Document ID: SEC-2010-1575-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-10-18T04:00Z

[Federal Register: October 18, 2010 (Volume 75, Number 200)]
[Notices]               
[Page 63880-63882]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc10-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63085; File No. SR-BATS-2010-026]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change, as Modified 
by Amendment No. 1, Related to Fees for Use of BATS Exchange, Inc.

October 13, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 30, 2010, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. On 
October 12, 2010, the Exchange filed Amendment No. 1, which modified 
the original filing.\3\ BATS 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 \4\ and Rule 
19b-4(f)(2) thereunder,\5\ which renders the

[[Page 63881]]

proposed rule change, as modified by Amendment No. 1, 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\ In Amendment No. 1, the Exchange provided additional basis 
for the proposed rule change in the Statutory Basis section.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 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 modify its fee schedule applicable to 
Members \6\ 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 changes will become operative on October 1, 
2010.
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    \6\ 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, on the Commission's Web site at http://www.sec.gov, 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 to: (i) Adopt definitions of ``Customer,'' ``Firm,'' 
and ``Market Maker'' for purposes of routing pricing; (ii) modify its 
pricing for standard best execution routing; (iii) implement discounted 
pricing for Destination Specific Orders; and (iv) modify its pricing 
for Directed ISOs. In addition, the Exchange proposes to modify the fee 
schedule applicable to equities trading by changing the reference to 
the default best execution strategy.

(i) Adoption of Definitions

    The Exchange proposes to distinguish pricing for routed orders that 
are executed at away options exchanges based on the clearing status of 
the order due to the fact that most other options exchanges to which 
orders are routed maintain such distinctions. Accordingly the Exchange 
proposes to adopt definitions of ``Customer,'' ``Firm,'' and ``Market 
Maker'' for purposes of its fee schedule. The proposed definitions 
state that each category applies to transactions identified by a Member 
for clearing in the applicable range (i.e., Customer, Firm or Market 
Maker) at the Options Clearing Corporation (``OCC'').

(ii) Standard Best Execution Routing Pricing

    The Exchange currently charges $0.05 per contract for transactions 
executed at away markets pursuant to its best execution routing 
strategies, and passes through, in addition to that fee, all 
destination exchange fees charged to the Exchange for executing on away 
markets. The Exchange proposes to further simplify its pricing for best 
execution routing strategies by setting flat rates for transactions 
executed at away markets pursuant to any of its best execution routing 
strategies (i.e., ``CYCLE'', ``RECYCLE'', ``Parallel D'' and ``Parallel 
2D''). As proposed, regardless of the best execution strategy selected, 
the charge for a Customer transaction executed away will be $0.30 per 
contract and the charge for a Firm or Market Maker transaction executed 
away will be $0.50 per contract.

(iii) Discounted Pricing for Destination Specific Orders

    The Exchange proposes to adopt for its options platform a pricing 
model similar to a pricing model it offers to users of its equities 
platform. Specifically, the Exchange proposes to introduce discounted 
fees for use of its Destination Specific Order \7\ routing strategies. 
The Exchange proposes to charge flat rates for Customer, Firm and 
Market Maker transactions executed at away markets pursuant to 
Destination Specific routing, which rates will vary depending on the 
venue at which transactions execute, as described in further detail 
below.
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    \7\ As defined in BATS Rule 21.1(d)(7).
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    The Exchange proposes to charge for Destination Specific Orders 
that are executed at away options exchanges that are divided into three 
categories. The Exchange proposes to adopt pricing for two distinct 
categories of options exchanges with ``Make/Take'' pricing.\8\ The 
first category of Make/Take pricing is proposed to apply to Destination 
Specific Orders executed at the International Stock Exchange (``ISE'') 
or NASDAQ OMX PHLX (``PHLX'') in issues for which Make/Take pricing 
applies. The fee for this first category of Make/Take markets is 
proposed as $0.20 per contract for Customer transactions and $0.50 per 
contract for Firm or Market Maker transactions. The second category of 
Make/Take pricing is proposed to apply to Destination Specific Orders 
executed at NYSE Arca Options (``NYSE Arca'') in issues for which Make/
Take pricing applies or the NASDAQ Options Market (``NOM''). The fee 
for the second category of Make/Take markets is proposed as $0.40 per 
contract for Customer transactions and $0.50 per contract for Firm or 
Market Maker transactions. Finally, the Exchange proposes to categorize 
options exchanges as ``Classic'' to the extent such options exchanges 
do not have a Make/Take pricing structure or do not apply Make/Take 
pricing to certain transactions. For executions that occur at Classic 
venues, including the American Stock Exchange (``AMEX''), Boston 
Options Exchange (``BOX'') and Chicago Board Options Exchange 
(``CBOE'') as well as the ISE, PHLX and NYSE Arca Options in non-Make/
Take issues, the Exchange proposes to charge $0.05 per contract for 
Customer transactions and $0.50 per contract for Firm or Market Maker 
transactions.
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    \8\ As proposed to be defined on the fee schedule, Make/Take 
pricing refers to executions at the identified Exchange under which 
``Post Liquidity'' or ``Maker'' rebates (``Make'') are credited by 
that exchange and ``Take Liquidity'' or ``Taker'' fees (``Take'') 
are charged by that Exchange.
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    The Exchange believes that the proposed Destination Specific Order 
pricing in most instances will result in lower execution fees at away 
venues in each category than if orders were routed directly by a Member 
to such venues. To the extent any anomalies exist or away options 
exchanges modify pricing such that the Destination Specific fee is not, 
in fact, a discount from pricing that the Member may pay directly, the 
Exchange believes that Members will benefit from the simplicity of the 
pricing structure.

