[Federal Register Volume 77, Number 222 (Friday, November 16, 2012)]
[Notices]
[Pages 68862-68869]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27871]
[[Page 68862]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68204; File No. SR-BATS-2012-043]
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.
November 9, 2012.
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 November 1, 2012, 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend the fee schedule applicable to
Members \5\ and non-members of the Exchange pursuant to BATS Rules
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal
will be effective upon filing.
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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 the ``Options Pricing'' section of
its fee schedule effective immediately, in order to: (i) Increase the
TCV improvement requirements for the Grow with Us pricing plan; (ii)
modify the rebates provided by the Exchange for Customer \6\ orders
that add liquidity to the Exchange's options platform (``BATS
Options'') in options classes subject to the penny pilot program as
described below (``Penny Pilot Securities''); \7\ (iii) modify the fees
charged by the Exchange for Customer orders that remove liquidity from
BATS Options in Penny Pilot Securities; (iv) modify the rebates paid by
the Exchange for Professional,\8\ Firm, and Market Maker \9\ orders
that add liquidity to BATS Options in Penny Pilot Securities; (v)
modify the fees charged by the Exchange for Professional, Firm, and
Market Maker orders that remove liquidity from BATS Options in Penny
Pilot Securities; (vi) modify the rebates paid by the Exchange under
the BATS Options NBBO Setter Program; \10\ (vii) modify the fees
charged by the Exchange for Professional, Firm, and Market Maker orders
that remove liquidity from BATS Options in non-Penny Pilot Securities;
(viii) modify the rebates paid by the Exchange for orders that add
liquidity to BATS Options in non-Penny Pilot Securities; (ix) eliminate
the Enhanced NBBO Setter Rebate; and (x) modify pricing with respect to
orders that are executed on away options exchanges. In addition to
these changes, the Exchange proposes to re-number certain footnotes
contained within the fee schedule.
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\6\ 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''), except
for those designated as ``Professional''.
\7\ The Exchange currently charges different fees and provides
different rebates depending on whether an options class is an
options class that qualifies as a Penny Pilot Security pursuant to
Exchange Rule 21.5, Interpretation and Policy .01 or is a non-penny
options class.
\8\ The term ``Professional'' is defined in Exchange Rule 16.1
to mean any person or entity that (A) is not a broker or dealer in
securities, and (B) places more than 390 orders in listed options
per day on average during a calendar month for its own beneficial
account(s).
\9\ As defined on the Exchange's fee schedule, the terms
``Firm'' and ``Market Maker'' apply to any transaction identified by
a member for clearing in the Firm or Market Maker range,
respectively, at the Options Clearing Corporation (``OCC'').
\10\ The NBBO Setter Program is a program that provides
additional rebates for executions resulting from orders that add
liquidity that set either the national best bid (``NBB'') or
national best offer (``NBO'').
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(i) Grow With Us Pricing Program
The Exchange currently offers its Grow with Us pricing program to
certain orders that add or remove liquidity, as further explained
below, by providing a Member with enhanced rebates (and lower execution
fees) to the extent such Member shows a minimum of 5 basis points of
total consolidated volume (``TCV'') \11\ improvement over the Member's
previous highest monthly TCV on BATS Options, or ``High Water Mark.''
The Exchange has defined High Water Mark as the greater of a Member's
fourth quarter 2011 TCV or a Member's best monthly TCV on BATS Options
thereafter.
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\11\ 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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The Exchange has found that normal variance in trading behavior can
cause an improvement of greater than 5 basis points from its Members.
As such, the Exchange proposes to increase the requirement for the
minimum improvement from 5 basis points of TCV to a more significant
improvement of 10 basis points of TCV.
(ii) Customer Rebates for Adding Liquidity in Penny Pilot
Securities
The Exchange currently provides rebates for Customer orders that
add liquidity to the BATS Options order book in Penny Pilot Securities
pursuant to a tiered pricing structure, as described below. In order to
make a broader based and more inclusive rebate structure, the Exchange
proposes to modify this tiered pricing structure and the rebates
associated therewith as well as modify the rebates associated with the
Grow with Us pricing program.
The Exchange currently provides a rebate of $0.30 per contract for
Customer orders that add liquidity to the BATS Options order book to
the extent a Member of BATS Options does not qualify for a higher
rebate based on their average daily volume (``ADV'').\12\ The Exchange
also currently provides Members with an ADV equal to or
[[Page 68863]]
greater than 0.30% of TCV with a rebate of $0.42 per contract for
Customer orders that add liquidity to the BATS Options order book in
Penny Pilot Securities and a rebate of $0.44 per contract for Customer
orders that add liquidity to the BATS Options order book in Penny Pilot
Securities for Members with an ADV equal to or greater than 1% of
average TCV. Finally, the Exchange currently offers its Grow with Us
pricing program to Customer orders that add liquidity by providing a
Member with enhanced rebates to the extent such Member shows a minimum
of 5 basis points TCV improvement over the Member's previous High Water
Mark. Under the current pricing structure, a Member that does not
qualify for the lower tier applicable to Members with an ADV equal to
or greater than 0.30% of average TCV but achieves at least a 5 basis
point increase over its previous High Water Mark is provided a rebate
of $0.38 per contract for Customer orders that add liquidity to the
BATS Options order book in Penny Pilot Securities. A Member that
qualifies for the lower tier applicable to Members with an ADV equal to
or greater than 0.30% of average TCV but not the 1% of average TCV tier
that achieves at least a 5 basis point increase over its previous High
Water Mark is provided a rebate of $0.45 per contract for Customer
orders that add liquidity to the BATS Options order book in Penny Pilot
Securities. A Member that qualifies for the highest tier applicable to
Members with an ADV equal to or greater than 1% of average TCV that
achieves at least a 5 basis point increase over its previous High Water
Mark is provided a rebate of $0.46 per contract for Customer orders
that add liquidity to the BATS Options order book in Penny Pilot
Securities.
