[Federal Register Volume 76, Number 47 (Thursday, March 10, 2011)]
[Notices]
[Pages 13243-13245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5441]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64033; File No. SR-BATS-2011-008]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
Fees for Use of BATS Exchange, Inc.
March 4, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on March 1, 2011, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange has designated the proposed rule change as one establishing or
changing a due, fee, or other charge imposed by the Exchange under
Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes [sic] amend the fee schedule applicable to
Members \5\ and non-members of the Exchange pursuant to BATS Rules
15.1(a) and (c). While changes to the fee schedule pursuant to this
proposal will be effective upon filing, the changes will become
operative on March 1, 2011.
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\5\ A Member is any registered broker or dealer that has been
admitted to membership in the Exchange.
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The text of the proposed rule change is available at the Exchange's
Web site at http://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.
[[Page 13244]]
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 a definition for average daily volume,
or ``ADV''; (ii) introduce a tiered pricing structure applicable to the
fees for removing liquidity from the BATS options market (``BATS
Options''); (iii) expand and modify the program that provides a rebate
specifically for orders that set either the national best bid (the
``NBB'') or the national best offer (the ``NBO'') subject to average
daily volume requirements; and (iv) make clarifying changes to the
standard routing section of the fee schedule.
(a) Definition of ADV
In order to accommodate certain changes described below, the
Exchange proposes to adopt a definition of average daily volume, or
ADV, for purposes of the fee schedule. The Exchange is not proposing
any substantive change to its calculation of ADV, which is currently
applicable only to the NBBO Setter Rebate, as described below. Instead,
the Exchange is proposing the definition to provide more clarity and
for ease of reference throughout the fee schedule. As proposed, ADV
will mean average daily volume calculated as the number of contracts
added or removed, combined, per day on a monthly basis. The Exchange
proposes to make clear in the definition of ADV that routed contracts
are not included in the Exchange's calculation of ADV, but rather, only
volume executed on the Exchange counts towards a Member's ADV.
(b) Tiered Pricing To Access Liquidity
The Exchange currently charges $0.25 per contract for customer
orders and $0.35 per contract for Firm and Market Maker orders that
remove liquidity from BATS Options. The Exchange proposes to increase
the standard fee for removing liquidity to $0.28 per contract for
customer orders and $0.38 per contract for Firm and Market Maker
orders. The Exchange also proposes to adopt two tiers through which
Members can realize lower liquidity removal fees, as further described
below.
First, the Exchange proposes to charge $0.25 per contract for a
Customer order and $0.35 per contract for a Firm or Market Maker order
that removes liquidity from the BATS Options order book where the
Member has an ADV of 50,000 or more contracts. Accordingly, the
Exchange is not proposing to change the charge to remove liquidity from
BATS Options for Members with an ADV of 50,000 or more.
Second, the Exchange proposes to charge $0.27 per contract for a
Customer order and $0.37 per contract for a Firm or Market Maker order
that removes liquidity from the BATS Options order book where the
Member has an ADV of 15,000 or more, but fewer than 50,000 contracts.
Thus, for Members with ADV of between 15,000 and 49,999 contracts,
Members will be charged $0.02 more per contract for their orders than
such Members are charged today.
(c) Expansion and Modification of NBBO Setter Rebate Program
The Exchange currently offers a rebate upon execution for all
orders that add liquidity that sets either the NBB or NBO (the ``NBBO
Setter Rebate'') \6\ so long as the Member submitting the order
achieves an ADV of 20,000 contracts executed during the calendar month.
The NBBO Setter Rebate currently offered by the Exchange is $0.50 per
contract. The Exchange proposes to increase the ADV requirement for
this $0.50 rebate to 50,000 contracts and to create a second tier
eligible for a NBBO Setter Rebate. The new NBBO Setter Rebate for
Members with a lower ADV will be a $0.40 rebate and will apply where
the Member has an ADV of 15,000 or more, but fewer than, 50,000
contracts. The Exchange also proposes to make clear on the fee schedule
that the NBBO Setter Rebate, whether based on the lower or the higher
ADV level, supersedes any other applicable liquidity rebates.
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\6\ An order that is entered at the most aggressive price both
on the BATS Options book and according to then current OPRA data
will be determined to have set the NBB or NBO for purposes of the
NBBO Setter Rebate without regard to whether a more aggressive order
is entered prior to the original order being executed.
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(d) Clarifications to Routing Pricing
Currently, the BATS Options fees for Standard Best Execution
Routing or Destination Specific Order routing fees are dependent on the
venues at which such orders are executed. Certain venues offer pricing
that the Exchange has defined as ``Make/Take'' in certain issues and
then pricing under a more traditional pricing structure (hereafter,
``Classic'' pricing). As defined on the fee schedule, Make/Take pricing
refers to executions at the identified Exchange under which ``Post
Liquidity'' or ``Maker'' rebates (``Make'') are credited by that
exchange and ``Take Liquidity'' or ``Taker'' fees (``Take'') are
charged by that exchange. The Exchange proposes certain changes to its
routing schedule in order to further delineate between executions in
Make/Take issues and Classic issues at the options exchanges that
maintain both types of pricing, specifically, NYSE Arca, the
International Stock Exchange, and NASDAQ OMX PHLX. The Exchange is not
proposing any changes to the pricing of its standard routing or
destination specific routing strategies. In addition to these changes,
the Exchange is proposing to add an additional page break to its fee
schedule and to indicate that the options pricing section continues
onto page three of the version of the fee schedule maintained on its
Web site.
