Document ID: SEC-2016-0222-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2016-02-11T05:00Z

[Federal Register Volume 81, Number 28 (Thursday, February 11, 2016)]
[Notices]
[Pages 7386-7389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02733]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77069; File No. SR-BATS-2016-07]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Chapter XXI of BZX Options To Further Align the Rules With Those of 
EDGX Options

February 5, 2016.
    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 January 27, 2016, 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) 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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[[Page 7387]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal for the BATS Options Market (``BATS 
Options'' or ``BZX Options'') to amend various rules contained in 
Chapter XXI in order to further improve such rules and to align such 
rules with the rules applicable to the Exchange's affiliated options 
platform operated by EDGX Exchange, Inc. (``EDGX Options'').
    The text of the proposed rule change is available at the Exchange's 
Web site at 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 Exchange proposes to amend various BZX Options Rules contained 
in Chapter XXI in order to further improve such rules and to align such 
rules with the rules applicable to EDGX Options, the Exchange's 
affiliated options platform. EDGX Options recently launched after 
receiving approval in August of 2015.\5\ In connection with the 
creation of EDGX Options as well as in connection with rule 
clarifications filed by the Exchange with respect to the Exchange's 
equity securities trading platform (``BZX Equities''),\6\ the Exchange 
has identified various BZX Options rules that could be improved or 
clarified. In addition, to the extent possible, the Exchange wishes to 
maintain identical rules with its affiliated trading platforms in order 
to avoid potential confusion by participants on the Exchange and such 
affiliated trading platforms. Each of the changes proposed below is 
consistent with these objectives and is intended to clarify and to 
include additional specificity regarding the current functionality of 
the Exchange's System,\7\ including the descriptions of BZX Options 
order types and order instructions, as further described below. None of 
the changes proposed below represents a proposed change to the 
operation of BZX Options.
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    \5\ See Securities Exchange Act Release No. 75650 (August 7, 
2015), 80 FR 48600 (August 13, 2015) (SR-EDGX-2015-18).
    \6\ See Securities Exchange Act Release No. 74738 (April 16, 
2015), 80 FR 22600 (April 22, 2015) (SR-BATS-2015-09).
    \7\ Exchange Rule 16.1(59) defines ``System'' as ``the automated 
trading system used by BATS Options for the trading of options 
contracts.''
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Proposed Changes to Terminology
    The Exchange proposes the following terminology changes that are 
applicable to one or more rules within Chapter XXI applicable to BZX 
Options:
     The Exchange proposes to re-name ``BATS Only Orders'', 
which are not routable away from the Exchange, as ``Book Only Orders.''
     The Exchange proposes to re-name ``BATS Post Only 
Orders'', which do not remove liquidity from the Exchange, as ``Post 
Only Orders.''
     The Exchange proposes to refer to other ``options 
exchanges'' rather than other ``trading centers.''
     The Exchange proposes to refer to ``contracts'' rather 
than ``shares.''
Proposed Changes to Order Type Modifiers and Routing Instructions
    Rule 21.1 sets forth numerous definitions applicable to the 
operation of the BZX Options System, primarily the order types and 
order type modifiers accepted by BZX Options. Rule 21.9 describes the 
process for routing orders away from BZX Options. The Exchange proposes 
the following changes to Rules 21.1 and 21.9:
     Attributable and Non-Attributable Orders. The Exchange 
proposes to state in Rule 21.1(a)(3) that the Exchange's data feed can 
be used to display orders with or without attribution. The Exchange 
also proposes to state in Rule 21.1(c) that the default treatment on 
BZX Options is that an order is a Non-Attributable Order unless the 
User directs otherwise. This is the opposite of EDGX Options and 
represents an example of a difference between the rules of BZX Options 
and EDGX Options that the Exchange currently intends to maintain. 
Finally, the Exchange proposes to make minor formatting and structural 
changes to conform to EDGX Options Rule 21.1(c). These changes will 
conform BZX Options Rules 21.1(a)(3) and 21.1(c) to EDGX Options Rules 
21.1(a)(3) and 21.1(c).
     Price Improving Orders. The Exchange proposes to remove 
duplicative language from the definition of Price Improving Orders in 
Rule 21.1(d)(6). First, because all orders are displayed on BZX 
Options, the Exchange proposes to remove reference to orders ``that are 
available for display.'' Second, because the display-price sliding 
process described in Rule 21.1(h) describes the process by which orders 
are displayed at the applicable minimum price variation and the 
description of Price Improving Orders cross-references Rule 21.1(h), 
the Exchange proposes to remove language stating that Price Improving 
orders are ``rounded to the minimum price variation.'' These changes 
will conform BZX Options Rule 21.1(d)(6) to EDGX Options Rule 
21.1(d)(6).
     Destination Specific Orders, Directed ISOs and Parallel T. 
Both Destination Specific Orders and Directed ISOs, described in Rule 
21.1(d)(7) and 21.1(d)(12), respectively, are routing instructions 
rather than order types or order type modifiers. Accordingly, to 
conform BZX Options Rules to the structure of Exchange Rules 11.9 and 
11.13, applicable to BZX Equities, as well as EDGX Options Rules 21.1 
and 21.9, the Exchange proposes to re-locate these rules in Rules 
21.9(a)(2)(C) and 21.9(a)(2)(D), applicable to routing away from BZX 
Options. The Exchange also proposes to re-number the remainder of Rule 
21.1(d) and to modify cross-references contained in other portions of 
Chapter XXI in connection with this change. These changes will conform 
BZX Options Rule 21.1(d) to EDGX Options Rule 21.1(d).
    As noted above, the Exchange proposes to re-locate the descriptions 
of Destination Specific Orders and Directed ISOs to Rule 21.9, which 
governs routing from BZX Options. The Exchange also proposes stylistic 
changes to conform the descriptions of these routing strategies with 
other routing strategies described in Rule 21.9(a)(2). Further, the 
Exchange proposes to eliminate reference to an obsolete routing option, 
Parallel T, which is set forth in Rule 21.9(a)(2)(D) and is not offered 
on BZX Options (or EDGX Options).\8\ Finally, the Exchange

