Document ID: SEC-2014-1438-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-08-26T04:00Z

[Federal Register Volume 79, Number 165 (Tuesday, August 26, 2014)]
[Notices]
[Pages 50958-50960]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20203]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72878; File No. SR-BATS-2014-033]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.13 of BATS Exchange, Inc.

August 20, 2014.
    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 11, 2014, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') 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.
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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 the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 11.13 to add an 
additional routing strategy.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Earlier this year, the Exchange and its affiliate BATS Y-Exchange, 
Inc. (``BYX'') received approval to effect a merger (the ``Merger'') of 
the Exchange's parent company, BATS Global Markets, Inc., with Direct 
Edge Holdings LLC, the indirect parent of EDGX Exchange, Inc. 
(``EDGX'') and EDGA Exchange, Inc. (``EDGA'', and together with BZX, 
BYX and EDGX, the ``BGM Affiliated Exchanges'').\3\ In the context of 
the Merger, the BGM Affiliated Exchanges are working to align certain 
system functionality, retaining only intended differences between the 
BGM Affiliated Exchanges. Thus, the proposal set forth below is 
intended to add certain system functionality currently offered by EDGA 
and EDGX in order to provide a consistent technology offering for users 
of the BGM Affiliated Exchanges.
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    \3\ See Securities Exchange Act Release No. 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
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    The specific proposal set forth in more detail below would amend 
Rule 11.13, which describes the Exchange's routing processes, to add 
the SWP routing strategies, specifically SWPA and SWPB. The Exchange 
notes that the proposed rule text is based on the rules of EDGA and 
EDGX and is different only to the extent necessary to conform to the 
Exchange's current rules.\4\ The SWP routing strategies are 
substantively identical to those offered by EDGA and EDGX with the 
exception that EDGA and EDGX also offer a third routing

[[Page 50959]]

strategy, SWPC, that the Exchange is not proposing to offer at this 
time.
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    \4\ See EDGA Rules 11.9(b)(1)(B)(iii), 11.9(b)(2)(o), and 
11.9(b)(2)(p); EDGX Rule 11.9(b)(1)(B)(iii), 11.9(b)(2)(o), and 
11.9(b)(2)(p).
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    The Exchange also notes that the SWPA routing strategy is 
substantively identical to the Exchange's current Parallel T routing 
strategy.\5\ However, in order to allow a gradual migration from 
Parallel T to the proposed SWP routing strategies the Exchange is not 
proposing to eliminate Parallel T upon effectiveness of this proposal. 
Instead, the Exchange proposes to continue to accept orders designated 
for Parallel T routing and will eventually retire such routing strategy 
and remove reference to the routing strategy from Exchange rules once 
all affected Users have been migrated away from Parallel T to the SWP 
routing strategies. Further, adding the SWP routing strategies as 
proposed will ensure consistency with EDGA and EDGX with respect to the 
names used to describe the strategies (i.e., eventually retiring 
Parallel T in favor of SWP) and will allow the Exchange to add the SWPB 
routing strategy.
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    \5\ The Exchange does not currently offer an equivalent to the 
SWPB routing strategy.
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    As proposed, SWP is a routing option under which an order checks 
the System \6\ for available displayed shares and then is sent to 
destinations on the System routing table.\7\ Pursuant to SWP, orders 
route only to Protected Quotations \8\ and only for displayed size. The 
System may route to multiple destinations and at multiple price levels 
simultaneously through SWP routing.
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    \6\ The term ``System'' is defined in Rule 1.5 (aa) as ``the 
electronic communications and trading facility designated by the 
Board through which securities orders of Users are consolidated for 
ranking, execution and, when applicable, routing away.''
    \7\ As set forth in Rule 11.13(a)(3), the term ``System routing 
table'' refers to the proprietary process for determining the 
specific trading venues to which the System routes orders and the 
order in which it routes them.
    \8\ The term Protected Quotation is defined in Rule 1.5(t) and 
has the same meaning as is set forth in Regulation NMS Rule 
600(b)(58).
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    As noted above, the Exchange proposes to offer two forms of SWP 
routing, SWPA and SWPB. A SWPA order will be routed to destinations on 
the System routing table even if at the time of entry there is an 
insufficient share quantity in the SWPA order to fulfill the displayed 
size of all Protected Quotations. In contrast, the entire SWPB order 
will be cancelled back to a User immediately if at the time of entry 
there is an insufficient share quantity in the SWPB order to fulfill 
the displayed size of all Protected Quotations.
    The Exchange also proposes to adopt the SWP routing strategies 
similar to EDGA and EDGX such that, in connection with the Plan to 
Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS under the Act (the ``Limit Up-Limit Down Plan''), the 
System will immediately cancel orders utilizing an SWP routing strategy 
when an order to buy utilizing an SWP routing strategy has a limit 
price that is greater than the Upper Price Band or if a sell order 
utilizing an SWP routing strategy has a limit price that is less than 
the Lower Price Band.\9\ The Exchange notes that it recently amended 
Rule 11.18 to make clear that the Exchange will not route buy (sell) 
interest at a price above (below) the Upper (Lower) Price Band.\10\ The 
proposed language for the SWP routing strategies is different, however, 
because the Exchange proposes to immediately cancel the entirety of an 
order designated for an SWP routing strategy if the order's limit price 
is outside of the applicable price band.
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    \9\ The Upper Price Band and Lower Price Band are defined terms 
in the Limit Up-Limit Down Plan.
    \10\ See Securities Exchange Act Release No. 72646 (July 21, 
2014), 79 FR 43516 (July 25, 2014) (SR-BATS-2014-027).
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2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Act \11\ and further the objectives of Section 
6(b)(5) of the Act \12\ because they are designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, to 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and, in general, to protect 
investors and the public interest. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \13\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets. In particular, the proposed change to 
introduce additional routing strategies will provide market 
participants with greater flexibility in routing orders consistent with 
Regulation NMS without developing order routing strategies on their 
own.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78k-1(a)(1).
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    As noted above, the proposed rule changes to add functionality are 
generally intended to add certain system functionality currently 
offered by EDGA and EDGX in order to provide a consistent technology 
offering for the BGM Affiliated Exchanges. A consistent technology 
offering, in turn, will simplify the technology implementation, changes 
and maintenance by Users of the Exchange that are also participants on 
BYX, EDGA and/or EDGX. The proposed rule changes would also provide 
Users with access to functionality that may result in the efficient 
execution of such orders and will provide additional flexibility as 
well as increased functionality to the Exchange's System and its Users. 
As explained elsewhere in this proposal, the proposed SWPA and SWPB 
routing options are similar to routing strategies on other market 
centers, including EDGA and EDGX.

