Document ID: SEC-2014-0799-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-05-14T04:00Z

[Federal Register Volume 79, Number 93 (Wednesday, May 14, 2014)]
[Notices]
[Pages 27666-27669]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11032]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72128; File No. SR-BATS-2014-017]

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.

May 8, 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 April 28, 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

    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 defined as ``any registered broker or dealer 
that has been admitted to membership in the Exchange.'' See Exchange 
Rule 1.5(n).
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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 in order to: (i) Introduce ``Step-Up Tiers'' and a 
corresponding definition of ``Step-Up Add TCV'' on the Exchange's 
equities trading platform (``BATS Equities''); (ii) introduce a 
``Cross-Asset Step-Up Tier'' and a corresponding definition of 
``Options Step-Up Add TCV'' for the purposes of BATS Equities pricing; 
(iii) introduce a new tier 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\ and add a

[[Page 27667]]

corresponding definition of ``ADAV'' for purposes of BATS Options 
pricing; and (iv) make a change to clarify that Enhanced Rebates will 
continue to only apply to Members that qualify for Volume Tier 2.
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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.
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Background
    Currently, with respect to BATS Equities, the Exchange determines 
the liquidity adding rebate that it will provide to Members using the 
Exchange's tiered pricing structure, which is based on the Member 
meeting certain volume tiers based on their ADAV \8\ as a percentage of 
TCV \9\ or ADV \10\ as a percentage of TCV. Under such pricing 
structure, a Member will receive an adding rebate of anywhere between 
$0.0020 and $0.0032 per share executed, depending on the volume tier 
for which such Member qualifies.
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    \8\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``ADAV'' means average daily added volume 
calculated as the number of shares added per day on a monthly basis; 
neither routed shares nor shares added on any day that the 
Exchange's system experiences a disruption that lasts for more than 
60 minutes during regular trading hours (``Exchange System 
Disruption'') and on the last Friday in June (the ``Russell 
Reconstitution Day'') are included in ADAV calculation.
    \9\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``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, excluding volume on any day that the 
Exchange experiences an Exchange System Disruption or the Russell 
Reconstitution Day.
    \10\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``ADV'' means average daily volume calculated as 
the number of shares added or removed, combined, per day on a 
monthly basis; neither routed shares nor shares added or removed on 
any day that the Exchange experiences an Exchange System Disruption 
and the Russell Reconstitution Day are included in ADV calculation.
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    The Exchange proposes to add two new types of tiers in addition to 
the volume tiers described above: Step-Up Tiers and a Cross-Asset Step-
Up tier. The existing volume tiers will remain the same and both the 
Step-Up Tiers and Cross-Asset Step Up Tier will provide Members with 
additional ways to qualify for enhanced rebates. As proposed, a Member 
will receive the higher of the volume rebates, step-up rebates, or 
cross-asset step-up rebates for which they qualify.
Step-Up Tier 1 and Step-Up Tier 2
    The Exchange proposes to add two tiers to its fee schedule: Step-Up 
Tier 1 and Step-Up Tier 2, both of which are similar to step-up tiers 
currently employed by NYSE Arca, Inc. (``Arca'').\11\ The Exchange also 
proposes to add a corresponding definition of ``Step-Up Add TCV.'' 
Step-Up Tier 1 and Step-Up Tier 2 are designed to incentivize Members 
to increase their participation on the Exchange in terms of their ADAV 
compared to their January 2014 ADAV.
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    \11\ See Exchange Act Release No. 64820 (July 12 [sic], 2011), 
76 FR 40974 (July 6 [sic], 2011) (SR-NYSEArca-2011-41).
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    For purposes of BATS Equities pricing, the Exchange also proposes 
