Document ID: SEC-2012-1885-0001
Agency: sec
Document Type: Notice
Title: 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.
Posted Date: 2012-11-16T05:00Z

[Federal Register Volume 77, Number 222 (Friday, November 16, 2012)]
[Notices]
[Pages 68862-68869]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27871]

[[Page 68862]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68204; File No. SR-BATS-2012-043]

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 9, 2012.
    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 November 1, 2012, 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 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 
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 the ``Options Pricing'' section of 
its fee schedule effective immediately, in order to: (i) Increase the 
TCV improvement requirements for the Grow with Us pricing plan; (ii) 
modify the rebates provided by the Exchange for Customer \6\ orders 
that add liquidity to the Exchange's options platform (``BATS 
Options'') in options classes subject to the penny pilot program as 
described below (``Penny Pilot Securities''); \7\ (iii) modify the fees 
charged by the Exchange for Customer orders that remove liquidity from 
BATS Options in Penny Pilot Securities; (iv) modify the rebates paid by 
the Exchange for Professional,\8\ Firm, and Market Maker \9\ orders 
that add liquidity to BATS Options in Penny Pilot Securities; (v) 
modify the fees charged by the Exchange for Professional, Firm, and 
Market Maker orders that remove liquidity from BATS Options in Penny 
Pilot Securities; (vi) modify the rebates paid by the Exchange under 
the BATS Options NBBO Setter Program; \10\ (vii) modify the fees 
charged by the Exchange for Professional, Firm, and Market Maker orders 
that remove liquidity from BATS Options in non-Penny Pilot Securities; 
(viii) modify the rebates paid by the Exchange for orders that add 
liquidity to BATS Options in non-Penny Pilot Securities; (ix) eliminate 
the Enhanced NBBO Setter Rebate; and (x) modify pricing with respect to 
orders that are executed on away options exchanges. In addition to 
these changes, the Exchange proposes to re-number certain footnotes 
contained within the fee schedule.
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    \6\ 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''.
    \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.
    \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'').
    \10\ The NBBO Setter Program is a program that provides 
additional rebates for executions resulting from orders that add 
liquidity that set either the national best bid (``NBB'') or 
national best offer (``NBO'').
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(i) Grow With Us Pricing Program
    The Exchange currently offers its Grow with Us pricing program to 
certain orders that add or remove liquidity, as further explained 
below, by providing a Member with enhanced rebates (and lower execution 
fees) to the extent such Member shows a minimum of 5 basis points of 
total consolidated volume (``TCV'') \11\ improvement over the Member's 
previous highest monthly TCV on BATS Options, or ``High Water Mark.'' 
The Exchange has defined High Water Mark as the greater of a Member's 
fourth quarter 2011 TCV or a Member's best monthly TCV on BATS Options 
thereafter.
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    \11\ As defined on the Exchange's fee schedule, TCV is total 
consolidated volume calculated as the volume reported by all 
exchanges to the consolidated transaction reporting plan for the 
month for which the fees apply.
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    The Exchange has found that normal variance in trading behavior can 
cause an improvement of greater than 5 basis points from its Members. 
As such, the Exchange proposes to increase the requirement for the 
minimum improvement from 5 basis points of TCV to a more significant 
improvement of 10 basis points of TCV.
    (ii) Customer Rebates for Adding Liquidity in Penny Pilot 
Securities
    The Exchange currently provides rebates for Customer orders that 
add liquidity to the BATS Options order book in Penny Pilot Securities 
pursuant to a tiered pricing structure, as described below. In order to 
make a broader based and more inclusive rebate structure, the Exchange 
proposes to modify this tiered pricing structure and the rebates 
associated therewith as well as modify the rebates associated with the 
Grow with Us pricing program.
    The Exchange currently provides a rebate of $0.30 per contract for 
Customer orders that add liquidity to the BATS Options order book to 
the extent a Member of BATS Options does not qualify for a higher 
rebate based on their average daily volume (``ADV'').\12\ The Exchange 
also currently provides Members with an ADV equal to or

[[Page 68863]]

