51092 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3For purposes of this filing, the term 

‘‘Exchanges’’ refers collectively to BATS Exchange, 

Inc., BATS Y–Exchange, Inc., NASDAQ OMX BX, 

Inc., Chicago Board Options Exchange, Inc., 

Chicago Stock Exchange, Inc., EDGA Exchange, 

Inc., EDGX Exchange, Inc., International Securities 

Exchange LLC, The NASDAQ Stock Market LLC, 

New York Stock Exchange LLC, NYSE Amex LLC, 

NYSE Arca, Inc., National Stock Exchange, Inc., and 

NASDAX [sic] OMX PHLX LLC. 

4See Rule 11.18(d) and Interpretation and Policy 

.05 to Rule 11.18. 

5Securities Exchange Act Release Nos. 62252 

(June 10, 2010), 75 FR 34186 (June 16, 2010)(File 

Nos. SR–BATS–2010–014; SR–EDGA–2010–01; SR– 

EDGX–2010–01; SR–BX–2010–037; SR–ISE– 2010– 

48; SR–NYSE–2010–39; SR–NYSEAmex– 2010–46; 

SR–NYSEArca–2010–41; SR–NASDAQ– 2010–061; 

SR–CHX–2010–10; SR–NSX–2010–05; and SR– 

CBOE–2010–047); 62251 (June 10, 2010), 75 FR 

34183 (June 16, 2010) (SR–FINRA–2010– 025). 

6See e.g., Securities Exchange Act Release Nos. 

62884 (September 10, 2010), 75 FR 56618 

(September 16, 2010) (File Nos. SR–BATS–2010– 

018; SR–BX–2010–044; SR–CBOE–2010–065; SR– 

CHX–2010–14; SR–EDGA–2010–05; SR–EDGX– 

2010–05; SR–ISE–2010–66; SR–NASDAQ–2010– 

079; SR–NYSE–2010–49; SR–NYSEAmex–2010–63; 

SR–NYSEArca–2010–61; and SR–NSX–2010–08); 

and Securities Exchange Act Release No. 62883 

(September 10, 2010), 75 FR 56608 (September 16, 

2010) (SR–FINRA–2010–033). 

7Securities Exchange Act Release No. 62886 

(September 16, 2010), 75 FR 56613 (September 16, 

2010) (File Nos. SR–BATS–2010–016; SR–BX– 

2010–040; SR–CBOE–2010–056; SR–CHX–2010–13; 

SR–EDGA–2010–03; SR–EDGX–2010–03; SR–ISE– 

2010–62; SR–NASDAQ–2010–076; SR–NSX–2010– 

07; SR–NYSE–2010–47; SR–NYSEAmex–2010–60; 

and SR–NYSEArca–2010–58). 

8Pursuant to Rule 11.17(c)(1), a security with a 

Reference Price of greater than zero and up to and 

including $25.00 is subject to a 10% threshold; a 

security with a Reference Price of greater than 

$25.00 and up to and including $50.00 is subject 

to a 5% threshold; and a security with a Reference 

Price of greater than $50.00 is subject to a 3% 

threshold. 

9Rule 11.17(c)(4). 

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 

a.m. and 3 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 

publicly available. All submissions 

should refer to File Number SR–BATS– 

2011–028 and should be submitted on 

or before September 7, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20954 Filed 8–16–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65112; File No. SR–BYX– 

2011–019] 

Self-Regulatory Organizations; BATS 

Y–Exchange, Inc.; Notice of Filing of 

Proposed Rule Change To Amend BYX 

Rule 11.17, Entitled ‘‘Clearly Erroneous 

Executions’’ 

August 11, 2011. 

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 August 8, 

2011, 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 and II 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is proposing to amend 

BYX Rule 11.17, entitled ‘‘Clearly 

Erroneous Executions,’’ so that the rule 

will continue to operate in the same 

manner after changes to the single stock 

trading pause process are effective. 

