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., 1205-1208 [2011-93]

Download as PDF Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Notices necessary or appropriate in furtherance of purposes of the Act. 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 with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 9 of the Act and subparagraph (f)(2) of Rule 19b–4 10 thereunder, because it establishes a due, fee, or other charge imposed by CBOE on any person in that the subsidy arrangement relates to fees charged by certain order routing system providers for use of their routing systems. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2010–117 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–92 Filed 1–6–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63632; File No. SR–BATS– 2010–038] 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. January 3, 2011 Paper Comments jdjones on DSK8KYBLC1PROD with NOTICES Internet Web site (https://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–CBOE– 2010–117 and should be submitted on or before January 28, 2011. • 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–CBOE–2010–117. 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 Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on December 21, 2010, 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 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b–4(f)(2). VerDate Mar<15>2010 15:30 Jan 06, 2011 1 15 Jkt 223001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 1205 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify its fee schedule applicable to Members 5 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 January 3, 2011. The text of the proposed rule change is available at the Exchange’s Web site at https://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 the ‘‘Options Pricing’’ section of its fee schedule to: (i) Modify its pricing for Customer 6 orders by decreasing the fee for removing liquidity from the Exchange and increasing the rebate for adding liquidity to the Exchange; (ii) add a rebate specifically for orders that set either the national best bid (the ‘‘NBB’’) or the national best offer (the ‘‘NBO’’) where the Member meets certain 3 15 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 5 A Member is any registered broker or dealer that has been admitted to membership in the Exchange. 6 As defined on the Exchange’s fee schedule, the term ‘‘Customer’’ applies to any transaction identified by a member for clearing in the Customer range at the OCC. 4 17 E:\FR\FM\07JAN1.SGM 07JAN1 1206 Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Notices average daily volume requirements; (iii) modify its pricing for Firm 7 and Market Maker 8 orders by increasing the fee for all orders that remove liquidity while also increasing the rebate for orders that add liquidity by either $0.05 or $0.15 per contract depending on the capacity of the remover of the liquidity; (iv) modify its pricing for Customer Directed ISO 9 orders; and (v) establish fees that will apply to all best execution routing strategies offered by the Exchange 10 and to Destination Specific Order 11 routing strategies in order to eliminate the disparate pricing between the two types of routing. (i) Customer Pricing The Exchange currently charges $0.30 per contract for all orders that remove liquidity from the BATS Exchange options market (‘‘BATS Options’’) and pays $0.20 per contract for all orders that add liquidity to BATS Options. The Exchange proposes to both lower the fee for removing liquidity to $0.25 per contract and raise the rebate for adding liquidity to $0.25 for Customer orders. The Exchange believes that this change will generate an increase in Customer order flow and will provide more liquidity on the Exchange. jdjones on DSK8KYBLC1PROD with NOTICES (ii) NBBO Setter Rebate The Exchange proposes to adopt for its options platform a $0.50 per contract rebate upon execution for all orders that add liquidity that sets either the NBB or NBO (the ‘‘NBBO Setter Rebate’’) 12 so long as the Member submitting the order achieves an average daily volume of 20,000 contracts executed on the BATS Options book for the calendar month. Average daily volume will be calculated by taking the total number of contracts traded on the Exchange (which excludes routed orders) during the calendar month by the Member divided by the number of trading days in the month. For example, in January of 2011, a month with twenty (20) trading days, a Member must trade at least 400,000 contracts (20 trading days multiplied by 7 As defined on the Exchange’s fee schedule, the term ‘‘Firm’’ applies to any transaction identified by a member for clearing in the Firm range at the OCC. 8 As defined on the Exchange’s fee schedule, the term ‘‘Market Maker’’ applies to any transaction identified by a member for clearing in the Market Maker range at the OCC. 9 As defined in BATS Rule 21.1(d)(12). 10 The Exchange’s routing strategies are defined in BATS Rule 21.9(a)(2). 11 As defined in BATS Rule 21.1(d)(7). 12 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. VerDate Mar<15>2010 15:30 Jan 06, 2011 Jkt 223001 20,000 contracts per day) in the month to be eligible for the NBBO Setter Rebate. If a Member meets this volume requirement, all of the Member’s orders that set the NBB or NBO that were executed in January would be eligible for the NBBO Setter Rebate. The NBBO Setter Rebate supersedes any other applicable liquidity rebates. The Exchange believes that the proposed NBBO Setter Rebate is analogous to similar proposals designed to encourage market participants to submit aggressively priced orders previously implemented at other options exchanges.13 The Exchange also believes that its proposed use of a volume threshold to qualify for the rebate is substantively identical to tiered pricing structures that are in place at other exchanges.14 Additionally, the Exchange believes that the proposed NBBO Setter Rebate will incentivize the entry of more aggressive orders which will create tighter spreads, benefitting both Members and public investors. (iii) Firm and Market Maker Pricing As mentioned above, the Exchange currently charges $0.30 per contract for orders that remove liquidity and pays $0.20 per contract for orders that add liquidity. The Exchange proposes to raise the fee for removing liquidity to $0.35 for Firm and Market Maker orders. The Exchange also proposes to increase the rebate for Firm and Market Maker orders that are removed by Customer orders to $0.25 per contract and to increase the rebate for orders that are removed by Firm or Market Maker orders to $0.35 per contract. The removing Member’s fee will be determined without regard to the capacity of the adding party. The Exchange believes that the proposed change to the Firm and Market Maker pricing will encourage Firms and 13 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). The Commission notes that Securities Exchange Act Release No. 61987 did not establish any new fees. 14 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). