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., 50525-50528 [2011-20699]

Download as PDF Federal Register / Vol. 76, No. 157 / Monday, August 15, 2011 / Notices 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–CHX–2011–24 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65076; File No. SR–BATS– 2011–024] 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. August 9, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 • Send paper comments in triplicate notice is hereby given that, on July 29, to Elizabeth M. Murphy, Secretary, 2011, BATS Exchange, Inc. (the Securities and Exchange Commission, ‘‘Exchange’’ or ‘‘BATS’’) filed with the 100 F Street, NE., Washington, DC Securities and Exchange Commission 20549–1090. (‘‘Commission’’) the proposed rule All submissions should refer to File change as described in Items I, II, and Number SR–CHX–2011–24. This file III below, which Items have been number should be included on the prepared by the Exchange. The subject line if e-mail is used. To help the Exchange has designated the proposed Commission process and review your rule change as one establishing or comments more efficiently, please use changing a member due, fee, or other only one method. The Commission will charge imposed by the Exchange under post all comments on the Commission’s Section 19(b)(3)(A)(ii) of the Act 3 and Internet Web site (https://www.sec.gov/ Rule 19b–4(f)(2) thereunder,4 which rules/sro.shtml). Copies of the renders the proposed rule change submission, all subsequent effective upon filing with the amendments, all written statements Commission. The Commission is with respect to the proposed rule publishing this notice to solicit change that are filed with the comments on the proposed rule change Commission, and all written from interested persons. communications relating to the proposed rule change between the I. Self-Regulatory Organization’s Commission and any person, other than Statement of the Terms of Substance of those that may be withheld from the the Proposed Rule Change public in accordance with the The Exchange proposes [sic] amend provisions of 5 U.S.C. 552, will be the fee schedule applicable to available for Web site viewing and Members 5 and non-members of the printing in the Commission’s Public Exchange pursuant to BATS Rules Reference Room, 100 F Street, NE., 15.1(a) and (c). While changes to the fee Washington, DC 20549, on official schedule pursuant to this proposal will business days between the hours of 10 be effective upon filing, the changes will a.m. and 3 p.m. Copies of such filing become operative on August 1, 2011. also will be available for inspection and The text of the proposed rule change copying at the principal office of the is available at the Exchange’s Web site Exchange. All comments received will at https://www.batstrading.com, at the be posted without change; the principal office of the Exchange, at the Commission does not edit personal Commission’s Public Reference Room, identifying information from and on the Commission’s Web site at submissions. You should submit only https://www.sec.gov. information that you wish to make II. Self-Regulatory Organization’s publicly available. All submissions Statement of the Purpose of, and should refer to File Number SR–CHX– 2011–24 and should be submitted on or Statutory Basis for, the Proposed Rule Change before September 6, 2011. srobinson on DSK4SPTVN1PROD with NOTICES Paper Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–20700 Filed 8–12–11; 8:45 am] BILLING CODE 8011–01–P 13 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 16:05 Aug 12, 2011 Jkt 223001 In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for 1 15 U.S.C. 78s(b)(1). 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. 2 17 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 50525 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) Increase the fees applicable to removing liquidity from the BATS options market (‘‘BATS Options’’); (ii) decrease the rebates applicable to adding liquidity to BATS Options; (iii) decrease the rebates paid, subject to average daily volume requirements, for orders that set either the national best bid (the ‘‘NBB’’) or the national best offer (the ‘‘NBO’’); (iv) adopt a program to incentivize sustained, aggressive quoting in certain specified options series (the ‘‘Quoting Incentive Program’’ or ‘‘QIP’’); and (v) adopt a change to the standard routing fee for the CYCLE, RECYCLE, Parallel D, Parallel 2D, and Destination Specific routing strategies 6 charged for routing Customer 7 orders to certain markets. (i) Increase to Liquidity Removal Fees The Exchange currently charges standard fees of $0.30 per contract for Customer orders and $0.40 per contract for Firm and Market Maker 8 orders that remove liquidity from BATS Options. The Exchange proposes to increase this fee to $0.32 per contract for Customer orders and $0.42 per contract for Firm and Market Maker orders that remove liquidity from BATS Options, subject to potential reduction for any Member with an ADV of 0.30% or more of average TCV on BATS Options, as described below. The Exchange currently maintains a tiered pricing structure through which Members can realize lower liquidity removal fees if such Members have an 6 As defined in BATS Rules 21.1(d)(7) and 21.9(a)(2). 