greater than 0.30% of TCV with a rebate of $0.42 per contract for 
Customer orders that add liquidity to the BATS Options order book in 
Penny Pilot Securities and a rebate of $0.44 per contract for Customer 
orders that add liquidity to the BATS Options order book in Penny Pilot 
Securities for Members with an ADV equal to or greater than 1% of 
average TCV. Finally, the Exchange currently offers its Grow with Us 
pricing program to Customer orders that add liquidity by providing a 
Member with enhanced rebates to the extent such Member shows a minimum 
of 5 basis points TCV improvement over the Member's previous High Water 
Mark. Under the current pricing structure, a Member that does not 
qualify for the lower tier applicable to Members with an ADV equal to 
or greater than 0.30% of average TCV but achieves at least a 5 basis 
point increase over its previous High Water Mark is provided a rebate 
of $0.38 per contract for Customer orders that add liquidity to the 
BATS Options order book in Penny Pilot Securities. A Member that 
qualifies for the lower tier applicable to Members with an ADV equal to 
or greater than 0.30% of average TCV but not the 1% of average TCV tier 
that achieves at least a 5 basis point increase over its previous High 
Water Mark is provided a rebate of $0.45 per contract for Customer 
orders that add liquidity to the BATS Options order book in Penny Pilot 
Securities. A Member that qualifies for the highest tier applicable to 
Members with an ADV equal to or greater than 1% of average TCV that 
achieves at least a 5 basis point increase over its previous High Water 
Mark is provided a rebate of $0.46 per contract for Customer orders 
that add liquidity to the BATS Options order book in Penny Pilot 
Securities.
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    \12\ As defined on the Exchange's fee schedule, ADV is average 
daily volume calculated as the number of contracts added or removed, 
combined, per day on a monthly basis. The fee schedule also provides 
that routed contracts are not included in ADV calculation.
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    The Exchange proposes to adjust the existing volume tiers, to add 
an additional volume tier, and to modify the rebates paid for Customer 
orders that add liquidity to the BATS Options order book in Penny Pilot 
Securities.
    The Exchange proposes to decrease the lower volume tier level from 
an ADV equal to or greater than 0.30% of average TCV to an ADV equal to 
or greater than 0.25% of average TCV. The Exchange also proposes to 
lower the upper volume tier level from an ADV equal to or greater than 
1% of average TCV to an ADV equal to or greater than 0.75% of average 
TCV. Lastly, the Exchange proposes to add an additional volume tier 
level at an ADV equal to or greater than 1.25% of average TCV. This 
proposal would result in three distinct discounted volume tiers for 
Customer orders that add liquidity to BATS Options in Penny Pilot 
Securities, as follows: greater than or equal to 0.25%, but less than 
0.75%; greater than or equal to 0.75%, but less than 1.25%; and equal 
to or greater than 1.25%.
    The Exchange proposes to increase its rebate for any Member that 
qualifies for the lower tier applicable to Members with an ADV equal to 
or greater than 0.25% of average TCV but not the 0.75% of average TCV 
tier from a rebate of $0.42 per contract to a rebate of $0.43 per 
contract for Customer orders that add liquidity to BATS Options in 
Penny Pilot Securities. The Exchange proposes to increase its rebate 
for any Member that qualifies for the middle tier applicable to Members 
with an ADV equal to or greater than 0.75% of average TCV but not the 
1.25% of average TCV tier from a rebate of $0.44 per contract to a 
rebate of $0.46 per contract for Customer orders that add liquidity to 
BATS Options in Penny Pilot Securities. The Exchange proposes to add a 
rebate for Members that qualify for the proposed upper tier applicable 
to Members with an ADV equal to or greater than 1.25% of average TCV of 
