Document ID: SEC-2010-0342-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-03-05T05:00Z

[Federal Register: March 5, 2010 (Volume 75, Number 43)]
[Notices]               
[Page 10332-10336]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr10-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61592; File No. SR-BATS-2010-002]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by BATS Exchange, Inc. to Offer Certain BATS Exchange Data 
Products

February 25, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on February 2, 2010, BATS Exchange, Inc. (``BATS'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. On February 22, 2010, BATS filed Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 has filed a proposed rule change to offer certain new 
Exchange data products to Exchange Members \3\ and other market data 
recipients. In connection with such data products, the Exchange is 
proposing to amend the fee schedule applicable to Members and non-
members of the Exchange pursuant to BATS Rules 15.1(a) and (c). The 
Exchange will implement the proposed rule change on the first day of 
the month immediately following Commission approval (or on the date of 
approval, if on the first business day of a month).
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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 on 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

[[Page 10333]]

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 aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to begin offering three 
new data products containing Exchange data. Specifically, the Exchange 
proposes to offer a new Last Sale Feed, Historical Data Products, and a 
data product called BATS Market Insight. The Exchange currently offers 
its data products to Members and other data recipients free of 
charge.\4\
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    \4\ The Exchange currently offers various data feeds free of 
charge, including, but not limited to, TCP PITCH, Multicast PITCH, 
and TCP FAST PITCH, which are depth of book data feeds containing 
real-time quotation and transaction data from the Exchange; TCP 
DROP, which contains order execution and other information (e.g., 
modifications and cancellations) specific to the Exchange activity 
of one or more Users; and TCP TOP, which contains real-time top of 
book quotation and transaction information from the Exchange.
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BATS Last Sale Feed
    First, the Exchange is proposing to begin offering a new feed, the 
BATS Last Sale Feed, to Members and non-members. The BATS Last Sale 
Feed will be a direct data feed product that provides real-time, 
intraday trade information, including price, volume and time of 
executions. The BATS Last Sale Feed will not include quotation 
information.
    Currently, the Exchange provides real-time last sale information 
from its market center to the Security Information Processors 
(``SIPs'') for the national market system plans governing trading in 
NYSE listed securities (``Tape A securities''), NASDAQ listed 
securities (``Tape C securities''), and securities listed on exchanges 
other than NYSE or NASDAQ (``Tape B securities''). The SIPs then 
consolidate the Exchange's last sale information with similar 
information from other market centers, and disseminate the consolidated 
last sale data to market participants, including market data vendors. 
The BATS Last Sale Feed will include last sale information regarding 
all Tape A, B and C securities with respect to activity occurring 
solely on the Exchange.
    Various data recipients may wish to subscribe to and use the BATS 
Last Sale Feed. For instance, data recipients that provide real-time 
market information on public Web sites or offer dynamic stock tickers, 
portfolio trackers, price/time graphs and other visual systems can use 
the Last Sale Feed in lieu of using the Exchange's existing data feeds. 
Such data recipients may prefer the BATS Last Sale Feed because the 
Exchange's existing data feeds contain a significant amount of 
additional information that such data recipients may not need, which 
may result in unnecessary technology costs (e.g., development, 
telecommunications or storage costs). The Exchange notes that similar 
market-specific last sale data products are offered by other market 
centers or will likely be offered in the near future.\5\
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    \5\ See NASDAQ Rule 7039; Release No. 34-59598 (March 18, 2009), 
74 FR 12919 (March 25, 2009) (File No. SR-NYSEArca-2009-05) (order 
approving proposed rule change to establish fees for a NYSE Arca 
