Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of BATS Exchange, Inc., 42141-42146 [2015-17395]
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Federal Register / Vol. 80, No. 136 / Thursday, July 16, 2015 / Notices
Rule 17Ad–22(b)(2) 20 requires
registered clearing agencies, among
other things, to establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to
use margin requirements to limit its
credit exposures to participants under
normal market conditions and use riskbased models and parameters to set
margin requirements.
The Commission finds that the
proposed rule change is consistent with
Section 17A of the Act 21 and the rules
thereunder applicable to OCC. The
proposal will integrate new pricing
models into the STANS methodology to
accommodate the manner in which the
exercise settlement amount for Asian
Options and Cliquet Options is
determined. The Commission believes
these changes are designed to enable
OCC to accurately compute margin
requirements for Asian Option and
Cliquet Option positions through its
STANS methodology, therefore
reducing the risk that clearing member
margin assets would be insufficient
should OCC need to use such assets to
close-out the positions of a defaulted
clearing member. The Commission
therefore believes that the proposed rule
change is reasonably designed to limit
OCC’s credit exposures to participants
under normal market conditions and
use risk-based models and parameters to
set margin requirements, consistent
with the requirements of Rule 17Ad–
22(b)(2).22 Accordingly, the Commission
believes that the proposed rule change
is designed to assure the safeguarding of
securities and funds in OCC’s custody
or control or for which it is responsible,
consistent with section 17A(b)(3)(F) of
the Act.23
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of section 17A of the
Act 24 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,25 that the
proposed rule change (File No. SR–
OCC–2015–010) be, and hereby is,
approved.26
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20 17
CFR 240.17Ad–22(b)(2).
U.S.C. 78q–1.
22 17 CFR 240.17Ad–22(b)(2).
23 15 U.S.C. 78q–1(b)(3)(F).
24 15 U.S.C. 78q–1.
25 15 U.S.C. 78s(b)(2).
26 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–17400 Filed 7–15–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75422; File No. SR–BATS–
2015–52]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees for Use
of BATS Exchange, Inc.
July 10, 2015.
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 1,
2015, 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 filed a proposal to
amend its fees and rebates applicable to
Members 5 of the Exchange pursuant to
Rule 15.1(a) and (c).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
42141
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, effective immediately, in
order to modify pricing charged by the
Exchange’s options platform (‘‘BATS
Options’’) including: (i) Amend footnote
2 to remove Professional 6 orders from
the Professional and Firm Penny Pilot
Add Volume Tiers related to the pricing
for Professional and Firm 7 orders that
add liquidity in Penny Pilot Securities; 8
(ii) further amend footnote 2 to change
the standards for meeting Tiers 1 and 2,
changing the rebate for Tier 2, and
adding a new Tier 3; (iii) amend the
standard rebate associated with Fee
Code PF for Firm orders that add
liquidity in Penny Pilot Securities; (iv)
create a new Fee Code NF for Firm
orders that add liquidity in non-Penny
Pilot Securities; (v) create a new
footnote 8 titled ‘‘Firm Non-Penny Pilot
Add Volume Tiers;’’ (vi) add a new Tier
3 to the Market Maker Penny Pilot Add
Volume Tiers; (vii) amend the fees that
the Exchange charges for orders routed
by the Exchange for execution at other
venues, including those associated with
Fee Codes 2C, CC, CF, HF, and OF; and
(viii) amend the Options Physical
Connection Fees for both 1G and 10G
physical ports.
Professional Orders in Penny Pilot
Securities
The Exchange proposes to remove
Professional orders from inclusion in
the Professional and Firm Penny Pilot
21 15
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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 defined as ‘‘any registered broker
or dealer that has been admitted to membership in
the Exchange.’’ See Exchange Rule 1.5(n).
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27 17
1 15
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6 ‘‘Professional’’ applies to any transaction
identified by a Member as such pursuant to
Exchange Rule 16.1.
7 ‘‘Firm’’ applies to any transaction identified by
a Member for clearing in the Firm range at the OCC.
8 ‘‘Penny Pilot Securities’’ are those issues quoted
pursuant to Exchange Rule 21.5, Interpretation and
Policy .01.
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Add Volume Tiers, which apply to fee
codes PA and PF. Currently, the
Exchange provides a standard rebate of
$0.40 per contract under Fee Code PA
for Professional orders that add liquidity
in Penny Pilot Securities and an
enhanced rebate of $0.42 per contract
for each Professional or Firm order that
adds liquidity in Penny Pilot Securities
and meets the requirements for either
Tier 1 or Tier 2 of the Professional and
Firm Penny Pilot Add Volume Tiers.
Specifically, the Exchange is proposing
to eliminate Professional orders from
the Professional and Firm Penny Pilot
Add Volume Tiers such that
Professional orders subject to Fee Code
PA would not be eligible for enhanced
rebates under footnote 2. Such orders
would remain eligible to receive
enhanced rebates under footnotes 4
(NBBO Setter Tiers) and 5 (Quoting
Incentive Program Tiers).
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Firm Orders That Add Liquidity in
Penny Pilot Add Volume Tiers
The Exchange is proposing to make
several changes to the Firm Penny Pilot
Add Volume Tiers. First, the Exchange
is proposing to change the standard
rebate associated with Fee Code PF for
Firm orders that add liquidity in Penny
Pilot Securities from $0.40 per contract
to $0.36 per contract. The Exchange is
also proposing to change the rebate for
Firm orders in Penny Pilot Securities for
Members that meet Tier 1 of the Firm
Penny Pilot Add Volume Tiers from
$0.42 per contract to $0.40 per contract.
The Exchange is also proposing to
amend the standards required to meet
Tiers 1 and 2 of the Firm Penny Pilot
Add Volume Tiers. Currently, a Member
qualifies for Tier 1 where the Member
has an Options Step-up Add TCV 9 from
June 2014 baseline equal to or greater
than 0.50% and qualifies for Tier 2
where the Member has: (i) An Options
Step-Up Add TCV from September 2014
baseline equal to or greater than 0.30%;
and (ii) an ADV 10 equal to or greater
than 0.40% of average TCV.11
Specifically, the Exchange is proposing
to change the Tier 1 required criteria
such that a Member qualifies for Tier 1
where the Member has an ADV equal to
9 ‘‘Options Step-Up Add TCV’’ means ADAV as
a percentage of TCV in the relevant baseline month
subtracted from current ADAV as a percentage of
TCV.
10 ‘‘ADV’’ means average daily volume calculated
as the number of contracts added or removed,
combined, per day.
11 ‘‘TCV’’ means 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, excluding
volume on any day that the Exchange experiences
an Exchange System Disruption and on any day
with a scheduled early market close.
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or greater than 0.30% of average TCV.
The Exchange is also proposing to
change the Tier 2 required criteria such
that a Member qualifies for Tier 2 where
the Member has an ADV equal to or
greater than 1.00% of average TCV.
The Exchange is also proposing to add
an additional tier to the Firm Penny
Pilot Add Volume Tier under footnote 2
of the fee schedule. As described above,
the Exchange currently offers two tiers
under the Firm Penny Pilot Add
Volume Tiers. The Exchange is
proposing to add Tier 3 under which
Members would receive a $0.43 per
contract rebate for Firm orders that add
liquidity in Penny Pilot Securities
where the Member: (i) Has an ADAV 12
in Firm orders in Penny Pilot Securities
equal to or greater than 0.35% of
average TCV; and (ii) has an ADV equal
to or greater than 1.00% of average TCV.
