[Federal Register Volume 76, Number 157 (Monday, August 15, 2011)]
[Notices]
[Pages 50525-50528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20699]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65076; File No. SR-BATS-2011-024]
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.
August 9, 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 July 29, 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 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 [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 August 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, at the Commission's Public Reference Room, and on the
Commission's Web site at http://www.sec.gov.
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) Increase the fees applicable to removing
liquidity from the BATS options market (``BATS Options''); (ii)
decrease the rebates applicable to adding liquidity to BATS Options;
(iii) decrease the rebates paid, subject to average daily volume
requirements, for orders that set either the national best bid (the
``NBB'') or the national best offer (the ``NBO''); (iv) adopt a program
to incentivize sustained, aggressive quoting in certain specified
options series (the ``Quoting Incentive Program'' or ``QIP''); and (v)
adopt a change to the standard routing fee for the CYCLE, RECYCLE,
Parallel D, Parallel 2D, and Destination Specific routing strategies
\6\ charged for routing Customer \7\ orders to certain markets.
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\6\ As defined in BATS Rules 21.1(d)(7) and 21.9(a)(2).
\7\ As defined on the Exchange's fee schedule, a ``Customer''
order is any transaction identified by a Member for clearing in the
Customer range at the Options Clearing Corporation (``OCC'').
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(i) Increase to Liquidity Removal Fees
The Exchange currently charges standard fees of $0.30 per contract
for Customer orders and $0.40 per contract for Firm and Market Maker
\8\ orders that remove liquidity from BATS Options. The Exchange
proposes to increase this fee to $0.32 per contract for Customer orders
and $0.42 per contract for Firm and Market Maker orders that remove
liquidity from BATS Options, subject to potential reduction for any
Member with an ADV of 0.30% or more of average TCV on BATS Options, as
described below.
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\8\ As set forth on the Exchange's fee schedule, and consistent
with the definition of a Customer order, classification as Firm and
Market Maker orders depends on the identification by a Member of the
applicable clearing range at the OCC.
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The Exchange currently maintains a tiered pricing structure through
which Members can realize lower liquidity removal fees if such Members
have an
[[Page 50526]]
average daily volume (``ADV'') \9\ equal to or greater than 0.30% of
average total consolidated volume (``TCV'').\10\ For Members reaching
this volume threshold, the Exchange currently charges a fee of $0.27
per contract for Customer orders and $0.37 per contract for Firm and
Market Maker orders. Thus, such Members currently save $0.03 per
contract as compared to the standard fee to remove liquidity. While the
Exchange proposes [sic] maintain this $0.03 savings per contract for
those reaching the volume tier, due to the proposed increase described
above for standard liquidity removal, the Exchange proposes to increase
liquidity removal fees for Members that reach the volume tier by $0.02
per contract. Accordingly, for Members reaching the volume threshold,
the Exchange will charge a fee of $0.29 per contract for Customer
orders and $0.39 per contract for Firm and Market Maker orders.
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\9\ As defined on the Exchange's fee schedule, ADV is average
daily volume calculated as the number of contracts added or removed,
combined, per day on a monthly basis. The fee schedule also provides
that routed contracts are not included in ADV calculation.
\10\ As defined on the Exchange's fee schedule, TCV is total
consolidated volume calculated as the volume reported by all
exchanges to the consolidated transaction reporting plan for the
month for which the fees apply.
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(ii) Decrease to Liquidity Adding Rebate
The Exchange currently provides a rebate of $0.25 per contract for
all Customer orders that add liquidity to BATS Options. The Exchange
proposes to reduce the rebate for adding liquidity to $0.22 for
Customer orders.