data service, including a last sale product); see also Release No. 
34-61112 (December 4, 2009), 74 FR 65569 (December 10, 2009) (File 
No. SR-BX-2009-077) (filing of an immediately effective rule related 
to introduction of a last sale feed by NASDAQ OMX BX).
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    No market participant is required to subscribe to the BATS Last 
Sale Feed because the same last sale prices are available in the 
Exchange's other data feeds.\6\ Market participants can also gain 
access to BATS last sale prices that are integrated with the prices 
that other markets make available through the SIPs. Indeed, even though 
the BATS Last Sale Feed may provide to some participants an efficient 
alternative to the consolidated price information that investors and 
broker-dealers can receive on a consolidated basis from the SIPs, the 
Exchange believes that the information that the Exchange contributes to 
the consolidated tape and the increasingly lower latency of the data 
feeds offered by the SIPs will continue to satisfy the needs of the 
vast majority of individual and professional investors. Although 
certain data recipients might supplement their data feeds by adding the 
BATS Last Sale Feed, it is unlikely that data recipients or 
distributors will replace the consolidated last sale feed provided by 
the SIPs with the BATS Last Sale Feed. The Exchange represents that it 
will not distribute its last sale feed on a more timely basis than it 
makes available the data that is provided to the SIPs for consolidation 
and dissemination.
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    \6\ See supra, note 4.
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    The proposed cost of the BATS Last Sale Feed is $5,000 per month 
for any data recipient that chooses to receive the data feed for 
internal use only. For data recipients that wish to redistribute the 
BATS Last Sale Feed, the Exchange will not require such recipients to 
count, classify (e.g., professional or non-professional) or report to 
the Exchange information regarding the customers to which they provide 
the data. Instead, the Exchange proposes a flat fee of $25,000 per 
month for any data recipient that wishes to redistribute the BATS Last 
Sale Feed externally. End users will not have to pay the Exchange for 
the BATS Last Sale Feed or enter into contracts with the Exchange. The 
Exchange believes that the proposed pricing model is simple and easy 
for data recipients to comply with, and thus, will result in a minimal 
additional administrative burden for data recipients with respect to 
the BATS Last Sale Feed. Rule 603(a)(2) of Regulation NMS \7\ requires 
markets to distribute market data ``on terms that are not unreasonably 
discriminatory.'' Regardless of a data recipient's reasons for 
subscribing to the BATS Last Sale Feed, the fee for such feed applies 
equally to all data recipients that wish to use the feed for internal 
use only and equally to all data recipients that wish to redistribute 
the feed. Accordingly, the Exchange believes its proposal satisfies 
Rule 603(a)(2) of Regulation NMS.\8\
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    \7\ 17 CFR 603(a)(2).
    \8\ Id.
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BATS Historical Data Products
    Second, the Exchange proposes to begin providing historical data to 
data recipients upon request for a fee. The Exchange currently provides 
historical data upon request on an ad hoc basis, but proposes to begin 
charging a fee due to the infrastructure costs of storing and providing 
such data. Similar to what it does today, the Exchange proposes to 
provide a data recipient with the requested historical data on an 
external hard drive provided by the Exchange. As an alternative means 
to obtain historical data, the Exchange will provide market 
participants with access to a database from which they can download 
data that is up to 3 months old. As proposed, the Exchange will offer 
the following three products through either of these distribution 
methods: (1) Historical top of book data from the Exchange's TOP data 
feed (``Historical TOP Data''), (2) historical data from the Exchange's 
PITCH data feed (``Historical PITCH Data''), and (3) historical 
transaction data from the Exchange's Last Sale Feed (``Historical Last 
Sale Data''). BATS Historical TOP Data, BATS Historical PITCH Data and 
BATS Historical Last Sale Data will be provided to data recipients for 
internal use only, and thus, no redistribution will be permitted.
    Historical data provided by the Exchange can be used for a variety 
of purposes. For instance, data recipients

