Document ID: SEC-2015-0208-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2015-02-03T05:00Z

[Federal Register Volume 80, Number 22 (Tuesday, February 3, 2015)]
[Notices]
[Pages 5861-5863]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02013]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74160; File No. SR-BATS-2015-05]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Chapter IX of Its Rulebook To Incorporate Certain Rules of NASDAQ and 
FINRA Relating to Arbitration and Mediation

January 28, 2015.
    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 14, 2015, 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 substantially 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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

    The Exchange filed a proposal to amend Chapter IX of its rulebook 
to incorporate certain rules of the NASDAQ Stock Market LLC 
(``NASDAQ'') and the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') relating to arbitration and mediation. 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
    On July 30, 2007, the National Association of Securities Dealers, 
Inc. (``NASD''), the Exchange, and NYSE Regulation, Inc. consolidated 
their member firm regulation operations into a combined organization, 
FINRA, and entered into a plan to allocate to FINRA certain regulatory 
responsibilities for common rules and common members (``17d-2 
Agreement'').\5\ The 17d-2 Agreement was entered into in accordance 
with the requirements of Rule 17d-2 promulgated pursuant to the Act,\6\ 
which permits self-regulatory organizations (``SROs'') to allocate 
certain regulatory responsibilities with respect to common members and 
common rules. On September 5, 2012, the Exchange and FINRA entered into 
a Regulatory Services Agreement (``RSA''), whereby FINRA was retained 
to perform certain regulatory services on behalf of the Exchange 
pertaining to dispute resolution. On February 1, 2014, the Exchange and 
FINRA terminated their 2012 RSA and entered into a new RSA that covers 
the services contained in the 2012 RSA plus additional regulatory 
services. Today, FINRA performs all arbitration, mediation, and other 
dispute resolution services, as may be needed from time to time, on 
behalf of the Exchange.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 56148 (Jul. 26, 
2007), 72 FR 42146 (Aug. 1, 2007) (File No. 4-544) (Notice of Filing 
and Order Approving and Declaring Effective a Plan for the 
Allocation of Regulatory Responsibilities).
    \6\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

    To facilitate FINRA's performance of these functions under the 2014 
RSA and to further harmonize the rules of FINRA and the Exchange 
generally, the Exchange is proposing to conform the text of its rules 
governing arbitration and mediation (Chapter IX) to the FINRA Code of 
Arbitration Procedure for Customer Disputes (12000 Series), FINRA Code 
of Arbitration Procedure for Industry Disputes (13000 Series), and the 
FINRA Code of Mediation (14000 Series).
    The Exchange proposes to amend Chapter IX (Arbitration) of its 
rulebook to incorporate certain rules of NASDAQ and FINRA relating to 
arbitration and mediation, and to make certain non-substantive changes. 
The Exchange proposes to make the following changes to its current 
rules in Chapter IX of its rulebook.
Proposed Amendments to Current Rules
    The Exchange proposes to amend current Rule 9.1 (Code of 
Arbitration) to make the rule substantially similar to NASDAQ Rule 
10100. The Exchange proposes to replace the reference to NASD Code of 
Arbitration with FINRA Code of Arbitration,\7\ clarify the meaning of 
``Exchange arbitrations,'' \8\ and add a sentence stating that Members 
must comply with FINRA arbitration rules as if they were rules of the 
Exchange.
---------------------------------------------------------------------------

    \7\ See FINRA Rule 12000 Series (Code of Arbitration Procedure 
for Customer Disputes) and FINRA Rule 13000 Series (Code of 
Arbitration Procedure for Industry Disputes).
    \8\ They would be defined as ``every claim, dispute or 
controversy arising out of or in connection with matters eligible 
for submission under Rule 9.2.''
---------------------------------------------------------------------------

    The Exchange proposes to replace current Rule 9.2 (Jurisdiction) 
with amended Rule 9.2 (Matters Eligible for Submission), which is 
substantially similar to NASDAQ Rule 10101.\9\ Amended Rule 9.2 would 
state that the Exchange adopts the FINRA Code of Arbitration for any 
dispute, claim, or controversy arising out of or in connection with the 
business of any Member, or arising out of the employment or termination 
of employment of associated person(s) with any Member: Between or among 
Members; between or among Members and associated persons; and between 
or among Members or associated persons and public customers, or others, 
except for any type of dispute, claim, or controversy that is not 
permitted to be arbitrated under the FINRA Code of Procedure.
---------------------------------------------------------------------------

