[Federal Register Volume 77, Number 38 (Monday, February 27, 2012)]
[Notices]
[Pages 11608-11611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4401]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66427; File No. SR-BATS-2012-011]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Adopting
Rebates for the Competitive Liquidity Provider Program
February 21, 2012.
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 February
[[Page 11609]]
8, 2012, BATS Exchange, Inc. (``BATS'' or ``Exchange'') 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 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to institute a fee change in connection with
an incentive program for Exchange-registered market makers (``Market
Makers'') in securities listed on the Exchange. Changes to the
Exchange's fees pursuant to this proposal will be effective upon
filing.
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
On August 30, 2011, the Exchange received approval of rules
applicable to the qualification, listing and delisting of securities of
issuers on the Exchange.\3\ More recently, the Exchange received
approval to operate a program that is designed to incentivize certain
market makers registered with the Exchange as Competitive Liquidity
Providers (``CLPs'') to enhance liquidity on the Exchange in securities
listed on the Exchange (the ``Competitive Liquidity Provider Program''
or ``CLP Program'').\4\ The Exchange proposes to adopt financial
incentives for the Competitive Liquidity Provider Program, as described
below. These incentives include competition amongst CLPs for daily
rebates awarded based on quoting activity and the ability to earn free
executions in Exchange auctions of Exchange-listed securities.
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\3\ See Securities Exchange Act Release No. 65225 (August 30,
2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018).
\4\ See Securities Exchange Act Release No. 66307 (February 2,
2012), 77 FR 6608 (February 8, 2012) (SR-BATS-2011-051).
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Daily Rebates
Pursuant to the CLP Program, the Exchange will measure the
performance of CLPs in assigned securities by calculating Size Event
Tests (``SETs'') in each second of trading during every day on which
the Exchange is open for business. At a randomly selected point in time
during Regular Trading Hours, at least once per second, the Exchange
will measure each CLP's quoted size at the NBB and NBO. The CLP with
the greatest aggregate size at the NBB and NBO at each SET (i.e., the
combined size at the NBB and NBO) will be considered to have a
``winning SET.'' A CLP must have at least 10% of the winning SETs on
any trading day in order meet its daily quoting requirement and to be
eligible for the daily rebates proposed below. As proposed, any Market
Maker registered in a security as a CLP that has satisfied the daily
quoting requirement will be eligible to receive a single daily
financial rebate for each day's quoting activity as follows:
------------------------------------------------------------------------
Amount of total Allocation of daily
Class of security daily rebate rebate
------------------------------------------------------------------------
Tier I Securities Listed on $500 per day..... 80% ($400) to CLP
the Exchange Pursuant to Rule with highest number
14.8 for Six Months of winning SETs; 20%
Commencing from the Date of ($100) to CLP with
Initial Listing on the second highest
Exchange. number of winning
SETs.
Tier I Securities Listed on 250 per day...... 80% ($200) to CLP
the Exchange Pursuant to Rule with highest number
14.8 for Remaining Time of winning SETs; 20%
Subject to CLP Program. ($50) to CLP with
second highest
number of winning
SETs.
Tier II Securities Listed on 100 per day...... 100% to CLP with
the Exchange Pursuant to Rule highest number of
14.9. winning SETs.
ETPs Listed Pursuant to Rule 250 per day...... 80% ($200) to CLP
14.11. with highest number
of winning SETs; 20%
($50) to CLP with
second highest
number of winning
SETs.
------------------------------------------------------------------------
As set forth in the chart above, for all Tier I securities and
exchange traded products (``ETPs'') listed on the Exchange, the
Exchange proposes to offer quoting incentives to the two CLPs with the
highest number of winning SETs during Regular Trading Hours on the
Exchange. For each award, the Exchange will provide 80% of the
incentive to the first-place CLP and 20% of the incentive to the
second-place CLP. In the event only one CLP is eligible for the daily
rebate, 100% of such rebate will be provided to such CLP. In the event
that multiple CLPs have an equal number of winning SETs, the CLP with
the highest executed volume in the security will be awarded the
applicable daily rebate. For Tier II securities listed on the Exchange,
the Exchange will provide 100% of the quoting incentive to the first-
place CLP.
The Exchange proposes to offer a daily quoting incentive of $500
for CLPs ($400 for the first-place CLP and $100 for the second-place
CLP) CLPs for the first six months that a Tier I corporate security is
listed on the Exchange pursuant to Rule 14.8. Such listing could either
be the result of an issuers initial public offering (``IPO'') on the
Exchange or due to the transfer of an issuer from another exchange to
the Exchange. For the remainder of the time a Tier I corporate security
is listed on the Exchange, and for all ETPs, the Exchange proposes to
offer a $250 daily quoting incentive ($200 for the first-place CLP and
$50 for the second-place CLP). Finally, the Exchange proposes to offer
a daily quoting incentive of $100 for Tier II securities listed on the
Exchange pursuant to Rule 14.9.
[[Page 11610]]
Waiver of Fees for Auction Executions
In order to further incentivize Members to register as CLPs and
participate in the CLP Program, the Exchange proposes to waive
applicable execution fees in Exchange auctions for any CLP that
receives a daily rebate for a specific Exchange-listed security on at
least two (2) trading days during a calendar month. The auction fee
waiver will be provided on a security-by-security basis in the
subsequent calendar month for CLPs that qualify. Further, because a CLP
cannot qualify for this incentive until at least the second calendar
month of a security's listing, in the initial calendar month of a
security's listing on the Exchange, a CLP that is assigned the security
will not be charged for any executions in the security that occur in
any auction of the security that is conducted by the Exchange pursuant
to Rule 11.23.