Firm Orders That Add Liquidity in NonPenny Pilot Securities
The Exchange is proposing to make
two changes to its fee schedule
regarding Firm orders that add liquidity
in non-Penny Pilot Securities. First, the
Exchange is proposing to create a new
Fee Code NF which would apply to
Firm orders that add liquidity in nonPenny Pilot Securities and for which the
standard pricing would be a $0.40
rebate per contract. As part of this
change, the Exchange is also proposing
to delete the reference to ‘‘Firm’’ in Fee
Code NA, which currently applies to
both Professional and Firm orders that
add liquidity in non-Penny Pilot
Securities, which are subject to a
standard rebate of $0.65 per contract.
Like Fee Code NA, as proposed, orders
yielding Fee Code NF would be eligible
for enhanced rebates under the NBBO
Setter Tiers and the Quoting Incentive
Program Tiers.
The Exchange is also proposing to add
a new footnote 8 titled ‘‘Firm NonPenny Pilot Add Volume Tiers’’ under
which there would be three new tiers
offering enhanced rebates for Firm
orders that add liquidity in non-Penny
Pilot Securities. Specifically, as
proposed, the tiers would provide the
following rebates under the following
conditions for Firm orders that add
volume in non-Penny Pilot Securities:
Tier 1 would provide a $0.50 rebate per
contract to a Member that has an ADV
equal to or greater than 0.05% of
average TCV; Tier 2 would provide a
$0.60 rebate per contract to a Member
that has an ADV equal to or greater than
0.15% of average TCV; and Tier 3 would
12 ‘‘ADAV’’ means average daily added volume
calculated as the number of contracts added per
day.
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provide a $0.65 rebate per contract to
Member that has an ADV equal to or
greater than 0.25% of average TCV.
Market Maker Penny Pilot Add Volume
Tiers
The Exchange is proposing to add a
new Tier 3 to the Market Maker Penny
Pilot Add Volume Tiers in order to
provide another means for Market
Maker orders in Penny Pilot Securities
to receive a rebate of $0.42 per contract.
Currently, the standard rebate for
Market Maker orders in Penny Pilot
Securities is $0.36 per contract. Such
orders can receive an enhanced rebate of
$0.40 by meeting Tier 1 of the Market
Maker Penny Pilot Add Volume Tiers or
$0.42 by meeting Tier 2 of such Tiers.
The Exchange is proposing to add a new
Tier 3 under which a Member would
receive $0.42 per contract where: (i) The
Member has an ADAV in Firm orders in
Penny Pilot Securities (orders that yield
Fee Code PF) equal to or greater than
0.35% of average TCV; and (ii) the
Member has an ADV equal to or greater
than 1.00% of average TCV.
Routing Fee Changes
The Exchange currently charges
certain flat rates for routing to other
options exchanges based on the
approximate cost of routing to such
venues. Such flat rates for routing to
such options exchanges is based on the
cost of transaction fees assessed by each
venue as well as costs to the Exchange
for routing (i.e., clearing fees,
connectivity and other infrastructure
costs, membership fees, etc.)
(collectively, ‘‘Routing Costs’’). To
address different fees at various other
options exchanges, the Exchange
differentiates its flat rates depending on
whether they are for Customer orders or
for Professional, Firm, and Market
Maker 13 orders (collectively, ‘‘nonCustomer orders’’).
As noted previously and as set forth
above, the Exchange’s current approach
to routing fees is to set forth in a simple
manner certain flat fees that
approximate the cost of routing to other
options exchanges. The Exchange then
monitors the fees charged as compared
to the costs of its routing services, as
well as monitoring for specific fee
changes by other options exchanges,
and adjusts its flat routing fees and/or
groupings to ensure that the Exchange’s
fees do indeed result in a rough
approximation of overall Routing Costs,
and are not significantly higher or lower
13 As defined on the Exchange’s fee schedule, the
terms ‘‘Firm’’ and ‘‘Market Maker’’ apply to any
transaction identified by a member for clearing in
the Firm or Market Maker range, respectively, at the
Options Clearing Corporation (‘‘OCC’’).
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in any area. Over the last several
months, due to various increases in fees
assessed by other options exchanges, the
Exchange’s overall Routing Costs have
increased. As a result, and in order to
avoid subsidizing routing to away
options exchanges and to continue
providing quality routing services, the
Exchange proposes various increases to
the charges assessed for most orders
routed to most options exchanges, as set
forth below.
The Exchange is proposing to amend
the fees that the Exchange charges for
orders routed by the Exchange for
execution at other venues, including
those associated with Fee Codes 2C, CC,
CF, HF, and OF. The Exchange is
proposing to amend the fees for those
Fee Codes as follows: From $0.00 to
$0.47 per contract for orders yielding
Fee Code 2C, which are Customer orders
routed to C2 Options Exchange, Inc.
(‘‘C2’’); from $0.12 to $0.13 per contract
for orders yielding Fee Code CC, which
are Customer orders routed to Chicago
Board Options Exchange (‘‘CBOE’’);
from $0.65 to $0.75 per contract for
orders yielding Fee Code CF, which are
Professional, Firm, or Market Maker
orders routed to CBOE; from $0.65 to
$0.70 per contract for orders yielding
Fee Code HF, which are Professional,
Firm, or Market Maker orders routed to
NASDAQ OMX PHLX LLC (‘‘PHLX’’);
and from $0.65 to $0.99 for orders
yielding Fee Code OF, which are
Professional, Firm, or Market Maker
orders routed to BOX Options Exchange,
LLC (‘‘BOX’’). The Exchange notes that
certain of the above changes are being
proposed in order to maintain a simple,
flat fee structure for routing to other
venues in both Penny Pilot Securities
and non-Penny Pilot Securities.
Physical Connection Fees
The Exchange proposes to amend its
fee schedule to modify its fees for
physical connectivity. A physical port is
utilized by a Member or non-Member to
connect to the Exchange at the data
centers where the Exchange’s servers are
located. The Exchange currently
maintains a presence in two third-party
data centers: (i) The primary data center
where the Exchange’s business is
primarily conducted on a daily basis,
and (ii) a secondary data center, which
is predominantly maintained for
business continuity purposes. The
Exchange currently assesses the
following physical connectivity fees for
Members and non-Members on a
monthly basis: $1,000 per physical port
that connects to the System 14 via 1
14 The term ‘‘System’’ is defined as ‘‘the
electronic communications and trading facility
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gigabyte circuit; and $2,500 per physical
port that connects to the System via 10
gigabyte circuit.
The Exchange now proposes to amend
its physical connectivity fees to align its
fees with its affiliates.15 The Exchange
proposes to increase the fee per physical
port that connects to the System via: (i)
1 gigabyte circuit from $1,000 per
month to $2,000 per month; and (ii) 10
gigabyte circuit from $2,500 per month
to $4,000 per month.
Effectiveness Date
As noted above, the Exchange
proposes to implement the amendments
to its fee schedule effective
immediately.
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.16
Specifically, the Exchange believes that
the proposed rule change is consistent
with section 6(b)(4) of the Act,17 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 to be
excessive.
Volume-based rebates and fees such
as the ones currently maintained on
BATS Options have been widely
adopted by equities and options
exchanges and are equitable because
they are open to all Members on an
equal basis and provide additional
benefits or discounts that are reasonably
related to 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
designated by the Board through which securities
orders of Users are consolidated for ranking,
execution and, when applicable, routing away.’’ See
Exchange Rule 1.5(cc).
