[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Notices]
[Pages 63880-63882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26176]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63085; File No. SR-BATS-2010-026]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change, as Modified
by Amendment No. 1, Related to Fees for Use of BATS Exchange, Inc.
October 13, 2010.
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 September 30, 2010, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. On
October 12, 2010, the Exchange filed Amendment No. 1, which modified
the original filing.\3\ BATS 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 \4\ and Rule
19b-4(f)(2) thereunder,\5\ which renders the
[[Page 63881]]
proposed rule change, as modified by Amendment No. 1, 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\ In Amendment No. 1, the Exchange provided additional basis
for the proposed rule change in the Statutory Basis section.
\4\ 15 U.S.C. 78s(b)(3)(A)(ii).
\5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify its fee schedule applicable to
Members \6\ of the Exchange pursuant to BATS Rules 15.1(a) and (c).
While changes to the fee schedule pursuant to this proposal will be
effective upon filing, the changes will become operative on October 1,
2010.
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\6\ 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 http://www.batstrading.com, at the principal office of the
Exchange, on the Commission's Web site at http://www.sec.gov, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify the ``Options Pricing'' section of
its fee schedule to: (i) Adopt definitions of ``Customer,'' ``Firm,''
and ``Market Maker'' for purposes of routing pricing; (ii) modify its
pricing for standard best execution routing; (iii) implement discounted
pricing for Destination Specific Orders; and (iv) modify its pricing
for Directed ISOs. In addition, the Exchange proposes to modify the fee
schedule applicable to equities trading by changing the reference to
the default best execution strategy.
(i) Adoption of Definitions
The Exchange proposes to distinguish pricing for routed orders that
are executed at away options exchanges based on the clearing status of
the order due to the fact that most other options exchanges to which
orders are routed maintain such distinctions. Accordingly the Exchange
proposes to adopt definitions of ``Customer,'' ``Firm,'' and ``Market
Maker'' for purposes of its fee schedule. The proposed definitions
state that each category applies to transactions identified by a Member
for clearing in the applicable range (i.e., Customer, Firm or Market
Maker) at the Options Clearing Corporation (``OCC'').
(ii) Standard Best Execution Routing Pricing
The Exchange currently charges $0.05 per contract for transactions
executed at away markets pursuant to its best execution routing
strategies, and passes through, in addition to that fee, all
destination exchange fees charged to the Exchange for executing on away
markets. The Exchange proposes to further simplify its pricing for best
execution routing strategies by setting flat rates for transactions
executed at away markets pursuant to any of its best execution routing
strategies (i.e., ``CYCLE'', ``RECYCLE'', ``Parallel D'' and ``Parallel
2D''). As proposed, regardless of the best execution strategy selected,
the charge for a Customer transaction executed away will be $0.30 per
contract and the charge for a Firm or Market Maker transaction executed
away will be $0.50 per contract.
(iii) Discounted Pricing for Destination Specific Orders
The Exchange proposes to adopt for its options platform a pricing
model similar to a pricing model it offers to users of its equities
platform. Specifically, the Exchange proposes to introduce discounted
fees for use of its Destination Specific Order \7\ routing strategies.
The Exchange proposes to charge flat rates for Customer, Firm and
Market Maker transactions executed at away markets pursuant to
Destination Specific routing, which rates will vary depending on the
venue at which transactions execute, as described in further detail
below.
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\7\ As defined in BATS Rule 21.1(d)(7).
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The Exchange proposes to charge for Destination Specific Orders
that are executed at away options exchanges that are divided into three
categories. The Exchange proposes to adopt pricing for two distinct
categories of options exchanges with ``Make/Take'' pricing.\8\ The
first category of Make/Take pricing is proposed to apply to Destination
Specific Orders executed at the International Stock Exchange (``ISE'')
or NASDAQ OMX PHLX (``PHLX'') in issues for which Make/Take pricing
applies. The fee for this first category of Make/Take markets is
proposed as $0.20 per contract for Customer transactions and $0.50 per
contract for Firm or Market Maker transactions. The second category of
Make/Take pricing is proposed to apply to Destination Specific Orders
executed at NYSE Arca Options (``NYSE Arca'') in issues for which Make/
Take pricing applies or the NASDAQ Options Market (``NOM''). The fee
for the second category of Make/Take markets is proposed as $0.40 per
contract for Customer transactions and $0.50 per contract for Firm or
Market Maker transactions. Finally, the Exchange proposes to categorize
options exchanges as ``Classic'' to the extent such options exchanges
do not have a Make/Take pricing structure or do not apply Make/Take
pricing to certain transactions. For executions that occur at Classic
venues, including the American Stock Exchange (``AMEX''), Boston
Options Exchange (``BOX'') and Chicago Board Options Exchange
(``CBOE'') as well as the ISE, PHLX and NYSE Arca Options in non-Make/
Take issues, the Exchange proposes to charge $0.05 per contract for
Customer transactions and $0.50 per contract for Firm or Market Maker
transactions.