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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchanges 3 and FINRA, in 

consultation with the Commission, have 

made changes to their respective rules 

in a concerted effort to strengthen the 

markets after the severe market 

disruption that occurred on May 6, 

2010. One such effort by the Exchanges 

and FINRA was to adopt a uniform 

trading pause process during periods of 

extraordinary market volatility as a pilot 

in S&P 500® Index stocks (‘‘Pause 

Pilot’’),4 approved by the Commission 

on June 10, 2010.5 On September 10, 

2010, the Commission approved the 

Exchanges’ and FINRA’s proposals to 

add the securities included in the 

Russell 1000® Index and specified 

Exchange Traded Products (‘‘ETPs’’) to 

the Pause Pilot.6 On September 10, 

2010, the Commission also approved 

changes proposed by the Exchanges to 

amend certain of their respective rules 

to set forth clearer standards and curtail 

their discretion with respect to breaking 

erroneous trades.7 The changes, among 

other things, provided uniform 

treatment of clearly erroneous execution 

reviews in the event of transactions that 

result in the issuance of an individual 

stock trading pause pursuant to the 

Pause Pilot on the listing market and 

those that occur up to the time the 

trading pause message is received by the 

other markets from the single plan 

processor responsible for consolidation 

and dissemination of information for the 

security (‘‘Latency Trades’’). 

As part of the changes to the clearly 

erroneous process under Rule 11.17, the 

Exchange adopted new text to provide 

clarity in the clearly erroneous process 

when a Pause Pilot trading pause is 

triggered. Pursuant to Rule 11.17(c)(4), 

Latency Trades will be broken by the 

Exchange if they exceed the applicable 

percentage from the Reference Price, as 

noted in the table found under Rule 

11.17(c)(1).8 The Reference Price, for 

purposes of Rule 11.17(c)(4), is the price 

that triggered a trading pause pursuant 

to the Pause Pilot (the ‘‘Trading Pause 

Trigger Price’’). As such, Latency Trades 

that occur on the Exchange would be 

broken by the Exchange pursuant to 

11.17(c)(4) if the transaction occurred at 

either three, five, or ten percent above 

the Trading Pause Trigger Price.9

On June 23, 2011, the Commission 

approved a joint proposal to expand the 

respective Pause Pilot rules of the 

Exchanges and FINRA to include all 

remaining NMS stocks (‘‘Phase III 


Emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 51093 

10Securities Exchange Act Release No. 64735 

(June 23, 2011), 76 FR 38243 (June 29, 2011) (File 

Nos. SR–BATS–2011–016; SR–BYX–2011–011; SR– 

BX–2011–025; SR–CBOE–2011–049; SR–CHX– 

2011–09; SR–EDGA–2011–15; SR–EDGX–2011–14; 

SR–FINRA–2011–023; SR–ISE–2011–028; SR– 

NASDAQ–2011–067; SR–NYSE–2011–21; SR– 

NYSEAmex–2011–32; SR–NYSEArca–2011–26; SR– 

NSX–2011–06; SR–Phlx–2011–64). 

11 Id. 

12BATS [sic] notes that the Exchanges are filing 

similar proposals to make the changes proposed 

herein. 

13 15 U.S.C. 78f(b). 

Securities’’).10 The new pilot rules, 

which will be implemented on August 

8, 2011, not only expand the application 

of the Pause Pilot, but also apply larger 

percentage moves that trigger a pause to 

the Phase III Securities. The primary 

listing exchanges, which will continue 

to calculate trading pauses under the 

Pause Pilot and disseminate messages 

when a trading pause has been issued, 

amended their Pause Pilot rules by 

adding new subparagraphs to address 

the treatment of the Phase III Securities 

in different categories. The primary 

listing markets continue to treat the 

original Pause Pilot securities, the S&P 

500® Index, the Russell 1000® Index, as 

well as a pilot list of ETPs, as one 

category of securities for purposes of 

imposing trading pauses. All remaining 

NMS stocks have been categorized in 

two other groups, one for stocks that 

had a closing price on the previous 

trading day of $1 or more and the other 

for stocks that had a closing price on the 

previous trading day of less than $1. 

