
[Federal Register Volume 79, Number 112 (Wednesday, June 11, 2014)]
[Notices]
[Pages 33630-33632]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13563]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72333; File No. SR-BATS-2014-019]


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.

June 5, 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 May 28, 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, 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 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 defined as ``any registered broker or dealer 
that has been admitted to membership in the Exchange.'' See Exchange 
Rule 1.5(n).
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On April 17, 2014, the Exchange filed a proposal to adopt rules to 
create a Lead Market Maker Program (the ``Program'') on an immediately 
effective basis.\6\ The Exchange plans to implement the Program on June 
2, 2014. The Program is designed to strengthen market quality for BATS-
listed ETPs \7\ by offering enhanced rebates to market makers 
registered with the Exchange (``Market Makers'') \8\ that are also 
registered as a lead market maker (``LMM'') in an LMM Security \9\ and 
meet certain minimum quoting standards (``Minimum Performance 
Standards'').\10\ The purpose of this filing is to adopt such enhanced 
rebates and to make corresponding clarifying changes to the fee 
schedule.
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    \6\ See Securities Exchange Act Release No. 72020 (April 25, 
2014) 79 FR 24807 (May 1, 2014) (SR-BATS-2014-015).
    \7\ As defined in Rule 11.8(e)(1)(A), ETP means any security 
listed pursuant to Exchange Rule 14.11.
    \8\ See BATS Rule 11.5.
    \9\ As defined in Rule 11.8(e)(1)(C), LMM Security means an ETP 
that has an LMM.
    \10\ As defined in Rule 11.8(e)(1)(D), Minimum Performance 
Standards means a set of standards applicable to an LMM that may be 
determined from time to time by the Exchange.
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    Effective June 2, 2014, the Exchange proposes to modify its fee 
schedule applicable to use of the Exchange in order to provide pricing 
for orders that add displayed liquidity in LMM Securities entered by 
LMMs that meet the Minimum Performance Standards (a ``Qualified LMM''). 
The Exchange is proposing to implement a tiered rebate structure that 
is based on the consolidated average daily volume (``CADV'') of the LMM 
Security.\11\ Specifically, the Exchange is proposing that, unless an 
LMM otherwise qualifies for a higher rebate, a Qualified LMM shall 
receive the following rebates for each share of added displayed 
liquidity: Where the CADV is 10,000 or less, $0.0070; where the CADV is 
between 10,001 and 40,000, $0.0050; where the CADV is between 40,001 
and 80,000, $0.0045; where the CADV is between 80,001 and 150,000, 
$0.0040; and where the CADV is greater than 150,000, $0.0035. While not 
possible under the current pricing structure, in the event that a 
Qualified LMM is ever eligible to receive a higher per share rebate 
under non-LMM pricing, the Qualified LMM will receive such higher non-
LMM rebate. As proposed, LMM rebates are not eligible for additional 
rebates like the NBBO Setter or NBBO Joiner rebates currently offered 
by the Exchange.
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    \11\ As defined in the proposed fee schedule, ``CADV'' means 
consolidated average daily volume calculated as the average daily 
volume reported for a security by all exchanges and trade reporting 
facilities to a consolidated transaction reporting plan for the 
three calendar months preceding the month for which the fees apply.
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    Under the proposal, CADV is calculated based on the three calendar 
months preceding the month for which the fees apply, meaning that when 
calculating the rebates that apply to a particular LMM Security, the 
CADV will be based on the three calendar months prior to the current 
trading month. For example, in calculating the rebates that will apply 
to an LMM for a particular LMM Security for November, the Exchange will 
look to the average daily volume reported for the LMM Security by all 
exchanges and trade reporting facilities to a consolidated transaction 
reporting plan for August, September, and October. If that LMM Security 
was an initial listing on BATS (not a transfer listing from another 
listing market) and was listed beginning on September 15, the 
calculation of CADV used for November pricing would include all days 
from August 1 through September 14 with zero volume each trading day. 
For transfer listings, the determination of the rebates for a month 
will be based on the CADV for the past three months, regardless of 
where the ETP was listed during that period.
    The Exchange is not proposing to make any changes to its existing 
price structure. The Exchange notes that all volume, including volume 
in LMM Securities, will continue to be included in all volume 
calculations as it relates to other rebates and fees on the Exchange.
Corresponding Changes
    Finally, the Exchange proposes to make several non-substantive 
changes to the fee schedule, including amending the footnote numbering 
in order to accommodate the addition of new footnote 3, which, as 
described above, defines the term CADV, and, similarly, the deletion of 
existing footnote 4, which is currently reserved.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule on June 2, 2014.

