Document ID: SEC-2014-0120-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-01-22T05:00Z

[Federal Register Volume 79, Number 14 (Wednesday, January 22, 2014)]
[Notices]
[Pages 3643-3649]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01104]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71303; File No. SR-BATS-2014-001]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related to 
Fees for Use of BATS Exchange, Inc.

January 15, 2014.
    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 January 2, 2014, 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). 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, at the Commission's Public Reference Room, and at the 
Commission's Web site at http://www.sec.gov.

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) 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\ (ii) modify the fees charged by the 
Exchange for Customer orders that remove liquidity from BATS Options in 
Penny Pilot Securities; (iii) modify the rebates provided by the 
Exchange for Professional,\8\ Firm, and Market Maker \9\ orders that 
add liquidity to BATS Options in Penny Pilot Securities; (iv) modify 
the fees charged by the Exchange for Professional, Firm, and Market 
Maker orders that remove liquidity from BATS Options in Penny Pilot 
Securities; (v) modify the rebates provided by the Exchange for 
Customer orders that add liquidity to BATS Options in non-Penny Pilot 
Securities; (vi) modify the fees charged by the Exchange for Customer 
orders that remove liquidity from BATS Options in non-Penny Pilot 
Securities; (vii) modify the rebates provided by the Exchange for 
Professional, Firm, and Market Maker orders that add liquidity to BATS 
Options in non-Penny Pilot Securities; (viii) modify the fees charged 
by the Exchange for Professional, Firm, and Market Maker orders that 
remove

[[Page 3644]]

