
[Federal Register Volume 79, Number 74 (Thursday, April 17, 2014)]
[Notices]
[Pages 21827-21829]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08688]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71935; File No. SR-BATS-2014-010]


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.

April 11, 2014.
    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 31, 2014, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 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). Changes to the fee schedule pursuant to this proposal 
are 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 its fee schedule applicable to use 
of the Exchange in order to modify the way that, for purposes of tiered 
pricing on the Exchange's equities trading platform (``BATS 
Equities''), the Exchange calculates ADV, ADAV, and average daily TCV 
(as such terms are defined below). Similarly, the Exchange proposes to 
modify the way that, for purposes of tiered pricing applicable to use 
of the Exchange's equity options trading platform (``BATS Options''), 
the Exchange calculates ADV and TCV.
    Currently, with respect to BATS Equities, the Exchange determines 
the liquidity adding rebate that it will provide to Members based on 
the Exchange's tiered pricing structure by excluding from the 
calculation of ADV,\6\ ADAV,\7\ and average daily TCV \8\ any day that 
an Exchange Outage occurs. An Exchange Outage is defined as any day 
that trading is not available on the Exchange for more than sixty (60) 
minutes during regular trading hours \9\ but continues on other markets 
during such time.\10\ The Exchange proposes to modify the definition of 
Exchange Outage to include situations where the Exchange experiences a 
systems disruption that lasts for more than 60 minutes during regular 
trading hours, even if such disruption would not be categorized as a 
complete outage of the Exchange's system, and to rename it as an 
``Exchange System Disruption.'' As an example, an Exchange System 
Disruption may occur where a certain group of securities (i.e., 
securities in a select symbol range such as A through C) traded on the 
Exchange is unavailable for trading due to an Exchange system issue. 
Similarly, the Exchange may be able to perform certain functions with 
respect to accepting and processing orders, but may have a failure to 
another significant process, such as routing to other market centers, 
that would lead Members that rely on such process to avoid utilizing 
the Exchange until the Exchange's entire system was operational.
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    \6\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``ADV'' means average daily volume calculated as 
the number of shares added or removed, combined, per day on a 
monthly basis; routed shares are not included in ADV calculation.
    \7\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``ADAV'' means average daily volume [sic] 
calculated as the number of shares added per day on a monthly basis; 
routed shares are not included in ADV [sic] calculation.
    \8\ As provided in the fee schedule, for purposes of BATS 
Equities pricing, ``TCV'' means total consolidated volume calculated 
as the volume reported by all exchanges and trade reporting 
facilities to a consolidated transaction reporting plan for the 
month for which the fees apply.
    \9\ The term ``regular trading hours'' means the ``time between 
9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(w).
    \10\ The Exchange notes that it also excludes the last Friday of 
June from the calculation of ADAV, ADV and average daily TCV for 
purposes of BATS Equities pricing. The last day of June is the day 
that Russell Investments reconstitutes its family of indexes 
(``Russell Reconstitution''), resulting in particularly high trading 
volumes, much of which the Exchange believes derives from market 
participants who are not generally as active entering the market to 
rebalance their holdings in-line with the Russell Reconstitution.
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    The Exchange believes that this modification is reasonable because 
the intent of the current Exchange Outage exclusion has always been to 
avoid penalizing Members that might otherwise qualify for certain 
tiered pricing but that, because of a significant Exchange system 
problem, did not participate on the Exchange to the extent that they 
might have otherwise participated. The Exchange believes that certain 
systems disruptions could preclude some Members from submitting orders 
to the Exchange even if such issue is not actually a complete systems 
outage. The Exchange notes that it is not proposing to modify any of 
the existing rebates or the percentage thresholds at which a Member may 
qualify for certain rebates pursuant to the tiered pricing structure. 
Rather, as mentioned above, the Exchange is proposing to modify its fee 
schedule to exclude trading activity occurring on any day that the 
Exchange experiences an Exchange System Disruption.
    The Exchange also currently applies a tiered pricing structure to 
BATS Options, determining the fees charged for removing liquidity and 
rebates provided for adding liquidity based on the Member's ADV \11\ as 
a percent of average daily TCV.\12\ The Exchange notes that its 
definitions of ADV and TCV do not currently contain any exclusions. The 
Exchange proposes to

