Document ID: SEC-2014-1001-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-06-18T04:00Z

[Federal Register Volume 79, Number 117 (Wednesday, June 18, 2014)]
[Notices]
[Pages 34822-34824]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14232]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72377; File No. SR-BATS-2014-024]

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.

June 12, 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 June 4, 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 Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fees applicable to 
securities listed on the Exchange pursuant to BATS Rule 14.13. Changes 
to the Exchange's fees pursuant to this proposal are effective upon 
filing.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On August 30, 2011, the Exchange received approval of rules 
applicable to the qualification, listing, and delisting of companies on 
the Exchange,\5\ which it modified on February 8, 2012 in order to 
adopt pricing for the listing of exchange traded products (``ETPs'') on 
the Exchange.\6\ The Exchange proposes to modify Rule 14.13, entitled 
``Company Listing Fees'' to reduce the entry fee for ETPs from $10,000 
to $5,000 and to introduce new annual fees for ETPs that are not 
participating in the competitive liquidity provider program under 
Interpretation and Policy .02 to Rule 11.8 (the ``CLP Program''). For 
ETPs that are participating in the CLP Program, the Exchange proposes 
that the annual fees continue to be $35,000.
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    \5\ See Securities Exchange Act Release No. 65225 (August 30, 
2011) 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018).
    \6\ See Securities Exchange Act Release No. 72020 (April 25, 
2014) 79 FR 24807 (May 1, 2014) (SR-BATS-2012-010).
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    Currently, Rule 14.13(a)(A)(1)(C) provides that the entry fee for 
an ETP is $10,000, a fee that is assessed on the date of listing on the 
Exchange, except for a $5,000 non-refundable application fee which must 
be submitted along with the initial listing application. The Exchange 
proposes to instead charge a reduced entry fee of $5,000, which will 
continue to be non-refundable and due upon submission of the initial 
listing application. Consistent with current Rule 14.13 the Exchange is 
not proposing to charge an entry fee for transfer listings.
    The Exchange is also proposing to introduce lower annual fees for 
ETPs. Currently, Rule 14.13 provides that the issuer of an ETP shall 
pay an annual fee of $35,000 for funds initially listed on the 
Exchange. Rule 14.13 provides that the issuer of an ETP that is a 
transfer listing shall pay an annual fee of $15,000. The Exchange is 
proposing to continue to charge $35,000 per year to the issuer of an 
ETP that is participating in the CLP Program. For all issuers of ETPs 
that are not participating in the CLP Program, including transfer 
listings, the Exchange proposes to charge the issuer on a quarterly 
basis based on the ETPs consolidated average daily volume (the 
``CADV''), as defined below, during the quarter preceding the billing 
date.

[[Page 34823]]

Specifically, the Exchange is proposing to charge issuers of ETPs on a 
quarterly basis as follows:

------------------------------------------------------------------------
                                                   Quarterly
                      CADV                            fee     Annual fee
------------------------------------------------------------------------
0-10,000........................................      $1,250      $5,000
10,001-40,000...................................       2,000       8,000
40,001-80,000...................................       3,000      12,000
80,001-150,000..................................       3,750      15,000
150,001-400,000.................................       4,500      18,000
Greater than 400,000............................        Free        Free
------------------------------------------------------------------------