liquidity from BATS Options in non-Penny Pilot Securities; (ix) modify 
the tier thresholds and adjust the rebates provided by the Exchange 
under the BATS Options NBBO Setter Program;\10\ (x) modify the tier 
thresholds and adjust the rebates provided by the Exchange under the 
Quoting Incentive Program (``QIP'').\11\ In conjunction with proposals 
(i) through (iv) and (ix) listed above, the Exchange is proposing to 
eliminate the ``Grow with Us'' rebates and fees and the definitions and 
footnotes associated therewith.\12\ In addition to these changes, the 
Exchange proposes to make several minor changes to the fee schedule to 
achieve additional consistency.
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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'').
    \11\ The QIP is a program designed to enhance market quality by 
incentivizing market Makers to participate on BATS Options by 
providing supplemental rebates for executed orders that add 
liquidity where the Market Maker has an average daily trading volume 
that exceeds certain thresholds.
    \12\ The ``Grow with Us'' pricing constitutes enhanced rebates 
and fees for Members that increase their trading activity on BATS 
Options.
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(i) 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. The 
Exchange proposes to modify this tiered pricing structure and the 
rebates associated therewith as well as eliminate the rebates 
associated with the Grow with Us pricing program.
    The Exchange currently offers the following rebates per contract 
for a Customer order that adds liquidity in Penny Pilot Securities to 
the BATS Options order book: (i) $0.30 where the Member does not 
qualify for any additional rebates as described below; (ii) $0.31 where 
the Member has an ADV \13\ less than 0.25% of average TCV \14\ and also 
shows a minimum of 10 basis points TCV improvement over their previous 
High Water Mark; \15\ (iii) $0.43 where the Member has an ADV equal to 
or greater than 0.25% of average TCV but less than 0.75% of average 
TCV; (iv) $0.44 where the Member has an ADV equal to or greater than 
0.25% of average TCV but less than 0.75% of average TCV and also shows 
a minimum of 10 basis points TCV improvement over their previous High 
Water Mark; (v) $0.46 where the Member has an ADV equal to or greater 
than 0.75% of average TCV but less than 1.25% of average TCV; (vi) 
$0.47 where the Member has an ADV equal to or greater than 0.75% of 
average TCV but less than 1.25% of average TCV and also shows a minimum 
of 10 basis points TCV improvement over their previous High Water Mark; 
and (vii) $0.47 where the Member has an ADV equal to or greater than 
1.25% of average TCV.
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    \13\ 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.
    \14\ 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.
    \15\ As defined on the Exchange's fee schedule, High Water Mark 
is the greater of a Member's Q4 2011 TCV or a Member's highest 
monthly TCV on BATS Options thereafter.
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    The Exchange is proposing to adjust the thresholds required to meet 
the tiers for higher rebates, to simplify the rebate structure by 
eliminating one tier, to eliminate the Grow with Us rebates, and to 
increase the rebates associated with each tier such that all Members 
will receive higher rebates than under the current rebate structure. 
Specifically, the Exchange is proposing to increase the minimum ADV as 
a percentage of average TCV necessary to qualify for an increased 
rebate from 0.25% to 0.30%. The Exchange is also proposing to eliminate 
the third rebate tier for Members that have an ADV as a percentage of 
average TCV between 0.25% to 0.75%. The Exchange is proposing to reduce 
the threshold of ADV as a percentage of average TCV at which Members 
will receive the highest rebate from 1.25% to 1.00%. Further, the 
Exchange is proposing to amend the rebates per contract for Customer 
orders that add liquidity to the BATS Options order book in Penny Pilot 
Securities as follows: (i) To increase the rebate from $0.30 to $0.45 
where the Member does not qualify for a higher rebate based on the 
Member's ADV; (ii) to provide a rebate of $0.48 where the Member has an 
ADV equal to or greater than 0.30% of average TCV but less than 1.00% 
of average TCV; and (iii) to provide a rebate of $0.50 where the Member 
has an ADV equal to or greater than 1.00% of average TCV.
(ii) 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 eliminate the fees associated with the 
Grow with Us pricing program.
    The Exchange currently charges the following fees per contract for 
a Customer order that adds liquidity in Penny Pilot Securities to the 
BATS Options order book: (i) $0.45 for an order that does not qualify 
for a lower fee; (ii) $0.44 where a Member has an ADV less than 0.25% 
of average TCV and also shows a minimum of 10 basis points TCV 
improvement over their previous High Water Mark; (iii) $0.44 where a 
Member has an ADV equal to or greater than 0.25% of average TCV but 
less than 0.75% of average TCV; (iv) $0.43 where a Member has an ADV 
equal to or greater than 0.25% of average TCV but less than 0.75% of 
average TCV and also shows a minimum of 10 basis points TCV improvement 
over their previous High Water Mark; (v) $0.43 where a Member has an 
ADV equal to or greater than 0.75% of average TCV but less than 1.25% 
of average TCV; (vi) $0.42 where a Member has an ADV equal to or 
greater than 0.75% of average TCV but less than 1.25% of average TCV 
and also shows a minimum of 10 basis points TCV improvement over their 
previous High Water Mark; and (vii) $0.42 where a Member has an ADV 
equal to or greater than 1.25% of average TCV.
    The Exchange proposes to eliminate volume tiers, to eliminate the 
Grow with Us fees, and to modify the fees charged for Customer orders 
that remove liquidity from the BATS Options order book in Penny Pilot 
Securities. Specifically, the Exchange is proposing to charge $0.47 per 
contract for all Customer orders that remove liquidity from the BATS 
Options order book.
(iii) Non-Customer Rebates for Adding Liquidity in Penny Pilot 
Securities
    The Exchange currently provides a rebate of $0.25 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 $0.35 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 eliminate the distinction in pricing based on the

[[Page 3645]]

