Document ID: SEC-2011-1095-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2011-07-29T04:00Z

[Federal Register Volume 76, Number 146 (Friday, July 29, 2011)]
[Notices]
[Pages 45636-45638]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19236]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64957; File No. SR-BATS-2011-023]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BATS Rules in Connection With the Elimination of a Directed Order 
Program for BATS Options

July 25, 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 July 22, 2011, 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 Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii)

[[Page 45637]]

thereunder,\4\ 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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 is proposing to amend BATS Rule 21.1, entitled 
``Definitions,'' to remove two order types, Market Maker Price 
Improving Orders and Directed Orders, from the types of approved order 
types offered by the BATS options market (``BATS Options''). Through 
this amendment, the Exchange is eliminating its recently approved rules 
related to the establishment of a directed order program on a pilot 
basis for BATS Options.\5\
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    \5\ See Securities Exchange Act Release No. 64781 (June 30, 
2011), 76 FR 39953 (July 7, 2011) (SR-BATS-2011-023).
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    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, at http://www.sec.gov, 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 recently received approval to operate a directed order 
program for BATS Options on a pilot basis.\6\ The BATS Options directed 
order program would allow members of BATS Options (``Options Members'') 
to direct an order to a particular BATS Options Market Maker for 
potential execution at a price improved over the existing National Best 
Bid (``NBB'') or National Best Offer (``NBO''). The goal of the 
directed order program was to create a competitive structure to enhance 
aggressive quoting and shift economics associated with non-transparent 
payment for order flow arrangements to better execution prices for 
customer orders on the Exchange. While pending, the proposal to operate 
a directed order program received several comments from competitors of 
the Exchange and other market participants, some of which raised 
concerns that the directed order program may foster internalization and 
a widening of quoted spreads.\7\ During this time period, the Exchange 
also discussed the proposal with several Options Members, and the 
Exchange has continued these discussions following the approval of the 
proposal. While the Exchange continues to believe that the proposal is 
consistent with the Act and contains appropriate requirements to incent 
competitive quotations and further the public price discovery process, 
based on on-going discussions with Options Members, the Exchange 
believes there is sufficient reason to withdraw the directed order 
program and continue analyzing potential refinements that may better 
achieve the Exchange's goal. The Exchange notes that it has not yet 
implemented the directed order program.
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    \6\ Id.
    \7\ See e.g., Letters to Elizabeth M. Murphy, Secretary, 
Commission, from Thomas F. Price, Managing Director, Securities 
Industry and Financial Markets Association, dated June 30, 2011; 
Christopher Nagy, Managing Director Order Strategy, TD Ameritrade, 
dated June 30, 2011; Jennifer M. Lamie, Assistant General Counsel, 
Legal Division, Chicago Board Options Exchange, dated June 29, 2011; 
Tom Wittman, The NASDAQ OMX PHLX, Inc. and The NASDAQ Options 
Market, dated June 24, 2011; Janet L. McGinness, SVP & Corporate 
Secretary, Legal & Government Affairs, NYSE Euronext, dated June 17, 
2011; Michael J. Simon, Secretary, International Securities 
Exchange, LLC, dated June 17, 2011; Anthony D. McCormick, Chief 
Executive Officer, BOX Options Exchange Group, LLC, dated June 13, 
2011; John C. Nagel, Managing Director and General Counsel, Asset 
Management and Markets, Citadel LLC, dated April 25, 2011; Andrew 
Stevens, Legal Counsel, IMC Chicago, LLC d/b/a IMC Financial 
Markets, dated April 21, 2011. The Exchange also notes that other 
options exchanges filed with the Commission a joint petition related 
to the directed order program following the approval of the directed 
order program.
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    Based on the foregoing, the Exchange proposes to eliminate the 
definitions for Market Maker Price Improving Orders and Directed Orders 
from the types of approved order types offered by the BATS Options 
pursuant to Rule 21.1.
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 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 Exchange believes that elimination of the 
directed order program will provide the Exchange and the options 
industry as a whole with additional time to evaluate the potential 
benefits of a program such as the directed order program.
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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 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, if 
consistent with the protection of investors and the public interest, it 
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). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to 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 date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. BATS is deemed to have satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission has determined that waiving the 30-day 
operative delay of the Exchange's proposal is consistent with the 
protection of investors and the public interest because the Exchange 
would like additional time to consider potential refinements to the 
directed

[[Page 45638]]

order program and the directed order program has not been 
implemented.\12\ 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).
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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.

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 Number SR-BATS-2011-023 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-BATS-2011-023. 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 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 
available publicly. All submissions should refer to File Number SR-
BATS-2011-023 and should be submitted on or before August 19, 2011.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19236 Filed 7-28-11; 8:45 am]
BILLING CODE 8011-01-P