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\12\ 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.
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The Exchange proposes to adjust the existing volume tiers, to add
an additional volume tier, and to modify the rebates paid for Customer
orders that add liquidity to the BATS Options order book in Penny Pilot
Securities.
The Exchange proposes to decrease the lower volume tier level from
an ADV equal to or greater than 0.30% of average TCV to an ADV equal to
or greater than 0.25% of average TCV. The Exchange also proposes to
lower the upper volume tier level from an ADV equal to or greater than
1% of average TCV to an ADV equal to or greater than 0.75% of average
TCV. Lastly, the Exchange proposes to add an additional volume tier
level at an ADV equal to or greater than 1.25% of average TCV. This
proposal would result in three distinct discounted volume tiers for
Customer orders that add liquidity to BATS Options in Penny Pilot
Securities, as follows: greater than or equal to 0.25%, but less than
0.75%; greater than or equal to 0.75%, but less than 1.25%; and equal
to or greater than 1.25%.
The Exchange proposes to increase its rebate for any Member that
qualifies for the lower tier applicable to Members with an ADV equal to
or greater than 0.25% of average TCV but not the 0.75% of average TCV
tier from a rebate of $0.42 per contract to a rebate of $0.43 per
contract for Customer orders that add liquidity to BATS Options in
Penny Pilot Securities. The Exchange proposes to increase its rebate
for any Member that qualifies for the middle tier applicable to Members
with an ADV equal to or greater than 0.75% of average TCV but not the
1.25% of average TCV tier from a rebate of $0.44 per contract to a
rebate of $0.46 per contract for Customer orders that add liquidity to
BATS Options in Penny Pilot Securities. The Exchange proposes to add a
rebate for Members that qualify for the proposed upper tier applicable
to Members with an ADV equal to or greater than 1.25% of average TCV of
$0.47 per contract for Customer orders that add liquidity to BATS
Options in Penny Pilot Securities.
As part of the Grow with Us pricing program, the Exchange also
proposes to reduce its rebate for any Member that does not qualify for
the lower tier applicable to Members with an ADV equal to or greater
than 0.25% of average TCV but achieves a 10 basis point increase over
its previous High Water Mark from a rebate of $0.38 per contract to a
rebate of $0.31 per contract for Customer orders that add liquidity to
BATS Options in Penny Pilot Securities. The Exchange proposes to reduce
the rebate for any Member that qualifies for the lower tier applicable
to Members with an ADV equal to or greater than 0.25% of average TCV
but not the 0.75% of average TCV tier that achieves at least a 10 basis
point increase over its previous High Water Mark from a rebate of $0.45
per contract to a rebate of $0.44 per contract for Customer orders that
add liquidity to BATS Options in Penny Pilot Securities. The Exchange
proposes to increase its rebate for any Member that qualifies for the
middle tier applicable to Members with an ADV equal to or greater than
0.75% of average TCV but not the 1.25% of average TCV tier that
achieves at least a 10 basis point increase over its previous High
Water Mark from a rebate of $0.46 per contract to a rebate of $0.47 per
contract for Customer orders that add liquidity to BATS Options in
Penny Pilot Securities.
(iii) Customer Fees for Removing Liquidity in Penny Pilot
Securities
The Exchange currently charges fees for Customer orders that remove
liquidity from the BATS Options order book in Penny Pilot Securities
pursuant to a tiered pricing structure, as described below. The
Exchange proposes to modify this tiered pricing structure and the fees
associated therewith as well as modify the fees associated with the
Grow with Us pricing program.
The Exchange currently charges Members with an ADV less than 0.30%
of TCV with a fee of $0.44 per contract for Customer orders that remove
liquidity from the BATS Options order book in Penny Pilot Securities.
