Document ID: SEC-2011-0682-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2011-05-12T04:00Z

[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27680-27683]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11675]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64433; File No. SR-BYX-2011-011]

Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Extend a Pilot Program Related to 
Trading Pauses Due to Extraordinary Market Volatility

May 6, 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 May 4, 2011, 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 
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 Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to extend a 
pilot program previously approved by the Commission related to Rule 
11.18, entitled ``Trading Halts Due to Extraordinary Market 
Volatility,'' to include additional securities in the pilot by which 
such rule operates. The Exchange also proposes to amend Rule 11.8, 
entitled ``Obligations of Market Makers,'' to conform certain of the

[[Page 27681]]

percentages thereunder consistent with the proposed changes to the 
pilot.
    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 Exchange proposes to extend a pilot program previously approved 
by the Commission related to Rule 11.18, entitled ``Trading Halts Due 
to Extraordinary Market Volatility,'' to include additional securities 
in the pilot by which such rule operates. The Exchange also proposes to 
amend Rule 11.8, entitled ``Obligations of Market Makers,'' to conform 
certain of the percentages thereunder consistent with the proposed 
changes to the pilot.
    The Commission approved Rule 11.18(d) on a pilot basis on June 10, 
2010 to allow other national securities exchanges and FINRA to pause 
trading in an individual stock when the primary listing market for such 
stock issues a trading pause due to extraordinary market volatility 
(``Trading Pause'') in a security included within the S&P 500[reg] 
Index (``S&P 500'') (``Trading Pause Pilot'' or ``Pilot'').\3\ Other 
national securities exchanges and FINRA subsequently received approval 
to add to the Pilot the securities included in the Russell 1000[supreg] 
Index (``Russell 1000'') and a specified list of Exchange Traded 
Products (``ETPs'').\4\ The Exchange adopted the Pilot prior to 
commencing operations as a national securities exchange.\5\
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    \3\ Prior to the Exchange's approval to register as a national 
securities exchange, the Commission approved the Trading Pause Pilot 
for all equities exchanges and FINRA. See Securities Exchange Act 
Release No. 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010) (File 
Nos. SR-BATS-2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-
037; SR-ISE-2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-
NYSEArca-2010-41; SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-
05; and SR-CBOE-2010-047) and Securities Exchange Act Release No. 
62251 (June 10, 2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-
025).
    \4\ The Commission approved the addition to the Trading Pause 
Pilot of the securities included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release No. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08 and Securities 
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 
(September 16, 2010) (SR-FINRA-2010-033).
    \5\ See Securities Exchange Act Release No. 63097 (October 13, 
2010), 75 FR 64767 (October 20, 2010) (SR-BYX-2010-002). The 
Exchange submitted a proposed rule change shortly after the adoption 
of the Pilot to extend the operation of the Pilot, which was set to 
expire on December 10, 2010, until April 11, 2011. See Securities 
Exchange Act Release No. 63513 (December 9, 2010), 75 FR 78784 
(December 16, 2010) (SR-BYX-2010-007). More recently, the Exchange 
submitted a proposed rule change to extend the operation of the 
Pilot until the earlier of August 11, 2011 or the date on which a 
limit up/limit down mechanism to address extraordinary market 
volatility, if adopted, applies. Securities Exchange Act Release No. 
64214 (April 6, 2011), 76 FR 20430 (April 12, 2011) (SR-BYX-2011-
007).
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    The Exchange has continued to assess whether additional securities 
need to be added to the Pilot and whether the parameters of Rule 11.18 
need to be modified to accommodate trading characteristics of different 
securities. In consultation with other markets and the staff of the 
Commission, the Exchange proposes to include all NMS stocks within the 
Pilot that are not already included therein. Accordingly, the Exchange 
proposes to modify the definition of ``Circuit Breaker Securities'' in 
Interpretation and Policy .05 to Rule 11.18 to include all NMS stocks. 
The Exchange is not proposing any other changes to the text of Rule 
11.18 or the operation of the Pilot, and will continue to assess 
whether the parameters for invoking a Trading Pause continue to be 
appropriate and whether the parameters should be modified.\6\
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    \6\ The Exchange notes that it does not currently calculate the 
percentage necessary for a Trading Pause to be issued, but instead 
relies on the primary listing market for each security to perform 
such calculation and disseminate information if and when a Trading 
Pause is in effect. Nonetheless, the Exchange supports the 
percentages at which Trading Pauses will trigger, which are being 
concurrently proposed by the primary listing markets with respect to 
the NMS stocks that are being added to the Pilot. In particular, the 
proposed additional stocks are those not currently included in the 
S&P 500 Index, Russell 1000 Index, or specified ETPs, and therefore 
are more likely to be less liquid securities or securities with 
lower trading volumes. Accordingly, the Exchange agrees that broader 
percentages to trigger a Trading Pause would be appropriate. 
Similarly, because leveraged ETPs trade at a ratio against the 
associated index, a broader percentage to trigger a Trading Pause 
would also be appropriate for leveraged ETPs. Finally, the Exchange 
agrees that lower-priced securities should be governed by a broader 
percentage prior to triggering a Trading Pause than other NMS stocks 
because lower-priced securities may tend to be more volatile, and 
price movements of lower-priced stocks equate to a higher percentage 
move than a similar price change for a higher-priced stock.
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    The proposed changes to the Pilot, if approved, would require that 
the text of Rule 11.8(d)(2)(D) and (E), which pertain to the pricing 
obligations that Market Makers \7\ are required to adhere to, be 
amended to ensure consistency with the percentage moves that will 
trigger a Trading Pause on the primary listing markets (a ``Trigger 
Percentage''). Specifically, in order to adopt the proposed changes to 
the Pilot, the primary listing markets will apply different Trigger 
Percentages to the newly added securities, including 30% for NMS stocks 
priced equal to or greater than $1 per share that are not included in 
the S&P 500, the Russell 1000 or the specified list of ETPs and 50% for 
NMS stocks priced below $1 per share that are not included in the S&P 
500, the Russell 1000 or the specified list of ETPs (``Low Priced 
Securities''). In order to accommodate this change, the Exchange 
proposes to modify the language of its quoting requirements for Market 
Makers, which are intended to be within the bounds of the Trigger 
Percentages.
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    \7\ The term Market Maker means a Member that acts as a Market 
Maker on BYX pursuant to Chapter XI of the Exchange's rules.
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    As set forth in the Exchange's current Rule, the pricing 
obligations applicable to quotations of Market Makers are based on the 
``Designated Percentage'' and the ``Defined Limit,'' which are 
determined based on the applicable Trigger Percentage. Currently, the 
Exchange's formula for calculating the Designated Percentage is the 
Trigger Percentage minus 2%. The current formula for calculating the 
Defined Limit is the Trigger Percentage minus 0.5%. The Exchange 
proposes to apply the existing formulas for calculating the Designated 
Percentage and Defined Limit to all NMS stocks other than Low Priced 
securities. Thus, there will be no change to the existing Designated 
Percentage of 8% and Defined Limit of 9.5% for securities included in 
the S&P 500, the Russell 1000 or the specified list of ETPs (or 20% and 
21.5% when trading pauses are not in effect). For newly added NMS 
stocks priced $1 or above, this formula will mean a Designated 
Percentage of 28% and a Defined Limit of 29.5%.
    The Exchange proposes to add language stating that for Low Priced 
Securities the Designated Percentage

