Document ID: SEC-2015-0010-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2015-01-02T05:00Z

[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 66-69]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30694]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73935; File No. SR-BATS-2014-073]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 2.12 To Remove References to ``Direct Edge ECN LLC'' and ``DE 
Route''

December 24, 2014.
    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 December 22, 2014, 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 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 the 
Substance of the Proposed Rule Change

    The Exchange filed a proposed rule change to amend Rule 2.12 to 
remove references to ``Direct Edge ECN LLC'' and ``DE Route.'' The 
Exchange does not propose to amend the requirements of this rule.
    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.

[[Page 67]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Earlier this year, the Exchange and its affiliate BATS Y-Exchange, 
Inc. (``BYX'') received approval to affect a merger (the ``Merger'') of 
the Exchange's parent company, BATS Global Markets, Inc., with Direct 
Edge Holdings LLC, the indirect parent of EDGX Exchange, Inc. 
(``EDGX'') and EDGA Exchange, Inc. (``EDGA,'' and together with BZX, 
BYX and EDGX, the ``BGM Affiliated Exchanges'').\3\ As a result, the 
Exchange amended Rule 2.12 to reflect that DE Route, the affiliated 
EDGA and EDGX routing broker-dealer, would also act as the inbound 
router for routing orders from EDGA and EDGX to the Exchange. In the 
context of the Merger, the BGM Affiliated Exchanges are working to 
migrate EDGX and EDGA onto the BATS technology platform, and align 
certain system functionality, retaining only intended differences 
between the BGM Affiliated Exchanges. As a result of these efforts, the 
Exchange proposes to amend to amend [sic] Rule 2.12 to remove 
references to ``Direct Edge ECN LLC'' and ``DE Route'' to reflect that 
BATS Trading, Inc. will be the Exchange's sole routing broker-dealer as 
of January 12, 2015. Thereafter, BATS Trading will serve as the sole 
inbound routing broker-dealer for the Exchange. The Exchange does not 
propose to amend the requirements of the rule.
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    \3\ See Securities Exchange Act Release No. 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
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    DE Route and BATS Trading provide Members of the Exchange, EDGA, 
EDGX and BYX with optional routing services to other market centers. 
Thus, in certain circumstances, DE Route and BATS Trading provides 
inbound routing from EDGA, EDGX, or BYX to the Exchange. Exchange Rule 
2.12 governs this inbound routing of orders by DE Route and BATS 
Trading to the Exchange in DE Route's and BATS Trading's capacity as a 
facility of the Exchange. The Exchange proposes to amend Rule 2.12 to 
remove all references to DE Route as BATS Trading will be the sole 
inbound routing service for the Exchange upon migration of EDGA and 
EDGX onto the BATS technology platform. The Exchange does not propose 
to amend the requirements of this rule. Therefore, the conditions and 
limitations set forth in Exchange Rule 2.12(a) will continue to require 
that:
     The Exchange enter into (a) a plan pursuant to Rule 17d-2 
under the Act with a non-affiliated self-regulatory organization 
(``SRO'') to relieve the Exchange of regulatory responsibilities for 
BATS Trading with respect to rules that are common rules between the 
Exchange and the non-affiliated SRO, and (b) a regulatory services 
contract (``Regulatory Contract'') with a non-affiliated SRO to perform 
regulatory responsibilities for BATS Trading for unique Exchange rules.
     The Regulatory Contract require the Exchange to provide 
the non-affiliated SRO with information, in an easily accessible 
manner, regarding all exception reports, alerts, complaints, trading 
errors, cancellations, investigations, and enforcement matters 
(collectively ``Exceptions'') in which BATS Trading is identified as a 
participant that has potentially violated Exchange or Commission rules, 
and requires that the non-affiliated SRO provide a report, at least 
quarterly, to the Exchange quantifying all Exceptions in which BATS 
Trading is identified as a participant that has potentially violated 
Exchange or Commission rules.
     The Exchange, on behalf of holding company indirectly 
owning the Exchange, establish and maintain procedures and internal 
controls reasonably designed to ensure that BATS Trading does not 
develop or implement changes to its system based on non-public 
information obtained as a result of its affiliation with the Exchange, 
until such information is available generally to similarly situated 
Members of the Exchange.
     The Exchange furnish to BATS Trading only the same 
information and on the same terms as the Exchange makes available in 
the normal course of business to other users.\4\
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    \4\ See Exchange Rule 2.12(a)(2).
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    In addition, provided the conditions in Exchange Rule 2.12 are 
complied with, and provided further that BATS Trading operates as an 
outbound router on behalf of BYX on the same terms and conditions as it 
does for the Exchange, and in accordance with the rules of BYX, BATS 
Trading may provide inbound routing services to the Exchange from BYX. 
BATS Trading provides members of the BGM Affiliated Exchanges 
(including BYX) with optional routing services to other market centers, 
which may include routing from a BGM Affiliated Exchange to the 
Exchange. Therefore, the Exchange proposes to remove reference to BYX 
as BATS Trading will be required under Exchange Rule 2.12 to operate as 
an outbound router on behalf of each BATS Exchange on the same terms 
and conditions as it does for the Exchange, and in accordance with the 
rules of each BATS Exchange, BATS Trading may provide inbound routing 
services to the Exchange from each BATS Exchange. The Exchange believes 
that Rule 2.12 will continue to adequately manage the potential for 
conflicts of interest that could arise from BATS Trading routing orders 
to the Exchange.
Implementation Date
    The Exchange intends to implement the proposed rule change on or 
about January 12, 2015, which is the anticipated date upon which the 
migration of the EDGA and EDGX to the BATS technology platform will be 
complete and BATS Trading, Inc. will act as the BGM Affiliated 
Exchange's sole routing broker-dealer.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Act \5\ and further the objectives of Section 
6(b)(5) of the Act \6\ because they are 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, to 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and, in general, to protect 
investors and the public interest. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \7\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets. The Exchange does not propose to amend the 
requirements of the rule and the proposed rule change is intended only 
to reflect that BATS Trading will be the Exchange's sole routing 
broker-dealer upon migration of the EDGA and EDGX to the BATS 
technology platform. A consistent technology offering through the use 
of a single routing broker-dealer by each of the BGM Affiliated 
Exchange will, in turn, simplify the technology implementation, changes 
and maintenance by users of the Exchange that are also participants on 
BYX, EDGA, and EDGX. 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78k-1(a)(1).

