[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7665-7668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02752]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74214; File No. SR-BATS-2015-08]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt
an Options Regulatory Fee
February 5, 2015.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of
1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on January 30, 2015, BATS Exchange, Inc. (the ``Exchange''
or ``BATS'') filed with the Securities and Exchange Commission (the
``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 proposal effective upon filing with
the Commission. The Commission is publishing this notice to
[[Page 7666]]
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 filed a proposal to amend the fee schedule applicable
to Members \5\ and non-members of the Exchange pursuant to BATS Rules
15.1(a) and (c) to adopt an Options Regulatory Fee (``ORF'') in the
amount of $0.0010 per contract side.
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\5\ The term ``Member'' is defined as ``any registered broker or
dealer, or any person associated with a registered broker or dealer,
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
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The text of the proposed rule change is available at the Exchange's
Web site at 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 to adopt an ORF in the amount of $0.0010 per contract
side. The per-contract ORF will be assessed by the Exchange to each
Member for all options transactions executed and cleared, or simply
cleared, by the Member, that are cleared by OCC in the ``customer''
range, regardless of the exchange on which the transaction occurs. The
ORF will be collected indirectly from Members through their clearing
firms by OCC on behalf of the Exchange.
The ORF also will be charged for transactions that are not executed
by a Member but are ultimately cleared by a Member. In the case where a
non-Member executes a transaction and a Member clears the transaction,
the ORF will be assessed to the Member who clears the transaction. In
the case where a Member executes a transaction and another Member
clears the transaction, the ORF will be assessed to the Member who
clears the transaction. As a practical matter, it is not feasible or
reasonable for the Exchange (or any SRO) to identify each executing
member that submits an order on a trade-by-trade basis. There are
countless executing market participants, and each day such participants
can and often do drop their connection to one market center and
establish themselves as participants on another. It is virtually
impossible for any exchange to identify, and thus assess fees such as
an ORF on, each executing participant on a given trading day.
Clearing members, however, are distinguished from executing
participants because they remain identified to the Exchange regardless
of the identity of the initiating executing participant, their
location, and the market center on which they execute transactions.
Therefore, the Exchange believes it is more efficient for the operation
of the Exchange and for the marketplace as a whole to assess the ORF to
clearing members.
The Exchange believes it is appropriate to charge the ORF only to
transactions that clear as customer at the OCC. The Exchange believes
that its broad regulatory responsibilities with respect to a Member's
activities supports applying the ORF to transactions cleared but not
executed by a Member. The Exchange's regulatory responsibilities are
the same regardless of whether a Member executes a transaction or
clears a transaction executed on its behalf. The Exchange regularly
reviews all such activities, including performing surveillance for
position limit violations, manipulation, front-running, contrary
exercise advice violations and insider trading. These activities span
across multiple exchanges.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of Members' customer
options business, including performing routine surveillances and
investigations, as well as policy, rulemaking, interpretive and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees and fines, will cover a material portion, but not all, of the
Exchange's regulatory costs. The Exchange notes that its regulatory
responsibilities with respect to Member compliance with options sales
practice rules have been allocated to the Financial Industry Regulatory
Authority, Inc. (``FINRA'') under a 17d-2 Agreement. The ORF is not
designed to cover the cost of options sales practice regulation.
The Exchange will continue to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, does not exceed the Exchange's total
regulatory costs. The Exchange expects to monitor its regulatory costs
and revenues at a minimum on a semi-annual basis. If the Exchange
determines regulatory revenues exceed or are insufficient to cover a
material portion of its regulatory costs, the Exchange will adjust the
ORF by submitting a fee change filing to the Commission. The Exchange
will notify Members of adjustments to the ORF at least 30 calendar days
prior to the effective date of the change.\6\
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\6\ The Exchange announced its intent to charge an ORF on
October 7, 2014. See BATS Global Markets Access Services Fee Changes
for 2015 available at http://cdn.batstrading.com/resources/fee_schedule/2015/BATS-Global-Markets-Access-Services-Fee-Changes-for-2015.pdf. The semi-annual review and notice provisions are
similar to those adopted by NYSE Arca, Inc. (``NYSE Arca''). See
Securities Exchange Act Release No. 70500 (September 25, 2013), 78
FR 60361 (October 1, 2013) (SR-NYSEArca-2013-91).
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The Exchange believes it is reasonable and appropriate for the
Exchange to charge the ORF for options transactions regardless of the
exchange on which the transactions occur. The Exchange has a statutory
obligation to enforce compliance by Members and their associated
persons under the Act and the rules of the Exchange and to surveil for
other manipulative conduct by market participants (including non-
Members) trading on the Exchange. The Exchange cannot effectively
surveil for such conduct without looking at and evaluating activity
across all options markets. Many of the Exchange's market surveillance
programs require the Exchange to look at and evaluate activity across
all options markets, such as surveillance for position limit
violations, manipulation, front-running and contrary exercise advice
violations/expiring exercise declarations. Also, the Exchange and the
other options exchanges are required to populate a consolidated options
audit trail (``COATS'') \7\ system in order to surveil a Member's
activities across markets.
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\7\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct the market promptly
to effectively surveil certain rules.
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In addition to its own surveillance programs, the Exchange works
with
[[Page 7667]]
other SROs and exchanges on intermarket surveillance related issues.
