing 
services, the Exchange proposes relatively modest increases and 
adjustments to the charges assessed for the orders described above.
Tier Thresholds and Associated Rebate
    The Exchange currently offers enhanced rebates under both the Firm, 
Broker Dealer, and Joint Back Office Penny Pilot Add Volume Tiers 
(which apply to fee code PF) and the Market Maker and Non-BATS Market 
Maker Penny Pilot Add Volume Tiers (which apply to fee code PM) to 
Members with trading activity on BATS Options that meets certain 
thresholds. More specifically, in Tier 3 of each of these sets of 
tiers, BATS Options offers enhanced rebates to orders that yield fee 
code PF and PM ($0.43 and $0.42, respectively) for Members that: (i) 
Have an ADAV \8\ in Firm,\9\ Broker Dealer,\10\ and Joint Back Office 
\11\ orders in Penny Pilot Securities (yielding Fee Code PF) equal to 
or greater than 0.35% of average TCV; and (ii) have an ADV \12\ equal 
to or greater than 1.00% of average TCV.\13\ The Exchange is proposing 
to amend the numerical thresholds associated with meeting these tiers 
by lowering the threshold for requirement (i) from 0.35% to 0.25% and 
increasing the threshold for requirement (ii) from 1.00% to 1.50%. 
Specifically, the Exchange is proposing that an order yielding fee code 
PF or PM will meet Tier 3 of the respective tiers where: (i) The Member 
has an ADAV in Firm, Broker Dealer, and Joint Back Office orders in 
Penny Pilot Securities (yielding Fee Code PF) equal to or greater than 
0.25% of average TCV; and (ii) the Member has an ADV equal to or 
greater than 1.50% of average TCV. The Exchange is also proposing to 
increase the rebates for meeting these tiers to $0.47 per contract for 
fee code PF and PM, from $0.43 and $0.42 per contract, respectively.
---------------------------------------------------------------------------

    \8\ ``ADAV'' means average daily added volume calculated as the 
number of contracts per day.
    \9\ ``Firm'' applies to any transaction identified by a Member 
for clearing in the Firm range at the Options Clearing Corporation 
(``OCC''), excluding any Joint Back office transaction.
    \10\ ``Broker Dealer'' applies to any order for the account of a 
broker dealer, including a foreign broker dealer, that clears in the 
Customer range at the OCC.
    \11\ ``Joint Back Office'' applies to any transaction identified 
by a Member for clearing in the Firm Range at the OCC that is 
identified with an origin code as Joint Back Office. A Joint Back 
Office participant is a Member that maintains a Joint Back Office 
arrangement with a clearing broker-dealer.
    \12\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \13\ ``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 and on any day with a scheduled early market close.
---------------------------------------------------------------------------

Customer Orders in Non-Penny Pilot Securities
    The Exchange currently charges $0.80 per contract for Customer 
orders that remove liquidity in non-Penny Pilot Securities. The 
Exchange is proposing to increase the fee to $0.84 per contract. The 
Exchange notes that the proposed fee is lower than the fees charged on 
NOM for removing liquidity in non-Penny Pilot Securities ($0.85 per 
contract) and is generally in line with the pricing at other options 
exchanges.
Clean Up Changes
    Finally, the Exchange is also proposing to make two non-substantive 
clean up changes to its fee schedule. Specifically, the Exchange is 
proposing to capitalize the ``O'' in ``Joint Back office'' as it 
appears in the definition for ``Firm'' and to add a bullet in front of 
the definition of ``Penny Pilot Securities'' in order to make the 
formatting consistent with that of the other definitions in the fee 
schedule.
Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule effectively immediately.
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.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ 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. Specifically, the 
Exchange believes that its proposal to modify fees is fair, equitable 
and reasonable because the fees are generally an approximation of the 
cost to the Exchange for routing orders to such exchanges and the 
Exchange has concluded that certain orders that it was routing to other 
options exchanges were costing more than it was charging, and in one 
case, were costing significantly less than it was charging. Further to 
this point, the Exchange notes that it is proposing to decrease fees 
for non-Customer orders routed to C2. Accordingly, the Exchange 
believes that the proposed increases are fair, equitable and reasonable 
because they will help the Exchange to avoid subsidizing routing to 
away options exchanges and to continue providing quality routing 
services. The Exchange believes that its 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 away options 
exchanges. Under its straightforward fee structure, taking all costs to 
the Exchange into account, the Exchange may operate at a slight gain or 
slight loss for orders routed to and executed at away options 
exchanges. 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 notes that routing through the 
Exchange is voluntary. The Exchange