$0.47 per contract for Customer orders that add liquidity to BATS 
Options in Penny Pilot Securities.
    As part of the Grow with Us pricing program, the Exchange also 
proposes to reduce its rebate for any Member that does not qualify for 
the lower tier applicable to Members with an ADV equal to or greater 
than 0.25% of average TCV but achieves a 10 basis point increase over 
its previous High Water Mark from a rebate of $0.38 per contract to a 
rebate of $0.31 per contract for Customer orders that add liquidity to 
BATS Options in Penny Pilot Securities. The Exchange proposes to reduce 
the rebate for any Member that qualifies for the lower tier applicable 
to Members with an ADV equal to or greater than 0.25% of average TCV 
but not the 0.75% of average TCV tier that achieves at least a 10 basis 
point increase over its previous High Water Mark from a rebate of $0.45 
per contract to a rebate of $0.44 per contract for Customer orders that 
add liquidity to BATS Options in Penny Pilot Securities. The Exchange 
proposes to increase its rebate for any Member that qualifies for the 
middle tier applicable to Members with an ADV equal to or greater than 
0.75% of average TCV but not the 1.25% of average TCV tier that 
achieves at least a 10 basis point increase over its previous High 
Water Mark from a rebate of $0.46 per contract to a rebate of $0.47 per 
contract for Customer orders that add liquidity to BATS Options in 
Penny Pilot Securities.
    (iii) Customer Fees for Removing Liquidity in Penny Pilot 
Securities
    The Exchange currently charges fees for Customer orders that remove 
liquidity from the BATS Options order book in Penny Pilot Securities 
pursuant to a tiered pricing structure, as described below. The 
Exchange proposes to modify this tiered pricing structure and the fees 
associated therewith as well as modify the fees associated with the 
Grow with Us pricing program.
    The Exchange currently charges Members with an ADV less than 0.30% 
of TCV with a fee of $0.44 per contract for Customer orders that remove 
liquidity from the BATS Options order book in Penny Pilot Securities. 
The Exchange currently charges Members with an ADV greater than 0.30% 
of TCV but less than 1.0% of TCV with a fee of $0.40 per contract for 
Customer orders that remove liquidity from the BATS Options order book 
in Penny Pilot Securities. The Exchange currently charges Members with 
an ADV greater than than 1.0% of TCV with a fee of $0.36 per contract 
for Customer orders that remove liquidity from the BATS Options order 
book in Penny Pilot Securities. Finally, the Exchange currently offers 
its Grow with Us pricing program to Customer orders that remove 
liquidity by reducing the fees charged to a Member to the extent such 
Member shows a minimum of 5 basis points TCV improvement over the 
Member's previous High Water Mark. Under the current pricing structure, 
any Member that does not qualify for the lower tier applicable to 
Members with an ADV equal to or greater than 0.30% of average TCV but 
achieves at least a 5 basis point increase over its previous High Water 
Mark is charged a fee of $0.42 per contract for Customer orders that 
remove liquidity from the BATS Options order book in Penny Pilot 
Securities. A Member that qualifies for the lower tier applicable to 
Members with an ADV equal to or greater than 0.30% of average TCV but 
not the 1% of average TCV tier that achieves at least a 5 basis point 
increase over its previous High Water Mark is charged a fee of $0.38 
per contract for Customer orders that remove liquidity from the BATS 
Options order book in Penny Pilot Securities. A Member that qualifies 
for the highest tier applicable to Members with an ADV equal to or 
greater than 1% of average TCV that achieves at least a 5 basis point 
increase over its previous High Water Mark is charged a fee of $0.36 
per contract for Customer orders that remove liquidity from the BATS 
Options order book in Penny Pilot Securities.
    The Exchange proposes to adjust the existing volume tiers, to add 
an

