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., 23307-23311 [2012-9286]

Download as PDF Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6) thereunder.13 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 14 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange requests that the Commission waive the 30-day operative delay so that the proposed rule change may become effective on the same date that FINRA implements the changes to FINRA Rules 7440, 7450, and 5320.15 The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest and, therefore, designates the proposal operative upon filing.16 Waiving the 30day operative delay will enable the Exchange to implement the proposed rule change on the same day that FINRA implements the changes to its rules on which the proposed rule change is based, thereby eliminating the potential for different regulatory requirements for members of both FINRA and the Exchange. 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 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 14 17 CFR 240.19b–4(f)(6). 15 FINRA has announced that it will implement the changes on April 16, 2012. See supra note 9. 16 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). mstockstill on DSK4VPTVN1PROD with NOTICES 13 17 VerDate Mar<15>2010 16:25 Apr 17, 2012 Jkt 226001 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: • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSE–2012–09 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–NYSE–2012–09. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (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 on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at NYSE’s principal office and on its Internet Web site at www.nyse.com. 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–NYSE–2012–09, and should be submitted on or before May 9, 2012. Frm 00087 Fmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–9288 Filed 4–17–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66794; File No. SR–BATS– 2012–015] Electronic Comments PO 00000 23307 Sfmt 4703 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. April 12, 2012. 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 April 2, 2012, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the fee schedule applicable to Members 5 and non-members of the Exchange pursuant to BATS Rules 15.1(a) and (c). Changes to the fee schedule pursuant to this proposal will be effective upon filing. 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. 17 17 CFR 200.30–3(a)(12). 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. 1 15 E:\FR\FM\18APN1.SGM 18APN1 23308 Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices 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 mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose The Exchange proposes to modify the ‘‘Options Pricing’’ section of its fee schedule to: (i) Delineate fees and rebates applicable to executions of options classes subject to the penny pilot program as described below (‘‘Penny Pilot Securities’’) from the fees and rebates for all other options classes; (ii) modify the fees charged by the Exchange to remove liquidity from Exchange’s options platform (‘‘BATS Options’’) in Penny Pilot Securities; (iii) modify the rebates provided by the Exchange for Customer 6 orders that add liquidity to BATS Options; (iv) adopt fees and rebates for executions in nonPenny Pilot Securities; and (v) modify the Quoting Incentive Program (‘‘QIP’’), which is a program intended to incentivize sustained, aggressive quoting on BATS Options. The Exchange also proposes minor structural changes to the Options Pricing section of the Exchange’s fee schedule, including movement and re-numbering of certain footnotes. (i) Penny Pilot/Non-Penny Pilot Pricing The Exchange proposes to adopt different fees for those options classes that qualify as Penny Pilot Securities pursuant to Exchange Rule 21.5, Interpretation and Policy .01 and all other options classes. Delineating between classes in Penny Pilot Securities and all other options classes is consistent with pricing structures at most other options exchanges, and recognizes the fundamental difference in liquidity and quoted spreads between options that are quoted in penny 6 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’’), except for those designated as ‘‘Professional’’. VerDate Mar<15>2010 16:25 Apr 17, 2012 Jkt 226001 increments and those that are not. In addition to the specific fees outlined below, the Exchange proposes to adopt a definition for Penny Pilot Securities, defining such options as those issues quoted pursuant to Exchange Rule 21.5, Interpretation and Policy .01, which is the Exchange Rule that codifies the penny pilot program for BATS Options. (ii) Fees To Remove Liquidity The Exchange currently charges $0.44 per contract for Professional,7 Firm and Market Maker 8 orders that remove liquidity from the BATS Options order book. The Exchange proposes to raise the fee to $0.45 per contract for Professional, Firm and Market Maker orders that remove liquidity from the BATS Options order book and to apply this fee to all Penny Pilot Securities. At the same time, however, the Exchange proposes to apply the ‘‘Grow with Us’’ pricing program to Professional, Firm and Market Maker orders that remove liquidity from the BATS Options order book in Penny Pilot Securities. Accordingly, if a Member shows a minimum of 5 basis points total consolidated volume (‘‘TCV’’) 9 improvement over the Member’s previous highest monthly TCV on BATS Options, or ‘‘High Water Mark,’’ then the Exchange will continue to charge such Member $0.44 per contract, rather than the increased fee of $0.45 per contract, for Professional, Firm and Market Maker orders in Penny Pilot Securities. The Exchange has defined High Water Mark as the greater of a Member’s fourth quarter 2011 TCV or a Member’s best monthly TCV on BATS Options thereafter.10 With respect to Customer orders, the Exchange currently charges standard fees of $0.44 per contract for Customer orders that remove liquidity from BATS 7 As defined in Rule 16.1, the term ‘‘Professional’’ means any person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). 8 As set forth on the Exchange’s fee schedule, and consistent with the definition of a Customer order, classification as a ‘‘Firm’’ or ‘‘Market Maker’’ order depends on the identification by a Member of the applicable clearing range at the OCC. 9 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. 