[Federal Register Volume 74, Number 134 (Wednesday, July 15, 2009)]
[Notices]
[Pages 34380-34383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16713]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60266; File No. SR-BATS-2009-022]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
BATS Rule 11.9, Entitled ``Orders and Modifiers''

July 9, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on July 6, 2009, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange has 
designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-
4(f)(6)(iii) thereunder,\5\ which renders it 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make modifications to the existing 
technology that it provides to a User that wishes to avoid trading 
against orders from that same User (``Member Match Trade Prevention'' 
or ``MMTP''). The text of the proposed rule change is available from 
the Exchange's Web site at http://www.batstrading.com, at the 
Exchange's principal office, 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 offer Member Match Trade Prevention, or 
MMTP, to Exchange Users pursuant to proposed Rule 11.9(f).\6\
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    \6\ The Exchange currently offers a basic form of match 
prevention by allowing a User to request a setting for their 
connections that prevents incoming orders from interacting with 
resting orders if both orders originate from the same MPID. The 
proposed rule expands the functionality offered to Users by 
providing additional options for match prevention.
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Background

    The proposed MMTP modifiers are designed to prevent two orders with 
the same Unique Identifier (as defined below) from executing against 
each other. The Exchange proposes adding four MMTP modifiers that will 
be implemented and can be set at the market participant identifier 
(``MPID''), the Exchange Member identifier or the Exchange Sponsored 
Participant identifier level (any such identifier, a ``Unique 
Identifier'').\7\ With one

[[Page 34381]]

exception, described below, the MMTP modifier on the incoming order 
controls the interaction between two orders marked with MMTP modifiers 
from the same Unique Identifier. The four new MMTP modifiers are 
discussed more thoroughly below.
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    \7\ Any Exchange Member that has an MPID issued by FINRA is 
identified in the Exchange's internal systems by that MPID. Each 
Exchange Member that does not already have an MPID and each 
Sponsored Participant is issued an identifier that is specific to 
the Exchange and allows the Exchange to determine the User for each 
order and trade.
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MMTP Cancel Newest (``MCN'')

    An incoming order marked with the MCN modifier will not execute 
against opposite side resting interest marked with any MMTP modifier 
originating from the same Unique Identifier. The incoming order marked 
with the MCN modifier will be cancelled back to the originating User. 
The resting order marked with an MMTP modifier, which otherwise would 
have interacted with the incoming order from the same Unique 
Identifier, will remain on the BATS Book.
    MCN Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order on the BATS 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCN modifier.
    MCN Result 1: The incoming sell order for 500 shares @ $22.00 
marked with the MCN modifier is cancelled back to the originating User. 
The resting buy order for 500 shares at $22.00 marked with one of the 
four MMTP modifiers remains on the BATS Book.
    MCN Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the four STP modifiers and becomes a resting order on the BATS 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCN modifier.
    MCN Result 2: The incoming sell order for 700 shares @ $22.00 
marked with the MCN modifier is cancelled back to the originating User. 
The resting buy order for 500 shares at $22.00 marked with one of the 
four MMTP modifiers remains on the BATS Book.
    MCN Example 3: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order on the BATS 
Book. Subsequently, an order to sell 400 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCN modifier.
    MCN Result 3: The incoming sell order for 400 shares @ $22.00 
marked with the MCN modifier is cancelled back to the originating User. 
The resting buy order for 500 shares at $22.00 marked one of the four 
MMTP modifiers remains on the BATS Book.

MMTP Cancel Oldest (``MCO'')

    An incoming order marked with the MCO modifier will not execute 
against opposite side resting interest marked with any MMTP modifier 
originating from the same Unique Identifier. The resting order marked 
with the MMTP modifier, which otherwise would have interacted with the 
incoming order by the same Unique Identifier, will be cancelled back to 
the originating User. The incoming order marked with the MCO modifier 
will remain on the BATS Book.
    MCO Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCO modifier.
    MCO Result 1: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming sell order for 500 shares @ $22.00 
marked with the MCO modifier is entered in the BATS Book.
    MCO Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCO modifier.
    MCO Result 2: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming sell order for 700 shares @ $22.00 
marked with the MCO modifier is entered on the BATS Book.
    MCO Example 3: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 400 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCO modifier.
    MCO Result 3: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming sell order for 400 shares @ $22.00 
marked with the MCO modifier is entered on the BATS Book.