15 For purposes of this filing, the Exchange’s
affiliates are EDGX Exchange, Inc. (‘‘EDGX’’), EDGA
Exchange, Inc. (‘‘EDGA’’), the Exchange’s equity
exchange (‘‘BATS Equities’’) and BATS YExchange, Inc. (‘‘BYX’’, together with BATS
Equities, EDGA and EDGX, the ‘‘BATS Exchanges’’).
The Exchange notes that each of its affiliates will
also file proposed rule changes with Commission to
adopt similar physical connectivity fees to be
effective July 1, 2015.
16 15 U.S.C. 78f.
17 15 U.S.C. 78f(b)(4).
PO 00000
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42143
higher volumes of orders into the price
and volume discovery processes.
Professional Orders in Penny Pilot
Securities
The Exchange believes the proposed
removal of Professional orders in Penny
Pilot Securities that add liquidity from
the Professional and Firm Penny Pilot
Add Volume Tiers is a reasonable, fair
and equitable, and not unfairly
discriminatory allocation of fees and
rebates because, while Members
entering such orders will not be eligible
for the $0.02 per contract enhanced
rebate that they would have potentially
been eligible to receive under the tiers
($0.42 per contract vs. $0.40 per
contract standard rebate for Fee Code
PA), such Members will still be eligible
for enhanced rebates through both the
NBBO Setter Tiers (up to an additional
$0.04 per contract) and the Quoting
Incentive Program Tiers (also up to an
additional $0.04 per contract). Further,
such a reduction in rebates will allow
the Exchange to allocate fees and rebates
to other orders in order to encourage
increased participation on BATS
Options, which the Exchange believes
will result in higher levels of liquidity
provision and introduction of higher
volumes of orders into the price and
volume discovery processes, which will
benefit all participants on BATS
Options.
Firm Orders That Add Liquidity in
Penny Pilot Add Volume Tiers
The Exchange also believes that the
proposed amendments to the fee
schedule related to Firm orders in
Penny Pilot Securities related to the
standard rebate under Fee Code PF and
the proposed amendments to footnote 2,
including to reduce the rebate for Tier
1, add a new tier, and amend the
standards for Tiers 1 and 2 is a
reasonable, fair and equitable, and not
unfairly discriminatory allocation of
fees and rebates because it will provide
Members entering Firm orders with the
opportunity to receive higher rebates
while simultaneously encouraging
greater participation on BATS Options,
which, as described above the Exchange
believes will result in higher levels of
liquidity provision and introduction of
higher volumes of orders into the price
and volume discovery processes, which
will benefit all participants on BATS
Options. Specifically, the Exchange
believes that the reduction of the
standard rebate associated with Fee
Code PF combined with the amended
and lowered standard for meeting Tier
1 of the Firm Penny Pilot Add Volume
Tiers is a reasonable, fair and equitable,
and not unfairly discriminatory
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allocation of fees and rebates because, in
conjunction, they will both provide
Members with a reasonably achievable
threshold for receiving the same rebate
as they do today while at the same time
encouraging and rewarding higher
levels of participation on the Exchange
overall. The Exchange also believes that
amending the standard for meeting Tier
2 is a reasonable, fair and equitable, and
not unfairly discriminatory allocation of
fees and rebates because it will similarly
encourage increased participation on
the Exchange by offering a rebate that
applies equally to all Members without
regard to prior trading volumes. Such
rebate will encourage greater general
participation on the Exchange, which
will result in higher levels of liquidity
provision and introduction of higher
volumes of orders into the price and
volume discovery processes, which will
benefit all participants on BATS
Options. Finally, the Exchange believes
that proposed Tier 3 is a reasonable, fair
and equitable, and not unfairly
discriminatory allocation of fees and
rebates because the second of its two
requirements (that a Member has an
ADV equal to or greater than 1.00% of
average TCV) is identical to the only
requirement for meeting Tier 2, meaning
that any Member that meets Tier 2 will
only need to meet the additional
requirement that a Member has an
ADAV in Firm orders in Penny Pilot
Securities equal to or greater than 0.35%
of average TCV in order to receive the
enhanced rebate. This will provide a
direct incentive for any Member that
meets Tier 2 to further increase
participation in Firm orders in Penny
Pilot Securities and, as with each of the
proposed changes mentioned in this
paragraph, will encourage greater
participation on the Exchange, which
will result in higher levels of liquidity
provision and introduction of higher
volumes of orders into the price and
volume discovery processes, which will
benefit all participants on BATS
Options.
Firm Orders That Add Liquidity in NonPenny Pilot Securities
The Exchange believes that the
amendments for Firm orders that add
liquidity in non-Penny Pilot Securities
mark a reasonable, fair and equitable,
and not unfairly discriminatory
allocation of fees and rebates because
while the new Fee Code NF and the
associated standard rebate marks a
reduction in rebate (from $0.65 per
contract to $0.40 per contract), under
the new Firm Non-Penny Pilot Add
Volume Tiers, Members will be eligible
to receive an enhanced rebate ($0.50 per
contract) by meeting a relatively low
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threshold of ADV as a percentage of
TCV (0.05%), will receive a further
enhanced rebate ($0.60 per contract) by
meeting Tier 2 (0.15% ADV as a
percentage of TCV), or receive the same
rebate that they currently receive ($0.65
per contract) by meeting Tier 3 (0.25%
of average TCV). Further, the proposed
standard rebate is still higher than those
offered at NOM and NYSE Arca, Inc.,
which each charge fees for Firm orders
that add liquidity in non-Penny Pilot
Securities. The Exchange believes that
such a fee structure will provide
Members with the ability to receive
reasonable rebates while strongly
encouraging Members to increase their
participation on the Exchange. Such
increased participation on BATS
Options will result in higher levels of
liquidity provision and introduction of
higher volumes of orders into the price
and volume discovery processes, which
will benefit all participants on BATS
Options.
Market Maker Penny Pilot Add Volume
Tiers
The Exchange believes that the
addition of Tier 3 to the Market Maker
Penny Pilot Add Volume Tiers is a
reasonable, fair and equitable, and not
unfairly discriminatory allocation of
fees and rebates because it provides an
opportunity for Market Maker orders
that add liquidity in Penny Pilot
Securities with an alternate means of
achieving the current maximum rebate
of $0.42 per contract and only
represents a potential increase in rebates
for such orders. The inclusion of the
requirement that a Member has an
ADAV in Firm orders in Penny Pilot
Securities equal to or greater than 0.35%
is designed to incentivize Members to
increase their participation on the
Exchange in organizational order flow
beyond just Market Maker orders.
Further, this enhanced rebate will
incentivize increased participation on
BATS Options both through the
enhanced rebate itself and the required
criteria for a Member to become eligible
for the enhanced rebate. Such increased
participation on BATS Options will
result in higher levels of liquidity
provision and introduction of higher
volumes of orders into the price and
volume discovery processes, which will
benefit all participants on BATS
Options.
Routing Fee Changes
As explained above, the Exchange
generally attempts to approximate the
cost of routing to other options
exchanges, including other applicable
costs to the Exchange for routing. The
Exchange believes that a pricing model
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based on approximate Routing Costs is
a reasonable, fair and equitable
approach to pricing. Specifically, the
Exchange believes that its proposal to
modify fees is fair, equitable and
reasonable because the fees are
generally an approximation of the cost
to the Exchange for routing orders to
such exchanges, and the proposal is in
response to various increases in fees
assessed by other options exchanges.
