Document ID: SEC-2014-2175-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2014-12-24T05:00Z

[Federal Register Volume 79, Number 247 (Wednesday, December 24, 2014)]
[Notices]
[Pages 77552-77555]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30119]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73875; File No. SR-BATS-2014-068]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rules 
11.9(a)(2) and 11.18(e) of BATS Exchange, Inc.

December 18, 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 December 10, 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 11.9(a)(2), which 
describes BATS market orders, and Rule 11.18(e), which describes the 
Exchange's implementation of the Limit Up-Limit Down Plan, as defined 
below.
    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.

[[Page 77553]]

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 11.9(a)(2), which describes 
BATS market orders, and Rule 11.18(e), which describes the Exchange's 
implementation of the Limit Up-Limit Down Plan, as defined below. The 
proposed change to the operation of BATS market orders is based on 
existing behavior of Market Orders available on EDGA Exchange, Inc. 
(``EDGA'') and EDGX Exchange, Inc. (``EDGX'').\3\
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    \3\ See EDGA Rule 11.8(a)(4) and EDGX Rule 11.8(a)(4).
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    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 and EDGA 
(together with BZX, BYX and EDGX, the ``BGM Affiliated Exchanges'').\4\ 
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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    \4\ 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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    Currently, BATS market orders can be executed on the Exchange or 
routed to other destinations but cannot be posted to the BATS Book. The 
proposed modification to the operation of a BATS Market Order would 
allow such orders to post to the BATS Book under certain limited 
circumstances to the extent such BATS Market Order is designated with a 
time-in-force of Day. Specifically, as proposed, a BATS market order 
that is not eligible for routing (i.e., BATS Only) and contains a time-
in-force of Day will be cancelled if, when reaching the Exchange, it 
cannot be executed on the System in accordance with Rule 11.13(a)(1) 
unless the reason that such BATS market order cannot be executed is 
because it is entered into the System and the NBO (NBB) is greater 
(less) than the Upper (Lower) Price Band, as such term is defined in 
the Plan to Address Extraordinary Market Volatility Pursuant to Rule 
608 of Regulation NMS under the Act (the ``Limit Up-Limit Down Plan''), 
in which case such order will be posted by the System to the BATS Book 
and priced at the Upper (Lower) Price Band, and re-priced as set forth 
in Rule 11.18(e)(5)(B), which the Exchange proposes to amend as 
described below. Similarly, a BATS market order to sell with a time-in-
force of Day that is marked short that cannot be executed because of 
the existence of a Short Sale Circuit Breaker pursuant to Regulation 
SHO will be posted by the System to the BATS Book subject to the price 
sliding process as set forth in Rule 11.9(g).
    The Exchange also proposes to modify Rule 11.18(e)(5)(A), which 
describes the handling of BATS market orders and other orders that are 
not currently posted to the Exchange's order book when not executable 
pursuant to the Limit Up-Limit Down Plan. The Exchange proposes to make 
clear that a BATS market order that cannot be executed within the 
applicable Price Bands will be cancelled if it contains a time-in-force 
other than Day but if it maintains a time-in-force of Day that such an 
order will be posted and displayed at the applicable Price Band and re-
priced to remain at such Price Band. Specifically, the Exchange 
proposes to state that a BATS market order to buy (sell) with a time-
in-force of Day that is posted to the BATS Book and displayed at the 
Upper (Lower) Price Band will be re-priced and displayed at the Upper 
(Lower) Price Band if Price Bands move such that the price of the 
resting market order to buy (sell) would be above (below) the Upper 
(Lower) Price Band or if the Price Bands move such that the order is no 
longer posted and displayed at the most aggressive permissible price. 
The Exchange further proposes that the System shall re-price such 
displayed interest to the most aggressive permissible price until the 
order is executed in its entirety or cancelled.
    The Exchange proposes to post to the BATS Book all BATS market 
orders with a time-in-force of Day in these circumstances (i.e., when 
an execution would otherwise occur but cannot due to the application of 
Price Bands pursuant to the Limit Up-Limit Down Plan or due to a 
Regulation SHO Short Sale Circuit Breaker), because the sender of a 
market order typically expects an execution when such order is sent. In 
these circumstances although an execution could not occur, the Exchange 
believes that Users would prefer to have their orders posted to the 
Exchange's book in compliance with the Limit Up-Limit Down Plan and 
Regulation SHO to potentially receive a later execution.
    A BATS market order will default to a time-in-force of Day unless 
otherwise specified by a User, however, Users that do not want their 
orders posted to the BATS Book in these circumstances can choose a 
different time-in-force, in which case their order will be cancelled 
back in such circumstances. A BATS market order that is not eligible 
for routing with a time-in-force other than Day will be cancelled if, 
when reaching the Exchange, it cannot be executed on the System in 
accordance with Rule 11.13(a)(1). Further, the Exchange proposes to 
make clear that BATS market orders that are designated as BATS Post 
Only are rejected.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with section 6(b) of the Act \5\ and further the objectives of section 
6(b)(5) of the Act \6\ 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change adds certain system functionality 
currently offered by EDGA and EDGX in order to provide a consistent 
technology offering across 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 execution of such orders when they would otherwise be 
cancelled and will provide additional flexibility as well as increased 
functionality to the Exchange's System and its Users. Therefore, the 
Exchange believes that the proposed change removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system.
    As explained elsewhere in this proposal, the proposed operation of 
BATS Market Orders with a time-in-force of Day is intended to allow 
such orders to post to the BATS Book, rather than cancel back to the 
User unexecuted, when an execution would have occurred but did not 
because of the application of Limit Up-Limit Down Price Bands or a 
Regulation SHO Short Sale Circuit Breaker. The Exchange believes that 
Users in such

[[Page 77554]]

circumstances would prefer to have their orders posted to the BATS Book 
in compliance with the Limit Up-Limit Down Plan and Regulation SHO, to 
potentially receive a later execution. Similarly, the Exchange believes 
that it is reasonable and consistent with the Act to continue to re-
price and display BATS market orders at their most aggressive 
permissible price because this functionality will be more likely to 
result in an execution of such order and is consistent with the overall 
intent of a BATS market order, which is to receive an execution not 
bounded by price but at the going price for the security. Specifically, 
the Exchange believes that its proposed handling of BATS market orders 
in this way is consistent with the Act because it is designed to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. Lastly, the Exchange does not believe that 
this will permit unfair discrimination among customers, brokers, or 
dealers because it will be available to all Users and will be applied 
as the default for BATS market orders. The Exchange notes that Users 
that do not want to have their orders posted to the BATS Book in such 
circumstances can elect a different time-in-force.

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 
does not believe that the proposed rule change raises any competitive 
issues, as it will simply allow certain orders that would otherwise be 
cancelled to post to the BATS Book. 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)(iii) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ 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 notes that waiver of the 
operative delay will allow orders that would otherwise be cancelled to 
post to the BATS Book for potential later execution. 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.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \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 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) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 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-BATS-2014-068 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-2014-068. 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

[[Page 77555]]

should refer to File Number SR-BATS-2014-068, and should be submitted 
on or before January 14, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30119 Filed 12-23-14; 8:45 am]
BILLING CODE 8011-01-P