Document ID: SEC-2014-2210-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-12-31T05:00Z

[Federal Register Volume 79, Number 250 (Wednesday, December 31, 2014)]
[Notices]
[Pages 78932-78935]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30592]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73930; File No. SR-BATS-2014-072]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees of BATS Exchange, Inc.

December 23, 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 December 17, 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

[[Page 78933]]

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.
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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 Interpretation and Policy 
.03 to Rule 11.8 entitled ``Competitive Liquidity Provider Program for 
Exchange Traded Products,'' in order to reduce the annual basic CLP Fee 
\3\ for CLP Securities \4\ and to allow for the allocation of the daily 
CLP Rebate \5\ to a third ETP CLP \6\ in certain CLP Securities.
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    \3\ CLP Fee is defined in Interpretation and Policy .03(a) to 
BATS Rule 11.8.
    \4\ CLP Security is defined in Interpretation and Policy 
.03(b)(3) to BATS Rule 11.8.
    \5\ CLP Rebate is defined in Interpretation and Policy .03(a) to 
BATS Rule 11.8.
    \6\ ETP CLP is defined in Interpretation and Policy .03(b)(1) to 
BATS Rule 11.8.
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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
    On August 30, 2011, the Exchange received approval of rules 
applicable to the qualification, listing and delisting of securities of 
issuers on the Exchange.\7\ More recently, the Exchange received 
approval to operate a pilot program that is designed to incentivize 
certain Market Makers \8\ registered with the Exchange as CLPs to 
enhance liquidity on the Exchange in certain ETPs \9\ listed on the 
Exchange and thereby qualify to receive part of a daily rebate (the 
``CLP Program'') under Interpretation and Policy .03 to Rule 11.8.\10\
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    \7\ See Securities Exchange Act Release No. 65225 (August 30, 
2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018).
    \8\ As defined in BATS Rules, the term ``Market Maker'' means a 
Member that acts a as a market maker pursuant to Chapter XI of BATS 
Rules.
    \9\ ETP is defined in Interpretation and Policy .03(b)(4) to 
Rule 11.8.
    \10\ See Securities Exchange Act Release No. 72692 (July 28, 
2014), 79 FR 44908 (August 1, 2014) (SR-BATS-2014-022).
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    Currently, under the CLP Program, a Sponsor \11\ may pay an annual 
basic fee of $10,000 (a ``Basic CLP Fee'') and a supplemental fee, 
which, combined with the Basic Fee shall not exceed $100,000 (a 
``Supplemental CLP Fee,'' or, when combined with the Basic CLP Fee, the 
``CLP Fees''), in order for the CLP Company,\12\ on behalf of a CLP 
Security, to participate in the CLP Program. Such CLP Fees are credited 
to the BATS General Fund. The Exchange then pays the CLP Rebate out of 
the BATS General Fund in order to incentivize CLPs in the CLP Security 
to quote aggressively in the CLP Security by providing a CLP Rebate to 
one or more CLPs that make a quality market in the CLP Security 
pursuant to the Program.\13\
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    \11\ Sponsor is defined in Interpretation and Policy .03(b)(5) 
to Rule 11.8.
    \12\ CLP Company is defined in Interpretation and Policy 
.03(b)(2) to Rule 11.8.
    \13\ The standards for a quality market include, for example, 
posting at least five round lots in a CLP Security at the NBB or NBO 
at the time of a SET in order to have a Winning Bid SET or Winning 
Offer SET, respectively, as well as requiring that a CLP is quoting 
at least a round lot at a price at or within 1.2% of the CLP's bid 
