Document ID: SEC-2013-2213-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-12-24T05:00Z

[Federal Register Volume 78, Number 247 (Tuesday, December 24, 2013)]
[Notices]
[Pages 77736-77739]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30592]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71129; File No. SR-BATS-2013-062]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
BATS Options Market Maker Continuous Quoting Obligation Rules

December 18, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 5, 2013, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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 22.6(d) with respect to 
the continuous quoting requirement applicable to Market Makers (as 
defined below) registered with the Exchange.
    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, at the Commission's Public Reference Room, and on the 
Commission's Web site at http://www.sec.gov.

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

[[Page 77737]]

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 is proposing to amend Rule 22.6(d), which is 
applicable to the Exchange's options platform (``BATS Options''). A 
``Market Maker'' on BATS Options is an Options Member registered as a 
Market Maker. Options Market Makers have obligations beyond those of 
other Options Members.\5\ One of these obligations is the requirement 
to maintain a two-sided market in those options series in which a 
Market Maker is registered to trade in a manner that enhances the 
depth, liquidity, and competitiveness of the market.\6\ Pursuant to 
this obligation and existing Rule 22.6(d), Market Makers must enter 
``continuous bids and offers for the options series to which it is 
registered.''
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    \5\ See BATS Rule 22.2, 22.5.
    \6\ BATS Rule 22.5(a).
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    The Exchange proposes to add Rule 22.6(d)(3), which would specify 
numerically the meaning of ``continuous'' with respect to Market 
Makers' obligation to maintain continuous, two-sided quotes. For the 
purposes of Rule 22.6, the Exchange will consider the continuous 
quoting requirement fulfilled if a Market Maker provides two-sided 
quotes for 90% of the time the Market Maker is required to provide 
quotes in an appointed options series on a given trading day, or such 
higher percentage as the Exchange may announce in advance.
    Proposed Rule 22.6(d)(3) would also provide that the continuous 
quoting requirement will be applied to all options classes 
collectively, rather than on a [sic] issue-by-issue basis and that 
compliance will be determined on a monthly basis. The Exchange believes 
that applying the quoting requirements for Market Makers collectively 
across all options classes and reviewing such compliance over a monthly 
basis is a fair and more efficient way for the Exchange and market 
participants to evaluate compliance with the continuous quoting 
requirements. Applying the continuous quoting requirement collectively 
across all option classes rather than on an issue-by-issue basis, is 
beneficial to Market Makers by providing some flexibility to choose 
which series in their appointed classes they will continuously quote--
increasing the continuous quoting obligation in the series of one class 
to allow for a decrease in the continuous quoting obligation in the 
series of another class. This flexibility, however, does not diminish 
the Market Maker's obligation to continuously quote a significant part 
of the trading day in a significant percentage of series. This 
flexibility is especially important for classes that have relatively 
few series and may prevent the Market Maker, in particular, from 
breaching the continuous quoting requirement when failing to quote 90% 
of the trading day (as proposed) in more than one series in an 
appointed class. In addition, determining compliance with the 
continuous quoting requirement on a monthly basis does not relieve the 
Market Maker of the obligation to provide continuous two-sided quotes 
on a daily basis, nor will it prohibit the Exchange from taking 
disciplinary action against a Market Maker for failing to meet the 
continuous quoting obligation each trading day. Compliance on a monthly 
basis allows the Exchange to review the Market Maker's daily compliance 
in the aggregate and determine the appropriate disciplinary action for 
single or multiple failures to comply with the continuous quoting 
requirement during the month period. The Exchange believes that the 
proposal will not diminish, and in fact may increase, market making 
activity on the Exchange, by establishing quoting compliance standards 
that are reasonable and are already in place on other options 
exchanges.\7\
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    \7\ See NYSE MKT Rule 925.1NY; see also, CBOE Rule 1.1(ccc); ISE 
Rule 804(e); ISE Gemini Rule 804(e); MIAX Rule 604(e); NASDAQ OMX 
PHLX Rule 1014(b)(ii)(D)(1); NOM Rules, Chapter VII, Sec. 6(d); NYSE 
Arca Rule 6.37B(b).
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    As proposed, pursuant to Rule 22.6(d)(4) if there is a technical 
failure or limitation of an Exchange system that prevents a Market 
Maker from maintaining or communicating to the Exchange timely and 
accurate quotes in an options series, the Exchange will not consider 
the duration of such failure in determining whether the Market Maker 
has satisfied the 90% quoting standard with respect to the affected 
options series.
    The Exchange also proposes to add paragraph (d)(6) to Rule 22.6, 
which would specify that Market Makers would not be required to make 
two-sided markets pursuant to Rule 22.6 in any Quarterly Option Series, 
any adjusted option series, and any option series until the time to 
expiration for such series is less than nine months. Accordingly, the 
continuous quotation obligations set forth in the Rule will not apply 
to Market Makers respecting Quarterly Option Series, adjusted option 
series, and series with an expiration of nine months or greater. For 
purposes of paragraph (d)(6), an adjusted option series would be 
defined as an option series wherein, as a result of a corporate action 
by the issuer of the underlying security, one option contract in the 
series represents the delivery of other than 100 shares of underlying 
stock or Exchange-Traded Fund Shares.
    The Exchange will also reserve the right to consider other 
exceptions to the continuous quoting obligation based on demonstrated 
legal or regulatory requirements or other mitigating circumstances. As 
explained below, the proposed changes will provide a specific numerical 
threshold that Market Makers will need to meet, which is consistent 
with the rules of several other options exchanges.\8\
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    \8\ See id.
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    In addition to the changes described above, the Exchange proposes 
to number an existing paragraph currently contained within Rule 
22.6(d)(2) as a separate paragraph, paragraph (d)(5).
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.\9\ Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act,\10\ which 
requires exchange rules to 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. The Exchange believes the proposed 
rule change fulfills these requirements because it provides a specific 
standard to which the Exchange will hold Market Makers regarding their 
obligation to maintain a two-sided market in specified options series. 
By numerically specifying this obligation, the Exchange will enhance 
the quality of its market and avoid unnecessary investor confusion. 
Moreover, the Exchange again notes that the proposed rule change is 
substantially similar to the rules of other options exchanges.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See supra note 7.
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    Furthermore, the Exchange believes this proposed rule change 
promotes just and equitable principles of trade because it reduces a 
burden and unnecessary restrictiveness on Market Makers. The Exchange 
still imposes many obligations on all Market Makers