10 For example, assume that for the fourth quarter of 2011, a Member has an ADV of 0.10% of average TCV. Such Member would not qualify for volume tier pricing applicable to Members with an ADV of 0.30% of average TCV. However, if, in April of 2012, such Member achieves an average TCV of 0.15% on BATS Options, such Member will receive one-half of the economic benefit such Member would receive if the Member had reached the 0.30% TCV volume tier and the Member’s new High Water Mark will now be 0.15%. PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 Options, subject to potential reduction for any Member with an average daily volume (‘‘ADV’’) 11 of 0.30% or more of average TCV or ADV equal to or greater than 1% average TCV on BATS Options, respectively. The Exchange does not propose to modify its standard fee of $0.44 per contract for Customer orders that remove liquidity from BATS Options. The Exchange is proposing, however, to increase the fees for Customer orders that remove liquidity from BATS Options for Members that meet the qualifications for a discounted fee pursuant to the tiered pricing structure, to modify the pricing for Members that qualify for Grow with Us pricing, and to apply this pricing to Penny Pilot Securities only, as described below. Pursuant to the Exchange’s tiered pricing structure Members can realize lower liquidity removal fees if such Members have an ADV equal to or greater than 0.30% of average TCV. For Members reaching this volume threshold, the Exchange currently charges a fee of $0.36 per contract for Customer orders that remove liquidity from BATS Options. The Exchange proposes to increase the fee for Members that have an ADV equal to or greater than 0.30% of average TCV to $0.40 per contract for Customer orders that remove liquidity from BATS Options in Penny Pilot Securities. Similarly, Members can realize lower liquidity removal fees if such Members have an ADV equal to or greater than 1% of average TCV. For Members reaching this volume threshold, the Exchange currently charges a fee of $0.28 per contract for Customer orders that remove liquidity from BATS Options. The Exchange proposes to increase the fee for Members that have an ADV equal to or greater than 1% of average TCV to $0.36 per contract for Customer orders that remove liquidity from BATS Options in Penny Pilot Securities. In addition, pursuant to the Grow with Us pricing program, the Exchange provides a Member with one-half of the economic benefit such Member would achieve if such Member were in the next highest volume tier to the extent such Member shows a minimum of 5 basis points TCV improvement over the Member’s High Water Mark. The Grow with Us pricing program, as described above, currently applies to various fees and rebates, including Customer orders 11 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. E:\FR\FM\18APN1.SGM 18APN1 Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES that remove liquidity. The Exchange proposes to modify the Grow with Us fees to account for the changes proposed above. Specifically, a Member that does not qualify for the lower tier applicable to Members with an ADV equal to or greater than 0.30% of average TCV but achieves at least a 5 basis point increase over its previous High Water Mark is currently assessed a fee of $0.40 per contract for Customer orders that remove liquidity from BATS Options (i.e., halfway between the standard fee of $0.44 per contract and the fee of $0.36 charged to Members that reach the 0.30% TCV tier). Due to the proposed changes described above, the Exchange proposes to modify this fee to $.042 per contract for Customer orders that remove liquidity from BATS Options in Penny Pilot Securities (i.e., halfway between the standard fee of $0.44 per contract and the fee of $0.40 charged to Members that reach the 0.30% TCV tier). Similarly, a Member that qualifies for the lower tier applicable to Members with an ADV equal to or greater than 0.30% of average TCV but not the 1% of average TCV tier that achieves at least a 5 basis point increase over its previous High Water Mark will be assessed a fee of $0.38 per contract for Customer orders that remove liquidity from BATS Options in Penny Pilot Securities (i.e., halfway between the $0.40 per contract charged to Members that reach the 0.30% TCV tier and the $0.36 per contract charged to Members that reach the 1% TCV tier). (iii) Customer Rebates for Adding Liquidity The Exchange currently provides a rebate of $0.30 per contract for Customer orders that add liquidity to the BATS Options order book. The Exchange proposes to maintain this standard rebate but to further increase rebates to Members pursuant to volume thresholds analogous to those applied to fees for removing liquidity. First, the Exchange proposes to increase the rebate applicable to Members with an ADV equal to or greater than 0.30% of average TCV from a rebate of $0.40 per contract to a rebate of $0.42 per contract for Customer orders that add liquidity to the BATS Options order book. Second, Exchange proposes to adopt a volume tier applicable to Members with an ADV equal to or greater than 1% of average TCV from a rebate of $0.42 per contract to a rebate of $0.44 per contract for Customer orders that add liquidity to the BATS Options order book. Finally, the Exchange proposes to modify its Grow with Us pricing program to Customer orders that add liquidity in order to ensure that all Grow with Us VerDate Mar<15>2010 16:25 Apr 17, 2012 Jkt 226001 rebates are one-half of the applicable economic benefit received by the next tier. Accordingly, a Member that does not qualify for the lower tier applicable to Members with an ADV equal to or greater than 0.30% of average TCV but achieves at least a 5 basis point increase over its previous High Water Mark will be provided a rebate of $0.36 per contract for Customer orders that add liquidity to BATS Options in Penny Pilot Securities (i.e., halfway between the standard rebate of $0.30 per contract and the rebate of $0.42 per contract provided to Members that reach the 0.30% TCV tier), which is an increase from the current rebate of $0.35 per contract. Similarly, a Member that qualifies for the lower tier applicable to Members with an ADV equal to or greater than 0.30% of average TCV but not the 1% of average TCV tier that achieves at least a 5 basis point increase over its previous High Water Mark will be provided a rebate of $0.43 per contract for Customer orders that add liquidity to BATS Options in Penny Pilot Securities (i.e., halfway between the $0.42 per contract provided to Members that reach the 0.30% TCV tier and the $0.44 per contract provided to Members that reach the 1% TCV tier). The Exchange is not proposing to modify the rebates provided for Professional, Firm and Market Maker orders, other than to make clear that such rebates on the fee schedule differ between those provided with respect to Penny Pilot Securities and all other