
[Federal Register Volume 81, Number 28 (Thursday, February 11, 2016)]
[Notices]
[Pages 7379-7382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02730]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77065; File No. SR-BATS-2016-15]


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.

February 5, 2016.
    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 February 4, 2016, 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 17 CFR 200.30-3(a)(12).
    \2\ 17 CFR 240.19b-4.
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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 \3\ and non-members of the Exchange pursuant to BATS Rules 
15.1(a) and (c) (``Fee Schedule''). The changes to the Fee Schedule 
pursuant to this proposal are effective upon filing.
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    \3\ The term ``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 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 amend its Fee Schedule to: (i) Adopt a new 
tier under footnote 1 called the Market Depth Tier; (ii) eliminate from 
footnote 2 Step-Up Tiers 1, 2, and 3 and rename Step-Up Tier 4 as 
``Step-Up Tier''; and (iii) modify the tier-based incremental credits 
for Members that are Lead Market Makers (``LMMs'') for their orders 
that provide displayed liquidity in Tape B securities described under 
footnote 14.
Proposed Market Maker Depth Tier
    Currently, the Exchange determines the liquidity adding rebate that 
it will provide to Members using the Exchange's tiered pricing 
structure. Under such pricing structure, a Member will receive a rebate 
of anywhere between $0.0020 and $0.0034 per share executed, depending 
on the volume tier for which such Member qualifies. The Exchange 
proposes to adopt a new tier under footnote 1 titled the ``Market

[[Page 7380]]

