[Federal Register Volume 81, Number 28 (Thursday, February 11, 2016)]
[Notices]
[Pages 7379-7382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02730]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77065; File No. SR-BATS-2016-15]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Fees for Use of BATS Exchange, Inc.
February 5, 2016.
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 February 4, 2016, 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
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 17 CFR 200.30-3(a)(12).
\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 filed a proposal to amend the fee schedule applicable
to Members \3\ and non-members of the Exchange pursuant to BATS Rules
15.1(a) and (c) (``Fee Schedule''). The changes to the Fee Schedule
pursuant to this proposal are effective upon filing.
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\3\ The term ``Member'' is defined as ``any registered broker or
dealer that has been admitted to membership in the Exchange.'' 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 amend its Fee Schedule to: (i) Adopt a new
tier under footnote 1 called the Market Depth Tier; (ii) eliminate from
footnote 2 Step-Up Tiers 1, 2, and 3 and rename Step-Up Tier 4 as
``Step-Up Tier''; and (iii) modify the tier-based incremental credits
for Members that are Lead Market Makers (``LMMs'') for their orders
that provide displayed liquidity in Tape B securities described under
footnote 14.
Proposed Market Maker Depth Tier
Currently, the Exchange determines the liquidity adding rebate that
it will provide to Members using the Exchange's tiered pricing
structure. Under such pricing structure, a Member will receive a rebate
of anywhere between $0.0020 and $0.0034 per share executed, depending
on the volume tier for which such Member qualifies. The Exchange
proposes to adopt a new tier under footnote 1 titled the ``Market
[[Page 7380]]
Depth Tier''. Under the Market Depth Tier, the Exchange is proposing to
provide a rebate of $0.0032 per share to Members that add an ADV \4\ of
at least: (i) 1% of the TCV; \5\ and (ii) 0.10% of the TCV as Non-
Displayed Orders \6\ that yield fee codes HA \7\ or HI.\8\ As is the
case with any other rebates on the Fee Schedule, to the extent that a
Member qualifies for higher rebates than those provided under the
proposed Market Depth Tier, the higher rebates shall apply.
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\4\ As defined in the Exchange's Fee Schedule.
\5\ Id.
\6\ See Exchange Rule 11.9(c)(11).
\7\ As set forth in the Exchange's Fee Schedule, fee code HA is
attached to Non-Displayed Orders that add liquidity.
\8\ As set forth in the Exchange's Fee Schedule, fee code HI is
attached to Non-Displayed Orders that receives price improvement and
add liquidity.
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Amendments to Step-Up Tiers
The Exchange also maintains additional Step-Up Tiers that provide
Members with additional ways to qualify for enhanced rebates where they
increase their liquidity each month over a predetermined baseline. The
Exchange currently offers four Step-Up Tiers under footnote 2 of its
Fee Schedule. Under Tier 1, a Member receives a rebate of $0.0025 per
share when its Step-Up Add TCV from January 2014 is equal to or greater
than 0.07%. Under Tier 2, a Member receives a rebate of $0.0029 per
share when its Step-Up Add TCV from January 2014 is equal to or greater
than 0.10%. Under Tier 3, a Member receives a rebate of $0.0030 per
share when its Step-Up Add TCV from January 2014 is equal to or greater
than 0.15%. Lastly, under Tier 4, a Members [sic] receives a rebate of
$0.0030 per share where their Step-Up Add TCV \9\ from August 2015 is
equal to or greater than 0.08%; and (2) Member's ADAV \10\ as a
percentage of TCV is equal to or greater than 0.35%.
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\9\ Id.
\10\ Id.
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The Exchange proposes to amend footnote 2 to eliminate Step-Up
Tiers 1, 2, and 3 and rename Step-Up Tier 4 as Step-Up Tier. The
Exchange believes that Step-Up Tiers 1, 2, and 3 have successfully
encouraged Members to increase their liquidity on the Exchange over a
January 2014 baseline and that such tiers are no longer necessary. The
Exchange notes that Step-Up Tier 4, which is to be renamed Step-Up
Tier, provides a contemporary baseline of August 2015 by which Members
may seek to increase their liquidity and receive a rebate of $0.0030
per share. In addition, deletion of Step-Up Tiers 1, 2, and 3 would
help offset the cost incurred by offering a rebate of $0.0032 per share
under the proposed Market Depth Tier discussed above.