[[Page 10334]]

that wish to back-test certain trading strategies can use Historical 
PITCH or Historical TOP Data for such purpose. As another example, data 
recipients that provide market information through public websites or 
develop dynamic stock tickers, portfolio trackers, price/time graphs 
and other visual systems can use Historical Last Sale data for such 
purposes. The Exchange notes that similar historical data products are 
offered by other market centers.\9\ The proposed cost of user-
accessible BATS Historical TOP Data, BATS Historical PITCH Data or BATS 
Historical Last Sale Data is $500 per month of data accessed by any 
individual user. The Exchange's databases will contain up to 90 days of 
data at any point in time. For data that the Exchange provides on an 
external hard drive to a market participant the proposed cost is $2,500 
per 1 terabyte (TB) drive generated by the Exchange. Each of the 
proposed costs set forth above applies per data product. For instance, 
an individual user that obtained access to BATS Historical Top Data 
would pay $500 for access to a particular month's data, and if that 
user also wanted access to BATS Historical Last Sale Data, the 
individual user would need to pay another $500 for such access. 
Similarly, a market participant would pay $2,500 for an external hard 
drive containing BATS Historical TOP Data that fits on a 1 TB drive 
(internal use only); such participant would have to pay separately for 
a 1 TB drive containing BATS Historical Last Sale Data or BATS 
Historical PITCH Data.
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    \9\ See NASDAQ Rule 7022; see also http://www.nyxdata.com for 
information regarding NYSE OpenBook History and ArcaBook FTP, 
historical data products offered by the NYSE and NYSE Arca, 
respectively.
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BATS Market Insight
    Finally, the Exchange proposes to begin offering data that can be 
used to analyze the depth of liquidity of the Exchange's book, 
including reserve and hidden interest on a historical basis. This data, 
referred to by the Exchange as BATS Market Insight, will provide a 
market participant with information regarding the depth of the market 
at the Exchange in minute increments. Data will become available for 
access by market participants 10 days following each trade date (T + 
10) and will be available for 30 days. Specifically, a participant 
using BATS Market Insight will be able to obtain data regarding total 
order interest, displayed order interest and hidden order interest at 
each price point in specific Tape A, B and C securities traded on the 
Exchange. BATS Market Insight will be provided to data recipients for 
internal use only, and thus, no redistribution will be permitted. BATS 
Market Insight can be used by market participants to improve their 
trading and order routing strategies. The Exchange notes that a similar 
market data product is offered by NASDAQ.\10\
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    \10\ See NASDAQ Rule 7023(d).
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    The proposed cost for access to BATS Market Insight is $1,000 per 
user per month.
Additional Discussion Regarding Proposed Data Products
    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data products to the public. The Commission 
believed this authority would expand the amount of data available to 
consumers, and also spur innovation and competition for the provision 
of market data. The data products proposed herein appear to be 
precisely the sort of market data product that the Commission 
envisioned when it adopted Regulation NMS. The BATS Last Sale Feed will 
offer BATS-specific data in a new form not previously available to 
market data consumers, in a manner similar to that provided by other 
markets. The Historical Data Products proposed by the Exchange will 
allow market participants to purchase useful historical data from the 
Exchange while at the same time enabling the Exchange to better cover 
its infrastructure costs and to improve its market technology and 
services. Finally, BATS Market Insight will enable market participants 
to conduct BATS-specific analysis to meet their needs.
    The bases under the Act for the proposed rule change are: (1) The 
requirement under Section 6(b)(4) \11\ that an exchange have rules that 
provide for the equitable allocation of reasonable dues, fees and other 
charges among its members and other persons using its facilities; and 
(2) the requirement under Section 6(b)(5) \12\ that the rules of an 
exchange be designed to promote just and equitable principles of trade 
and not to permit unfair discrimination between customers, issuers, 
brokers or dealers.
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    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
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    In its recent ``Order Setting Aside Action by Delegated Authority 
and Approving Proposed Rule Change Relating to NYSE Arca Data'' (the 
``NYSE ArcaBook Approval Order''),\13\ the Commission reiterated its 
position from its release approving Regulation NMS that it should 
``allow market forces, rather than regulatory requirements, to 
determine what, if any, additional quotations outside the NBBO are 
displayed to investors.'' \14\
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    \13\ See Release No. 34-59039 (December 2, 2008), 73 FR 74770 
(December 9, 2008) (File No. SR-NYSE Arca-2006-21).
    \14\ See Release No. 34-51808 (June 9, 2005), 70 FR at 37566-
37567 (June 29, 2005) (File No. S7-10-04) (the ``Regulation NMS 
Release'').
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    The Exchange and its market data products are subject to 
significant competitive forces and the proposed fees represent 
responses to that competition. To start, the Exchange competes 
intensely for order flow. It competes with the other national 
securities exchanges that currently trade equities, with electronic 
communication networks, with quotes posted in FINRA's Alternative 
Display Facility, with alternative trading systems, and with securities 
firms that primarily trade as principal with their customer order flow.
    In addition, the proposed data products would compete with a number 
of alternative products. For instance, the BATS Last Sale Feed does not 
provide a complete picture of all trading activity in a security. 
Rather, the other national securities exchanges, the several Trade 
Reporting Facilities of FINRA, and ECNs that produce proprietary data 
all produce trades and trade reports. Each is currently permitted to 
produce last sale information products, and many currently do, 
including Nasdaq and NYSE. In addition, market participants can gain 
access to BATS last sale prices through free data feeds provided by the 
Exchange or integrated with the prices of other markets on feeds made 
available through the SIPs. With respect to BATS Market Insight, the 
Exchange is proposing to offer a product that, while specific to the 
Exchange's data, is similar to a product offered by Nasdaq with respect 
to executions on Nasdaq. Furthermore, a market participant could gain 
access to the same information provided through the proposed BATS 
Market Insight product through a combination of: (1) Existing, free 
data feeds from the Exchange (for displayed trading interest), and (2) 
information gathered by the market participant through its trading 
activities on the Exchange and/or through the consolidated data 
published by the SIPs reporting executions that occurred on the 
Exchange (for non-displayed trading interest).
    In setting the level of the proposed data product fees, the 
Exchange took into consideration several factors, including:

[[Page 10335]]

