Document ID: SEC-2010-1808-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-11-29T05:00Z

[Federal Register: November 29, 2010 (Volume 75, Number 228)]
[Notices]               
[Page 73153-73155]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no10-145]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63359; File No. SR-BATS-2010-033]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change by BATS 
Exchange, Inc. to Modify the Minor Rule Violation Plan for BATS Options

November 22, 2010.
    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 November 18, 2010, 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 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend BATS Rule 25.3, entitled 
``Penalty for Minor Rule Violations'', to expand the list of violations 
eligible for disposition under the Exchange's Minor Rule Violation Plan 
(``MRVP'') as it relates to the equity options platform operated by the 
Exchange (``BATS Options'').
    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, on the Commission's Web site at http://www.sec.gov 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 Rule 25.3, 
entitled ``Penalty for Minor Rule Violations'', to expand the list of 
violations eligible for disposition under the Exchange's Minor Rule 
Violation Plan (``MRVP'') as it relates to options in order to improve 
the consistency of the Exchange's MRVP with other options exchanges. 
All options exchanges have entered into a plan pursuant to Rule 17d-2 
of the Act (the ``Plan'') under which the exchanges have agreed to 
allocate regulatory responsibility for certain rules common to all 
options exchanges, which Plan is administered by a committee known as 
the Options Surveillance Group (the ``OSG''). Adding the proposed rules 
to the MRVP makes the Exchange's MRVP more consistent with the minor 
rule violation plans of other self-regulatory organizations, including 
with respect to rules that are classified as common rules pursuant to 
the Plan (the ``OSG 17d-2''). The Exchange believes that its MRVP with 
respect to violations of rules that are common rules pursuant to the 
OSG 17d-2 should be consistent with the other options exchanges that 
are parties to the OSG 17d-2.
    Consistent with the goal of improved consistency between the 
Exchange's

[[Page 73154]]

MRVP and the MRVPs of other options exchanges, the proposed additions 
include Rules 18.9, 18.10, 23.1(a) through (k), 23.1(l), and 24.4, each 
of which is described below.
     Rule 18.9 provides that no Options Member may directly or 
indirectly exceed exercise limits established by the Chicago Board 
Options Exchange, BATS Options, or another exchange, as the limits 
apply to options trading on BATS Options.
     Rule 18.10 provides the requirements for accurately 
reporting position and account information to the Exchange.
     Rule 23.1(a) through (k) relates to expiring exercise 
declarations and the timely submission of ``Advice Cancel'' or exercise 
instruction relating to the exercise or non-exercise of non-cash-
settled equity options.
     Rule 23.1(l) relates to the failure to submit an Exercise 
Advice; the submission of an advice and no subsequent exercise; the 
submission of an Exercise Advice after the designated cut-off time; the 
submission of an Exercise Advice for an amount different than the 
amount exercised; and the time-stamping of an advice or exercise 
instruction memorandum prior to purchasing contracts.
     Lastly, Rule 24.4 covers requests by the Exchange for 
submission of trade data.
    The proposed changes would allow the Exchange to impose a fine of 
at least $500 per violation of the above-listed rules, with a maximum 
fine amount of $5,000. By promptly imposing a meaningful financial 
penalty for such violations, the MRVP focuses on correcting conduct 
before it gives rise to more serious enforcement action. The MRVP 
provides a reasonable means of addressing rule violations that do not 
necessarily rise to the level of requiring formal disciplinary 
proceedings, while also providing a greater flexibility in handling 
certain violations. Adopting a provision that would allow the Exchange 
to sanction violators under the MRVP by no means minimizes the 
importance of compliance with these rules. The Exchange believes that 
the violation of any of its rules is a serious matter. The addition of 
a sanction under the MRVP simply serves to add an additional method for 
disciplining violators of the additional rules. The Exchange will 
continue to conduct surveillance with due diligence and make its 
determination, on a case by case basis, whether a violation of these 
additional rules should be subject to formal disciplinary proceedings.
    In addition to the changes proposed above, the Exchange proposes to 
modify its MRVP sanction for a violation of Exchange position limit 
rules (Rule 18.7) in order to conform to the sanctions imposed by a 
majority of other options exchanges. The Exchange's current MRVP 
sanction for violations of position limits differs depending on whether 
a violation occurs in an Options Member's account or a customer 
account, a distinction not present in the rules of most other options 
exchanges. Furthermore, the Exchange's current MRVP sanction for 
violations of position limits is based on a per contract amount, 
whereas most options exchanges would impose a flat amount as the fine. 
Consistent with the other changes proposed above, the Exchange believes 
that conforming changes are appropriate, especially due to the fact 
that position limit rules are subject to the OSG 17d-2.
    Finally, the Exchange also proposes modifying the headings of the 
sub-parts in its existing Rule 25.3 to correct typographical errors. 
Specifically, in each heading the ``Number of Cumulative Violations 
Within One Period'' and ``Fine Amount'' language is currently 
commingled into one heading.
2. Statutory Basis
    Approval of the rule change 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, in particular, with the requirements of Section 6(b) of 
the Act.\5\ In particular, the proposed change is consistent with 
Section 6(b)(5) of the Act,\6\ 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, and, 
in general, protect investors and the public interest, by giving the 
Exchange the ability to promptly impose a meaningful financial penalty 
for such violations before there is a need for more serious enforcement 
action. The Exchange believes that the proposed rule meets these 
requirements in that it promotes transparency and uniformity across 
markets concerning enforcement of common rules contained in the OSG 
17d-2.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6)(iii) thereunder.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 Commission notes that the Exchange satisfied this five-day pre-
filing requirement.
---------------------------------------------------------------------------

    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.

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
     Send an e-mail to rule-comments@sec.gov. Please include 
File No. SR-BATS-2010-033 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-2010-033. This file 
number should be included on the subject line

[[Page 73155]]

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 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 available publicly. All submissions should refer to 
File No. SR-BATS-2010-033 and should be submitted on or before December 
20, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-29895 Filed 11-26-10; 8:45 am]
BILLING CODE 8011-01-P