to define the term, ``Step-Up Add TCV'' within the definition of ADAV. 
As described more fully below, Step-Up Add TCV would be defined as ``a 
percentage of TCV in January 2014 subtracted from current ADAV as a 
percentage of TCV.'' Proposed Step-Up Tier 1 would provide a rebate of 
$0.0029 per share where the Member's Step-Up Add TCV is equal to or 
greater than 0.10% and Step-Up Tier 2 would provide a rebate of $0.0030 
where the Member's Step-Up Add TCV is equal to or greater than 0.15%. A 
Member's Step-Up Add TCV is calculated as the increase in the Member's 
current ADAV as a percentage of TCV (``Current ADAV'') over the 
Member's ADAV as a percentage of TCV from January 2014 (``Baseline 
ADAV''). Where a Member's Current ADAV is at least 0.10% (0.15%) 
greater than its Baseline ADAV, the Member will qualify for Step-Up 
Tier 1 (Step-Up Tier 2). By way of example, where a Member's Baseline 
ADAV is 0.09%, the Member would qualify for Step-Up Tier 1 if the 
Member's Current ADAV is at least 0.19% and Step-Up Tier 2 if the 
Member's Current ADAV is at least 0.24%.
Cross-Asset Step-Up Tier
    The Exchange also proposes to add a single Cross-Asset Step-Up 
Tier, which is designed to incentivize Members to both increase their 
participation on the Exchange in terms of their ADAV and their ADAV on 
BATS Options (``Options ADAV'') compared to their January 2014 ADAV and 
Options ADAV. The Cross-Asset Step-Up Tier is also similar to a cross 
asset tier employed by Arca.\12\
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    \12\ See Exchange Act Release No. 67424 (July 18 [sic], 2012), 
77 FR 42347 (July 12 [sic], 2012) (SR-NYSEArca-2012-70).
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    The Exchange also proposes to add corresponding definitions of 
``ADAV'' for BATS Options pricing and ``Options Step-Up Add TCV'' for 
BATS Equities pricing. First, for purposes of BATS Options pricing, the 
Exchange proposes to define ``ADAV'' within in the definition of ADV 
for as the ``average daily added volume calculated as the number of 
contracts added.'' The Exchange also proposes to clarify that ADAV is 
calculated on a monthly basis and that neither routed shares nor shares 
added on any day that the Exchange experiences an Exchange System 
Disruption and the Russell Reconstitution Day are included in ADAV 
calculation. The Exchange notes that its proposed definition of ADAV 
for BATS Options pricing mirrors the definition of ADAV under BATS 
Equities pricing. Second, for purposes of BATS Equities pricing, the 
Exchange proposes to define ``Options Step-Up Add TCV'' within the 
definition of ADV and ADAV as ``ADAV as a percentage of TCV in January 
2014 subtracted from current ADAV as a percentage of TCV, using the 
definitions of ADAV and TCV as provided under Options Pricing.''
    The proposed Cross-Asset Step-Up Tier would provide a rebate of 
$0.0032 per share where the Member's Step-Up Add TCV is equal to or 
greater than 0.30% and the Member's Options Step-Up Add TCV is greater 
than 0.40%. A Member's Options Step-Up Add TCV is calculated as the 
increase in the Member's current Options ADAV as a percentage of 
options TCV (``Options TCV'') \13\ (``Current Options ADAV'') over the 
Member's Options ADAV as a percentage of Options TCV from January 2014 
(``Baseline Options ADAV''). By way of example, where a Member's 
Baseline ADAV is 0.09% and the Member's Baseline Options ADAV is 0.04%, 
the Member would need to achieve a Current ADAV of 0.39% and a Current 
Options ADAV of 0.44% in order to qualify for the Cross-Asset Step-Up 
Tier and its $0.0032 per share rebate.
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    \13\ As provided in the fee schedule, for purposes of BATS 
Options pricing, ``TCV'' means 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, 
excluding volume on any day that the Exchange experiences an 
Exchange System Disruption.
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Additional Cross-Asset Tier
    The Exchange also proposes to add an additional cross-asset tier 
for Customer orders that add liquidity on BATS Options in Penny Pilot 
Securities, which is also similar to a cross-asset tier employed by 
Arca.\14\ The proposed cross-asset tier would provide an additional way 
for Members to receive a $0.50 per contract rebate, which is the 
highest rebate available in Customer orders in Penny Pilot Securities. 
Currently, in order to receive a $0.50 rebate for Customer orders that 
add liquidity in Penny Pilot Securities, the