    As proposed, CADV is calculated based on the three calendar months 
preceding the month for which the fees apply, meaning that when 
calculating the rebates that apply to a particular ETP, the CADV will 
be based on the three calendar months prior to the current trading 
month. For example, in calculating the annual fee that will be billable 
to the issuer of an ETP on the first day of the third quarter, the 
Exchange will look to the average daily volume reported for the ETP by 
all exchanges and trade reporting facilities to a consolidated 
transaction reporting plan for the second quarter, or April, May, and 
June. If that ETP was an initial listing on BATS (not a transfer 
listing from another listing market) and was listed beginning on May 
15, the calculation of CADV would include all days from April 1 through 
May 14 with zero volume for each trading day. For transfer listings, 
the determination of the annual fees applicable to the ETP in the third 
quarter will be based on the CADV for the second quarter, regardless of 
where the ETP was listed during that period.
    As noted above, the Exchange proposes to amend Rule 14.13 in order 
to make clear that the issuer of an ETP that participates in the CLP 
Program will continued to pay the Exchange an annual fee of $35,000.
    Finally, the Exchange is proposing to correct a typographical error 
in the rule text. Specifically, the Exchange is proposing to amend the 
second sub-paragraph ``(a)'' in Rule 14.13 to ``(b)'' in order to make 
the rule more easily understandable.
Implementation Date
    The Exchange proposes to implement these amendments to its fees on 
June 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.\7\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) and 6(b)(5) of the Act,\8\ in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among issuers and it does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange is proposing a tiered pricing structure for ETPs 
listed on the Exchange based on CADV that will significantly reduce 
listing fees for all new issuers, with the potential for free listing, 
which the Exchange believes are equitable and non-discriminatory 
because the tiers will be applied equally to all ETPs listed on the 
Exchange, including transfer listings. The Exchange also believes that 
continuing to charge $35,000 annually for ETPs that continue to 
participate in the CLP Program is equitable and non-discriminatory 
because the costs associated with operating the CLP Program are 
significantly higher than the anticipated costs associated with the new 
lead market maker program (the ``LMM Program''), into which newly 
listed ETPs will be automatically enrolled. Further, ETPs participating 
in the CLP Program may opt out of the CLP Program at any time in order 
to participate in the LMM Program and be charged the lower quarterly 
fees. Similarly, the Exchange believes that, while a transfer listing 
could possibly be charged a higher annual fee under the proposal 
($18,000 vs. $15,000), the proposed changes are equitable and non-
discriminatory because the pricing will be applied equally to all ETP 
listings, including transfer listings, and ETP transfer listings may 
also be eligible for reduced fees. Additionally, as described below, 
the annual fees are generally based on the cost to the Exchange 
associated with listing. The Exchange notes that it does not currently 
have any transfer listings and thus there are no BATS-listed ETPs that 
are eligible for continued annual fees of $15,000, as provided in 
current Rule 14.13, meaning that no existing ETP listings will be 
subject to a change in pricing and that any ETP that transfers to the 
Exchange in the future will have advanced notice of the proposed 
pricing.
    The Exchange believes that it is equitable, reasonable, and non-
discriminatory to charge increased listing fees to ETPs as their CADV 
increases. Under the LMM Program, the Exchange plans to offer enhanced 
rebates to any registered lead market maker for executions where such 
lead market maker has added displayed liquidity in a BATS-listed ETP 
for which they are designated as lead market maker, provided that they 
must meet specified quoting requirements in such BATS-listed ETP. The 
Exchange notes that as part of these enhanced rebates, it is planning 
to provide gradually decreasing rebates as the CADV increases in the 
BATS-listed ETP. While this may at first seem counterintuitive because 
the proposed listing fees for ETPs increase as the CADV increases, the 
total costs associated with operating the LMM Program for an ETP 
generally increase as the CADV increases because there are more shares 
executed that could potentially receive enhanced rebates. For example, 
where the Exchange pays a rebate of $0.0070 per share for a particular 
ETP with a CADV of 5,000, the Exchange could potentially pay $35 per 
day on average in enhanced rebates. Where the Exchange pays enhanced 
rebates of $0.0045 per share for an ETP with a CADV of 60,000, even 
though the Exchange is offering a smaller per share enhanced rebate, 
the total potential daily exposure ($270 per day) is significantly 
larger than the exposure in the ETP with the higher rebate, but smaller 
CADV. The Exchange notes, however, that there are some benefits 
associated with having BATS-listed ETPs with higher CADVs that, at a 
certain point, can more than offset the exposure from increased total 
rebate payments in such securities, as further described below. Because 
the Exchange faces greater exposure in enhanced rebates in ETPs with 
higher CADVs, the Exchange believes that it is reasonable to charge 
higher listing fees for ETPs with a higher CADV. Based on the 
foregoing, the Exchange believes that its proposed tiered pricing 
structure for the listing of ETPs is a fair and equitable allocation of 
fees to issuers.
    The Exchange also believes that it is equitable, reasonable, and 
non-discriminatory to provide listings free of charge to ETPs with CADV 
exceeding 400,000. As a general matter, ETPs that are better known and 
well-established are frequently more actively traded, liquid 
securities. The Exchange believes that the benefits to both the 
Exchange and other Exchange constituents of attracting and retaining 
such ETPs to list on the Exchange justifies the Exchange waiving the 
listing fees for these issuers. As it relates to other issuers, the 
ability of the Exchange to attract well-known, recognizable, and 
successful ETPs on the Exchange will help the Exchange to establish its 
status and reputation as a

[[Page 34824]]

primary listing market. The Exchange's reputation as a primary listing 
market will, in turn, positively impact all securities that are listed 
on the Exchange. Further, the Exchange believes that additional revenue 
generated from the Exchange's auction processes for actively traded 
ETPs will offset the cost of operating a program for these securities. 
Because ETPs with higher CADV are likely to generate additional revenue 
for the Exchange, the Exchange believes it is reasonable to waive fees 
for ETPs with CADV greater than 400,000. Based on the foregoing, the 
Exchange believes that providing annual listing free of charge for 
issuers of ETPs with CADV greater than 400,000 is a fair and equitable 
allocation of fees to issuers.
    The Exchange believes it is reasonable and equitable to assess 
annual fees on a pro-rated quarterly basis instead of an annual basis 
based on the listing date of an ETP. In particular, the Exchange 
believes that quarterly billing in prorated amounts will allow an 
issuer's bill to more accurately reflect an ETP's current CADV.
    The Exchange also believes that lowering the initial listing fee 
from $10,000 to $5,000 for ETPs is reasonable and equitable because it 
will result in lower initial costs to all ETP issuers.
    Finally, the Exchange believes that correcting the typographical 
error to the numbering of the subparagraphs of Rule 14.13 is reasonable 
and equitable because it will make the rule text more easily 
understandable.

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 pricing for the listing of ETPs, the 
Exchange does not believe that the changes burden competition, but 
instead, enhance competition, as it is intended to increase the 
competitiveness of the Exchange's listings program. The Exchange also 
believes the proposed change would enhance competition because it 
brings ETP listings prices closer to those currently offered by both 
Arca and Nasdaq. The proposed changes are generally intended to lower 
the Exchange's listing fees and make these fees more reflective of an 
ETP's trading activity, which the Exchange believes will further help 
it compete against the other listing markets. As such, the proposal is 
a competitive proposal that is intended to attract additional ETP 
listings, which will, in turn, benefit the Exchange and all other BATS-
listed ETPs.

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)(ii) of the Act \9\ and paragraph (f) of Rule 19b-4 
thereunder.\10\ 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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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 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-2014-024 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-2014-024. 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-2014-024, and should be 
submitted on or before July 9, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14232 Filed 6-17-14; 8:45 am]
BILLING CODE 8011-01-P