Document ID: SEC-2010-0637-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-04-29T04:00Z

[Federal Register: April 29, 2010 (Volume 75, Number 82)]
[Notices]               
[Page 22668-22669]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ap10-131]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61960; File No. SR-BATS-2010-008]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend BATS Rules 2.5 and 17.2 
Applicable to Registration Requirements

April 22, 2010.
    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 April 9, 2010, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') 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 
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 Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend BATS Rule 2.5, entitled 
``Restrictions,'' to require each Exchange Member to register with the 
Exchange: (i) At least two principals to supervise Authorized Traders 
of the Member (subject to certain exceptions), and (ii) at least one 
financial and operations principal. The Exchange also proposes a 
technical amendment to BATS Rule 17.2(g)(4) to eliminate language that 
becomes unnecessary due to the changes to BATS Rule 2.5.
    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.\3\
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    \3\ The text is attached as Attachment A to this filing.
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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
    Exchange Rule 2.5 states that the Series 7 is required for 
registration with the Exchange as an Authorized Trader. The term 
``Authorized Trader'' means ``a person who may submit orders (or who 
supervises a routing engine that may automatically submit orders) to 
the Exchange's trading facilities on behalf of his or her Member or 
Sponsored Participant. Accordingly, all traders that participate in the 
routing of orders to the Exchange, including proprietary traders, are 
required to be registered with the Exchange and Series 7 qualified. 
Further, the term Authorized Trader includes a trader that submits 
orders, or supervises a routing engine that automatically submits 
orders, to either the Exchange's equities platform, options platform, 
or both.
    The purpose of the proposed rule change is to expand the 
representative registration requirements applicable to each Member of 
the Exchange to ensure that Authorized Traders of Members are 
appropriately supervised and that the Exchange does not, through its 
rules, generate any gaps that permit a Member to operate differently 
than such Member would have to operate under the registration rules of 
other self-regulatory organizations. Specifically, the Exchange 
proposes to require each Member to register as representatives with the 
Exchange at least two Series 24 qualified Principals (subject to 
certain exceptions) to supervise such Member's Authorized Traders and 
one Series 27 qualified principal to supervise the financial and 
operational activities of such Member. The Exchange believes that the 
proposed rule change will help to make the Exchange's registration 
requirements more consistent with the registration requirements of 
other self-regulatory organizations. The Exchange understands that 
other self-regulatory organizations that do not require registered 
principals to supervise certain activities are currently undertaking a 
similar rulemaking effort.
    The Exchange has proposed certain exceptions to the general 
requirements that a Member register two Series 24 qualified Principals 
and one Series 27 qualified Financial/Operations Principal. With 
respect to the two Principal requirement, the Exchange proposes to 
exempt any Member that meets the proposed definition of a ``proprietary 
trading firm'' and has 25 or fewer Authorized Traders. Such Members, 
defined as Limited Size Proprietary Firms for purposes of the proposed 
Interpretation and Policy, are only required to maintain one Series 24 
registered Principal. In addition, under the proposed Rule the Exchange 
may waive the requirement to register two Series 24 qualified 
Principals if the Member can demonstrate that such waiver is warranted 
under the circumstances. The Exchange has proposed to define a 
proprietary trading firm as ``a Member that trades its own capital, 
that does not have customers, and that is not a member of the Financial 
Industry Regulatory Authority.'' \4\ In addition, as proposed, the Rule 
states that funds used by a proprietary trading firm must be 
exclusively firm funds, that all trading must be in the firm's 
accounts, and that traders must be owners of, employees of, or 
contractors to the firm. The Exchange has also proposed to exclude 
brokers or dealers from the definition of customer for purposes of the 
proprietary trading firm definition.\5\ With respect to the Financial/
Operations Principal requirement, the Exchange may waive the 
requirement to register a Series 27 qualified Financial/Operations 
Principal if such registration is not required by the Member's 
designated examining authority. Finally, any Member that conducts 
business on the Exchange as an Options Member is required by BATS Rules 
17.1(b) and 17.2(g) to register an Options Principal with the Exchange 
who is responsible for that Member's options related activities on the 
Exchange. Accordingly, the proposed rule makes clear that a Member that 
solely conducts business on the Exchange as an Options Member is not 
also required to register Series 24 qualified Principals with the 
Exchange.
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    \4\ See proposed BATS Rule 2.5, Interpretation and Policy 
.01(g).
    \5\ See proposed BATS Rule 2.5, Interpretation and Policy 
.01(h).
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    In addition to adopting the principal registration requirements 
described

[[Page 22669]]

above, the Exchange proposes modifications to Interpretation and Policy 
.02, which currently requires Authorized Traders to complete continuing 
education requirements similar to those required by other national 
securities exchanges. Due to the addition of the principal registration 
requirements described above and the recent addition of an Options 
Principal requirement, the Exchange proposes to modify its continuing 
education rule to make clear that all Authorized Traders, Principals, 
Financial/Operations Principals and Options Principals (collectively 
``Registered Representatives'') are subject to continuing education 
requirements in order to maintain their registrations with the 
Exchange. Because the text would then become unnecessary, the Exchange 
also proposes to delete language from BATS Rule 17.2(g)(4) that 
currently makes clear that an Options Principal is subject to 
continuing education requirements.
    Although the Exchange believes that most of its Members will be in 
position to quickly register Principals and Financial/Operations 
Principals with the Exchange due to the rules of other self-regulatory 
organizations to which such Members belong, it has proposed a 
compliance date of September 30, 2010. The Exchange believes that such 
date will provide its Members with adequate time to the extent 
additional personnel must pass qualification examinations in order for 
their Member firms to be compliant with the proposed Rules.
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.\6\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\7\ 
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, by adopting rules requiring supervisory principals 
to pass qualification examinations and maintain their registrations in 
a manner consistent with the requirements of other self-regulatory 
organizations.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The proposed change is also consistent with Section 6(c)(3)(B) of 
the Act,\8\ since under that section it is the Exchange's 
responsibility to prescribe standards of training, experience and 
competence for persons associated with Exchange Members. In addition, 
the Exchange has authority under Section 6(c)(3)(B) of the Act,\9\ to 
bar a natural person from becoming a Member or person associated with a 
Member, if the person does not meet the standards of training, 
experience and competence as are prescribed in the rules of the 
Exchange.
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    \8\ 15 U.S.C. 78f(c)(3)(B).
    \9\ 15 U.S.C. 78f(c)(3)(B).
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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 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File No. SR-BATS-2010-008 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 No. SR-BATS-2010-008. 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 BATS. 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 No. SR-BATS-2010-008 and should be 
submitted on or before May 20, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9874 Filed 4-28-10; 8:45 am]
BILLING CODE 8011-01-P