securities. (iv) Pricing for Non-Penny Pilot Securities As noted above, the Exchange proposes to adopt separate pricing for Non-Penny Pilot Securities. Specifically, the Exchange proposes to adopt a fee of $0.75 per contract for Customer orders that remove liquidity from the BATS Options order book in non-Penny Pilot Securities and a rebate of $0.75 per contract for Customer orders that add liquidity to the BATS Options order book in non-Penny Pilot Securities. The Exchange proposes to adopt a fee of $0.80 per contract for Professional, Firm and Market Maker orders that remove liquidity from the BATS Options order book in non-Penny Pilot Securities and a rebate of $0.70 per contract for Professional, Firm and Market Maker orders that add liquidity to the BATS Options order book in nonPenny Pilot Securities. The Exchange will apply additive rebates that are earned through the QIP (as described below) and/or the Exchange’s NBBO PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 23309 Setter Program 12 to executions in nonPenny Pilot Securities. However the Exchange is not currently proposing to adopt other tiered pricing for non-Penny Pilot Securities. As described in further detail below, the Exchange’s proposal to implement the above-described fees is intended to attract better priced liquidity to the Exchange by incenting liquidity providers to post aggressively priced liquidity on the Exchange with an enhanced rebate structure. The Exchange believes that the differences that can be achieved by narrowing spreads in non-Penny Pilot Securities will justify the increased fees to remove liquidity. (v) Modification to Quoting Incentive Program BATS Options offers a Quoting Incentive Program (‘‘QIP’’), through which Professional, Firm and Market Maker orders receive a rebate of $0.05 per contract, in addition to any other applicable liquidity rebate, for executions subject to the QIP. Qualifying Customer order executions in products subject to the QIP currently receive an additional rebate of $0.03 per contract. The Exchange proposes to reduce the rebate for Customer orders receiving executions in products subject to the QIP from an additional rebate of $0.03 per contract to an additional rebate of $0.01 per contract. This modification in pricing will allow the Exchange to increase the tiered rebate structure for Customer orders as described above, which will result in increases of either $0.01 or $0.02 per contract on all executions in Penny Pilot Securities for Members reaching any volume tier or qualifying for Grow with Us pricing. To qualify for the QIP a BATS Options Market Maker must be at the NBB or NBO 60% 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 Options Market Maker can also qualify for the QIP by quoting at the NBB or NBO 70% of the time in the same series. The Exchange proposes to add additional clarity regarding the QIP qualification by making clear that $0.03 and $5.00 price range qualification is determined by the last trade in an option series each day. Option series which do not have an execution are removed from the following day’s Quoting Incentive Program calculations. 12 The NBBO Setter Program is a program that provides additional rebates for executions resulting from orders that add liquidity that set either the NBB or NBO. E:\FR\FM\18APN1.SGM 18APN1 23310 Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES All other aspects of the QIP currently in place will remain the same. As is true under the current operation of the QIP, the Exchange will determine whether a Member 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 60% criteria or a Member that is not registered as a Market Maker meets the 70% criteria, the Exchange will provide the additional rebate for all executions subject to the QIP executed by that 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. The Exchange is not proposing to impose any ADV requirements in order to qualify for the QIP at this time. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.13 Specifically, the Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act,14 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 Exchange believes that continuing to provide additional financial incentives to Members that demonstrate a 5 basis point increase over their previous High Water Mark offers an additional, flexible way to achieve financial incentives from the Exchange and encourages Members to add increasing amounts of liquidity to BATS Options each month. The Grow with Us pricing program thereby rewards a Member’s growth patterns. Such increased volume increases potential revenue to the Exchange, and will allow the Exchange to continue to provide and potentially expand the incentive programs operated by the Exchange. The increased liquidity also benefits all investors by deepening the 13 15 14 15 U.S.C. 78f. U.S.C. 78f(b)(4). VerDate Mar<15>2010 16:25 Apr 17, 2012 Jkt 226001 BATS Options liquidity pool, offering additional flexibility for all investors to enjoy cost savings, supporting the quality of price discovery, promoting market transparency and improving investor protection. The Grow with Us program is also fair and equitable in that it is available to all Members and will expand the applicability of the Exchange’s tiered pricing structure, even for Members that do not meet the Exchange’s volume based tiers. The increase to fees for Professional, Firm and Market Maker orders that remove liquidity in Penny Pilot Securities is fair and equitable because it will allow the Exchange to offer a financial incentive to those Members who qualify for the Grow with Us program based on increased liquidity on BATS Options and such Members will not realize any increase to fees. The fee increase is reasonable in that it is a small increase and the fee to remove liquidity from BATS Options for Professional, Firm and Market Maker orders is still equivalent to the standard fee charged by other markets with similar fee structures, such as NYSE Arca Options and the Nasdaq Options Market (‘‘NOM’’). Volume-based rebates such as the ones maintained by the Exchange have been widely adopted in the cash equities markets and are increasingly in use by the options exchanges, and are equitable because they are open to all Members on an equal basis and provide discounts 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/or growth patterns, and introduction of higher volumes of orders into the price and volume discovery processes. Accordingly, the Exchange believes that the continued offering of volume-based rebates for Customer orders in Penny Pilot Securities is not unfairly discriminatory because it is consistent with the overall goals of enhancing market quality. Similarly, the Exchange