Document ID: SEC-2011-1733-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2011-11-10T05:00Z

[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70192-70195]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29113]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65694; File No. SR-BATS-2011-046]

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.

November 4, 2011.
    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 31, 2011, 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 proposes [sic] 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 November 1, 2011.
---------------------------------------------------------------------------

    \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

[[Page 70193]]

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 to: (i) Recognize a new category of participant, a 
``Professional'', in light of recent changes the Exchange made to its 
rules that become operative November 1, 2011; and (ii) modify the 
Quoting Incentive Program, which is a program intended to incentivize 
sustained, aggressive quoting on the BATS options platform (``BATS 
Options''). In addition to these changes, the Exchange proposes to 
correct a typographical error on the fee schedule. Specifically, the 
Exchange no longer offers a discounted fee to remove liquidity for Firm 
or Market Makers that meet certain average daily volume requirements 
but the fee schedule still contains language indicating that such a 
reduced fee is available. The Exchange proposes to delete this 
language.
Professional Pricing
    The Exchange recently modified the rules applicable to BATS Options 
to amend Rule 16.1 (Definitions) to adopt a definition of 
``Professional'' on the Exchange and require that all Professional 
orders be appropriately marked by members of BATS Options (``Options 
Members'').\6\ As defined in Rule 16.1, which, as modified becomes 
operative November 1, 2011, the term ``Professional'' means any person 
or entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average during 
a calendar month for its own beneficial account(s).
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 65500 (October 6, 2011), 
76 FR 63686 (October 13, 2011) (SR-BATS-2011-041).
---------------------------------------------------------------------------

    The Exchange currently charges and provides rebates based on the 
capacity in which a User is acting, either as a Firm, as a Market 
Maker, or on behalf of a Customer. With respect to rebates, the 
Exchange also currently differentiates the rebate paid to Firms and 
Market Makers depending on the capacity of the counter-party to the 
trade, either a Customer or another Firm or Market Maker. In order to 
properly align Professionals with other sophisticated market 
participants, the Exchange proposes to modify its fee schedule by 
listing a Professional with a Firm and Market Maker in every instance 
where a distinction is made for options fees and rebates based on the 
capacity of the User or the counter-party. For instance, the Exchange 
currently charges a fee of $0.42 per contract for all Firm and Market 
Maker orders that remove liquidity from BATS Options. The Exchange 
proposes to charge this same fee for all Professional orders that 
remove liquidity from BATS Options.
Modification to Quoting Incentive Program (QIP)
    BATS Options offers a Quoting Incentive Program (QIP), through 
which Members receive a rebate of $0.05 per contract, in addition to 
any other applicable liquidity rebate, for executions subject to the 
QIP. Currently to qualify for the QIP a BATS Options Market Maker must 
be at the NBB or NBO 70% of the time for series trading between $0.03 
and $5.00 for the front three (3) expiration months in that underlying 
during the current trading month. A Member not registered as a BATS 
Options Market Maker can also qualify for the QIP by quoting at the NBB 
or NBO 80% of the time in the same series. The Exchange proposes to 
modify the qualification levels to make qualifying for the QIP 
attainable by more Members and BATS Options Market Makers. 
Specifically, the Exchange proposes to reduce the level at which a BATS 
Options Market Maker must be at the NBB or NBO from 70% to 60% and for 
Members not registered as a BATS Options Market Maker from 80% to 70%.
    All other aspects of the QIP currently in place will remain the 
same. As is true under the current operation of the QIP, the Exchange 
will determine whether a Member qualifies for QIP rebates at the end of 
each month by looking back at each Member's (including BATS Options 
Market Makers) quoting statistics during that month. If at the end of 
the month a Market Maker meets the 60% criteria or a Member that is not 
registered as a Market Maker meets the 70% criteria, the Exchange will 
provide the additional rebate for all executions subject to the QIP 
executed by that Member during that month. The Exchange will provide 
Members with a report on a daily basis with quoting statistics so such 
Members can determine whether or not they are meeting the QIP criteria. 
The Exchange is not proposing to impose any ADV requirements in order 
to qualify for the QIP at this time.
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 if they deem fee levels at a 
particular venue to be excessive.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes it is equitable, reasonable and non-
discriminatory to assess fees and provide liquidity rebates for 
Professional orders that are the same as those fees and rebates for 
Firms and Market Makers. The Exchange believes that application of a 
simple pricing structure that groups all sophisticated participants 
together is advantageous to all Members of BATS Options. As stated 
above, the Exchange operates within a highly competitive market. The 
Exchange, however, does not assess ongoing fess [sic] for BATS Options 
market data or fees related to order cancellation. Professional 
accounts, while otherwise considered to be Customers by virtue of not 
being broker-dealers, generally engage in trading activity more similar 
to broker-dealer proprietary trading accounts (more than 390 orders per 
day on average). This level of trading activity draws on a greater 
amount of Exchange system resources than that of non-Professional 
Customers. Simply, the more orders submitted to the Exchange, the more 
messages sent to and received from the Exchange, and the more Exchange 
system resources utilized. This level of trading activity by 
Professional accounts results in greater ongoing operational costs to 
the Exchange. As such, the Exchange aims to recover its costs by 
assessing Professional accounts the same fees that it assesses to other 
sophisticated Exchange market participants. Generally, competing 
options exchanges assess Professionals fees at rates more comparable to 
fees charged to broker-dealers. Sending