[[Page 68864]]

additional volume tier, and to modify the fees charged for Customer 
orders that remove liquidity from the BATS Options order book in Penny 
Pilot Securities.
    The Exchange proposes to decrease the lower volume tier level from 
an ADV equal to or greater than 0.30% of average TCV to an ADV equal to 
or greater than 0.25% of average TCV. The Exchange also proposes to 
lower the upper volume tier level from an ADV equal to or greater than 
1% of average TCV to an ADV equal to or greater than 0.75% of average 
TCV. Lastly, the Exchange proposes to add an additional volume tier 
level at an ADV equal to or greater than 1.25% of average TCV. This 
proposal would result in three distinct discounted volume tiers for 
Customer orders that remove liquidity from BATS Options in Penny Pilot 
Securities, as follows: greater than or equal to 0.25%, but less than 
0.75%; greater than or equal to 0.75%, but less than 1.25%; and equal 
to or greater than 1.25%.
    The Exchange proposes to increase its fee for any Member that does 
not qualify for the lower tier applicable to Members with an ADV equal 
to or greater than 0.25% of average TCV from a fee of $0.44 per 
contract to $0.45 per contract for Customer orders that remove 
liquidity from BATS Options in Penny Pilot Securities. The Exchange 
proposes to increase its fee for any Member that qualifies for the 
lower tier applicable to Members with an ADV equal to or greater than 
0.25% of average TCV but not the 0.75% of average TCV tier from a fee 
of $0.40 per contract to $0.44 per contract for Customer orders that 
remove liquidity from BATS Options in Penny Pilot Securities. The 
Exchange proposes to add a fee for any Member that qualifies for the 
middle tier applicable to Members with an ADV equal to or greater than 
0.75% of average TCV but not the 1.25% of average TCV tier from a fee 
of $0.43 per contract for Customer orders that remove liquidity from 
BATS Options in Penny Pilot Securities. The Exchange proposes to 
increase the fee for any Member that qualifies for the proposed upper 
tier applicable to Members with an ADV equal to or greater than 1.25% 
of average TCV from $0.36 per contract to $0.42 for Customer orders 
that remove liquidity from BATS Options in Penny Pilot Securities.
    As part of the Grow with Us pricing program, the Exchange also 
proposes to increase its fee for any Member that does not qualify for 
the lower tier applicable to Members with an ADV equal to or greater 
than 0.25% of average TCV but achieves a 10 basis point increase over 
its previous High Water Mark from a fee of $0.42 per contract to a fee 
of $0.44 per contract for Customer orders that remove liquidity from 
BATS Options in Penny Pilot Securities. The Exchange proposes to 
increase the fee for any Member that qualifies for the lower tier 
applicable to Members with an ADV equal to or greater than 0.25% of 
average TCV but not the 0.75% of average TCV tier that achieves at 
least a 10 basis point increase over its previous High Water Mark from 
a fee of $0.38 per contract to a rebate [sic] of $0.43 per contract for 
Customer orders that remove liquidity from BATS Options in Penny Pilot 
Securities. The Exchange proposes to add a fee for any Member that 
qualifies for the middle tier applicable to Members with an ADV equal 
to or greater than 0.75% of average TCV but not the 1.25% of average 
TCV tier that achieves at least a 10 basis point increase over its 
previous High Water Mark of $0.42 per contract for Customer orders that 
remove liquidity from BATS Options in Penny Pilot Securities.
(iv) Non-Customer Rebates for Adding Liquidity in Penny Pilot 
Securities
    The Exchange currently provides a rebate of $0.22 per contract for 
Professional, Firm, and Market Maker orders that add liquidity to the 
BATS Options order book in Penny Pilot Securities and are removed by a 
Customer order. The Exchange currently provides a rebate of $0.32 per 
contract for Professional, Firm, and Market Maker orders that add 
liquidity to the BATS Options order book in Penny Pilot Securities and 
are removed by a Professional, Firm, or Market Maker order.
    In order to further incentivize liquidity on BATS Options, the 
Exchange proposes to increase its rebate for Professional, Firm, and 
Market Maker orders that add liquidity to the BATS Options order book 
in Penny Pilot Securities and are removed by a Customer order from 
$0.22 per contract to $0.25 per contract. The Exchange also proposes to 
increase its rebate for Professional, Firm, and Market Maker orders 
that add liquidity to the BATS Options order book in Penny Pilot 
Securities and are removed by a Professional, Firm, or Market Maker 
order from $0.32 per contract to $0.35 per contract.
(v) Non-Customer Fees for Removing Liquidity in Penny Pilot Securities
    The Exchange currently charges a fee of $0.45 per contract for 
Professional, Firm, and Market Maker orders that remove liquidity from 
BATS Options in Penny Pilot Securities, where the Member does not 
qualify for a lower charge based on TCV improvement. The Exchange 
currently charges a fee of $0.44 per contract for Professional, Firm, 
and Market Maker orders that remove liquidity from BATS Options in 
Penny Pilot Securities where the Member shows a minimum of 5 basis 
points of TCV improvement over their previous High Water Mark.
    The Exchange proposes to increase its fees for Professional, Firm, 
and Market Maker orders that remove liquidity from BATS Options in 
Penny Pilot Securities where the Member does not qualify for a lower 
charge based on TCV improvement from $0.45 per contract to $0.47 per 
contract. The Exchange also proposes to increase its fees for 
Professional, Firm, and Market Maker orders that remove liquidity from 
BATS Options in Penny Pilot Securities where the Member shows a minimum 
of 10 basis points of TCV improvement, as proposed above, over their 
previous High Water Mark from $0.44 per contract to $0.46 per contract.
(vi) NBBO Setter Liquidity Rebates for Orders
    The Exchange's NBBO Setter Program is a program intended to 
incentivize aggressive quoting on BATS Options by providing an 
additional rebate upon execution for all orders that add liquidity that 
set either the NBB or NBO (the ``NBBO Setter Rebate''),\13\ subject to 
certain volume requirements. The Exchange currently provides an 
additional $0.06 per contract rebate for executions of Professional, 
Firm and Market Maker orders that qualify for the NBBO Setter Rebate by 
Members with an ADV equal to or greater than 0.30% of average TCV but 
less than 1% of average TCV and an additional $0.10 per contract for 
qualifying executions of Professional, Firm and Market Maker orders by 
Members with an ADV equal to or greater than 1% of TCV.
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    \13\ An order that is entered at the most aggressive price both 
on the BATS Options book and according to then current OPRA data 
will be determined to have set the NBB or NBO for purposes of the 
NBBO Setter Rebate without regard to whether a more aggressive order 
is entered prior to the original order being executed.
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    The Exchange also applies its Grow with Us pricing program to the 
NBBO Setter Rebate. Accordingly, any Member that does not qualify for 
NBBO Setter Rebates applicable to Members with an ADV equal to or 
greater than 0.30% of average TCV but achieves at least a 5 basis point 
increase over its previous High Water Mark receives NBBO Setter Rebates 
of $0.03 per contract for qualifying executions. Similarly, any Member 
that qualifies for the lower tier