7 As defined on the Exchange’s fee schedule, a ‘‘Customer’’ order is any transaction identified by a Member for clearing in the Customer range at the Options Clearing Corporation (‘‘OCC’’). 8 As set forth on the Exchange’s fee schedule, and consistent with the definition of a Customer order, classification as Firm and Market Maker orders depends on the identification by a Member of the applicable clearing range at the OCC. E:\FR\FM\15AUN1.SGM 15AUN1 50526 Federal Register / Vol. 76, No. 157 / Monday, August 15, 2011 / Notices average daily volume (‘‘ADV’’) 9 equal to or greater than 0.30% of average total consolidated volume (‘‘TCV’’).10 For Members reaching this volume threshold, the Exchange currently charges a fee of $0.27 per contract for Customer orders and $0.37 per contract for Firm and Market Maker orders. Thus, such Members currently save $0.03 per contract as compared to the standard fee to remove liquidity. While the Exchange proposes [sic] maintain this $0.03 savings per contract for those reaching the volume tier, due to the proposed increase described above for standard liquidity removal, the Exchange proposes to increase liquidity removal fees for Members that reach the volume tier by $0.02 per contract. Accordingly, for Members reaching the volume threshold, the Exchange will charge a fee of $0.29 per contract for Customer orders and $0.39 per contract for Firm and Market Maker orders. srobinson on DSK4SPTVN1PROD with NOTICES (ii) Decrease to Liquidity Adding Rebate The Exchange currently provides a rebate of $0.25 per contract for all Customer orders that add liquidity to BATS Options. The Exchange proposes to reduce the rebate for adding liquidity to $0.22 for Customer orders. The Exchange currently provides a rebate of $0.25 per contract for Firm and Market Maker orders that are removed by Customer orders and $0.35 per contract for orders that are removed by Firm or Market Maker orders. The removing Member’s fee is determined without regard to the capacity of the adding party. Consistent with the reduction of Customer rebates described above, the Exchange proposes to reduce each of these liquidity adding rebates by $0.03. Accordingly, the Exchange proposes to provide a rebate of $0.22 per contract for Firm and Market Maker orders that are removed by Customer orders and $0.32 per contract for orders that are removed by Firm or Market Maker orders. As is the case under the current pricing structure, the removing Member’s fee will be determined without regard to the capacity of the adding party. The Exchange believes that, because Members can neither see the capacity of orders in the Exchange’s order book nor determine the capacity of the Member 9 As defined on the Exchange’s fee schedule, ADV is average daily volume calculated as the number of contracts added or removed, combined, per day on a monthly basis. The fee schedule also provides that routed contracts are not included in ADV calculation. 10 As defined on the Exchange’s fee schedule, TCV is total consolidated volume calculated as the volume reported by all exchanges to the consolidated transaction reporting plan for the month for which the fees apply. VerDate Mar<15>2010 16:05 Aug 12, 2011 Jkt 223001 that removes an order, 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.11 (iii) Decrease to Rebates for NBBO Setter Rebate Program The Exchange currently offers a rebate upon execution for all orders that add liquidity that sets either the NBB or NBO (the ‘‘NBBO Setter Rebate’’),12 subject to certain volume requirements. The NBBO Setter Rebate currently offered by the Exchange to such Members is $0.40 per contract for Members with an ADV equal to or greater than 0.30% of average TCV but less than 1% of average TCV and $0.50 per contract for Members with an ADV equal to or greater than 1% of TCV. The Exchange proposes to reduce the rebates paid to Members under the NBBO Setter Program by $0.05 per contract. Accordingly, the Exchange will provide an NBBO Setter Rebate of $0.35 per contract for Members with an ADV equal to or greater than 0.30% of average TCV but less than 1% of average TCV and $0.45 per contract for Members with an ADV equal to or greater than 1% of TCV. (iv) Adoption of Quoting Incentive Program (QIP) BATS Options proposes to introduce a Quoting Incentive Program (QIP), through which BATS Options will provide a rebate of $0.03 per contract, in addition to any other liquidity rebate other than an NBBO Setter Program liquidity rebate, for executions subject to the QIP. The QIP will only apply to executions in options overlying XLF, CSCO, PFE, ORCL, and XRT. To qualify for the QIP a BATS Options Market Maker must be at the NBB or NBO 70% of the time for series trading between $0.03 and $5.00 for the front three (3) expiration months in that underlying during the current trading month. A Member not registered as a BATS Market Maker can also qualify for the QIP by quoting at the NBB or NBO 80% of the time in the same series. 