Accordingly, the Exchange believes that
the proposed increases are fair,
equitable and reasonable because they
will help the Exchange to avoid
subsidizing routing to away options
exchanges and to continue providing
quality routing services. The Exchange
believes that its flat fee structure for
orders routed to various venues is a fair
and equitable approach to pricing, as it
provides certainty with respect to
execution fees at groups of away options
exchanges. Under its flat fee structure,
taking all costs to the Exchange into
account, the Exchange may operate at a
slight gain or slight loss for orders
routed to and executed at away options
exchanges. As a general matter, the
Exchange believes that the proposed
fees will allow it to recoup and cover its
costs of providing routing services to
such exchanges. The Exchange also
believes that the proposed fee structure
for orders routed to and executed at
these away options exchanges is fair and
equitable and not unreasonably
discriminatory in that it applies equally
to all Members.
Physical Connection Fees
The Exchange believes that the
proposal represents an equitable
allocation of reasonable dues, fees, and
other charges as its fees for physical
connectivity are reasonably constrained
by competitive alternatives. If a
particular exchange charges excessive
fees for connectivity, affected Members
and non-Members may opt to terminate
their connectivity arrangements with
that exchange, and adopt a possible
range of alternative strategies, including
routing to the applicable exchange
through another participant or market
center or taking that exchange’s data
indirectly. Accordingly, if the Exchange
charges excessive fees, it would stand to
lose not only connectivity revenues but
also revenues associated with the
execution of orders routed to it, and, to
the extent applicable, market data
revenues. The Exchange believes that
this competitive dynamic imposes
powerful restraints on the ability of any
exchange to charge unreasonable fees
for connectivity.
Furthermore, the proposed rule
change is also an equitable allocation of
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Federal Register / Vol. 80, No. 136 / Thursday, July 16, 2015 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
reasonable dues, fees, and other charges
as the Exchange believes that the
increased fees obtained will enable it to
cover its increased infrastructure costs
associated with establishing physical
ports to connect to the Exchange’s
Systems. The additional revenue from
the increased fees will also enable the
Exchange to continue to maintain and
improve its market technology and
services. The Exchange believes that the
proposed fees for 1 gigabyte circuit of
$2,000 per month and for 10 gigabyte
circuit of $4,000 per month are
reasonable in that they are less than
analogous fees charged by the Nasdaq
Stock Market LLC (‘‘Nasdaq’’), which
are $2,500 per month for 1 gigabyte
connectivity and range from $10,000–
$15,000 per month for 10 gigabyte
circuits.18 In addition, the Exchange
proposed physical connectivity fees are
designed to align the Exchange’s fees
with its affiliates.19
Finally, the Exchange believes that
the proposed rates are equitable and
non-discriminatory in that they apply
uniformly to all Members and nonMembers. Members and non-Members
will continue to choose whether they
want more than one physical port and
choose the method of connectivity
based on their specific needs. All
Exchange Members that voluntarily
select various service options will be
charged the same amount for the same
services. As is true of all physical
connectivity, all Members and nonMembers have the option to select any
connectivity option, and there is no
differentiation with regard to the fees
charged for the service.
The Exchange reiterates 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 to be
excessive.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. With respect
to the proposed changes to fees for
Professional and Firm orders that add
liquidity in Penny Pilot Securities,
including the proposed changes to the
Professional and Firm Penny Pilot Add
Volume Tiers, the Exchange does not
believe that any such changes burden
competition, but instead, that they
enhance competition, as they are
intended to increase the
18 See
19 See
Nasdaq Rule 7034(b).
supra note 15.
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17:39 Jul 15, 2015
Jkt 235001
competitiveness of and draw additional
volume to BATS Options.
Similarly, with respect to the
proposed new fees for Firm orders that
add liquidity in non-Penny Pilot
Securities, including both new Fee Code
NF and new Firm Non-Penny Pilot Add
Volume Tiers, the Exchange does not
believe that any such changes burden
competition, but instead, that they
enhance competition, as they are
intended to increase the
competitiveness of and draw additional
volume to BATS Options.
With respect to the proposed new Tier
3 of the Market Maker Penny Pilot Add
Volume Tiers, the Exchange similarly
believes that the changes do not burden
competition, but rather allow the
Exchange to better compete and are
intended to draw additional volume to
BATS Options.
As it relates to the proposed routing
fee changes, the proposed changes will
assist the Exchange in recouping costs
for routing orders to other options
exchanges on behalf of its participants
in a manner that is a better
approximation of actual costs than is
currently in place and that reflects
pricing changes by various options
exchanges as well as increases to other
Routing Costs incurred by the Exchange.
The Exchange also notes that Members
may choose to mark their orders as
ineligible for routing to avoid incurring
routing fees.20
Finally, as it relates to physical
connection fees, the Exchange believes
that fees for connectivity are
constrained by the robust competition
for order flow among exchanges and
non-exchange markets. Further,
excessive fees for connectivity,
including port fee access, would serve
to impair an exchange’s ability to
compete for order flow rather than
burdening competition. The proposal to
increase the fees for physical
connectivity would bring the fees
charged by the Exchange closer to
similar fees charged for physical
connectivity by other exchanges.21 In
addition, the proposed rule change does
not impose any burden on intramarket
competition as the fees are uniform for
all Members and non-Members. The
Exchange notes that Members and nonMembers also have the ability to obtain
access to these services without the
need for an independent physical port
connection, such as through alternative
means of financial extranets and service
20 See BATS Rule 21.1(d)(8) (describing ‘‘BATS
Only’’ orders for BATS Options) and BATS Rule
21.9(a)(1) (describing the BATS Options routing
process, which requires orders to be designated as
available for routing).
21 See supra note 18.
PO 00000
Frm 00061
Fmt 4703
Sfmt 4703
42145
bureaus that act as a conduit for orders
entered by Members and non-Members.
As stated above, the Exchange notes
that it operates in a highly competitive
market in which market participants can
readily direct order flow to competing
venues if the deem fee structures to be
unreasonable or excessive.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to section 19(b)(3)(A)
of the Act 22 and paragraph (f)(2) of Rule
19b–4 thereunder.23 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. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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–2015–52 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BATS–2015–52. This file
number should be included on the
subject line if email is used. To help the
22 15
23 17
E:\FR\FM\16JYN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
16JYN1
42146
Federal Register / Vol. 80, No. 136 / Thursday, July 16, 2015 / Notices
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
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BATS–
2015–52 and should be submitted on or
before August 6, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–17395 Filed 7–15–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75426; File No. SR–ICEEU–
2015–010]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of Filing
of Proposed Rule Change Relating to
Credit Default Swap Risk Policies
tkelley on DSK3SPTVN1PROD with NOTICES
July 10, 2015.
