[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]
[Notices]
[Pages 81581-81584]
[FR Doc No: 2015-32898]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76774; File No. SR-BYX-2015-51]

Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Fees for Use of BATS Y-Exchange, Inc.

December 24, 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 December 22, 2015, BATS Y-Exchange, Inc. (the ``Exchange'' or
``BYX'') 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 Substance
of the Proposed Rule Change

    The Exchange filed a proposal to amend the Market Data section of
its fee schedule to: (i) Adopt definitions for the terms ``Non-Display
Usage'' and ``Trading Platforms''; and (ii) amend the fees for TCP
Depth and Multicast Depth data products,\5\ also known as BZX Depth
[sic], to increase the Internal Distributor fee and adopt a new fee for
Non-Display Usage.
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    \5\ See Exchange Rule 11.22(a) and (c).
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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 the Market Data section of its fee
schedule to: (i) Adopt definitions for the terms ``Non-Display Usage''
and ``Trading Platforms''; and (ii) amend the fees for BYX Depth to
increase the Internal Distributor fee and adopt a new fee for Non-
Display Usage.
Definitions
    The Exchange proposes to adopt definitions for the terms ``Non-
Display Usage'' and ``Trading Platforms''. The proposed definitions are
designed to provide greater transparency with regard to how the
Exchange assesses fees for market data. Non-Display Usage would be
defined as ``any method of accessing a Market Data product that
involves access or use by a machine or automated device without access
or use of a display by a natural person or persons.'' \6\ The term
Trading Platform would be defined as ``any execution platform operated
as or by a registered National Securities Exchange (as defined in
Section 3(a)(1) of the Exchange Act), an Alternative Trading System (as
defined in Rule 300(a) of Regulation ATS), or an Electronic
Communications Network (as defined in Rule 600(b)(23) of Regulation
NMS).'' \7\
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    \6\ The proposed definition of Non-Display Usage is
substantially similar to Nasdaq Stock Market LLC (``Nasdaq'') Rule
7023(a)(2)(B), which defines Non-Display Usage as ``any method of
accessing Depth-of-Book data that involves access or use by a
machine or automated device without access or use of a display by a
natural person or persons.
    \7\ The proposed definition of Trading Platform is identical the
definition of Trading Platform under Nasdaq Rule 7023(a)(7).
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BYX Depth Fees
    BYX Depth is an uncompressed market data feed that provides depth-
of-book quotations and execution information based on equity orders
entered into the System.\8\
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    \8\ See Exchange Rule 11.22(a) and (c).
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    Internal Distributor Fee. Currently, the Exchange charges fees for
both internal and external distribution of BYX Depth. The cost of BYX
Depth for