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 Market Makers to add more liquidity to the Exchange. The Exchange also believes that, because Members can neither see the capacity of orders in the Exchange’s order book nor determine the capacity of the Member that removes an order,15 the proposal will not disadvantage public investors or Members. Lastly, the Exchange believes that the proposed change to the fee schedule is substantively similar to a pricing plan in place at NASDAQ OMX PHLX.16 (iv) Directed ISO Pricing The Exchange currently charges $0.50 per contract for a Customer Directed ISO transaction and $0.60 per contract for Firm and Market Maker Directed ISO transactions. The Exchange proposes to further simplify its pricing for Directed ISOs by setting flat rates for Directed ISOs that bypass the Exchange’s order book and execute at away venues, regardless of capacity. As proposed, the charge for all Directed ISO transactions will be $0.60 per contract. (v) Routing Pricing The Exchange proposes to adjust its fees for options order routing and simplify its routing pricing by eliminating the different pricing between Destination Specific Orders and Standard Best Execution Routing. Currently, the Exchange charges a flat fee per contract for standard routing and a fee based on the pricing model of the destination exchange for Destination Specific Orders. In most instances, the pricing for Destination Specific Orders results in Members being charged lower execution fees than if the orders were routed directly by the Member to an away venue. Rather than continuing to subsidize its Members’ routing strategies, the Exchange proposes to adjust routing fees to more closely reflect the Exchange’s cost of executing those orders at the away markets. Specifically, the Exchange proposes to assess a routing fee of $0.54 per contract for all Firm and Market Maker orders that are routed to any away exchange pursuant to Standard Best Execution Routing or Destination Specific Order 15 The Exchange notes that its proposed amendment to Rule 21.1 from Securities Exchange Act Release No. 63403 (December 1, 2010) (SR– BATS–2010–34) to add directed orders will not be subject to the proposed Firm and Market Maker Pricing. The Exchange intends to file a separate fee filing upon approval of the proposed amendment to implement directed order pricing. 16 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 subsidy that does not apply to Customer-toCustomer transactions). E:\FR\FM\07JAN1.SGM 07JAN1 Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Notices routing. The Exchange proposes to assess the following per contract fees for Customer orders that are routed to the named away exchange: $0.05 for all orders in non-‘‘Make/Take’’ issues,17 if applicable, routed to NYSE Amex, NYSE Arca, the Boston Options Exchange, the Chicago Board Options Exchange, the International Stock Exchange, or NASDAQ OMX PHLX; $0.20 for all orders routed to the Chicago Board Options Exchange 2; $0.25 for all orders routed to the International Stock Exchange in Make/ Take issues; $0.29 for all orders routed to NASDAQ OMX PHLX in Make/Take issues; $0.48 for all orders routed to NASDAQ Options Market; and $0.49 for all orders routed to NYSE Arca in Make/ Take issues. The Exchange believes that the proposed routing fees are competitive, fair and reasonable, and nondiscriminatory in that they approximate the cost to the Exchange of executing routed orders at an away market and are similar to those fees charged by other exchanges. The Exchange also believes that Members will benefit from the simplicity of the pricing structure. jdjones on DSK8KYBLC1PROD with NOTICES 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(b) of the Act.18 Specifically, the Exchange believes that the proposed rule change is consistent with Section 6(b)(4) 19 of the Act, 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. As described below, the Exchange believes that its fees and credits are competitive with those charged by other venues. The various changes to Exchange execution fees, execution rebates and routing fees 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. Most of the changes the Exchange has proposed to its execution fees and rebates will result in reduced fees or increased payments 17 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. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(4). VerDate Mar<15>2010 15:30 Jan 06, 2011 Jkt 223001 that will benefit Members due to the obvious economic savings and increased revenue those Members will receive and the potential of increased available liquidity at the Exchange. The Exchange notes that it does not currently operate any auctions through which orders are held and broadcast to its membership, nor does the Exchange engage in any payment for order flow practices. Rather, the Exchange is proposing to enhance its transparent market structure with an easy to understand and transparent pricing structure by adding incentives for aggressive quoting. The Exchange believes that its proposed routing rates are, on average, better than or equal to the fees a market participant would pay if routing through another market center. 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. Also, although routing options are available to all Members, Members are not required to use the Exchange’s routing services, but instead, the Exchange’s routing services are completely optional. Members can manage their own routing to different options exchanges or can utilize a myriad of other routing solutions that are available to market participants. 