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 June 25,
2015, ICE Clear Europe Limited (‘‘ICE
Clear Europe’’ or the ‘‘Clearing House’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:39 Jul 15, 2015
Jkt 235001
have been primarily prepared by ICE
Clear Europe. The Commission is
publishing this notice to solicit
comments on the proposed changes to
the rules from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
ICE Clear Europe proposes to amend
certain of its credit default swap
(‘‘CDS’’) risk policies (the ‘‘Risk Policy
Amendments’’) in order to enhance its
current risk model.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, ICE
Clear Europe included statements
concerning the purpose of and basis for
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
ICE Clear Europe has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The principal purpose of the
proposed rule change is to amend
certain ICE Clear Europe risk policies
relating to the CDS product category to
incorporate enhancements to the
existing CDS risk model. The relevant
policies being modified are the CDS
Risk Policy (‘‘CDS Risk Policy’’) and the
CDS Risk Model Description (‘‘Risk
Model Description’’). ICE Clear Europe
does not propose to make any changes
to its Clearing Rules or Procedures in
connection with these amendments.
The proposed rule change would,
among other matters, (i) modify the
credit spread response component of the
risk model to devolatilize returns, (ii)
enhance the portfolio spread response
component of the risk model to limit
procyclicality, (iii) establish a new
framework for recovery rate sensitivity
requirement (‘‘RRSR’’) parameters, (iv)
modify the CDS Guaranty Fund
allocation methodology, (v) modify
index liquidity and concentration
charges and (vi) revise procedures for
intraday margin calls. The Risk Policy
Amendments also include certain other
clarifications and conforming changes.
The following is a summary of the
principal changes in the Risk Policy
Amendments:
Devolatilization of Credit Spread
Response. Under the revised Risk Model
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
Description, the credit spread response
component of the margin model would
be revised to provide that the tail
estimation of the relevant fitted returns
distribution is based on devolatilized
returns. The use of devolatilized returns
in this manner facilitates the
comparison of returns for periods with
different volatilities.
Procyclicality of Portfolio Spread
Response. In order to limit
procyclicality of the spread response
component of the model, ICE Clear
Europe proposes to modify the CDS Risk
Policy and Risk Model Description to
use an additional portfolio analysis that
features price changes observed during
and immediately after the Lehman
Brothers default. The analysis considers
price scenarios derived from the greatest
price decrease and increase during and
immediately after the Lehman Brothers
default. These scenarios are designed to
capture the default of a major
participant in the credit market and the
market response to the event. The
introduced scenarios are defined in
price terms to maintain the stress
severity during periods of low credit
spread levels (high price) when the
spread response requirements,
computed under the current framework,
are expected to be lower. Furthermore,
the Lehman default price scenarios are
also incorporated into the calculation of
CDS Guaranty Fund requirements.3
Recovery Rate Sensitivity Requirements
ICE Clear Europe proposes to revise
the Risk Model Description to
incorporate a more sensitive parameter
estimation approach for the RRSR
computation. The RRSR factor is
designed to capture the risk of
fluctuations in market expected
recovery rates under CDS transactions.
Under the current model, the RRSR is
determined using fixed minimum and
maximum recovery rate stress scenarios
based on sector levels. In calculating the
RRSR, all instruments belonging to a
risk factor (‘‘RF’’) or risk sub-factor
(‘‘RSF’’) are subjected to recovery rate
stress scenarios to obtain resulting
profit/loss responses, and the worst
scenario response is chosen for the
estimation of the RRSR. (In addition,
these same recovery rate stress scenarios
3 This enhancement also addresses a regulatory
requirement in Article 30 of the Regulatory
Technical Standards implementing the European
Market Infrastructure Regulations (‘‘EMIR’’).
Commission Delegated Regulation (EU) No. 153/
2013 of 19 December 2012 Supplementing
Regulation (EU) No. 648/2012 of the European
Parliament and of the Council with regard to
Regulatory Technical Standards on Requirements
for Central Counterparties (the ‘‘Regulatory
Technical Standards’’).
E:\FR\FM\16JYN1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 136 (Thursday, July 16, 2015)]
[Notices]
[Pages 42141-42146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17395]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75422; File No. SR-BATS-2015-52]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Fees for Use of BATS Exchange, Inc.
July 10, 2015.
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 1, 2015, 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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend its fees and rebates
applicable to Members \5\ of the Exchange pursuant to Rule 15.1(a) and
(c).
---------------------------------------------------------------------------
\5\ A Member is defined as ``any registered broker or dealer
that has been admitted to membership in the Exchange.'' See Exchange
Rule 1.5(n).
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify the ``Options Pricing'' section of
its fee schedule, effective immediately, in order to modify pricing
charged by the Exchange's options platform (``BATS Options'')
including: (i) Amend footnote 2 to remove Professional \6\ orders from
the Professional and Firm Penny Pilot Add Volume Tiers related to the
pricing for Professional and Firm \7\ orders that add liquidity in
Penny Pilot Securities; \8\ (ii) further amend footnote 2 to change the
standards for meeting Tiers 1 and 2, changing the rebate for Tier 2,
and adding a new Tier 3; (iii) amend the standard rebate associated
with Fee Code PF for Firm orders that add liquidity in Penny Pilot
Securities; (iv) create a new Fee Code NF for Firm orders that add
liquidity in non-Penny Pilot Securities; (v) create a new footnote 8
titled ``Firm Non-Penny Pilot Add Volume Tiers;'' (vi) add a new Tier 3
to the Market Maker Penny Pilot Add Volume Tiers; (vii) amend the fees
that the Exchange charges for orders routed by the Exchange for
execution at other venues, including those associated with Fee Codes
2C, CC, CF, HF, and OF; and (viii) amend the Options Physical
Connection Fees for both 1G and 10G physical ports.
---------------------------------------------------------------------------
\6\ ``Professional'' applies to any transaction identified by a
Member as such pursuant to Exchange Rule 16.1.
\7\ ``Firm'' applies to any transaction identified by a Member
for clearing in the Firm range at the OCC.
\8\ ``Penny Pilot Securities'' are those issues quoted pursuant
to Exchange Rule 21.5, Interpretation and Policy .01.
---------------------------------------------------------------------------
Professional Orders in Penny Pilot Securities
The Exchange proposes to remove Professional orders from inclusion
in the Professional and Firm Penny Pilot
[[Page 42142]]
Add Volume Tiers, which apply to fee codes PA and PF. Currently, the
Exchange provides a standard rebate of $0.40 per contract under Fee
Code PA for Professional orders that add liquidity in Penny Pilot
Securities and an enhanced rebate of $0.42 per contract for each
Professional or Firm order that adds liquidity in Penny Pilot
Securities and meets the requirements for either Tier 1 or Tier 2 of
the Professional and Firm Penny Pilot Add Volume Tiers. Specifically,
the Exchange is proposing to eliminate Professional orders from the
Professional and Firm Penny Pilot Add Volume Tiers such that
Professional orders subject to Fee Code PA would not be eligible for
enhanced rebates under footnote 2. Such orders would remain eligible to
receive enhanced rebates under footnotes 4 (NBBO Setter Tiers) and 5
(Quoting Incentive Program Tiers).
Firm Orders That Add Liquidity in Penny Pilot Add Volume Tiers
The Exchange is proposing to make several changes to the Firm Penny
Pilot Add Volume Tiers. First, the Exchange is proposing to change the
standard rebate associated with Fee Code PF for Firm orders that add
liquidity in Penny Pilot Securities from $0.40 per contract to $0.36
per contract. The Exchange is also proposing to change the rebate for
Firm orders in Penny Pilot Securities for Members that meet Tier 1 of
the Firm Penny Pilot Add Volume Tiers from $0.42 per contract to $0.40
per contract.
