Document ID: SEC-2015-1607-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2015-10-05T04:00Z

[Federal Register Volume 80, Number 192 (Monday, October 5, 2015)]
[Notices]
[Pages 60193-60195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25178]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76016; File No. SR-BYX-2015-40]

Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Restructure and Amend Rule 11.17, Clearly Erroneous Executions

September 29, 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 September 21, 2015, 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, II, 
and III 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 filed a proposal to restructure and amend Rule 11.17, 
Clearly Erroneous Executions, in order to conform to the rules of EDGA 
Exchange, Inc. (``EDGA'') and EDGX Exchange, Inc. (``EDGX'').\3\
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    \3\ See EDGA and EDGX Rule 11.15.
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    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
    In early 2014, the Exchange and its affiliate, BATS Exchange, Inc. 
(``BZX''), received approval to effect a merger (the ``Merger'') of the 
Exchange's parent company, BATS Global Markets, Inc., with Direct Edge 
Holdings LLC, the indirect parent of EDGX and EDGA (together with BZX, 
BYX and EDGX, the ``BGM Affiliated Exchanges'').\4\ In the context of 
the Merger, the BGM Affiliated Exchanges are working to align their 
rules, retaining only intended differences between the BGM Affiliated 
Exchanges. Thus, the Exchange proposes to restructure and amend Rule 
11.17, Clearly Erroneous Executions, in order to conform to the 
corresponding rules of EDGA and EDGX and provide a consistent rule set 
across each of the BGM Affiliated Exchanges.\5\
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    \4\ See Securities Exchange Act Release No. 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
    \5\ The Exchange notes that BZX intends to file an identical 
proposal with the Commission to restructure and amend its Rule 
11.17, Clearly Erroneous Executions, to conform to EDGA and EDGX 
Rules 11.15.
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Background
    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to BATS Rule 11.17 to provide for uniform treatment: (1) Of 
clearly erroneous \6\ execution reviews in multi-stock events involving 
twenty or more securities; and (2) in the event transactions occur that 
result in the issuance of an individual stock trading pause by the 
primary listing market and subsequent transactions that occur before 
the trading pause is in effect on the Exchange.\7\ The Exchange also 
adopted additional changes to Rule 11.17 that reduced the ability of 
the Exchange to deviate from the objective standards set forth in Rule 
11.17,\8\ and in 2013, adopted a provision designed to address the 
operation of the Plan to Address Extraordinary Market Volatility 
Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or the ``Plan'').\9\ In 2014, the Exchange adopted 
two additional provisions providing that: (i) A series of transactions 
in a particular security on one or more trading days may be viewed as 
one event if all such transactions were effected based on the same 
fundamentally incorrect or grossly misinterpreted issuance information 
resulting in a severe valuation error for all such transactions (the 
``Multi-Day Event''); and (ii) in the event of any disruption or 
malfunction in the operation of the electronic communications and 
trading facilities of an Exchange, another SRO, or responsible single 
plan processor in connection with the transmittal or receipt of a 
trading halt, an Officer, acting on his or her own motion, shall 
nullify any transaction that occurs after a trading halt has been 
declared by the primary listing market for a security and before such 
trading halt has officially ended according to the primary listing 
market.\10\
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    \6\ The terms of a transaction executed on the Exchange are 
``clearly erroneous'' when there is an obvious error in any term, 
such as price, number of shares or other unit of trading, or 
identification of the security. A transaction made in clearly 
erroneous error and cancelled by both parties or determined by the 
Exchange to be clearly erroneous will be removed from the 
Consolidated Tape. See Exchange Rule 11.17(a).
    \7\ Securities Exchange Act Release No. 62886 (Sept. 10, 2010), 
75 FR 56613 (Sept. 16, 2010) (SR-BATS-2010-016).
    \8\ Id.
    \9\ See Securities Exchange Act Release No. 68797 (Jan. 31, 
2013), 78 FR 8635 (Feb. 6, 2013) (SR-BATS-2013-008); see also 
current BATS Rule 11.17(h).
    \10\ See Securities Exchange Act Release No. 72434 (June 19, 
2014), 79 FR 36110 (June 25, 2014) (SR-BYX-2014-007).

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[[Page 60194]]