Depth Tier''. Under the Market Depth Tier, the Exchange is proposing to 
provide a rebate of $0.0032 per share to Members that add an ADV \4\ of 
at least: (i) 1% of the TCV; \5\ and (ii) 0.10% of the TCV as Non-
Displayed Orders \6\ that yield fee codes HA \7\ or HI.\8\ As is the 
case with any other rebates on the Fee Schedule, to the extent that a 
Member qualifies for higher rebates than those provided under the 
proposed Market Depth Tier, the higher rebates shall apply.
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    \4\ As defined in the Exchange's Fee Schedule.
    \5\ Id.
    \6\ See Exchange Rule 11.9(c)(11).
    \7\ As set forth in the Exchange's Fee Schedule, fee code HA is 
attached to Non-Displayed Orders that add liquidity.
    \8\ As set forth in the Exchange's Fee Schedule, fee code HI is 
attached to Non-Displayed Orders that receives price improvement and 
add liquidity.
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Amendments to Step-Up Tiers
    The Exchange also maintains additional Step-Up Tiers that provide 
Members with additional ways to qualify for enhanced rebates where they 
increase their liquidity each month over a predetermined baseline. The 
Exchange currently offers four Step-Up Tiers under footnote 2 of its 
Fee Schedule. Under Tier 1, a Member receives a rebate of $0.0025 per 
share when its Step-Up Add TCV from January 2014 is equal to or greater 
than 0.07%. Under Tier 2, a Member receives a rebate of $0.0029 per 
share when its Step-Up Add TCV from January 2014 is equal to or greater 
than 0.10%. Under Tier 3, a Member receives a rebate of $0.0030 per 
share when its Step-Up Add TCV from January 2014 is equal to or greater 
than 0.15%. Lastly, under Tier 4, a Members [sic] receives a rebate of 
$0.0030 per share where their Step-Up Add TCV \9\ from August 2015 is 
equal to or greater than 0.08%; and (2) Member's ADAV \10\ as a 
percentage of TCV is equal to or greater than 0.35%.
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    \9\ Id.
    \10\ Id.
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    The Exchange proposes to amend footnote 2 to eliminate Step-Up 
Tiers 1, 2, and 3 and rename Step-Up Tier 4 as Step-Up Tier. The 
Exchange believes that Step-Up Tiers 1, 2, and 3 have successfully 
encouraged Members to increase their liquidity on the Exchange over a 
January 2014 baseline and that such tiers are no longer necessary. The 
Exchange notes that Step-Up Tier 4, which is to be renamed Step-Up 
Tier, provides a contemporary baseline of August 2015 by which Members 
may seek to increase their liquidity and receive a rebate of $0.0030 
per share. In addition, deletion of Step-Up Tiers 1, 2, and 3 would 
help offset the cost incurred by offering a rebate of $0.0032 per share 
under the proposed Market Depth Tier discussed above.
LMM Credit Tiers for Tape B
    On April 17, 2014, the Exchange filed a proposal to adopt rules to 
create an LMM Program (the ``Program'') on an immediately effective 
basis.\11\ The Program is designed to strengthen market quality for 
BATS-listed Exchange Traded Products (``ETPs'') \12\ by offering 
enhanced pricing to market makers registered with the Exchange 
(``Market Makers'') \13\ that are also registered as an LMM in an LMM 
Security \14\ and meet certain minimum quoting standards (``Minimum 
Performance Standards'').\15\ In October 2015, the Exchange filed a 
proposed rule change with the Commission to adopt such enhanced pricing 
for LMMs under part (A) of footnote 14 of the Fee Schedule \16\ and to 
adopt additional LMM credit tiers under part (B) of footnote 14, also 
on an immediately effective basis.\17\
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    \11\ See Securities Exchange Act Release No. 72020 (April 25, 
2014), 79 FR 24807 (May 1, 2014) (SR-BATS-2014-015).
    \12\ As defined in Rule 11.8(e)(1)(A), ETP means any security 
listed pursuant to Exchange Rule 14.11.
    \13\ See BATS Rule 11.5.
    \14\ As defined in Rule 11.8(e)(1)(C), LMM Security means an ETP 
that has an LMM.
    \15\ 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.
    \16\ The Exchange does not propose to amend the enhanced pricing 
available to LMMs under part (A) of footnote 14 of its Fee Schedule.
    \17\ See Securities Exchange Act Release No. 76147 (October 14, 
2015), 80 FR 63621 (October 20, 2015) (SR-BATS-2015-89).
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    As described above, the Exchange offers tier-based incremental 
credits to Members that are LMMs for their orders that provide 
displayed liquidity in Tape B securities pursuant to paragraph (B) of 
footnote 14 of the Fee Schedule. Specifically, Members that are LMMs 
for LMM Securities receive an additional rebate per share (an ``LMM 
Credit'') for orders that provide displayed liquidity in Tape B 
securities traded on the Exchange, including non-BATS-listed 
securities, except that such LMM Credits are not applied to the rebates 
provided to LMMs pursuant to part (A) of footnote 14 of the Fee 
Schedule (the ``LMM Rebate''). Currently, the LMM Credits and volume 
thresholds associated therewith are as follows: (i) An LMM Credit of 
$0.0001 per share where an LMM is a Qualified LMM \18\ in at least 50 
ETPs; (ii) an LMM Credit of $0.0002 per share where an LMM is a 
Qualified LMM in at least 75 ETPs; (iii) an LMM Credit of $0.0003 per 
share where an LMM is a Qualified LMM in at least 150 ETPs; and (iv) an 
LMM Credit of $0.0004 per share where an LMM is a Qualified LMM in at 
least 250 ETPs.
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    \18\ An LMM is a ``Qualified LMM'' in a security where it 
provides pricing for orders that add displayed liquidity in an LMM 
Security that meets the Minimum Performance Standards during the 
applicable billing month.
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    The Exchange now proposes to amend the LMM Credit Tiers under part 
(B) of footnote 14 to reduce the minimum number of ETPs for which an 
LMM must be a Qualified LMM in order to qualify for each tier as 
follows: (i) To receive an LMM Credit of $0.0001 per share, the number 
of ETPs for which the LMM is a Qualified LMM would be decreased from 50 
to 25; (ii) to receive an LMM Credit of $0.0002 per share, the number 
of ETPs for which the LMM is a Qualified LMM would be decreased from 75 
to 50; (iii) to receive an LMM Credit of $0.0003 per share, the number 
of ETPs for which the LMM is a Qualified LMM would be decreased from 
150 to 75; and (iv) to receive an LMM Credit of $0.0004 per share, the 
number of ETPs for which the LMM is a Qualified LMM would be decreased 
from 250 to 125.
    For example, a Member that is a Qualified LMM in 100 ETPs is 
currently eligible to receive an LMM Credit of $0.0002 per share in 
Tape B securities for which it is not a Qualified LMM, in addition to 
the rebate it would normally receive in accordance with the Exchange's 
Fee Schedule (``Normal Rebate''). As proposed, however, the Member 
would instead receive an LMM Credit of $0.0003 per share in Tape B 
securities for which it is not a Qualified LMM in addition to the 
Normal Rebate.\19\
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    \19\ Where the LMM Credit plus the Normal Rebate is greater than 
the LMM Rebate, the Member will receive this higher rebate instead 
of the LMM Rebate, which is consistent with the treatment of all 
other fees and rebates, as provided in the General Note that states 
``to the extent a Member qualifies for higher rebates and/or lower 
fees than those provided by a tier for which such Member qualifies, 
the higher rebates and/or lower fees shall apply.''
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Implementation Date
    The Exchange proposes to implement these amendments to its Fee 
Schedule immediately.\20\
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    \20\ The Exchange initially filed the proposed fee change on 
January 28, 2016 (SR-BATS-2016-11). On February 4, 2016, the 
Exchange withdrew SR-BATS-2016-11 and submitted this filing.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\21\ in general, and 
furthers the objectives of