MMTP Decrement and Cancel (``MDC'')

    An incoming order marked with the MDC modifier will not execute 
against opposite side resting interest marked with any MMTP modifier 
originating from the same Unique Identifier. If both orders are 
equivalent in size, both orders will be cancelled back to the 
originating User. If the orders are not equivalent in size, the 
equivalent size will be cancelled back to the originating User and the 
larger order will be decremented by the size of the smaller order, with 
the balance remaining on the BATS Book; provided, however, that if the 
resting order is marked with any MMTP modifier other than MDC, and the 
incoming order is smaller in size than the resting order, then both 
orders will be cancelled back to the originating User.
    MDC Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order on the BATS 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MDC modifier.
    MDC Result 1: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming sell order for 500 shares @ $22.00 
marked with the MDC modifier is cancelled back to the originating User.
    MDC Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MDC modifier.
    MDC Result 2: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The equivalent portion, 500 shares, of the incoming 
sell order marked with the MDC modifier is cancelled back to the 
originating User. The remaining portion, 200 shares, is entered on the 
BATS Book.
    MDC Example 3: An order to buy 500 shares @ $22.00 is marked with 
an MDC modifier and becomes a resting order in the BATS Book. 
Subsequently, an order to sell 400 shares @ $22.00 is entered with the 
same Unique Identifier and marked with the MDC modifier.
    MDC Result 3: 400 of the 500 shares on the resting buy order at 
$22.00 marked with one of the four MMTP modifiers are cancelled back to 
the originating User. The outstanding 100 shares remain on the BATS 
Book. The incoming sell order for 400 shares @ $22.00 marked with the 
MDC modifier is cancelled back to the originating User.
    MDC Example 4: An order to buy 500 shares @ $22.00 is marked with 
any MMTP modifier other than MDC and

[[Page 34382]]

becomes a resting order in the BATS Book. Subsequently, an order to 
sell 400 shares @ $22.00 is entered with the same Unique Identifier and 
marked with the MDC modifier.
    MDC Result 4: The resting buy order for 500 shares at $22.00 marked 
with a MMTP modifier other than MDC is cancelled back to the 
originating User. The incoming sell order for 400 shares @ $22.00 
marked with the MDC modifier is cancelled back to the originating User.

MMTP Cancel Both (``MCB'')

    An incoming order marked with the MCB modifier will not execute 
against opposite side resting interest marked with any MMTP modifier 
originating from the same Unique Identifier. The entire size of both 
orders will be cancelled back to the originating User.
    MCB Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCB modifier.
    MCB Result 1: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming sell order for 500 shares @ $22.00 
marked with the MCB modifier is cancelled back to the originating User.
    MCB Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCB modifier.
    MCB Result 2: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming order to sell 700 shares @ $22.00 marked 
with the MCB modifier is cancelled back to the originating User.
    MCB Example 3: An order to buy 500 shares @ $22.00 is marked with 
any of the four MMTP modifiers and becomes a resting order in the BATS 
Book. Subsequently, an order to sell 400 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the MCB modifier.
    MCB Result 3: The resting buy order for 500 shares at $22.00 marked 
with one of the four MMTP modifiers is cancelled back to the 
originating User. The incoming order to sell 400 shares @ $22.00 marked 
with the MCB modifier is cancelled back to the originating User.

