Document ID: SEC-2013-0129-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-01-22T05:00Z

[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Notices]
[Pages 4502-4505]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01114]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68659; File No. SR-BATS-2013-002]

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.

January 15, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 4503]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 7, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes 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 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 adopt pricing for orders routed by the 
Exchange to a new options market, the MIAX Options Exchange (``MIAX''), 
and to modify pricing for orders routed by the Exchange to NASDAQ OMX 
PHLX LLC (``PHLX'') and NASDAQ OMX BX, Inc. (``BX Options''), as 
further described below.
    The Exchange 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'').
    Based on applicable Routing Costs, the Exchange currently charges 
$0.11 per contract for Customer orders executed at NYSE MKT LLC 
(``AMEX''), BOX Options Exchange LLC (``BOX''), Chicago Board Options 
Exchange, Inc. (``CBOE''), BX Options, International Securities 
Exchange, LLC (``ISE'') (Classic issues), and PHLX (Classic issues). 
The Exchange currently charges $0.57 per contract for Professional, 
Firm, and Market Maker orders executed at AMEX, BOX, CBOE, BX Options, 
ISE (Classic issues), and PHLX (Classic issues).
    Based on fees at MIAX, the Exchange believes that MIAX would be 
appropriately grouped with the Exchanges listed above, as MIAX now has 
fees that are approximately the same as these markets. Accordingly, the 
Exchange proposes to charge $0.11 per contract for Customer orders 
executed at MIAX and $0.57 per contract for Professional, Firm, and 
Market Maker orders executed at MIAX.
    As noted above, the Exchange currently charges $0.11 per contract 
for Customer orders and $0.57 per contract for Professional, Firm, and 
Market Maker orders executed at BX Options. Based on changes to pricing 
at BX Options that differentiates between options classes subject to 
the penny pilot program (``Penny Pilot Securities'') and those that are 
not (``Non-Penny Pilot Securities''), the Exchange proposes to add 
additional pricing for executions of Non-Penny Pilot Securities 
resulting from orders routed to BX Options. The Exchange will maintain 
the current pricing structure for Penny Pilot Securities. The Exchange 
proposes to provide executions of Customer orders in Non-Penny Pilot 
Securities without imposing a fee and to charge $0.95 per contract for 
Professional, Firm and Market Maker orders.
    As noted above, the Exchange currently charges $0.11 per contract 
for Customer orders executed at PHLX in Classic issues and $0.52 per 
contract for Customer orders executed at PHLX in Make/Take issues.\6\ 
The differentiation between Classic and Make/Take issues was based on 
divergent pricing at PHLX for Customer orders between such types of 
options. Specifically, PHLX has previously charged increased rates to 
remove liquidity in specified symbols identified by the Exchange as 
Make/Take issues (identified as ``Select Symbols'' at PHLX). With 
changes to Select Symbol pricing that became effective on January 2, 
2013, PHLX no longer assesses a higher fee for executions of Customer 
orders in Select Symbols. Accordingly, the Exchange believes that the 
pricing applicable to Make/Take issues at PHLX is no longer necessary, 
and that all Customer executions resulting from orders routed to PHLX 
should be charged $0.11 per contract. Despite identical fees, the 
Exchange is maintaining separate references to Make/Take and Classic 
pricing for orders routed to and executed [sic] PHLX because it 
believes that participants that are accustomed to this distinction will 
be less confused if it continues to separately list each category.
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    \6\ As defined on the fee schedule, Make/Take pricing refers to 
executions at the identified exchange under which ``Post Liquidity'' 
or ``Maker'' rebates (``Make'') are credited by that exchange and 
``Take Liquidity'' or ``Taker'' fees (``Take'') are charged by that 
exchange. ``Classic'' issues includes all executions not subject to 
Make/Take pricing at the identified exchange.
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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.\7\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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    As explained above, the Exchange generally attempts to approximate 
the

[[Page 4504]]

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 adopt routing fees to MIAX and modify fees to PHLX and 
BX Options is fair, equitable and reasonable because the fees are 
generally an approximation of the cost to the Exchange for routing 
orders to such exchanges. 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, the Exchange may operate 
at a slight gain or a slight loss for orders routed to and executed at 
MIAX, PHLX and BX Options. 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 these away options exchanges is fair and equitable and not 
unreasonably discriminatory in that it applies equally to all Members.
    The Exchange notes that under its new pricing model, BX Options 
will provide rebates for Customer orders in Non-Penny Pilot Securities 
that the Exchange is not proposing to pass on to the entering Member; 
instead, the Exchange proposes to provide such executions free of 
charge. The Exchange specifically believes that its pricing structure 
for Customer orders in Non-Penny Pilot Securities routed to BX Options 
is reasonable because, although not an approximation of the cost of 
routing per se, Customer orders will still receive executions free of 
charge, whereas all other routed orders are charged a fee that includes 
applicable Routing Costs. The Exchange believes that pricing for 
Customer orders in Non-Penny Pilot Securities is fair and equitable and 
non-discriminatory because it will apply equally to all Members, and 
because Members can and will likely route directly to BX Options to the 
extent they are specifically seeking the rebate provided for such 
orders. 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 another options exchange.

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.\9\ 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.
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    \9\ 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

    No written comments were solicited or received.

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ and Rule 19b-
4(f)(2) thereunder,\11\ the Exchange has designated this proposal as 
establishing or changing a due, fee, or other charge applicable to the 
Exchange's Members and non-members, which renders the proposed rule 
change effective upon filing.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
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    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.

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-2013-002 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-2013-002. 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 the 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-2013-002 and should be 
submitted on or before February 12, 2013.

[[Page 4505]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01114 Filed 1-18-13; 8:45 am]
BILLING CODE 8011-01-P