[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27694-27697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11624]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64429; File No. SR-BYX-2011-008]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
Fees for Use of BATS Y-Exchange, Inc.
May 6, 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 April 29, 2011, BATS Y-Exchange, Inc. (the ``Exchange'' or
``BYX'') 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
[[Page 27695]]
one establishing or changing a member due, fee, or other charge imposed
by the Exchange under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule
19b-4(f)(2) thereunder,\4\ which renders the proposed rule change
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the fee schedule applicable to
Members \5\ of the Exchange pursuant to BYX 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 May 2,
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.
(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 its fee schedule applicable to use
of the Exchange effective May 2, 2011, in order to amend its pricing to
add displayed liquidity. The Exchange currently maintains a tiered
pricing structure applicable to added displayed liquidity in securities
priced $1.00 and above, under which any Member adding a daily average
of 10 million shares or more of liquidity (including displayed and non-
displayed liquidity) during a month is able to add displayed liquidity
without charge, while any Member adding a daily average of less than 10
million shares of liquidity during a month is charged $0.0002 per
share. The Exchange proposes to replace its existing tiered pricing
structure with a structure that allows Members to add liquidity free of
charge to the extent such liquidity sets the national best bid or offer
(the ``NBBO Setter Program'') so long as the Member submitting the
order achieves the applicable average daily volume (``ADV'')
requirement, as described below.
An order that is entered at the most aggressive price both on the
BYX order book and according to then-current consolidated data from the
applicable securities industry processor (``SIP'') will be determined
to have set the national best bid or offer for purposes of the NBBO
Setter Program without regard to whether a more aggressive order is
entered prior to the original order being executed. The Exchange's
affiliate, BATS Exchange, Inc., has adopted similar pricing for its
options platform (``BATS Options'').\6\
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\6\ See Securities Exchange Act Release No. 63632 (January 3,
2011), 76 FR 1205 (January 7, 2011) (SR-BATS-2010-038) (adopting an
NBBO Setter Rebate for BATS Options); see also Securities Exchange
Act Release No. 64211 (April 6, 2011), 76 FR 20414 (April 12, 2011)
(SR-BATS-2011-012) (modifying the NBBO Setter Program for BATS
Options to include a volume requirement based on TCV).
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In conjunction with the adoption of the NBBO Setter Program, the
Exchange proposes to modify the volume requirement of the tiered
pricing structure from an ADV requirement of at least 10 million shares
added per day in a given month to an ADV requirement of at least 0.1%
of the total consolidated volume (``TCV'') during the month.
Accordingly, rather than basing its pricing structure on a static
number of shares, the Exchange proposes to modify its tiered pricing
structure such that it is based on TCV, and is thus variable based on
overall volumes in the securities industry. To illustrate the
Exchange's application of TCV, if the overall volume of securities
traded as reported by all exchanges and trade reporting facilities is
100 billion shares in a given month, this amount will be used as the
TCV against which the Exchange's tiered pricing will be measured for
all trading activity during the month. The amount of overall TCV in the
month will be divided by the number of trading days to determine
average TCV; for instance, 100 billion shares divided by 20 trading
days is an average TCV of 5 billion shares per day. Using these volumes
as an example, to reach the Exchange's proposed tier of 0.10% of
average TCV, and thus qualify for the NBBO Setter Program, a Member
would need to have an ADV of at least 5 million shares traded on BYX
per day. If, in the next month, volumes doubled, and the TCV for the
month was 200 billion shares, then a Member would need to have an ADV
of at least 10 million shares traded on BYX per day to have an ADV
equal to 0.10% of average TCV. The Exchange believes that basing its
tiered pricing on TCV rather than a specific number of shares is a
preferable measure of overall activity given the fluctuation of volumes
in the securities industry. Further, subject to increased volumes in
the securities industry, a volume requirement of 0.10% of average TCV
is likely less than 10 million shares per day, and is thus a reduction
from the Exchange's current volume requirement for tiered pricing.