The Exchange is also proposing to amend the standards required to
meet Tiers 1 and 2 of the Firm Penny Pilot Add Volume Tiers. Currently,
a Member qualifies for Tier 1 where the Member has an Options Step-up
Add TCV \9\ from June 2014 baseline equal to or greater than 0.50% and
qualifies for Tier 2 where the Member has: (i) An Options Step-Up Add
TCV from September 2014 baseline equal to or greater than 0.30%; and
(ii) an ADV \10\ equal to or greater than 0.40% of average TCV.\11\
Specifically, the Exchange is proposing to change the Tier 1 required
criteria such that a Member qualifies for Tier 1 where the Member has
an ADV equal to or greater than 0.30% of average TCV. The Exchange is
also proposing to change the Tier 2 required criteria such that a
Member qualifies for Tier 2 where the Member has an ADV equal to or
greater than 1.00% of average TCV.
---------------------------------------------------------------------------
\9\ ``Options Step-Up Add TCV'' means ADAV as a percentage of
TCV in the relevant baseline month subtracted from current ADAV as a
percentage of TCV.
\10\ ``ADV'' means average daily volume calculated as the number
of contracts added or removed, combined, per day.
\11\ ``TCV'' means 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, excluding
volume on any day that the Exchange experiences an Exchange System
Disruption and on any day with a scheduled early market close.
---------------------------------------------------------------------------
The Exchange is also proposing to add an additional tier to the
Firm Penny Pilot Add Volume Tier under footnote 2 of the fee schedule.
As described above, the Exchange currently offers two tiers under the
Firm Penny Pilot Add Volume Tiers. The Exchange is proposing to add
Tier 3 under which Members would receive a $0.43 per contract rebate
for Firm orders that add liquidity in Penny Pilot Securities where the
Member: (i) Has an ADAV \12\ in Firm orders in Penny Pilot Securities
equal to or greater than 0.35% of average TCV; and (ii) has an ADV
equal to or greater than 1.00% of average TCV.
---------------------------------------------------------------------------
\12\ ``ADAV'' means average daily added volume calculated as the
number of contracts added per day.
---------------------------------------------------------------------------
Firm Orders That Add Liquidity in Non-Penny Pilot Securities
The Exchange is proposing to make two changes to its fee schedule
regarding Firm orders that add liquidity in non-Penny Pilot Securities.
First, the Exchange is proposing to create a new Fee Code NF which
would apply to Firm orders that add liquidity in non-Penny Pilot
Securities and for which the standard pricing would be a $0.40 rebate
per contract. As part of this change, the Exchange is also proposing to
delete the reference to ``Firm'' in Fee Code NA, which currently
applies to both Professional and Firm orders that add liquidity in non-
Penny Pilot Securities, which are subject to a standard rebate of $0.65
per contract. Like Fee Code NA, as proposed, orders yielding Fee Code
NF would be eligible for enhanced rebates under the NBBO Setter Tiers
and the Quoting Incentive Program Tiers.
The Exchange is also proposing to add a new footnote 8 titled
``Firm Non-Penny Pilot Add Volume Tiers'' under which there would be
three new tiers offering enhanced rebates for Firm orders that add
liquidity in non-Penny Pilot Securities. Specifically, as proposed, the
tiers would provide the following rebates under the following
conditions for Firm orders that add volume in non-Penny Pilot
Securities: Tier 1 would provide a $0.50 rebate per contract to a
Member that has an ADV equal to or greater than 0.05% of average TCV;
Tier 2 would provide a $0.60 rebate per contract to a Member that has
an ADV equal to or greater than 0.15% of average TCV; and Tier 3 would
provide a $0.65 rebate per contract to Member that has an ADV equal to
or greater than 0.25% of average TCV.
Market Maker Penny Pilot Add Volume Tiers
The Exchange is proposing to add a new Tier 3 to the Market Maker
Penny Pilot Add Volume Tiers in order to provide another means for
Market Maker orders in Penny Pilot Securities to receive a rebate of
$0.42 per contract. Currently, the standard rebate for Market Maker
orders in Penny Pilot Securities is $0.36 per contract. Such orders can
receive an enhanced rebate of $0.40 by meeting Tier 1 of the Market
Maker Penny Pilot Add Volume Tiers or $0.42 by meeting Tier 2 of such
Tiers. The Exchange is proposing to add a new Tier 3 under which a
Member would receive $0.42 per contract where: (i) The Member has an
ADAV in Firm orders in Penny Pilot Securities (orders that yield Fee
Code PF) equal to or greater than 0.35% of average TCV; and (ii) the
Member has an ADV equal to or greater than 1.00% of average TCV.
Routing Fee Changes
The Exchange currently charges certain flat rates for routing to
other options exchanges based on the approximate cost of routing to
such venues. Such flat rates for routing to such options exchanges is
based on the cost of transaction fees assessed by each venue as well as
costs to the Exchange for routing (i.e., clearing fees, connectivity
and other infrastructure costs, membership fees, etc.) (collectively,
``Routing Costs''). To address different fees at various other options
exchanges, the Exchange differentiates its flat rates depending on
whether they are for Customer orders or for Professional, Firm, and
Market Maker \13\ orders (collectively, ``non-Customer orders'').
---------------------------------------------------------------------------
\13\ As defined on the Exchange's fee schedule, the terms
``Firm'' and ``Market Maker'' apply to any transaction identified by
a member for clearing in the Firm or Market Maker range,
respectively, at the Options Clearing Corporation (``OCC'').
---------------------------------------------------------------------------
As noted previously and as set forth above, the Exchange's current
approach to routing fees is to set forth in a simple manner certain
flat fees that approximate the cost of routing to other options
exchanges. The Exchange then monitors the fees charged as compared to
the costs of its routing services, as well as monitoring for specific
fee changes by other options exchanges, and adjusts its flat routing
fees and/or groupings to ensure that the Exchange's fees do indeed
result in a rough approximation of overall Routing Costs, and are not
significantly higher or lower
[[Page 42143]]
in any area. Over the last several months, due to various increases in
fees assessed by other options exchanges, the Exchange's overall
Routing Costs have increased. As a result, and in order to avoid
subsidizing routing to away options exchanges and to continue providing
quality routing services, the Exchange proposes various increases to
the charges assessed for most orders routed to most options exchanges,
as set forth below.
The Exchange is proposing to amend the fees that the Exchange
charges for orders routed by the Exchange for execution at other
venues, including those associated with Fee Codes 2C, CC, CF, HF, and
OF. The Exchange is proposing to amend the fees for those Fee Codes as
follows: From $0.00 to $0.47 per contract for orders yielding Fee Code
2C, which are Customer orders routed to C2 Options Exchange, Inc.
(``C2''); from $0.12 to $0.13 per contract for orders yielding Fee Code
CC, which are Customer orders routed to Chicago Board Options Exchange
(``CBOE''); from $0.65 to $0.75 per contract for orders yielding Fee
Code CF, which are Professional, Firm, or Market Maker orders routed to
CBOE; from $0.65 to $0.70 per contract for orders yielding Fee Code HF,
which are Professional, Firm, or Market Maker orders routed to NASDAQ
OMX PHLX LLC (``PHLX''); and from $0.65 to $0.99 for orders yielding
Fee Code OF, which are Professional, Firm, or Market Maker orders
routed to BOX Options Exchange, LLC (``BOX''). The Exchange notes that
certain of the above changes are being proposed in order to maintain a
simple, flat fee structure for routing to other venues in both Penny
Pilot Securities and non-Penny Pilot Securities.