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.\7\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\8\ in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among members and other persons using any facility or system which the
Exchange operates or controls. The Exchange notes that it operates in a
highly competitive market in which market participants can readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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The changes to Exchange execution fees and rebates proposed by this
filing are intended to attract order flow to BATS Options by offering
competitive pricing, especially for those who add liquidity that sets
the NBB or NBO. As a general matter, the Exchange believes that the
NBBO Setter Program benefits all Members with the potential of
increased and aggressively priced liquidity at the Exchange. The
expansion of the NBBO Setter Program to Members with a lower ADV
threshold (albeit with a lower rebate) will result in increased
payments that will benefit some Members due to the increased revenue
those Members will receive. With the increase to the current threshold
of 20,000 contracts ADV to 50,000 contracts ADV, some Members will no
longer qualify for the highest potential rebate, though they will still
receive a higher rebate than otherwise offered by the Exchange. The
Exchange believes that the NBBO Setter Rebate is
[[Page 13245]]
analogous to similar proposals designed to encourage market
participants to submit aggressively priced orders previously
implemented at other options exchanges.\9\ Additionally, the Exchange
believes that the proposed NBBO Setter Rebate, now in place on BATS
Options for two months, has and will continue to incentivize the entry
of more aggressive orders that will create tighter spreads, benefitting
both Members and public investors.
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\9\ See Securities Exchange Act Release No. 61869 (April 7,
2010), 75 FR 19449 (April 14, 2010) (SR-ISE-2010-25) (notice of
filing and immediate effectiveness to amend fees applicable to the
International Securities Exchange, including providing increased
rebates to market makers for being on the NBB or NBO for at least
80% during a given month); Securities Exchange Act Release No. 61987
(April 27, 2010), 75 FR 24771 (May 5, 2010) (SR-C2-2010-001) (notice
of filing and immediate effectiveness to establish fees applicable
to C2 Options Exchange, including providing Preferred Market Makers
with participation entitlements when they are at the NBBO,
regardless of time priority).
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The Exchange also believes that its proposed use of a volume
threshold to qualify for the NBBO Setter Rebate and to qualify for
lower liquidity removal fees is analogous to tiered pricing structures
that are in place at other exchanges.\10\ While the establishment of
tiered pricing for removing liquidity from the BATS Options order book
will result in a small increase for some Members, this fee still
remains lower than other markets with similar fee structures, such as
the NASDAQ Options Market and NYSE Arca in Make/Take Issues. Currently,
for many of the transactions occurring on the Exchange, the Exchange
either does not earn a fee because it charges the same fee to the
liquidity remover as it rebates the liquidity maker.\11\ The increase
in liquidity removal fees so that the Exchange is earning a small fee
will provide the Exchange with additional revenue to both fund the NBBO
Setter Rebate and to fund its operations generally. Volume-based
discounts such as the liquidity removal fee tiers proposed in this
filing have been widely adopted in the cash equities markets, and are
equitable and not unreasonably discriminatory because they are open to
all members on an equal basis and provide discounts that are reasonably
related to the value to an exchange's market quality associated with
higher levels of market activity, such as higher levels of liquidity
provision and introduction of higher volumes of orders into the price
and volume discovery process. Accordingly, the Exchange believes that
the proposal is not unreasonably discriminatory because it is
consistent with the overall goals of enhancing market quality. Finally,
the Exchange believes that the adoption of a definition for ADV and the
proposed clarifications to the standard routing pricing section of the
fee schedule will help to avoid potential confusion regarding the
Exchange's fee schedule.
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\10\ See Securities Exchange Act Release No. 57253 (February 1,
2008), 73 FR 7352 (February 7, 2008) (SR-Phlx-2008-08) (notice of
filing and immediate effectiveness to amend fees applicable to the
Philadelphia Stock Exchange, including adopting a tiered floor
broker options subsidy based on meeting specified trading volume
requirements).
\11\ See E-mail from Anders Franzon, VP, Associate General
Counsel, BATS, to Johnna B. Dumler, Special Counsel, Commission,
dated March 2, 2011.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(ii) of the Act \12\ and Rule 19b-
4(f)(2) thereunder,\13\ the Exchange has designated this proposal as
establishing or changing a due, fee, or other charge applicable to the
Exchange's Members and non-members, which renders the proposed rule
change effective upon filing.
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\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 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-2011-008 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2011-008. 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-2011-008 and should be
submitted on or before March 31, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5441 Filed 3-9-11; 8:45 am]
BILLING CODE 8011-01-P