[[Page 70194]]

orders to and trading on the Exchange are entirely voluntary. Under 
these circumstances, Exchange transaction fees must be competitive to 
attract order flow, execute orders, and grow its market. As such, the 
Exchange believes its trading fees proposed for Professional accounts 
are fair and reasonable. While Professional orders will be assessed 
comparably higher transaction fees than those assessed to other 
Customer orders, as proposed, because Professional orders will be 
treated in the same manner as Firm and Market Maker orders, 
Professional orders will have the ability to achieve a higher rebate of 
$0.32 per contract when executing against other Firm, Market Maker or 
Professional orders (as compared to a $0.30 per contract rebate that a 
Customer order would receive).\9\ The Exchange also notes that 
Professional orders will still qualify for additional rebates under 
existing programs such as the Exchange's Quoting Incentive and NBBO 
Setter Programs.
---------------------------------------------------------------------------

    \9\ The Exchange notes that when executing against a Customer 
order, a Professional order will receive a liquidity rebate of $0.22 
per contract. This is the same liquidity rebate provided to Firm and 
Market Maker orders that execute against Customer orders today.
---------------------------------------------------------------------------

    Moreover, the Exchange believes it is equitable and not unfairly 
discriminatory to charge Customers lower fees than fees charged to 
Professional accounts, which are more akin to broker-dealer accounts. 
The securities markets generally, and the Exchange in particular, have 
historically aimed to improve markets for investors and develop various 
features within the market structure for customer benefit. As such, the 
Exchange believes the proposed fees for Professional accounts, as 
compared to Customer transaction fees, is appropriate and not unfairly 
discriminatory.
    Finally, the Exchange believes that the proposed change to charge 
the same fee for routing Professional customer orders to various 
markets as is charged for Firm and Market Maker orders is reasonable, 
equitable, and not unfairly discriminatory in that the fee will allow 
the Exchange to recoup its costs attendant with offering optional 
routing services. The Exchange incurs various costs related to 
providing routing services. In order to better recover those related 
costs and to potentially generate additional revenue, the Exchange 
proposes a routing fee to provide this optional service to Professional 
accounts. The Exchange also notes that although routing is available to 
Exchange participants for customer orders, including Professionals, 
Exchange participants are not required to use the routing services. 
Rather, Exchange routing services are completely optional. Exchange 
participants can manage their own routing to different options 
exchanges or can utilize a myriad of other routing solutions that are 
available to market participants. Further, as noted above, the 
characteristics of Professional accounts tend to be more similar to 
broker-dealers than to non-Professional Customers. As such, the 
Exchange believes Professionals are more likely to be able to directly 
route their orders to the exchange venues where they wish to trade. By 
assessing a fee on Professional accounts for routing orders, the 
Exchange aims to recover its costs in providing this optional service 
to its Participants and their Professional customer accounts. The 
Exchange believes that providing Customers a preferred rate for routing 
is consistent with the long history in the options markets of such 
customers being given preferred fees.
    Additionally, the Exchange believes that the proposed modification 
to the Quoting Incentive Program, which is similar to a fee structure 
in place on at least one of the Exchange's competitors,\10\ will 
further incentivize the provision of competitively priced, sustained 
liquidity that will create tighter spreads, benefitting both Members 
and public investors. The Exchange also believes that continuing to 
maintain a slightly lower threshold for meeting the QIP for registered 
BATS Options Market Makers appropriately incentivizes Members of BATS 
Options to register with the Exchange as Options Market Makers. While 
the Exchange does wish to allow participation in the QIP by all 
Members, the Exchange believes that registration by additional Members 
as Market Makers will help to continue to increase the breadth and 
depth of quotations available on the Exchange. The Exchange notes that 
in addition to the fact that the QIP will be available to all Members, 
the proposal is not unfairly discriminatory despite a slightly higher 
quotation requirement for non-Market Makers due to the fact that 
registration as a BATS Options Market Maker is equally available to all 
Members.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 61869 (April 7, 
2010), 75 FR 19449 (April 14, 2010) (SR-ISE-2010-25) (notice of 
filing and immediate effectiveness of changes to fees and rebates 
including adoption of specific rebates for market makers qualifying 
for the Market Maker Plus program).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

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 \11\ and Rule 19b-
4(f)(2) thereunder,\12\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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-2011-046 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-2011-046. 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

[[Page 70195]]

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 a.m. and 3 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 No. SR-BATS-2011-046 and should be submitted on or before December 
1, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29113 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P