Document ID: SEC-2012-1597-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2012-09-27T04:00Z

[Federal Register Volume 77, Number 188 (Thursday, September 27, 2012)]
[Notices]
[Pages 59425-59427]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23765]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67905; File No. SR-BATS-2012-038]

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.

September 21, 2012.
    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 September 10, 2012, 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 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, 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 effective September 10, 2012, in order to modify 
pricing related to executions that occur on the NASDAQ Options Market 
(``NOM''). NOM implemented certain pricing changes effective September 
4, 2012,\6\ including: (i) Modification of the fee charged to 
participants classified by NOM as professionals, customers and market 
makers to remove liquidity in penny pilot options, and (ii) the 
adoption of specific fees for NOM ``Specified Symbols,'' as described 
below. In order to maintain routing fees that approximate the routing 
costs to NOM, the Exchange proposes to modify pricing for 
Professional,\7\ Firm, and Market Maker \8\ orders routed to NOM in 
non-Specified Symbols and to adopt pricing for orders routed to NOM in

[[Page 59426]]

Specified Symbols. In addition to these changes, the Exchange also 
proposes renumbering a footnote associated with Physical Connection 
Charges from 8 to 9.
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    \6\ See Nasdaq Options Trader Alert 2012-54, NOM and 
PHLX Update Pricing, Effective September 4, 2012 (August 31, 2012) 
(the ``NOM Notice'').
    \7\ 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).
    \8\ 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'').
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    The Exchange currently charges certain flat rates for routing to 
other options exchanges that have been placed into three groups based 
on the approximate cost of routing to such venues. The grouping of away 
options exchanges is based on the cost of transaction fees assessed by 
each venue as well as costs to the Exchange for routing (i.e., clearing 
fees, connectivity and other infrastructure costs, membership fees, 
etc.) (collectively, ``Routing Costs''). For routing to options 
exchanges in the Exchange's highest price grouping, the Exchange 
currently assesses fees of $0.50 per contract for Customer orders and 
$0.55 per contract for orders on behalf of all other participants. With 
the recent change by NOM to charge non-Customer executions a rate of 
$0.47 per contract for penny pilot options, the Exchange believes NOM 
no longer fits in this category. This is due, in part, to the fact that 
NOM charges $0.50 per contract for non-Customer orders in non-penny 
pilot options, and the Exchange incurs various Routing Costs in 
addition to this fee. Accordingly, the Exchange proposes to adopt a new 
category for NOM under which it will charge a fee of $0.57 per contract 
for Professional, Firm, or Market Maker orders routed to and executed 
at NOM in options other than Specified Symbols, which are described in 
further detail below. This fee will help the Exchange to recoup 
clearing and transaction charges incurred by the Exchange, as well as 
other Routing Costs, in connection with routing to NOM.
    NOM also recently implemented specific fees for options on 
specified securities that the Exchange proposes to identify as ``NOM 
Specified Symbols.'' \9\ Such NOM Specified Symbols, as announced by 
NOM, will originally include options on Facebook (``FB''), Google 
(``GOOG'') and Groupon (``GRPN''). As announced by NOM, the fee to 
remove liquidity in NOM Specified Symbols is $0.79 per contract for NOM 
customer and NOM market maker orders and $0.85 per contract for all 
other participant capacities. As noted above, the Exchange generally 
imposes routing fees that approximate the fee to remove liquidity from 
other options exchanges as well as associated Routing Costs. 
Accordingly, the Exchange proposes to charge $0.90 for Customer orders 
and $0.95 for Professional, Firm, or Market Maker orders routed to and 
executed at NOM in Specified Symbols. In addition, the Exchange 
currently charges a flat fee of $0.60 per contract for any Directed ISO 
routed to any options exchange. In order to cover the cost of removing 
liquidity in Specified Symbols at NOM, including Routing Costs, the 
Exchange proposes to charge $0.95 per contract for Directed ISOs to NOM 
in NOM Specified Symbols.
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    \9\ See NOM Notice, supra note 4 [sic].
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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.\10\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed modifications to routing 
fees applicable for orders routed to and executed at NOM is fair, 
equitable and reasonable because the fees are an approximation of the 
cost to the Exchange for routing orders to NOM. The Exchange believes 
that its flat fee structure for orders routed to various venues is a 
fair and equitable approach to pricing, as it provides certainty with 
respect to execution fees at groups of away options exchanges. Each 
destination market's transaction charge varies and there is a standard 
clearing charge for each transaction incurred by the Exchange along 
with other administrative and technical costs that are incurred by the 
Exchange. Under its flat fee structure, taking all costs to the 
Exchange into account, the Exchange may operate at a slight gain or a 
slight loss for orders routed to and executed at NOM. As a general 
matter, the Exchange believes that the proposed fees will allow it to 
recoup and cover its costs of providing routing services to NOM. 
Specifically, the Exchange believes that the proposed routing fees will 
enable the Exchange to recover the remove fees assessed for the 
Exchange's routing to NOM, plus other Routing Costs associated with the 
execution of orders that have been routed to NOM. The Exchange also 
believes that its increase to fees for Directed ISO's to NOM in 
Specified Symbols to $0.95 per contract (from the current charge of 
$0.60 per contract for all other Directed ISO's) is fair, equitable and 
reasonable because the fees are also an approximation of the cost to 
the Exchange for routing orders to NOM in Specified Symbols. The 
Exchange also believes that the proposed fee structure for orders 
routed to and executed at NOM, including Directed ISOs in Specified 
Symbols, is not unreasonably discriminatory, again, because it is based 
on and intended to approximate the cost of routing to NOM.

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. To the contrary, the change to 
routing fees will assist the Exchange in recouping costs for routing 
orders to NOM on behalf of its participants, and absent such change, 
the Exchange would be subsidizing routing to NOM by Exchange 
participants. The Exchange also notes that Users may choose to mark 
their orders as ineligible for routing to avoid incurring routing 
fees.\12\
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    \12\ See BATS Rule 21.1(d)(8) (describing ``BATS Only'' orders 
for BATS Options) and BATS Rule 21.9(a)(1) (describing the BATS 
Options routing process, which requires orders to be designated as 
available for routing).
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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\13\ and Rule 19b-
4(f)(2) thereunder,\14\ 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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    \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

[[Page 59427]]

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 email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2012-038 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-2012-038. 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 
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-2012-038 and should be 
submitted on or before October 18, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23765 Filed 9-26-12; 8:45 am]
BILLING CODE 8011-01-P