The Issue 

The recently-approved changes to the 

Pause Pilot will have the unintended 

effect of removing the Phase III 

Securities from the normal clearly 

erroneous process and potentially result 

in unfair outcomes in the face of severe 

volatility in such securities. Phase III 

Securities are currently subject to the 

clearly erroneous process under Rules 

11.17(c)(1)–(3), which apply to all 

securities except the current Pause Pilot 

securities subject to a pause. For 

purposes of transactions in securities 

not involving Pause Pilot securities, or 

transactions involving Pause Pilot 

securities that occur when there is not 

a pause pursuant to the Pause Pilot, the 

Reference Price is the consolidated last 

sale price immediately prior to the 

execution(s) under review, subject to 

certain exceptions.11 As noted above, 

the Trading Pause Trigger Price is used 

as the Reference Price when a Pause 

Pilot pause is in effect. As a 

consequence, under the current rules a 

Latency Trade is subject to the clearly 

erroneous thresholds based on the 

Trading Pause Trigger Price, which 

represents a ten percent or greater move 

in the transacted price of the security in 

a five minute period. 

Under the new Pause Pilot rules, a 

Latency Trade in a Phase III Security 

occurs only after either a 30 or 50 

percent (or greater) move in the 

transacted price of the security in a five 

minute period. As a result, an Exchange 

User that trades in a Phase III Security 

that triggers a clearly erroneous 

threshold of three, five or ten percent 

from the Reference Price, yet falls below 

the Pause Pilot trigger of either 30 or 50 

percent, would be able to avail 

themselves of a clearly erroneous 

review. A similarly situated User that 

transacts in the same security as a 

Latency Trade at a price equal to or 

greater than the Phase III Security 

thresholds, yet less than the clearly 

erroneous thresholds under Rule 

11.17(c)(1), would not be able to avail 

themselves of the clearly erroneous 

process. Another User that transacts in 

the same security as a Latency Trade 

that exceeds three, five, or ten percent 

from the Trading Pause Trigger Price 

would automatically receive clearly 

erroneous relief. The Exchange believes 

that this would be an inequitable result 

and an arbitrary application of the 

clearly erroneous process. Specifically, 

the Exchange believes that, since the 30 

and 50 percent triggers of the Pause 

Pilot are substantially greater than the 

10 percent threshold of the original 

Pause Pilot, the Phase III Securities 

should remain under the current clearly 

erroneous process of Rules 11.17(c)(1)– 

(3). 

Applying the clearly erroneous 

process under Rules 11.17(c)(1)–(3) to 

the Phase III Securities would allow the 

Exchange to review all transactions that 

exceed the normal clearly erroneous 

thresholds and Reference Price, and, 

importantly, avoid arbitrary selection of 

‘‘winners’’ and ‘‘losers’’ in the face of 

severe volatile moves in a security of 30 

or 50 percent over a five minute period. 

For example, a User that trades in a 

security subject to Rule 11.18 that 

triggers a clearly erroneous threshold of 

three, five, or ten percent, yet falls 

below the Pause Pilot trigger threshold 

trading at 29 percent from the prior 

day’s closing price, would be potentially 

entitled to a clearly erroneous break 

pursuant Rule 11.17(c)(1). Should 

trading in that same stock trigger a 

trading pause at a price of 30 or 50 

percent greater than the prior day’s 

close, the User would not be entitled to 

a clearly erroneous trade break unless 

that trade exceeded three, five, or ten 

percent beyond the price that triggered 

the pause. This scenario causes an 

inequity among a group of Users that 

have transactions in the Phase III 

Securities falling between the three, 

five, and ten percent thresholds from 

the Reference Price under the normal 

Rule 11.17(c)(1) clearly erroneous 

process and the Pause Pilot clearly 

erroneous triggers of three, five or ten 

percent away from the Trading Pause 

Trigger Price. Such Users would not be 

provided relief under the clearly 

erroneous rules merely due to the 

imposition of a Pause Pilot halt, 

notwithstanding that other Users with 

transactions that occur at the same 

rolling five minute percentage 

difference. The Exchange believes a 

better outcome is to afford all Users 

transacting in Phase III Securities the 

opportunity of having such trades 

reviewed. 

When the rule proposal to expand the 

Pause Pilot to the Phase III Securities 

becomes operative, the Exchange will 

no longer defines [sic] the original Pause 

Pilot securities within its rules. 

