Document ID: SEC-2012-1688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2012-10-16T04:00Z

[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Notices]
[Pages 63393-63395]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25344]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68028; File No. SR-BATS-2012-041]

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.

October 10, 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 October 1, 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 
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 the ``Options Pricing'' section of 
its fee schedule effective immediately, in order to modify pricing 
related to executions that occur on the NASDAQ Options Market 
(``NOM''). NOM implemented certain pricing changes effective October 1, 
2012,\6\ including a modification of the fee charged to participants to 
remove liquidity in non-Penny Pilot Securities.\7\ In order to maintain 
routing fees that approximate the routing costs to NOM, the Exchange 
proposes to adopt pricing for orders routed to NOM in non-Penny Pilot 
Securities that is identical to pricing for orders routed by the 
Exchange to NOM in Specified Symbols, as described below.
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    \6\ See Options Trader Alert 2012-56, NOM and PHLX 
Pricing, Effective October 1, 2012 (September 28, 2012) (the ``NOM 
Notice'').
    \7\ As defined on the Exchange's fee schedule, ``Penny Pilot 
Securities'' are those issues quoted pursuant to Exchange Rule 21.5, 
Interpretation and Policy .01. The options designated by the 
Exchange as Penny Pilot Securities are the same options as those 
designated by NOM as penny pilot issues.
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    The Exchange currently charges certain flat rates for routing to 
other options exchanges that have been placed into 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''). Based on recent changes to NOM 
pricing, the Exchange adopted two categories for NOM under which it 
charges: (i) A fee of $0.50 per contract for Customer \8\ orders and 
$0.57 per contract for Professional,\9\ Firm, or

[[Page 63394]]

Market Maker \10\ orders routed to and executed at NOM in all options 
other than Specified Symbols; and (ii) separate fees for orders routed 
to and executed at NOM in Specified Symbols, which are described in 
further detail below. In order to establish new pricing for non-Penny 
Pilot Securities, as described below, the Exchange proposes to 
explicitly state that current pricing for orders routed to and executed 
at NOM in non-Specified Symbols also applies to Penny Pilot Securities 
and that pricing for orders routed to and executed at NOM in Specified 
Symbols also applies to non-Penny Pilot Securities, as described below.
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    \8\ As defined on the Exchange's fee schedule, the term 
``Customer'' applies to any transaction identified by a member for 
clearing in the Customer range at the Options Clearing Corporation 
(``OCC''), excluding any transaction for a ``Professional'' as 
defined in Exchange Rule 16.1.
    \9\ 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).
    \10\ 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 OCC.
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    As noted above, NOM currently imposes specific fees for options on 
specified securities that the Exchange identifies on its fee schedule 
as ``NOM Specified Symbols.'' Such NOM Specified Symbols currently 
include options on Facebook (``FB''), Google (``GOOG'') and Groupon 
(``GRPN''). The fee charged by NOM 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. NOM 
recently announced adoption of identical pricing for non-Penny Pilot 
Securities.\11\ 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 the same fee for orders routed to and 
executed in non-Penny Pilot Securities as it charges for orders routed 
to and executed at NOM in Specified Symbols. Specifically, 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 non-Penny Pilot Securities.
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    \11\ See NOM Notice, supra note 6.
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    In addition, the Exchange currently charges a flat fee of $0.95 per 
contract for Directed ISOs to NOM in NOM Specified Symbols and $0.60 
per contract for any other Directed ISO. In order to cover the cost of 
removing liquidity in non-Penny Pilot Securities at NOM, including 
Routing Costs, the Exchange proposes to charge the same fee as it does 
for Directed ISOs to NOM in NOM Specified Symbols, $0.95 per contract, 
for Directed ISOs to NOM in non-Penny Pilot Securities.
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.\12\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f.
    \13\ 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 of orders in non-Penny Pilot Securities to NOM, plus 
other Routing Costs associated with the execution of such orders that 
have been routed to NOM. The Exchange also believes that its increase 
to fees for Directed ISO's to NOM in non-Penny Pilot Securities to 
$0.95 per contract (from the current charge of $0.60 per contract for 
all Directed ISO's other than in NOM Specified Symbols) is fair, 
equitable and reasonable because the fees are also an approximation of 
the cost to the Exchange for routing orders to NOM in non-Penny Pilot 
Securities. The Exchange also believes that the proposed fee structure 
for orders routed to and executed at NOM, including Directed ISOs in 
non-Penny Pilot Securities, 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.\14\
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    \14\ 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 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 \15\ and Rule 19b-
4(f)(2) thereunder,\16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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

[[Page 63395]]

arguments concerning the foregoing, including whether the proposal 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-2012-041 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-2012-041. 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 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-2012-041 and should be 
submitted on or before November 6, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25344 Filed 10-15-12; 8:45 am]
BILLING CODE 8011-01-P