    (1) Consultation with some of the entities that the Exchange 
anticipates will be the most likely to take advantage of the products;
    (2) the contribution of market data revenues that the Exchange 
believes is appropriate for vendors and other entities that provide 
market data to the investing public;
    (3) the contribution that revenues accruing from the proposed fees 
will make to meeting the overall costs of the Exchange's operations;
    (4) investors', broker-dealers' and data vendors' access to the 
Exchange's last sale prices through existing data feeds; and
    (5) the fact that the proposed fees provide an alternative to 
existing Network A and Network B fees under the CTA Plan and to the 
fees imposed under the Nasdaq/UTP Plan, alternatives that vendors will 
purchase only if they determine that the perceived benefits outweigh 
the cost.
    In the aftermath of the NYSE ArcaBook Approval Order, the Exchange 
believes that the competition among exchanges for order flow and the 
competition among exchanges for market data products subject the 
proposed data product fees to significant competitive forces.
    In addition, the Exchange believes that no substantial 
countervailing basis exists to support a finding that the fees fail to 
meet the requirement of the Act.
    In sum, the availability of a variety of alternative sources of 
information imposes significant competitive pressures on Exchange data 
products and the Exchange's compelling need to attract order flow 
imposes significant competitive pressure on the Exchange to act 
equitably, fairly, and reasonably in setting the proposed data product 
fees. The proposed data product fees are, in part, responses to that 
pressure. The Exchange believes that the proposed fees would reflect an 
equitable allocation of its overall costs to users of its facilities.
2. Statutory Basis
    The rule change proposed in this submission 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.\15\ Specifically, the 
Exchange believes that the proposed change is consistent with Section 
6(b)(4) of the Act,\16\ because it provides an equitable allocation of 
reasonable dues, fees, and other charges among its members and other 
recipients of Exchange data. The Exchange believes that its proposed 
fees for the data products described herein are reasonable in light of 
the benefits to data recipients and the fact that the Exchange's 
existing data feeds will continue to be provided free of charge. These 
products are completely optional in that no consumer is required to 
purchase any of them and only those consumers that deem such products 
to be of sufficient overall value and usefulness will purchase them. To 
the extent consumers do purchase the data products, the revenue 
generated will offset the Exchange's fixed costs of operating and 
regulating a highly efficient and reliable platform for the trading of 
U.S. equities. It will also help the Exchange cover its costs in 
developing and running that platform, as well as ongoing infrastructure 
costs.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed change is consistent 
with Section 6(b)(5) of the Act,\17\ which requires, among other 
things, that the Exchange's rules are not designed to unfairly 
discriminate between customers, issuers, brokers or dealers. 
Specifically, the Exchange believes that the fees proposed for the new 
data products are equitable in that they are optional and apply 
uniformly to all data recipients irrespective of each recipient's 
relationship to the Exchange (e.g., Member, non-Member data recipient, 
etc.).
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    \17\ 15 U.S.C. 78f(b)(5).
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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 proposal to introduce 
certain new data products is designed to increase transparency and the 
efficiency of executions by enabling data recipients to receive and use 
Exchange data in new ways. As described above, there is significant 
competition for the provision of market data to broker-dealers and 
other market data consumers, as well as competition for the orders that 
generate the data. In introducing the proposed data products, the 
Exchange is providing products similar to data products offered by 
other market centers.
    In proposing and adopting Regulation NMS, the Commission rescinded 
the prior prohibition on SROs from disseminating their trade reports 
independently,\18\ subjecting that distribution to the ``fair and 
reasonable'' and ``not unreasonably discriminatory'' standards that 
have historically governed the distribution of consolidated data.\19\ 
The Commission stated, ``Given that * * * SROs will continue to 
transmit trades to the Networks pursuant to the Plans * * *, the 
Commission believe [SIC] that SROs and their members also should be 
free to distribute their trades independently.'' \20\
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    \18\ See Rule 601 of Regulation NMS.
    \19\ See Rule 603(b) of Regulation NMS.
    \20\ See Footnote 638 of Regulation NMS Release, supra note 13.
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    The Commission rescinded the prohibition in recognition of the fact 
that competition in the realm of SRO trade-report distribution would 
produce market forces and innovation that would benefit the investing 
public. The NYSE ArcaBook Approval Order enforces this finding. By 
means of the data products proposed herein, the Exchange would provide 
vendors and broker-dealers with an alternative market data product and 
fee structure that does not exist today, without altering or rescinding 
any existing market data products. If they believe that the proposed 
product and fee structure are useful and cost-effective to their 
business model, they will embrace them. The only change to an existing 
data product is that the Exchange will now, for the first time, charge 
for the provision of historical data. The Exchange believes this charge 
is reasonable, however, given the cost of both maintaining and 
providing such data.
    Given the existence of alternative products containing BATS last 
sale information, the fact that the Historical Data Products and BATS 
Market Insight are consistent with products and information provided by 
the Exchange's competitors and are purely optional sources of 
information that can be used by data recipients that see value in such 
information, the Exchange does not believe that the proposed data 
products will result in any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.

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.

[[Page 10336]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
such proposed rule change, or (b) institute proceedings to determine 
whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2010-002 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-2010-002. 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, 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-2010-002 and should be submitted on or before March 
26, 2010.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4658 Filed 3-4-10; 8:45 am]
BILLING CODE 8011-01-P