[[Page 68865]]

applicable to Members with an ADV equal to or greater than 0.30% of 
average TCV but not the 1% of average TCV tier that achieves at least a 
5 basis point increase over its previous High Water Mark is provided a 
NBBO Setter Rebate of $0.08 per contract for qualifying executions.
    The Exchange proposes to adjust the existing volume tiers, to add 
an additional volume tier, and to modify the rebates paid as part of 
the NBBO Setter Rebate program.
    The Exchange proposes to decrease the lower volume tier level from 
an ADV equal to or greater than 0.30% of average TCV to an ADV equal to 
or greater than 0.25% of average TCV. The Exchange also proposes to 
lower the upper volume tier level from an ADV equal to or greater than 
1% of average TCV to an ADV equal to or greater than 0.75% of average 
TCV. Lastly, the Exchange proposes to add an additional volume tier 
level at an ADV equal to or greater than 1.25% of average TCV. This 
proposal would result in three distinct discounted volume tiers for the 
NBBO Setter Rebate, as follows: greater than or equal to 0.25%, but 
less than 0.75%; greater than or equal to 0.75%, but less than 1.25%; 
and equal to or greater than 1.25%.
    The Exchange proposes to decrease its NBBO Setter Rebate for 
executions of Professional, Firm, and Market Maker orders that qualify 
for the NBBO Setter Rebate by any Member that qualifies for the lower 
tier applicable to Members with an ADV equal to or greater than 0.25% 
of average TCV but not the 0.75% of average TCV from $0.06 per contract 
to $0.03 per contract. The Exchange also proposes to decrease its NBBO 
Setter Rebate for executions of Professional, Firm, and Market Maker 
orders that qualify for the NBBO Setter Rebate by any Member that 
qualifies for the lower tier applicable to Members with an ADV equal to 
or greater than 0.75% of average TCV but not the 1.25% of average TCV 
from $0.10 per contract to $0.06 per contract. The Exchange proposes to 
add an NBBO Setter Rebate for executions of Professional, Firm, and 
Market Maker orders that qualify for the NBBO Setter Rebate by any 
Member that qualifies for the highest tier applicable to Members with 
an ADV equal to or greater than 1.25% of average TCV of $0.10 per 
contract.
    The Exchange proposes to eliminate its current NBBO Setter Rebate 
of $0.03 for a Member that does not qualify for the lower tier but does 
achieve an increase over its previous High Water Mark and under current 
pricing receives a Grow with Us benefit. The Exchange proposes to 
decrease its rebate for executions of Professional, Firm, and Market 
Maker orders that qualify for the NBBO Setter Rebate by a Member that 
qualifies for the lower tier applicable to Members with an ADV equal to 
or greater than 0.25% of average TCV but not the 0.75% of average TCV 
that also show a minimum of 10 basis points TCV improvement over their 
previous high water mark, as proposed above, from $0.08 per contract to 
$0.05 per contract. The Exchange also proposes to add a rebate for 
executions of Professional, Firm, and Market Maker orders that qualify 
for the NBBO Setter Rebate by a Member that qualifies for the middle 
tier applicable to Members with an ADV equal to or greater than 0.75% 
of average TCV but not the 1.25% of average TCV that also show a 
minimum of 10 basis points TCV improvement over their previous high 
water mark, as proposed above, of $0.08 per contract.
(vii) Non-Customer Fees for Removing Liquidity in non-Penny Pilot 
Securities
    The Exchange currently charges a fee of $0.80 per contract for 
Professional, Firm, and Market Maker orders that remove liquidity from 
BATS Options in non-Penny Pilot Securities. The Exchange proposes to 
increase the fee for Professional, Firm, and Market Maker orders that 
remove liquidity from BATS Options in non-Penny Pilot Securities from 
$0.80 per contract to $0.84 per contract.
(viii) Rebates for Adding Liquidity in Non-Penny Pilot Securities
    The Exchange currently provides a rebate of $0.75 per contract for 
Customer orders that add liquidity to BATS Options in non-Penny Pilot 
Securities. The Exchange also currently provides a rebate of $0.70 per 
contract for Professional, Firm, and Market Maker orders that remove 
liquidity from BATS Options in non-Penny Pilot Securities.
    The Exchange proposes to increase the rebate for Customer orders 
that add liquidity to BATS Options in non-Penny Pilot Securities from 
$0.75 per contract to $0.80 per contract. The Exchange also proposes to 
decrease the rebate for Professional, Firm, and Market Maker orders 
that add liquidity to BATS Options in non-Penny Pilot Securities from 
$0.70 per contract to $0.60 per contract.
(ix) Eliminating the Enhanced NBBO Setter Rebate
    In order to further incentivize aggressive liquidity by incenting 
displayed size of contracts, the Exchange implemented the Enhanced NBBO 
Setter Rebate on June 1, 2012. The Enhanced NBBO Setter Rebate provides 
twice the rebate for executions that qualify for an NBBO Setter Rebate 
and result from an order with a displayed size that equals or exceeds 
25 contracts. Due to limited customer participation, however, the 
Exchange proposes to eliminate the Enhanced NBBO Setter Rebate 
altogether. Over the implementation period, participation has been low, 
and eliminating the Enhanced NBBO Setter Rebate will act to simplify 
the Exchange's fee schedule while eliminating an underutilized pricing 
program.
(x) Executions on Away Options Exchanges
    The Exchange proposes to change pricing with respect to orders 
routed to away options exchanges. The Exchange 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 currently has two categories for the Nasdaq Options 
Market (``NOM'') under which it charges: (i) A fee of $0.50 per 
contract for Customer orders and $0.57 per contract for Professional, 
Firm, or Market Maker orders routed to and executed at NOM in all 
options other than Specified Symbols; \14\ and (ii) a fee of $0.90 per 
contract for Customer orders and $0.95 per contract for Professional, 
Firm, or Market Maker orders routed to and executed at NOM in Specified 
Symbols.
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    \14\ As defined on the Exchange's fee schedule, the term 
``Specified Symbols'' refers to FB, GOOG, and GRPN.
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    Based on recent changes to NOM pricing,\15\ including the 
elimination of the above described unique pricing for Specified 
Symbols, the Exchange proposes to eliminate the distinction between 
Specified Symbols and non-Specified Symbols in its fee schedule. In 
addition to this change, the Exchange is proposing to move NOM Penny 
Pilot Securities into the grouping with C2 Options Exchange, Inc. 
(``C2''), NYSE Arca, Inc. (``ARCA'') in Make/Take Issues, and NASDAQ 
OMX PHLX LLC (``PHLX'') in Make/Take Issues and to eliminate the 
grouping that currently