LMM Credit Tiers for Tape B
On April 17, 2014, the Exchange filed a proposal to adopt rules to
create an LMM Program (the ``Program'') on an immediately effective
basis.\11\ The Program is designed to strengthen market quality for
BATS-listed Exchange Traded Products (``ETPs'') \12\ by offering
enhanced pricing to market makers registered with the Exchange
(``Market Makers'') \13\ that are also registered as an LMM in an LMM
Security \14\ and meet certain minimum quoting standards (``Minimum
Performance Standards'').\15\ In October 2015, the Exchange filed a
proposed rule change with the Commission to adopt such enhanced pricing
for LMMs under part (A) of footnote 14 of the Fee Schedule \16\ and to
adopt additional LMM credit tiers under part (B) of footnote 14, also
on an immediately effective basis.\17\
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\11\ See Securities Exchange Act Release No. 72020 (April 25,
2014), 79 FR 24807 (May 1, 2014) (SR-BATS-2014-015).
\12\ As defined in Rule 11.8(e)(1)(A), ETP means any security
listed pursuant to Exchange Rule 14.11.
\13\ See BATS Rule 11.5.
\14\ As defined in Rule 11.8(e)(1)(C), LMM Security means an ETP
that has an LMM.
\15\ As defined in Rule 11.8(e)(1)(D), Minimum Performance
Standards means a set of standards applicable to an LMM that may be
determined from time to time by the Exchange.
\16\ The Exchange does not propose to amend the enhanced pricing
available to LMMs under part (A) of footnote 14 of its Fee Schedule.
\17\ See Securities Exchange Act Release No. 76147 (October 14,
2015), 80 FR 63621 (October 20, 2015) (SR-BATS-2015-89).
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As described above, the Exchange offers tier-based incremental
credits to Members that are LMMs for their orders that provide
displayed liquidity in Tape B securities pursuant to paragraph (B) of
footnote 14 of the Fee Schedule. Specifically, Members that are LMMs
for LMM Securities receive an additional rebate per share (an ``LMM
Credit'') for orders that provide displayed liquidity in Tape B
securities traded on the Exchange, including non-BATS-listed
securities, except that such LMM Credits are not applied to the rebates
provided to LMMs pursuant to part (A) of footnote 14 of the Fee
Schedule (the ``LMM Rebate''). Currently, the LMM Credits and volume
thresholds associated therewith are as follows: (i) An LMM Credit of
$0.0001 per share where an LMM is a Qualified LMM \18\ in at least 50
ETPs; (ii) an LMM Credit of $0.0002 per share where an LMM is a
Qualified LMM in at least 75 ETPs; (iii) an LMM Credit of $0.0003 per
share where an LMM is a Qualified LMM in at least 150 ETPs; and (iv) an
LMM Credit of $0.0004 per share where an LMM is a Qualified LMM in at
least 250 ETPs.
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\18\ An LMM is a ``Qualified LMM'' in a security where it
provides pricing for orders that add displayed liquidity in an LMM
Security that meets the Minimum Performance Standards during the
applicable billing month.
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The Exchange now proposes to amend the LMM Credit Tiers under part
(B) of footnote 14 to reduce the minimum number of ETPs for which an
LMM must be a Qualified LMM in order to qualify for each tier as
follows: (i) To receive an LMM Credit of $0.0001 per share, the number
of ETPs for which the LMM is a Qualified LMM would be decreased from 50
to 25; (ii) to receive an LMM Credit of $0.0002 per share, the number
of ETPs for which the LMM is a Qualified LMM would be decreased from 75
to 50; (iii) to receive an LMM Credit of $0.0003 per share, the number
of ETPs for which the LMM is a Qualified LMM would be decreased from
150 to 75; and (iv) to receive an LMM Credit of $0.0004 per share, the
number of ETPs for which the LMM is a Qualified LMM would be decreased
from 250 to 125.
For example, a Member that is a Qualified LMM in 100 ETPs is
currently eligible to receive an LMM Credit of $0.0002 per share in
Tape B securities for which it is not a Qualified LMM, in addition to
the rebate it would normally receive in accordance with the Exchange's
Fee Schedule (``Normal Rebate''). As proposed, however, the Member
would instead receive an LMM Credit of $0.0003 per share in Tape B
securities for which it is not a Qualified LMM in addition to the
Normal Rebate.\19\
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\19\ Where the LMM Credit plus the Normal Rebate is greater than
the LMM Rebate, the Member will receive this higher rebate instead
of the LMM Rebate, which is consistent with the treatment of all
other fees and rebates, as provided in the General Note that states
``to the extent a Member qualifies for higher rebates and/or lower
fees than those provided by a tier for which such Member qualifies,
the higher rebates and/or lower fees shall apply.''