[[Page 27668]]

Member must have an ADV \15\ equal to or greater than 1.00% of average 
TCV. The Exchange now proposes to create an additional cross-asset 
tier, which is designed to incentivize Members to achieve certain 
levels of participation in both BATS Options and BATS Equities. As 
proposed, the cross-asset tier would provide a rebate of $0.0050 per 
contract for Customer orders that add liquidity on BATS Options in 
Penny Pilot Securities where such Member has an ADV equal to or greater 
than 0.90% of average TCV on BATS Options and has on BATS Equities and 
ADAV equal to or greater than 0.25% of average TCV, as defined on the 
fee schedule under Equities Pricing. Such a tier would provide Members 
with an additional means to reaching the $0.0050 per contract rebate 
for Customer orders in Penny Pilot Securities.
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    \14\ See Exchange Act Release No. 67020 (May 24 [sic], 2012), 77 
FR 31050 (May 18 [sic], 2012) (SR-NYSEArca-2012-41).
    \15\ As provided in the fee schedule, for purposes of BATS 
Options pricing, ``ADV'' means average daily volume calculated as 
the number of contracts added or removed, combined, per day on a 
monthly basis; neither routed shares nor shares added or removed on 
any day that the Exchange experiences an Exchange System Disruption 
and the Russell Reconstitution Day are included in ADV calculation.
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Clarifying Change
    Finally, the Exchange proposes to make one non-substantive change 
to the fee schedule by adding the word ``Volume'' in front of ``Tier 
2'' under Additional Rebates. The Exchange believes this change further 
clarifies that the Additional Rebates will continue to apply only to 
Members that qualify for Volume Tier 2.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule on May 1, 2014.
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.\16\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4).
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Step-Up and Cross-Asset Tiers
    The Exchange believes that providing additional financial 
incentives to Members that demonstrate an increase over their Baseline 
ADAV through the Step-Up Tiers and the cross-asset step up tier offers 
an additional, flexible way to achieve financial incentives from the 
Exchange and encourages Members to add increasing amounts of liquidity 
to both BATS Equities and BATS Options as compared to January 2014. 
Similarly, the Exchange cross-asset tier provides an additional 
incentive for Members to reach certain thresholds on both BATS Equities 
and BATS Options, which will also encourage members to add liquidity on 
BATS Equities and BATS Options. The increased liquidity from each of 
these proposals also benefits all investors by deepening the BATS 
Equities and BATS Options liquidity pools, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection. Such pricing programs thereby reward a Member's 
growth pattern and such increased volume increases potential revenue to 
the Exchange, and will allow the Exchange to continue to provide and 
potentially expand the incentive programs operated by the Exchange. 
These pricing programs are also fair and equitable in that they are 
available to all Members and will result in Members receiving either 
the same or an increased rebate than they would currently receive. The 
Exchange also notes that the proposed step-up and cross-asset tiers are 
similar to pricing tiers currently available on Arca.\18\
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    \18\ See supra notes 9, 10, and 12.
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    Volume-based rebates and fees such as the ones maintained on both 
BATS Equities and BATS Options as well as the Step-Up Tiers, the cross-
asset step-up tier, and the cross-asset tier proposed herein, 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. Further, the Exchange believes that the 
cross-asset step-up tier and cross-asset tier will provide such 
enhancements in market quality on both BATS Equities and BATS Options 
by incentivizing increased participation on both platforms. The 
Exchange notes that it is not proposing to modify any existing tiers, 
but rather to add new tiers that will provide Members with additional 
ways to receive higher rebates, meaning that under the proposal, a 
Member will receive either the same or a higher rebate than they would 
receive today. Accordingly, the Exchange believes that the proposed 
additions to the Exchange's tiered pricing structure and incentives are 
not unfairly discriminatory because they will apply uniformly to all 
Members and are consistent with the overall goals of enhancing market 
quality on both BATS Equities and BATS Options.
Clarifying Change
    Finally, the Exchange believes that the clarifying change that adds 
the word ``Volume'' in front of ``Tier 2'' under Additional Rebates is 
reasonable as it will help to avoid confusion for those that review the 
Exchange's fee schedule. The Exchange notes that the proposed change is 
not designed to amend any fee or rebate, nor alter the manner in which 
it assesses fees or calculates rebates. The Exchange believes that the 
proposed amendment is intended to make the fee schedule clearer and 
less confusing for investors and eliminate potential investor 
confusion, thereby removing impediments to and perfecting the mechanism 
of a free and open market and a national market system, and, in 
general, protecting investors and the public interest.

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. With 
respect to the proposed new tiered rebates, 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 both BATS Equities and BATS Options. The 
Exchange also believes the proposed step-up and cross-asset tiers would 
enhance competition because they are similar to pricing tiers currently 
available on Arca.\19\ 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

[[Page 27669]]

deem fee structures to be unreasonable or excessive. The proposed 
changes are generally intended to enhance the rebates for liquidity 
added to the Exchange, which is intended to draw additional liquidity 
to the Exchange. In addition, the Exchange believes that the proposed 
non-substantive change to add the word ``Volume'' in front of ``Tier 
2'' under Additional Rebates would not affect intermarket nor 
intramarket competition because the change does not alter the criteria 
necessary to achieve the tiers nor the rates offered by the tiers. As 
such, 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.
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    \19\ See supra notes 9, 10, and 12.
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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 \20\ and paragraph (f) of Rule 19b-4 
thereunder.\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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-2014-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2014-017. 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 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 at 100 F Street NE., 
Washington, DC 20549-1090 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-2014-017, and should be submitted on or before June 4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11032 Filed 5-13-14; 8:45 am]
BILLING CODE 8011-01-P