Additional Discussion

    MMTP modifiers are intended to prevent interaction between the same 
Unique Identifier. MMTP modifiers must be present on both the buy and 
the sell order in order to prevent a trade from occurring and to effect 
a cancel instruction. MMTP modifiers are available for orders entered 
in either an agency or principal capacity. An incoming MMTP order 
cannot cancel through resting orders that have price and/or time 
priority. When an order with an MMTP modifier is entered it will first 
interact with all available interest in accordance with the execution 
process described in Exchange Rules 11.12 and 11.13. If there is a 
remaining balance on the order after trading with all orders with 
higher priority, it may then interact with an opposite side MMTP order 
in accordance with the rules established above. Incoming MMTP orders 
that are priced through the price of a resting MMTP order may cancel 
the resting order as long as no other non-MMTP orders have priority.
    The Exchange believes that adding this functionality will allow 
Exchange Users to better manage order flow and prevent undesirable 
executions with themselves or the potential for (or the appearance of) 
``wash sales'' that may occur as a result of the velocity of trading in 
today's high speed marketplace. Many Exchange Users have multiple 
connections into the Exchange due to capacity and speed related 
demands. Orders routed by the same User via different connections may, 
in certain circumstances, trade against each other. The new MMTP 
modifiers provide Users the opportunity to prevent these potentially 
undesirable trades occurring under the same Unique Identifier on both 
the buy and sell side of the execution. The Exchange also believes that 
this functionality will allow firms to better internalize agency order 
flow which in turn may decrease the costs to its customers. The 
Exchange notes that the MMTP modifiers do not alleviate, or otherwise 
exempt, broker-dealers from their best execution obligations. As such, 
broker-dealers using the MMTP modifiers will be obligated to internally 
cross agency orders at the same price, or a better price than they 
would have received had the orders been executed on the Exchange. 
Additionally, the MMTP modifiers will assist market participants in 
complying with certain rules and regulations of the Employee Retirement 
Income Security Act (``ERISA'') that preclude and/or limit managing 
broker-dealers of such accounts from trading as principal with orders 
generated for those accounts. Finally, the Exchange notes that offering 
the MMTP modifiers will streamline certain regulatory functions by 
reducing false positive results that may occur on Exchange generated 
wash trading surveillance reports when orders are executed under the 
same Unique Identifier. For these reasons, the Exchange believes the 
MMTP modifiers offer users enhanced order processing functionality that 
may prevent potentially undesirable executions without negatively 
impacting broker-dealer best execution obligations.
2. Statutory Basis
    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.\8\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\9\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system. 
This functionality will allow firms to better manage order flow and 
prevent undesirable executions against themselves.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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 of Comments on the Proposed 
Rule Changes Received From Members, Participants, or Others

    The Exchange has neither solicited nor received 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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the

[[Page 34383]]

Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. In addition, 
Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to 
provide the Commission with 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 date of 
filing of the proposed rule change, or such shorter time as designated 
by the Commission. However, Rule 19b-4(f)(6)(iii) permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
requests that the Commission waive the 30-day operative delay as well 
as the five business-day pre-filing requirement so that the benefits of 
this functionality to BATS market participants expected from the rule 
change will not be delayed. The Commission believes that waiving the 
30-day operative delay\12\ to make this functionality available without 
delay is consistent with the protection of investors and the public 
interest.\13\ Therefore, the Commission designates the proposal 
operative upon filing.
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    \12\ For 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).
    \13\ The Commission is also waiving the five business-day pre-
filing requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#790b0c151c541a1614141c170d0a390a1c1a571e160f"><span class="__cf_email__" data-cfemail="eb999e878ec6888486868e859f98ab988e88c58c849d">[email protected]</span></a>. Please include 
File Number SR-BATS-2009-022 on the subject line.

Paper Comments

    <bullet> 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-BATS-2009-022. 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 5552, will be available for inspection and copying 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 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-BATS-2009-022 and should be submitted on 
or before August 5, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 14 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
 [FR Doc. E9-16713 Filed 7-14-09; 8:45 am]
BILLING CODE 8010-01-P


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