In addition, the Exchange proposes to adopt definitions for both
ADV and TCV. For purposes of the fee schedule, the proposed definition
of ADV is average daily volume calculated as the number of shares added
or removed, combined, per day on a monthly basis. The Exchange
currently applies its tiered pricing structure based on added shares
only. Accordingly, in addition to 0.10% of TCV likely being a lower
requirement than 10 million shares per day (absent a significant
increase in volumes) the proposed tiered rates will also be easier to
achieve because all shares traded, added and removed, will be included
in the calculation of ADV. 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. The Exchange also proposes to
allow affiliated entities to aggregate their order flow for purposes of
the Exchange's determination of ADV with respect to pricing tiers if
such entities provide prior notice to the Exchange. Specifically, to
the extent two or more affiliated companies maintain separate
memberships with the Exchange and can demonstrate their affiliation by
showing they control, are controlled by, or are under common control
with each other, the Exchange will permit such Members to count overall
volume of the affiliates in calculating ADV. The Exchange will verify
such affiliate using a Member's Form BD, which lists control
affiliates.
As proposed, TCV is defined as total consolidated volume calculated
as the volume reported by all exchanges and trade reporting facilities
to a consolidated transaction reporting plan for the month for which
the fees apply.
[[Page 27696]]
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. The Exchange believes that its fees
and credits are competitive with those charged by other venues.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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The establishment of the NBBO Setter Program may result in a small
increase in fees for Members currently reaching the Exchange's 10
million share ADV tier who are able to add displayed liquidity without
a fee. Although such Members (and likely several Members not currently
reaching such tier) will likely meet the volume requirement of the NBBO
Setter Program, as proposed, only those executions that were the result
of such a Member adding liquidity and that set the NBBO will be added
without fee. Nonetheless, the Exchange's standard displayed liquidity
adding fee of $0.0002 per share still remains lower than other markets
that impose a fee to add liquidity, such as EDGA Exchange ($0.00025
charge per share) and NASDAQ OMX BX ($0.0014 charge per share).
Additionally, the Exchange believes that the NBBO Setter Program will
incentivize the entry of more aggressive orders that will create
tighter spreads, benefitting both Members and public investors. Also,
to the extent the proposed changes will result in increased fees
charged to Members, the Exchange believes that any additional revenue
it receives will allow the Exchange to devote additional capital to its
operations and to continue to offer competitive pricing, which, in
turn, will benefit Members of the Exchange.
The Exchange believes that the new tier rate based on TCV
represents a fair and equitable allocation of reasonable dues, fees,
and other charges as it is aimed at incentivizing liquidity for high
volume providers, which results in increased volume on BYX. By
combining this volume tier with the NBBO Setter program, the Exchange
is incentivizing aggressively priced liquidity from such liquidity
providers. The increased, aggressively priced liquidity benefits all
investors by deepening BYX's liquidity pool, supporting the quality of
price discovery, promoting market transparency and improving investor
protection. Volume-based discounts such as the liquidity adding fee
tier maintained by the Exchange have been widely adopted by numerous
exchanges, 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. Additionally, the Exchange believes
that the adoption of a definition for TCV will help to avoid potential
confusion regarding the Exchange's fee schedule.
The proposed language permitting aggregation of volume amongst
corporate affiliates for purposes of the ADV calculation is intended to
avoid disparate treatment of firms that have divided their various
business activities between separate corporate entities as compared to
firms that operate those business activities within a single corporate
entity. By way of example, many firms that are Members of the Exchange
operate both a market making desk and a public customer business within
the same corporate entity. In contrast, other firms may be part of a
corporate structure that separates those business lines into different
corporate affiliates, either for business, compliance or historical
reasons. Those corporate affiliates, in turn, are required to maintain
separate memberships with the Exchange in order to access the Exchange.
Absent the proposed policy, such corporate affiliates would not receive
the same treatment as firms operating similar business lines within a
single entity that is a Member of the Exchange. Accordingly, the
Exchange believes that its proposed policy is fair and equitable, and
not unreasonably discriminatory. In addition to ensuring fair and equal
treatment of its Members, the Exchange does not want to create
incentives for its Members to restructure their business operations or
compliance functions simply due to the Exchange's pricing structure.
(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 \9\ and Rule 19b-
4(f)(2) thereunder,\10\ 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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\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
\10\ 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 proposal 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 No. SR-BYX-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 No. SR-BYX-2011-008. This file
number
[[Page 27697]]
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 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 No. SR-BYX-2011-008 and should be submitted on or
before June 2, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11624 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P