an Internal Distributor \9\ is currently $500 per month. The Exchange
also separately charges an External Distributor \10\ of BYX Depth a
flat fee of $2,500 per month. The Exchange does not charge Internal and
External Distributors separate display User \11\ fees. The Exchange now
proposes to increase the fee for Internal Distributors from $500 per
month to $1,000 per month. The Exchange does not proposes to amend its
fees for External Distributors.
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    \9\ An ``Internal Distributor'' is defined as ``a Distributor
that receives the Exchange Market Data product and then distributes
that data to one or more Users within the Distributor's own
entity.'' See the Exchange Fee Schedule available at http://batstrading.com/support/fee_schedule/byx/. A ``Distributor'' is
defined as ``any entity that receives the Exchange Market Data
product directly from the Exchange or indirectly through another
entity and then distributes it internally or externally to a third
party.'' Id.
    \10\ An ``External Distributor'' is defined as ``a Distributor
that receives the Exchange Market Data product and then distributes
that data to a third party or one or more Users outside the
Distributor's own entity.'' Id.
    \11\ A ``User'' is defined as ``a natural person, a
proprietorship, corporation, partnership, or entity, or device
(computer or other automated service), that is entitled to receive
Exchange data.'' Id.
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    Non-Display Usage Fee. The Exchange also proposes to adopt a new
fee for Non-Display Usage by Trading Platforms, which is similar to
fees currently being charged by Nasdaq and the New York Stock Exchange,
Inc. (``NYSE'').\12\ As proposed, subscribers to BYX Depth would pay a
fee of $2,000 per month for Non-Display Usage of BYX Depth by its
Trading Platforms. Trading Platforms, as defined above, include
registered National Securities Exchanges, Alternative Trading Systems
(``ATSs''), and Electronic Communications Networks (``ECNs'') as those
terms are defined in the Exchange Act and regulations and rules
thereunder. The fee would be assessed in addition to existing
Distributor fees. The fee of $2,000 per month would represent the
maximum charge per subscriber regardless of the number of Trading
Platforms the subscriber operates and receive the data for Non-Display
Usage. For example, if a subscriber operates three Trading Platforms
that receives BYX Depth for Non-Displayed Usage, that subscriber would
continue to pay a total fee of $2,000 per month, rather than paying
$6,000 per month for its three Trading Platforms ($2,000 for each
Trading Platform).
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    \12\ See Nasdaq Rule 7023(d) (setting forth a Trading Platform
Fee of $5,000 per trading platform up to a maximum of three trading
platforms for depth-of-book data). See also NYSE Market Data Fees,
November 2015 (providing a monthly fee for non-display usage of
$5,000 for NYSE OpenBook).
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Implementation Date
    The Exchange proposes to implement the proposed changes to its fee
schedule on January 4, 2016.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\13\ in general, and
furthers the objectives of Section 6(b)(4),\14\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data. The Exchange believes that the proposed rates are
equitable and non-discriminatory in that they apply uniformly to all
recipients of Exchange data. The Exchange believes the proposed fees
are competitive with those charged by other venues and, therefore,
reasonable and equitably allocated to recipients. Lastly, the Exchange
also believes that the proposed fees are reasonable and non-
discriminatory because they will apply uniformly to all recipients of
Exchange data.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act \15\ in that it supports (i)
fair competition among brokers and dealers, among exchange markets, and
between exchange markets and markets other than exchange markets and
(ii) the availability to brokers, dealers, and investors of information
with respect to quotations for and transactions in securities.
Furthermore, the proposed rule change is consistent with Rule 603 of
Regulation NMS,\16\ which provides that any national securities
exchange that distributes information with respect to quotations for or
transactions in an NMS stock do so on terms that are not unreasonably
discriminatory. In adopting Regulation NMS, the Commission granted
self-regulatory organizations and broker-dealers increased authority
and flexibility to offer new and unique market data to the public. It
was believed that this authority would expand the amount of data
available to consumers, and also spur innovation and competition for
the provision of market data.
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    \15\ U.S.C. 78k-1.
    \16\ See 17 CFR 242.603.
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    In addition, the proposed fees would not permit unfair
discrimination because all of the Exchange's subscribers will be
subject to the proposed fees on an equivalent basis. BYX Depth is
distributed and purchased on a voluntary basis, in that neither the
Exchange nor market data distributors are required by any rule or
regulation to make this data available. Accordingly, Distributors and
Users can discontinue use at any time and for any reason, including due
to an assessment of the reasonableness of fees charged. Firms have a
wide variety of alternative market data products from which to choose,
such as similar proprietary data products offered by other exchanges
and consolidated data. Moreover, the Exchange is not required to make
any proprietary data products available or to offer any specific
pricing alternatives to any customers.
    In addition, the fees that are the subject of this rule filing are
constrained by competition. As explained below in the Exchange's
Statement on Burden on Competition, the existence of alternatives to
BYX Depth further ensures that the Exchange cannot set unreasonable
fees, or fees that are unreasonably discriminatory, when subscribers
can elect such alternatives. That is, the Exchange competes with other
exchanges (and their affiliates) that provide similar market data
products. If another exchange (or its affiliate) were to charge less to
consolidate and distribute its similar product than the Exchange
charges to consolidate and distribute BYX Depth, prospective Users
likely would not subscribe to, or would cease subscribing to, BYX
Depth.
    The Exchange notes that the Commission is not required to undertake
a cost-of-service or rate-making approach. The Exchange believes that,
even if it were possible as a matter of economic theory, cost-based
pricing for non-core market data would be so complicated that it could
not be done practically.\17\
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    \17\ The Exchange believes that cost-based pricing would be
impractical because it would create enormous administrative burdens
for all parties, including the Commission, to cost-regulate a large
number of participants and standardize and analyze extraordinary
amounts of information, accounts, and reports. In addition, it is
impossible to regulate market data prices in isolation from prices
charged by markets for other services that are joint products. Cost-
based rate regulation would also lead to litigation and may distort
incentives, including those to minimize costs and to innovate,
leading to further waste. Under cost-based pricing, the Commission
would be burdened with determining a fair rate of return, and the
industry could experience frequent rate increases based on
escalating expense levels. Even in industries historically subject
to utility regulation, cost-based ratemaking has been discredited.
As such, the Exchange believes that cost-based ratemaking would be
inappropriate for proprietary market data and inconsistent with
Congress's direction that the Commission use its authority to foster
the development of the national market system, and that market
forces will continue to provide appropriate pricing discipline. See
Appendix C to NYSE's comments to the Commission's 2000 Concept
Release on the Regulation of Market Information Fees and Revenues,
which can be found on the Commission's Web site at http://www.sec.gov/rules/concept/s72899/buck1.htm. See also Securities
Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200
(December 17, 2014) (SR-NYSE-2014-64) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Establish an
Access Fee for the NYSE Best Quote and Trades Data Feed, Operative
December 1, 2014).

