Document ID: SEC-2010-1642-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2010-10-27T04:00Z

[Federal Register: October 27, 2010 (Volume 75, Number 207)]
[Notices]               
[Page 66180-66183]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27oc10-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63149; File No. SR-BYX-2010-004]

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

October 21, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 14, 2010, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. 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.
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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 \3\ of the Exchange pursuant to BYX 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 15, 
2010.
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    \3\ 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to implement a fee schedule applicable to use 
of the Exchange commencing on the date it begins operating as a 
national securities exchange. The Exchange currently intends to 
commence operations on October 15, 2010. Please find below a 
description of the fees and rebates that the Exchange intends to impose 
under the initial, proposed fee schedule.
    The Exchange does not propose to charge different fees or grant 
different rebates depending on the amount of orders submitted to, and/
or trades executed on or through, the Exchange. Accordingly, all fees 
and rebates

[[Page 66181]]

described below are applicable to all Members, regardless of the 
overall volume of their trading activities on the Exchange. 
Furthermore, the proposed fees are different but structurally similar 
to those of the Exchange's affiliated exchange, BATS Exchange, Inc. 
(``BATS Exchange'' or ``BATS''), though the Exchange has omitted fees 
that are not currently proposed to be charged by the Exchange or that 
are not pertinent to the Exchange's planned business.
(i) Standard Order Execution Fees--Removing Liquidity
    The Exchange is proposing to rebate $0.0003 per share for 
executions that remove liquidity from the Exchange, with the exception 
of executions involving securities priced under $1.00 per share. With 
respect to securities priced under $1.00 per share that remove 
liquidity from the Exchange's book, the Exchange proposes to charge a 
fee of 0.10% of the total dollar value of the execution.
(ii) Standard Order Execution Fees--Adding Liquidity
    The Exchange proposes to establish a no charge and no rebate 
structure for adding displayed liquidity to the BYX order book in 
securities priced $1.00 and above and for adding any liquidity 
(displayed or non-displayed) to the BYX order book securities priced 
below $1.00. The Exchange proposes charging $0.0005 per share that adds 
non-displayed liquidity to the BYX order book in securities priced 
$1.00 and above. As defined on the proposed fee schedule, the reference 
to ``non-displayed liquidity'' for purposes of the fee schedule 
includes liquidity resulting from all forms of Pegged Orders,\4\ Mid-
Point Peg Orders,\5\ and Non-Displayed Orders,\6\ but does not include 
liquidity resulting from Reserve Orders \7\ or Discretionary Orders.\8\
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    \4\ As defined in BYX Rule 11.9(c)(8).
    \5\ As defined in BYX Rule 11.9(c)(9).
    \6\ As defined in BYX Rule 11.9(c)(11).
    \7\ As defined in BYX Rule 11.9(c)(1).
    \8\ As defined in BYX Rule 11.9(c)(10).
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(iii) Standard Routing Pricing--Best Execution Routing
    The Exchange proposes to charge the routing charges described 
below. All charges by the Exchange for routing are applicable only in 
the event that an order is executed. In other words, there is no charge 
for orders that are routed away from the Exchange but are not filled. 
The best execution routing fees proposed by this filing are identical 
to those charged by the Exchange's affiliated exchange, BATS Exchange 
(for identical best execution routing strategies). The standard best 
execution routing strategies offered by the Exchange include Parallel 
D, Parallel 2D, Parallel T, CYCLE, RECYCLE and DRT.
    The Exchange proposes to offer the Parallel D, Parallel 2D, CYCLE 
and RECYCLE routing strategies at a charge of $0.0028 per share for 
executions that occur at other trading venues as a result of such 
strategies. The Exchange proposes to offer its Parallel T routing 
strategy with a charge of $0.0033 per share for executions that occur 
at other trading venues via Parallel T.
    With respect to securities priced under $1.00 per share, the 
Exchange proposes to charge 0.28% of the total dollar value of the 
execution of an order that is routed away from the Exchange through 
Parallel D or Parallel 2D. Similarly, and based on the charge of 
$0.0033 per share for Parallel T routing, the Exchange proposes to 
charge 0.33% of the total dollar value of the execution for any 
security priced under $1.00 per share that is routed away from the 
Exchange through Parallel T.
    In addition, consistent with the fees charged by BATS Exchange, BYX 
proposes to offer its DRT routing strategy to Members with a fee of 
$0.0020 per share executed at a dark liquidity venue. This lower fee is 
based on the fact that various dark liquidity venues to which the 
Exchange routes provide the possibility of executions at reduced rates. 
Finally, as BATS Exchange does on its fee schedule, BYX proposes to 
note that the current default best execution routing strategy used by 
the Exchange is to route through DRT to dark liquidity venues and then 
to other market centers through Parallel D.
(iv) Destination Specific Routing Pricing
    The Exchange proposes to charge a consistent, discounted fee for 
Destination Specific Orders routed to certain of the largest market 
centers measured by volume (NYSE, NYSE Arca and NASDAQ) (referred to by 
the Exchange as ``One Under'' pricing). The One Under pricing proposed 
by BYX is identical to One Under pricing offered by BYX's affiliated 
exchange, BATS Exchange, and in each instance the execution fee will be 
$0.0001 less per share for orders routed to such market centers by the 
Exchange than such market centers currently charge for removing 
liquidity. Specifically, the Exchange proposes to charge: (a) $0.0020 
per share for BYX + NYSE Destination Specific Orders executed at NYSE; 
(b) $0.0027 per share for BYX + NYSE ARCA Destination Specific Orders 
executed at NYSE Arca in Tape B securities; and (c) $0.0029 per share 
for BYX + NASDAQ Destination Specific Orders executed at NASDAQ or BYX 
+ NYSE ARCA Destination Specific Orders executed at NYSE Arca in Tape A 
or Tape C securities, while such market centers currently charge 
removal rates, respectively, of: (x) $0.0021 per share; (y) $0.0028 per 
share; and (z) $0.0030 per share.
    In conjunction with this proposal, the Exchange proposes to set 
forth these fees under a separate heading in order to make clear the 
order types to which ``One Under'' pricing applies. All other 
Destination Specific Order fees (i.e., to BATS Exchange or other market 
centers, as described below) can be found under the heading for ``Other 
Non-Standard Routing Options.''
    The Exchange also proposes to adopt pricing for a Destination 
Specific Order \9\ routed to and executed by its affiliated exchange, 
BATS Exchange. The Exchange proposes to refer to this routing as 
``B2B'' routing, and proposes to charge $0.0025 per share for B2B 
orders routed to and executed by BATS Exchange. This charge is the same 
charge a Member would incur if it routed an order to BATS Exchange 
directly. In addition, the Exchange proposes to adopt a charge of 
$0.0030 per share for Destination Specific Orders sent to and executed 
by any market center other than the NYSE, NYSE Arca, NASDAQ or BATS 
Exchange that displays a Protected Quotation \10\ (each a ``Protected 
Market Center''). Additionally, the Exchange proposes to charge $0.0020 
per share for executions that occur at a dark liquidity venue through a 
BYX + DRT Destination Specific Order.
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    \9\ As defined in BATS Rule 11.9(c)(12).
    \10\ As defined in BATS Rule 1.5(t).
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(v) Other Non-Standard Routing Options
    In addition to non-standard routing options described elsewhere in 
this filing, the Exchange also proposes to charge certain other fees 
identical to those charged by its affiliated exchange, BATS Exchange. 
Specifically, the Exchange proposes to charge $0.0033 per share for 
Directed ISO's.\11\ The Exchange also proposes not to charge for 
Modified Destination Specific Orders \12\ routed to and executed by a 
dark liquidity venue through its ``Dark Scan'' routing strategy.
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    \11\ As defined in BYX Rule 11.9(d)(2).
    \12\ As defined in BATS Rule 11.9(c)(13).
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(vi) TRIM Routing Pricing
    The Exchange proposes to adopt pricing for its new TRIM order 
routing strategy, which strategy is focused on

