Document ID: SEC-2011-0997-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2011-07-14T04:00Z

[Federal Register Volume 76, Number 135 (Thursday, July 14, 2011)]
[Notices]
[Pages 41541-41543]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17692]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64846; File No. SR-BYX-2011-013]

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.

 July 8, 2011.
    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 July 1, 2011, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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 amend the fee schedule applicable to 
Members \5\ of the Exchange pursuant to BYX Rules 15.1(a) and (c). 
Changes to the fee schedule pursuant to this proposal will be 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, 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 effective July 1, 2011, in order to: (i) Decrease the 
standard rebate to remove liquidity from the Exchange; (ii) modify the 
tiered pricing structure applicable to adding displayed liquidity to 
the Exchange's order book; (iii) adopt a fee for non-displayed orders 
that add liquidity to the Exchange and receive price improvement when 
executed; (iv) increase the standard routing fee for the CYCLE, 
RECYCLE, Parallel D and

[[Page 41542]]

Parallel 2D routing strategies; \6\ and (v) make other modifications to 
certain other non-standard routing options and strategies.
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    \6\ As defined in BYX Rule 11.13.
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(i) Decrease to Standard Rebate for Removing Liquidity
    The Exchange proposes to reduce the rebate that it provides for 
orders that remove liquidity from the Exchange from $0.0003 per share 
to $0.0002 per share. Consistent with the current rebate to remove 
liquidity, the rebate per share for executions that remove liquidity 
from the Exchange will not apply to executions that remove liquidity in 
securities priced under $1.00 per share. The fee for such executions 
will remain at 0.10% of the total dollar value of the execution. 
Similarly, as is currently the case for adding liquidity to the 
Exchange, there will be no liquidity rebate for adding liquidity in 
securities priced under $1.00 per share.
(ii) Changes to Tiered Fee Structure for Adding Liquidity
    The Exchange currently maintains a tiered pricing structure for 
adding displayed liquidity in securities priced $1.00 and above that 
allows Members to add liquidity free of charge to the extent such 
liquidity sets the national best bid or offer (the ``NBBO Setter 
Program''). The NBBO Setter Program is applicable to a Member's orders 
so long as the Member submitting the order achieves the applicable 
average daily volume (``ADV'') requirement of at least 0.1% of the 
total consolidated volume (``TCV'') during the month. All other 
executions resulting from liquidity added by a Member are subject to a 
fee of $0.0002 per share. The Exchange proposes to increase this 
standard fee to add liquidity from $0.0002 per share to $0.0003 per 
share and to adopt a fee to add liquidity under the NBBO Setter 
Program. Specifically, the Exchange proposes to charge $0.0002 per 
share for Member executions under the NBBO Setter Program, which will 
continue to be available for Members with an ADV of at least 0.1% of 
TCV during the month. The Exchange does not propose to modify either 
the volume level required to meet the NBBO Setter Program or its 
existing definitions of ADV or TCV in connection with this change.
(iii) Fee for Non-Displayed Price Improved Orders
    As defined on the Exchange's current fee schedule, ``non-displayed 
liquidity'' includes liquidity resulting from all forms of Pegged 
Orders,\7\ Mid-Point Peg Orders,\8\ and Non-Displayed Orders,\9\ but 
does not include liquidity resulting from Reserve Orders \10\ or 
Discretionary Orders.\11\ The Exchange currently charges $0.0010 per 
share for non-displayed orders that add liquidity to and are executed 
on the Exchange. The Exchange recently received approval of a rule to 
allow non-displayed orders that are not executable at their most 
aggressive price to be executed at one-half minimum price variation 
less aggressive than that price.\12\ Accordingly, such non-displayed 
orders will receive price improvement upon execution. Because such 
orders will receive price improvement, the Exchange proposes to execute 
the orders subject to a fee of $0.0030 per share. The Exchange believes 
that price improvement received for executions of non-displayed orders 
will offset the additional fee charged by the Exchange for such orders.
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    \7\ As defined in BYX Rule 11.9(c)(8).
    \8\ As defined in BYX Rule 11.9(c)(9).
    \9\ As defined in BYX Rule 11.9(c)(11).
    \10\ As defined in BYX Rule 11.9(c)(1).
    \11\ As defined in BYX Rule 11.9(c)(10).
    \12\ See Securities Exchange Act Release No. 64753 (June 27, 
2011) (SR-BYX-2011-009).
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(iv) Increase to Fee for Standard Best Execution Routing Strategies
    The Exchange proposes to modify the fee charged by the Exchange for 
its CYCLE, RECYCLE, Parallel D and Parallel 2D routing strategies from 
$0.0026 per share to $0.0028 per share. To be consistent with this 
change, the Exchange proposes to charge 0.28%, rather than 0.26%, 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 these 
strategies.
(v) Other Modifications to Non-Standard Routing Rates
    Various market centers, including the Exchange's affiliate, BATS 
Exchange, Inc. (``BZX''), are implementing certain pricing changes 
effective July 1, 2011. The Exchange proposes various changes to its 
routing strategies in connection with such changes so that fees charged 
and rebates provided reflect a direct pass-through of the fee charged 
or rebate received when routing directly to such market centers. For 
instance, the Exchange's affiliate, BZX, is increasing the fee charged 
for shares removed from BZX from $0.0028 per share to $0.0029 per 
share. Accordingly, the Exchange proposes to modify its Destination 
Specific Order \13\ to BZX, as well as its TRIM \14\ and SLIM \15\ 
routing strategies with respect to any executions at BZX, to charge a 
fee of $0.0029 per share. The Exchange also proposes to modify its TRIM 
routing strategy to reflect the exact rate paid or assessed for 
executions at NASDAQ BX and EDGA Exchange, respectively. The Exchange 
currently identifies both of these venues as ``low priced venues'' and 
the Exchange does not charge or rebate its Members for orders routed to 
and executed by such venues. As proposed, the Exchange will pass on 
rebates that are paid by these venues in full. Specifically, the 
Exchange proposes to rebate $0.0014 per share for TRIM routed orders 
executed at NASDAQ BX, as this is the same rate paid by NASDAQ BX and 
is thus a direct pass-through. Similarly, the Exchange proposes to 
rebate $0.00015 per share for TRIM routed orders executed at EDGA 
Exchange, as this is, again, a direct pass-through of the rebate 
provided by EDGA Exchange.
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    \13\ As defined in BYX Rule 11.9(c)(12).
    \14\ As defined in BYX Rule 11.13(a)(3)(G).
    \15\ As defined in BYX Rule 11.13(a)(3)(H).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\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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    The changes to Exchange execution fees and rebates proposed by this 
filing are intended to attract order flow to the Exchange by continuing 
to offer competitive pricing while also allowing the Exchange to 
continue to offer incentives to providing aggressively priced displayed 
liquidity. While Members that remove liquidity from the Exchange, add 
liquidity to the Exchange and/or route orders through the Exchange's 
standard routing strategies will be paying higher fees or receiving 
lower rebates due to the proposal, the increased revenue received by 
the