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. The Exchange 
provides routing services in a highly competitive market in which 
participants may avail themselves of a wide variety of routing options 
offered by self-regulatory organizations, alternative trading systems, 
other broker-dealers, market participants' own proprietary routing 
systems, and service bureaus. In such an environment, system 
enhancements such as the changes proposed in this rule filing do not 
burden competition, because they can succeed in attracting order flow 
to the Exchange only if they offer investors higher quality and better 
value than services offered by others. The Exchange reiterates that the 
proposed rule change is being proposed in the context of the technology 
integration of the BGM Affiliated Exchanges. Thus, the Exchange 
believes this proposed rule change is necessary to permit fair 
competition among national securities exchanges. In addition, the 
Exchange believes the proposed rule change will benefit Exchange 
participants in that it is one of several changes necessary to achieve 
a consistent technology offering by the BGM Affiliated Exchanges.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-

[[Page 50960]]

4(f)(6) thereunder.\15\ 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 is filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \17\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing, noting that 
a waiver of the operative delay will allow the Exchange to continue to 
strive towards a complete technology integration of the BGM Affiliated 
Exchanges, with gradual roll-outs of new functionality to ensure 
stability of the System. The Exchange also believes that the benefit to 
Exchange Users expected from the proposed rule change--greater 
flexibility in their efforts to fill orders and minimize trading 
costs--should not be delayed. Further, the Exchange states that 
introduction of the optional variations of the SWP routing strategy 
will not require any systems changes by Exchange Users that would 
necessitate a delay, as selection of the SWPA and SWPB variations is 
entirely optional and Users will not be affected by the change unless 
they select to use the newly offered variations. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 rule-comments@sec.gov. Please include 
File Number SR-BATS-2014-033 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-BATS-2014-033. 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 at 100 F Street NE., 
Washington, DC 20549-1090 on official business days between the hours 
of 10:00 a.m. and 3:00 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 
available publicly. All submissions should refer to File Number SR-
BATS-2014-033, and should be submitted on or before September 16, 2014.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20203 Filed 8-25-14; 8:45 am]
BILLING CODE 8011-01-P