Document ID: SEC-2013-1957-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-11-19T05:00Z

[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69470-69472]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27619]

[[Page 69470]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70853; File No. SR-BATS-2013-058]

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 13, 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 October 31, 2013, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to BATS Rules 
15.1(a) and (c). While changes to the fee schedule pursuant to this 
proposal will be effective upon filing, the proposed changes will 
become operative on November 1, 2013.
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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 its fee schedule applicable to use 
of the Exchange effective November 1, 2013, in order to: (1) Modify the 
fees applicable to executions occurring through certain routing 
strategies at the Exchange's affiliate, BATS Y-Exchange, Inc. 
(``BYX''); and (2) modify the way that, for purposes of tiered pricing 
on the Exchange's equities trading platform (``BATS Equities''), the 
Exchange calculates ADV, ADAV, and TCV (as such terms are defined 
below).
Routing Strategies to BYX
    BYX currently provides a base rebate of $0.0001 per share when 
removing liquidity. To create a direct pass through of the applicable 
economics of executions at BYX through the Destination Specific,\6\ 
TRIM (including TRIM2 and TRIM3),\7\ and SLIM \8\ routing strategies, 
the Exchange proposes to rebate $0.0001 per share for orders routed 
through such strategies and executed on BYX, rather than the $0.0002 
per share that it currently rebates for such orders. The Exchange is 
not proposing any other changes to its routing fees at this time.
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    \6\ As defined in BATS Rule 11.9(c)(12).
    \7\ As defined in BATS Rule 11.13(a)(3)(G).
    \8\ As defined in BATS Rule 11.13(a)(3)(H).
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Modifications to Definitions Used for Equities Pricing Tiers
    The Exchange proposes to modify its fee schedule in order to amend 
the way that the Exchange calculates rebates for removing liquidity 
from and fees for adding liquidity to the Exchange. Specifically, the 
Exchange is proposing to amend the methodology by which it determines 
the rebate that it will provide to Members based on the Exchange's 
tiered pricing structure by excluding from the calculation of ADV,\9\ 
ADAV,\10\, and average daily TCV \11\ any day that trading is not 
available on the Exchange for more than sixty (60) minutes during 
regular trading hours (i.e., 9:30 a.m. to 4:00 p.m. Eastern Time) but 
continues on other markets during such time (an ``Exchange Outage'').
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    \9\ As provided in the fee schedule, ``ADV'' means average daily 
volume calculated as the number of shares added or removed, 
combined, per day on a monthly basis; routed shares are not included 
in ADV calculation.
    \10\ As provided in the fee schedule, ``ADAV'' means average 
daily volume calculated as the number of shares added per day on a 
monthly basis; routed shares are not included in ADV calculation.
    \11\ As provided in the fee schedule ``TCV'' means total 
consolidated volume calculated as the volume reported by all 
exchanges and trade reporting facilities to a consolidated 
transaction reporting plan for the month for which the fees apply.
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    The Exchange currently offers a tiered structure for determining 
the rebates that Members receive for executions that add liquidity to 
the Exchange. Under the tiered pricing structure, the Exchange provides 
different rebates to Members based on a Member's ADV or ADAV as a 
percentage of average daily TCV. The Exchange notes that it is not 
proposing to modify any of the existing rebates or the percentage 
thresholds at which a Member may qualify for certain rebates pursuant 
to the tiered pricing structure. Rather, as mentioned above, the 
Exchange is proposing to modify its fee schedule in order to exclude 
trading activity occurring on any day that the Exchange experiences an 
Exchange Outage, defined as an outage lasting for more than sixty (60) 
minutes, from the calculation of ADV, ADAV and average daily TCV. The 
Exchange believes that including trading activity on days when trading 
on the Exchange is unavailable for a significant portion of the day can 
unfairly skew the calculation of ADV, ADAV and TCV. Thus, the Exchange 
believes that the most accurate and fair implementation of its tiered 
pricing structure is to exclude from the calculation of ADV, ADAV and 
TCV all days where the Exchange experiences an Exchange Outage.
    The Exchange believes that eliminating days where the Exchange 
experiences an Exchange Outage from the definition of ADV, ADAV and 
TCV, and thereby eliminating that day from the calculation as it 
relates to rebates and fees based on trading activity on the Exchange, 
will help to eliminate significant uncertainty faced by Members as to 
their monthly ADV or ADAV as a percentage of average daily TCV and the 
rebates that this percentage will qualify for, providing Members with 
an increased certainty as to their monthly cost for trades executed on 
the Exchange.
    The Exchange notes that it recently adopted changes to exclude the 
last Friday of June from the calculation of

[[Page 69471]]