believes that continuing to base its tiered fee structure 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. Despite the increases in fees for Customer orders in Penny Pilot Securities that remove liquidity applicable to Members that meet one of the Exchange’s tier levels or qualify for Grow with Us pricing, the Exchange believes that its proposed fee structure is reasonable as the Exchange’s standard fees generally still remain equivalent to or slightly lower than standard fees PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 charged by other markets with similar fee structures, such as NYSE Arca Options and NOM. Further, the Exchange believes that the increases are fair and equitable because the various programs offered by the Exchange to receive reduced fees and enhanced rebates provide all Members with several different ways to offset the increase in fees or receive a reduction in fees. The increase in fees is also reasonable because the Exchange has also proposed to increase the rebates available for Customer orders from Members that qualify for volume-based tier or the Grow with Us program. The increase to rebates for Customer orders in Penny Pilot Securities is reasonable as it will permit certain Customer orders to qualify for higher rebates, and is fair and equitable because the volume-based tiers are available to all Members on an equal basis. As noted above, the Exchange believes that such volumebased tiers are fair and equitable and not unreasonably discriminatory because they are consistent with the overall goals of enhancing market quality. Also due to the increased levels of rebates for Customer orders in Penny Pilot Securities, the Exchange believes that the proposed modification to the Quoting Incentive Program is fair and equitable and not unreasonably discriminatory. Although the proposed QIP rebate for qualifying Customer orders is slightly lower than is currently offered and will continue to be lower than the QIP rebate provided to Professional, Firm and Market Maker orders, the Exchange believes that this distinction is reasonable and not unreasonably discriminatory because of the offsetting increase to rebates on Customer orders. The Exchange also believes that continuing to maintain a slightly lower threshold for meeting the QIP for 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 is 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. The Exchange believes that its proposed fees for non-Penny Pilot E:\FR\FM\18APN1.SGM 18APN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 77, No. 75 / Wednesday, April 18, 2012 / Notices Securities are reasonable in light of the benefits to Members to the extent the corresponding rebates, which are significantly higher than rebates available from the Exchange’s competitors, incentivize aggressive quoting that will result in better execution prices, as described in further detail below. The Exchange also believes that providing financial incentives to achieve aggressive quoting and incentivize liquidity providers to narrow the spread while charging more to those who realize the economic benefit of that narrower spread is a fair and equitable approach to pricing. Finally, the Exchange notes that in nonPenny Pilot Securities it is charging slightly more for, and rebating slightly less to, non-Customer orders than Customer orders. The Exchange believes that this proposed pricing structure for non-Penny Pilot Securities is not unreasonably discriminatory because it accounts for the difference of assumed information and sophistication level between the different trading capacities. Since Professional, Firm and Market Maker capacity members are assumed to have more informed (and hence less desirable to counterparties) orders, those orders have a slightly higher transaction cost associated with them. The Exchange further notes that the charges and rebates to all non-Customer orders is equivalent regardless of capacity and therefore nondiscriminatory. In the current U.S. options market, many of the contracts are quoted in pennies. Under this pricing structure, the minimum penny tick increment equates to a $1.00 economic value difference per contract, given that a single standardized U.S. option contract covers 100 shares of the underlying stock. Where contracts are quoted in $0.05 increments, the value per tick is $5.00 in proceeds to the investor transacting in these contracts. Liquidity rebate and access fee structures on the make-take exchanges, including BATS, for securities quoted in penny increments are commonly in the $0.30 to $0.45 range. A $0.30 rebate in a penny quoted security is a rebate equivalent to 30% of the value of the minimum tick. A $0.45 charge in a penny quoted security is a charge equivalent to 45% of the value of that minimum tick. In other words, in penny quoted securities, where the price is improved by one tick with an access fee of $0.45, an investor paying to access that quote is still $0.55 better off than trading at the wider spread, even without the access fee ($1.00 of price improvement ¥$0.45 access fee = $0.55 VerDate Mar<15>2010 16:25 Apr 17, 2012 Jkt 226001 better economics). This math is equally true for securities quoted in wider increments. Rebates and access fees near the $0.80 level equate to only 20% of the value of the minimum tick. An investor transacting a single contract in a non-penny quoted security quoted a single tick tighter than the rest of the market, and paying an access fee of $0.80, is receiving economic benefit of $4.20 ($0.05 improved tick = $5.00 in proceeds¥$0.80 access fee = $4.20). The Exchange believes that encouraging liquidity providers to quote more aggressively and narrow the spread in non-Penny Pilot Securities will benefit investors by improving the overall economics of the resulting transactions that occur on the Exchange, even if the access fee paid in connection with such transactions is higher. Accordingly, the Exchange believes that the proposed fees and rebates for non-Penny Pilot Securities are reasonable. 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 15 and Rule 19b–4(f)(2) thereunder,16 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: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BATS–2012–015 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–2012–015. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (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– 2012–015 and should be submitted on or before May 9, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–9286 Filed 4–17–12; 8:45 am] BILLING CODE 8011–01–P U.S.C. 78s(b)(3)(A)(ii). 16 17 CFR 240.19b–4(f)(2). 15 15 PO 00000 Frm 00091 Fmt 4703 Sfmt 9990 23311 17 17 E:\FR\FM\18APN1.SGM CFR 200.30–3(a)(12). 18APN1