The Exchange currently charges Members with an ADV greater than 0.30%
of TCV but less than 1.0% of TCV with a fee of $0.40 per contract for
Customer orders that remove liquidity from the BATS Options order book
in Penny Pilot Securities. The Exchange currently charges Members with
an ADV greater than than 1.0% of TCV with a fee of $0.36 per contract
for Customer orders that remove liquidity from the BATS Options order
book in Penny Pilot Securities. Finally, the Exchange currently offers
its Grow with Us pricing program to Customer orders that remove
liquidity by reducing the fees charged to a Member to the extent such
Member shows a minimum of 5 basis points TCV improvement over the
Member's previous High Water Mark. Under the current pricing structure,
any Member that does not qualify for the lower tier applicable to
Members with an ADV equal to or greater than 0.30% of average TCV but
achieves at least a 5 basis point increase over its previous High Water
Mark is charged a fee of $0.42 per contract for Customer orders that
remove liquidity from the BATS Options order book in Penny Pilot
Securities. A Member that qualifies for the lower tier applicable to
Members with an ADV equal to or greater than 0.30% of average TCV but
not the 1% of average TCV tier that achieves at least a 5 basis point
increase over its previous High Water Mark is charged a fee of $0.38
per contract for Customer orders that remove liquidity from the BATS
Options order book in Penny Pilot Securities. A Member that qualifies
for the highest tier applicable to Members with an ADV equal to or
greater than 1% of average TCV that achieves at least a 5 basis point
increase over its previous High Water Mark is charged a fee of $0.36
per contract for Customer orders that remove liquidity from the BATS
Options order book in Penny Pilot Securities.
The Exchange proposes to adjust the existing volume tiers, to add
an
[[Page 68864]]
additional volume tier, and to modify the fees charged for Customer
orders that remove liquidity from the BATS Options order book in Penny
Pilot Securities.
The Exchange proposes to decrease the lower volume tier level from
an ADV equal to or greater than 0.30% of average TCV to an ADV equal to
or greater than 0.25% of average TCV. The Exchange also proposes to
lower the upper volume tier level from an ADV equal to or greater than
1% of average TCV to an ADV equal to or greater than 0.75% of average
TCV. Lastly, the Exchange proposes to add an additional volume tier
level at an ADV equal to or greater than 1.25% of average TCV. This
proposal would result in three distinct discounted volume tiers for
Customer orders that remove liquidity from BATS Options in Penny Pilot
Securities, as follows: greater than or equal to 0.25%, but less than
0.75%; greater than or equal to 0.75%, but less than 1.25%; and equal
to or greater than 1.25%.
The Exchange proposes to increase its fee for any Member that does
not qualify for the lower tier applicable to Members with an ADV equal
to or greater than 0.25% of average TCV from a fee of $0.44 per
contract to $0.45 per contract for Customer orders that remove
liquidity from BATS Options in Penny Pilot Securities. The Exchange
proposes to increase its fee for any Member that qualifies for the
lower tier applicable to Members with an ADV equal to or greater than
0.25% of average TCV but not the 0.75% of average TCV tier from a fee
of $0.40 per contract to $0.44 per contract for Customer orders that
remove liquidity from BATS Options in Penny Pilot Securities. The
Exchange proposes to add a fee for any Member that qualifies for the
middle tier applicable to Members with an ADV equal to or greater than
0.75% of average TCV but not the 1.25% of average TCV tier from a fee
of $0.43 per contract for Customer orders that remove liquidity from
BATS Options in Penny Pilot Securities. The Exchange proposes to
increase the fee for any Member that qualifies for the proposed upper
tier applicable to Members with an ADV equal to or greater than 1.25%
of average TCV from $0.36 per contract to $0.42 for Customer orders
that remove liquidity from BATS Options in Penny Pilot Securities.
As part of the Grow with Us pricing program, the Exchange also
proposes to increase its fee for any Member that does not qualify for
the lower tier applicable to Members with an ADV equal to or greater
than 0.25% of average TCV but achieves a 10 basis point increase over
its previous High Water Mark from a fee of $0.42 per contract to a fee
of $0.44 per contract for Customer orders that remove liquidity from
BATS Options in Penny Pilot Securities. The Exchange proposes to
increase the fee for any Member that qualifies for the lower tier
applicable to Members with an ADV equal to or greater than 0.25% of
average TCV but not the 0.75% of average TCV tier that achieves at
least a 10 basis point increase over its previous High Water Mark from
a fee of $0.38 per contract to a rebate [sic] of $0.43 per contract for
Customer orders that remove liquidity from BATS Options in Penny Pilot
Securities. The Exchange proposes to add a fee for any Member that
qualifies for the middle tier applicable to Members with an ADV equal
to or greater than 0.75% of average TCV but not the 1.25% of average
TCV tier that achieves at least a 10 basis point increase over its
previous High Water Mark of $0.42 per contract for Customer orders that
remove liquidity from BATS Options in Penny Pilot Securities.
(iv) Non-Customer Rebates for Adding Liquidity in Penny Pilot
Securities
The Exchange currently provides a rebate of $0.22 per contract for
Professional, Firm, and Market Maker orders that add liquidity to the
BATS Options order book in Penny Pilot Securities and are removed by a
Customer order. The Exchange currently provides a rebate of $0.32 per
contract for Professional, Firm, and Market Maker orders that add
liquidity to the BATS Options order book in Penny Pilot Securities and
are removed by a Professional, Firm, or Market Maker order.