ADV and average daily TCV.\12\ The last day of June is the day that 
Russell Investments reconstitutes its family of indexes (``Russell 
Reconstitution''), resulting in particularly high trading volumes, much 
of which the Exchange believes derives from market participants who are 
not generally as active entering the market to rebalance their holdings 
in-line with the Russell Reconstitution. The Exchange also notes that 
its affiliate, BYX, recently implemented a similar change to its 
definitions of ADV and TCV for purposes of BYX tiered pricing.\13\
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    \12\ Securities Exchange Act Release No. 69793 (June 18, 2013), 
78 FR 37865 (SR-BATS-2013-034) (notice of filing and immediate 
effectiveness of proposed rule change to exclude the Russell 
Reconstitution day from the calculation of ADV and TCV for purposes 
of BATS Equities tiered pricing). The Exchange notes that while it 
did not have a definition of ADAV in its fee schedule at the time 
the Russell Reconstitution exclusion was added, the exclusion does 
apply to ADAV pursuant to the fee schedule, as amended. See 
Securities Exchange Act Release No. 70664 (October 11, 2013), 78 FR 
68204 (October 22, 2013) (SR-BATS-2013-054) (notice of filing and 
immediate effectiveness to modify the fees of BATS Exchange, Inc., 
including the addition of a definition of ADAV).
    \13\ Securities Exchange Act Release No. 70666 (October 11, 
2013), 78 FR 37865 [sic] (October 22, 2013) (SR-BYX-2013-034) 
(notice of filing and immediate effectiveness of proposed rule 
change to exclude from the definition of ADV and TCV days that BATS 
Y-Exchange, Inc. experiences an outage lasting more than 60 
minutes).
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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.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ 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.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed changes to the Exchange's 
rebate for TRIM (including TRIM2 and TRIM3), SLIM and Destination 
Specific Orders executed on BYX are equitably allocated, fair and 
reasonable, and non-discriminatory in that they are equally applicable 
to all Members and are designed to mirror the rebate applicable to the 
execution if such routed orders were executed directly by the Member at 
BYX.
    With respect to the proposed changes to the tiered pricing 
structure for removing liquidity from the Exchange and adding liquidity 
to the Exchange, the Exchange believes that its proposal is reasonable 
because, as explained above, it will help provide Members with a 
greater level of certainty as to their level of rebates and costs for 
trading in any month where the Exchange experiences an Exchange Outage 
on one or more trading days. The Exchange also believes that its 
proposal is reasonable because it is not changing the thresholds to 
become eligible or the dollar value associated with the tiered rebates 
or fees and, moreover, by eliminating the inclusion of a trading day 
that would almost certainly lower a Member's ADV or ADAV as a 
percentage of average daily TCV, it will make the majority of Members 
more likely to meet the minimum or higher tier thresholds, which will 
provide additional incentive to Members to increase their participation 
on the Exchange in order to meet the next tier. In addition, the 
Exchange believes that the proposed changes to fees are equitably 
allocated among Exchange constituents as the methodology for 
calculating ADV, ADAV and TCV will apply equally to all Members. While, 
although unlikely, certain Members may have a higher ADV or ADAV as a 
percentage of average daily TCV with their activity included from days 
where the Exchange has an Exchange Outage, the proposal will make all 
Members' cost of trading on the Exchange more predictable, regardless 
of how the proposal affects their ADV or ADAV as a percentage of 
average daily TCV. The Exchange also notes that its affiliate, BYX, 
recently made a similar change.\16\
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    \16\ See supra note 13.
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    Volume-based tiers such as the liquidity adding tiers maintained by 
the Exchange have been widely adopted, and are equitable and not 
unfairly discriminatory because they are open to all members on an 
equal basis and provide higher rebates or lower fees 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 introduction of higher volumes of orders 
into the price and volume discovery process. Accordingly, the Exchange 
believes that the proposal is equitably allocated and not unfairly 
discriminatory because it is consistent with the overall goals of 
enhancing market quality. Further, the Exchange believes that a tiered 
pricing model not significantly altered by a day of atypical trading 
behavior which allows Members to predictably calculate what their costs 
associated with trading activity on the Exchange will be is reasonable, 
fair and equitable and not unreasonably discriminatory as it is uniform 
in application amongst Members and should enable such participants to 
operate their business without concern of unpredictable and potentially 
significant changes in expenses.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Because the market for order execution is extremely competitive, 
Members may readily opt to disfavor the Exchange's routing services if 
they believe that alternatives offer them better value. For orders 
routed through the Exchange and executed at BYX through the TRIM 
(including TRIM2 and TRIM3), SLIM and Destination Specific Order 
strategies, the proposed fee change is designed to equal the rebate 
that a Member would have received if such routed orders would have been 
executed directly by a Member at BYX. Further, the proposed changes 
will help to promote intramarket competition by avoiding a penalty to 
Members for days when trading on the Exchange is unavailable for a 
significant portion of the day. 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 the 
deem fee structures to be unreasonable or excessive.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4 
thereunder.\18\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may

[[Page 69472]]

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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2013-058 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-2013-058. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BATS-2013-058 and should be 
submitted on or before December 10, 2013.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27619 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P