Agencies

[Federal Register Volume 77, Number 75 (Wednesday, April 18, 2012)]
[Notices]
[Pages 23307-23311]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9286]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66794; File No. SR-BATS-2012-015]


 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.

April 12, 2012.
    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 April 2, 2012, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange has designated 
the proposed rule change as one establishing or changing a member due, 
fee, or other charge imposed by the Exchange under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposed rule change effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the fee schedule applicable to 
Members \5\ and non-members of the Exchange pursuant to BATS Rules 
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal 
will be effective upon filing.
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    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    The text of the proposed rule change is available at the Exchange's 
Web site at https://www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 23308]]

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) Delineate fees and rebates applicable to 
executions of options classes subject to the penny pilot program as 
described below (``Penny Pilot Securities'') from the fees and rebates 
for all other options classes; (ii) modify the fees charged by the 
Exchange to remove liquidity from Exchange's options platform (``BATS 
Options'') in Penny Pilot Securities; (iii) modify the rebates provided 
by the Exchange for Customer \6\ orders that add liquidity to BATS 
Options; (iv) adopt fees and rebates for executions in non-Penny Pilot 
Securities; and (v) modify the Quoting Incentive Program (``QIP''), 
which is a program intended to incentivize sustained, aggressive 
quoting on BATS Options. The Exchange also proposes minor structural 
changes to the Options Pricing section of the Exchange's fee schedule, 
including movement and re-numbering of certain footnotes.
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    \6\ 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''), except 
for those designated as ``Professional''.
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(i) Penny Pilot/Non-Penny Pilot Pricing
    The Exchange proposes to adopt different fees for those options 
classes that qualify as Penny Pilot Securities pursuant to Exchange 
Rule 21.5, Interpretation and Policy .01 and all other options classes. 
Delineating between classes in Penny Pilot Securities and all other 
options classes is consistent with pricing structures at most other 
options exchanges, and recognizes the fundamental difference in 
liquidity and quoted spreads between options that are quoted in penny 
increments and those that are not. In addition to the specific fees 
outlined below, the Exchange proposes to adopt a definition for Penny 
Pilot Securities, defining such options as those issues quoted pursuant 
to Exchange Rule 21.5, Interpretation and Policy .01, which is the 
Exchange Rule that codifies the penny pilot program for BATS Options.
(ii) Fees To Remove Liquidity
    The Exchange currently charges $0.44 per contract for 
Professional,\7\ Firm and Market Maker \8\ orders that remove liquidity 
from the BATS Options order book. The Exchange proposes to raise the 
fee to $0.45 per contract for Professional, Firm and Market Maker 
orders that remove liquidity from the BATS Options order book and to 
apply this fee to all Penny Pilot Securities. At the same time, 
however, the Exchange proposes to apply the ``Grow with Us'' pricing 
program to Professional, Firm and Market Maker orders that remove 
liquidity from the BATS Options order book in Penny Pilot Securities. 
Accordingly, if a Member shows a minimum of 5 basis points total 
consolidated volume (``TCV'') \9\ improvement over the Member's 
previous highest monthly TCV on BATS Options, or ``High Water Mark,'' 
then the Exchange will continue to charge such Member $0.44 per 
contract, rather than the increased fee of $0.45 per contract, for 
Professional, Firm and Market Maker orders in Penny Pilot Securities. 
The Exchange has defined High Water Mark as the greater of a Member's 
fourth quarter 2011 TCV or a Member's best monthly TCV on BATS Options 
thereafter.\10\
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    \7\ As defined in Rule 16.1, the term ``Professional'' means any 
person or entity that (i) is not a broker or dealer in securities, 
and (ii) places more than 390 orders in listed options per day on 
average during a calendar month for its own beneficial account(s).
    \8\ As set forth on the Exchange's fee schedule, and consistent 
with the definition of a Customer order, classification as a 
``Firm'' or ``Market Maker'' order depends on the identification by 
a Member of the applicable clearing range at the OCC.
    \9\ 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.
    \10\ For example, assume that for the fourth quarter of 2011, a 
Member has an ADV of 0.10% of average TCV. Such Member would not 
qualify for volume tier pricing applicable to Members with an ADV of 
0.30% of average TCV. However, if, in April of 2012, such Member 
achieves an average TCV of 0.15% on BATS Options, such Member will 
receive one-half of the economic benefit such Member would receive 
if the Member had reached the 0.30% TCV volume tier and the Member's 
new High Water Mark will now be 0.15%.
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    With respect to Customer orders, the Exchange currently charges 
standard fees of $0.44 per contract for Customer orders that remove 
liquidity from BATS Options, subject to potential reduction for any 
Member with an average daily volume (``ADV'') \11\ of 0.30% or more of 
average TCV or ADV equal to or greater than 1% average TCV on BATS 
Options, respectively. The Exchange does not propose to modify its 
standard fee of $0.44 per contract for Customer orders that remove 
liquidity from BATS Options. The Exchange is proposing, however, to 
increase the fees for Customer orders that remove liquidity from BATS 
Options for Members that meet the qualifications for a discounted fee 
pursuant to the tiered pricing structure, to modify the pricing for 
Members that qualify for Grow with Us pricing, and to apply this 
pricing to Penny Pilot Securities only, as described below.
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    \11\ 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.
---------------------------------------------------------------------------