[[Page 68866]]

includes only NOM in Penny Pilot Securities.
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    \15\ Securities Exchange Act Release No. 68029 (October 10, 
2012), 75 FR 63384 (October 16, 2012) (SR-NASDAQ-2012-114).
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    As of November 1, ARCA is also adjusting its pricing structure to 
more closely resemble that of NOM in non-Penny Pilot Securities.\16\ 
Specifically, ARCA is proposing to charge $0.79 for Customer orders 
that remove liquidity in non-Penny Pilot Securities and $0.85 for 
Professional, Firm, and Market Maker orders that remove liquidity in 
non-Penny Pilot Securities. As such, the Exchange proposes to move ARCA 
into a grouping with NOM in non-Penny Pilot Securities and to charge 
fees for Customer orders executed at ARCA in Classic Issues of $0.90 
per contract and to charge fees for Professional, Firm, and Market 
Maker orders executed at ARCA in Classic Issues of $0.95 per contract. 
In order to more accurately describe ARCA's pricing structure, the 
Exchange also proposes to change references to ARCA (Classic Issues) to 
ARCA (non-Penny Pilot Securities) and references to ARCA (Make/Take 
Issues) to ARCA (Penny Pilot Securities).
---------------------------------------------------------------------------

    \16\ SR-NYSEArca-2012-121 (October 25, 2012).
---------------------------------------------------------------------------

    The Exchange generally imposes routing fees that approximate the 
Exchange's Routing Costs, however, in order to maintain some level of 
consistency in its fee schedule, the Exchange does not always adjust 
its routing fees when an away options exchange adjusts its pricing. 
Because the Exchange doesn't always adjust its routing fees to be 
perfectly in line with away options exchanges, over time, the Exchange 
can end up charging less for executions at the away options exchanges 
than are required to cover its Routing Costs. Currently, this is the 
case for several of the away options exchange groupings. As such, the 
Exchange is proposing the following:
     To increase the fees for Customer orders executed at NYSE 
MKT LLC (``AMEX''), BOX Options Exchange LLC (``BOX''), Chicago Board 
Options Exchange, Inc. (``CBOE''), NASDAQ OMX BX, Inc. (``BX 
Options''), International Securities Exchange, LLC (``ISE'') (Classic 
issues), and PHLX (Classic issues) from $0.10 per contract to $0.11 per 
contract.
     To increase the fees for Professional, Firm, and Market 
Maker orders executed at AMEX, BOX, CBOE, BX Options, ISE (Classic 
issues), and PHLX (Classic issues) from $0.55 per contract to $0.57 per 
contract.
     To increase the fees for Professional, Firm, and Market 
Maker orders executed at ISE in Make/Take issues from $0.55 per 
contract to $0.57 per contract.
     To increase the fees for Customer orders executed at C2, 
ARCA in Make/Take issues, PHLX in Make/Take issues, and NOM in Penny 
Pilot Securities from $0.50 per contract to $0.52 per contract.
     To increase the fees for Professional, Firm, and Market 
Maker orders executed at C2, ARCA in Make/Take issues, PHLX in Make/
Take issues, and NOM in Penny Pilot Securities from $0.55 per contract 
to $0.57 per contract.
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.\17\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\18\ 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that continuing to provide additional 
financial incentives to Members that demonstrate an increase over their 
previous High Water Mark offers an additional, flexible way to achieve 
financial incentives from the Exchange and encourages Members to add 
increasing amounts of liquidity to BATS Options each month. The Grow 
with Us pricing program, therefore, is reasonable in that it rewards a 
Member's growth patterns. Such increased volume increases potential 
revenue to the Exchange, and will allow the Exchange to continue to 
provide and potentially expand the incentive programs operated by the 
Exchange. The increased liquidity also benefits all investors by 
deepening the BATS Options liquidity pool, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection. The Grow with Us program is also fair and 
equitable and not unreasonably discriminatory in that it is available 
to all Members, even for Members that do not meet the Exchange's volume 
based tiers. More specifically, the heightened requirement to achieve a 
10 basis point, rather than 5 basis point, improvement over a Member's 
previous High Water Mark is reasonable because this higher level will 
incentivize growth by Members of BATS Options with a more meaningful 
threshold. The proposed increase to the basis point requirement is fair 
and equitable and not unreasonably discriminatory due to the fact that 
Grow with Us pricing is available to all Members. As noted above, the 
Exchange believes that this pricing structure is reasonable and not 
unreasonably discriminatory because the Exchange is incentivizing 
Members to increase their activity on BATS Options, to the benefit of 
other BATS Options participants.
    Volume-based rebates and fees such as the ones maintained by BATS 
Options, and as amended by this proposal, have been widely adopted in 
the cash equities markets, and are equitable because they are open to 
all Members on an equal basis and provide additional benefits or 
discounts that are reasonably related to the value to an exchange's 
market quality associated with higher levels of market activity, such 
as higher levels of liquidity provision and/or growth patterns, and 
introduction of higher volumes of orders into the price and volume 
discovery processes. Accordingly, the Exchange believes that the 
proposed changes to the tiered pricing structure are not unfairly 
discriminatory because they are consistent with the overall goals of 
enhancing market quality. Similarly, the Exchange believes that 
continuing to base its tiered fee structure based on overall TCV, 
rather than a static number of contracts irrespective of overall volume 
in the options industry, is a fair and equitable approach to pricing.
    Specifically, the proposals to adjust the thresholds of existing 
volume tiers, add additional volume tiers, and to modify the rebates 
paid for Customer orders that add liquidity to the BATS Options order 
book in Penny Pilot Securities are reasonable in that they are 
consistent with the aforementioned goal of promoting market quality 
because they reward Members for contributing to the growth of and 
liquidity available on BATS Options, thereby furthering the price 
discovery process. The Exchange believes that the proposed adjustment 
to the tiered pricing structure is reasonable, fair and equitable 
because the threshold has been lowered to permit additional Members to 
qualify for the lowest tier. With respect to the proposed reduction of 
the rebate for Members that do not qualify for tiered pricing on 
Customer orders in Penny Pilot Securities, but that do qualify for Grow 
with Us pricing, the Exchange