[[Page 7388]]

proposes to eliminate current Rule 21.9(a)(2)(E), which is simply a 
cross-reference reflecting the fact that these routing strategies used 
to be contained within Rule 21.1; to move the Parallel D routing 
strategy to Rule 21.9(a)(2)(A), which is simply a paragraph that had 
been reserved for future use due to the prior elimination of a routing 
strategy; and to re-number all other routing strategies accordingly. 
These changes will conform BZX Options Rule 21.9(a)(2) to EDGX Options 
Rule 21.9(a)(2).
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    \8\ The Exchange notes that it adopted rules describing the 
Parallel T routing strategy along with several other routing 
strategies based the routing rules for BZX Equities. However, the 
Exchange never implemented or offered the Parallel T routing 
strategy for BZX Options. See Securities Exchange Act Release No. 
63090 (October 13, 2010), 75 FR 64387 (October 19, 2010) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change by BATS 
Exchange, Inc. To Amend BATS Rule 21.9, Entitled ``Order Routing'').
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     Routable Orders With Time in Force of Immediate-or-Cancel 
or Fill-or-Kill. The Exchange proposes to modify Rule 21.1(f)(2) to 
update the description of the Time in Force (``TIF'') of Immediate Or 
Cancel (``IOC'') to make clear that orders with a TIF of IOC are 
routable even though such TIF indicates an instruction to execute an 
order immediately in whole or in part and/or cancel it back. Under 
current rules, the TIF of IOC indicates that an order is to be executed 
in whole or in part as soon as such order is received and the portion 
not executed is to be cancelled. The Exchange proposes to expand upon 
the description of IOC to specify that an order with such TIF may be 
routed away from the Exchange but that in no event will an order with 
such TIF be posted to the BATS Options Book. The Exchange notes that 
IOC orders routed away from the Exchange are in turn routed as IOC 
orders. The Exchange also notes that current Rule 21.9 already includes 
reference to routable IOCs, and the proposed modifications to the rule 
text are intended to add further specificity that IOCs are routable.
    In addition to the change described above, the Exchange proposes to 
make clear in Rule 21.1(f)(5) that an order with a TIF of FOK is not 
eligible for routing. Although orders with a TIF of FOK are generally 
treated the same as IOCs, the Exchange does not permit routing of 
orders with a FOK because the Exchange is unable to ensure the 
instruction of FOK (i.e., execution of an order in its entirety) 
through the routing process.
    Finally, in connection with these changes, the Exchange also 
proposes to modify current Rule 21.9(a)(1) to add the cancellation of 
an unfilled balance of an order as one possible outcome after an order 
has been routed away. Rule 21.9(a)(1) currently describes other 
variations of how the Exchange handles an order after it has been 
routed away, but does not specifically state that it may be cancelled 
after the routing process, which would be the case with an order 
submitted to the Exchange with a TIF of IOC. The Exchange also proposes 
to re-number the remainder of Rule 21.9(a)(1) accordingly and to 
eliminate current Rule 21.9(a)(1)(D), which is duplicative to Rule 
21.9(a)(1)(C). Finally, the Exchange proposes to number certain un-
numbered text at the end of Rule 21.9(a)(1) as Rule 21.9(a)(1)(E). 
These changes will conform BZX Options Rules 21.9(f) and 21.9(a)(1) to 
EDGX Options Rules 21.9(f) and 21.9(a)(1).
Proposed Changes to Priority Rule and Related Routing Rule
    The Exchange proposes two changes applicable to the priority of 
orders on BZX Options.
     First, the Exchange proposes to adopt new paragraph (d) to 
Rule 21.8, which recognizes existing match trade prevention rules that 
optionally prevent the execution of orders from the same User (i.e., 
based on the User's ``Unique Identifier'', as set forth in Rule 
21.1(g)) by stating that in such a case the System will not permit such 
orders to execute against one another regardless of priority ranking. 
Proposed BZX Options Rule 21.8(d) is based on and identical to EDGX 
Options Rule 21.8(k).
     Second, the Exchange proposes to modify existing paragraph 
(b) of Rule 21.9 to clarify the Exchange's rule regarding the priority 
of routed orders. Paragraph (b) currently sets forth the proposition 
that a routed order does not retain priority on the Exchange while it 
is being routed to other markets. The Exchange believes that its 
proposed clarification to paragraph (b) is appropriate because it more 
clearly states that a routed order is not ranked and maintained in the 
BATS Options Book pursuant to Rule 21.8, and therefore is not available 
to execute against incoming orders. These changes will conform BZX 
Options Rule 21.8(b) to EDGX Options Rule 21.8(b).
Proposed Changes to Other Rules Within Chapter XXI
    In addition to the changes proposed above, the Exchange proposes to 