    Pursuant to the Exchange's tiered pricing structure Members can 
realize lower liquidity removal fees if such Members have an ADV equal 
to or greater than 0.30% of average TCV. For Members reaching this 
volume threshold, the Exchange currently charges a fee of $0.36 per 
contract for Customer orders that remove liquidity from BATS Options. 
The Exchange proposes to increase the fee for Members that have an ADV 
equal to or greater than 0.30% of average TCV to $0.40 per contract for 
Customer orders that remove liquidity from BATS Options in Penny Pilot 
Securities. Similarly, Members can realize lower liquidity removal fees 
if such Members have an ADV equal to or greater than 1% of average TCV. 
For Members reaching this volume threshold, the Exchange currently 
charges a fee of $0.28 per contract for Customer orders that remove 
liquidity from BATS Options. The Exchange proposes to increase the fee 
for Members that have an ADV equal to or greater than 1% of average TCV 
to $0.36 per contract for Customer orders that remove liquidity from 
BATS Options in Penny Pilot Securities.
    In addition, pursuant to the Grow with Us pricing program, the 
Exchange provides a Member with one-half of the economic benefit such 
Member would achieve if such Member were in the next highest volume 
tier to the extent such Member shows a minimum of 5 basis points TCV 
improvement over the Member's High Water Mark. The Grow with Us pricing 
program, as described above, currently applies to various fees and 
rebates, including Customer orders

[[Page 23309]]

that remove liquidity. The Exchange proposes to modify the Grow with Us 
fees to account for the changes proposed above. Specifically, a Member 
that does not qualify for the lower tier applicable to Members with an 
ADV equal to or greater than 0.30% of average TCV but achieves at least 
a 5 basis point increase over its previous High Water Mark is currently 
assessed a fee of $0.40 per contract for Customer orders that remove 
liquidity from BATS Options (i.e., halfway between the standard fee of 
$0.44 per contract and the fee of $0.36 charged to Members that reach 
the 0.30% TCV tier). Due to the proposed changes described above, the 
Exchange proposes to modify this fee to $.042 per contract for Customer 
orders that remove liquidity from BATS Options in Penny Pilot 
Securities (i.e., halfway between the standard fee of $0.44 per 
contract and the fee of $0.40 charged to Members that reach the 0.30% 
TCV tier). Similarly, a Member that qualifies for the lower tier 
applicable to Members with an ADV equal to or greater than 0.30% of 
average TCV but not the 1% of average TCV tier that achieves at least a 
5 basis point increase over its previous High Water Mark will be 
assessed a fee of $0.38 per contract for Customer orders that remove 
liquidity from BATS Options in Penny Pilot Securities (i.e., halfway 
between the $0.40 per contract charged to Members that reach the 0.30% 
TCV tier and the $0.36 per contract charged to Members that reach the 
1% TCV tier).
(iii) Customer Rebates for Adding Liquidity
    The Exchange currently provides a rebate of $0.30 per contract for 
Customer orders that add liquidity to the BATS Options order book. The 
Exchange proposes to maintain this standard rebate but to further 
increase rebates to Members pursuant to volume thresholds analogous to 
those applied to fees for removing liquidity. First, the Exchange 
proposes to increase the rebate applicable to Members with an ADV equal 
to or greater than 0.30% of average TCV from a rebate of $0.40 per 
contract to a rebate of $0.42 per contract for Customer orders that add 
liquidity to the BATS Options order book. Second, Exchange proposes to 
adopt a volume tier applicable to Members with an ADV equal to or 
greater than 1% of average TCV from a rebate of $0.42 per contract to a 
rebate of $0.44 per contract for Customer orders that add liquidity to 
the BATS Options order book. Finally, the Exchange proposes to modify 
its Grow with Us pricing program to Customer orders that add liquidity 
in order to ensure that all Grow with Us rebates are one-half of the 
applicable economic benefit received by the next tier. Accordingly, a 
Member that does not qualify for the lower tier applicable to Members 
with an ADV equal to or greater than 0.30% of average TCV but achieves 
at least a 5 basis point increase over its previous High Water Mark 
will be provided a rebate of $0.36 per contract for Customer orders 
that add liquidity to BATS Options in Penny Pilot Securities (i.e., 
halfway between the standard rebate of $0.30 per contract and the 
rebate of $0.42 per contract provided to Members that reach the 0.30% 
TCV tier), which is an increase from the current rebate of $0.35 per 
contract. Similarly, a Member that qualifies for the lower tier 
applicable to Members with an ADV equal to or greater than 0.30% of 
average TCV but not the 1% of average TCV tier that achieves at least a 
5 basis point increase over its previous High Water Mark will be 
provided a rebate of $0.43 per contract for Customer orders that add 
liquidity to BATS Options in Penny Pilot Securities (i.e., halfway 
between the $0.42 per contract provided to Members that reach the 0.30% 
TCV tier and the $0.44 per contract provided to Members that reach the 
1% TCV tier).
    The Exchange is not proposing to modify the rebates provided for 
Professional, Firm and Market Maker orders, other than to make clear 
that such rebates on the fee schedule differ between those provided 
with respect to Penny Pilot Securities and all other securities.
(iv) Pricing for Non-Penny Pilot Securities
    As noted above, the Exchange proposes to adopt separate pricing for 
Non-Penny Pilot Securities. Specifically, the Exchange proposes to 
adopt a fee of $0.75 per contract for Customer orders that remove 
liquidity from the BATS Options order book in non-Penny Pilot 
Securities and a rebate of $0.75 per contract for Customer orders that 
add liquidity to the BATS Options order book in non-Penny Pilot 
Securities. The Exchange proposes to adopt a fee of $0.80 per contract 
for Professional, Firm and Market Maker orders that remove liquidity 
from the BATS Options order book in non-Penny Pilot Securities and a 
rebate of $0.70 per contract for Professional, Firm and Market Maker 
orders that add liquidity to the BATS Options order book in non-Penny 
Pilot Securities. The Exchange will apply additive rebates that are 
earned through the QIP (as described below) and/or the Exchange's NBBO 
Setter Program \12\ to executions in non-Penny Pilot Securities. 
However the Exchange is not currently proposing to adopt other tiered 
pricing for non-Penny Pilot Securities.
---------------------------------------------------------------------------

