
[Federal Register Volume 76, Number 47 (Thursday, March 10, 2011)]
[Notices]
[Pages 13243-13245]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5441]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64033; File No. SR-BATS-2011-008]


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.

March 4, 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 March 1, 2011, 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 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 [sic] amend the fee schedule applicable to 
Members \5\ and non-members of the Exchange pursuant to BATS Rules 
15.1(a) and (c). While changes to the fee schedule pursuant to this 
proposal will be effective upon filing, the changes will become 
operative on March 1, 2011.
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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.

[[Page 13244]]

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 to: (i) Adopt a definition for average daily volume, 
or ``ADV''; (ii) introduce a tiered pricing structure applicable to the 
fees for removing liquidity from the BATS options market (``BATS 
Options''); (iii) expand and modify the program that provides a rebate 
specifically for orders that set either the national best bid (the 
``NBB'') or the national best offer (the ``NBO'') subject to average 
daily volume requirements; and (iv) make clarifying changes to the 
standard routing section of the fee schedule.
(a) Definition of ADV
    In order to accommodate certain changes described below, the 
Exchange proposes to adopt a definition of average daily volume, or 
ADV, for purposes of the fee schedule. The Exchange is not proposing 
any substantive change to its calculation of ADV, which is currently 
applicable only to the NBBO Setter Rebate, as described below. Instead, 
the Exchange is proposing the definition to provide more clarity and 
for ease of reference throughout the fee schedule. As proposed, ADV 
will mean average daily volume calculated as the number of contracts 
added or removed, combined, per day on a monthly basis. The Exchange 
proposes to make clear in the definition of ADV that routed contracts 
are not included in the Exchange's calculation of ADV, but rather, only 
volume executed on the Exchange counts towards a Member's ADV.
(b) Tiered Pricing To Access Liquidity
    The Exchange currently charges $0.25 per contract for customer 
orders and $0.35 per contract for Firm and Market Maker orders that 
remove liquidity from BATS Options. The Exchange proposes to increase 
the standard fee for removing liquidity to $0.28 per contract for 
customer orders and $0.38 per contract for Firm and Market Maker 
orders. The Exchange also proposes to adopt two tiers through which 
Members can realize lower liquidity removal fees, as further described 
below.
    First, the Exchange proposes to charge $0.25 per contract for a 
Customer order and $0.35 per contract for a Firm or Market Maker order 
that removes liquidity from the BATS Options order book where the 
Member has an ADV of 50,000 or more contracts. Accordingly, the 
Exchange is not proposing to change the charge to remove liquidity from 
BATS Options for Members with an ADV of 50,000 or more.
    Second, the Exchange proposes to charge $0.27 per contract for a 
Customer order and $0.37 per contract for a Firm or Market Maker order 
that removes liquidity from the BATS Options order book where the 
Member has an ADV of 15,000 or more, but fewer than 50,000 contracts. 
Thus, for Members with ADV of between 15,000 and 49,999 contracts, 
Members will be charged $0.02 more per contract for their orders than 
such Members are charged today.
(c) Expansion and Modification of NBBO Setter Rebate Program
    The Exchange currently offers a rebate upon execution for all 
orders that add liquidity that sets either the NBB or NBO (the ``NBBO 
Setter Rebate'') \6\ so long as the Member submitting the order 
achieves an ADV of 20,000 contracts executed during the calendar month. 
The NBBO Setter Rebate currently offered by the Exchange is $0.50 per 
contract. The Exchange proposes to increase the ADV requirement for 
this $0.50 rebate to 50,000 contracts and to create a second tier 
eligible for a NBBO Setter Rebate. The new NBBO Setter Rebate for 
Members with a lower ADV will be a $0.40 rebate and will apply where 
the Member has an ADV of 15,000 or more, but fewer than, 50,000 
contracts. The Exchange also proposes to make clear on the fee schedule 
that the NBBO Setter Rebate, whether based on the lower or the higher 
ADV level, supersedes any other applicable liquidity rebates.
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    \6\ An order that is entered at the most aggressive price both 
on the BATS Options book and according to then current OPRA data 
will be determined to have set the NBB or NBO for purposes of the 
NBBO Setter Rebate without regard to whether a more aggressive order 
is entered prior to the original order being executed.
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(d) Clarifications to Routing Pricing
    Currently, the BATS Options fees for Standard Best Execution 
Routing or Destination Specific Order routing fees are dependent on the 
venues at which such orders are executed. Certain venues offer pricing 
that the Exchange has defined as ``Make/Take'' in certain issues and 
then pricing under a more traditional pricing structure (hereafter, 
``Classic'' pricing). As defined on the fee schedule, Make/Take pricing 
refers to executions at the identified Exchange under which ``Post 
Liquidity'' or ``Maker'' rebates (``Make'') are credited by that 
exchange and ``Take Liquidity'' or ``Taker'' fees (``Take'') are 
charged by that exchange. The Exchange proposes certain changes to its 
routing schedule in order to further delineate between executions in 
Make/Take issues and Classic issues at the options exchanges that 
maintain both types of pricing, specifically, NYSE Arca, the 
International Stock Exchange, and NASDAQ OMX PHLX. The Exchange is not 
proposing any changes to the pricing of its standard routing or 
destination specific routing strategies. In addition to these changes, 
the Exchange is proposing to add an additional page break to its fee 
schedule and to indicate that the options pricing section continues 
onto page three of the version of the fee schedule maintained on its 
Web site.
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.\7\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f.
    \8\ 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 BATS Options by offering 
competitive pricing, especially for those who add liquidity that sets 
the NBB or NBO. As a general matter, the Exchange believes that the 
NBBO Setter Program benefits all Members with the potential of 
increased and aggressively priced liquidity at the Exchange. The 
expansion of the NBBO Setter Program to Members with a lower ADV 
threshold (albeit with a lower rebate) will result in increased 
payments that will benefit some Members due to the increased revenue 
those Members will receive. With the increase to the current threshold 
of 20,000 contracts ADV to 50,000 contracts ADV, some Members will no 
longer qualify for the highest potential rebate, though they will still 
receive a higher rebate than otherwise offered by the Exchange. The 
Exchange believes that the NBBO Setter Rebate is