In order to further incentivize liquidity on BATS Options, the
Exchange proposes to increase its rebate for Professional, Firm, and
Market Maker orders that add liquidity to the BATS Options order book
in Penny Pilot Securities and are removed by a Customer order from
$0.22 per contract to $0.25 per contract. The Exchange also proposes to
increase its rebate for Professional, Firm, and Market Maker orders
that add liquidity to the BATS Options order book in Penny Pilot
Securities and are removed by a Professional, Firm, or Market Maker
order from $0.32 per contract to $0.35 per contract.
(v) Non-Customer Fees for Removing Liquidity in Penny Pilot Securities
The Exchange currently charges a fee of $0.45 per contract for
Professional, Firm, and Market Maker orders that remove liquidity from
BATS Options in Penny Pilot Securities, where the Member does not
qualify for a lower charge based on TCV improvement. The Exchange
currently charges a fee of $0.44 per contract for Professional, Firm,
and Market Maker orders that remove liquidity from BATS Options in
Penny Pilot Securities where the Member shows a minimum of 5 basis
points of TCV improvement over their previous High Water Mark.
The Exchange proposes to increase its fees for Professional, Firm,
and Market Maker orders that remove liquidity from BATS Options in
Penny Pilot Securities where the Member does not qualify for a lower
charge based on TCV improvement from $0.45 per contract to $0.47 per
contract. The Exchange also proposes to increase its fees for
Professional, Firm, and Market Maker orders that remove liquidity from
BATS Options in Penny Pilot Securities where the Member shows a minimum
of 10 basis points of TCV improvement, as proposed above, over their
previous High Water Mark from $0.44 per contract to $0.46 per contract.
(vi) NBBO Setter Liquidity Rebates for Orders
The Exchange's NBBO Setter Program is a program intended to
incentivize aggressive quoting on BATS Options by providing an
additional rebate upon execution for all orders that add liquidity that
set either the NBB or NBO (the ``NBBO Setter Rebate''),\13\ subject to
certain volume requirements. The Exchange currently provides an
additional $0.06 per contract rebate for executions of Professional,
Firm and Market Maker orders that qualify for the NBBO Setter Rebate by
Members with an ADV equal to or greater than 0.30% of average TCV but
less than 1% of average TCV and an additional $0.10 per contract for
qualifying executions of Professional, Firm and Market Maker orders by
Members with an ADV equal to or greater than 1% of TCV.
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\13\ 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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The Exchange also applies its Grow with Us pricing program to the
NBBO Setter Rebate. Accordingly, any Member that does not qualify for
NBBO Setter Rebates applicable to Members with an ADV equal to or
greater than 0.30% of average TCV but achieves at least a 5 basis point
increase over its previous High Water Mark receives NBBO Setter Rebates
of $0.03 per contract for qualifying executions. Similarly, any Member
that qualifies for the lower tier
[[Page 68865]]
applicable to Members with an ADV equal to or greater than 0.30% of
average TCV but not the 1% of average TCV tier that achieves at least a
5 basis point increase over its previous High Water Mark is provided a
NBBO Setter Rebate of $0.08 per contract for qualifying executions.
The Exchange proposes to adjust the existing volume tiers, to add
an additional volume tier, and to modify the rebates paid as part of
the NBBO Setter Rebate program.
The Exchange proposes to decrease the lower volume tier level from
an ADV equal to or greater than 0.30% of average TCV to an ADV equal to
or greater than 0.25% of average TCV. The Exchange also proposes to
lower the upper volume tier level from an ADV equal to or greater than
1% of average TCV to an ADV equal to or greater than 0.75% of average
TCV. Lastly, the Exchange proposes to add an additional volume tier
level at an ADV equal to or greater than 1.25% of average TCV. This
proposal would result in three distinct discounted volume tiers for the
NBBO Setter Rebate, as follows: greater than or equal to 0.25%, but
less than 0.75%; greater than or equal to 0.75%, but less than 1.25%;
and equal to or greater than 1.25%.
The Exchange proposes to decrease its NBBO Setter Rebate for
executions of Professional, Firm, and Market Maker orders that qualify
for the NBBO Setter Rebate by any Member that qualifies for the lower
tier applicable to Members with an ADV equal to or greater than 0.25%
of average TCV but not the 0.75% of average TCV from $0.06 per contract
to $0.03 per contract. The Exchange also proposes to decrease its NBBO
Setter Rebate for executions of Professional, Firm, and Market Maker
orders that qualify for the NBBO Setter Rebate by any Member that
qualifies for the lower tier applicable to Members with an ADV equal to
or greater than 0.75% of average TCV but not the 1.25% of average TCV
from $0.10 per contract to $0.06 per contract. The Exchange proposes to
add an NBBO Setter Rebate for executions of Professional, Firm, and
Market Maker orders that qualify for the NBBO Setter Rebate by any
Member that qualifies for the highest tier applicable to Members with
an ADV equal to or greater than 1.25% of average TCV of $0.10 per
contract.