    \9\ See also FINRA Rule 12000 Series, FINRA Rule 13000 Series.
---------------------------------------------------------------------------

    The Exchange proposes to amend current Rule 9.3 (Predispute 
Arbitration Agreements) to incorporate FINRA Rule 2268 by reference, 
instead of restating the predispute arbitration agreement rules in 
full.
    The Exchange proposes to amend current Rule 9.5 (Payment of 
Awards), to re-name its title as ``Failure to Act

[[Page 5862]]

under Provisions of FINRA Code of Arbitration,'' to expand the rule to 
include additional conduct deemed inconsistent with just and equitable 
principles of trade and a violation of Rule 3.1 (Business Conduct of 
Members), using the language of NASDAQ IM-10100, and FINRA IM-12000 and 
IM-13000. These prohibited acts include: Failure to submit a dispute 
for arbitration under the FINRA Code of Arbitration as required by the 
FINRA Code of Arbitration; failure to comply with any injunctive order 
issued pursuant to the FINRA Code of Arbitration; failure to appear or 
to produce any document in his or her or its possession or control as 
directed pursuant to provisions of the FINRA Code of Arbitration; 
failure to honor an award, or comply with a written and executed 
settlement agreement, obtained in connection with an arbitration 
submitted for disposition under the FINRA Code of Arbitration where 
timely motion has not been made to vacate or modify such award pursuant 
to applicable law; or, failure to comply with a written and executed 
agreement obtained in connection with a mediation submitted for 
disposition pursuant to the FINRA Code of Mediation.\10\ The Exchange 
proposed to add Rule 9.5(b) to provide that action by Members requiring 
associated persons to waive the arbitration of disputes contrary to the 
provisions of the FINRA Code of Arbitration is a violation of Exchange 
Rule 3.1.
---------------------------------------------------------------------------

    \10\ See FINRA Rule 14000 Series (Code of Mediation Procedure).
---------------------------------------------------------------------------

    The Exchange proposes to amend current Rule 9.6 to extend the 
application of the rule (currently applicable to arbitration) to 
mediation.
    The Exchange proposes to add proposed Rule 9.7 (Mediation) to state 
that FINRA's mediation services, as governed by the 14000 Series of 
FINRA's Manual (the Code of Mediation Procedure), are also available to 
Members who voluntarily agree to submit matters for mediation. The 
Exchange also proposes to incorporate by reference the FINRA Code of 
Mediation into its rules so that Members have the same obligations with 
which to comply as if such rules and interpretations were part of the 
Exchange's rules.
    The Exchange proposes to add Rule 9.8 (Regulatory Services 
Agreement) to state, among other things, that FINRA staff will perform 
arbitrations and mediations on behalf of the Exchange pursuant to an 
RSA with FINRA in accordance with the FINRA Codes of Arbitration and 
Mediation.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed rule change 
will provide greater harmonization between Exchange and FINRA rules of 
similar purpose, resulting in less burdensome and more efficient 
regulatory compliance for members of both the Exchange and FINRA 
(``dual members''). As previously noted, in many instances the proposed 
rule text is substantially similar to FINRA's and NASDAQ's respective 
rule texts, which have already been approved by the Commission. As 
such, the Exchange believes that the proposed rule change will foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and will 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 proposed rule change is 
not designed to address any competitive issues but rather is designed 
to provide greater harmonization between Exchange and FINRA rules of 
similar purpose for arbitration and mediation matters, resulting in 
less burdensome and more efficient regulatory compliance for dual 
members and facilitating FINRA's performance of its regulatory 
functions under the 2014 RSA.

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 proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Commission believes that 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a SRO to give the Commission written notice of its intent 
to file 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. See 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    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: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) 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 proposal 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 No. SR-BATS-2015-05 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 No. SR-BATS-2015-05. 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

[[Page 5863]]

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 No. SR-BATS-2015-05 and should be submitted on or before February 
24, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02013 Filed 2-2-15; 8:45 am]
BILLING CODE 8011-01-P