(offer) at the time of the SET in order to have a Winning Bid 
(Offer) Set. The two CLPs that have the most Winning Bid SETs and 
the two Eligible CLPs with the most Winning Offer SETs in a given 
CLP Security will split the CLP Credit on a pro-rata basis. See 
Interpretation and Policy .03(i) to Rule 11.8.
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    The Exchange currently allocates the daily CLP Rebates to Eligible 
ETP CLPs \14\ as follows: (i) The ETP CLPs with the highest and second 
highest number of Bid SET Credits \15\ will receive 60% and 40%, 
respectively, of half of the daily CLP Rebate for the CLP Security; and 
(ii) the ETP CLPs with the highest and second highest number of Offer 
SET Credits \16\ will receive 60% and 40%, respectively, of half of the 
daily CLP Rebate for the CLP Security. Where there is only one Eligible 
ETP CLP for the bid or offer portion of the CLP Rebate, 100% of that 
half of the rebate will be provided to such ETP CLP.
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    \14\ Eligible ETP CLP is defined in Interpretation and Policy 
.03(i)(1)(A) to Rule 11.8.
    \15\ Bid SET Credits is defined in Interpretation and Policy 
.03(i)(1) to Rule 11.8.
    \16\ Offer SET Credits is defined in Interpretation and Policy 
.03(i)(1) to Rule 11.8.
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    The Exchange is proposing to make two changes to the CLP Program in 
this filing. First, the Exchange is proposing to amend Interpretation 
and Policy .03(d)(2)(A) in order to reduce the Basic CLP Fee from 
$10,000 to $5,000. The Exchange is proposing to lower the Basic CLP Fee 
to $5,000 in order to allow ETP issuers to participate in the CLP 
Program for the same price that they are able to participate in the 
lead market maker program on NYSE Arca, Inc. (``Arca'').\17\
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    \17\ See Securities Exchange Act Release No. 61330 (January 12 
2010), 75 FR 2896 (January 19, 2010) (SR-NYSEArca-2009-106). Listing 
fees for ETPs eligible to participate in the lead market maker 
program start at $5,000 annually.
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    Second, the Exchange is proposing to amend Interpretation and 
Policy .03(m)(1) in order to adjust the allocation of the daily CLP 
Rebate where the CLP Fees are equal to or greater than $40,000. 
Specifically, the Exchange is proposing to allocate the daily CLP 
Rebates to Eligible ETP CLPs as follows: For CLP Securities in which 
the CLP Fees are equal to or greater than $40,000, the ETP CLPs with 
the highest, second highest, and third highest number of Bid (Offer) 
SET Credits will receive 50%, 30%, and 20%, respectively, of half of 
the daily CLP Rebate for the CLP Security; where there are only two 
Eligible ETP CLPs, the ETP CLPs with the highest and second highest 
number of Bid (Offer) SET Credits will receive 60% and 40%, 
respectively, of half of the daily CLP Rebate for the CLP Security. The 
Exchange is not proposing to change the current allocation for CLP 
Securities where the CLP Fees are less than $40,000. The Exchange is 
also not proposing to amend the existing allocation where a single ETP 
CLP will receive 100% of the bid or offer portion of the CLP Rebate 
where that ETP CLP is the only Eligible ETP CLP. The Exchange notes 
that no ETPs listed on the Exchange have CLP Fees equal to or greater 
than $40,000.
    The Exchange is also proposing to make a corresponding non-
substantive change to Interpretation and Policy .03(m)(1) to Rule 11.8 
in order to move the current ``**'' which refers readers to the 
definition of Size Event Tests to the first reference to Size Event 
Tests, which is included in the new language regarding the allocation 
of CLP Rebates in CLP Securities in which the CLP Fees are equal to or 
greater than $40,000.
2. Statutory Basis
    The Exchange believes that its proposal 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