capacity of the order that removes the order and to increase the rebate 
for Professional, Firm, and Market Maker orders that add liquidity to 
the BATS Options order book. Specifically, the Exchange is proposing to 
offer a $0.40 rebate per contract for all Professional, Firm, or Market 
Maker orders that add liquidity to the BATS Options order book 
regardless of the capacity of the order that removes such liquidity.
(iv) Non-Customer Fees for Removing Liquidity in Penny Pilot Securities
    The Exchange currently charges a fee of $0.47 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 $0.46 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 10 basis 
points of TCV improvement over their previous High Water Mark.
    For Professional, Firm, and Market Maker orders that remove 
liquidity from BATS Options in Penny Pilot Securities, the Exchange is 
proposing to adjust fees, to eliminate the Grow with Us incentive, and 
to offer a lower fee for Members that have an ADV equal to or greater 
than 1.00% of average TCV.
    Specifically, the Exchange is proposing 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 fee from $0.47 per contract to $0.48 per contract. 
The Exchange also proposes to eliminate fees for Professional, Firm, 
and Market Maker orders that remove liquidity from BATS Options in 
Penny Pilot Securities where the Member qualifies for Grow with Us 
pricing based on TCV improvement. Finally, the Exchange is proposing to 
charge $0.47 per contract for a Professional, Firm, or Market Maker 
order that removes liquidity from the BATS Options order book where the 
Member has an ADV equal to or greater than 1.00% of average TCV.
(v) Customer Rebates for Adding Liquidity in non-Penny Pilot Securities
    The Exchange currently offers a $0.80 rebate per contract for 
Customer orders that add liquidity in non-Penny Pilot Securities. The 
Exchange is proposing to increase the rebate for Customer orders that 
add liquidity in non-Penny Pilot Securities from $0.80 to $0.85 per 
contract.
(vi) Customer Fees for Removing Liquidity in Non-Penny Pilot Securities
    The Exchange currently charges $0.75 per contract for Customer 
orders that remove liquidity in non-Penny Pilot Securities. The 
Exchange is proposing to increase the fee for Customer orders that 
remove liquidity in non-Penny Pilot Securities from $0.75 to $0.80 per 
contract.
(vii) Non-Customer Rebates for Adding Liquidity in Non-Penny Pilot 
Securities
    The Exchange currently offers a $0.60 rebate per contract for 
Professional, Firm, or Market Maker orders that add liquidity in Non-
Penny Pilot Securities. The Exchange is proposing to increase the 
rebate for Professional, Firm, and Market Maker orders that add 
liquidity in non-Penny Pilot Securities from $0.60 to $0.65 per 
contract.
(viii) Non-Customer Fees for Removing Liquidity in non-Penny Pilot 
Securities
    The Exchange currently charges $0.84 per contract for Professional, 
Firm, and Market Maker orders that remove liquidity in non-Penny Pilot 
Securities. The Exchange is proposing to increase the fee for 
Professional, Firm, and Market Maker orders that remove liquidity in 
non-Penny Pilot Securities from $0.84 to $0.89 per contract.
(ix) NBBO Setter Program Rebates
    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''),\16\ subject to 
certain volume requirements. Orders that qualify for the NBBO Setter 
Rebate receive the following rebates: $0.03 additional rebate 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 0.25% of average TCV but less than 0.75% of 
average TCV; $0.06 additional rebate per contract for qualifying 
executions of Professional, Firm or Market Maker orders by Members with 
an ADV equal to or greater than 0.75% of average TCV but less than 
1.25% 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 1.25% of average TCV.
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    \16\ 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 
lower two tiers of the NBBO Setter Rebate. Accordingly, any Member that 
qualifies for the lower NBBO Setter Program 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 is provided a NBBO Setter 
Rebate of $0.05 per contract for qualifying executions. Similarly, any 
Member that qualifies for the middle NBBO Setter tier applicable to 
Members with an ADV equal to or greater than 0.75% of average TCV but 
less than 1.25% of average TCV that achieves at least a 10 basis point 
increase over its previous High Water Mark is provided a NBBO Setter 
Rebate of $0.08 per contract for qualifying executions. The highest 
NBBO Setter Program tier applicable to Members with an ADV equal to or 
greater than 1.25% of average TCV is not subject to the Grow with Us 
pricing program.
    The Exchange proposes to simplify the NBBO Setter Program by 
eliminating the middle volume tier and ceasing to apply the Grow with 
Us pricing program to the NBBO Setter Program, thus leaving only two 
separate rebates for qualifying transactions. Further, the Exchange is 
proposing to adjust the thresholds required to qualify for both the 
bottom and top tier and to lower the rebates provided for each tier.
    Specifically, the Exchange proposes to increase the lower threshold 
to qualify for the lowest tier of the NBBO Setter Program from an ADV 
of 0.25% of average TCV to an ADV of 0.30% of average TCV. Further, the 
Exchange is proposing to raise the upper threshold for the lower tier 
from an ADV of 0.75% of average TCV to an ADV of 1.00% of average TCV. 
The Exchange is also proposing to decrease the threshold at which 
Members will qualify for the top tier of the NBBO Setter Program from 
an ADV of 1.25% of average TCV to 1.00% of average TCV. As noted above, 
the Exchange is thus eliminating any middle tier applicable to the NBBO 
Setter Program.
    The Exchange proposes to provide a NBBO Setter Rebate of $0.02 per 
contract for qualifying executions of Professional, Firm, and Market 
Maker orders by any Member that qualifies for the lower tier applicable 
to Members with an ADV equal to or greater than 0.30% of average TCV 
but less than 1.00% of average TCV. The Exchange also proposes to 
provide a NBBO Setter Rebate of $0.04 per contract for