Accordingly, in order to achieve the 

objectives of this proposal, the Exchange 

proposes to adopt a definition of 

‘‘Subject Securities’’, to be included in 

Rule 11.17(c)(4), which will mean the 

S&P 500® Index, the Russell 1000®

Index, as well as a pilot list of ETPs. 

Summary 

The expansion of the Pause Pilot to 

the Phase III Securities will have the 

unintended consequence of setting the 

point at which a clearly erroneous 

transaction occurs once a Pause Pilot 

pause is initiated far beyond the triggers 

applied prior to the expansion, which 

will, in turn, prevent certain market 

participants from availing themselves of 

the clearly erroneous rules, 

notwithstanding that other similarly 

situated participants are able to do so. 

The Exchange believes that this would 

be an arbitrary application of the clearly 

erroneous process in a manner that is 

unfair and not consistent with the spirit 

and purpose of the rule. Accordingly, 

the Exchange is proposing to amend 

Rules 11.17(c)(1)–(4) to specify that Rule 

11.17(c)(4) applies only to the current 

securities of Pause Pilot, or Subject 

Securities.12

2. Statutory Basis 

The Exchange believes that the rule 

change proposed in this submission 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(b) of the Act.13 In particular, 


Emcdonald on DSK2BSOYB1PROD with NOTICES
51094 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 

14 15 U.S.C. 78f(b)(5). 15 15 U.S.C. 78k–1(a)(1). 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its intent to file the proposed rule change, 

along with a brief description and text of the 

proposed rule change, at least five business days 

prior to the filing of the proposed rule change, or 

such shorter time as designated by the Commission. 

The Commission is waiving the five day written 

notice requirement in this case. Therefore, the 

Commission notes that the Exchange has satisfied 

this requirement. 

18For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

the proposed change is consistent with 

Section 6(b)(5) of the Act,14 because it 

would promote just and equitable 

principles of trade, remove 

impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system, and, in 

general, protect investors and the public 

interest. The proposed rule change is 

also designed to support the principles 

of Section 11A(a)(1) 15 of the Act in that 

it seeks to assure fair competition 

among brokers and dealers and among 

exchange markets. The Exchange 

believes that the proposed rule meets 

these requirements in that it promotes 

transparency and uniformity across 

markets concerning reviews of 

potentially clearly erroneous executions 

in various contexts, including reviews 

in the context of a Multi-Stock Event 

involving twenty or more securities and 

reviews resulting from a Trigger Trade 

and any executions occurring 

immediately after a Trigger Trade but 

before a trading pause is in effect on the 

Exchange. Further, the Exchange 

believes that the proposed changes 

enhance the objectivity of decisions 

made by the Exchange with respect to 

clearly erroneous executions. The 

Exchange notes that the changes 

proposed herein will in no way interfere 

with the operation of the Pause Pilot 

process, as amended. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change imposes any 

burden on competition. 

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 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 16 and Rule 19b– 

4(f)(6)(iii) thereunder.17 The Exchange 

has asked the Commission to waive the 

30-day operative delay so that the 

proposal may become operative 

immediately upon filing. The 

Commission believes that waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest because such waiver will 

allow the clearly erroneous rules to 

continue to operate as they did prior to 

the effectiveness of the Pause Pilot 

expansion to Phase III Securities so that 

similarly situated market participants 

are provided the same opportunity of a 

clearly erroneous review. Accordingly, 

the Commission waives the 30-day 

operative delay requirement and 

designates the proposed rule change as 

operative upon filing with the 

Commission.18

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–BYX–2011–019 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–BYX–2011–019. This file 

number should be included on the 

subject line if e-mail 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 

a.m. and 3 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 

publicly available. All submissions 

should refer to File Number SR–BYX– 

2011–019 and should be submitted on 

or before September 7, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20953 Filed 8–16–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65103; File No. SR–CBOE– 

2011–078] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Related to the CBSX 

Clearly Erroneous Policy Pilot Program 

August 11, 2011. 

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 August 8, 

2011, the Chicago Board Options 

Exchange, Incorporated (‘‘Exchange’’ or 


Emcdonald on DSK2BSOYB1PROD with NOTICES