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Implementation Date
The Exchange proposes to implement these amendments to its Fee
Schedule immediately.\20\
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\20\ The Exchange initially filed the proposed fee change on
January 28, 2016 (SR-BATS-2016-11). On February 4, 2016, the
Exchange withdrew SR-BATS-2016-11 and submitted this filing.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\21\ in general, and
furthers the objectives of
[[Page 7381]]
Section 6(b)(4),\22\ in particular, as it is designed to provide for
the equitable allocation of reasonable dues, fees and other charges
among its Members and other persons using its facilities. The Exchange
also notes that it operates in a highly-competitive market in which
market participants can readily direct order flow to competing venues
if they deem fee levels at a particular venue to be excessive. The
proposed rule change reflects a competitive pricing structure designed
to incent market participants to direct their order flow to the
Exchange. The Exchange believes that the proposed tier is equitable and
non-discriminatory in it would apply uniformly to all Members. The
Exchange believes the rates remain competitive with those charged by
other venues and, therefore, reasonable and equitably allocated to
Members.
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\21\ 15 U.S.C. 78f.
\22\ 15 U.S.C. 78f(b)(4).
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Volume-based rebates such as that proposed herein have been widely
adopted by equities and options exchanges 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: (i) The value to
an exchange's market quality; (ii) associated higher levels of market
activity, such as higher levels of liquidity provision and/or growth
patterns; and (iii) introduction of higher volumes of orders into the
price and volume discovery processes. The Exchange believes that the
proposed tier is a reasonable, fair and equitable, and not unfairly
discriminatory allocation of fees and rebates because they will provide
Members with an additional incentive to reach certain thresholds on the
Exchange.
In particular, the Exchange believes the addition of the Market
Depth Tier is a reasonable means to encourage Members to increase their
liquidity on the Exchange. The Exchange further believes that the
proposed Market Depth Tier represents an equitable allocation of
reasonable dues, fees, and other charges because the thresholds
necessary to achieve the tier encourages Members to add displayed
liquidity to the BATS Book \23\ each month, as only the displayed
liquidity in this tier is awarded the rebate of $0.0032 per share. This
tier also recognizes the contribution that non-displayed liquidity
provides to the marketplace, including: (i) Adding needed depth to the
Exchange market; (ii) providing price support/depth of liquidity; and
(iii) increasing diversity of liquidity to the Exchange. The increased
liquidity benefits all investors by deepening the Exchange's 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.
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\23\ See Exchange Rule 1.5(e).
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Proposed Market Maker Depth Tier
The Exchange also notes that the criteria and rebate under the
Market Depth Tier is equitable and reasonable as compared to other
tiers offered by the Exchange. For example, under footnote 1 a Member
may receive a rebate of $0.0030 per share under Tier 4 where their: (i)
ADAV as a percentage of TCV [sic] equal to or greater than .50%; or
(ii) ADV as a percentage of TCV is equal to or greater than 1.00%. Like
the proposed Market Depth Tier, Members must add as a percentage of TCV
of [sic] 1.00%. However, in order to receive the higher rebate of
$0.0032 per share, the Member must also add an ADV of at least 0.10% of
the TCV as Non-Displayed Orders that yield fee codes HA or HI.
Therefore, the Exchange believes the proposed Market Depth Tier is
consistent with Section 6(b)(4) \24\ of the Act as the more stringent
criteria correlates with the tier's higher rebate.
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\24\ 15 U.S.C. 78f(b)(4).
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Amendments to Step-Up Tiers
The Exchange believes that its proposal to amend footnote 2 to
delete Step-Up Tiers 1, 2, and 3 and rename Step-Up Tier 4 as Step-Up
Tier is reasonable, fair, and equitable for several of the reasons
stated above. Specifically, the Exchange believes that Step-Up Tiers 1,
2, and 3 have successfully encouraged Members to increase their
liquidity on the Exchange over a January 2014 baseline and that such
tiers are no longer necessary. The Exchange notes that Step-Up Tier 4,
which is to be renamed Step-Up Tier, provides a contemporary baseline
of August 2015 by which Members may seek to increase their liquidity
and receive a rebate of $0.0030 per share. In addition, deletion of
Step-Up Tiers 1, 2, and 3 would help offset the cost incurred by
offering a rebate of $0.0032 per share under the proposed Market Depth
Tier discussed above. As such, the Exchange believes that removing the
tier from its fee schedule is reasonable, fair, and equitable. The
Exchange also believes that the proposed amendments are non-
discriminatory because they apply uniformly to all Members.