[[Page 66182]]

seeking execution of orders while minimizing execution costs by routing 
only to certain low cost execution venues on the Exchange's System 
routing table. The Exchange proposes to charge Members $0.0025 per 
share for TRIM orders routed to and executed by its affiliated 
exchange, BATS Exchange, which is the same rebate to be offered by BATS 
to market participants that route directly to and execute at BATS. For 
executions through TRIM routing that occur at a dark liquidity venue 
(identified by the Exchange as a ``DRT'' venue) or the NYSE, the 
Exchange proposes to charge $0.0020 per share. Finally, to the extent 
an order routed through TRIM executes at a low-priced venue other than 
BATS, a DRT venue or NYSE, the Exchange proposes neither to charge the 
Member any fee nor to pay any rebate for such execution.
(vii) SLIM Routing Pricing
    The Exchange proposes to adopt pricing for its new SLIM order 
routing strategy, which, similar to TRIM, is focused on seeking 
execution of orders while minimizing execution costs by routing to 
certain low cost execution venues on the Exchange's System routing 
table. The primary distinction between TRIM and SLIM is that SLIM will 
route first to low cost execution venues but will ultimately route to 
all venues on the Exchange's System routing table, whereas TRIM only 
routes to low cost execution venues. As with TRIM, the Exchange 
proposes to charge Members $0.0025 per share for SLIM orders routed to 
and executed by its affiliated exchange, BATS. For executions through 
SLIM routing that occur at the NYSE, the Exchange proposes to charge 
$0.0020 per share. Finally, to the extent an order routed through SLIM 
executes at any other venue, including any DRT venue, the Exchange 
proposes to charge $0.0026 per share.
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. 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) 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.
    The various routing fees proposed by this filing, including fees 
for order execution and routing strategies offered by the Exchange, are 
intended to attract order flow to BYX by offering competitive and easy 
to understand rates to Exchange Members. All fees are structured in a 
manner comparable to corresponding fees of the Exchange's affiliate, 
BATS Exchange, and are set at levels equal to or lower than the levels 
of the comparable BATS Exchange fees. The differences between the fees 
charged for routing to specific market centers and routing of specific 
order types described above are due to different cost structures at the 
various market centers to which orders may be routed and other factors. 
For instance, lower transaction fees at NYSE allow the Exchange to 
charge lower routing fees for BATS + NYSE Destination Specific Orders 
than Destination Specific Orders routed elsewhere (i.e., to NASDAQ and 
other protected market centers). Similarly, lower transaction fees at 
dark liquidity venues permit the Exchange to charge lower routing fees 
for orders routed to such venues. Because the Exchange incurs 
additional costs and performs additional services in connection with 
certain routing services, such as the routing of Directed ISOs and 
Parallel T routing, it proposes to charge a higher routing fee for such 
orders. Finally, because the Exchange believes that a uniform routing 
fee for all other orders routed away from the Exchange through its best 
execution routing strategies provides Members with certainty as to 
transaction costs, it proposes to charge standard routing fees for such 
orders, rather than further differentiating routing fees that it 
charges to Members.
    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 services offered by the Exchange 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 practices 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

    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 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-BYX-2010-004 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-BYX-2010-004. 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

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submission,\15\ 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, 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-BYX-
2010-004 and should be submitted on or before November 17, 2010.
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    \15\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27144 Filed 10-26-10; 8:45 am]
BILLING CODE 8011-01-P