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adopt for the definitions of both ADV and TCV for BATS Options the same 
Exchange System Disruption exclusion for BATS Equities described above. 
Such exclusion would apply to situations where the Exchange experiences 
a systems disruption that lasts for more than 60 minutes during regular 
trading hours. As is true for BATS Equities, the Exchange believes that 
certain systems disruptions could preclude some Members of BATS Options 
from submitting orders to the Exchange even if such issue is not 
actually a complete systems outage. The Exchange notes that it is not 
proposing to modify any of the existing rebates or the percentage 
thresholds at which a Member may qualify for certain rebates pursuant 
to the tiered pricing structure. Rather, as mentioned above, the 
Exchange is proposing to modify its fee schedule to exclude trading 
activity occurring on any day that the Exchange experiences an Exchange 
System Disruption. The Exchange also notes that it is not proposing to 
adopt for BATS Options the Russell Reconstitution exclusion that is 
currently available for BATS Equities.\13\
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    \11\ As provided in the fee schedule, for purposes of BATS 
Options pricing, ``ADV'' means average daily volume calculated as 
the number of contracts added or removed, combined, per day on a 
monthly basis; routed contracts are not included in ADV calculation.
    \12\ As provided in the fee schedule, for purposes of BATS 
Options pricing, ``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.
    \13\ See supra note 10.
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    The Exchange believes that eliminating days where an Exchange 
System Disruption occurs from the definition of ADV, ADAV and TCV for 
BATS Equities, and ADV and TCV for BATS Options, will provide Members 
with increased certainty as to their monthly cost for trades executed 
on the Exchange. The amended definition for BATS Equities would enable 
the Exchange to eliminate the day an Exchange System Disruption occurs 
from the calculation as it relates to rebates and fees based on trading 
activity on the Exchange, thereby providing Members greater certainty 
as to their monthly ADV or ADAV as a percentage of average daily TCV 
and the tiered rebates or fees for which they will qualify. Adopting 
the modified definition for BATS Options will enable the Exchange to 
provide the same additional certainty with respect to tiered pricing 
for BATS Options and will also promote uniformity between the 
Exchange's trading platforms.
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.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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    With respect to the proposed changes to the tiered pricing 
structure for adding liquidity to BATS Equities and for both removing 
liquidity from and adding liquidity to BATS Options, the Exchange 
believes that its proposal is reasonable because, as explained above, 
it will help provide Members with a greater level of certainty as to 
their level of rebates and costs for trading in any month where the 
Exchange experiences an Exchange System Disruption on one or more 
trading days. The Exchange is not proposing to amend the thresholds a 
Member must achieve to become eligible for, or the dollar value 
associated with, the tiered rebates or fees. By eliminating the 
inclusion of a trading day on which an Exchange System Disruption 
occurs the Exchange would almost certainly be excluding a day that 
would otherwise lower a Member's ADV and/or ADAV as a percentage of 
average daily TCV. Thus, the proposed change will make the majority of 
Members more likely to meet the minimum or higher tier thresholds, 
incentivizing Members to increase their participation on the Exchange 
in order to meet the next highest tier. In addition, the Exchange 
believes that the proposed changes to its fee schedule are equitably 
allocated among Exchange constituents and not unfairly discriminatory 
as the methodology for calculating ADV, ADAV and TCV will apply equally 
to all Members of BATS Equities, and the methodology for calculating 
ADV and TCV will apply equally to all Members of BATS Options. While, 
although unlikely, certain Members may have a higher ADV or ADAV as a 
percentage of average daily TCV with their activity included from days 
where the Exchange experiences an Exchange System Disruption, the 
proposal will make all Members' cost of trading on the Exchange more 
predictable, regardless of how the proposal affects their ADV or ADAV 
as a percentage of average daily TCV.
    Volume-based tiers such as the liquidity adding tiers maintained by 
the Exchange have been widely adopted, and are equitable and not 
unfairly discriminatory because they are open to all members on an 
equal basis and provide higher rebates or lower fees 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 equitably allocated and not unfairly 
discriminatory because it is consistent with the overall goals of 
enhancing market quality. Further, the Exchange believes that a tiered 
pricing model not significantly altered by a day of atypical trading 
behavior which allows Members to predictably calculate what their costs 
associated with trading activity on the Exchange will be is reasonable, 
fair and equitable and not unreasonably discriminatory as it is uniform 
in application amongst Members and should enable such participants to 
operate their business without concern of unpredictable and potentially 
significant changes in expenses.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed change will help to promote intramarket competition by 
avoiding a penalty to Members for days when trading on the Exchange is 
disrupted for a significant portion of the day. 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 structures to be unreasonable or excessive.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \16\ and paragraph (f) of Rule 19b-4 
thereunder.\17\ At any time within

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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. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
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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 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 No. SR-BATS-2014-010 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-BATS-2014-010. 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 will also 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-2014-010 and should be 
submitted on or before May 8, 2014.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-08688 Filed 4-16-14; 8:45 am]
BILLING CODE 8011-01-P