[[Page 41543]]

Exchange will be used to continue to fund programs that the Exchange 
believes will attract additional liquidity and thus improve the depth 
of liquidity available on the Exchange.
    The Exchange believes that basing its tiered rebate structure on 
overall TCV, rather than a static number irrespective of overall volume 
in the securities industry, is a fair and equitable approach to 
pricing. Volume-based tiers such as the liquidity rebate tiers offered 
by the Exchange have been widely adopted in the equities markets, and 
are equitable and not unreasonably discriminatory because they are open 
to all members on an equal basis and provide rebates 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 introduction of higher volumes of orders 
into the price and volume discovery process. Accordingly, the Exchange 
believes that the proposal is not unreasonably discriminatory because 
it is consistent with the overall goals of enhancing market quality.
    Despite the decrease in rebate for all Members, the Exchange 
believes that its proposed fee structure is fair and equitable as the 
Exchange's standard rebate to remove liquidity still remains higher 
than standard rebates paid by at least one other market center with a 
similar fee structure, EDGA Exchange ($0.00015 per share).
    Also, the Exchange's proposed NBBO Setter liquidity adding fee of 
$0.0002 per share and standard displayed liquidity adding fee of 
$0.0003 per share still remain approximately the same as one other 
market center that imposes a fee to add liquidity, EDGA Exchange 
($0.00025 charge per share). The Exchange's proposed fees for adding 
liquidity are also significantly lower than the standard liquidity 
adding fees of NASDAQ OMX BX ($0.0018 charge per share). Additionally, 
the Exchange believes that the NBBO Setter Program will continue to 
incentivize the entry of more aggressive orders that will create 
tighter spreads, benefitting both Members and public investors. To the 
extent the proposed changes will result in increased fees charged to 
Members, the Exchange believes that any additional revenue it receives 
will allow the Exchange to devote additional capital to its operations 
and to continue to offer competitive pricing, which, in turn, will 
benefit Members of the Exchange.
    The Exchange believes that the additional fee for executions of 
non-displayed orders that receive price improvement is appropriate 
because the price improvement received will offset the change in the 
fee structure for such orders. The Exchange does not want to overly 
incentivize hidden liquidity, as this would be contrary to the goals of 
this proposal. Finally, the Exchange believes that the proposed changes 
to the Exchange's non-standard routing fees and strategies are 
competitive, fair and reasonable, and non-discriminatory in that they 
are designed to mirror the cost and/or rebate applicable to the 
execution if such routed orders were executed directly by the Member at 
each away market.

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act \18\ and Rule 19b-
4(f)(2) thereunder,\19\ the Exchange has designated this proposal as 
establishing or changing a due, fee, or other charge applicable to the 
Exchange's Members and non-members, which renders the proposed rule 
change effective upon filing.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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-2011-013 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-2011-013. 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 such filing will also 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 No. SR-BYX-2011-013 and should be 
submitted on or before August 4, 2011.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17692 Filed 7-13-11; 8:45 am]
BILLING CODE 8011-01-P