Document ID: SEC-2013-0492-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-03-14T04:00Z

[Federal Register Volume 78, Number 50 (Thursday, March 14, 2013)]
[Notices]
[Pages 16306-16308]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05879]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69079; File No. SR-BATS-2013-017]

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.

March 8, 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 March 1, 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 
executions subject to the Quoting Incentive Program (the ``QIP''). 
Specifically, the Exchange proposes to require that a Member is 
registered as a BATS Options Market Maker in order to receive any 
additional rebate subject to the QIP and to add volume tiers that will 
determine the amount of the additional rebate a BATS Options Market 
Maker will receive for executions that are eligible for the QIP.
    Currently under the QIP, Professional,\6\ Firm, and Market Maker 
\7\ orders entered on BATS Options receive a rebate of $0.05 per 
contract, in addition to any other applicable liquidity rebate, for 
executions subject to the QIP. Qualifying Customer \8\ order executions 
subject to the QIP currently receive an additional rebate of $0.01 per 
contract. To qualify for the QIP a BATS Options Market Maker must be at 
the NBB or NBO 60% of the time for series trading between $0.03 and 
$5.00 for the front three (3) expiration months in that underlying 
during the current trading month. A Member not registered as a BATS 
Options Market Maker can also qualify for the QIP by quoting at the NBB 
or NBO 70% of the time in such series.
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    \6\ 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).
    \7\ 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'').
    \8\ As defined on the Exchange's fee schedule, a Customer order 
refers to an order identified by a Member for clearing in the 
Customer range at the OCC, excluding any transaction for a 
``Professional'' as defined in Exchange Rule 16.1.
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    The Exchange proposes to require that a Member is registered as a 
Market Maker in order to be eligible to receive any rebates subject to 
the QIP. This modification will help to incentivize Members that are 
not currently registered as Market Makers that currently receive 
rebates subject to the QIP to register as BATS Options Market Makers. 
Additionally, the Exchange proposes to require that, in order to 
receive QIP rebates for executions of contracts in an options class, a 
Market Maker must be registered in an average of 20% or more of the 
associated options series in that class. This requirement will ensure 
that Market Makers are not eligible for QIP rebates without being 
registered in what the Exchange believes to be a meaningful number of 
series.
    The Exchange also proposes to add volume tiers that will determine 
the amount of the additional rebate a BATS Options Market Maker will 
receive for executions that are eligible for the QIP. Specifically, 
under the proposed tiered pricing structure, Market Makers with an 
average daily volume (``ADV'') \9\ less than 0.25% of average total 
consolidated volume (``TCV'') \10\ will receive an additional $0.01 per 
contract executed on BATS Options for Customer orders and an additional 
$0.05 per contract executed on BATS Options for Professional, Firm, and 
Market Maker orders. Market Makers with an ADV equal to or greater than 
0.25%, but less than 0.75% of TCV will receive an additional $0.03 per 
contract executed on BATS Options for Customer orders and an additional 
$0.05 per contract executed on BATS Options for Professional, Firm, and 
Market Maker orders. Market Makers with an ADV equal to or greater than 
0.75%, but less than 1.25% of TCV will receive an additional $0.03 per 
contract executed on BATS Options for Customer orders and an additional 
$0.06 per contract executed on BATS Options for Professional, Firm, and 
Market Maker orders. Finally, Market Makers with an ADV equal to or 
greater than 1.25% of

[[Page 16307]]

TCV will receive an additional $0.03 per contract executed on BATS 
Options for Customer orders and an additional $0.08 per contract 
executed on BATS Options for Professional, Firm, and Market Maker 
orders.
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    \9\ 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.
    \10\ 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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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\12\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues or providers of routing services 
if they deem fee levels to be excessive.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that requiring Members to register as Market 
Makers in order to receive rebates subject to QIP will help to 
incentivize Members to register with BATS Options as Market Makers. The 
Exchange believes that registration by additional Members as Market 
Makers will help to continue to increase the breadth and depth of 
quotations available on the Exchange, which is beneficial to all market 
participants. The Exchange believes that it is reasonable, equitable 
and not unreasonably discriminatory to provide an incentive available 
only to BATS Options Market Makers because of the requisite quoting and 
other obligations applicable to registered BATS Options Market Makers. 
The Exchange further believes that the proposal is not unfairly 
discriminatory, despite the requirement that a Member is registered as 
a Market Maker in order to receive rebates pursuant to the QIP, due to 
the fact that registration as a BATS Options Market Maker is equally 
available to all Members. Additionally, the Exchange believes that 
requiring that a Market Maker be registered in an average of 20% or 
more of the associated options series in a class in order to qualify 
for QIP rebates for that class will further help to increase the 
breadth and depth of quotations available on the Exchange by requiring 
Market Makers to meet the BATS Options Market Maker quoting 
requirements in a meaningful number of series in a class.
    Volume-based rebates such as the ones maintained by the Exchange 
have been widely adopted in the cash equities markets and are 
increasingly in use by the options exchanges. Volume-based tiers are 
equitable in this instance because they are open to all BATS Options 
Market Makers on an equal basis and will provide enhanced rebates that 
are reasonably related to the value to the 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 offering volume-based rebates 
for orders subject to the QIP is not unfairly discriminatory because it 
is consistent with the overall goals of enhancing market quality. 
Additionally, the Exchange believes that the proposed volume-based 
tiers, which will incentivize the provision of competitively priced, 
sustained liquidity that will create tighter spreads, benefitting both 
Members and public investors. Similarly, the Exchange believes that 
basing the proposed tiered fee structure 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. The 
Exchange notes that this proposal is not reducing the base QIP rebate, 
but rather, the proposal will provide enhanced QIP rebates to Market 
Makers that meet certain volume thresholds.

(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 help 
the Exchange to create higher levels of liquidity provision and/or 
growth patterns, and introduction of higher volumes of orders into the 
price and volume discovery processes. 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.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \13\ and paragraph (f) of Rule 19b-4 
thereunder.\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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 proposal 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 No. SR-BATS-2013-017 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 No. SR-BATS-2013-017. 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

[[Page 16308]]

communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
such filing will also 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 No. SR-BATS-2013-017 and should be submitted on or before April 4, 
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. 2013-05879 Filed 3-13-13; 8:45 am]
BILLING CODE 8011-01-P