[[Page 7381]]

Section 6(b)(4),\22\ in particular, as it is designed to provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its Members and other persons using its facilities. The Exchange 
also 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. The 
proposed rule change reflects a competitive pricing structure designed 
to incent market participants to direct their order flow to the 
Exchange. The Exchange believes that the proposed tier is equitable and 
non-discriminatory in it would apply uniformly to all Members. The 
Exchange believes the rates remain competitive with those charged by 
other venues and, therefore, reasonable and equitably allocated to 
Members.
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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(4).
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    Volume-based rebates such as that proposed herein have been widely 
adopted by equities and options exchanges and are equitable because 
they are open to all Members on an equal basis and provide additional 
benefits or discounts that are reasonably related to: (i) The value to 
an exchange's market quality; (ii) associated higher levels of market 
activity, such as higher levels of liquidity provision and/or growth 
patterns; and (iii) introduction of higher volumes of orders into the 
price and volume discovery processes. The Exchange believes that the 
proposed tier is a reasonable, fair and equitable, and not unfairly 
discriminatory allocation of fees and rebates because they will provide 
Members with an additional incentive to reach certain thresholds on the 
Exchange.
    In particular, the Exchange believes the addition of the Market 
Depth Tier is a reasonable means to encourage Members to increase their 
liquidity on the Exchange. The Exchange further believes that the 
proposed Market Depth Tier represents an equitable allocation of 
reasonable dues, fees, and other charges because the thresholds 
necessary to achieve the tier encourages Members to add displayed 
liquidity to the BATS Book \23\ each month, as only the displayed 
liquidity in this tier is awarded the rebate of $0.0032 per share. This 
tier also recognizes the contribution that non-displayed liquidity 
provides to the marketplace, including: (i) Adding needed depth to the 
Exchange market; (ii) providing price support/depth of liquidity; and 
(iii) increasing diversity of liquidity to the Exchange. The increased 
liquidity benefits 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.
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    \23\ See Exchange Rule 1.5(e).
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Proposed Market Maker Depth Tier
    The Exchange also notes that the criteria and rebate under the 
Market Depth Tier is equitable and reasonable as compared to other 
tiers offered by the Exchange. For example, under footnote 1 a Member 
may receive a rebate of $0.0030 per share under Tier 4 where their: (i) 
ADAV as a percentage of TCV [sic] equal to or greater than .50%; or 
(ii) ADV as a percentage of TCV is equal to or greater than 1.00%. Like 
the proposed Market Depth Tier, Members must add as a percentage of TCV 
of [sic] 1.00%. However, in order to receive the higher rebate of 
$0.0032 per share, the Member must also add an ADV of at least 0.10% of 
the TCV as Non-Displayed Orders that yield fee codes HA or HI. 
Therefore, the Exchange believes the proposed Market Depth Tier is 
consistent with Section 6(b)(4) \24\ of the Act as the more stringent 
criteria correlates with the tier's higher rebate.
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    \24\ 15 U.S.C. 78f(b)(4).
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Amendments to Step-Up Tiers
    The Exchange believes that its proposal to amend footnote 2 to 
delete Step-Up Tiers 1, 2, and 3 and rename Step-Up Tier 4 as Step-Up 
Tier is reasonable, fair, and equitable for several of the reasons 
stated above. Specifically, the Exchange believes that Step-Up Tiers 1, 
2, and 3 have successfully encouraged Members to increase their 
liquidity on the Exchange over a January 2014 baseline and that such 
tiers are no longer necessary. The Exchange notes that Step-Up Tier 4, 
which is to be renamed Step-Up Tier, provides a contemporary baseline 
of August 2015 by which Members may seek to increase their liquidity 
and receive a rebate of $0.0030 per share. In addition, deletion of 
Step-Up Tiers 1, 2, and 3 would help offset the cost incurred by 
offering a rebate of $0.0032 per share under the proposed Market Depth 
Tier discussed above. As such, the Exchange believes that removing the 
tier from its fee schedule is reasonable, fair, and equitable. The 
Exchange also believes that the proposed amendments are non-
discriminatory because they apply uniformly to all Members.
LMM Credit Tiers for Tape B
    The proposed reduction to the minimum number of ETPs for which an 
LMM must be a Qualified LMM in order to qualify for each tier in the 
LMM Credit Tiers for Tape B is intended to encourage Members to promote 
price discovery and market quality across all BATS-listed securities 
for the benefit of all market participants. The Exchange believes that 
reducing the thresholds for meeting such tiers provides increased 
incentives to Members to become LMMs in BATS-listed ETPs, to satisfy 
the Minimum Performance Standards in ETPs each month, and to add 
liquidity in Tape B securities on the Exchange, and is therefore 
reasonable because the Exchange believes doing so would encourage more 
LMMs to register to quote and trade in as many BATS-listed ETPs as 
possible. In particular, reducing the ETP requirements necessary to 
receive enhanced rebates tiered based on the number of securities for 
which a Member is registered as an LMM, would provide an incentive for 
such Members not only to register as an LMM in more liquid securities, 
but also to register to quote in lower volume ETPs, which are 
traditionally less profitable for market makers than more liquid ETPs. 
Moreover, the Exchange believes that the proposed change will 
incentivize LMMs to register as an LMM in more ETPs, including less 
liquid ETPs and, thus, add more liquidity in these and other Tape B 
securities to the benefit of all market participants. The Exchange 
believes that the proposed reduction in the threshold is equitable and 
not unfairly discriminatory because it remains consistent with the 
market quality and competitiveness benefits associated with the fee 
program and because the magnitude of the additional rebate is not 
unreasonably high in comparison to the requirements associated with 
receiving such LMM Credit and the rebate paid with respect to other 
displayed liquidity-providing orders.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe its proposed amendment to its Fee 
Schedule would impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. The Exchange 
does not believe that the proposed change represents a significant 
departure from previous pricing offered by the Exchange or pricing 
offered by the Exchange's competitors. Additionally, Members may opt to 
disfavor the Exchange's pricing if they believe that alternatives offer 
them better value. Accordingly, the Exchange does not believe that the 
proposed change will impair the ability of Members or competing venues 
to maintain their