Proposed Amendments to Rule 11.17
    First, the Exchange proposes to add new subparagraph (h) to Rule 
11.17 which would describe the process for nullifying trades in UTP 
Securities that are the subject of an initial public offering 
(``IPOs''). The provisions of proposed paragraph (h) are substantially 
similar to EDGA and EDGX Rules 11.15(h) and differs only to the extent 
to conform to existing phrasing and terminology within other provisions 
of Rule 11.17.\11\
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    \11\ The Exchange notes that EDGA and EDGX are to file rule 
changes with the Commission to proposes a series of ministerial 
changes to their Rules 11.15, Clearly Erroneous Executions, to 
conform with other provisions of BZX and BYX Rule 11.17 to ensure 
each of the BGM Affiliated Exchange have identical rule text with 
regard to the review and handling of clearly erroneous executions. 
This filing would include changes to EDGA and EDGX Rules 11.15(h) to 
mirror Exchange Rule 11.17(h) as proposed herein.
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    Pursuant to Rule 12f-2 of the Securities Exchange Act of 1934,\12\ 
the Exchange may extend unlisted trading privileges to a security that 
is the subject of an IPO when at least one transaction in the subject 
security has been effected on the national securities exchange or 
association upon which the security is listed and the transaction has 
been reported pursuant to an effective transaction reporting plan. 
Under proposed paragraph (h), a clearly erroneous error may be deemed 
to have occurred in the opening transaction of the subject security if 
the execution price of the opening transaction on the Exchange is the 
lesser of $1.00 or 10% away from the opening price on the listing 
exchange or association. In such circumstances, the Officer of the 
Exchange or other senior level employee designee shall declare the 
opening transaction null and void or shall decline to take action in 
connection with the completed trade(s). Clearly erroneous executions of 
subsequent transactions of the subject security will be reviewed in the 
same manner as the procedure set forth in Exchange Rule 11.17(e)(1). 
Absent extraordinary circumstances, any such action of the Officer of 
the Exchange or other senior level employee designee pursuant to 
proposed subparagraph (h) shall be taken in a timely fashion, generally 
within thirty (30) minutes of the detection of the erroneous 
transaction. When extraordinary circumstances exist, any such action of 
the Officer of the Exchange or other senior level employee designee 
must be taken by no later than the start of Regular Trading Hours on 
the trading day following the date of execution(s) under review. Each 
party involved in the transaction shall be notified as soon as 
practicable by the Exchange, and the party aggrieved by the action may 
appeal such action in accordance with the provisions of Exchange Rule 
11.17(e)(2). As stated above, proposed paragraph (h) is substantially 
similar to EDGA and EDGX Rules 11.15(h) and differs only to the extent 
to conform to existing phrasing and terminology within other provisions 
of Rule 11.17.
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    \12\ 17 CFR 240.12f-2.
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    The Exchange also proposes the following ministerial amendments to 
Rule 11.17 as a result of proposing new paragraph (h). First, the 
Exchange proposes to renumber current paragraph (h) as (i), current 
paragraph (i) as (j), and current paragraph (j) as (k). In addition, 
the Exchange proposes to update the references to these paragraph in 
the introductory section of Rule 11.17 to reflect these changes and the 
addition of proposed paragraph (h).
    Lastly, the Exchange proposes the following changes to further 
conform Rule 11.17 to EDGA and EDGX Rules 11.15:
     Amend paragraph (e)(1) to clarify that a determination 
made pursuant to this paragraph shall be made generally within thirty 
(30) minutes of receipt of the complaint, but in no case later than the 
start of Regular Trading Hours on the following trading day, rather 
than simply stating the following day. This proposed change would make 
paragraph (e)(1) identical to EDGA and EDGX Rule 11.15(e)(1).
     Amend paragraph (e)(2)(A) to define CRO as the 
``Exchange's Chief Regulatory Officer''. This proposed change would 
make paragraph (e)(2)(A) identical to EDGA and EDGX Rule 
11.15(e)(2)(A).
    Amend paragraph (e)(2)(F) to replace the term ``Officer'' with 
``Official'' in order to use consistent terminology throughout Rule 
11.17.
2. Statutory Basis
    The Exchange believes that the proposed rule change 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.\13\ 
Specifically, the proposed change is consistent with Section 6(b)(5) of 
the Act,\14\ because 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. As mentioned 
above, the proposed rule changes, combined with the planned filing for 
the BZX, EDGA, and EDGX, would allow the BGM Affiliated Exchanges to 
provide a consistent set of rules as it relates to clearly erroneous 
executions. Consistent rules, in turn, will simplify the regulatory 
requirements for Members of the Exchange that are also participants on 
EDGA, EDGX and/or BZX. The proposed rule change would provide greater 
harmonization between rules of similar purpose on the BGM Affiliated 
Exchanges, resulting in greater uniformity and less burdensome and more 
efficient regulatory compliance and understanding of Exchange Rules. 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. Similarly, the 
Exchange also believes that, by harmonizing the rules across each BGM 
Affiliated Exchange, the proposal will enhance the Exchange's ability 
to fairly and efficiently regulate its Members, meaning that the 
proposed rule change is equitable and will promote fairness in the 
market place.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    Finally, the Exchange believes that the non-substantive, 
ministerial changes discussed above will contribute to the protection 
of investors and the public interest by helping to avoid confusion with 
respect to Exchange Rules.

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 not necessary or appropriate in 
furtherance of the purposes of the act. To the contrary, allowing the 
Exchange to implement substantively identical rules across each of the 
BGM Affiliated Exchanges regarding clearly erroneous executions does 
not present any competitive issues, but rather is designed to provide 
greater harmonization among Exchange, BZX, EDGX, and EDGA rules of 
similar purpose. The proposed rule change should, therefore, result in 
less burdensome and more efficient regulatory compliance and 
understanding of Exchange Rules for common members of the BGM 
Affiliated Exchanges and an enhanced ability of the BGM Affiliated 
Exchanges to fairly and efficiently regulate Members.

[[Page 60195]]

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 designated this rule filing as non-controversial 
under Section 19(b)(3)(A) of the Act \15\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\16\ The proposed rule change effects a change that 
(A) does not significantly affect the protection of investors or the 
public interest; (B) does not impose any significant burden on 
competition; and (C) by its terms, does not become operative for 30 
days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that the self-regulatory organization 
has given the Commission written notice of its 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily 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 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-BYX-2015-40 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BYX-2015-40. 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 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 available publicly. All 
submissions should refer to File Number SR-BYX-2015-40, and should be 
submitted on or before October 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25178 Filed 10-2-15; 8:45 am]
 BILLING CODE 8011-01-P