11 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). 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. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 The Exchange will determine whether a market maker qualifies for QIP rebates at the end of each month by looking back at each Member’s (including BATS Options Market Makers) quoting statistics during that month. If at the end of the month a Market Maker meets the 70% criteria or a Member that is not registered as a BATS Options Market Maker meets the 80% criteria, the Exchange will provide the additional rebate for all executions subject to the QIP executed by that Market Maker or Member during that month. The Exchange will provide Members with a report on a daily basis with quoting statistics so such Members can determine whether or not they are meeting the QIP criteria. As noted above, the QIP will not be additive to NBBO Setter Program rebates. The Exchange is not proposing to impose any ADV requirements in order to qualify for the QIP at this time. (v) Change to Standard Routing Fee The Exchange currently charges a flat fee per contract of $0.06 for all executions of Customer orders routed through the CYCLE, RECYCLE, Parallel D, Parallel 2D and Destination Specific routing strategies in non-‘‘Make/Take’’ issues,13 if applicable, routed to NYSE Amex, NYSE Arca, the Boston Options Exchange, the Chicago Board Options Exchange, the International Securities Exchange, or NASDAQ OMX PHLX. The Exchange’s current fee of $0.06 per contract is the same amount per contract as the direct clearing costs paid by the Exchange in connection with the routing of Customer orders. However, there are additional infrastructure costs, including membership fees and connectivity costs, that are not captured by this fee. In order to recover additional fees to account for infrastructure costs related to routing, the Exchange proposes to increase this routing fee to $0.10 per contract. In contrast to Customer orders, the Exchange’s fees for Firm and Market Maker orders already provide the Exchange with some additional revenue to cover infrastructure costs. Accordingly, the Exchange is not proposing to adjust its fees for routed Firm or Market Maker orders at this time. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with 13 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. E:\FR\FM\15AUN1.SGM 15AUN1 srobinson on DSK4SPTVN1PROD with NOTICES Federal Register / Vol. 76, No. 157 / Monday, August 15, 2011 / Notices the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.14 Specifically, the Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act,15 in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and other persons using any facility or system which the Exchange operates or controls. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive. The changes to Exchange execution fees and rebates proposed by this filing are intended to attract order flow to the Exchange by continuing to offer competitive pricing while also creating incentives to providing aggressively priced displayed liquidity. While Members that remove liquidity from the Exchange and/or route Customer orders through the Exchange’s standard routing strategies will pay higher fees and Members that add liquidity to the Exchange will receive lower rebates due to the proposal, the increased revenue received by the Exchange will be used to fund programs that the Exchange believes will attract additional liquidity and thus improve the depth of liquidity available on the Exchange. Accordingly, the Exchange believes that the higher access and routing fees and lower rebates will benefit Members’ results in trading on the Exchange to the extent the tiered rebate structure offered by the Exchange for adding liquidity, the continued operation of the NBBO Setter Program, and the adoption of the Quoting Incentive Program (QIP) incentivize liquidity providers to provide more aggressively priced liquidity. Despite the increase in fees and decrease in rebates for all Members, the Exchange also believes that its proposed fee structure is fair and equitable as the Exchange’s standard fees generally still remain lower, and standard rebates generally still remain higher, than standard fees charged and rebates paid by other markets with similar