80 FR 62142 - Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt an Issuer Incentive Program Applicable to Securities Listed on BATS Exchange, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 199 (October 15, 2015)

[Federal Register Volume 80, Number 199 (Thursday, October 15, 2015)]
[Notices]
[Pages 62142-62145]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-26150]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76113; File No. SR-BATS-2015-80]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
an Issuer Incentive Program Applicable to Securities Listed on BATS 
Exchange, Inc.

October 8, 2015.
    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 September 30, 2015, 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\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fees applicable to 
securities listed on the Exchange, which are set forth in BATS Rule 
14.13.
    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
    On August 30, 2011, the Exchange received approval of rules 
applicable to the qualification, listing, and delisting of companies on 
the Exchange,\3\ which it modified on February 8, 2012 in order to 
adopt pricing for the listing of exchange traded products (``ETPs'') 
\4\ on the Exchange,\5\ which it subsequently modified again on June 4, 
2014.\6\ On October 16, 2014, the Exchange modified Rule 14.13, 
entitled ``Company Listing Fees'' to eliminate the annual fees for ETPs 
not participating in the Exchange's Competitive Liquidity

[[Page 62143]]

Provider Program pursuant to Rule 11.8, Interpretation and Policy .02 
(the ``CLP Program'').\7\ On May 22, 2015, the Exchange further 
modified Rule 14.13 to eliminate the $5,000 application fee for ETPs, 
effectively eliminating any compulsory fees for both new ETP issues and 
transfer listings in ETPs on the Exchange.\8\ The Exchange is now 
proposing to offer an incentive payment to ETPs that are listed on the 
Exchange based on the consolidated average daily volume (the ``CADV'') 
of the ETP (the ``Issuer Incentive Program''). The Exchange notes that 
the payments would be made payable to the ETP or fund, and not to the 
sponsor of the ETP.\9\
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    \3\ See Securities Exchange Act Release No. 65225 (August 30, 
2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018).
    \4\ As defined in BATS Rule 11.8(e)(1)(A), the term ``ETP'' 
means any security listed pursuant to Exchange Rule 14.11.
    \5\ See Securities Exchange Act Release No. 66422 (February 17, 
2012), 77 FR 11179 (February 24, 2012) (SR-BATS-2012-010).
    \6\ See Securities Exchange Act Release No. 72377 (June 12, 
2014), 79 FR 34822 (June 18, 2014) (SR-BATS-2014-024).
    \7\ See Securities Exchange Act Release No. 73414 (October 23, 
2014), 79 FR 64434 (October 29, 2014) (SR-BATS-2014-050).
    \8\ See Securities Exchange Act Release No. 75085 (June 1, 
2015), 80 FR 32190 (June 5, 2015) (SR-BATS-2015-39).
    \9\ The sponsor of an ETP is the registered investment adviser 
that provides investment management services to such ETP.
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    Specifically, the Exchange is proposing that the Issuer Incentive 
Program would allow the Exchange to provide payments to the fund on a 
quarterly basis that would be based on the CADV of the ETP for each 
trading day of the preceding calendar quarter that the ETP was listed 
on the Exchange, as follows:

------------------------------------------------------------------------
                                                              Annualized
                         CADV Range                             payment
------------------------------------------------------------------------
1,000,000-3,000,000 shares..................................      $3,000
3,000,001-5,000,000 shares..................................      10,000
5,000,001-10,000,000 shares.................................      50,000
10,000,001-20,000,000 shares................................     100,000
20,000,001-35,000,000 shares................................     250,000
Greater than 35,000,000 shares..............................     400,000
------------------------------------------------------------------------