    \12\ The NBBO Setter Program is a program that provides 
additional rebates for executions resulting from orders that add 
liquidity that set either the NBB or NBO.
---------------------------------------------------------------------------

    As described in further detail below, the Exchange's proposal to 
implement the above-described fees is intended to attract better priced 
liquidity to the Exchange by incenting liquidity providers to post 
aggressively priced liquidity on the Exchange with an enhanced rebate 
structure. The Exchange believes that the differences that can be 
achieved by narrowing spreads in non-Penny Pilot Securities will 
justify the increased fees to remove liquidity.
    (v) Modification to Quoting Incentive Program
    BATS Options offers a Quoting Incentive Program (``QIP''), through 
which Professional, Firm and Market Maker orders receive a rebate of 
$0.05 per contract, in addition to any other applicable liquidity 
rebate, for executions subject to the QIP. Qualifying Customer order 
executions in products subject to the QIP currently receive an 
additional rebate of $0.03 per contract. The Exchange proposes to 
reduce the rebate for Customer orders receiving executions in products 
subject to the QIP from an additional rebate of $0.03 per contract to 
an additional rebate of $0.01 per contract. This modification in 
pricing will allow the Exchange to increase the tiered rebate structure 
for Customer orders as described above, which will result in increases 
of either $0.01 or $0.02 per contract on all executions in Penny Pilot 
Securities for Members reaching any volume tier or qualifying for Grow 
with Us pricing.
    To qualify for the QIP a BATS Options Market Maker must be at the 
NBB or NBO 60% 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 Options Market 
Maker can also qualify for the QIP by quoting at the NBB or NBO 70% of 
the time in the same series. The Exchange proposes to add additional 
clarity regarding the QIP qualification by making clear that $0.03 and 
$5.00 price range qualification is determined by the last trade in an 
option series each day. Option series which do not have an execution 
are removed from the following day's Quoting Incentive Program 
calculations.

[[Page 23310]]

    All other aspects of the QIP currently in place will remain the 
same. As is true under the current operation of the QIP, the Exchange 
will determine whether a Member 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 60% criteria or a Member that is not 
registered as a Market Maker meets the 70% criteria, the Exchange will 
provide the additional rebate for all executions subject to the QIP 
executed by that 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. 
The Exchange is not proposing to impose any ADV requirements in order 
to qualify for the QIP at this time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\13\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that continuing to provide additional 
financial incentives to Members that demonstrate a 5 basis point 
increase over their previous High Water Mark offers an additional, 
flexible way to achieve financial incentives from the Exchange and 
encourages Members to add increasing amounts of liquidity to BATS 
Options each month. The Grow with Us pricing program thereby rewards a 
Member's growth patterns. Such increased volume increases potential 
revenue to the Exchange, and will allow the Exchange to continue to 
provide and potentially expand the incentive programs operated by the 
Exchange. The increased liquidity also benefits all investors by 
deepening the BATS Options liquidity pool, offering additional 
flexibility for all investors to enjoy cost savings, supporting the 
quality of price discovery, promoting market transparency and improving 
investor protection. The Grow with Us program is also fair and 
equitable in that it is available to all Members and will expand the 
applicability of the Exchange's tiered pricing structure, even for 
Members that do not meet the Exchange's volume based tiers. The 
increase to fees for Professional, Firm and Market Maker orders that 
remove liquidity in Penny Pilot Securities is fair and equitable 
because it will allow the Exchange to offer a financial incentive to 
those Members who qualify for the Grow with Us program based on 
increased liquidity on BATS Options and such Members will not realize 
any increase to fees. The fee increase is reasonable in that it is a 
small increase and the fee to remove liquidity from BATS Options for 
Professional, Firm and Market Maker orders is still equivalent to the 
standard fee charged by other markets with similar fee structures, such 
as NYSE Arca Options and the Nasdaq Options Market (``NOM'').
    Volume-based rebates such as the ones maintained by the Exchange 
have been widely adopted in the cash equities markets and are 
increasingly in use by the options exchanges, and are equitable because 
they are open to all Members on an equal basis and provide discounts 
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/or growth patterns, and 
introduction of higher volumes of orders into the price and volume 
discovery processes. Accordingly, the Exchange believes that the 
continued offering of volume-based rebates for Customer orders in Penny 
Pilot Securities is not unfairly discriminatory because it is 
consistent with the overall goals of enhancing market quality. 
Similarly, the Exchange believes that continuing to base its tiered fee 
structure 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.
    Despite the increases in fees for Customer orders in Penny Pilot 
Securities that remove liquidity applicable to Members that meet one of 
the Exchange's tier levels or qualify for Grow with Us pricing, the 
Exchange believes that its proposed fee structure is reasonable as the 
Exchange's standard fees generally still remain equivalent to or 
slightly lower than standard fees charged by other markets with similar 
fee structures, such as NYSE Arca Options and NOM. Further, the 
Exchange believes that the increases are fair and equitable because the 
various programs offered by the Exchange to receive reduced fees and 
enhanced rebates provide all Members with several different ways to 
offset the increase in fees or receive a reduction in fees. The 
increase in fees is also reasonable because the Exchange has also 
proposed to increase the rebates available for Customer orders from 
Members that qualify for volume-based tier or the Grow with Us program. 
The increase to rebates for Customer orders in Penny Pilot Securities 
is reasonable as it will permit certain Customer orders to qualify for 
higher rebates, and is fair and equitable because the volume-based 
tiers are available to all Members on an equal basis. As noted above, 
the Exchange believes that such volume-based tiers are fair and 
equitable and not unreasonably discriminatory because they are 
consistent with the overall goals of enhancing market quality. Also due 
to the increased levels of rebates for Customer orders in Penny Pilot 
Securities, the Exchange believes that the proposed modification to the 
Quoting Incentive Program is fair and equitable and not unreasonably 
discriminatory. Although the proposed QIP rebate for qualifying 
Customer orders is slightly lower than is currently offered and will 
continue to be lower than the QIP rebate provided to Professional, Firm 
and Market Maker orders, the Exchange believes that this distinction is 
reasonable and not unreasonably discriminatory because of the 
offsetting increase to rebates on Customer orders. The Exchange also 
believes that continuing to maintain a slightly lower threshold for 
meeting the QIP for 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 is 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.
    The Exchange believes that its proposed fees for non-Penny Pilot

