Document ID: SEC-2008-1329-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2008-10-01T04:00Z

[Federal Register: October 1, 2008 (Volume 73, Number 191)]
[Notices]               
[Page 57169-57172]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc08-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58623; File No. SR-BATS-2008-004]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change 
Consolidating Into a Single Rule Certain Requirements for Products 
Traded on the Exchange Pursuant to Unlisted Trading Privileges

September 23, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 57170]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 17, 2008, BATS Exchange, Inc. (``BATS'' or ``Exchange'') 
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. BATS has designated the proposed 
rule change as constituting a rule change under Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend BATS Rule 14.1, entitled 
``Unlisted Trading Privileges'' to consolidate into a single rule 
certain requirements for trading products on the Exchange pursuant to 
unlisted trading privileges (``UTP'') that have been established in 
various new product proposals previously approved by the Commission.
    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 amend the Exchange's 
rules to consolidate into a single rule certain requirements for 
trading products on the Exchange pursuant to UTP that have been 
established in various new product proposals previously approved by the 
Commission. The Exchange proposes to amend BATS Rule 14.1 to set forth 
rules regarding the extension of UTP to a security that is listed on 
another national securities exchange. Any such security will be subject 
to all Exchange trading rules applicable to equity securities, unless 
otherwise noted. The Exchange will file with the Commission a Form 19b-
4(e) with respect to any such security that is a ``new derivative 
securities product'' as defined in Rule 19b-4(e) under the Act.\5\ In 
addition, any new derivative securities product traded on the Exchange 
pursuant to the proposed BATS Rule 14.1 will be subject to the 
following criteria.
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    \5\ 17 CFR 240.19b-4(e).
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    Proposed BATS Rule 14.1(c)(2) provides that the Exchange will 
distribute an information circular prior to the commencement of trading 
in such new derivative securities products, which generally will 
include the same information as the information circular provided by 
the listing exchange, including: (1) The special risks of trading the 
new derivative securities product; (2) the Exchange's rules that will 
apply to the new derivative securities product, including the 
suitability rule;\6\ (3) information about the dissemination of the 
value of the underlying assets or indexes; and (4) the risk of trading 
during the Exchange's pre-opening session due to the lack of 
calculation or dissemination of the intraday indicative value or a 
similar value.\7\
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    \6\ See BATS Rule 3.7.
    \7\ BATS's pre-opening session is from 8 a.m. to 9:30 a.m. 
Eastern Time. BATS does not currently have a post market trading 
session.
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    Proposed BATS Rule 14.1(c)(3)(A) reminds Members \8\ that they are 
subject to the prospectus delivery requirements under the Securities 
Act of 1933, as amended (``Securities Act''), unless the new derivative 
securities product is the subject of an order by the Commission 
exempting the product from certain prospectus delivery requirements 
under Section 24(d) of the Investment Company Act of 1940 (``1940 
Act'') \9\ and the product is not otherwise subject to prospectus 
delivery requirements under the Securities Act. The Exchange will 
inform its Members of the application of the provisions of this 
subparagraph to a particular new securities derivative product governed 
by the 1940 Act by means of an information circular.
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    \8\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
    \9\ 15 U.S.C. 80a-24(d).
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    Proposed BATS Rule 14.1(c)(4) addresses trading halts in new 
derivative securities products traded on the Exchange pursuant to UTP. 
Proposed BATS Rule 14.1(c)(4)(A) provides that the Exchange, upon 
notification by the listing market of a halt due to a temporary 
interruption in the calculation or wide dissemination of the intraday 
indicative value (or similar value) or the value of the underlying 
index or instrument, will immediately halt trading in that product on 
the Exchange. If the intraday indicative value (or a similar value) or 
the value of the underlying index or instrument continues not to be 
calculated or widely available at the commencement of trading on the 
Exchange on the next business day, the Exchange shall not commence 
trading of the product on that day. If an interruption in the 
calculation or wide dissemination of the intraday indicative value (or 
a similar value) or the value of the underlying index or instrument of 
a series continues, the Exchange may resume trading in the product only 
if calculation and wide dissemination of the intraday interactive value 
(or a similar value) or the value of the underlying index or instrument 
resumes or trading in such series resumes in the listing market.\10\
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    \10\ The Exchange also has authority to suspend or halt trading 
under BATS Rule 11.1.
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    Additionally, proposed BATS Rule 14.1(c)(4)(B) provides that, for a 
new derivative securities product where a net asset value (and, in the 
case of managed fund shares or actively managed exchange-traded funds, 
a ``disclosed portfolio'') is disseminated, the Exchange will 
immediately halt trading in such security upon notification by the 
listing market that the net asset value, and, if applicable, such 
disclosed portfolio, is not being disseminated to all market 
participants at the same time. The Exchange may resume trading in the 
new derivative securities product only when trading in such security 
resumes on the listing market.
    Proposed BATS Rule 14.1(c)(5) provides for restrictions for any 
Member registered as a Market Maker (``Restricted Market Maker'') in a 
new derivative securities product that derives its value from one or 
more currencies, commodities, or derivatives based on one or more 
currencies or commodities, or is based on a basket or index comprised 
of currencies or commodities (collectively, ``Reference Assets''). 
Specifically, proposed BATS