[[Page 3646]]

qualifying executions of Professional, Firm, and Market Maker orders by 
any Member that qualifies for the higher tier applicable to Members 
with an ADV equal to or greater than 1.00% of average TCV. The changes 
proposed above, including the proposed rebates and elimination of Grow 
with Us incentives, represent a decrease of potential NBBO Setter 
Rebates that can be achieved by Members.
(x) QIP Rebates
    The Exchange is proposing to modify the tier thresholds and adjust 
the rebates provided under the QIP. Currently, the Exchange offers an 
additional rebate per contract for an order that adds liquidity to the 
BATS Options order book in options classes in which a Member is Market 
Maker registered on BATS Options pursuant to Rule 22.2 as follows:

------------------------------------------------------------------------
                                                          Professional/
  ADV of BATS options registered market      Customer      firm/market
                  maker                                       maker
------------------------------------------------------------------------
ADV less than 0.25% TCV..................         0.01              0.05
ADV equal to or greater than 0.25% but            0.03              0.05
 less than 0.75% TCV.....................
ADV equal to or greater than 0.75% but            0.03              0.06
 less than 1.25% TCV.....................
ADV equal to or greater than 1.25% TCV...         0.03              0.08
------------------------------------------------------------------------

    The Exchange proposes to eliminate the lowest tier of QIP such that 
a Member must at least achieve an ADV of 0.30% of average TCV in order 
to qualify for an additional rebate. The Exchange also proposes to 
increase the lower threshold to qualify for the lowest QIP tier from an 
ADV of 0.25% of average TCV to an ADV of 0.30% of average TCV and to 
increase the upper threshold from 0.75% to 1.00%. The Exchange is also 
proposing to lower the threshold for the upper QIP tier from an ADV of 
1.25% of average TCV to an ADV of 1.00% of average TCV. In conjunction 
with these proposed threshold adjustments, the Exchange is also 
proposing to eliminate the middle tier that currently covers a Member 
with an ADV as a percentage of TCV equal to or greater than 0.75%, but 
less than 1.25%. The Exchange is also proposing to remove Customer 
orders from participation in the QIP. Finally, the Exchange is 
proposing to modify the QIP by providing qualifying Professional, Firm, 
and Market Maker orders with QIP rebates, as follows:

------------------------------------------------------------------------
                                                          Professional/
      ADV of BATS options registered market maker          firm/market
                                                              maker
------------------------------------------------------------------------
ADV equal to or greater than 0.30% but less than 1.00%             $0.02
 TCV..................................................
ADV equal to or greater than 1.00% TCV................              0.04
------------------------------------------------------------------------

    The changes proposed above, including the proposed rebates and 
elimination of QIP incentives for Customer orders, represent a decrease 
of potential additional QIP rebates that can be achieved by Members.
Additional Changes
    In addition to the proposals set forth above, the Exchange proposes 
various minor additional changes. In conjunction with the elimination 
of Grow with Us pricing incentives, the Exchange proposes to eliminate 
the definition of High Water Mark, which is only applicable to Grow 
with Us pricing, and to reserve for future use footnote 4 of the fee 
schedule, which references Grow with Us pricing. Finally, in the 
section regarding Customer rebates for added liquidity in Penny Pilot 
Securities the Exchange proposes to make changes to ensure consistent 
capitalization and references to Member ADV and to change one reference 
of adding liquidity ``from'' the Exchange to adding liquidity ``to'' 
the Exchange.
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.
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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
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    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 Exchange's tiered pricing structure and 
incentives 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 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 while certain thresholds 
to meet Exchange tiers are increasing (i.e., from ADV of 0.25% of 
average TCV to ADV of 0.30% of average TCV, and for those qualifying 
for an intermediate tier based on ADV and/or applicable Grow with Us 
incentives) the Exchange has increased its base rebates and has also 
reduced the level of ADV needed to qualify for the top tier from 1.25% 
of average TCV to 1% of average TCV.
    As explained above, while the Exchange is maintaining a tiered 
pricing structure with respect to certain fees and rebates, the 
Exchange is also proposing to eliminate considerable variability with 
respect to its pricing structure. The Exchange believes that this 
simplification will benefit Members by providing more predictable fees 
and rebates when trading on the Exchange.
    Despite the increases in fees for all orders that remove liquidity 
(Customer, Professional, Firm and Market Maker orders) in both Penny 
Pilot Securities and non-Penny Pilot Securities, the Exchange believes 
that its proposed fee structure is reasonable as the Exchange's fees 
remain generally equivalent to

