Document ID: SEC-2013-0389-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-02-25T05:00Z

[Federal Register Volume 78, Number 37 (Monday, February 25, 2013)]
[Notices]
[Pages 12803-12805]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04268]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68951; File No. SR-BATS-2013-012]

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.

February 19, 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 February 11, 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 modify pricing applicable to the 
Exchange's options platform (``BATS Options'') with respect to orders 
routed away by the Exchange and executed at BOX Options Exchange LLC 
(``BOX'') and C2 Options Exchange, Inc. (``C2''). The Exchange also 
proposes to modify BATS Options pricing for certain directed 
intermarket sweep orders (``Directed ISOs'') routed to BOX [sic], C2, 
NYSE Arca, Inc. (``ARCA'') and NASDAQ OMX BX, Inc. (``BX Options''), as 
further described below.
    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''). As explained below, the 
Exchange proposes to impose the same pricing for executions at C2 as is 
currently charged by the Exchange for orders routed to and executed at 
BX Options in non-Penny Pilot Securities and to eliminate fees for 
Customer orders executed at BOX.\6\
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    \6\ 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 
Pilot Security. Certain other options exchanges also have different 
pricing for Penny Pilot Securities and non-Penny Pilot Securities. 
Accordingly, in certain cases, the Exchange's routing fees also vary 
with respect to the fees for orders executed at such exchanges. 
However, in order to maintain a simple routing table, depending on 
the level of applicable fees and the affect of such fees upon 
Exchange Routing Costs, the Exchange has also chosen to charge all 
executions at certain venues a flat rate rather than differentiating 
between Penny Pilot Securities and non-Penny Pilot Securities. This 
is the case with respect to routing to BOX and C2, as proposed to be 
amended by this filing.
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    Based on applicable Routing Costs, the Exchange currently charges 
$0.11 per contract for Customer \7\ orders executed at BOX, NYSE MKT 
LLC (``AMEX''), Chicago Board Options Exchange, Inc. (``CBOE''), the 
MIAX Options Exchange (``MIAX''), BX Options in Penny Pilot Securities, 
International Securities Exchange, LLC (``ISE'') in Classic issues, and 
NASDAQ OMX PHLX LLC (``PHLX''). The Exchange currently charges $0.57 
per contract for Professional,\8\ Firm, and Market Maker \9\ orders 
executed at BOX, AMEX, CBOE, MIAX, BX Options in Penny Pilot 
Securities, ISE in Classic issues, and PHLX. BOX currently charges an 
initial base fee for transactions that remove liquidity and then 
certain credits are applied to such transactions that remove liquidity. 
This results in variable rebates for Customer orders routed by the 
Exchange to BOX. Based on this fee structure, the Exchange proposes to 
provide routing of Customer orders to BOX without imposing a fee, which 
is the same pricing currently applied by the Exchange to executions of 
Customer orders routed to BX Options in non-Penny Pilot Securities, 
which, like BOX,

[[Page 12804]]

also provides rebates for Customer orders. The Exchange is not 
proposing to change pricing for executions for Professional, Firm and 
Market Maker orders at BOX and will continue to charge $0.57 per 
contract for such orders.
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    \7\ 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''.
    \8\ 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).
    \9\ 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 applicable Routing Costs, the Exchange currently charges 
$0.52 per contract for Customer orders executed at C2, ARCA in Penny 
Pilot Securities, and the NASDAQ Options Market (``NOM'') in Penny 
Pilot Securities. The Exchange currently charges $0.57 per contract for 
Professional, Firm, and Market Maker orders executed at C2, ARCA in 
Penny Pilot Securities, and NOM in Penny Pilot Securities. Recent 
pricing changes by C2 will result in a maximum fee of $0.85 per 
contract for Professional, Firm and Market Maker orders executed at C2 
and rebates or free executions for Customer orders executed at C2. 
Based on such changes, the Exchange proposes to align the pricing for 
orders routed to and executed at C2 with the pricing currently charged 
by the Exchange for orders routed to and executed at BX Options in non-
Penny Pilot Securities. Accordingly, with respect to orders routed to 
C2, the Exchange proposes to provide executions of Customer orders 
without imposing a fee and to charge $0.95 per contract for 
Professional, Firm and Market Maker orders.
    In order to cover the cost of removing liquidity in non-Penny Pilot 
Securities at NOM, including Routing Costs, the Exchange currently 
charges a flat fee of $0.95 per contract for all executions of Directed 
ISOs routed to NOM in non-Penny Pilot Securities. This is the same fee 
as the Exchange charges for executions of Professional, Firm and Market 
Maker orders routed to NOM in non-Penny Pilot Securities generally. The 
fee of $0.95 per contract is slightly more than the Exchange's standard 
fee of $0.90 per contract for Customer orders executed at NOM in non-
Penny Pilot Securities.
    In order to achieve consistency with the Exchange's fees for 
Directed ISOs routed to NOM, the Exchange proposes to extend its 
Directed ISO pricing to all other types of routed executions for which 
the Exchange charges a routing fee of $0.90 or more. Specifically, in 
addition to continuing to charge $0.95 per contract for all executions 
of Directed ISOs routed to NOM in non-Penny Pilot Securities, the 
Exchange proposes to charge a flat fee of $0.95 per contract for 
Directed ISOs routed to and executed by: (1) ARCA in non-Penny Pilot 
Securities, (2) BX Options in non-Penny Pilot Securities to the extent 
such Directed ISOs are Professional, Firm or Market Maker orders, and 
(3) C2 to the extent such Directed ISOs are Professional, Firm or 
Market Maker orders.
    The Exchange will continue to impose a flat fee of $0.60 per 
contract for any other Directed ISO.
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.\10\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f.
    \11\ 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 BOX and C2 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 C2 and will 
operate at a gain for Customer orders routed to BOX. 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 their pricing models, BOX and C2 
provide certain rebates for executions 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 
routed to BOX and C2 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 
(other than Customer orders to BX Options) are charged a fee that 
includes applicable Routing Costs. The Exchange believes that the 
proposed pricing for Customer orders routed to BOX and C2 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. Finally, the Exchange believes that its proposed fee 
for routing of Professional, Firm and Market Maker orders to C2 is 
reasonable because it is an approximation of the maximum fees the 
Exchange will be charged for such executions, including Routing Costs.
    As explained above, the Exchange has also proposed to increase fees 
for Directed ISO's to ARCA in non-Penny Pilot Securities, to BX Options 
in non-Penny Pilot Securities (Professional, Firm or Market Maker 
orders only), and to C2 (Professional, Firm or Market Maker orders) to 
$0.95 per contract (from the current charge of $0.60 per contract for 
all Directed ISO's other than in non-Penny Pilot Securities routed to 
NOM). The Exchange believes that this increase is fair, equitable and 
reasonable because the fees are also an approximation of the cost to 
the Exchange for routing orders to such options 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 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

[[Page 12805]]

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.\12\ 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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    \12\ 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 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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act \13\ and Rule 19b-
4(f)(2) thereunder,\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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-2013-012 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-2013-012. 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-2013-012 and should be 
submitted on or before March 18, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04268 Filed 2-22-13; 8:45 am]
BILLING CODE 8011-01-P