fee structures, such as NYSE Arca and Nasdaq. The Exchange further believes that the proposed change to the Exchange’s standard routing fee for Customer orders to certain venues is competitive, fair and reasonable, and non-discriminatory in that the increase 14 15 15 15 U.S.C. 78f. U.S.C. 78f(b)(4). VerDate Mar<15>2010 16:05 Aug 12, 2011 Jkt 223001 will allow the Exchange to cover additional infrastructure costs attendant with offering routing services. The Exchange also notes that 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. Additional revenue generated through the increased liquidity removal and routing fees as well as reduction of certain rebates, as described above, will allow the Exchange to offer competitive pricing and incentives, such as the NBBO Setter Program and QIP. The Exchange believes that continuing to base its tiered fee structure and NBBO Setter Program based on overall TCV, rather than a static number of contracts irrespective of overall volume in the options industry, is a fair and equitable approach to pricing. Volume-based tiers such as the tiers in place on the Exchange have been widely adopted in the equities markets, and are equitable and not unfairly discriminatory because they are open to all members on an equal basis and provide rebates that are reasonably related to the value to an exchange’s market quality associated with higher levels of market activity, such as higher levels of liquidity provision and introduction of higher volumes of orders into the price and volume discovery process. Accordingly, the Exchange believes that the proposal is not unfairly discriminatory because it is consistent with the overall goals of enhancing market quality. Additionally, the Exchange believes that the proposed Quoting Incentive Program, similar to a fee structure in place on at least one of the Exchange’s competitors,16 will incentivize the provision of competitively priced, sustained liquidity that will create tighter spreads, benefitting both Members and public investors. The Exchange further believes that conditioning a Member’s ability to receive the QIP’s additional rebate on reaching one of the Exchange’s quoting tiers is consistent with the Act for the reasons described above with respect to volume-based tiers. The Exchange also believes that providing a slightly lower 16 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 of changes to fees and rebates including adoption of specific rebates for market makers qualifying for the Market Maker Plus program). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 50527 threshold for meeting the QIP to registered BATS Options Market Makers appropriately incentivizes Members of BATS Options to register with the Exchange as Options Market Makers. While the Exchange does wish to allow participation in the QIP by all Members, the Exchange believes that registration by additional Members as Market Makers will help to continue to increase the breadth and depth of quotations available on the Exchange. The Exchange notes that in addition to the fact that the QIP will be available to all Members, the proposal is not unfairly discriminatory despite a slightly higher quotation requirement for non-Market Makers due to the fact that registration as a BATS Options Market Maker is equally available to all Members. 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 Pursuant to Section 19(b)(3)(A)(ii) of the Act 17 and Rule 19b–4(f)(2) thereunder,18 the Exchange has designated this proposal as establishing or changing a due, fee, or other charge applicable to the Exchange’s Members and non-members, which renders the proposed rule change effective upon filing. 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: 17 15 18 17 E:\FR\FM\15AUN1.SGM U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 15AUN1 50528 Federal Register / Vol. 76, No. 157 / Monday, August 15, 2011 / Notices 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–2011–024 on the subject line. Paper Comments srobinson on DSK4SPTVN1PROD with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION and C below, of the most significant aspects of such statements. [Release No. 34–65075; File No. SR–FINRA– 2011–037] A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the Pilot Period of Amendments to FINRA Rule 11892 Governing Clearly Erroneous Transactions August 9, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 All submissions should refer to File notice is hereby given that on August 5, Number SR–BATS–2011–024. This file 2011, Financial Industry Regulatory number should be included on the Authority, Inc. (‘‘FINRA’’) filed with the subject line if e-mail is used. To help the Securities and Exchange Commission Commission process and review your (‘‘SEC’’ or ‘‘Commission’’) the proposed comments more efficiently, please use rule change as described in Items I