Document ID: SEC-2015-1680-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2015-10-19T04:00Z

[Federal Register Volume 80, Number 201 (Monday, October 19, 2015)]
[Notices]
[Pages 63257-63261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26426]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76130; File No. SR-BATS-2015-85]

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.

October 13, 2015.
    Pursuant to the provisions of 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 October 2, 2015, 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)

[[Page 63258]]

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

    The 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).
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    \5\ The term ``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 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 the 
Exchange's options platform (``BATS Options'') effective immediately, 
in order to modify certain standard pricing and to amend the thresholds 
related to meeting certain pricing tiers, the applicability of certain 
pricing tiers and the fees and rebates associated with certain pricing 
tiers, as described below.
Standard Pricing
    The Exchange proposes to modify certain standard pricing applicable 
to BATS Options, including: (i) The rebate to add liquidity in non-
Penny Pilot Securities \6\ applicable to Firm,\7\ Broker Dealer 
(``BD'') \8\ and Joint Back Office (``JBO'') \9\ orders, which yield 
fee code NF; (ii) the fee for Customer \10\ orders that remove 
liquidity in Penny Pilot Securities, which yield fee code PC; and (iii) 
the fee for non-Customer orders that remove liquidity in Penny Pilot 
Securities, which yield fee code PP. The proposed changes are set forth 
below.
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    \6\ ``Penny Pilot Securities'' are those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01.
    \7\ ``Firm'' applies to any transaction identified by a Member 
for clearing in the Firm range at the Options Clearing Corporation 
(``OCC''), excluding any Joint Back office transaction.
    \8\ ``Broker Dealer'' applies to any order for the account of a 
broker dealer, including a foreign broker dealer, that clears in the 
Customer range at the OCC.
    \9\ ``Joint Back Office'' applies to any transaction identified 
by a Member for clearing in the Firm Range at the OCC that is 
identified with an origin code as Joint Back Office.
    \10\ ``Customer'' applies to any transaction identified by a 
Member for clearing in the Customer range at the OCC, excluding any 
transaction for a Broker Dealer or a ``Professional'' as defined in 
Exchange Rule 16.1.
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     The Exchange currently provides a rebate of $0.40 per 
contract for Firm, BD and JBO orders that add liquidity in non-Penny 
Pilot Securities, which yield fee code NF. The Exchange proposes to 
reduce this rebate to $0.36 per contract.
     The Exchange currently charges a fee of $0.45 per contract 
for Customer orders that remove liquidity in Penny Pilot Securities, 
which yield fee code PC. The Exchange proposes to increase this fee to 
$0.46 per contract.
     The Exchange currently charges a fee of $0.49 per contract 
or non-Customer orders that remove liquidity in Penny Pilot Securities, 
which yield fee code PP. The Exchange proposes to increase this fee to 
$0.50 per contract.
    Each of the changes to standard pricing described above is proposed 
in order to increase revenue generated by the Exchange or to decrease 
the rebates paid by the Exchange in order to contribute to the overall 
profitability of the Exchange. The Exchange believes that these changes 
represent relatively modest increases to fees charged and adjustments 
to the rebates that are necessary to fund the continued growth of the 
Exchange.
Non-Customer Penny Pilot Add Volume Tier Rebates and Thresholds
    The Exchange currently offers enhanced rebates under both the Firm, 
Broker Dealer, and Joint Back Office Penny Pilot Add Volume Tiers 
(which apply to fee code PF) and the Market Maker and Non-BATS Market 
Maker Penny Pilot Add Volume Tiers (which apply to fee code PM) to 
Members with trading activity on BATS Options that meets certain 
thresholds. More specifically, in Tier 3 of each of these sets of 
tiers, BATS Options offers an enhanced rebate of $0.47 per contract to 
orders that yield fee code PF and PM where: (i) The Member has an ADAV 
\11\ in Firm, BD and JBO orders in Penny Pilot Securities (yielding Fee 
Code PF) equal to or greater than 0.25% of average TCV; \12\ and (ii) 
the Member has an ADV \13\ equal to or greater than 1.50% of average 
TCV. The Exchange proposes to reduce the rebate offered in Tier 3 of 
each of these sets of tiers to $0.46 per contract. The Exchange has 
proposed this change for reasons consistent with the reason for the 
changes to Standard Pricing described above, including the generation 
of additional revenue by the Exchange in order to contribute to the 
overall profitability of the Exchange and to fund the continued growth 
of the Exchange.
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    \11\ ``ADAV'' means average daily added volume calculated as the 
number of contracts per day.
    \12\ ``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 and on any day with a scheduled early market close.
    \13\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
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    The Exchange also proposes to modify the criteria necessary to 
qualify for Tier 2 of the Market Maker and Non-BATS Market Maker Penny 
Pilot Add Volume Tiers, which applies to fee code PM and provides a 
rebate of $0.42 per contract. Currently, in order to qualify for such 
Tier, a Member of BATS Options must: (i) Have an ADAV equal to or 
greater than 1.00% of average TCV; and (ii) have an ADV equal to or 
greater than 2.00% of average TCV. The Exchange proposes to modify the 
first prong of this requirement such that a Member must have an ADAV in 
Market Maker \14\ and/or Non-BATS Market Maker \15\ orders equal to or 
greater than 1.00% of average TCV. The Exchange is proposing to require 
a Member's ADAV necessary to qualify for Tier 2 to be Market Maker and/
or Non-BATS Market Maker orders in order to incentivize the entry of 
such orders to the Exchange.
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    \14\ ``Market Maker'' applies to any transaction identified by a 
Member for clearing in the Market Maker range at the OCC.
    \15\ ``Non-BATS Market Maker'' applies to any transaction 
identified by a Member for clearing in the Market Maker range at the 
OCC, where such Member is not registered with the Exchange as a 
Market Maker, but is registered as a market maker on another options 
exchange.