    Because the payments would be provided for each trading day, where 
an ETP had a CADV of 4,000,000 over the course of a full calendar 
quarter that it was listed on the Exchange, the ETP would receive a 
payment of $2,500 (.25 * $10,000, the annualized payment for that CADV) 
for the quarter. Where the same ETP had a CADV of 4,000,000, but was 
only listed on the Exchange for exactly half of the trading days in the 
calendar quarter, the ETP would receive a payment of $1,250 ((.25 * 
$10,000) * .5).
    The Exchange is proposing the Issuer Incentive Program as a way to 
attract both new ETP issues and transfer ETP listings to the Exchange. 
The Exchange notes that the Issuer Incentive Program would also be 
applicable to ETPs currently listed on the Exchange. Traditionally, ETP 
issuers have paid between $5,000 and $55,000 on an annual basis in 
order to be listed on an exchange,\10\ a paradigm only recently broken 
by BATS implementing free ETP listings on the Exchange, as described 
above. If the only revenue source associated with listing these ETPs 
was the listing fee, the pay-per-listing model would make sense, 
however, the primary listing exchange also earns additional revenue 
from trading fees. Such additional trading fees are earned by exchanges 
from the outsized share of intraday trading volume that a primary 
listed security typically garners for the listing exchange as well as 
trading fees for orders participating in the opening and closing 
auctions. As the CADV increases for an ETP, so does the additional 
trading fee revenue earned by the primary listing exchange. As such, 
the Exchange is proposing to adopt the above described tiered payment 
structure for ETPs listed on the Exchange, which it believes creates a 
more equitable and appropriate relationship between the Exchange and 
issuers based on the revenue and expenses associated with listing ETPs 
on the Exchange.
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    \10\ See, e.g., NYSE Arca Equities Schedule of Fees and Charges 
for Exchange Listing Services, available at: https://www.nyse.com/publicdocs/nyse/listing/nyse_arca_e_listing_fees.pdf; see also 
NASDAQ Rules 5930 and 5940.
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    In addition to the proposed changes described above, the Exchange 
proposes to eliminate reference to fees for securities participating in 
the CLP Program because such program is no longer operational and has 
been replaced by the Supplemental Competitive Liquidity Provider 
Program, as described in Rule 11.8, Interpretation and Policy .03 (the 
``ETP CLP Program'').
    The Exchange proposes to implement the amendments to Rule 
14.13(b)(2)(C) effective October 1, 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.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) and 6(b)(5) of the Act,\12\ in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among issuers and it does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed amendment to the annual 
listing fees in Rule 14.13(b)(2)(C) to provide payment to ETPs listed 
on the Exchange is a reasonable, fair and equitable, and not unfairly 
discriminatory allocation of fees and other charges because it would 
create a distribution of fees and other charges applicable to all 
issuers that reflect the additional revenue that an ETP listed on the 
Exchange creates for the Exchange through executions occurring in the 
auctions and additional shares executed on the Exchange. As the market 
is currently structured, ETPs typically pay a flat fee to an exchange 
for listing services regardless of the amount of additional revenue 
that the product will bring to the exchange. The Issuer Incentive 
Program, on the other hand, acknowledges the additional revenue brought 
to the Exchange by virtue of an ETP listing on the Exchange and is 
designed to reward the issuer of an ETP for such additional revenue, 
which the Exchange believes creates a more equitable and appropriate 
relationship between the Exchange and issuers based on the revenue and 
expenses associated with listing ETPs on the Exchange. As such, the 
Exchange believes that that it is reasonable, fair and equitable, and 
not unfairly discriminatory allocation of fees and other charges to 
provide payment to issuers of ETPs listed on the Exchange.
    Similarly, the Exchange believes that the proposed amendment to the 
annual listing fees in Rule 14.13(b)(2)(C) to provide tiered payments 
to issuers of ETPs listed on the Exchange based on the CADV of an ETP 
is a reasonable, fair and equitable, and not unfairly discriminatory 
allocation of fees and other charges because it would create a 
distribution of fees and other charges applicable to all issuers that 
are commensurate with the additional revenue that an ETP listed on the 
Exchange creates for the Exchange through executions occurring in the 
auctions and additional shares executed on the Exchange. As described 
above, where the CADV of an ETP increases, so does the additional 
trading fee revenue earned by the primary listing exchange. 
Accordingly, the tiers within the Issuer Incentive Program are designed 
to reward the issuer of an ETP on the basis of the additional revenue 
potential that the ETP brings to the Exchange. Further to this point, 
the Exchange does not believe that the proposal is unfairly 
discriminatory because, as described above, the annualized payments 
associated with the various CADV tiers in the Issuer Incentive Program 
are designed to account for the approximate additional revenue that the 
Exchange