[[Page 13245]]

analogous to similar proposals designed to encourage market 
participants to submit aggressively priced orders previously 
implemented at other options exchanges.\9\ Additionally, the Exchange 
believes that the proposed NBBO Setter Rebate, now in place on BATS 
Options for two months, has and will continue to incentivize the entry 
of more aggressive orders that will create tighter spreads, benefitting 
both Members and public investors.
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    \9\ See Securities Exchange Act Release No. 61869 (April 7, 
2010), 75 FR 19449 (April 14, 2010) (SR-ISE-2010-25) (notice of 
filing and immediate effectiveness to amend fees applicable to the 
International Securities Exchange, including providing increased 
rebates to market makers for being on the NBB or NBO for at least 
80% during a given month); Securities Exchange Act Release No. 61987 
(April 27, 2010), 75 FR 24771 (May 5, 2010) (SR-C2-2010-001) (notice 
of filing and immediate effectiveness to establish fees applicable 
to C2 Options Exchange, including providing Preferred Market Makers 
with participation entitlements when they are at the NBBO, 
regardless of time priority).
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    The Exchange also believes that its proposed use of a volume 
threshold to qualify for the NBBO Setter Rebate and to qualify for 
lower liquidity removal fees is analogous to tiered pricing structures 
that are in place at other exchanges.\10\ While the establishment of 
tiered pricing for removing liquidity from the BATS Options order book 
will result in a small increase for some Members, this fee still 
remains lower than other markets with similar fee structures, such as 
the NASDAQ Options Market and NYSE Arca in Make/Take Issues. Currently, 
for many of the transactions occurring on the Exchange, the Exchange 
either does not earn a fee because it charges the same fee to the 
liquidity remover as it rebates the liquidity maker.\11\ The increase 
in liquidity removal fees so that the Exchange is earning a small fee 
will provide the Exchange with additional revenue to both fund the NBBO 
Setter Rebate and to fund its operations generally. Volume-based 
discounts such as the liquidity removal fee tiers proposed in this 
filing have been widely adopted in the cash equities markets, and are 
equitable and not unreasonably discriminatory because they are open to 
all members on an equal basis and provide 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 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. Finally, 
the Exchange believes that the adoption of a definition for ADV and the 
proposed clarifications to the standard routing pricing section of the 
fee schedule will help to avoid potential confusion regarding the 
Exchange's fee schedule.
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    \10\ See Securities Exchange Act Release No. 57253 (February 1, 
2008), 73 FR 7352 (February 7, 2008) (SR-Phlx-2008-08) (notice of 
filing and immediate effectiveness to amend fees applicable to the 
Philadelphia Stock Exchange, including adopting a tiered floor 
broker options subsidy based on meeting specified trading volume 
requirements).
    \11\ See E-mail from Anders Franzon, VP, Associate General 
Counsel, BATS, to Johnna B. Dumler, Special Counsel, Commission, 
dated March 2, 2011.
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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 \12\ and Rule 19b-
4(f)(2) thereunder,\13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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-BATS-2011-008 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-2011-008. 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 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-2011-008 and should be 
submitted on or before March 31, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5441 Filed 3-9-11; 8:45 am]
BILLING CODE 8011-01-P