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[[Page 63259]]

Non-Customer Penny Pilot Take Volume Tiers
    The Exchange currently offers a total of five Non-Customer Penny 
Pilot Take Volume Tiers that provide discounted fees for Non-Customer 
orders in Penny Pilot Securities that remove liquidity from BATS 
Options under fee code PP. The Exchange proposes various updates to the 
existing tiers as well as to add an additional tier, as set forth 
below.
     The Exchange currently charges $0.48 per contract for 
Members that qualify for Non-Customer Volume Tier 1, which requires 
that a Member has an ADV equal to or greater than 1.00% of average TCV. 
The Exchange proposes increasing this fee to $0.49 per contract.
     The Exchange currently charges $0.47 per contract for 
Members that qualify for Non-Customer Volume Tier 2, which requires 
that a Member has an ADV equal to or greater than 1.25% of average TCV. 
The Exchange proposes to increase this fee to $0.48 per contract. The 
Exchange also proposes to increase the ADV threshold required to reach 
Non-Customer Volume Tier 2 from 1.25% to 1.50% of average TCV.
     The Exchange currently charges $0.45 per contract for 
Members that qualify for Non-Customer Volume Tier 3, which requires 
that a Member: (i) Has an ADAV equal to or greater than 1.00% of 
average TCV, and (ii) has an ADV equal to or greater than 2.00% of 
average TCV. The Exchange proposes to increase this fee to $0.47 per 
contract. The Exchange also proposes to eliminate the first prong of 
the criteria, which contains an ADAV component, such that a Member 
would simply be required to reach an ADV equal to or greater than 2.00% 
of average TCV.
     The Exchange proposes to add a new tier, Non-Customer Take 
Volume Tier 4, which would charge $0.45 per share for any Member with 
an ADAV in Customer orders equal to or greater than 0.80% of average 
TCV. The Exchange notes that this is similar to but easier to attain 
than current Non-Customer Take Volume Tier 4, which results in a fee of 
$0.43 per contract for any Member with an ADAV in Customer orders equal 
to or greater than 2.00% of average TCV. Because the new tier is easier 
to attain, the Exchange has proposed a higher fee. In connection with 
this change, the Exchange proposes to rename current Non-Customer Take 
Volume Tier 4 as Non-Customer Take Volume Tier 5.
    The majority of the changes set forth above represent modest 
increases in rates or higher criteria to obtain such rates and are 
proposed for reasons consistent with the reason for the changes to 
Standard Pricing described above, including the generation of 
additional revenue by the Exchange in order to contribute to the 
overall profitability of the Exchange and to fund the continued growth 
of the Exchange. The Exchange notes that the addition of the new Non-
Customer Take Volume Tier 4 is intended to incentivize the entry of 
additional Customer orders to the Exchange.
NBBO Setter Tiers
    The Exchange's NBBO Setter Program is a program intended to 
incentivize aggressive quoting on BATS Options by providing an 
additional rebate upon execution for all orders that add liquidity that 
set either the NBB or NBO, subject to certain volume requirements. The 
Exchange currently operates three NBBO Setter Tiers that provide an 
additional rebate of either $0.02 per contract or $0.04 per contract to 
orders from qualifying Members that submit orders that yield PA, PF, 
PM, NA, NF and NM.
    The Exchange is proposing to add a new tier, Tier 4, which would 
provide an additional rebate of $0.05 per contract to orders yielding 
fee code PF or PM that establish a new NBBO and are submitted by a 
