Document ID: SEC-2014-2068-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2014-12-10T05:00Z

[Federal Register Volume 79, Number 237 (Wednesday, December 10, 2014)]
[Notices]
[Pages 73369-73372]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28906]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73744; File No. SR-BYX-2014-036]

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

December 4, 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 November 28, 2014, 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.
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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 11.1 to accept orders 
beginning at 6:00 a.m. Eastern Time.
    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

[[Page 73370]]

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 Rule 11.1 to accept orders beginning 
at 6:00 a.m. Eastern Time. Earlier this year, the Exchange and its 
affiliate, BATS Exchange, Inc. (``BZX''), 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'') 
(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 Exchange currently accepts orders commencing at the beginning 
of the Pre-Opening Trading Session, which is defined in Rule 1.5(r) as 
the time between 8:00 a.m. and 9:30 a.m. Eastern Time. In contrast, 
EDGA and EDGX begin accepting orders starting at 6:00 a.m. Eastern 
Time.\4\ As proposed, the Exchange will accept orders into the System 
from 6:00 a.m. until 8:00 p.m. Eastern Time. Orders entered between 
6:00 a.m. and 8:00 a.m. Eastern Time will not be eligible for execution 
until the start of the Pre-Opening Session or Regular Trading Hours, 
depending on the Time in Force selected by the User. Orders designated 
for Regular Trading Hours will continue to be queued during the Pre-
Opening Session and queued for the Exchange's Opening Process.\5\
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    \4\ See EDGX Rule 11.1(a)(1) and EDGA Rule 11.1(a)(1).
    \5\ The Exchange's Opening Process is described in Rule 11.23.
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    The Exchange also proposes to specify in Rule 11.1 the order types 
and order modifiers that the Exchange will not accept before 8:00 a.m. 
Eastern Time, each of which the Exchange believes is inconsistent with 
an order that is queued and awaiting placement on an order book as 
opposed to entered during a trading session where continuous trading is 
occurring. Specifically, the Exchange will not accept the following 
orders prior to 8:00 a.m. Eastern Time: BATS Post Only Orders,\6\ 
Partial Post Only at Limit Orders,\7\ intermarket sweep orders 
(``ISOs''),\8\ BATS Market Orders \9\ with a Time in Force other than 
Regular Hours Only (``RHO''),\10\ Minimum Quantity Orders \11\ with a 
Time in Force of RHO, RPI Orders,\12\ and all orders with a Time in 
Force of Immediate or Cancel (``IOC'') or Fill-or-Kill (``FOK'').\13\ 
The Exchange reiterates that it is proposing to reject the order types 
and modifiers described above between 6:00 a.m. and 8:00 a.m. because 
each is inconsistent with an order designated to queue for later entry 
onto the Exchange's order book. For instance, because orders received 
prior to 8:00 a.m. are not immediately executable, but rather queued 
for later participation, BATS Post Only Orders, Partial Post Only at 
Limit Orders, BATS Market Orders that are not designated as RHO (i.e., 
not designated to queue), IOC and FOK orders do not make sense in the 
context of the proposed rule change and, thus, the Exchange is 
proposing to reject them prior to 8:00 a.m. Specifically with respect 
to BATS Post Only Orders and Partial Post Only at Limit Orders, 
although the Exchange could accept such orders and place them on the 
BATS Book at 8:00 a.m. in the order they were received, as described 
below, the Exchange does not believe such orders are consistent with 
the purpose of the amendment given that such orders are typically 
intended to provide liquidity and during the time period they are 
queued they will not be executable on the BATS Book. Similarly, because 
an order designated as an ISO implies that there is currently a 
protected bid or offer and there are no protected bids or offers prior 
to 9:30 a.m. Eastern Time, the Exchange proposes to reject any ISOs 
entered prior to 8:00 a.m. In addition, the Exchange proposes to reject 
RPI Orders, which are orders are intended to provide liquidity to 
contra-side Retail Orders pursuant to the Exchange's Retail Price 
Improvement Program. Retail Orders are, in turn, IOC orders and thus, 
the Exchange will not accept such orders prior to 8:00 a.m. and does 
not believe that RPI Orders should be accepted and queued either. 
Finally, the Exchange proposes to reject Minimum Quantity Orders 
designated as RHO, which are also rejected pursuant to the Exchange's 
Opening Process \14\ in order to maintain consistency with such 
process.
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    \6\ A BATS Post Only Order is defined in Rule 11.9(c)(6).
    \7\ A Partial Post Only at Limit Order is defined in Rule 
11.9(c)(7).
    \8\ An ISO is defined in Rule 11.9(d).
    \9\ A BATS Market Order is defined in Rule 11.9(a)(2).
    \10\ The Time in Force of Regular Hours Only, or RHO, is defined 
in Rule 11.9(b)(7).
    \11\ A Minimum Quantity Order is defined in Rule 11.9(c)(5).
    \12\ An RPI Order is defined in Rule 11.24(a)(3).
    \13\ The Time in Force of Immediate or Cancel, or IOC, is 
defined in Rule 11.9(b)(1) and the Time in Force of Fill-or-Kill, or 
FOK, is defined in Rule 11.9(b)(6).
    \14\ See Rule 11.23(a).
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    At the commencement of the Pre-Opening Session, orders entered 
between 6:00 a.m. and 8:00 a.m. Eastern Time will be handled in time 
sequence, beginning with the order with the oldest time stamp, and will 
be placed on the BATS Book, routed, cancelled, or executed in 
accordance with the terms of the order. Thus, although orders are 
queued until 8:00 a.m. Eastern Time, orders will be processed 
sequentially in exactly the same way they would be if they arrived at 
the commencement of operations of the Exchange. The Exchange notes that 
it does not believe that the proposed functionality will be used in 
order to achieve executions with latency considerations in mind, as 
Users seeking executions prior to 8:00 a.m. have other options 
available to them, as there are several trading venues that are fully 
open for trading prior to 8:00 a.m.\15\ Rather, the functionality is 
available to Users that simply want their orders entered to the BATS 
book at the start of the trading day or to queue for the Exchange's 
Opening Process. All orders queued prior to 8:00 a.m. will be processed 
ahead of orders that are received after the commencement of the Pre-
Opening Session.
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    \15\ See infra note 18.
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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.\16\ Specifically, the proposed change is consistent with 
Section 6(b)(5) of the Act,\17\ because it is designed to promote just 
and equitable principles of trade, to remove impediments to, and 
perfect the