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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) and 6(b)(5) 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 and it does not unfairly 
discriminate between customers, issuers, brokers or dealers. 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) and (5).
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    The Exchange believes that the proposed LMM rebates are equitable 
and not unfairly discriminatory because they will incentivize and 
reward LMMs that make tangible commitments to enhancing market quality 
for securities listed on the Exchange. The Exchange further believes 
that the proposal will encourage the development of new financial 
products, provide a better trading environment for investors in ETPs, 
and generally encourage greater competition between listing venues.
    As described above, the Exchange proposes to provide rebates to 
Qualified LMMs for adding displayed liquidity ranging from $0.0035 to 
$0.0070 per share. This range is based on an LMM Security's CADV such 
that as the CADV increases, the proposed rebate decreases. Typically, 
the lower a security's CADV, the higher the risks and costs to a market 
maker associated with making markets in the security, such as holding 
inventory in the security. As the CADV for a security increases, and 
thus the liquidity increases, typically these same costs associated 
with making markets in a security decrease. Similarly, the lower a 
security's CADV, the wider the bid-ask spread in that security will 
typically be, which means that anyone that wants to buy (sell) the 
security will have to pay a higher (receive a lower) price for the 
security. As a security's CADV increases, the narrower the bid-ask 
spread typically becomes, which means that a buyer (seller) pays 
(receives) a lower (higher) price when buying (selling) the security. 
As such, the Exchange's proposal to pay rebates between $0.0070 and 
$0.0035 per share to Qualified LMMs as the CADV of the LMM Security 
increases is designed to provide higher rebates to Qualified LMMs for 
meeting the Minimum Quoting Standards in securities that are most 
likely to cost them the most to make a market, which the Exchange 
believes will have the effect of shrinking the bid-ask spread in such 
securities and reducing (increasing) the price for anyone that wants to 
buy (sell) the security. As the CADV of a security increases, the cost 
of making markets in the security decreases, which is why the Exchange 
is proposing to offer smaller rebates to Qualified LMMs for LMM 
Securities with higher CADV, while still having the effect of 
tightening spreads. The Exchange believes that the tightened spreads 
and the increased liquidity from the proposal will benefit all 
investors by deepening the Exchange's liquidity pool, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    Based on the foregoing, the Exchange believes that these rebates 
will incent Qualified LMMs to narrow spreads, increase liquidity, and 
generally enhance the quality of quoting in all securities, 
particularly in lower CADV securities, which will reduce trading costs 
and benefit investors generally. Accordingly, the Exchange believes 
that the proposal is equitably allocated and not unfairly 
discriminatory because the proposal is consistent with the overall 
goals of enhancing market quality.
    The Exchange notes that the proposed pricing structure is not 
dissimilar from volume-based rebates and fees (``Volume Tiers'') that 
have been widely adopted, including those maintained on the Exchange, 
and are equitable and not unfairly discriminatory because they are open 
to all members on an equal basis and provide higher rebates and lower 
fees that are reasonably related to the value to an exchange's market 
quality. While Volume Tiers are generally designed to incentivize 
higher levels of liquidity provision and/or growth patterns on the 
Exchange across all securities, the proposal is designed to more 
precisely garner the same benefits specifically in LMM Securities. 
Stated another way, while Volume Tiers aim to enhance market quality 
generally, the proposed rebates are designed to enhance market quality 
on a security by security basis and particularly in securities with a 
lower CADV. As such, the Exchange believes that the proposed changes 
will strengthen its market quality for BATS-listed securities by 
enhancing the quality of quoting in such securities and will further 
assist the Exchange in competing as a listing venue for issuers seeking 
to list ETPs. Accordingly, the Exchange believes that the proposal will 
complement the Exchange's program for listing securities on the 
Exchange, which will, in turn, provide issuers with another option for 
raising capital in the public markets, thereby promoting the principles 
discussed in Section 6(b)(5) of the Act.\14\
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    \14\ 15 U.S.C. 78f(b)(5).
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Corresponding Changes
    Finally, the Exchange believes that the clarifying change that 
changes the footnote reference to facilitate the addition of footnote 3 
as well as the deletion of footnote 4 is reasonable as it will help to 
avoid confusion for those that review the Exchange's fee schedule. The 
Exchange notes that the proposed change is not designed to amend any 
fee or rebate, nor alter the manner in which it assesses fees or 
calculates rebates. The Exchange believes that the proposed amendment 
is intended to make the fee schedule clearer and less confusing for 
investors and eliminate potential investor confusion, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system, and, in general, protecting investors and 
the public interest.

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. With 
respect to the proposed new LMM rebates, the Exchange does not believe 
that the changes burden competition, but instead, enhance competition, 
as they are intended to increase the competitiveness of the Exchange's 
listings program. The Exchange also believes the proposed changes would 
enhance competition because they are similar to pricing incentives 
provided by both Arca and Nasdaq. 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 the 
deem fee structures to be unreasonable or excessive. The proposed 
changes are generally intended to enhance the rebates in LMM Securities 
for Qualified LMMs, which is intended to enhance market quality in 
BATS-listed securities. As such, the

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proposal is a competitive proposal that is intended to add additional 
liquidity to the Exchange, which will, in turn, benefit the Exchange 
and all Exchange participants. In addition, the Exchange believes that 
the proposed non-substantive changes to the footnotes on the fee 
schedule would not affect intermarket nor intramarket competition 
because the change does not alter any fees or rebates on the Exchange 
or the criteria associated therewith.

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.

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 \15\ and paragraph (f) of Rule 19b-4 
thereunder.\16\ 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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 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 email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2014-019 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 Number SR-BATS-2014-019. 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-2014-019, and should be 
submitted on or before July 2, 2014.

    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. 2014-13563 Filed 6-10-14; 8:45 am]
BILLING CODE 8011-01-P