make the following changes:
     Rephrasing language within Rule 21.2 to avoid use of the 
phrase ``BATS Options options.''
     Adding reference to the price adjust process, as defined 
in Rule 21.1(i), to Rule 21.6(f) and Rule 21.9(a)(1)(B) where there are 
currently already references to the display-price sliding process.
     Adding the term intra-day to Rule 21.10 when referring to 
anonymous transaction reports because participants do learn the 
identity of contra-parties in connection with the clearance and 
settlement of transactions.
    Adding a new paragraph (a) to Rule 21.15 based on EDGX Options Rule 
21.15(a). The new paragraph simply reflects the regulations already 
applicable to the Exchange by stating that the Exchange will 
disseminate to quotation vendors the highest bid and the lowest offer, 
and the aggregate quotation size associated therewith that is 
available, in accordance with the requirements of Rule 602 of 
Regulation NMS under the Exchange Act. In accordance with this change, 
the Exchange proposes to re-name the rule as ``Data Dissemination.'' 
The Exchange also proposes to add a new paragraph title within the 
Rule, ``Exchange Data Products'', to describe the existing rule text, 
and to re-number the existing rule text of Rule 21.15.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ in particular, in that 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, and, in general to protect investors and the public 
interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The proposed rule changes are generally intended to better align 
certain Exchange rules with the rules of EDGX Options (as well as BZX 
Equities) in order to provide a consistent description of functionality 
across the Exchange and its affiliates. Consistent descriptions of 
functionality between the Exchange and EDGX Options will reduce 
complexity and help to avoid potential confusion by Users of the 
Exchange that are also participants on EDGX Options. The proposed rule 
changes do not propose to implement new or unique functionality that 
has not been previously filed with the Commission or is not available 
on BZX Options already. The Exchange notes that the proposed rule text 
is based on applicable EDGX Options Rules; the proposed language of the 
Exchange's Rules differs only to extent necessary to conform to 
existing Exchange rule text. The Exchange believes the proposed changes 
will increase the understanding of the Exchange's operations for all 
Members of the Exchange. Where possible, the Exchange has mirrored EDGX 
Options rules verbatim, because consistent rules will simplify the 
regulatory

[[Page 7389]]

requirements and increase the understanding of the Exchange's 
operations for Members of the Exchange that are also participants on 
EDGX Options. As such, the proposed rule change would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system.

(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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that the 
proposal will provide consistent descriptions of functionality between 
the BZX Options and EDGX Options, thereby reducing complexity and 
providing improvements to rules to avoid potential confusion by Users 
of the Exchange that are also participants on EDGX Options. As noted 
elsewhere in the proposal, the Exchange is not proposing any 
substantive changes to the System. Thus, the Exchange does not believe 
the proposal creates any significant impact on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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 \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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 for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 
thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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. The Exchange has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) 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. The Commission believes that waiver of the 30-
day operative delay would provide immediate clarity to the Exchange's 
rules described above. Because the proposal would provide consistent 
descriptions of the same functionality on BZX Options and EDGX Options, 
the Commission believes that the proposal could avoid potential 
confusion by users of the Exchange that are also participants on EDGX 
Options. Based on the foregoing, the Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest.\14\ The Commission hereby grants the 
Exchange's request and designates the proposal operative upon filing.
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    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2016-07 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-2016-07. 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 the 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-SR-BATS-2016-07 and should 
be submitted on or before March 3, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-02733 Filed 2-10-16; 8:45 am]
BILLING CODE 8011-01-P