Through its participation in the Intermarket Surveillance Group
(``ISG''),\8\ the Exchange shares information and coordinates inquiries
and investigations with other exchanges designed to address potential
intermarket manipulation and trading abuses. The Exchange's
participation in ISG helps it to satisfy the requirement that it has
coordinated surveillance with markets on which security futures are
traded and markets on which any security underlying security futures
are traded to detect manipulation and insider trading.\9\
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\8\ ISG is an industry organization formed in 1983 to coordinate
intermarket surveillance among the SROs by co-operatively sharing
regulatory information pursuant to a written agreement between the
parties. The goal of the ISG's information sharing is to coordinate
regulatory efforts to address potential intermarket trading abuses
and manipulations.
\9\ See Section 6(h)(3)(I) of the Act.
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The Exchange believes that charging the ORF across markets will
avoid having Members direct their trades to other markets in order to
avoid the fee and to thereby avoid paying for their fair share for
regulation. If the ORF did not apply to activity across markets then a
Member would send their orders to the least cost, least regulated
exchange. Other exchanges do impose a similar fee on their member's
activity, including the activity of those members on BATS.\10\
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\10\ Similar regulatory fees have been instituted by PHLX, ISE,
and MIAX. See Securities Exchange Act Release Nos. 61133 (December
9, 2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100); 61154
(December 11, 2009), 74 FR 67278 (December 18, 2009) (SR-ISE-2009-
105); and 68711 (January 23, 2013), 78 FR 6155 (January 29, 2013)
(SR-MIAX-2013-01).
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The Exchange notes that there is established precedent for an SRO
charging a fee across markets, namely, FINRAs Trading Activity Fee \11\
and the MIAX, NYSE Amex, NYSE Arca, CBOE, PHLX, ISE and BOX ORFs. While
the Exchange does not have all of the same regulatory responsibilities
as FINRA, the Exchange believes that, like other exchanges that have
adopted an ORF, its broad regulatory responsibilities with respect to a
Member's activities, irrespective of where their transactions take
place, support a regulatory fee applicable to transactions on other
markets. Unlike FINRA's Trading Activity Fee, the ORF would apply only
to a Member's customer options transactions.
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\11\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 3402 (June 6, 2003).
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Implementation Date
The Exchange proposes to implement the ORF on February 2, 2015.
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.\12\
Specifically, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\13\ 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 or providers of routing services
if they deem fee levels to be excessive.
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\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the ORF is equitable and not unfairly
discriminatory because it would be objectively allocated to Members in
that it would be charged to all Members on all their transactions that
clear as customer transactions at the OCC. Moreover, the Exchange
believes the ORF ensures fairness by assessing fees to those Members
that are directly based on the amount of customer options business they
conduct. Regulating customer trading activity is much more labor
intensive and requires greater expenditure of human and technical
resources than regulating non-customer trading activity, which tends to
be more automated and less labor-intensive. As a result, the costs
associated with administering the customer component of the Exchange's
overall regulatory program are materially higher than the costs
associated with administering the non-customer component (e.g., Member
proprietary transactions) of its regulatory program. In addition, the
Exchange believes the amount of the ORF is reasonable as it is lower
than ORFs charged by other exchanges. By way of comparison, MIAX
charges an ORF of $0.0045 per contract side,\14\ and both NYSE Arca and
NYSE Amex charge an ORF of $0.0055 per contract side.\15\
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\14\ See MIAX fee schedule available at http://www.miaxoptions.com/sites/default/files/MIAX_Options_Fee_Schedule_02012015.pdf (last visited January 30,
2015).
\15\ See NYSE Arca Options fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited January 30, 2015);
and NYSE Amex fee schedule available at https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf (last visited January 30, 2015).
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The ORF is designed to recover a material portion of the costs of
supervising and regulating Members' customer options business including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. The Exchange will monitor, on at least a semi-
annual basis the amount of revenue collected from the ORF to ensure
that it, in combination with its other regulatory fees and fines, does
not exceed the Exchange's total regulatory costs. If the Exchange
determines regulatory revenues exceed or are insufficient to cover a
material portion of its regulatory costs, the Exchange will adjust the
ORF by submitting a fee change filing to the Commission. The Exchange
will notify Members of adjustments to the ORF via regulatory circular.
The Exchange has designed the ORF to generate revenues that, when
combined with all of the Exchange's other regulatory fees, will be less
than or equal to the Exchange's regulatory costs, which is consistent
with the Commission's view that regulatory fees be used for regulatory
purposes and not to support the Exchange's business side. In this
regard, the Exchange believes that the initial level of the fee is
reasonable.
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. The ORF is not intended to have
any impact on competition. Rather, it is designed to enable the
Exchange to recover a material portion of the Exchange's cost related
to its regulatory activities. The proposed ORF is also comparable to
fees charged by other options exchanges for the same or similar
service. 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 the deem fee structures to be
unreasonable or excessive.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on
[[Page 7668]]
this proposed rule change. The Exchange has not received any written
comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \16\ and paragraph (f) of Rule 19b-4
thereunder.\17\ 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.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 17 CFR 240.19b-4(f)(2).
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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-2015-08 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2015-08. 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
10:00 a.m. and 3:00 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 available publicly. All
submissions should refer to File Number SR-BATS-2015-08, and should be
submitted on or before March 4, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Brent J. Fields
Secretary.
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\18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-02752 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P