[[Page 27682]]

will be 20 percentage points less than the Trigger Percentage and the 
Defined Limit will be 18.5 percentage points less than the Trigger 
Percentage. Accordingly, the Designated Percentage and Defined Limit 
would be 30% and 31.5%, respectively, for Low Priced Securities.
    Similarly, and consistent with the rules of the primary listing 
markets, the Exchange proposes to state that with respect to securities 
included in S&P 500, the Russell 1000 or the specified list of ETPs, 
such products have different quotation requirements at the open and 
close of trading each day. Specifically, the Exchange proposes to state 
that with respect to such products, the quotation requirements apply 
with a Designated Percentage of 20% and a Defined Limit of 21.5% for 
times during Regular Trading Hours when stock pause triggers are not in 
effect under the rules of the primary listing market. For all other NMS 
stocks, the Designated Percentage and Defined Limit will not change for 
the open or the close of trading.
    The Exchange notes that part of this proposed change would be 
substantive, in that the percentages under Rule 11.8(d)(2)(D) and (E) 
would decrease slightly for the proposed new NMS stocks priced at $1 or 
greater. The Exchange believes that this proposed substantive change 
would not have a significant impact on Market Maker pricing obligations 
and is reasonable because it would ensure that the designated quoting 
percentages in 11.18 are within a narrower range than the percentages 
necessary to trigger a Trading Pause.
    The Exchange also proposes to modify Rule 11.8(e), which describes 
an optional functionality that the Exchange offers to Exchange Market 
Makers to assist such Market Makers with maintenance of their 
quotations under Rule 11.8. Specifically, for Market Makers that 
utilize the functionality, the Exchange enters bids and offers at the 
Designated Percentage and cancels and replaces the bid or offer if it 
drifts away from the NBBO to the Defined Limit or away from the 
Designated Percentage towards the NBBO by a number of percentage points 
determined by the Exchange. If a bid or offer entered pursuant to 
proposed paragraph (e) is executed, the Exchange will re-enter a new 
bid or offer on behalf of a Market Maker. In order to reduce the 
operational burden on the Exchange, the Exchange proposes to use the 
same Designated Percentage and Defined Limit for all NMS stocks that 
are being added to the Pilot regardless of the price per share of such 
stocks. Accordingly, for purposes of its optional quotation 
functionality, the Exchange will use a consistent Designated Percentage 
of 28% and a consistent Defined Limit of 29.5% for all NMS stocks not 
included in S&P 500, the Russell 1000 or the specified list of ETPs. 
Market Makers managing their own quoting on the Exchange may still 
quote in accordance with the rule based on the Designated Percentage 
and Defined Limit established for Low Priced Securities (30% and 31.5%, 
respectively).
    Finally, the Exchange proposes to simplify Rule 11.18 by adopting 
Interpretation and Policy .01, which will, in chart form, explicitly 
state the percentages that are applicable under the Rule for different 
types of securities and at different times.
2. Statutory Basis
    The Exchange believes that its proposal 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\ In particular, the 
proposal 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. The proposed rule change is also 
consistent with Section 11A(a)(1) of the Act \10\ in that it seeks to 
assure fair competition among brokers and dealers and among exchange 
markets. The Exchange believes that the proposed rule meets these 
requirements because it expands the scope of the Pilot to cover all NMS 
stocks while adjusting the parameters of the rule for different 
securities in a manner that will promote uniformity across markets 
concerning decisions to pause trading in a security when there are 
significant price movements. Additionally, the proposed changes would 
ensure that the designated quoting percentages in Rule 11.18 are within 
a narrower range than the percentages necessary to trigger a Trading 
Pause on a primary listing market.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78k-1(a)(1).
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-BYX-2011-011 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-BYX-2011-011. 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

[[Page 27683]]

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 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 publicly available. All submissions should refer to 
File Number SR-BYX-2011-011 and should be submitted on or before June 
2, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11675 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P