Physical Connection Fees
The Exchange proposes to amend its fee schedule to modify its fees
for physical connectivity. A physical port is utilized by a Member or
non-Member to connect to the Exchange at the data centers where the
Exchange's servers are located. The Exchange currently maintains a
presence in two third-party data centers: (i) The primary data center
where the Exchange's business is primarily conducted on a daily basis,
and (ii) a secondary data center, which is predominantly maintained for
business continuity purposes. The Exchange currently assesses the
following physical connectivity fees for Members and non-Members on a
monthly basis: $1,000 per physical port that connects to the System
\14\ via 1 gigabyte circuit; and $2,500 per physical port that connects
to the System via 10 gigabyte circuit.
---------------------------------------------------------------------------
\14\ The term ``System'' is defined as ``the electronic
communications and trading facility designated by the Board through
which securities orders of Users are consolidated for ranking,
execution and, when applicable, routing away.'' See Exchange Rule
1.5(cc).
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The Exchange now proposes to amend its physical connectivity fees
to align its fees with its affiliates.\15\ The Exchange proposes to
increase the fee per physical port that connects to the System via: (i)
1 gigabyte circuit from $1,000 per month to $2,000 per month; and (ii)
10 gigabyte circuit from $2,500 per month to $4,000 per month.
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\15\ For purposes of this filing, the Exchange's affiliates are
EDGX Exchange, Inc. (``EDGX''), EDGA Exchange, Inc. (``EDGA''), the
Exchange's equity exchange (``BATS Equities'') and BATS Y-Exchange,
Inc. (``BYX'', together with BATS Equities, EDGA and EDGX, the
``BATS Exchanges''). The Exchange notes that each of its affiliates
will also file proposed rule changes with Commission to adopt
similar physical connectivity fees to be effective July 1, 2015.
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Effectiveness Date
As noted above, the Exchange proposes to implement the amendments
to its fee schedule effective immediately.
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.\16\
Specifically, the Exchange believes that the proposed rule change is
consistent with section 6(b)(4) of the Act,\17\ 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 to be
excessive.
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\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(4).
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Volume-based rebates and fees such as the ones currently maintained
on BATS Options have been widely adopted by equities and options
exchanges and are equitable because they are open to all Members on an
equal basis and provide additional benefits or discounts that are
reasonably related to 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.
Professional Orders in Penny Pilot Securities
The Exchange believes the proposed removal of Professional orders
in Penny Pilot Securities that add liquidity from the Professional and
Firm Penny Pilot Add Volume Tiers is a reasonable, fair and equitable,
and not unfairly discriminatory allocation of fees and rebates because,
while Members entering such orders will not be eligible for the $0.02
per contract enhanced rebate that they would have potentially been
eligible to receive under the tiers ($0.42 per contract vs. $0.40 per
contract standard rebate for Fee Code PA), such Members will still be
eligible for enhanced rebates through both the NBBO Setter Tiers (up to
an additional $0.04 per contract) and the Quoting Incentive Program
Tiers (also up to an additional $0.04 per contract). Further, such a
reduction in rebates will allow the Exchange to allocate fees and
rebates to other orders in order to encourage increased participation
on BATS Options, which the Exchange believes will result in higher
levels of liquidity provision and introduction of higher volumes of
orders into the price and volume discovery processes, which will
benefit all participants on BATS Options.
Firm Orders That Add Liquidity in Penny Pilot Add Volume Tiers
The Exchange also believes that the proposed amendments to the fee
schedule related to Firm orders in Penny Pilot Securities related to
the standard rebate under Fee Code PF and the proposed amendments to
footnote 2, including to reduce the rebate for Tier 1, add a new tier,
and amend the standards for Tiers 1 and 2 is a reasonable, fair and
equitable, and not unfairly discriminatory allocation of fees and
rebates because it will provide Members entering Firm orders with the
opportunity to receive higher rebates while simultaneously encouraging
greater participation on BATS Options, which, as described above the
Exchange believes will result in higher levels of liquidity provision
and introduction of higher volumes of orders into the price and volume
discovery processes, which will benefit all participants on BATS
Options. Specifically, the Exchange believes that the reduction of the
standard rebate associated with Fee Code PF combined with the amended
and lowered standard for meeting Tier 1 of the Firm Penny Pilot Add
Volume Tiers is a reasonable, fair and equitable, and not unfairly
discriminatory
[[Page 42144]]
allocation of fees and rebates because, in conjunction, they will both
provide Members with a reasonably achievable threshold for receiving
the same rebate as they do today while at the same time encouraging and
rewarding higher levels of participation on the Exchange overall. The
Exchange also believes that amending the standard for meeting Tier 2 is
a reasonable, fair and equitable, and not unfairly discriminatory
allocation of fees and rebates because it will similarly encourage
increased participation on the Exchange by offering a rebate that
applies equally to all Members without regard to prior trading volumes.
Such rebate will encourage greater general participation on the
Exchange, which will result in higher levels of liquidity provision and
introduction of higher volumes of orders into the price and volume
discovery processes, which will benefit all participants on BATS
Options. Finally, the Exchange believes that proposed Tier 3 is a
reasonable, fair and equitable, and not unfairly discriminatory
allocation of fees and rebates because the second of its two
requirements (that a Member has an ADV equal to or greater than 1.00%
of average TCV) is identical to the only requirement for meeting Tier
2, meaning that any Member that meets Tier 2 will only need to meet the
additional requirement that a Member has an ADAV in Firm orders in
Penny Pilot Securities equal to or greater than 0.35% of average TCV in
order to receive the enhanced rebate. This will provide a direct
incentive for any Member that meets Tier 2 to further increase
participation in Firm orders in Penny Pilot Securities and, as with
each of the proposed changes mentioned in this paragraph, will
encourage greater participation on the Exchange, which will result in
higher levels of liquidity provision and introduction of higher volumes
of orders into the price and volume discovery processes, which will
benefit all participants on BATS Options.
Firm Orders That Add Liquidity in Non-Penny Pilot Securities
The Exchange believes that the amendments for Firm orders that add
liquidity in non-Penny Pilot Securities mark a reasonable, fair and
equitable, and not unfairly discriminatory allocation of fees and
rebates because while the new Fee Code NF and the associated standard
rebate marks a reduction in rebate (from $0.65 per contract to $0.40
per contract), under the new Firm Non-Penny Pilot Add Volume Tiers,
Members will be eligible to receive an enhanced rebate ($0.50 per
contract) by meeting a relatively low threshold of ADV as a percentage
of TCV (0.05%), will receive a further enhanced rebate ($0.60 per
contract) by meeting Tier 2 (0.15% ADV as a percentage of TCV), or
receive the same rebate that they currently receive ($0.65 per
contract) by meeting Tier 3 (0.25% of average TCV). Further, the
proposed standard rebate is still higher than those offered at NOM and
NYSE Arca, Inc., which each charge fees for Firm orders that add
liquidity in non-Penny Pilot Securities. The Exchange believes that
such a fee structure will provide Members with the ability to receive
reasonable rebates while strongly encouraging Members to increase their
participation on the Exchange. Such increased participation on BATS
Options will result in higher levels of liquidity provision and
introduction of higher volumes of orders into the price and volume
discovery processes, which will benefit all participants on BATS
Options.