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\8\ As proposed to be defined on the fee schedule, Make/Take
pricing refers to executions at the identified Exchange under which
``Post Liquidity'' or ``Maker'' rebates (``Make'') are credited by
that exchange and ``Take Liquidity'' or ``Taker'' fees (``Take'')
are charged by that Exchange.
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The Exchange believes that the proposed Destination Specific Order
pricing in most instances will result in lower execution fees at away
venues in each category than if orders were routed directly by a Member
to such venues. To the extent any anomalies exist or away options
exchanges modify pricing such that the Destination Specific fee is not,
in fact, a discount from pricing that the Member may pay directly, the
Exchange believes that Members will benefit from the simplicity of the
pricing structure.
(iv) Directed ISO Pricing
The Exchange currently charges $0.10 per contract for routed
Directed ISOs executed at away markets,\9\ and passes through, in
addition to that fee, all destination exchange fees charged to the
Exchange for executing on away markets. The Exchange proposes to
further simplify its pricing for Directed ISOs by setting flat rates
for Directed ISOs that bypass the Exchange's order book and execute at
away venues. As proposed, the charge for a Customer Directed ISO
transaction will be $0.50 per contract and the charge for a Firm
[[Page 63882]]
or Market Maker Directed ISO transaction will be $0.60 per contract.
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\9\ As defined in BATS Rule 21.1(d)(12).
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(v) Equities Best Execution Routing
In the ``Equities Pricing'' portion of the fee schedule the
Exchange currently reflects its default best execution routing strategy
as ``DRT + CYCLE''. Effective October 1, 2010, the Exchange's default
best execution routing strategy will be ``DRT + Parallel D.'' \10\ The
Exchange proposes to modify the reference to the default strategy in
light of this change.
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\10\ The Exchange's routing strategies are defined in BATS Rule
11.13
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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.\11\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\12\ in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among members and other persons using any facility or system which the
Exchange operates or controls. As described below, the Exchange
believes that its fees and credits are competitive with those charged
by other venues and that the changes the Exchange has proposed will
simplify the Exchange's pricing model.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
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The various routing fees proposed by this filing, including fees
for destination specific orders and best execution routing strategies
offered by the Exchange, are intended to attract order flow to BATS
Options by offering competitive and easy to understand rates to
Exchange Members, especially those representing order flow that clears
in the Customer range at the OCC. Accordingly, some of the changes the
Exchange has proposed will result in reduced fees that will benefit
Members due to the obvious economic savings those Members will receive
and the potential of increased available liquidity at the Exchange. In
addition, the Exchange believes that the simplicity and certainty of
its fee schedule will be a benefit to some Members. The Exchange notes
that it does not currently operate any auctions through which orders
are held and broadcast to its membership, nor does the Exchange engage
in any payment for order flow practices. Rather, the Exchange is
proposing to enhance its transparent market structure with an easy to
understand and transparent pricing structure by further simplifying its
routing fees. The Exchange believes that its proposed flat routing
rates are, on average, better than or equal to the fees a market
participant would pay if routing directly to certain market centers,
especially with respect to Customer orders. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily direct order flow to competing venues if they deem fee
levels at a particular venue to be excessive. Also, although routing
options are available to all Members, Members are not required to use
the Exchange's routing services, but instead, the Exchange's routing
services are completely optional. Members can manage their own routing
to different options exchanges or can utilize a myriad of other routing
solutions that are available to market participants.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has been designated as a fee
change pursuant to Section 19(b)(3)(A)(ii) of the Act \13\ and Rule
19b-4(f)(2) thereunder,\14\ because it establishes or changes a due,
fee or other charge imposed on members by the Exchange. Accordingly,
the proposal is effective upon filing with the Commission.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-BATS-2010-026 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2010-026. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BATS-2010-026 and should be
submitted on or before November 8, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26176 Filed 10-15-10; 8:45 am]
BILLING CODE 8011-01-P