[[Page 7382]]

competitive standing in the financial markets.
    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. The 
proposed changes are generally intended to enhance the rebates for 
liquidity added to the Exchange, which is intended to draw additional 
liquidity to the Exchange. The Exchange does not believe the proposed 
amendments would burden intramarket competition as they would apply to 
all Members uniformly.
    The Exchange does not believe that the proposed new Market Depth 
Tier would burden competition, but instead, enhances competition, as it 
is intended to increase the competitiveness of and draw additional 
volume to the Exchange. Nor does the Exchange believes eliminating 
Step-Up Tiers 1, 2, and 3 would impose any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. Those tiers have successfully encouraged Members to increase their 
liquidity on the Exchange and their elimination would help offset the 
cost incurred by offering a rebate of $0.0032 per share under the 
proposed Market Depth Tier.
    The Exchange does not believe that the proposed reduction to the 
minimum number of ETPs for which an LMM must be a Qualified LMM in 
order to qualify for each tier in the LMM Credit Tiers for Tape B will 
burden competition, but instead, enhances competition, as these changes 
are intended to increase LMM participation in Tape B Securities, to 
incentivize Members to register as LMMs in BATS-listed ETPs, and to 
encourage Members to meet the Minimum Performance Standards in such 
ETPs. As such, the 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.

(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 unsolicited 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 \25\ and paragraph (f) of Rule 19b-4 
thereunder.\26\ 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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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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-2016-15 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-2016-15. 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-2016-15 and should be 
submitted on or before March 3, 2016.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Brent J. Fields,
Secretary.
[FR Doc. 2016-02730 Filed 2-10-16; 8:45 am]
BILLING CODE 8011-01-P