The Exchange proposes to eliminate its current NBBO Setter Rebate
of $0.03 for a Member that does not qualify for the lower tier but does
achieve an increase over its previous High Water Mark and under current
pricing receives a Grow with Us benefit. The Exchange proposes to
decrease its rebate for executions of Professional, Firm, and Market
Maker orders that qualify for the NBBO Setter Rebate by a Member that
qualifies for the lower tier applicable to Members with an ADV equal to
or greater than 0.25% of average TCV but not the 0.75% of average TCV
that also show a minimum of 10 basis points TCV improvement over their
previous high water mark, as proposed above, from $0.08 per contract to
$0.05 per contract. The Exchange also proposes to add a rebate for
executions of Professional, Firm, and Market Maker orders that qualify
for the NBBO Setter Rebate by a Member that qualifies for the middle
tier applicable to Members with an ADV equal to or greater than 0.75%
of average TCV but not the 1.25% of average TCV that also show a
minimum of 10 basis points TCV improvement over their previous high
water mark, as proposed above, of $0.08 per contract.
(vii) Non-Customer Fees for Removing Liquidity in non-Penny Pilot
Securities
The Exchange currently charges a fee of $0.80 per contract for
Professional, Firm, and Market Maker orders that remove liquidity from
BATS Options in non-Penny Pilot Securities. The Exchange proposes to
increase the fee for Professional, Firm, and Market Maker orders that
remove liquidity from BATS Options in non-Penny Pilot Securities from
$0.80 per contract to $0.84 per contract.
(viii) Rebates for Adding Liquidity in Non-Penny Pilot Securities
The Exchange currently provides a rebate of $0.75 per contract for
Customer orders that add liquidity to BATS Options in non-Penny Pilot
Securities. The Exchange also currently provides a rebate of $0.70 per
contract for Professional, Firm, and Market Maker orders that remove
liquidity from BATS Options in non-Penny Pilot Securities.
The Exchange proposes to increase the rebate for Customer orders
that add liquidity to BATS Options in non-Penny Pilot Securities from
$0.75 per contract to $0.80 per contract. The Exchange also proposes to
decrease the rebate for Professional, Firm, and Market Maker orders
that add liquidity to BATS Options in non-Penny Pilot Securities from
$0.70 per contract to $0.60 per contract.
(ix) Eliminating the Enhanced NBBO Setter Rebate
In order to further incentivize aggressive liquidity by incenting
displayed size of contracts, the Exchange implemented the Enhanced NBBO
Setter Rebate on June 1, 2012. The Enhanced NBBO Setter Rebate provides
twice the rebate for executions that qualify for an NBBO Setter Rebate
and result from an order with a displayed size that equals or exceeds
25 contracts. Due to limited customer participation, however, the
Exchange proposes to eliminate the Enhanced NBBO Setter Rebate
altogether. Over the implementation period, participation has been low,
and eliminating the Enhanced NBBO Setter Rebate will act to simplify
the Exchange's fee schedule while eliminating an underutilized pricing
program.
(x) Executions on Away Options Exchanges
The Exchange proposes to change pricing with respect to orders
routed to away options exchanges. The Exchange currently charges
certain flat rates for routing to other options exchanges that have
been placed into groups based on the approximate cost of routing to
such venues. The grouping of away options exchanges is based on the
cost of transaction fees assessed by each venue as well as costs to the
Exchange for routing (i.e., clearing fees, connectivity and other
infrastructure costs, membership fees, etc.) (collectively, ``Routing
Costs'').
The Exchange currently has two categories for the Nasdaq Options
Market (``NOM'') under which it charges: (i) A fee of $0.50 per
contract for Customer orders and $0.57 per contract for Professional,
Firm, or Market Maker orders routed to and executed at NOM in all
options other than Specified Symbols; \14\ and (ii) a fee of $0.90 per
contract for Customer orders and $0.95 per contract for Professional,
Firm, or Market Maker orders routed to and executed at NOM in Specified
Symbols.
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\14\ As defined on the Exchange's fee schedule, the term
``Specified Symbols'' refers to FB, GOOG, and GRPN.
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Based on recent changes to NOM pricing,\15\ including the
elimination of the above described unique pricing for Specified
Symbols, the Exchange proposes to eliminate the distinction between
Specified Symbols and non-Specified Symbols in its fee schedule. In
addition to this change, the Exchange is proposing to move NOM Penny
Pilot Securities into the grouping with C2 Options Exchange, Inc.
(``C2''), NYSE Arca, Inc. (``ARCA'') in Make/Take Issues, and NASDAQ
OMX PHLX LLC (``PHLX'') in Make/Take Issues and to eliminate the
grouping that currently
[[Page 68866]]
includes only NOM in Penny Pilot Securities.
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\15\ Securities Exchange Act Release No. 68029 (October 10,
2012), 75 FR 63384 (October 16, 2012) (SR-NASDAQ-2012-114).