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 The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act 20 and Rule 19b–4(f)(2) thereunder,21 because it establishes or changes a due, fee or other charge imposed on members by the Exchange. Accordingly, the proposal is effective upon filing with the Commission. 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 20 15 21 17 PO 00000 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). Frm 00080 Fmt 4703 Sfmt 4703 1207 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BATS–2010–038 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–2010–038. 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 (https://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– 2010–038 and should be submitted on or before January 28, 2011. E:\FR\FM\07JAN1.SGM 07JAN1 1208 Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–93 Filed 1–6–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63630; File No. SR–BATS– 2010–039] 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. January 3, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 22, 2010, 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. jdjones on DSK8KYBLC1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify its fee schedule applicable to Members 5 and non-members of the Exchange pursuant to BATS Rules 15.1(a) and (c). Pursuant to the proposed rule change, the Exchange will commence charging fees to Members and non-members for 10G direct circuit connections, change pricing for certain other physical ports, and begin passing through in full certain hardware expenses incurred by the Exchange that are directly related to completing a cross-connect. While changes to the fee schedule pursuant to this proposal will be effective upon 22 17 CFR 200.30–3(a)(12). 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). 5 A Member is any registered broker or dealer that has been admitted to membership in the Exchange. VerDate Mar<15>2010 15:30 Jan 06, 2011 Jkt 223001 filing, the changes will become operative on January 3, 2011. The text of the proposed rule change is available at the Exchange’s Web site at https://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 purpose of the proposed rule change is to establish fees for direct 10G circuit connections, to raise the monthly fees for ‘‘physical’’ ports into the Exchange at the data centers where the Exchange’s servers are located, and to pass through in full any hardware costs or connectivity fees incurred by the Exchange that are directly related to completing a cross-connect where the cost or fee exceeds $1,000. The Exchange already provides Members and non-Members four pairs 6 of 1G physical ports free of charge and charges $2,000 per month for each additional single physical port. The Exchange proposes to provide the option to connect directly with the Exchange via 10G physical ports to any Member or non-member that has been approved to connect to the Exchange. Due to the infrastructure costs associated with providing the additional bandwidth for 10G physical ports, the Exchange proposes to charge $2,500 per month for each single physical 10G port provided by the Exchange to any Member or non-member in any data center. The Exchange’s proposal is intended to permit those Members and non-members that require additional bandwidth and wish to establish 10G physical ports to do so if such constituent is willing to pay for such 6 Each pair of ports consists of one port at the Exchange’s primary data center and one port at the Exchange’s secondary data center. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 ports. The Exchange notes that other market centers provide similar services to their Members and non-members.7 The Exchange also proposes to increase the fee for each 1G physical port used by Members and nonmembers in excess of the four ports provided free of charge from $2,000 per port each month to $2,500 per port each month. The proposal is intended to account for increasing infrastructure costs associated with providing physical ports while at the same time permitting those Members and non-members that wish to establish additional physical ports do so if such constituents are willing to pay for such ports. Based on the proposal, the change applies to all Exchange constituents with 1G physical connections, including Members that obtain ports for direct access to the Exchange, non-member service bureaus that act as a conduit for orders entered by Exchange Members that are their customers, Sponsored Participants, and market data recipients. There are zero non-members and very few Members that currently require more than four physical ports for their operations related to the Exchange and thus, the proposal should not affect many of the Exchange’s constituents. Lastly, the Exchange proposes to pass through in full any hardware costs or connectivity fees incurred that are directly related to completing a crossconnect where the expense to the Exchange billed by a third party exceeds $1,000. The Exchange proposes to pass through the expense as an alternative to the flat installation fees charged by the Exchange’s primary competitors. The Exchange does not anticipate that passing through these expenses will affect many of the Exchange’s constituents, because the majority of cross-connect completions cost less than $1,000. For this reason, the Exchange proposes to pass-through the charges associated with cross-connect completions that cost more than $1,000 rather than to subsidize these expensive completions by charging an installation fee for all completions regardless of their cost. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act,8 in that it 7 See Securities Exchange Act Release Nos. 62663 (August 9, 2010), 75 FR 49543 (August 13, 2010) (SR–NASDAQ–2010–077) (order approving fees for both 1G and 10G non-co-located port connections); Securities Exchange Act Release No. 62681 (August 10, 2010), 75 FR 50020 (August 16, 2010) (SR– EDGA–2010–06) (order approving fees for both 1G and 10G port connections). 8 15 U.S.C. 78f(b)(4). E:\FR\FM\07JAN1.SGM 07JAN1