[[Page 78934]]

requirements of section 6(b) of the Act.\18\ In particular, the 
proposal is consistent with section 6(b)(4) and 6(b)(5) of the Act,\19\ 
because it would provide for the equitable allocation of reasonable 
dues, fees, and other charges among Members and issuers and other 
persons using any facility or system which the Exchange operates or 
controls, and it is designed to promote just and equitable principles 
of trade, remove impediments to, and perfect the mechanism of, a free 
and open market and a national market system, and in general, to 
protect investors and the public interest.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The goal of the CLP Program is to incentivize Members to make high-
quality, liquid markets, which supports the primary goal of the Act to 
promote the development of a resilient and efficient national market 
system. Along with furthering these goals, reducing the Basic CLP Fee 
to $5,000 is reasonable, equitable, and not unfairly discriminatory 
because it will be applied equally to all issuers of ETPs and will 
lower the financial burden for such ETPs to participate in and reap the 
benefits of the CLP Program. As noted above, $5,000 is also the minimum 
listing fee for ETPs listed on Arca to participate in the Arca lead 
market maker program. By aligning the pricing for the CLP Program with 
that of Arca, the Exchange believes that it will provide a better 
trading environment for investors and ETPs, and generally encourage 
greater competition between listing venues by allowing the Exchange to 
provide a program designed to enhance liquidity and market quality for 
the same price as a comparable program on Arca.
    The Exchange also believes that allocating CLP Rebates among three 
ETP CLPs instead of two where the CLP Fees are equal to or greater than 
$40,000 will enhance quote competition, improve liquidity on the 
Exchange, support the quality of price discovery, promote market 
transparency, and increase competition for listings and trade 
executions, while reducing spreads and transaction costs in such 
securities. Maintaining and increasing liquidity in Exchange-listed 
securities will help raise investors' confidence in the fairness of the 
market and their transactions. Applying such allocation only to CLP 
Securities with CLP Fees greater than $40,000 is reasonable, equitable, 
and not unfairly discriminatory because the Exchange has determined, in 
consultation with issuers and Market Makers, that $40,000 is an 
appropriate level at which adding a third ETP CLP and reducing the 
percentage of the daily CLP Rebates allocated to the first and second 
ETP CLPs by 10% each would not be excessively dilutive while still 
providing a meaningful incentive for the third ETP CLP. As noted above, 
there are currently no ETPs with CLP Fees greater than $40,000, meaning 
that the proposed change would not represent a change to any ETPs 
currently listed on the Exchange.
    Finally, the Exchange believes that the corresponding non-
substantive change is reasonable as it will help to avoid confusion for 
those that review the Exchange's rules. The Exchange notes that this 
proposed change is not designed to amend any fees or rebates, nor alter 
the manner in which it assesses fees or calculates rebates. The 
Exchange believes that the proposed amendment is intended to make the 
Exchange's rules more clear and less confusing for potential 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. To 
the contrary, the Exchange believes that the proposal will increase 
competition in both the listings market and in competition for market 
makers. The proposed reduction of the Basic CLP Fee will promote 
competition in the listings market by lowering the cost of 
participation in the CLP Program. Further, $5,000 is the same annual 
base fee that Arca charges listed ETPs that are participating in the 
Arca lead market maker program. As such, lowering the Basic CLP Fee to 
$5,000 will better enable the Exchange to compete as a listing venue.
    The Exchange also believes that the proposed changes will enhance 
competition among participants by creating incentives for more market 
makers to compete to make better quality markets. By allowing an 
additional ETP CLP to receive a portion of the daily CLP Rebates where 
CLP Fees equal or exceed $40,000, the Exchange believes that 
competition for the CLP Rebates will be enhanced, Market Makers will be 
further incentivized to become an ETP CLP, and the quality of quotes on 
the Exchange will improve. This, in turn, will attract more liquidity 
to the Exchange and further improve the quality of trading in CLP 
Securities, which will also act to bolster the Exchange's listing 
business.
    Additionally, the Exchange believes that the proposed non-
substantive change would not affect intermarket nor intramarket 
competition because the changes do not alter any fees or rebates on the 
Exchange or the criteria associated therewith.

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 \20\ and paragraph (f) of Rule 19b-4 
thereunder.\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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-2014-072 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-2014-072. 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 78935]]

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 at 100 F Street NE., Washington, DC 20549-1090 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-2014-072, and should be submitted 
on or before January 21, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30592 Filed 12-30-14; 8:45 am]
BILLING CODE 8011-01-P