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As of November 1, ARCA is also adjusting its pricing structure to
more closely resemble that of NOM in non-Penny Pilot Securities.\16\
Specifically, ARCA is proposing to charge $0.79 for Customer orders
that remove liquidity in non-Penny Pilot Securities and $0.85 for
Professional, Firm, and Market Maker orders that remove liquidity in
non-Penny Pilot Securities. As such, the Exchange proposes to move ARCA
into a grouping with NOM in non-Penny Pilot Securities and to charge
fees for Customer orders executed at ARCA in Classic Issues of $0.90
per contract and to charge fees for Professional, Firm, and Market
Maker orders executed at ARCA in Classic Issues of $0.95 per contract.
In order to more accurately describe ARCA's pricing structure, the
Exchange also proposes to change references to ARCA (Classic Issues) to
ARCA (non-Penny Pilot Securities) and references to ARCA (Make/Take
Issues) to ARCA (Penny Pilot Securities).
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\16\ SR-NYSEArca-2012-121 (October 25, 2012).
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The Exchange generally imposes routing fees that approximate the
Exchange's Routing Costs, however, in order to maintain some level of
consistency in its fee schedule, the Exchange does not always adjust
its routing fees when an away options exchange adjusts its pricing.
Because the Exchange doesn't always adjust its routing fees to be
perfectly in line with away options exchanges, over time, the Exchange
can end up charging less for executions at the away options exchanges
than are required to cover its Routing Costs. Currently, this is the
case for several of the away options exchange groupings. As such, the
Exchange is proposing the following:
To increase the fees for Customer orders executed at NYSE
MKT LLC (``AMEX''), BOX Options Exchange LLC (``BOX''), Chicago Board
Options Exchange, Inc. (``CBOE''), NASDAQ OMX BX, Inc. (``BX
Options''), International Securities Exchange, LLC (``ISE'') (Classic
issues), and PHLX (Classic issues) from $0.10 per contract to $0.11 per
contract.
To increase the fees for Professional, Firm, and Market
Maker orders executed at AMEX, BOX, CBOE, BX Options, ISE (Classic
issues), and PHLX (Classic issues) from $0.55 per contract to $0.57 per
contract.
To increase the fees for Professional, Firm, and Market
Maker orders executed at ISE in Make/Take issues from $0.55 per
contract to $0.57 per contract.
To increase the fees for Customer orders executed at C2,
ARCA in Make/Take issues, PHLX in Make/Take issues, and NOM in Penny
Pilot Securities from $0.50 per contract to $0.52 per contract.
To increase the fees for Professional, Firm, and Market
Maker orders executed at C2, ARCA in Make/Take issues, PHLX in Make/
Take issues, and NOM in Penny Pilot Securities from $0.55 per contract
to $0.57 per contract.
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.\17\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\18\ 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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\17\ 15 U.S.C. 78f.
\18\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that continuing to provide additional
financial incentives to Members that demonstrate an increase over their
previous High Water Mark offers an additional, flexible way to achieve
financial incentives from the Exchange and encourages Members to add
increasing amounts of liquidity to BATS Options each month. The Grow
with Us pricing program, therefore, is reasonable in that it rewards a
Member's growth patterns. Such increased volume increases potential
revenue to the Exchange, and will allow the Exchange to continue to
provide and potentially expand the incentive programs operated by the
Exchange. The increased liquidity also benefits all investors by
deepening the BATS Options liquidity pool, offering additional
flexibility for all investors to enjoy cost savings, supporting the
quality of price discovery, promoting market transparency and improving
investor protection. The Grow with Us program is also fair and
equitable and not unreasonably discriminatory in that it is available
to all Members, even for Members that do not meet the Exchange's volume
based tiers. More specifically, the heightened requirement to achieve a
10 basis point, rather than 5 basis point, improvement over a Member's
previous High Water Mark is reasonable because this higher level will
incentivize growth by Members of BATS Options with a more meaningful
threshold. The proposed increase to the basis point requirement is fair
and equitable and not unreasonably discriminatory due to the fact that
Grow with Us pricing is available to all Members. As noted above, the
Exchange believes that this pricing structure is reasonable and not
unreasonably discriminatory because the Exchange is incentivizing
Members to increase their activity on BATS Options, to the benefit of
other BATS Options participants.
Volume-based rebates and fees such as the ones maintained by BATS
Options, and as amended by this proposal, have been widely adopted in
the cash equities markets, and are equitable because they are open to
all Members on an equal basis and provide additional benefits or
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/or growth patterns, and
introduction of higher volumes of orders into the price and volume
discovery processes. Accordingly, the Exchange believes that the
proposed changes to the tiered pricing structure are not unfairly
discriminatory because they are consistent with the overall goals of
enhancing market quality. Similarly, the Exchange believes that
continuing to base its tiered fee structure 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.