The Exchange currently provides a rebate of $0.25 per contract for
Firm and Market Maker orders that are removed by Customer orders and
$0.35 per contract for orders that are removed by Firm or Market Maker
orders. The removing Member's fee is determined without regard to the
capacity of the adding party. Consistent with the reduction of Customer
rebates described above, the Exchange proposes to reduce each of these
liquidity adding rebates by $0.03. Accordingly, the Exchange proposes
to provide a rebate of $0.22 per contract for Firm and Market Maker
orders that are removed by Customer orders and $0.32 per contract for
orders that are removed by Firm or Market Maker orders. As is the case
under the current pricing structure, the removing Member's fee will be
determined without regard to the capacity of the adding party.
The Exchange believes that, because Members can neither see the
capacity of orders in the Exchange's order book nor determine the
capacity of the Member that removes an order, the proposal will not
disadvantage public investors or Members. Lastly, the Exchange believes
that the proposed change to the fee schedule is substantively similar
to a pricing plan in place at NASDAQ OMX PHLX.\11\
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\11\ 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 subsidy
that does not apply to Customer-to-Customer transactions).
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(iii) Decrease to Rebates for 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''),\12\ subject to certain volume requirements. The NBBO
Setter Rebate currently offered by the Exchange to such Members is
$0.40 per contract for Members with an ADV equal to or greater than
0.30% of average TCV but less than 1% of average TCV and $0.50 per
contract for Members with an ADV equal to or greater than 1% of TCV.
The Exchange proposes to reduce the rebates paid to Members under the
NBBO Setter Program by $0.05 per contract. Accordingly, the Exchange
will provide an NBBO Setter Rebate of $0.35 per contract for Members
with an ADV equal to or greater than 0.30% of average TCV but less than
1% of average TCV and $0.45 per contract for Members with an ADV equal
to or greater than 1% of TCV.
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\12\ 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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(iv) Adoption of Quoting Incentive Program (QIP)
BATS Options proposes to introduce a Quoting Incentive Program
(QIP), through which BATS Options will provide a rebate of $0.03 per
contract, in addition to any other liquidity rebate other than an NBBO
Setter Program liquidity rebate, for executions subject to the QIP. The
QIP will only apply to executions in options overlying XLF, CSCO, PFE,
ORCL, and XRT. To qualify for the QIP a BATS Options Market Maker must
be at the NBB or NBO 70% of the time for series trading between $0.03
and $5.00 for the front three (3) expiration months in that underlying
during the current trading month. A Member not registered as a BATS
Market Maker can also qualify for the QIP by quoting at the NBB or NBO
80% of the time in the same series.
The Exchange will determine whether a market maker qualifies for
QIP rebates at the end of each month by looking back at each Member's
(including BATS Options Market Makers) quoting statistics during that
month. If at the end of the month a Market Maker meets the 70% criteria
or a Member that is not registered as a BATS Options Market Maker meets
the 80% criteria, the Exchange will provide the additional rebate for
all executions subject to the QIP executed by that Market Maker or
Member during that month. The Exchange will provide Members with a
report on a daily basis with quoting statistics so such Members can
determine whether or not they are meeting the QIP criteria. As noted
above, the QIP will not be additive to NBBO Setter Program rebates. The
Exchange is not proposing to impose any ADV requirements in order to
qualify for the QIP at this time.
(v) Change to Standard Routing Fee
The Exchange currently charges a flat fee per contract of $0.06 for
all executions of Customer orders routed through the CYCLE, RECYCLE,
Parallel D, Parallel 2D and Destination Specific routing strategies in
non-``Make/Take'' issues,\13\ if applicable, routed to NYSE Amex, NYSE
Arca, the Boston Options Exchange, the Chicago Board Options Exchange,
the International Securities Exchange, or NASDAQ OMX PHLX. The
Exchange's current fee of $0.06 per contract is the same amount per
contract as the direct clearing costs paid by the Exchange in
connection with the routing of Customer orders. However, there are
additional infrastructure costs, including membership fees and
connectivity costs, that are not captured by this fee. In order to
recover additional fees to account for infrastructure costs related to
routing, the Exchange proposes to increase this routing fee to $0.10
per contract. In contrast to Customer orders, the Exchange's fees for
Firm and Market Maker orders already provide the Exchange with some
additional revenue to cover infrastructure costs. Accordingly, the
Exchange is not proposing to adjust its fees for routed Firm or Market
Maker orders at this time.