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[[Page 68]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
reiterates that the proposed rule change is being proposed in the 
context of the technology integration of the BGM Affiliated Exchanges. 
Thus, the Exchange believes this proposed rule change is necessary to 
permit fair competition among national securities exchanges. In 
addition, the Exchange believes the proposed rule change will benefit 
Exchange participants in that it is one of several changes necessary to 
achieve a consistent technology offering by the BGM Affiliated 
Exchanges.

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 \8\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\9\ 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 
and Rule 19b-4(f)(6) thereunder.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4.
    \10\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \11\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \12\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay in order 
to permit the Exchange to implement the proposed rule change on January 
12, 2015, which is the anticipated date upon which the migration of 
EDGA and EDGX to the BATS technology platform will be complete and BATS 
Trading will serve as the Exchange's sole routing broker-dealer. The 
Exchange states that waiver of the operative delay is consistent with 
the protection of investors and the public interest because it will 
allow BATS Trading to act as the BGM Affiliated Exchanges' sole routing 
broker-dealer upon migration of EDGX and EDGA to the BATS technology 
platform, thereby simplifying the technology integration for Members of 
the Exchange that are also participants on EDGX, EDGA, and BYX. In this 
regard, the Exchange notes that, since completion of the Merger, both 
Members and the BGM Affiliated Exchanges have made numerous systems 
changes in preparation for the technology migration occurring on 
January 12, 2015, the Exchange has issued frequent updates to Members 
informing them of the BGM Affiliated Exchange technology migration as 
well as its anticipated time line so that Members may make the 
requisite system changes, and the Exchange has conducted multiple 
testing opportunities for Members to ensure that both Members' and the 
Exchange's systems will operate in accordance with the proposed rule 
change on January 12, 2015. The Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Therefore, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\13\
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed 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 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \14\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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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-BATS-2014-073 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 Number SR-BATS-2014-073. 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 at 100 F Street NE., 
Washington, DC 20549-1090 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-
BATS-2014-073, and should be submitted on or before January 23, 2015.

[[Page 69]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30694 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P