[[Page 23311]]

Securities are reasonable in light of the benefits to Members to the 
extent the corresponding rebates, which are significantly higher than 
rebates available from the Exchange's competitors, incentivize 
aggressive quoting that will result in better execution prices, as 
described in further detail below. The Exchange also believes that 
providing financial incentives to achieve aggressive quoting and 
incentivize liquidity providers to narrow the spread while charging 
more to those who realize the economic benefit of that narrower spread 
is a fair and equitable approach to pricing. Finally, the Exchange 
notes that in non-Penny Pilot Securities it is charging slightly more 
for, and rebating slightly less to, non-Customer orders than Customer 
orders. The Exchange believes that this proposed pricing structure for 
non-Penny Pilot Securities is not unreasonably discriminatory because 
it accounts for the difference of assumed information and 
sophistication level between the different trading capacities. Since 
Professional, Firm and Market Maker capacity members are assumed to 
have more informed (and hence less desirable to counterparties) orders, 
those orders have a slightly higher transaction cost associated with 
them. The Exchange further notes that the charges and rebates to all 
non-Customer orders is equivalent regardless of capacity and therefore 
non-discriminatory.
    In the current U.S. options market, many of the contracts are 
quoted in pennies. Under this pricing structure, the minimum penny tick 
increment equates to a $1.00 economic value difference per contract, 
given that a single standardized U.S. option contract covers 100 shares 
of the underlying stock. Where contracts are quoted in $0.05 
increments, the value per tick is $5.00 in proceeds to the investor 
transacting in these contracts. Liquidity rebate and access fee 
structures on the make-take exchanges, including BATS, for securities 
quoted in penny increments are commonly in the $0.30 to $0.45 range. A 
$0.30 rebate in a penny quoted security is a rebate equivalent to 30% 
of the value of the minimum tick. A $0.45 charge in a penny quoted 
security is a charge equivalent to 45% of the value of that minimum 
tick. In other words, in penny quoted securities, where the price is 
improved by one tick with an access fee of $0.45, an investor paying to 
access that quote is still $0.55 better off than trading at the wider 
spread, even without the access fee ($1.00 of price improvement -$0.45 
access fee = $0.55 better economics). This math is equally true for 
securities quoted in wider increments. Rebates and access fees near the 
$0.80 level equate to only 20% of the value of the minimum tick. An 
investor transacting a single contract in a non-penny quoted security 
quoted a single tick tighter than the rest of the market, and paying an 
access fee of $0.80, is receiving economic benefit of $4.20 ($0.05 
improved tick = $5.00 in proceeds-$0.80 access fee = $4.20). The 
Exchange believes that encouraging liquidity providers to quote more 
aggressively and narrow the spread in non-Penny Pilot Securities will 
benefit investors by improving the overall economics of the resulting 
transactions that occur on the Exchange, even if the access fee paid in 
connection with such transactions is higher. Accordingly, the Exchange 
believes that the proposed fees and rebates for non-Penny Pilot 
Securities are reasonable.

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 \15\ and Rule 19b-
4(f)(2) thereunder,\16\ 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2012-015 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-2012-015. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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-2012-015 and should be 
submitted on or before May 9, 2012.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9286 Filed 4-17-12; 8:45 am]
BILLING CODE 8011-01-P
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