and only one method. The Commission will II below, which Items have been post all comments on the Commission’s prepared by FINRA. FINRA has Internet Web site (https://www.sec.gov/ designated the proposed rule change as rules/sro.shtml). Copies of the constituting a ‘‘non-controversial’’ rule submission, all subsequent change under paragraph (f)(6) of Rule amendments, all written statements 19b–4 under the Act,3 which renders with respect to the proposed rule the proposal effective upon receipt of change that are filed with the this filing by the Commission. The Commission, and all written Commission is publishing this notice to communications relating to the solicit comments on the proposed rule proposed rule change between the change from interested persons. Commission and any person, other than I. Self-Regulatory Organization’s those that may be withheld from the Statement of the Terms of Substance of public in accordance with the the Proposed Rule Change provisions of 5 U.S.C. 552, will be FINRA is proposing to amend FINRA available for Web site viewing and Rule 11892 (Clearly Erroneous printing in the Commission’s Public Transactions in Exchange-Listed Reference Room, 100 F Street, NE., Securities) to extend the effective date Washington, DC 20549, on official of the pilot, which is currently business days between the hours of 10 scheduled to expire on August 11, 2011, a.m. and 3 p.m. Copies of the filing also until January 31, 2012. will be available for inspection and The text of the proposed rule change copying at the principal office of the is available on FINRA’s Web site at Exchange. All comments received will https://www.finra.org, at the principal be posted without change; the office of FINRA and at the Commission does not edit personal Commission’s Public Reference Room. identifying information from II. Self-Regulatory Organization’s submissions. You should submit only Statement of the Purpose of, and information that you wish to make Statutory Basis for, the Proposed Rule available publicly. All submissions Change should refer to File Number SR–BATS– In its filing with the Commission, 2011–024 and should be submitted on FINRA included statements concerning or before September 6, 2011. the purpose of and basis for the For the Commission, by the Division of proposed rule change and discussed any Trading and Markets, pursuant to delegated comments it received on the proposed authority.19 rule change. The text of these statements Elizabeth M. Murphy, may be examined at the places specified Secretary. in Item IV below. FINRA has prepared summaries, set forth in sections A, B, [FR Doc. 2011–20699 Filed 8–12–11; 8:45 am] BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 2 17 19 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 16:05 Aug 12, 2011 Jkt 223001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 1. Purpose FINRA proposes to amend FINRA Rule 11892.02 to extend the effective date of the amendments set forth in File No. SR–FINRA–2010–032 (the ‘‘pilot’’), which are currently scheduled to expire on August 11, 2011, until January 31, 2012.4 The pilot was drafted in consultation with other self-regulatory organizations (‘‘SROs’’) and Commission staff to provide for uniform treatment: (1) Of clearly erroneous execution reviews in Multi-Stock Events involving twenty or more securities; and (2) in the event transactions occur that result in the issuance of an individual stock trading pause by the primary listing market and subsequent transactions that occur before the trading pause is in effect for transactions otherwise than on an exchange. FINRA also implemented additional changes to the Rule as part of the pilot that reduce the ability of FINRA to deviate from the objective standards set forth in the Rule.5 The extension proposed herein would allow the pilot to continue to operate without interruption while FINRA and the other SROs further assess whether the pilot should be adopted permanently and whether other initiatives should be adopted in lieu of the current pilot. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,6 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and, in general, to protect investors and the public interest. FINRA believes that the proposed rule change is consistent with the clearly erroneous rules of other SROs and will promote the goal of transparency and uniformity across markets concerning reviews of potentially clearly erroneous executions in various contexts. Further, FINRA 4 See Securities Exchange Act Release No. 64237 (April 7, 2011), 76 FR 20782 (April 13, 2011) (Notice of Filing and Immediate Effectiveness of File No. SR–FINRA–2011–014). 5 See Securities Exchange Act Release No. 62885 (September 10, 2010), 75 FR 56641 (September 16, 2010) (Order Approving File No. SR–FINRA–2010– 032). 6 15 U.S.C. 78o–3(b)(6). E:\FR\FM\15AUN1.SGM 15AUN1