[[Page 3647]]

standard fees charged by other markets with similar fee structures, 
such as the NASDAQ Options Market (``NOM'') and NYSE Arca, Inc. 
(``ARCA''). The increase in fees is also reasonable because the 
Exchange has also proposed to increase the rebates provided to add 
liquidity. Similarly, the Exchange believes that the increases are fair 
and equitable because, in addition to increased rebates generally, the 
Exchange will continue to offer incentives to receive reduced fees and 
enhanced rebates that provide all Members with several different ways 
to offset the increase 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. The proposed increases to 
rebates are reasonable in that they will further incentivize Members to 
add liquidity to BATS Options and will help to offset proposed 
increases in fees. Additional information regarding each of the 
proposed changes is set forth below.
    The Exchange's proposed changes to the rebates provided for 
Customer orders that add liquidity to the BATS Options order book in 
Penny Pilot Securities are reasonable and equitably allocated because 
they represent an increase in rebates for all Customer orders submitted 
to the Exchange and simplify the Exchange's rebate structure for such 
orders. Most significantly, the lowest possible rebate for any Customer 
order would be increased by $0.15 per contract. The proposed changes, 
including modifications to the Exchange's tiered rebate structure, are 
fair and equitable and not unreasonably discriminatory for the reasons 
described above with respect to volume-based rebates and fees.
    The Exchange's proposed changes with respect to the fees charged 
for Customer orders that remove liquidity from the BATS Options order 
book in Penny Pilot Securities are reasonable and equitably allocated 
because they will significantly simplify the pricing structure for 
executions of Customer orders on the Exchange. Further, the proposed 
fees are reasonable because they represent only a modest increase to 
fees that can be offset with the substantial increase to rebates for 
such orders, as described above. The Exchange further believes that its 
fees for Customer orders are reasonable because they are generally 
equivalent to standard fees charged by other markets with similar fee 
structures, such as NYSE Arca and NOM. The Exchange believes that the 
proposed fees are equitably allocated and not unreasonably 
discriminatory because they are as low or lower than the fee to remove 
liquidity charged to all other participants on the Exchange and because 
the fee applies equally to all Customer orders.
    The Exchange's proposal to modify the rebate provided to non-
Customers that add liquidity to the Exchange in Penny Pilot Securities 
is reasonable and equitably allocated because it will simplify and 
increase the rebate provided to all Professional, Firm, or Market Maker 
orders that add liquidity to the BATS Options order book regardless of 
the capacity of the order that removes such liquidity. As such, and 
because all Professional, Firm, and Market Maker orders will receive 
the same rebate (subject to additional incentives, including the NBBO 
Setter Program and QIP), the Exchange believes that the proposal is not 
unreasonably discriminatory.
    The Exchange's proposal 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 
fee is reasonable because it represents only a modest increase to fees 
that can be offset with the increase to rebates for such orders, as 
described above. The Exchange further believes that its fees for 
Professional, Firm, and Market Maker orders in Penny Pilot Securities 
are reasonable because they are generally equivalent to standard fees 
charged by other markets with similar fee structures, such as NYSE Arca 
and NOM. The Exchange's offering of a reduced fee for Professional, 
Firm, and Market Maker orders for Members that meet a volume threshold 
is fair and equitable and not unreasonably discriminatory for the 
reasons described above with respect to volume-based rebates and fees.
    The proposed increase in rebate for Customer orders that add 
liquidity in non-Penny Pilot Securities is reasonable and equitably 
allocated because it is the highest rebate provided by the Exchange, 
which the Exchange believes will further incent the addition of 
Customer orders in non-Penny Pilot Securities to the Exchange's order 
book. The proposed change is not unreasonably discriminatory in that it 
will apply equally to all Customer orders.
    The proposed increase to the fee for Customer orders that remove 
liquidity in non-Penny Pilot Securities is reasonable and equitably 
allocated because it represents only a modest increase to the existing 
fee and remains generally equivalent to standard fees charged by other 
markets with similar fee structures, such as NYSE Arca and NOM. The 
proposal is not unreasonably discriminatory because it will apply 
equally to all Customer orders. As described above, the fee increase is 
proposed along with a corresponding increase to the rebate, which 
should offset some or all of the increased cost to Customer orders.
    The Exchange's proposed increase to the rebate for Professional, 
Firm, and Market Maker orders that add liquidity in non-Penny Pilot 
Securities is reasonable and equitably allocated because it will incent 
the addition of Professional, Firm, and Market Maker orders in non-
Penny Pilot Securities to the Exchange's order book. The proposed 
change is not unreasonably discriminatory in that it will apply equally 
to all Professional, Firm, and Market Maker orders.
    The Exchange's proposed increase to the fee to remove liquidity for 
Professional, Firm, and Market Maker orders that remove liquidity in 
non-Penny Pilot Securities is reasonable and equitably allocated 
because it represents only a modest increase to the existing fee and 
remains generally equivalent to standard fees charged by other markets 
with similar fee structures, such as NYSE Arca and NOM. 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. As noted elsewhere, the fee increase is 
proposed along with a corresponding increase to the rebate, which 
should offset some or all of the increased cost to Customer orders.
    The Exchange's proposed changes to the NBBO Setter Program, 
including a general reduction to the rebates available through the 
program, are reasonable and equitably allocated in that they are 
coupled with increases to the standard rebate to add liquidity. The 
proposed rebate structure will reduce the variability and complexity of 
rebates for Professional, Firm and Market Maker orders added to the 
Exchange's order book. The applicability of the NBBO