[[Page 73371]]

mechanism of, a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The Exchange 
believes that allowing for the entry of orders prior to the Pre-Opening 
Session will allow Users to enter orders in an orderly fashion prior to 
the commencement of trading on the Exchange, rather than requiring such 
Users to submit orders when trading commences at 8:00 a.m. Eastern 
Time. Specifically, the implementation of the proposed rule change will 
provide Users with greater control and flexibility with respect to 
entering orders, allowing them to enter orders for later participation 
during the Pre-Opening Session or Regular Trading Hours, rather than 
waiting for the applicable trading session to begin. This simplifies 
the order entry process for Users that have orders that they wish to 
submit to the Exchange prior to 8:00 a.m. by allowing such Users to 
send rather than hold such orders, which removes impediments to a free 
and open market and benefits all Users of the Exchange.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that rejecting BATS Post Only Orders, 
Partial Post Only at Limit Orders, ISOs, non-RHO BATS Market Orders, 
Minimum Quantity Orders with a Time in Force of RHO, RPI Orders, and 
IOC and FOK orders prior to 8:00 a.m. Eastern Time is 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, and, in general, to protect investors and the public 
interest; and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers because, as described above, 
such order types do not make sense in the context of queuing orders (as 
opposed to continuous book trading).

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the act. To the contrary, allowing the 
Exchange to accept orders prior to 8:00 a.m. Eastern Time for 
participation during the Pre-Opening Session and/or Regular Trading 
Hours fosters competition in that other exchanges \18\ are able to 
begin accepting orders in such securities, while the Exchange cannot 
accept such orders. Thus, approval of the proposed rule change will 
promote competition because it will allow the Exchange to offer its 
Users the ability to enter orders prior to the beginning of the Pre-
Opening Session for queuing and thus compete more directly with other 
exchanges for order flow that a User may not have directed to the 
Exchange if they were not able to enter orders for queuing.
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    \18\ Nasdaq, for instance, begins accepting orders at 4:00 a.m. 
Eastern Time. See, Nasdaq Rule 4617. NYSE Arca Equities begins 
accepting and queues orders beginning at 3:30 a.m. Eastern Time with 
its first trading session commencing at 4:00 a.m. Eastern Time. See 
``Holiday Hours--All Markets; NYSE Arca Equities,'' available at 
https://www.nyse.com/markets/hours-calendars.
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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)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the 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 and Rule 19b-
4(f)(6) thereunder.\21\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 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, or such shorter time as designated by the Commission.
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(2)(B).
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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 rule-comments@sec.gov. Please include 
File Number SR-BYX-2014-036 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-2014-036. 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-BYX-
2014-036, and should be submitted on or before December 31, 2014.

[[Page 73372]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28906 Filed 12-9-14; 8:45 am]
BILLING CODE 8011-01-P