Agencies

[Federal Register Volume 76, Number 157 (Monday, August 15, 2011)]
[Notices]
[Pages 50525-50528]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20699]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65076; File No. SR-BATS-2011-024]


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.

August 9, 2011.
    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 July 29, 2011, 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 [sic] amend the fee schedule applicable to 
Members \5\ and non-members 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 August 1, 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, at the Commission's Public Reference Room, and on the 
Commission's Web site at https://www.sec.gov.

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) Increase the fees applicable to removing 
liquidity from the BATS options market (``BATS Options''); (ii) 
decrease the rebates applicable to adding liquidity to BATS Options; 
(iii) decrease the rebates paid, subject to average daily volume 
requirements, for orders that set either the national best bid (the 
``NBB'') or the national best offer (the ``NBO''); (iv) adopt a program 
to incentivize sustained, aggressive quoting in certain specified 
options series (the ``Quoting Incentive Program'' or ``QIP''); and (v) 
adopt a change to the standard routing fee for the CYCLE, RECYCLE, 
Parallel D, Parallel 2D, and Destination Specific routing strategies 
\6\ charged for routing Customer \7\ orders to certain markets.
---------------------------------------------------------------------------

    \6\ As defined in BATS Rules 21.1(d)(7) and 21.9(a)(2).
    \7\ As defined on the Exchange's fee schedule, a ``Customer'' 
order is any transaction identified by a Member for clearing in the 
Customer range at the Options Clearing Corporation (``OCC'').
---------------------------------------------------------------------------

(i) Increase to Liquidity Removal Fees
    The Exchange currently charges standard fees of $0.30 per contract 
for Customer orders and $0.40 per contract for Firm and Market Maker 
\8\ orders that remove liquidity from BATS Options. The Exchange 
proposes to increase this fee to $0.32 per contract for Customer orders 
and $0.42 per contract for Firm and Market Maker orders that remove 
liquidity from BATS Options, subject to potential reduction for any 
Member with an ADV of 0.30% or more of average TCV on BATS Options, as 
described below.
---------------------------------------------------------------------------

    \8\ As set forth on the Exchange's fee schedule, and consistent 
with the definition of a Customer order, classification as Firm and 
Market Maker orders depends on the identification by a Member of the 
applicable clearing range at the OCC.
---------------------------------------------------------------------------

    The Exchange currently maintains a tiered pricing structure through 
which Members can realize lower liquidity removal fees if such Members 
have an

[[Page 50526]]