Agencies

[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Notices]
[Pages 1205-1208]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-93]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63632; File No. SR-BATS-2010-038]


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.

January 3, 2011
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on December 21, 2010, 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.
---------------------------------------------------------------------------

    \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 to modify its fee schedule applicable to 
Members \5\ 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 January 3, 
2011.
---------------------------------------------------------------------------

    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at https://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 the ``Options Pricing'' section of 
its fee schedule to: (i) Modify its pricing for Customer \6\ orders by 
decreasing the fee for removing liquidity from the Exchange and 
increasing the rebate for adding liquidity to the Exchange; (ii) add a 
rebate specifically for orders that set either the national best bid 
(the ``NBB'') or the national best offer (the ``NBO'') where the Member 
meets certain

[[Page 1206]]

average daily volume requirements; (iii) modify its pricing for Firm 
\7\ and Market Maker \8\ orders by increasing the fee for all orders 
that remove liquidity while also increasing the rebate for orders that 
add liquidity by either $0.05 or $0.15 per contract depending on the 
capacity of the remover of the liquidity; (iv) modify its pricing for 
Customer Directed ISO \9\ orders; and (v) establish fees that will 
apply to all best execution routing strategies offered by the Exchange 
\10\ and to Destination Specific Order \11\ routing strategies in order 
to eliminate the disparate pricing between the two types of routing.
---------------------------------------------------------------------------

