Document ID: SEC-2011-0027-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2011-01-07T05:00Z

[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Notices]
[Pages 1205-1208]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-93]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63632; File No. SR-BATS-2010-038]

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.

January 3, 2011
    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 December 21, 2010, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify its fee schedule applicable to 
Members \5\ 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 January 3, 
2011.
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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 the ``Options Pricing'' section of 
its fee schedule to: (i) Modify its pricing for Customer \6\ orders by 
decreasing the fee for removing liquidity from the Exchange and 
increasing the rebate for adding liquidity to the Exchange; (ii) add a 
rebate specifically for orders that set either the national best bid 
(the ``NBB'') or the national best offer (the ``NBO'') where the Member 
meets certain

[[Page 1206]]

average daily volume requirements; (iii) modify its pricing for Firm 
\7\ and Market Maker \8\ orders by increasing the fee for all orders 
that remove liquidity while also increasing the rebate for orders that 
add liquidity by either $0.05 or $0.15 per contract depending on the 
capacity of the remover of the liquidity; (iv) modify its pricing for 
Customer Directed ISO \9\ orders; and (v) establish fees that will 
apply to all best execution routing strategies offered by the Exchange 
\10\ and to Destination Specific Order \11\ routing strategies in order 
to eliminate the disparate pricing between the two types of routing.
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    \6\ As defined on the Exchange's fee schedule, the term 
``Customer'' applies to any transaction identified by a member for 
clearing in the Customer range at the OCC.
    \7\ As defined on the Exchange's fee schedule, the term ``Firm'' 
applies to any transaction identified by a member for clearing in 
the Firm range at the OCC.
    \8\ As defined on the Exchange's fee schedule, the term ``Market 
Maker'' applies to any transaction identified by a member for 
clearing in the Market Maker range at the OCC.
    \9\ As defined in BATS Rule 21.1(d)(12).
    \10\ The Exchange's routing strategies are defined in BATS Rule 
21.9(a)(2).
    \11\ As defined in BATS Rule 21.1(d)(7).
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(i) Customer Pricing
    The Exchange currently charges $0.30 per contract for all orders 
that remove liquidity from the BATS Exchange options market (``BATS 
Options'') and pays $0.20 per contract for all orders that add 
liquidity to BATS Options. The Exchange proposes to both lower the fee 
for removing liquidity to $0.25 per contract and raise the rebate for 
adding liquidity to $0.25 for Customer orders. The Exchange believes 
that this change will generate an increase in Customer order flow and 
will provide more liquidity on the Exchange.
(ii) NBBO Setter Rebate
    The Exchange proposes to adopt for its options platform a $0.50 per 
contract rebate upon execution for all orders that add liquidity that 
sets either the NBB or NBO (the ``NBBO Setter Rebate'') \12\ so long as 
the Member submitting the order achieves an average daily volume of 
20,000 contracts executed on the BATS Options book for the calendar 
month. Average daily volume will be calculated by taking the total 
number of contracts traded on the Exchange (which excludes routed 
orders) during the calendar month by the Member divided by the number 
of trading days in the month. For example, in January of 2011, a month 
with twenty (20) trading days, a Member must trade at least 400,000 
contracts (20 trading days multiplied by 20,000 contracts per day) in 
the month to be eligible for the NBBO Setter Rebate. If a Member meets 
this volume requirement, all of the Member's orders that set the NBB or 
NBO that were executed in January would be eligible for the NBBO Setter 
Rebate. The NBBO Setter Rebate supersedes any other applicable 
liquidity rebates.
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    \12\ 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 believes that the proposed NBBO Setter Rebate is 
analogous to similar proposals designed to encourage market 
participants to submit aggressively priced orders previously 
implemented at other options exchanges.\13\ The Exchange also believes 
that its proposed use of a volume threshold to qualify for the rebate 
is substantively identical to tiered pricing structures that are in 
place at other exchanges.\14\ Additionally, the Exchange believes that 
the proposed NBBO Setter Rebate will incentivize the entry of more 
aggressive orders which will create tighter spreads, benefitting both 
Members and public investors.
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    \13\ See Securities Exchange Act Release No. 61869 (April 7, 
2010), 75 FR 19449 (April 14, 2010) (SR-ISE-2010-25)(notice of 
filing and immediate effectiveness to amend fees applicable to the 
International Securities Exchange, including providing increased 
rebates to market makers for being on the NBB or NBO for at least 
80% during a given month); Securities Exchange Act Release No. 61987 
(April 27, 2010), 75 FR 24771 (May 5, 2010) (SR-C2-2010-001)(notice 
of filing and immediate effectiveness to establish fees applicable 
to C2 Options Exchange, including providing Preferred Market Makers 
with participation entitlements when they are at the NBBO, 
regardless of time priority). The Commission notes that Securities 
Exchange Act Release No. 61987 did not establish any new fees.
    \14\ See Securities Exchange Act Release No. 57253 (February 1, 
2008), 73 FR 7352 (February 7, 2008) (SR-Phlx-2008-08)(notice of 
filing and immediate effectiveness to amend fees applicable to the 
Philadelphia Stock Exchange, including adopting a tiered floor 
broker options subsidy based on meeting specified trading volume 
requirements).
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(iii) Firm and Market Maker Pricing
    As mentioned above, the Exchange currently charges $0.30 per 
contract for orders that remove liquidity and pays $0.20 per contract 
for orders that add liquidity. The Exchange proposes to raise the fee 
for removing liquidity to $0.35 for Firm and Market Maker orders. The 
Exchange also proposes to increase the rebate for Firm and Market Maker 
orders that are removed by Customer orders to $0.25 per contract and to 
increase the rebate for orders that are removed by Firm or Market Maker 
orders to $0.35 per contract. The removing Member's fee will be 
determined without regard to the capacity of the adding party.
    The Exchange believes that the proposed change to the Firm and 
Market Maker pricing will encourage Firms and Market Makers to add more 
liquidity to the Exchange. The Exchange also believes that, because 
Members can neither see the capacity of orders in the Exchange's order 
book nor determine the capacity of the Member that removes an 
order,\15\ the proposal will not disadvantage public investors or 
Members. Lastly, the Exchange believes that the proposed change to the 
fee schedule is substantively similar to a pricing plan in place at 
NASDAQ OMX PHLX.\16\
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    \15\ The Exchange notes that its proposed amendment to Rule 21.1 
from Securities Exchange Act Release No. 63403 (December 1, 2010) 
(SR-BATS-2010-34) to add directed orders will not be subject to the 
proposed Firm and Market Maker Pricing. The Exchange intends to file 
a separate fee filing upon approval of the proposed amendment to 
implement directed order pricing.
    \16\ See Securities Exchange Act Release No. 57253 (February 1, 
2008), 73 FR 7352 (February 7, 2008) (SR-Phlx-2008-08)(notice of 
filing and immediate effectiveness to amend fees applicable to the 
Philadelphia Stock Exchange, including adopting a tiered subsidy 
that does not apply to Customer-to-Customer transactions).
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(iv) Directed ISO Pricing
    The Exchange currently charges $0.50 per contract for a Customer 
Directed ISO transaction and $0.60 per contract for Firm and Market 
Maker Directed ISO transactions. 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, regardless of capacity. As proposed, the charge for all 
Directed ISO transactions will be $0.60 per contract.
(v) Routing Pricing
    The Exchange proposes to adjust its fees for options order routing 
and simplify its routing pricing by eliminating the different pricing 
between Destination Specific Orders and Standard Best Execution 
Routing. Currently, the Exchange charges a flat fee per contract for 
standard routing and a fee based on the pricing model of the 
destination exchange for Destination Specific Orders. In most 
instances, the pricing for Destination Specific Orders results in 
Members being charged lower execution fees than if the orders were 
routed directly by the Member to an away venue. Rather than continuing 
to subsidize its Members' routing strategies, the Exchange proposes to 
adjust routing fees to more closely reflect the Exchange's cost of 
executing those orders at the away markets. Specifically, the Exchange 
proposes to assess a routing fee of $0.54 per contract for all Firm and 
Market Maker orders that are routed to any away exchange pursuant to 
Standard Best Execution Routing or Destination Specific Order