average daily volume (``ADV'') \9\ equal to or greater than 0.30% of 
average total consolidated volume (``TCV'').\10\ For Members reaching 
this volume threshold, the Exchange currently charges a fee of $0.27 
per contract for Customer orders and $0.37 per contract for Firm and 
Market Maker orders. Thus, such Members currently save $0.03 per 
contract as compared to the standard fee to remove liquidity. While the 
Exchange proposes [sic] maintain this $0.03 savings per contract for 
those reaching the volume tier, due to the proposed increase described 
above for standard liquidity removal, the Exchange proposes to increase 
liquidity removal fees for Members that reach the volume tier by $0.02 
per contract. Accordingly, for Members reaching the volume threshold, 
the Exchange will charge a fee of $0.29 per contract for Customer 
orders and $0.39 per contract for Firm and Market Maker orders.
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    \9\ As defined on the Exchange's fee schedule, ADV is average 
daily volume calculated as the number of contracts added or removed, 
combined, per day on a monthly basis. The fee schedule also provides 
that routed contracts are not included in ADV calculation.
    \10\ As defined on the Exchange's fee schedule, TCV is total 
consolidated volume calculated as the volume reported by all 
exchanges to the consolidated transaction reporting plan for the 
month for which the fees apply.
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(ii) Decrease to Liquidity Adding Rebate
    The Exchange currently provides a rebate of $0.25 per contract for 
all Customer orders that add liquidity to BATS Options. The Exchange 
proposes to reduce the rebate for adding liquidity to $0.22 for 
Customer orders.
    The Exchange currently provides a rebate of $0.25 per contract for 
Firm and Market Maker orders that are removed by Customer orders and 
$0.35 per contract for orders that are removed by Firm or Market Maker 
orders. The removing Member's fee is determined without regard to the 
capacity of the adding party. Consistent with the reduction of Customer 
rebates described above, the Exchange proposes to reduce each of these 
liquidity adding rebates by $0.03. Accordingly, the Exchange proposes 
to provide a rebate of $0.22 per contract for Firm and Market Maker 
orders that are removed by Customer orders and $0.32 per contract for 
orders that are removed by Firm or Market Maker orders. As is the case 
under the current pricing structure, the removing Member's fee will be 
determined without regard to the capacity of the adding party.
    The Exchange 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, 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.\11\
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    \11\ 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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(iii) Decrease to Rebates for NBBO Setter Rebate Program
    The Exchange currently offers a rebate upon execution for all 
orders that add liquidity that sets either the NBB or NBO (the ``NBBO 
Setter Rebate''),\12\ subject to certain volume requirements. The NBBO 
Setter Rebate currently offered by the Exchange to such Members is 
$0.40 per contract for Members with an ADV equal to or greater than 
0.30% of average TCV but less than 1% of average TCV and $0.50 per 
contract for Members with an ADV equal to or greater than 1% of TCV. 
The Exchange proposes to reduce the rebates paid to Members under the 
NBBO Setter Program by $0.05 per contract. Accordingly, the Exchange 
will provide an NBBO Setter Rebate of $0.35 per contract for Members 
with an ADV equal to or greater than 0.30% of average TCV but less than 
1% of average TCV and $0.45 per contract for Members with an ADV equal 
to or greater than 1% of TCV.
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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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(iv) Adoption of Quoting Incentive Program (QIP)
    BATS Options proposes to introduce a Quoting Incentive Program 
(QIP), through which BATS Options will provide a rebate of $0.03 per 
contract, in addition to any other liquidity rebate other than an NBBO 
Setter Program liquidity rebate, for executions subject to the QIP. The 
QIP will only apply to executions in options overlying XLF, CSCO, PFE, 
ORCL, and XRT. To qualify for the QIP a BATS Options Market Maker must 
be at the NBB or NBO 70% of the time for series trading between $0.03 
and $5.00 for the front three (3) expiration months in that underlying 
during the current trading month. A Member not registered as a BATS 
Market Maker can also qualify for the QIP by quoting at the NBB or NBO 
80% of the time in the same series.
    The Exchange will determine whether a market maker qualifies for 
QIP rebates at the end of each month by looking back at each Member's 
(including BATS Options Market Makers) quoting statistics during that 
month. If at the end of the month a Market Maker meets the 70% criteria 
or a Member that is not registered as a BATS Options Market Maker meets 
the 80% criteria, the Exchange will provide the additional rebate for 
all executions subject to the QIP executed by that Market Maker or 
Member during that month. The Exchange will provide Members with a 
report on a daily basis with quoting statistics so such Members can 
determine whether or not they are meeting the QIP criteria. As noted 
above, the QIP will not be additive to NBBO Setter Program rebates. The 
Exchange is not proposing to impose any ADV requirements in order to 
qualify for the QIP at this time.
(v) Change to Standard Routing Fee
    The Exchange currently charges a flat fee per contract of $0.06 for 
all executions of Customer orders routed through the CYCLE, RECYCLE, 
Parallel D, Parallel 2D and Destination Specific routing strategies in 
non-``Make/Take'' issues,\13\ if applicable, routed to NYSE Amex, NYSE 
Arca, the Boston Options Exchange, the Chicago Board Options Exchange, 
the International Securities Exchange, or NASDAQ OMX PHLX. The 
Exchange's current fee of $0.06 per contract is the same amount per 
contract as the direct clearing costs paid by the Exchange in 
connection with the routing of Customer orders. However, there are 
additional infrastructure costs, including membership fees and 
connectivity costs, that are not captured by this fee. In order to 
recover additional fees to account for infrastructure costs related to 
routing, the Exchange proposes to increase this routing fee to $0.10 
per contract. In contrast to Customer orders, the Exchange's fees for 
Firm and Market Maker orders already provide the Exchange with some 
additional revenue to cover infrastructure costs. Accordingly, the 
Exchange is not proposing to adjust its fees for routed Firm or Market 
Maker orders at this time.
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    \13\ 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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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 50527]]