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.\5\
Specifically, the Exchange believes that the proposed rule change is
consistent with Sections 6(b)(4) and (b)(5) of the Act,\6\ in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among issuers, and it does not unfairly discriminate
between customers, issuers, brokers or dealers.
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(4) and (b)(5).
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At the outset, the Exchange believes that the proposal is not
unfairly discriminatory due to the fact that registration as an
Exchange Market Maker, and, in turn, as a CLP, is equally available to
all Members that satisfy the requirements of Rule 11.8. The Exchange
believes that by allocating pricing benefits to CLPs that make tangible
commitments to enhancing market quality for securities listed on the
Exchange, the proposal will encourage the development of new financial
products, provide a better trading environment for investors in
Exchange-listed securities, and generally encourage greater competition
between listing venues.
As proposed, the CLP Program is designed to enhance the Exchange's
competitiveness as a listing venue and to strengthen its market quality
for Exchange-listed securities. The Exchange is launching its listings
business at a time in which there are two dominant primary listing
venues, the New York Stock Exchange and Nasdaq. The Exchange believes
that the proposed change would increase competition by incenting
Exchange Market Makers to register as CLPs, which will enhance the
quality of quoting in Exchange-listed securities and will further
assist the Exchange to develop an alternative to Nasdaq and the New
York Stock Exchange for an issuer seeking to list its securities.
Accordingly, the Exchange believes that the proposal will compliment
the Exchange's program for listing securities on the Exchange, which
will, in turn, provide issuers with another option for raising capital
in the public markets, thereby promoting the principles discussed in
Section 6(b)(5) of the Act.\7\
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\7\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed quoting incentives are fair
and equitable in that registered CLPs will be competing for rewards
that are calculated based solely on the Exchange's measurement of SETs,
and the quoting incentive provided varies only depending on the type of
security for which such CLP is registered. The Exchange further
believes that differentiation between various types of Exchange-listed
securities is fair and equitable and not unreasonably discriminatory
because the risks and necessary incentives for a market maker to make a
market in different securities vary, as described in further detail
below.
The Exchange proposes a lower quoting incentive for Tier II
corporate issues than other Exchange listed securities. Specifically,
the Exchange proposes to provide an incentive of $100 per day for the
CLP with the highest number of winning SETs during the applicable
trading day with respect to a Tier II corporate issue subject to the
CLP Program. The Exchange has also chosen not to offer a quoting
incentive to the CLP with the second highest number of winning SETs
during the applicable trading day for Tier II corporate issues. The
Exchange believes that this quoting incentive structure for Tier II
corporate issues is reasonable because the Exchange does not expect to
have as many registered CLPs for Tier II corporate issues as compared
to Tier I corporate issues and ETPs. This is because if there is indeed
less competition in Tier II issues, then the registered CLPs in Tier II
issues will have a better opportunity to receive the daily quoting
incentive. Also, because the quoting incentive is lower, the Exchange
believes it is reasonable to simply provide a single quoting incentive
to the CLP with the highest number of winning SETs during the
applicable trading day for Tier II corporate issues.
The Exchange proposes a daily quoting incentive of $250 per day for
ETPs listed pursuant to Exchange Rule 14.11, with $200 for the first-
place CLP and $50 for the second-place CLP. The Exchange believes that
this quoting incentive is reasonable because the Exchange expects to
have several competing CLPs for each ETP, and thus, the daily quoting
incentive must be slightly larger (to incent competition even by CLPs
that may receive the incentive less frequently). Due to the additional
competition, the Exchange also believes it is reasonable to provide a
quoting incentive to both the first and second-place CLP for ETPs.
The Exchange also expects to have several competing CLPs for Tier I
corporate issues. While the value of an ETP can be readily monitored
and updated based on analysis conducted of the underlying securities or
products, market making for a corporate issue requires additional
analysis and imposes different risks. Due to the additional risks, the
Exchange believes that additional incentives are necessary and
appropriate in order to encourage CLPs to register as CLPs for Tier I
corporate issues listed on the Exchange pursuant to Rule 14.8 for a
six-month period commencing from the date of initial listing on the
Exchange. Based on the additional risks and the additional competition,
the Exchange believes that the proposed quoting incentive for Tier I
corporate issues of $500 is reasonable for the first six months that a
security is listed on the Exchange. After six months, because CLPs
should become more familiar with the market for the applicable issue,
the Exchange believes it is reasonable to provide the same quoting
incentive as it provides for ETPs.
Finally, as described above, in order to further incentivize
Members to register as CLPs and participate in the CLP Program, the
Exchange proposes to waive applicable execution fees in Exchange
auctions for any CLP that receives a daily rebate for a specific
Exchange-listed security on at least two (2) trading days during a
calendar month. The Exchange believes that the waiver of auction fees
is equitable and not unreasonably discriminatory because it will be
available to all CLPs registered for the applicable issue and will be
awarded based on objective criteria. Also, as noted above, registration
as an Exchange Market Maker, and, in turn, as a CLP, is equally
available to all Members that satisfy the requirements of Rule 11.8.
The
[[Page 11611]]
Exchange believes that the waiver of auction fees is reasonable because
it is based on a relatively low threshold, and thus, will help to
incentivize Members to register as CLPs and participate in the CLP
Program and to stay registered in the CLP Program even if such Members
rarely receive the applicable daily quoting incentive.
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 \8\ and Rule 19b-
4(f)(2) thereunder,\9\ 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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\8\ 15 U.S.C. 78s(b)(3)(A)(ii).
\9\ 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 email to [email protected]. Please include
File Number SR-BATS-2012-011 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-2012-011. This file
number should be included on the subject line if email 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 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 publicly available. All
submissions should refer to File Number SR-BATS-2012-011 and should be
submitted on or before March 19, 2012.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4401 Filed 2-24-12; 8:45 am]
BILLING CODE 8011-01-P