Market Maker Penny Pilot Add Volume Tiers
The Exchange believes that the addition of Tier 3 to the Market
Maker Penny Pilot Add Volume Tiers is a reasonable, fair and equitable,
and not unfairly discriminatory allocation of fees and rebates because
it provides an opportunity for Market Maker orders that add liquidity
in Penny Pilot Securities with an alternate means of achieving the
current maximum rebate of $0.42 per contract and only represents a
potential increase in rebates for such orders. The inclusion of the
requirement that a Member has an ADAV in Firm orders in Penny Pilot
Securities equal to or greater than 0.35% is designed to incentivize
Members to increase their participation on the Exchange in
organizational order flow beyond just Market Maker orders. Further,
this enhanced rebate will incentivize increased participation on BATS
Options both through the enhanced rebate itself and the required
criteria for a Member to become eligible for the enhanced rebate. Such
increased participation on BATS Options will result in higher levels of
liquidity provision and introduction of higher volumes of orders into
the price and volume discovery processes, which will benefit all
participants on BATS Options.
Routing Fee Changes
As explained above, the Exchange generally attempts to approximate
the cost of routing to other options exchanges, including other
applicable costs to the Exchange for routing. The Exchange believes
that a pricing model based on approximate Routing Costs is a
reasonable, fair and equitable approach to pricing. Specifically, the
Exchange believes that its proposal to modify fees is fair, equitable
and reasonable because the fees are generally an approximation of the
cost to the Exchange for routing orders to such exchanges, and the
proposal is in response to various increases in fees assessed by other
options exchanges. Accordingly, the Exchange believes that the proposed
increases are fair, equitable and reasonable because they will help the
Exchange to avoid subsidizing routing to away options exchanges and to
continue providing quality routing services. The Exchange believes that
its flat fee structure for orders routed to various venues is a fair
and equitable approach to pricing, as it provides certainty with
respect to execution fees at groups of away options exchanges. Under
its flat fee structure, taking all costs to the Exchange into account,
the Exchange may operate at a slight gain or slight loss for orders
routed to and executed at away options exchanges. As a general matter,
the Exchange believes that the proposed fees will allow it to recoup
and cover its costs of providing routing services to such exchanges.
The Exchange also believes that the proposed fee structure for orders
routed to and executed at these away options exchanges is fair and
equitable and not unreasonably discriminatory in that it applies
equally to all Members.
Physical Connection Fees
The Exchange believes that the proposal represents an equitable
allocation of reasonable dues, fees, and other charges as its fees for
physical connectivity are reasonably constrained by competitive
alternatives. If a particular exchange charges excessive fees for
connectivity, affected Members and non-Members may opt to terminate
their connectivity arrangements with that exchange, and adopt a
possible range of alternative strategies, including routing to the
applicable exchange through another participant or market center or
taking that exchange's data indirectly. Accordingly, if the Exchange
charges excessive fees, it would stand to lose not only connectivity
revenues but also revenues associated with the execution of orders
routed to it, and, to the extent applicable, market data revenues. The
Exchange believes that this competitive dynamic imposes powerful
restraints on the ability of any exchange to charge unreasonable fees
for connectivity.
Furthermore, the proposed rule change is also an equitable
allocation of
[[Page 42145]]
reasonable dues, fees, and other charges as the Exchange believes that
the increased fees obtained will enable it to cover its increased
infrastructure costs associated with establishing physical ports to
connect to the Exchange's Systems. The additional revenue from the
increased fees will also enable the Exchange to continue to maintain
and improve its market technology and services. The Exchange believes
that the proposed fees for 1 gigabyte circuit of $2,000 per month and
for 10 gigabyte circuit of $4,000 per month are reasonable in that they
are less than analogous fees charged by the Nasdaq Stock Market LLC
(``Nasdaq''), which are $2,500 per month for 1 gigabyte connectivity
and range from $10,000-$15,000 per month for 10 gigabyte circuits.\18\
In addition, the Exchange proposed physical connectivity fees are
designed to align the Exchange's fees with its affiliates.\19\
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\18\ See Nasdaq Rule 7034(b).
\19\ See supra note 15.
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Finally, the Exchange believes that the proposed rates are
equitable and non-discriminatory in that they apply uniformly to all
Members and non-Members. Members and non-Members will continue to
choose whether they want more than one physical port and choose the
method of connectivity based on their specific needs. All Exchange
Members that voluntarily select various service options will be charged
the same amount for the same services. As is true of all physical
connectivity, all Members and non-Members have the option to select any
connectivity option, and there is no differentiation with regard to the
fees charged for the service.
The Exchange reiterates 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 to be excessive.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. With respect to the proposed
changes to fees for Professional and Firm orders that add liquidity in
Penny Pilot Securities, including the proposed changes to the
Professional and Firm Penny Pilot Add Volume Tiers, the Exchange does
not believe that any such changes burden competition, but instead, that
they enhance competition, as they are intended to increase the
competitiveness of and draw additional volume to BATS Options.
Similarly, with respect to the proposed new fees for Firm orders
that add liquidity in non-Penny Pilot Securities, including both new
Fee Code NF and new Firm Non-Penny Pilot Add Volume Tiers, the Exchange
does not believe that any such changes burden competition, but instead,
that they enhance competition, as they are intended to increase the
competitiveness of and draw additional volume to BATS Options.
With respect to the proposed new Tier 3 of the Market Maker Penny
Pilot Add Volume Tiers, the Exchange similarly believes that the
changes do not burden competition, but rather allow the Exchange to
better compete and are intended to draw additional volume to BATS
Options.
As it relates to the proposed routing fee changes, the proposed
changes will assist the Exchange in recouping costs for routing orders
to other options exchanges on behalf of its participants in a manner
that is a better approximation of actual costs than is currently in
place and that reflects pricing changes by various options exchanges as
well as increases to other Routing Costs incurred by the Exchange. The
Exchange also notes that Members may choose to mark their orders as
ineligible for routing to avoid incurring routing fees.\20\
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\20\ See BATS Rule 21.1(d)(8) (describing ``BATS Only'' orders
for BATS Options) and BATS Rule 21.9(a)(1) (describing the BATS
Options routing process, which requires orders to be designated as
available for routing).
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Finally, as it relates to physical connection fees, the Exchange
believes that fees for connectivity are constrained by the robust
competition for order flow among exchanges and non-exchange markets.
Further, excessive fees for connectivity, including port fee access,
would serve to impair an exchange's ability to compete for order flow
rather than burdening competition. The proposal to increase the fees
for physical connectivity would bring the fees charged by the Exchange
closer to similar fees charged for physical connectivity by other
exchanges.\21\ In addition, the proposed rule change does not impose
any burden on intramarket competition as the fees are uniform for all
Members and non-Members. The Exchange notes that Members and non-
Members also have the ability to obtain access to these services
without the need for an independent physical port connection, such as
through alternative means of financial extranets and service bureaus
that act as a conduit for orders entered by Members and non-Members.
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\21\ See supra note 18.
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As stated above, the Exchange notes that it operates in a highly
competitive market in which market participants can readily direct
order flow to competing venues if the deem fee structures to be
unreasonable or excessive.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A) of the Act \22\ and paragraph (f)(2) of Rule 19b-4
thereunder.\23\ 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. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2015-52 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2015-52. This file
number should be included on the subject line if email is used. To help
the
[[Page 42146]]
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 10:00 a.m. and
3:00 p.m. Copies of such filing will also be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-BATS-2015-52 and should be
submitted on or before August 6, 2015.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-17395 Filed 7-15-15; 8:45 am]
BILLING CODE 8011-01-P
