Document ID: SEC-2014-1716-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2014-10-09T04:00Z

[Federal Register Volume 79, Number 196 (Thursday, October 9, 2014)]
[Notices]
[Pages 61117-61119]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24099]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73295; File No. SR-BYX-2014-026]

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

October 3, 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 September 25, 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 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) 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 filed a proposal to amend Rule 11.13(a) regarding the 
handling of orders that have been posted to the Exchange's order book 
(``BATS Book'') \5\ that are subsequently locked or crossed by other 
Trading Centers.
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    \5\ As defined in Rule 1.5(e).
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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, 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 purpose of the proposed rule change is to provide Users of the 
Exchange with additional options with respect to the Exchange's method 
of processing the unfilled balance of a

[[Page 61118]]

routable limit order that is posted to the BATS Book.
    The Exchange currently allows Users to submit various types of 
limit orders to the Exchange that are processed pursuant to Exchange 
Rules 11.13(a)(1) and 11.13(a)(2)(B), as set forth below. Rule 
11.13(a)(1) describes the process by which an incoming order would 
execute against the BATS Book. To the extent an order has not been 
executed in its entirety against the BATS Book, Rule 11.13(a)(2)(B) 
then describes the process of routing marketable limit orders \6\ to 
one or more Trading Centers, including a description of how the 
Exchange treats any unfilled balance that returns to the Exchange 
following the first attempt to fill the order through the routing 
process. If not filled through routing, and based on the order 
instructions, the unfilled balance of the order may be posted to the 
BATS Book.
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    \6\ Market orders are also routed away, pursuant to Rule 
11.13(a)(2)(A), however the Exchange is not proposing any changes to 
the treatment of routed market orders at this time.
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    Pursuant to current Exchange rules,\7\ to the extent the unfilled 
balance of an order has been posted to the BATS Book, should the order 
subsequently be locked or crossed by another accessible Trading Center, 
the System \8\ shall route the order to the locking or crossing Trading 
Center if instructed to do so by the User (the ``RECYCLE Option''). The 
Exchange proposes to modify the RECYCLE Option as set forth below. At 
the outset, the Exchange notes that it proposes to re-name the RECYCLE 
Option as Re-Route instructions.
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    \7\ See Rule 11.13(a)(2).
    \8\ As defined in Rule 1.5(aa), the System is 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.
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    The Exchange currently offers only one form of RECYCLE, namely, 
that an order will be subject to the RECYCLE Option if it is either 
locked or crossed. The Exchange proposes to retain this functionality 
and to name such functionality the Super Aggressive Re-Route 
instruction, which reference reflects the willingness of the routable 
order posted to the BATS Book to route to away Trading Centers and to 
remove liquidity from such Trading Centers any time such order is 
locked or crossed (i.e., rather than passively waiting for an execution 
on the BATS Book). The Exchange also proposes to add new optional 
functionality that will allow a User to instruct the Exchange to apply 
the Super Aggressive Re-Route instruction solely to routable orders 
posted to the BATS Book with remaining size of less than one round lot.
    In addition to the Super Aggressive Re-Route instruction described 
above, the Exchange proposes to add a second option, the Aggressive Re-
Route instruction, which would subject an order to the routing process 
after being posted to the BATS Book only if the order is subsequently 
crossed by another Trading Center (rather than if the order is locked 
or crossed).
    The Exchange proposes to retain language making clear that unless 
otherwise specified the Re-Route options described above may be 
combined with any of the System routing options specified in paragraph 
(a)(3) of Rule 11.13.
Examples
Example 1--Aggressive Re-Route
    As an example of an order with an Aggressive Re-Route instruction, 
assume the Exchange receives an order to buy 300 shares of a security 
at $10.10 per share. Assume further that the NBBO is $10.09 by $10.10 
when the order is received, and the Exchange's lowest priced offer is 
priced at $10.11. The Exchange will route the order away from the 
Exchange as a bid to buy 300 shares at $10.10. Assume that the order 
obtains one 100 share execution through the routing process and then 
returns to the Exchange. The Exchange will post the order as a bid to 
buy 200 shares at $10.10. If displayed liquidity then appears at one or 
more Trading Centers priced at $10.09 or lower (i.e., crossing the 
posted bid to buy at $10.10), the Exchange will take the displayed bid 
off of the BATS Book and again route such order to the displayed 
liquidity at other Trading Centers.
Example 2--Super Aggressive Re-Route
    As an example of an order with a Super Aggressive Re-Route 
instruction, assume the Exchange receives an order to buy 300 shares of 
a security at $10.10 per share designated with such instruction. Assume 
further that the NBBO is $10.09 by $10.10 when the order is received, 
and the Exchange's lowest priced offer is priced at $10.11. The 
Exchange will route the order away from the Exchange as a bid to buy 
300 shares at $10.10. Assume that the order obtains one 100 share 
execution through the routing process and then returns to the Exchange. 
The Exchange will post the order as a bid to buy 200 shares at $10.10. 
If displayed liquidity then appears in the marketplace priced at $10.10 
or lower, the Exchange will take the displayed bid off of the BATS Book 
and again route such order to the displayed liquidity at other Trading 
Centers.
Example 3--Super Aggressive Re-Route for Odd Lots Only
    Assuming the facts from Example 2 above that results in a 200 share 
order posting to the BATS Book after routing away, if a User has 
elected to apply the Super Aggressive Re-Route instruction solely to 
routable orders posted to the BATS Book with remaining size of less 
than one round lot, then the posted bid to buy 200 shares at $10.10 
would not route off of the BATS Book if displayed liquidity appeared at 
one or more other Trading Centers priced at $10.10 or lower. Assume, 
however, that the posted order to buy 200 shares is later executed on 
the BATS Book against an incoming order to sell 150 shares at $10.10, 
leaving a 50 share order to buy at $10.10. Such order would now be 
subject to the Super Aggressive Re-Route functionality and would route 
to away Trading Centers if locked or crossed.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ and further the objectives of Section 
6(b)(5) of the Act \10\ because it 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, to 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and, in general, to protect 
investors and the public interest. Specifically, the proposed changes 
are designed to provide Users with additional control over their orders 
in the context of a national market system where quotations may lock or 
cross orders posted to the BATS Book. Thus, the proposals are directly 
targeted at removing impediments to and perfect [sic] the mechanism of 
a free and open market and national market system. The proposed rule 
change also is designed to support the principles of Section 11A(a)(1) 
\11\ of the Act in that it seeks to assure fair competition among 
brokers and dealers and among exchange markets.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1).
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    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