the requirements of the Act and the rules and regulations thereunder 
that are applicable to a national securities exchange, and, in 
particular, with the requirements of Section 6 of the Act.\14\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\15\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The changes to Exchange execution fees and rebates proposed by this 
filing are intended to attract order flow to the Exchange by continuing 
to offer competitive pricing while also creating incentives to 
providing aggressively priced displayed liquidity. While Members that 
remove liquidity from the Exchange and/or route Customer orders through 
the Exchange's standard routing strategies will pay higher fees and 
Members that add liquidity to the Exchange will receive lower rebates 
due to the proposal, the increased revenue received by the Exchange 
will be used to fund programs that the Exchange believes will attract 
additional liquidity and thus improve the depth of liquidity available 
on the Exchange. Accordingly, the Exchange believes that the higher 
access and routing fees and lower rebates will benefit Members' results 
in trading on the Exchange to the extent the tiered rebate structure 
offered by the Exchange for adding liquidity, the continued operation 
of the NBBO Setter Program, and the adoption of the Quoting Incentive 
Program (QIP) incentivize liquidity providers to provide more 
aggressively priced liquidity.
    Despite the increase in fees and decrease in rebates for all 
Members, the Exchange also believes that its proposed fee structure is 
fair and equitable as the Exchange's standard fees generally still 
remain lower, and standard rebates generally still remain higher, than 
standard fees charged and rebates paid by other markets with similar 
fee structures, such as NYSE Arca and Nasdaq. The Exchange further 
believes that the proposed change to the Exchange's standard routing 
fee for Customer orders to certain venues is competitive, fair and 
reasonable, and non-discriminatory in that the increase will allow the 
Exchange to cover additional infrastructure costs attendant with 
offering routing services. The Exchange also notes that 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. Additional 
revenue generated through the increased liquidity removal and routing 
fees as well as reduction of certain rebates, as described above, will 
allow the Exchange to offer competitive pricing and incentives, such as 
the NBBO Setter Program and QIP.
    The Exchange believes that continuing to base its tiered fee 
structure and NBBO Setter Program based on overall TCV, rather than a 
static number of contracts irrespective of overall volume in the 
options industry, is a fair and equitable approach to pricing. Volume-
based tiers such as the tiers in place on the Exchange have been widely 
adopted in the equities markets, and are equitable and not unfairly 
discriminatory because they are open to all members on an equal basis 
and provide rebates that are reasonably related to the value to an 
exchange's market quality associated with higher levels of market 
activity, such as higher levels of liquidity provision and introduction 
of higher volumes of orders into the price and volume discovery 
process. Accordingly, the Exchange believes that the proposal is not 
unfairly discriminatory because it is consistent with the overall goals 
of enhancing market quality.
    Additionally, the Exchange believes that the proposed Quoting 
Incentive Program, similar to a fee structure in place on at least one 
of the Exchange's competitors,\16\ will incentivize the provision of 
competitively priced, sustained liquidity that will create tighter 
spreads, benefitting both Members and public investors. The Exchange 
further believes that conditioning a Member's ability to receive the 
QIP's additional rebate on reaching one of the Exchange's quoting tiers 
is consistent with the Act for the reasons described above with respect 
to volume-based tiers. The Exchange also believes that providing a 
slightly lower threshold for meeting the QIP to registered BATS Options 
Market Makers appropriately incentivizes Members of BATS Options to 
register with the Exchange as Options Market Makers. While the Exchange 
does wish to allow participation in the QIP by all Members, the 
Exchange believes that registration by additional Members as Market 
Makers will help to continue to increase the breadth and depth of 
quotations available on the Exchange. The Exchange notes that in 
addition to the fact that the QIP will be available to all Members, the 
proposal is not unfairly discriminatory despite a slightly higher 
quotation requirement for non-Market Makers due to the fact that 
registration as a BATS Options Market Maker is equally available to all 
Members.
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    \16\ 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 of changes to fees and rebates 
including adoption of specific rebates for market makers qualifying 
for the Market Maker Plus program).
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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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act \17\ and Rule 19b-
4(f)(2) thereunder,\18\ the Exchange has designated this proposal as 
establishing or changing a due, fee, or other charge applicable to the 
Exchange's Members and non-members, which renders the proposed rule 
change effective upon filing.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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:

[[Page 50528]]

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-2011-024 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-2011-024. 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-2011-024 and should be 
submitted on or before September 6, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20699 Filed 8-12-11; 8:45 am]
BILLING CODE 8011-01-P
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