Specifically, the proposals to adjust the thresholds of existing
volume tiers, add additional volume tiers, and to modify the rebates
paid for Customer orders that add liquidity to the BATS Options order
book in Penny Pilot Securities are reasonable in that they are
consistent with the aforementioned goal of promoting market quality
because they reward Members for contributing to the growth of and
liquidity available on BATS Options, thereby furthering the price
discovery process. The Exchange believes that the proposed adjustment
to the tiered pricing structure is reasonable, fair and equitable
because the threshold has been lowered to permit additional Members to
qualify for the lowest tier. With respect to the proposed reduction of
the rebate for Members that do not qualify for tiered pricing on
Customer orders in Penny Pilot Securities, but that do qualify for Grow
with Us pricing, the Exchange
[[Page 68867]]
believes this adjustment is reasonable because the threshold to achieve
the enhanced rebate at the lowest tier is relatively low and, as
proposed, has become lower. Further, in order to incentivize Members to
achieve the rebates applicable to the lowest tier, the Exchange has
increased this rebate. In sum, the Exchange believes that the proposed
changes to tiered Customer rebates in Penny Pilot Securities are
reasonable, fair and equitable because, as a general matter, they are
geared at improving incentives for Members that are truly enhancing the
market quality of BATS Options. Further, the Exchange does not believe
that the proposed changes are unreasonably discriminatory because
tiered rebates for Customer orders are available to all Members on an
equal basis.
The Exchange also believes that the proposed increase to rebates
paid for Professional, Firm or Market Maker orders in Penny Pilot
Securities is reasonable in that it will further incentivize Members to
add liquidity to BATS Options and will help to offset proposed
increases in fees. The Exchange further believes that the proposed
increase to rebates for such orders is fair and equitable and not
unreasonably discriminatory because such rebates are available to all
Members that submit Professional, Firm or Market Maker orders to the
Exchange.
Despite the increases in fees for all orders that remove liquidity
(Customer, Professional, Firm and Market Maker orders) in Penny Pilot
Securities, the Exchange believes that its proposed fee structure is
reasonable as the Exchange's standard fees in Penny Pilot Securities
remain generally equivalent to standard fees charged by other markets
with similar fee structures, such as NYSE Arca and NOM. The increase in
fees is also reasonable because the Exchange has also proposed to
increase the majority of the rebates available for orders that qualify
for volume-based tier or the Grow with Us program. Similarly, the
Exchange believes that the increases are fair and equitable because the
various programs offered by the Exchange to receive reduced fees and
enhanced rebates provide all Members with several different ways to
offset the increase in fees or receive a reduction in fees. As noted
above, the Exchange believes that such volume-based tiers are fair and
equitable and not unreasonably discriminatory because they are
consistent with the overall goals of enhancing market quality. While
Professional, Firm and Market Maker orders will be assessed comparably
higher transaction fees than those assessed to other Customer orders,
as proposed, the Exchange does not believe that this pricing is
unreasonably discriminatory because the securities markets generally,
and the Exchange in particular, have historically aimed to improve
markets for investors and develop various features within the market
structure for customer benefit. The Exchange also notes that
Professional, Firm and Market Maker orders qualify for additional
rebates under the Exchange's NBBO Setter Program, which is not
applicable to Customer orders.
The Exchange's proposals to modify the NBBO Setter Program's
rebates are necessary because such modifications align with the other
modifications to the Exchange's tier structure (i.e., by creating a
third tier). Although some rebates provided under the NBBO Setter
Program, as amended, will be less than under the previous structure,
this change is reasonable due to the increased rebate provided to all
Professional, Firm and Market Maker orders. In particular, the
elimination of the $0.03 rebate for orders eligible for the NBBO Setter
Program submitted by Members that do not qualify for the lowest tier
but that do qualify for Grow with Us pricing is reasonable because such
members will receive an additional $0.03 rebate on all of their
Professional, Firm and Market Maker orders. Despite the fact that
Customer orders are not eligible for NBBO Setter Rebates, the proposed
modifications to NBBO Setter Rebates are fair and equitable and not
unreasonably discriminatory because in many cases, Customer orders that
do not set the NBBO are eligible for even higher rebates than certain
Professional, Firm, and Market Maker orders that did set the NBBO and
receive a NBBO Setter Rebate.
As explained above, the Exchange believes that elimination of the
Enhanced NBBO Setter Rebate is reasonable, fair and equitable and not
unreasonably discriminatory because this enhanced rebate program has
not been widely utilized and eliminating the Enhanced NBBO Setter
Rebate will act to simplify the Exchange's fee schedule while also
allowing the Exchange to allocate resources devoted to the program to
other pricing programs.