[[Page 68867]]

believes this adjustment is reasonable because the threshold to achieve 
the enhanced rebate at the lowest tier is relatively low and, as 
proposed, has become lower. Further, in order to incentivize Members to 
achieve the rebates applicable to the lowest tier, the Exchange has 
increased this rebate. In sum, the Exchange believes that the proposed 
changes to tiered Customer rebates in Penny Pilot Securities are 
reasonable, fair and equitable because, as a general matter, they are 
geared at improving incentives for Members that are truly enhancing the 
market quality of BATS Options. Further, the Exchange does not believe 
that the proposed changes are unreasonably discriminatory because 
tiered rebates for Customer orders are available to all Members on an 
equal basis.
    The Exchange also believes that the proposed increase to rebates 
paid for Professional, Firm or Market Maker orders in Penny Pilot 
Securities is reasonable in that it will further incentivize Members to 
add liquidity to BATS Options and will help to offset proposed 
increases in fees. The Exchange further believes that the proposed 
increase to rebates for such orders is fair and equitable and not 
unreasonably discriminatory because such rebates are available to all 
Members that submit Professional, Firm or Market Maker orders to the 
Exchange.
    Despite the increases in fees for all orders that remove liquidity 
(Customer, Professional, Firm and Market Maker orders) in Penny Pilot 
Securities, the Exchange believes that its proposed fee structure is 
reasonable as the Exchange's standard fees in Penny Pilot Securities 
remain generally equivalent to standard fees charged by other markets 
with similar fee structures, such as NYSE Arca and NOM. The increase in 
fees is also reasonable because the Exchange has also proposed to 
increase the majority of the rebates available for orders that qualify 
for volume-based tier or the Grow with Us program. Similarly, the 
Exchange believes that the increases are fair and equitable because the 
various programs offered by the Exchange to receive reduced fees and 
enhanced rebates provide all Members with several different ways to 
offset the increase in fees or receive a reduction in fees. As noted 
above, the Exchange believes that such volume-based tiers are fair and 
equitable and not unreasonably discriminatory because they are 
consistent with the overall goals of enhancing market quality. While 
Professional, Firm and Market Maker orders will be assessed comparably 
higher transaction fees than those assessed to other Customer orders, 
as proposed, the Exchange does not believe that this pricing is 
unreasonably discriminatory because 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. The Exchange also notes that 
Professional, Firm and Market Maker orders qualify for additional 
rebates under the Exchange's NBBO Setter Program, which is not 
applicable to Customer orders.
    The Exchange's proposals to modify the NBBO Setter Program's 
rebates are necessary because such modifications align with the other 
modifications to the Exchange's tier structure (i.e., by creating a 
third tier). Although some rebates provided under the NBBO Setter 
Program, as amended, will be less than under the previous structure, 
this change is reasonable due to the increased rebate provided to all 
Professional, Firm and Market Maker orders. In particular, the 
elimination of the $0.03 rebate for orders eligible for the NBBO Setter 
Program submitted by Members that do not qualify for the lowest tier 
but that do qualify for Grow with Us pricing is reasonable because such 
members will receive an additional $0.03 rebate on all of their 
Professional, Firm and Market Maker orders. Despite the fact that 
Customer orders are not eligible for NBBO Setter Rebates, the proposed 
modifications to NBBO Setter Rebates are fair and equitable and not 
unreasonably discriminatory because in many cases, Customer orders that 
do not set the NBBO are eligible for even higher rebates than certain 
Professional, Firm, and Market Maker orders that did set the NBBO and 
receive a NBBO Setter Rebate.
    As explained above, the Exchange believes that elimination of the 
Enhanced NBBO Setter Rebate is reasonable, fair and equitable and not 
unreasonably discriminatory because this enhanced rebate program has 
not been widely utilized and eliminating the Enhanced NBBO Setter 
Rebate will act to simplify the Exchange's fee schedule while also 
allowing the Exchange to allocate resources devoted to the program to 
other pricing programs.
    The Exchange believes that its proposed modifications to fees and 
rebates for non-Penny Pilot Securities are reasonable in light of the 
benefits to Members to the extent the corresponding rebates, which are 
still significantly higher than typical rebates available for adding 
liquidity, incentivize aggressive quoting that will result in better 
execution prices, as described in further detail below. The Exchange 
also believes that providing financial incentives to achieve aggressive 
quoting and incentivize liquidity providers to narrow the spread while 
charging more to those who realize the economic benefit of that 
narrower spread is a fair and equitable approach to pricing. The 
Exchange's proposal to increase fees and to reduce rebates for 
Professional, Firm and Market Maker orders in non-Penny Pilot 
Securities is reasonable, fair and equitable for several reasons, 
including that the proposed fee is only a slight increase to existing 
fees and that the Exchange has proposed other changes to the fee 
schedule in which Professional, Firm, and Market Maker orders will 
receive additional rebates. The proposal to increase the rebate for 
Customer orders in non-Penny Pilot Securities, in turn, is reasonable 
because it is intended to encourage Members to submit Customer orders 
in non-Penny Pilot Securities to the Exchange. Finally, the Exchange 
notes that in non-Penny Pilot Securities it is continuing to charge 
more for, and rebating less to, non-Customer orders than Customer 
orders, and the proposed changes will increase the gap between such 
orders. The Exchange believes that this proposed pricing structure for 
non-Penny Pilot Securities is not unreasonably discriminatory because 
it accounts for the difference of assumed information and 
sophistication level between the different trading capacities. Since 
Professional, Firm and Market Maker capacity members are assumed to 
have more informed (and hence less desirable to counterparties) orders, 
those orders have a slightly higher transaction cost associated with 
them. The Exchange further notes that the charges and rebates to all 
non-Customer orders is equivalent regardless of capacity and therefore 
non-discriminatory.
    In the current U.S. options market, many of the contracts are 
quoted in pennies. Under this pricing structure, the minimum penny tick 
increment equates to a $1.00 economic value difference per contract, 
given that a single standardized U.S. option contract covers 100 shares 
of the underlying stock. Where contracts are quoted in $0.05 
increments, the value per tick is $5.00 in proceeds to the investor 
transacting in these contracts. Liquidity rebate and access fee 
structures on the make-take exchanges, including BATS, for securities 
quoted in penny increments are commonly in the $0.30 to $0.45 range. A 
$0.30 rebate in a penny quoted security is a rebate