    \6\ As defined on the Exchange's fee schedule, the term 
``Customer'' applies to any transaction identified by a member for 
clearing in the Customer range at the OCC.
    \7\ As defined on the Exchange's fee schedule, the term ``Firm'' 
applies to any transaction identified by a member for clearing in 
the Firm range at the OCC.
    \8\ As defined on the Exchange's fee schedule, the term ``Market 
Maker'' applies to any transaction identified by a member for 
clearing in the Market Maker range at the OCC.
    \9\ As defined in BATS Rule 21.1(d)(12).
    \10\ The Exchange's routing strategies are defined in BATS Rule 
21.9(a)(2).
    \11\ As defined in BATS Rule 21.1(d)(7).
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(i) Customer Pricing
    The Exchange currently charges $0.30 per contract for all orders 
that remove liquidity from the BATS Exchange options market (``BATS 
Options'') and pays $0.20 per contract for all orders that add 
liquidity to BATS Options. The Exchange proposes to both lower the fee 
for removing liquidity to $0.25 per contract and raise the rebate for 
adding liquidity to $0.25 for Customer orders. The Exchange believes 
that this change will generate an increase in Customer order flow and 
will provide more liquidity on the Exchange.
(ii) NBBO Setter Rebate
    The Exchange proposes to adopt for its options platform a $0.50 per 
contract rebate upon execution for all orders that add liquidity that 
sets either the NBB or NBO (the ``NBBO Setter Rebate'') \12\ so long as 
the Member submitting the order achieves an average daily volume of 
20,000 contracts executed on the BATS Options book for the calendar 
month. Average daily volume will be calculated by taking the total 
number of contracts traded on the Exchange (which excludes routed 
orders) during the calendar month by the Member divided by the number 
of trading days in the month. For example, in January of 2011, a month 
with twenty (20) trading days, a Member must trade at least 400,000 
contracts (20 trading days multiplied by 20,000 contracts per day) in 
the month to be eligible for the NBBO Setter Rebate. If a Member meets 
this volume requirement, all of the Member's orders that set the NBB or 
NBO that were executed in January would be eligible for the NBBO Setter 
Rebate. The NBBO Setter Rebate supersedes any other applicable 
liquidity rebates.
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    \12\ 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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    The Exchange believes that the proposed NBBO Setter Rebate is 
analogous to similar proposals designed to encourage market 
participants to submit aggressively priced orders previously 
implemented at other options exchanges.\13\ The Exchange also believes 
that its proposed use of a volume threshold to qualify for the rebate 
is substantively identical to tiered pricing structures that are in 
place at other exchanges.\14\ Additionally, the Exchange believes that 
the proposed NBBO Setter Rebate will incentivize the entry of more 
aggressive orders which will create tighter spreads, benefitting both 
Members and public investors.
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    \13\ 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). The Commission notes that Securities 
Exchange Act Release No. 61987 did not establish any new fees.
    \14\ 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).
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(iii) Firm and Market Maker Pricing
    As mentioned above, the Exchange currently charges $0.30 per 
contract for orders that remove liquidity and pays $0.20 per contract 
for orders that add liquidity. The Exchange proposes to raise the fee 
for removing liquidity to $0.35 for Firm and Market Maker orders. The 
Exchange also proposes to increase the rebate for Firm and Market Maker 
orders that are removed by Customer orders to $0.25 per contract and to 
increase the rebate for orders that are removed by Firm or Market Maker 
orders to $0.35 per contract. The removing Member's fee will be 
determined without regard to the capacity of the adding party.
    The Exchange believes that the proposed change to the Firm and 
Market Maker pricing will encourage Firms and Market Makers to add more 
liquidity to the Exchange. The Exchange also believes that, because 
Members can neither see the capacity of orders in the Exchange's order 
book nor determine the capacity of the Member that removes an 
order,\15\ the proposal will not disadvantage public investors or 
Members. Lastly, the Exchange believes that the proposed change to the 
fee schedule is substantively similar to a pricing plan in place at 
NASDAQ OMX PHLX.\16\
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    \15\ The Exchange notes that its proposed amendment to Rule 21.1 
from Securities Exchange Act Release No. 63403 (December 1, 2010) 
(SR-BATS-2010-34) to add directed orders will not be subject to the 
proposed Firm and Market Maker Pricing. The Exchange intends to file 
a separate fee filing upon approval of the proposed amendment to 
implement directed order pricing.
    \16\ 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 subsidy 
that does not apply to Customer-to-Customer transactions).
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(iv) Directed ISO Pricing
    The Exchange currently charges $0.50 per contract for a Customer 
Directed ISO transaction and $0.60 per contract for Firm and Market 
Maker Directed ISO transactions. The Exchange proposes to further 
simplify its pricing for Directed ISOs by setting flat rates for 
Directed ISOs that bypass the Exchange's order book and execute at away 
venues, regardless of capacity. As proposed, the charge for all 
Directed ISO transactions will be $0.60 per contract.
(v) Routing Pricing
    The Exchange proposes to adjust its fees for options order routing 
and simplify its routing pricing by eliminating the different pricing 
between Destination Specific Orders and Standard Best Execution 
Routing. Currently, the Exchange charges a flat fee per contract for 
standard routing and a fee based on the pricing model of the 
destination exchange for Destination Specific Orders. In most 
instances, the pricing for Destination Specific Orders results in 
Members being charged lower execution fees than if the orders were 
routed directly by the Member to an away venue. Rather than continuing 
to subsidize its Members' routing strategies, the Exchange proposes to 
adjust routing fees to more closely reflect the Exchange's cost of 
executing those orders at the away markets. Specifically, the Exchange 
proposes to assess a routing fee of $0.54 per contract for all Firm and 
Market Maker orders that are routed to any away exchange pursuant to 
Standard Best Execution Routing or Destination Specific Order