[[Page 1207]]

routing. The Exchange proposes to assess the following per contract 
fees for Customer orders that are routed to the named away exchange: 
$0.05 for all orders in non-``Make/Take'' issues,\17\ if applicable, 
routed to NYSE Amex, NYSE Arca, the Boston Options Exchange, the 
Chicago Board Options Exchange, the International Stock Exchange, or 
NASDAQ OMX PHLX; $0.20 for all orders routed to the Chicago Board 
Options Exchange 2; $0.25 for all orders routed to the International 
Stock Exchange in Make/Take issues; $0.29 for all orders routed to 
NASDAQ OMX PHLX in Make/Take issues; $0.48 for all orders routed to 
NASDAQ Options Market; and $0.49 for all orders routed to NYSE Arca in 
Make/Take issues.
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    \17\ As 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 routing fees are 
competitive, fair and reasonable, and non-discriminatory in that they 
approximate the cost to the Exchange of executing routed orders at an 
away market and are similar to those fees charged by other exchanges. 
The Exchange also believes that Members will benefit from the 
simplicity of the pricing structure.
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(b) of the Act.\18\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) \19\ of the Act, 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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4).
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    The various changes to Exchange execution fees, execution rebates 
and routing fees proposed by this filing are intended to attract order 
flow to BATS Options by offering competitive pricing, especially for 
those who add liquidity that sets the NBB or NBO. Most of the changes 
the Exchange has proposed to its execution fees and rebates will result 
in reduced fees or increased payments that will benefit Members due to 
the obvious economic savings and increased revenue those Members will 
receive and the potential of increased available liquidity at the 
Exchange. 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 adding incentives for aggressive quoting. The Exchange believes that 
its proposed routing rates are, on average, better than or equal to the 
fees a market participant would pay if routing through another market 
center. 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 \20\ and Rule 
19b-4(f)(2) thereunder,\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 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-2010-038 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-2010-038. 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-2010-038 and should be 
submitted on or before January 28, 2011.

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    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-93 Filed 1-6-11; 8:45 am]
BILLING CODE 8011-01-P