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    The proposed amendment to the Internal Distributor fee for BYX
Depth is also equitable and reasonable as, despite the increase, the
fee proposed continues to be less than similar fees currently charged
by Nasdaq and NYSE for their depth-of-book data products.\18\ In
addition, the proposed Non-Display Usage fee by Trading Platforms for
BYX Depth is equitable and reasonable as the fees proposed is less than
similar fees currently charged by Nasdaq for its depth-of-book data. In
addition, unlike the Exchange, a subscriber utilizing Nasdaq depth-of-
book data on more than one Trading Platform would pay $5,000 per month
for each up to a maximum fee of $15,000. The Exchange proposes to
charge the same rate regardless of the number of Trading Platforms
receiving the data for Non-Display Usage operated by that subscriber.
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    \18\ See Nasdaq Rule 7023(c) (providing for fees of $25,000 to
$500,000 to internal distributors of Nasdaq Depth-of-Book products).
See also NYSE Market Data Fees, November 2015 (providing a $5,000
per month access fee for NYSE OpenBook).
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    The Trading Platform fee is also equitable and reasonable in that
it ensures that heavy users of the BYX Depth pay an equitable share of
the total fees. Currently, External Distributors pay higher fees than
Internal Distributors based upon their assumed higher usage levels. The
Exchange believes that Trading Platforms are generally high users of
the data, using it to power a matching engine for millions or even
billions of trading messages per day.
    Lastly, the Exchange believes that the proposed definitions are
reasonable because they are designed to provide greater transparency to
Members with regard to how the Exchange would assess the proposed fee
for Non-Display Usage of BYX Depth by Trading Platforms. The Exchange
believes that Members would benefit from clear guidance in its fee
schedule describing the manner in which is assess fees. These
definitions are intended to make the fee schedule clearer and less
confusing for investors and eliminate potential investor confusion,
thereby removing impediments to and perfecting the mechanism of a free
and open market and a national market system, and, in general,
protecting investors and the public interest. Lastly, the proposed
definitions are based on existing rules of Nasdaq.\19\
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    \19\ Nasdaq Rules 7023(a)(2)(B) and (a)(7).
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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. The
Exchange's ability to price BYX Depth is constrained by: (i)
Competition among exchanges, other trading platforms, and Trade
Reporting Facilities (``TRF'') that compete with each other in a
variety of dimensions; (ii) the existence of inexpensive real-time
consolidated data and market-specific data and free delayed data; and
(iii) the inherent contestability of the market for proprietary data.
    The Exchange and its market data products are subject to
significant competitive forces and the proposed fees represent
responses to that competition. To start, the Exchange competes
intensely for order flow. It competes with the other national
securities exchanges that currently trade equities, with electronic
communication networks, with quotes posted in FINRA's Alternative
Display Facility, with alternative trading systems, and with securities
firms that primarily trade as principal with their customer order flow.
    In addition, BYX Depth competes with a number of alternative
products. For instance, BYX Depth does not provide a complete picture
of all trading activity in a security. Rather, the other national
securities exchanges, the several TRFs of FINRA, and ECNs that produce
proprietary data all produce trades and trade reports. Each is
currently permitted to produce depth-of-book information products, and
many currently do, including Nasdaq and NYSE.
    In sum, the availability of a variety of alternative sources of
information imposes significant competitive pressures on Exchange data
products and the Exchange's compelling need to attract order flow
imposes significant competitive pressure on the Exchange to act
equitably, fairly, and reasonably in setting the proposed data product
fees. The proposed data product fees are, in part, responses to that
pressure. The Exchange believes that the proposed fees would reflect an
equitable allocation of its overall costs to users of its facilities.
    In addition, when establishing the proposed fees, the Exchange
considered the competitiveness of the market for proprietary data and
all of the implications of that competition. The Exchange believes that
it has considered all relevant factors and has not considered
irrelevant factors in order to establish fair, reasonable, and not
unreasonably discriminatory fees and an equitable allocation of fees
among all Users. The existence of alternatives to BYX Depth, including
existing similar feeds by other exchanges, consolidated data, and
proprietary data from other sources, ensures that the Exchange cannot
set unreasonable fees, or fees that are unreasonably discriminatory,
when subscribers can elect these alternatives or choose not to purchase
a specific proprietary data product if its cost to purchase is not
justified by the returns any particular vendor or subscriber would
achieve through the purchase.
    The Exchange believes the proposed increase to the Internal
Distributor fee and adoption of the fee for Non-Display Usage by
Trading Platforms for BYX Depth would increase competition amongst the
exchanges that offer depth-of-book products. The Exchange notes that,
despite the proposed increase, the Internal Distribution fee for BYX
Depth continues to be less than similar fees currently charged by
Nasdaq and NYSE for its depth-of-book data.\20\ In addition, the
proposed Non-Display Usage fee by Trading Platforms is less than
similar fees currently charged by Nasdaq for its Depth-of-Book
data.\21\
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    \20\ See supra note 18.
    \21\ See supra note 19.
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    Lastly, the proposed definitions will not result in any burden on
competition. The Exchange believes that Members would benefit from
clear guidance in its fee schedule describing the manner in which is
assess fees. These definitions are intended to make the fee schedule
clearer and less confusing for investors and are not designed to have a
competitive impact.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on
the proposed rule change.

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 \22\ and paragraph (f) of Rule 19b-4 thereunder.\23\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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 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_ADDRESS>Please include
File Number SR-BYX-2015-51 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-BYX-2015-51. 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 the 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-BYX-2015-51, and should be
submitted on or before January 20, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-32898 Filed 12-29-15; 8:45 am]
 BILLING CODE 8011-01-P