Member that has an ADAV in non-Customer orders equal to or greater than 
1.00% of average TCV and has an ADV in non-Customer orders equal to or 
greater than 1.80% of average TCV. The Exchange proposes to limit the 
applicability of Tier 4 to orders yielding fee code PF and PM, which 
represent added liquidity in Penny Pilot Securities for Market Maker 
orders, Non-BATS Market Maker orders, Firm orders, BD orders and JBO 
orders. Thus, contrary to other NBBO Setter Tiers, Tier 4 would not 
apply to Professional Customer orders or to orders in non-Penny Pilot 
Securities. The Exchange believes that this new tier will incentivize 
additional entry of orders that set a new NBBO, thereby contributing to 
the availability of aggressively priced liquidity on the Exchange and 
the price discovery process.
QIP Tiers
    Pursuant to the Quoting Incentive Program (``QIP'') the Exchange 
currently provides an additional rebate per contract for an order that 
adds liquidity to the BATS Options order book in options classes in 
which a Member is a Market Maker registered on BATS Options pursuant to 
Rule 22.2. A Market Maker must be registered with BATS Options in an 
average of 20% or more of the associated options series in a class in 
order to qualify for QIP rebates for that class. The Exchange currently 
offers two tiers, Tier 1 and Tier 2, which provide an additional rebate 
of $0.02 per contract or $0.04 per contract, respectively, for Members 
that satisfy applicable QIP criteria. The Exchange does not propose to 
modify the criteria necessary to qualify for QIP tiers or the rebates 
provided thereunder, however the Exchange does propose to limit the 
applicability of such tiers to fee codes PM and NM, which apply to 
added liquidity for Market Maker and Non-BATS Market Maker orders. 
Thus, QIP rebates would no longer be provided to orders yielding fee 
codes NA or PA, which apply to added liquidity in Professional Customer 
orders, or to fee codes NF or PF, which apply to added liquidity in 
Firm, BD and JBO orders. Because QIP rebates are no longer applicable, 
the Exchange also proposes to eliminate references to footnote 5 for 
each of these fee codes on the Fee Codes and Associated Fees chart.
Firm, Broker Dealer and Joint Back Office Non-Penny Pilot Add Volume 
Tiers
    The Exchange is also proposing to modify its Firm, BD and JBO Non-
Penny Pilot Add Volume Tiers, under which there are three tiers 
offering enhanced rebates for Firm, BD and JBO orders that add 
liquidity in non-Penny Pilot Securities. Specifically, the tiers 
provide the following rebates under the following conditions for Firm, 
BD and JBO orders that add volume in non-Penny Pilot Securities: Tier 1 
provides a $0.50 rebate per contract to a Member that has an ADV equal 
to or greater than 0.05% of average TCV; Tier 2 provides a $0.60 rebate 
per contract to a Member that has an ADV equal to or greater than 0.15% 
of average TCV; and Tier 3 provides a $0.65 rebate per contract to 
Member that has an ADV equal to or greater than 0.25% of average TCV. 
The Exchange proposes the following changes to these tiers.
     The Exchange proposes to reduce the rebate provided under 
Tier 1 from $0.50 per contract to $0.45 per contract and to increase 
the requirement such that a Member needs to have an ADV equal to or 
greater than 0.15% of average TCV (rather than 0.05% as currently 
required).
     The Exchange proposes to eliminate Tier 2 in its entirety.
     The Exchange proposes to rename current Tier 3 as Tier 2.
Other Changes
    The Exchange also proposes to amend the Standard Rates table, which 
summarizes the range of fees at the beginning of the fee schedule, in 
order to reflect the changes proposed above.