LMM Credit Tiers for Tape B
The proposed reduction to the minimum number of ETPs for which an
LMM must be a Qualified LMM in order to qualify for each tier in the
LMM Credit Tiers for Tape B is intended to encourage Members to promote
price discovery and market quality across all BATS-listed securities
for the benefit of all market participants. The Exchange believes that
reducing the thresholds for meeting such tiers provides increased
incentives to Members to become LMMs in BATS-listed ETPs, to satisfy
the Minimum Performance Standards in ETPs each month, and to add
liquidity in Tape B securities on the Exchange, and is therefore
reasonable because the Exchange believes doing so would encourage more
LMMs to register to quote and trade in as many BATS-listed ETPs as
possible. In particular, reducing the ETP requirements necessary to
receive enhanced rebates tiered based on the number of securities for
which a Member is registered as an LMM, would provide an incentive for
such Members not only to register as an LMM in more liquid securities,
but also to register to quote in lower volume ETPs, which are
traditionally less profitable for market makers than more liquid ETPs.
Moreover, the Exchange believes that the proposed change will
incentivize LMMs to register as an LMM in more ETPs, including less
liquid ETPs and, thus, add more liquidity in these and other Tape B
securities to the benefit of all market participants. The Exchange
believes that the proposed reduction in the threshold is equitable and
not unfairly discriminatory because it remains consistent with the
market quality and competitiveness benefits associated with the fee
program and because the magnitude of the additional rebate is not
unreasonably high in comparison to the requirements associated with
receiving such LMM Credit and the rebate paid with respect to other
displayed liquidity-providing orders.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe its proposed amendment to its Fee
Schedule would impose any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act. The Exchange
does not believe that the proposed change represents a significant
departure from previous pricing offered by the Exchange or pricing
offered by the Exchange's competitors. Additionally, Members may opt to
disfavor the Exchange's pricing if they believe that alternatives offer
them better value. Accordingly, the Exchange does not believe that the
proposed change will impair the ability of Members or competing venues
to maintain their
[[Page 7382]]
competitive standing in the financial markets.
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 structures to be unreasonable or excessive. The
proposed changes are generally intended to enhance the rebates for
liquidity added to the Exchange, which is intended to draw additional
liquidity to the Exchange. The Exchange does not believe the proposed
amendments would burden intramarket competition as they would apply to
all Members uniformly.
The Exchange does not believe that the proposed new Market Depth
Tier would burden competition, but instead, enhances competition, as it
is intended to increase the competitiveness of and draw additional
volume to the Exchange. Nor does the Exchange believes eliminating
Step-Up Tiers 1, 2, and 3 would impose any burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. Those tiers have successfully encouraged Members to increase their
liquidity on the Exchange and their elimination would help offset the
cost incurred by offering a rebate of $0.0032 per share under the
proposed Market Depth Tier.
The Exchange does not believe that the proposed reduction to the
minimum number of ETPs for which an LMM must be a Qualified LMM in
order to qualify for each tier in the LMM Credit Tiers for Tape B will
burden competition, but instead, enhances competition, as these changes
are intended to increase LMM participation in Tape B Securities, to
incentivize Members to register as LMMs in BATS-listed ETPs, and to
encourage Members to meet the Minimum Performance Standards in such
ETPs. As such, the proposal is a competitive proposal that is intended
to add additional liquidity to the Exchange, which will, in turn,
benefit the Exchange and all Exchange participants.
(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 this proposed rule change. The Exchange has not received
any unsolicited 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 \25\ and paragraph (f) of Rule 19b-4
thereunder.\26\ 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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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f).
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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 proposal is
consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-BATS-2016-15 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 No. SR-BATS-2016-15. 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 will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-BATS-2016-15 and should be
submitted on or before March 3, 2016.
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\27\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Brent J. Fields,
Secretary.
[FR Doc. 2016-02730 Filed 2-10-16; 8:45 am]
BILLING CODE 8011-01-P