The Exchange believes that its proposed modifications to fees and
rebates for non-Penny Pilot Securities are reasonable in light of the
benefits to Members to the extent the corresponding rebates, which are
still significantly higher than typical rebates available for adding
liquidity, incentivize aggressive quoting that will result in better
execution prices, as described in further detail below. The Exchange
also believes that providing financial incentives to achieve aggressive
quoting and incentivize liquidity providers to narrow the spread while
charging more to those who realize the economic benefit of that
narrower spread is a fair and equitable approach to pricing. The
Exchange's proposal to increase fees and to reduce rebates for
Professional, Firm and Market Maker orders in non-Penny Pilot
Securities is reasonable, fair and equitable for several reasons,
including that the proposed fee is only a slight increase to existing
fees and that the Exchange has proposed other changes to the fee
schedule in which Professional, Firm, and Market Maker orders will
receive additional rebates. The proposal to increase the rebate for
Customer orders in non-Penny Pilot Securities, in turn, is reasonable
because it is intended to encourage Members to submit Customer orders
in non-Penny Pilot Securities to the Exchange. Finally, the Exchange
notes that in non-Penny Pilot Securities it is continuing to charge
more for, and rebating less to, non-Customer orders than Customer
orders, and the proposed changes will increase the gap between such
orders. The Exchange believes that this proposed pricing structure for
non-Penny Pilot Securities is not unreasonably discriminatory because
it accounts for the difference of assumed information and
sophistication level between the different trading capacities. Since
Professional, Firm and Market Maker capacity members are assumed to
have more informed (and hence less desirable to counterparties) orders,
those orders have a slightly higher transaction cost associated with
them. The Exchange further notes that the charges and rebates to all
non-Customer orders is equivalent regardless of capacity and therefore
non-discriminatory.
In the current U.S. options market, many of the contracts are
quoted in pennies. Under this pricing structure, the minimum penny tick
increment equates to a $1.00 economic value difference per contract,
given that a single standardized U.S. option contract covers 100 shares
of the underlying stock. Where contracts are quoted in $0.05
increments, the value per tick is $5.00 in proceeds to the investor
transacting in these contracts. Liquidity rebate and access fee
structures on the make-take exchanges, including BATS, for securities
quoted in penny increments are commonly in the $0.30 to $0.45 range. A
$0.30 rebate in a penny quoted security is a rebate
[[Page 68868]]
equivalent to 30% of the value of the minimum tick. A $0.45 charge in a
penny quoted security is a charge equivalent to 45% of the value of
that minimum tick. In other words, in penny quoted securities, where
the price is improved by one tick with an access fee of $0.45, an
investor paying to access that quote is still $0.55 better off than
trading at the wider spread, even without the access fee ($1.00 of
price improvement - $0.45 access fee = $0.55 better economics). This
math is equally true for securities quoted in wider increments. Rebates
and access fees near the $0.80 level equate to only 20% of the value of
the minimum tick. An investor transacting a single contract in a non-
penny quoted security quoted a single tick tighter than the rest of the
market, and paying an access fee of $0.75, is receiving economic
benefit of $4.25 ($0.05 improved tick = $5.00 in proceeds - $0.75
access fee = $4.25). The Exchange believes that encouraging liquidity
providers to quote more aggressively and narrow the spread in non-Penny
Pilot Securities will continue to benefit investors by improving the
overall economics of the resulting transactions that occur on the
Exchange, even if the access fee paid in connection with such
transactions is higher. Accordingly, the Exchange believes that the
proposed fees and rebates for non-Penny Pilot Securities are
reasonable.
As explained above, the Exchange generally attempts to approximate
the cost of routing to other options exchanges, including other
applicable costs to the Exchange for routing. The Exchange believes
that this pricing model, based on approximate Routing Costs is a
reasonable, fair and equitable approach to pricing. As noted above, in
order to maintain some level of consistency in its fee schedule, the
Exchange does not always adjust its routing fees when an away options
exchange adjusts its pricing, and thus, over time, the Exchange can end
up charging less for executions at the away options exchanges than are
required to cover its Routing Costs. The proposed increases to fees,
therefore, are reasonable, fair and equitable because they will
generally allow the Exchange to provide routing services at levels that
allow the Exchange to cover applicable Routing Costs rather than
subsidizing routing by Exchange Members. The Exchange believes that its
routing fees are not unreasonably discriminatory because they apply
equally to all Members and are intended to provide a service to Members
that is generally at the same cost that the Exchange incurs for
routing. 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 will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Particularly with respect to
routing fees, the proposed changes will assist the Exchange in
recouping costs for routing orders to other options exchanges on behalf
of its participants, and absent such change, the Exchange would be
subsidizing routing to other options exchanges by Exchange
participants. The Exchange also notes that Users may choose to mark
their orders as ineligible for routing to avoid incurring routing
fees.\19\ With respect to the changes to fees and rebates for
executions on the Exchange that are set forth in this proposal, the
Exchange does not believe that any such changes burden competition, but
instead, enhance competition, as they are intended to increase the
competitiveness of, and draw additional volume to, the Exchange's
platform. As stated above, 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 set by
the Exchange to be excessive.
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\19\ See BATS Rule 21.1(d)(8) (describing ``BATS Only'' orders
for BATS Options) and BATS Rule 21.9(a)(1) (describing the BATS
Options routing process, which requires orders to be designated as
available for routing).
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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 \20\ and Rule 19b-
4(f)(2) thereunder,\21\ 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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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 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 rule-comments@sec.gov. Please include
File Number SR-BATS-2012-043 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-2012-043. 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 on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
Copies of such filing also will be available for inspection and copying
at the principal offices of BATS. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You
[[Page 68869]]
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-BATS-2012-043,
and should be submitted on or before December 7, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27871 Filed 11-15-12; 8:45 am]
BILLING CODE 8011-01-P