[[Page 3648]]

Setter Program to Members achieving certain volume thresholds is fair 
and equitable and not unreasonably discriminatory for the reasons 
described above with respect to volume-based rebates and fees. Further, 
the Exchange notes that it has reduced the ADV threshold that a Member 
needs to reach in order to qualify for the higher tier. The Exchange 
also notes that continued exclusion of Customer orders from NBBO Setter 
rebates is reasonable, fair and equitable, and not unreasonably 
discriminatory given the higher base and tiered rebates already 
provided to Customer 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 most circumstances, 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.
    Similarly, the Exchange's removal of Customer orders from the QIP 
is reasonable, fair and equitable, and not unreasonably discriminatory 
due to the higher base and tiered rebates already provided to Customer 
orders. The applicability of the QIP to Members achieving certain 
volume thresholds is fair and equitable and not unreasonably 
discriminatory for the reasons described above with respect to volume-
based rebates and fees. The Exchange also notes that although 
registration as a market maker is required to qualify for QIP, such 
registration is available to all Members on an equal basis. With 
respect to the reduced rebates available through QIP, the Exchange 
reiterates that such reduction is reasonable and equitably allocated 
due to a higher base rebate that will be applicable to all Members. Not 
only will the higher base rebate help Members to offset any reduction 
to QIP rebates but the lower QIP rebates paid by the Exchange will 
allow the Exchange to fund such higher based rebates.
    The elimination of the Grow with Us incentive from the Exchange's 
tiered pricing structure is also reasonable, equitably allocated and 
not unfairly discriminatory because it will significantly simplify the 
Exchange's fee schedule and has been coupled with various increases to 
standard rebates that will help to reduce the variability of rebates 
provided by the Exchange. Further, elimination of the Grow with Us 
incentive will allow the Exchange to allocate resources devoted to the 
program to other pricing programs.
    Finally, the Exchange believes that the various formatting and 
ministerial changes are reasonable as they will help to avoid confusion 
for those that review the Exchange's fee schedule.

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. 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. The proposed changes are 
generally intended to simplify the Exchange's fee structure while 
enhancing the base rebates for liquidity added to the Exchange, which 
is intended to draw additional liquidity to the Exchange. Thus, the 
proposal is a competitive proposal that is intended to add additional 
liquidity to the Exchange, which will, in turn, benefit the Exchange 
and all Exchange participants.

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 \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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-2014-001 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-2014-001. 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-2014-001, and should be 
submitted on or before February 12, 2014.

[[Page 3649]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01104 Filed 1-21-14; 8:45 am]
BILLING CODE 8011-01-P