[[Page 61119]]

well as increased functionality to the Exchange's System and its Users.
    The Exchange reiterates that the Super Aggressive Re-Route 
instruction is currently contained in Exchange rules as the RECYCLE 
Option. The Exchange believes that adding an optional functionality 
that will only treat orders with size less than a round lot as orders 
with Super Aggressive Re-Route instruction is reasonable because such 
orders are not Protected Quotations under the Act, and thus, are more 
likely to be locked or crossed by external markets. Accordingly, 
allowing such orders to only apply the Super Aggressive Re-Route 
instruction will enhance the likelihood of their prompt execution. The 
Exchange believes that the proposed addition of the Aggressive Re-Route 
instruction is consistent with the Act as it will provide Users with 
another option 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.

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 
believes that Re-Route functionality generally encourages competition 
by increasing the likelihood of executions of orders that have been 
posted to the Exchange.

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 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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement would allow 
the Exchange to immediately offer Exchange Users additionally 
variations of functionality that is already available on the Exchange. 
The Exchange also stated that the addition of a variation of Re-Route 
functionality that applies only when an order is crossed by an 
accessible Trading Center and the odd lot variation to the Super-
Aggressive Re-Route instruction will benefit market participants and 
their customers by allowing them greater flexibility in their efforts 
to fill orders. The Commission believes that the waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission designates the proposed rule 
change to be operative upon filing.\14\
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    \14\ 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) \15\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \15\ 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-2014-026 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-2014-026. 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, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-2014-026 and should be 
submitted on or before October 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24099 Filed 10-8-14; 8:45 am]
BILLING CODE 8011-01-P