[[Page 56510]]

also believes that the proposed fee structure for orders routed to and 
executed at these away options exchanges 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 or loss from routing to 
away options exchanges.
    The Exchange also believes that the proposed amendments to the fee 
schedule related to the thresholds required to meet Tier 3 of both the 
Firm, Broker Dealer, and Joint Back Office Penny Pilot Add Volume Tiers 
and the Market Maker and Non-BATS Market Maker Penny Pilot Add Volume 
Tiers and the increased rebate of $0.47 per contract for achieving such 
tiers is a reasonable, fair and equitable, and not unfairly 
discriminatory allocation of fees and rebates because it will encourage 
greater participation on BATS Options, which, as described above the 
Exchange believes will result in higher levels of liquidity provision 
and introduction of higher volumes of orders into the price and volume 
discovery processes, which will benefit all participants on BATS 
Options. Specifically, the Exchange believes that the reduction in the 
threshold for a Member's ADAV in Penny Pilot Securities that yield fee 
code PF from 0.35% of average TCV and the increased threshold for a 
Member's ADV of average TCV from 1.00% to 1.50% combined with the 
increased rebate for meeting the thresholds is a reasonable, fair and 
equitable, and not unfairly discriminatory allocation of fees and 
rebates because, in conjunction, they will provide Members with a 
reasonably achievable threshold for receiving a greater rebate than 
they do today while simultaneously encouraging and rewarding higher 
levels of participation on the Exchange. By lowering the requirement 
for Firm, Broker Dealer, and Joint Back Office orders in Penny Pilot 
securities, increasing the requirement for ADV as a percentage of TCV, 
and increasing the rebate for achieving such tiers, the proposed 
amendment will encourage greater general participation on the Exchange, 
which will result in higher levels of liquidity provision and 
introduction of higher volumes of orders into the price and volume 
discovery processes, which will benefit all participants on BATS 
Options.
    The Exchange believes the proposed increase of the standard fees 
for Customer orders that remove liquidity in non-Penny Pilot Securities 
(from $0.80 per contract to $0.84 per contract) is a reasonable, fair 
and equitable, and not unfairly discriminatory allocation of fees and 
rebates because the additional revenue generated through the increased 
fees will allow the Exchange to continue to offer competitive pricing 
and incentives for other types of orders, which will result in better 
market quality for all participants. Further, as noted above, the 
proposed standard fee is still lower than the standard fee offered by 
NOM for of $0.85 per contract.
    The Exchange also believes that the proposed non-substantive 
changes to the definition of Firm and adding of the bullet to 
definition of Penny Pilot Securities are reasonable, fair, and 
equitable because they are designed to make the fee schedule easier to 
read and understand. The Exchange notes that neither of the proposed 
changes are designed to amend any fee or rebate, nor alter the manner 
in which the Exchange assess fees and rebates. These non-substantive 
changes to the fee schedule are intended to make the fee schedule 
clearer and less confusing for investors and eliminate potential 
investor confusion, thereby removing impediments to and perfecting the 
mechanism of a free and open market and a national market system, and, 
in general, protecting investors and the public interest.

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. As it relates to the proposed 
changes to routing fees, the proposed changes will assist the Exchange 
in recouping costs for routing orders to other options exchanges on 
behalf of its participants in a manner that is a better approximation 
of actual costs than is currently in place and that reflects pricing 
changes by various options exchanges as well as increases to other 
Routing Costs incurred by the Exchange. The Exchange also notes that 
Members may choose to mark their orders as ineligible for routing to 
avoid incurring routing fees.\16\
---------------------------------------------------------------------------

    \16\ 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).
---------------------------------------------------------------------------

    With respect to the proposed changes to the thresholds in the Firm, 
Broker Dealer, and Joint Back Office Penny Pilot Add Volume Tiers and 
the Market Maker and Non-BATS Market Maker Penny Pilot Add Volume Tiers 
and the increased rebates associated therewith, the Exchange does not 
believe that any such changes burden competition, but instead, that 
they enhance competition as they are intended to increase the 
competitiveness of and draw additional volume to BATS Options.
    Finally, with respect to the change in fees for Customer orders 
that remove liquidity in non-Penny Pilot Securities, the Exchange does 
not believe that such change burdens competition, but instead, that it 
enhances competition as the proposed new pricing remains generally in 
line with that of other options exchanges and would still be lower than 
the per contract fee for an identical transaction that occurred on NOM.
    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 routing fee levels to be 
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 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 \17\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\18\ 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. If 
the

[[Page 56511]]

Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2015-71 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-2015-71. 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 will also 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-2015-71 and should be 
submitted on or before October 9, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-23399 Filed 9-17-15; 8:45 am]
BILLING CODE 8011-01-P