[[Page 68868]]

equivalent to 30% of the value of the minimum tick. A $0.45 charge in a 
penny quoted security is a charge equivalent to 45% of the value of 
that minimum tick. In other words, in penny quoted securities, where 
the price is improved by one tick with an access fee of $0.45, an 
investor paying to access that quote is still $0.55 better off than 
trading at the wider spread, even without the access fee ($1.00 of 
price improvement - $0.45 access fee = $0.55 better economics). This 
math is equally true for securities quoted in wider increments. Rebates 
and access fees near the $0.80 level equate to only 20% of the value of 
the minimum tick. An investor transacting a single contract in a non-
penny quoted security quoted a single tick tighter than the rest of the 
market, and paying an access fee of $0.75, is receiving economic 
benefit of $4.25 ($0.05 improved tick = $5.00 in proceeds - $0.75 
access fee = $4.25). The Exchange believes that encouraging liquidity 
providers to quote more aggressively and narrow the spread in non-Penny 
Pilot Securities will continue to benefit investors by improving the 
overall economics of the resulting transactions that occur on the 
Exchange, even if the access fee paid in connection with such 
transactions is higher. Accordingly, the Exchange believes that the 
proposed fees and rebates for non-Penny Pilot Securities are 
reasonable.
    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 this pricing model, based on approximate Routing Costs is a 
reasonable, fair and equitable approach to pricing. As noted above, in 
order to maintain some level of consistency in its fee schedule, the 
Exchange does not always adjust its routing fees when an away options 
exchange adjusts its pricing, and thus, over time, the Exchange can end 
up charging less for executions at the away options exchanges than are 
required to cover its Routing Costs. The proposed increases to fees, 
therefore, are reasonable, fair and equitable because they will 
generally allow the Exchange to provide routing services at levels that 
allow the Exchange to cover applicable Routing Costs rather than 
subsidizing routing by Exchange Members. The Exchange believes that its 
routing fees are not unreasonably discriminatory because they apply 
equally to all Members and are intended to provide a service to Members 
that is generally at the same cost that the Exchange incurs for 
routing. Also, although routing options are available to all Members, 
Members are not required to use the Exchange's routing services, but 
instead, the Exchange's routing services are completely optional. 
Members can manage their own routing to different options exchanges or 
can utilize a myriad of other routing solutions that are available to 
market participants.

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. Particularly with respect to 
routing fees, the proposed changes will assist the Exchange in 
recouping costs for routing orders to other options exchanges on behalf 
of its participants, and absent such change, the Exchange would be 
subsidizing routing to other options exchanges by Exchange 
participants. The Exchange also notes that Users may choose to mark 
their orders as ineligible for routing to avoid incurring routing 
fees.\19\ With respect to the changes to fees and rebates for 
executions on the Exchange that are set forth in this proposal, the 
Exchange does not believe that any such changes burden competition, but 
instead, enhance competition, as they are intended to increase the 
competitiveness of, and draw additional volume to, the Exchange's 
platform. 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 set by 
the Exchange to be excessive.
---------------------------------------------------------------------------

    \19\ 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).
---------------------------------------------------------------------------

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 \20\ and Rule 19b-
4(f)(2) thereunder,\21\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 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-2012-043 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-2012-043. 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 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 offices of BATS. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You

[[Page 68869]]

should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-BATS-2012-043, 
and should be submitted on or before December 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27871 Filed 11-15-12; 8:45 am]
BILLING CODE 8011-01-P