[[Page 62144]]

will receive from an ETP listed on the Exchange within a particular 
CADV tier. The Exchange notes that certain ETPs in the proposed tiers 
with higher CADV would receive disproportionately higher rebates than 
ETPs in other tiers with lower CADV. The Exchange believes it is 
equitable and not unfairly discriminatory to provide a 
disproportionately higher payment to ETPs in higher tiers because such 
ETPs would likely bring a disproportionately larger amount of revenue 
to the Exchange from the auctions the Exchange would conduct for such 
securities and increased trading activity on the Exchange in such 
securities. The Exchange believes that the additional revenue it will 
generate from ETPs that receive payments through the Issuer Incentive 
Program, including ETPs that qualify for the higher tiers, will exceed 
the amount of such payments. To the extent the additional revenue 
generated by ETPs that receive payments through the Issuer Incentive 
Program does not exceed the amount of such payments, the Exchange will 
modify the structure of the Issuer Incentive Program such that the 
program does generate revenue for the Exchange.
    In addition, the Exchange does not believe that it is unfairly 
discriminatory to exclude ETPs with a CADV of less than 1,000,000 from 
the Issuer Incentive Program because such ETPs do not typically 
generate revenue to the same degree as the higher CADV products. The 
Exchange notes that ETPs with a CADV of less than 1,000,000 are 
eligible to participate in the ETP CLP Program, which is designed to 
incent market makers to provide liquidity in less actively traded 
products with the goal of facilitating the growth of such products.\13\
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    \13\ Pursuant to Rule 11.8, Interpretation and Policy .03(n), a 
security participating in the ETP CLP Program will no longer be 
eligible to participate once such security sustains CADV of 
1,000,000 shares or more for three consecutive months.
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    The Exchange believes that the proposal creates a more equitable 
and appropriate relationship between the Exchange and issuers tied 
directly to the revenue and expenses associated with listing ETPs on 
the Exchange. As such, the Exchange believes that that it is 
reasonable, fair and equitable, and not unfairly discriminatory 
allocation of fees and other charges to offer payments to issuers of 
ETPs listed on the Exchange that are tiered on the basis of the CADV of 
the ETP.
    The Exchange is not currently proposing to extend the Issuer 
Incentive Program to corporate securities despite the fact that it 
currently maintains rules and fees necessary to support the listing of 
a corporate security on the Exchange.\14\ The Exchange believes it is 
reasonable and equitable to limit the Issuer Incentive Program to ETPs 
and not to extend such proposal to corporate listings because the 
economic structure of operating a listings program for ETPs is 
significantly different than operating a listings program for 
corporates. A primary distinction between ETPs and corporate listings 
is that the regulation and oversight of ETPs is scalable, such that 
while each new ETP requires surveillance and results in additional 
regulatory burden on the Exchange, such burden is rarely related to the 
governance structure of the fund as many funds are often issued through 
the same governance structure (e.g., a trust). In contrast, each 
corporate issuance is typically distinct from any other issuance, and 
thus, the regulatory burden does not as easily scale as the number of 
listings increases. In addition, corporate listings often demand 
additional oversight with respect to governance and services that are 
typically not provided for ETPs, including investor relations services, 
public relations, sales and marketing. These services often demand a 
large capital commitment from the listings exchange. Thus, while the 
Exchange believes that it can adopt a competitive and profitable 
program for ETPs that includes the Issuer Incentive Program as 
proposed, the Exchange would have to further analyze whether such a 
program could be applied to corporate securities and remain profitable.
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    \14\ The Exchange notes that it does not currently list any 
corporate securities and would consider applicable fees and 
incentives in the future if the Exchange is to list one or more 
corporate securities, particularly if the Exchange was seeking to 
operate a competitive corporate listing business. To the extent the 
Exchange did propose to extend the Issuer Incentive Program to 
corporate securities it would file a separate proposal pursuant to 
Section 19(b)(1) of the Act and Rule 19b-4 thereunder.
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    Based on the foregoing, the Exchange believes that the proposed 
amendment to Rule 14.13(b)(2)(C) to implement the Issuer Incentive 
Program is a reasonable, equitable, and non-discriminatory allocation 
of fees to issuers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. With 
respect to the proposed new pricing for the listing of ETPs, the 
Exchange does not believe that the changes burden competition, but 
instead, enhance competition, as it is intended to increase the 
competitiveness of the Exchange's listings program by allowing the 
Exchange to provide ETPs with quarterly payments based on the CADV of 
the ETP, which the Exchange believes will be directly related to the 
amount of additional revenue that the Exchange receives from additional 
transactions in the ETP. As such, the proposal is a competitive 
proposal that is intended to attract additional ETP listings, which 
will, in turn, benefit the Exchange and all other BATS-listed ETPs.

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 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 \15\ and paragraph (f) of Rule 19b-4 
thereunder.\16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-2015-80 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-2015-80. This file 
number should be included on the subject line

[[Page 62145]]

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-2015-80 and should be submitted on or before November 
5, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26150 Filed 10-14-15; 8:45 am]
BILLING CODE 8011-01-P