[[Page 63260]]

Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule effective immediately.
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 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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    Volume-based rebates and fees such as the ones currently maintained 
on BATS Options have been widely adopted by equities and options 
exchanges 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.
    As explained above, the Exchange is proposing various slight 
increases to fees as well as decreases in rebates in order to 
contribute to the overall profitability of the Exchange. The Exchange 
believes that these changes represent relatively modest increases to 
fees charged and adjustments to the rebates that are necessary to fund 
the continued growth of the Exchange. For the same reason, the Exchange 
believes that the modest increases to qualification thresholds for 
various pricing tiers is reasonable, fair and equitable and non-
discriminatory, specifically because such increases will either 
incentivize participants to further contribute to market quality to the 
Exchange or the Exchange will be providing fewer or lower enhanced 
rebates to participants. The Exchange also believes that the proposed 
fees and rebates remain consistent with pricing previously offered by 
the Exchange as well as competitors of the Exchange and do not 
represent a significant departure from the Exchange's general pricing 
structure.
    The Exchange believes that its proposed new Non-Customer Penny 
Pilot Take Volume Tier 4 is reasonable, fair and equitable, and non-
discriminatory in that it is aimed to attract additional liquidity to 
the Exchange and is consistent with other existing pricing tiers on the 
Exchange. The Exchange also believes that it is reasonable, fair and 
equitable, and non-discriminatory to limit the applicability of QIP 
rebates to Market Maker orders and Non-BATS Market Maker orders because 
QIP is a program aimed to incentivize active market making on the 
Exchange. Similarly, the Exchange believes it is reasonable, fair and 
equitable, and non-discriminatory to modify the Market Maker and Non-
BATS Market Maker Penny Pilot Add Tier 2 to require that qualifying 
ADAV results from Market Maker and Non-BATS Market Maker orders because 
the tier is intended to incentivize the entry of market orders and the 
enhanced rebates are provided to such orders (specifically, those 
yielding fee code PM, which are Market Maker or Non-BATS Market Maker 
orders in Penny Pilot Securities).
    The Exchange believes that new proposed NBBO Setter Tier 4 is 
reasonable, fair and equitable, and non-discriminatory because it will 
help to further incentivize the entry of aggressively priced liquidity 
to the Exchange. The Exchange believes it is reasonable, fair and 
equitable, and non-discriminatory to limit the new NBBO Setter Tier, 
Tier 4, to orders yielding fee codes applicable to Penny Pilot 
Securities (thus excluding non-Penny Pilot Securities) and to orders on 
behalf of participants that are most likely to actively engage in 
providing liquidity on the Exchange (thus excluding Customers and 
Professional Customers).
    The Exchange believes that the pricing continues to be reasonable, 
fair and equitable, and also consistent with or better than other 
options exchanges that operate similar market models.

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. The Exchange does not believe 
that any of the proposed changes to increase fees or decrease rebates 
burden competition, but instead, that they enhance competition as they 
are intended to increase the profitability, and thus, competitiveness 
of BATS Options by allowing the Exchange to create additional pricing 
incentives and to maintain and improve the infrastructure of the 
Exchange. Also, the Exchange believes that the increase to certain 
thresholds necessary to meet tiers offered by the Exchange contributes 
to rather than burdens competition, as such changes are intended to 
incentivize participants to increase their participation on the 
Exchange. Similarly, the introduction of new tiers is intended to 
provide incentives to Members to encourage them to enter orders to BATS 
Options, and thus is again intended to enhance competition. Finally, 
the Exchange does not believe that its proposal to limit the 
applicability of certain incentives to certain fee codes unnecessarily 
burdens competition, as each change is intended to more narrowly reward 
participation by those that are actually the target of the incentive 
and that are participating on the Exchange accordingly (i.e., limiting 
rebates to Market Maker and Non-BATS Market Maker incentives when the 
incentive is based on market making activity).
    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 they deem fee levels to be excessive 
or providers of routing services if they deem routing fee levels to be 
excessive.

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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such

[[Page 63261]]

action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. If the Commission takes such action, the Commission shall 
institute proceedings under Section 19(b)(2)(B) \20\ of the Act to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \20\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-BATS-2015-85 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-BATS-2015-85. 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 
10:00 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 No. SR-BATS-2015-85, and should be 
submitted on or before November 9, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26426 Filed 10-16-15; 8:45 am]
 BILLING CODE 8011-01-P