Document ID: SEC-2013-1483-0001
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 51235-51237]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20201]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70197; File No. SR-BATS-2013-044]

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 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 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). Changes to the fee schedule pursuant to this proposal 
will be 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 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 commenced trading on 
August 5, 2013.
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    \6\ The Commission notes that the entity referred to herein as 
``ISE Gemini'' is Topaz Exchange, LLC d/b/a ISE Gemini.
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    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''). The Exchange did not have 
sufficient information to know what Routing Costs the Exchange would 
incur in connection with routing to ISE Gemini prior to its launch. 
Accordingly, the Exchange originally imposed the same pricing for all 
executions at ISE Gemini as are 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

[[Page 51236]]

most expensive routing category based on Routing Costs.
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    \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.
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    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, and thus, since August 5, 2013, has 
charged these rates for orders routed to and executed at ISE Gemini in 
all securities. Based on the pricing released by ISE Gemini immediately 
prior to its launch, the Exchange believes that this pricing continues 
to be appropriate for non-Penny Pilot Securities executed on ISE 
Gemini. Accordingly, the Exchange proposes to continue to charge the 
same for executions at ISE Gemini as it does at NOM and ARCA with 
respect to non-Penny Pilot Securities. Thus, the Exchange proposes to 
continue to charge $0.90 per contract for Customer orders and $0.95 per 
contract for Professional, Firm, and Market Maker orders in non-Penny 
Pilot Securities executed at ISE Gemini. The Exchange also proposes to 
continue to charge $0.95 per contract for all executions of Directed 
ISOs routed to ISE Gemini in non-Penny Pilot Securities. However, as 
described below, the Exchange proposes to modify pricing for all 
executions, including executions of Directed ISOs, of orders routed by 
the Exchange to ISE Gemini in Penny Pilot Securities.
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    \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'').
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    Based on the pricing released by ISE Gemini, the Exchange believes 
it most appropriate to charge the same pricing for orders in Penny 
Pilot Securities routed to and executed at ISE Gemini as it does for 
NOM and Arca in Penny Pilot Securities. The Exchange currently charges 
$0.52 per contract for Customer orders and $0.57 per contract for 
Professional, Firm, and Market Maker orders executed at NOM and ARCA in 
Penny Pilot Securities. In order to cover the cost of removing 
liquidity, including Routing Costs, in Penny Pilot Securities at ISE 
Gemini, the Exchange proposes to charge the same rates, specifically 
$0.52 per contract for Customer orders and $0.57 per contract for 
Professional, Firm, and Market Maker orders executed at ISE Gemini.
    Also based on the pricing released by ISE Gemini, the Exchange 
believes it most appropriate charge $0.60 per contract for Directed 
ISOs in Penny Pilot Securities routed to and executed at ISE Gemini, 
which is the same pricing that the Exchange charges for certain other 
Directed ISOs executed at away destinations, as further described 
below.
    The Exchange currently charges $0.60 per contract for Directed ISOs 
routed and executed at away destinations, with the exception of: (i) 
Directed ISOs in Mini Options, for which the Exchange charges $0.15 per 
contract; and (ii) in the following situations, for which the Exchange 
charges $0.95 per contract: (1) orders in non-Penny Pilot Securities 
executed at NOM and ARCA; (2) Professional, Firm and Market Maker 
orders executed at BX Options in non-Penny Pilot Securities; (3) 
Professional, Firm and Market Maker orders executed at C2; and (4) all 
orders executed at ISE Gemini. In order to approximate the Routing 
Costs for such orders, the Exchange proposes to charge the standard fee 
of $0.60 for Directed ISOs in Penny Pilot Securities routed to and 
executed at ISE Gemini instead of the $0.95 that it currently charges. 
As described above, the Exchange will continue to charge $0.95 per 
contract for Directed ISOs in non-Penny Pilot Securities routed to and 
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.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    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 to ISE Gemini is 
fair, equitable and reasonable because the fees are generally an 
approximation of the cost to the Exchange for routing orders to such 
exchange. 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 slight 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 ISE 
Gemini. 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.
    As explained above, the Exchange has also proposed to decrease fees 
for Directed ISOs in Penny Pilot Securities to ISE Gemini. The Exchange 
believes that the proposed fee structure for Directed ISOs routed to 
and executed at ISE Gemini is fair, equitable and reasonable because 
the fees are an approximation of the cost to the Exchange for routing 
such orders and 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.

[[Page 51237]]

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 another 
options exchange on behalf of its participants in a manner that is a 
better approximation of actual costs than is currently in place. 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.
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    \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).
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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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-2013-044 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-2013-044. 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 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-2013-044 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\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20201 Filed 8-19-13; 8:45 am]
BILLING CODE 8011-01-P