[[Page 57171]]

Rule 14.1(c)(5)(A) provides that a Restricted Market Maker in a new 
derivative securities product is prohibited from acting or registering 
as a market maker in any Reference Asset of that new derivative 
securities product or any derivative instrument based on a Reference 
Asset of that new derivative securities product (collectively, with 
Reference Assets, ``Related Instruments''). Proposed BATS Rule 
14.1(c)(5)(B) provides that a Restricted Market Maker shall, in a 
manner prescribed by the Exchange, file with the Exchange and keep 
current a list identifying any accounts (``Related Instrument Trading 
Accounts'') for which Related Instruments are traded: (1) In which the 
Restricted Market Maker holds an interest; (2) over which it has 
investment discretion; or (3) in which it shares in the profits and/or 
losses. In addition, a Restricted Market Maker may not have an interest 
in, exercise investment discretion over, or share in the profits and/or 
losses of a Related Instrument Trading Account which has not been 
reported to the Exchange as required by this rule. Proposed BATS Rule 
14.1(c)(5)(C) provides that, in addition to the existing obligations 
under Exchange rules regarding the production of books and records, a 
Restricted Market Maker shall, upon request by the Exchange, make 
available to the Exchange any books, records, or other information 
pertaining to any Related Instrument Trading Account or to the account 
of any registered or non-registered employee affiliated with the 
Restricted Market Maker for which Related Instruments are traded. 
Finally, proposed BATS Rule 14.1(c)(5)(D) provides that a Restricted 
Market Maker shall not use any material nonpublic information in 
connection with trading a Related Instrument.\11\
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    \11\ As of the date of this filing, the Exchange does not have a 
market maker classification. However, the Exchange intends to amend 
its rules to adopt a market maker classification. Accordingly, the 
Exchange has incorporated the market maker prohibition set forth in 
proposed Rule 14.1(c)(5) in anticipation of that rule filing.
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    Lastly, BATS represents that the Exchange's surveillance procedures 
for new derivative securities products traded on the Exchange pursuant 
to UTP will be similar to the procedures used for equity securities 
traded on the Exchange and will incorporate and rely upon existing 
Exchange surveillance systems. The Exchange will closely monitor 
activity in new derivative securities products traded on the Exchange 
pursuant to UTP to deter any improper trading activity. The proposed 
rule change also provides that the Exchange will enter into a 
comprehensive surveillance sharing agreement (``CSSA'') with a market 
trading components of the index or portfolio on which the new 
derivative securities product is based to the same extent as the 
listing exchange's rule require the listing market to enter into a CSSA 
with such market.
2. Statutory Basis
    Approval of the rule changes proposed in this submission is 
consistent with the requirements of the Act and the rules and 
regulations thereunder that are applicable to a national securities 
exchange, and, specifically, with the requirements of Section 6(b) of 
the Act.\12\ In particular, for the reasons described above, the 
proposed changes are consistent with Section 6(b)(5) of the Act,\13\ 
because they 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, and, in general, protect investors 
and the public interest by providing for the trading of securities, 
including new derivative securities products, on BATS pursuant to UTP, 
subject to consistent and reasonable standards.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes impose 
any burden on competition.

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

    No written comments were solicited or received.

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

    Because the foregoing 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 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 \14\ 
and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). The Commission notes that BATS has 
satisfied the five-day pre-filing notice requirement.
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    BATS has asked the Commission to waive the 30-day operative delay. 
The Commission believes that such waiver is consistent with the 
protection of investors and the public interest because such waiver 
should benefit investors by creating, without undue delay, additional 
competition in the trading of new derivative securities products, 
subject to consistent and reasonable standards. Proposed BATS Rule 14.1 
is closely modeled after similar rules of other national securities 
exchanges \16\ and does not raise any novel or significant regulatory 
issues. Therefore, the Commission designates the proposed rule change 
as operative upon filing.\17\
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    \16\ See NSX Rule 15.9 and Securities Exchange Act Release No. 
57448 (March 6, 2008), 73 FR 13597 (March 13, 2008) (SR-NSX-2008-
05); Phlx Rule 803(o) and Securities Exchange Act Release No. 57806 
(May 9, 2008), 73 FR 28541 (May 16, 2008) (SR-Phlx-2008-34); ISE 
Rule 2101 and Securities Exchange Act Release No. 57387 (February 
27, 2008), 73 FR 11965 (March 5, 2008) (SR-ISE-2007-99).
    \17\ For purposes only of waiving the operative date of this 
proposal, the Commission has considered the 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 may summarily abrogate 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.

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-BATS-2008-004 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.

[[Page 57172]]

    All submissions should refer to File Number SR-BATS-2008-004. 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 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 inspection 
and copying in the Commission's Public Reference Room on official 
business days between the hours of 10 a.m. and 3 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-BATS-2008-004 and should be submitted on or before 
October 22, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary. 9
 [FR Doc. E8-22961 Filed 9-30-08; 8:45 am]

BILLING CODE 8010-01-P