[[Page 77738]]

to maintain a fair and orderly market in their appointed classes, which 
the Exchange believes eliminates the risk of a material decrease in 
liquidity. Accordingly, the proposal supports the quality of the 
Exchange's market by helping to ensure that Market Makers will continue 
to be obligated to quote in series when necessary. The benefit provided 
to the Market Maker from the proposed definition of continuous quoting 
is offset by the required percentage of series in which the Market 
Maker must provide continuous quotes. Ultimately, the benefit the 
proposed rule change confers upon Market Makers is offset by the 
continued responsibilities to provide significant liquidity to the 
market to the benefit of market participants.
    The proposed rule change also protects investors and the public 
interest by creating more uniformity and consistency among the 
Exchange's rules related to Market-Maker quoting obligations. The 
proposed rule change allows the Exchange to require Market Makers to 
provide continuous quotes in a percentage of series in their appointed 
classes for a portion of the trading day that is the same as that of 
market-makers at other exchanges, which the Exchange believes will 
ultimately make the Exchange more competitive and help remove 
impediments to and promote a free and open market. For the foregoing 
reasons, the Exchange believes that the balance between the benefits 
provided to Market-Makers and the obligations imposed upon Market-
Makers by the proposed rule change is appropriate.
    Further, providing Market Makers with flexibility by providing the 
continuous quoting obligation collectively across all option classes 
will not diminish the Market Maker's obligation to continuously quote a 
significant part of the trading day in a significant percentage of 
series. Additionally, with respect to compliance standards, the 
Exchange believes that adopting the proposed standards will enhance 
compliance efforts by Market Makers and the Exchange, and are 
consistent with the requirement [sic] currently in place on other 
exchanges. The proposal ensures that compliance standards for 
continuous quoting will be the same on the Exchange as on other options 
exchanges. The Exchange believes that the proposal will not diminish 
and in fact may increase, market making activity on the Exchange, by 
establishing a quoting compliance standard that is reasonable and is 
already in place on other options exchanges.
    The Exchange notes that its Market Makers are subject to many 
obligations, including the obligation to maintain a fair and orderly 
market in their appointed classes, which the Exchange believes 
eliminates the risk of a material decrease in liquidity. The Exchange 
continues to believe the balance of obligations and benefits is 
appropriate given the following: (i) although the percentage of the 
trading day Market Makers will be required to quote will be numerically 
set at 90%, Market Makers will continue to have heightened quoting 
requirements based on the significant percentage of series Market 
Makers are required to quote; (ii) the proposed clarification in the 
rule text of which series the continuous quoting obligations apply to 
does not diminish the continuous quoting obligation and is consistent 
with requirements in place at other option exchanges; (iii) the 
flexibility being provided by the proposal to apply the continuous 
quoting obligation collectively across all option classes also does not 
diminish the Market Maker's obligations; and (iv) the proposed changes 
are all consistent with requirements in place at other options 
exchanges. The Exchange believes that its proposal is consistent with 
the Act in that providing clarification and flexibility does not 
detract from the overall market making obligations of Market Makers. 
The requirement that a market maker hold itself out as willing to buy 
and sell options for its own account on a regular or continuous basis 
is better supported by these proposed revisions and clarifications. 
Accordingly, the benefits the proposed rule change confers upon Market 
Makers are offset by the continued responsibilities to provide 
significant liquidity to the market to the benefit of all market 
participants.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \12\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange believes the proposed rule change 
will provide specificity in Exchange rules as they relate to Market 
Maker's [sic] obligation to maintain continuous, two-sided quotes in 
specific options series. Moreover, as previously noted, the proposed 
rule change is substantially similar to the rules of other options 
exchanges.\13\ As such, the Exchange believes the proposed rule changes 
will enhance, rather than diminish, competition among the options 
exchanges.
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    \12\ 15 U.S.C. 78f(b)(8).
    \13\ See supra note 7.
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(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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
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 \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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    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.

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

[[Page 77739]]

    Send an email to rule-comments@sec.gov. Please include File No. SR-
BATS-2013-062 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 No. SR-BATS-2013-062. 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 changes 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-2013-062 and should be 
submitted on or before January 14, 2014.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30592 Filed 12-23-13; 8:45 am]
BILLING CODE 8011-01-P