
[Federal Register Volume 78, Number 58 (Tuesday, March 26, 2013)]
[Notices]
[Pages 18384-18385]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06876]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69190; File No. SR-BATS-2013-005]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Approving Proposed Rule Change To Modify the Competitive Liquidity 
Provider Program to, Among Other Things, Modify the Calculation of Size 
Event Tests

March 20, 2013.

I. Introduction

    On January 18, 2013, BATS Exchange, Inc. (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''), and 
Rule 19b-4 thereunder, a proposed rule change to modify the Exchange's 
competitive liquidity provider program, to among other things, modify 
the calculation of size event tests. The proposed rule change was 
published in the Federal

[[Page 18385]]

Register on February 6, 2013.\1\ The Commission received no comments on 
the proposal. This order approves the proposal.
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    \1\ See Securities Exchange Act Release No. 68789 (January 31, 
2013), 78 FR 8655.
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II. Description of the Proposal

    The Exchange operates a competitive liquidity provider program that 
provides incentives to certain Exchange market makers to provide 
additional liquidity in Exchange listed securities.\2\ The Exchange 
proposes to modify certain aspects of the competitive liquidity 
provider program.
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    \2\ See Exchange Rule 11.8.02.
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A. Calculation of Size Event Tests

    Currently, a market maker participating in the competitive 
liquidity provider program would be eligible for a financial rebate 
based on the size of the liquidity provided by the market maker. The 
Exchange calculates the rebate by examining, at least once per second, 
the quoted size at the national best bid and national best offer 
(``Size Event Test''). The market maker with the greatest aggregative 
size would be considered the winner of the Size Event Test.
    The Exchange proposes to bifurcate the calculation of the Size 
Event Test by the bid and the offer. Thus, instead of having one 
winner, the Exchange proposes to have two separate winners--one winner 
at the bid and one winner at the offer. As proposed, the market maker 
with the greatest aggregated size at the national best bid (excluding 
odd lots) would be considered the winner of the bid test and the market 
maker with the greatest aggregative size at the national best offer 
(excluding odd lots) would be considered the winner of the offer test.

B. Financial Rebates for the Bid Winner and the Offer Winner

    In connection with the proposal to bifurcate the Size Event Test 
winners into the bid test winner and the offer test winner, the 
Exchange proposes to provide financial rebates separately. Currently, a 
market maker must have at least 10% of the winning Size Event Tests in 
order to meet its daily quoting requirements and qualify for the 
financial rebate. The Exchange proposes to allocate the rebate to both 
the bid test winner and the offer test winner.

C. Allocation of Financial Rebates

    The competitive liquidity provider program assigns only one market 
maker for the first six months of a security's initial listing. 
Thereafter, multiple market makers may qualify to quote and to receive 
the financial rebates. Currently, for Tier I securities and exchange 
traded products, 80% of the rewards would go to the market maker with 
the highest number of winning tests and 20% of the total rewards would 
go to the market maker with the second highest number of winning 
tests.\3\ The Exchange proposes to allocate the rewards differently. 
Instead of a fixed dollar amount, the Exchange would reward the two 
winning market makers based on a pro rata amount, calculated on the 
combined sum of their winning tests.
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    \3\ For Tier II securities, there is only one rebate for the 
winner.
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D. Quoting Requirements

    Currently, the Exchange requires each market maker to quote at 
least one round lot. The Exchange proposes to increase the minimum 
quoting requirement to five round lots in order for market makers to 
qualify for the winning tests.
    The Exchange also proposes to add an additional quoting requirement 
for market makers to qualify for the winning tests. In order to qualify 
for the winning bid test, the Exchange is proposing for market makers 
to quote at least a displayed round lot offer at a price at or within 
1.2% of the market maker's bid. Conversely, in order to qualify for the 
winning offer test, the market makers must quote at least a displayed 
round lot bid at a price at or within 1.2% of the market maker's offer.

E. Time of Operation

    Currently, the competitive liquidity provider program measures 
participants in assigned securities during Exchange regular trading 
hours, from 9:30 a.m. to 4:00 p.m. The Exchange proposes to extend the 
time by 10 total minutes, from 9:25 a.m. to 4:05 p.m.\4\
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    \4\ See proposed Exchange Rule 11.8.02(g)(1).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to national securities exchanges.\5\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\6\ which requires that the 
rules of an exchange be designed, among other things, to promote just 
and equitable principles of trade, to remove impediments to and to 
perfect the mechanism for a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
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    \5\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal is consistent with the 
requirements of the Act and should benefit investors by providing 
additional liquidity in the securities that participate in the 
competitive liquidity provider program. The Commission believes that 
bifurcating the Size Event Tests could incentivize market makers to 
provide two-sided quotes that could enhance the liquidity of the 
security. Moreover, the Exchange's proposal to provide the rebate to 
the winner of the bid test and the winner of the offer test could 
provide a stimulus to market makers to increase quoting size on both 
sides of the market. The Commission believes that the allocation, on a 
pro rata basis, of the financial rebate should provide a more equitable 
distribution of the rebate to the winning market makers. The Commission 
believes that the proposed quoting requirements should enhance the 
market size and could lead to tighter spreads. Finally, the Commission 
believes the extended time period could entice market makers to provide 
more quotes in the opening auctions and closing auctions.
    For the reasons stated above, the Commission believes that the 
proposal is consistent with the requirements of the Act and is designed 
to promote just and equitable principles of trade, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-BATS-2013-005), be, and it 
hereby is, approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06876 Filed 3-25-13; 8:45 am]
BILLING CODE 8011-01-P