[[Page 1207]]

routing. The Exchange proposes to assess the following per contract 
fees for Customer orders that are routed to the named away exchange: 
$0.05 for all orders in non-``Make/Take'' issues,\17\ if applicable, 
routed to NYSE Amex, NYSE Arca, the Boston Options Exchange, the 
Chicago Board Options Exchange, the International Stock Exchange, or 
NASDAQ OMX PHLX; $0.20 for all orders routed to the Chicago Board 
Options Exchange 2; $0.25 for all orders routed to the International 
Stock Exchange in Make/Take issues; $0.29 for all orders routed to 
NASDAQ OMX PHLX in Make/Take issues; $0.48 for all orders routed to 
NASDAQ Options Market; and $0.49 for all orders routed to NYSE Arca in 
Make/Take issues.
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    \17\ 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.
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    The Exchange believes that the proposed routing fees are 
competitive, fair and reasonable, and non-discriminatory in that they 
approximate the cost to the Exchange of executing routed orders at an 
away market and are similar to those fees charged by other exchanges. 
The Exchange also believes that Members will benefit from the 
simplicity of the pricing structure.
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(b) of the Act.\18\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) \19\ of the Act, 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. As described below, the Exchange 
believes that its fees and credits are competitive with those charged 
by other venues.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4).
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    The various changes to Exchange execution fees, execution rebates 
and routing fees 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. Most of the changes 
the Exchange has proposed to its execution fees and rebates will result 
in reduced fees or increased payments that will benefit Members due to 
the obvious economic savings and increased revenue those Members will 
receive and the potential of increased available liquidity at the 
Exchange. The Exchange notes that it does not currently operate any 
auctions through which orders are held and broadcast to its membership, 
nor does the Exchange engage in any payment for order flow practices. 
Rather, the Exchange is proposing to enhance its transparent market 
structure with an easy to understand and transparent pricing structure 
by adding incentives for aggressive quoting. The Exchange believes that 
its proposed routing rates are, on average, better than or equal to the 
fees a market participant would pay if routing through another market 
center. 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. Also, although routing options are available to all Members, 
Members are not required to use the Exchange's routing services, but 
instead, the Exchange's routing services are completely optional. 
Members can manage their own routing to different options exchanges or 
can utilize a myriad of other routing solutions that are available to 
market participants.

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

    The foregoing proposed rule change has been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \20\ and Rule 
19b-4(f)(2) thereunder,\21\ because it establishes or changes a due, 
fee or other charge imposed on members by the Exchange. Accordingly, 
the proposal is effective upon filing with the Commission.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-BATS-2010-038 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-2010-038. 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 (https://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-2010-038 and should be 
submitted on or before January 28, 2011.


[[Page 1208]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-93 Filed 1-6-11; 8:45 am]
BILLING CODE 8011-01-P
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