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\13\ 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.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with
[[Page 50527]]
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.\14\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\15\ 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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\14\ 15 U.S.C. 78f.
\15\ 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 the Exchange by continuing
to offer competitive pricing while also creating incentives to
providing aggressively priced displayed liquidity. While Members that
remove liquidity from the Exchange and/or route Customer orders through
the Exchange's standard routing strategies will pay higher fees and
Members that add liquidity to the Exchange will receive lower rebates
due to the proposal, the increased revenue received by the Exchange
will be used to fund programs that the Exchange believes will attract
additional liquidity and thus improve the depth of liquidity available
on the Exchange. Accordingly, the Exchange believes that the higher
access and routing fees and lower rebates will benefit Members' results
in trading on the Exchange to the extent the tiered rebate structure
offered by the Exchange for adding liquidity, the continued operation
of the NBBO Setter Program, and the adoption of the Quoting Incentive
Program (QIP) incentivize liquidity providers to provide more
aggressively priced liquidity.
Despite the increase in fees and decrease in rebates for all
Members, the Exchange also believes that its proposed fee structure is
fair and equitable as the Exchange's standard fees generally still
remain lower, and standard rebates generally still remain higher, than
standard fees charged and rebates paid by other markets with similar
fee structures, such as NYSE Arca and Nasdaq. The Exchange further
believes that the proposed change to the Exchange's standard routing
fee for Customer orders to certain venues is competitive, fair and
reasonable, and non-discriminatory in that the increase will allow the
Exchange to cover additional infrastructure costs attendant with
offering routing services. The Exchange also notes that 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. Additional
revenue generated through the increased liquidity removal and routing
fees as well as reduction of certain rebates, as described above, will
allow the Exchange to offer competitive pricing and incentives, such as
the NBBO Setter Program and QIP.
The Exchange believes that continuing to base its tiered fee
structure and NBBO Setter Program based on overall TCV, rather than a
static number of contracts irrespective of overall volume in the
options industry, is a fair and equitable approach to pricing. Volume-
based tiers such as the tiers in place on the Exchange have been widely
adopted in the equities markets, and are equitable and not unfairly
discriminatory because they are open to all members on an equal basis
and provide rebates 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
unfairly discriminatory because it is consistent with the overall goals
of enhancing market quality.
Additionally, the Exchange believes that the proposed Quoting
Incentive Program, similar to a fee structure in place on at least one
of the Exchange's competitors,\16\ will incentivize the provision of
competitively priced, sustained liquidity that will create tighter
spreads, benefitting both Members and public investors. The Exchange
further believes that conditioning a Member's ability to receive the
QIP's additional rebate on reaching one of the Exchange's quoting tiers
is consistent with the Act for the reasons described above with respect
to volume-based tiers. The Exchange also believes that providing a
slightly lower threshold for meeting the QIP to registered BATS Options
Market Makers appropriately incentivizes Members of BATS Options to
register with the Exchange as Options Market Makers. While the Exchange
does wish to allow participation in the QIP by all Members, the
Exchange believes that registration by additional Members as Market
Makers will help to continue to increase the breadth and depth of
quotations available on the Exchange. The Exchange notes that in
addition to the fact that the QIP will be available to all Members, the
proposal is not unfairly discriminatory despite a slightly higher
quotation requirement for non-Market Makers due to the fact that
registration as a BATS Options Market Maker is equally available to all
Members.
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\16\ 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 of changes to fees and rebates
including adoption of specific rebates for market makers qualifying
for the Market Maker Plus program).
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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 \17\ and Rule 19b-
4(f)(2) thereunder,\18\ 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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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 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:
[[Page 50528]]
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-2011-024 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-2011-024. 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-2011-024 and should be
submitted on or before September 6, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20699 Filed 8-12-11; 8:45 am]
BILLING CODE 8011-01-P