(iv) Directed ISO Pricing

    The Exchange currently charges $0.10 per contract for routed 
Directed ISOs executed at away markets,\9\ and passes through, in 
addition to that fee, all destination exchange fees charged to the 
Exchange for executing on away markets. The Exchange proposes to 
further simplify its pricing for Directed ISOs by setting flat rates 
for Directed ISOs that bypass the Exchange's order book and execute at 
away venues. As proposed, the charge for a Customer Directed ISO 
transaction will be $0.50 per contract and the charge for a Firm

[[Page 63882]]

or Market Maker Directed ISO transaction will be $0.60 per contract.
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    \9\ As defined in BATS Rule 21.1(d)(12).
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(v) Equities Best Execution Routing

    In the ``Equities Pricing'' portion of the fee schedule the 
Exchange currently reflects its default best execution routing strategy 
as ``DRT + CYCLE''. Effective October 1, 2010, the Exchange's default 
best execution routing strategy will be ``DRT + Parallel D.'' \10\ The 
Exchange proposes to modify the reference to the default strategy in 
light of this change.
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    \10\ The Exchange's routing strategies are defined in BATS Rule 
11.13
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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. As described below, the Exchange 
believes that its fees and credits are competitive with those charged 
by other venues and that the changes the Exchange has proposed will 
simplify the Exchange's pricing model.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The various routing fees proposed by this filing, including fees 
for destination specific orders and best execution routing strategies 
offered by the Exchange, are intended to attract order flow to BATS 
Options by offering competitive and easy to understand rates to 
Exchange Members, especially those representing order flow that clears 
in the Customer range at the OCC. Accordingly, some of the changes the 
Exchange has proposed will result in reduced fees that will benefit 
Members due to the obvious economic savings those Members will receive 
and the potential of increased available liquidity at the Exchange. In 
addition, the Exchange believes that the simplicity and certainty of 
its fee schedule will be a benefit to some Members. The Exchange notes 
that it does not currently operate any auctions through which orders 
are held and broadcast to its membership, nor does the Exchange engage 
in any payment for order flow practices. Rather, the Exchange is 
proposing to enhance its transparent market structure with an easy to 
understand and transparent pricing structure by further simplifying its 
routing fees. The Exchange believes that its proposed flat routing 
rates are, on average, better than or equal to the fees a market 
participant would pay if routing directly to certain market centers, 
especially with respect to Customer orders. 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. 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 imposes 
any burden on competition.

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

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \13\ and Rule 
19b-4(f)(2) thereunder,\14\ because it establishes or changes a due, 
fee or other charge imposed on members by the Exchange. Accordingly, 
the proposal is effective upon filing with the Commission.
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-BATS-2010-026 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-2010-026. This file 
number should be included on the subject line if e-mail 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 
a.m. and 3 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-2010-026 and should be 
submitted on or before November 8, 2010.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26176 Filed 10-15-10; 8:45 am]
BILLING CODE 8011-01-P