Document ID: SEC-2012-0887-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2012-06-07T04:00Z

[Federal Register Volume 77, Number 110 (Thursday, June 7, 2012)]
[Notices]
[Pages 33798-33800]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13765]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67093; File No. SR-BATS-2012-018]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BATS Rules Related to the Operation of BATS Post Only Orders and Match 
Trade Prevention Functionality

June 1, 2012.
    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 May 23, 2012, BATS Exchange, Inc. (``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.
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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 proposes to amend Rule 11.9, entitled ``Orders and 
Modifiers'', and Rule 21.1, entitled ``Definitions'', to modify the 
operation of BATS Post Only orders for the BATS equity securities 
trading platform (``BATS Equities'') and the BATS equity options 
trading platform (``BATS Options''), respectively. The Exchange is also 
proposing changes to its match trade prevention functionality described 
in Rules 11.9 and 21.1.

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 Exchange proposes to modify the functionality associated with 
its existing BATS Post Only Order, which is an order that an entering 
User \5\ intends to be posted to the Exchange's order book and thus 
will not remove liquidity or route away from the Exchange. In addition 
to modifying the Exchange's handling of BATS Post Only Orders, the 
Exchange proposes a minor, unrelated modification to allow an 
additional option for users of the match trade prevention functionality 
offered by the Exchange. The Exchange proposes each of these changes 
for both BATS Equities and BATS Options.
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    \5\ As defined in BATS Rule 1.5(cc), a User is ``any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.''
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BATS Post Only Orders
    Under the Exchange's current rules for BATS Equities, when the 
Exchange receives a BATS Post Only order that would lock or cross an 
order displayed by the Exchange, because the Exchange

[[Page 33799]]

cannot display such order at a locking or crossing price and the User 
has submitted the order with the instruction not to remove liquidity 
from the Exchange, such order will be cancelled back to the User.
    The Exchange proposes to modify the functionality of BATS Post Only 
Orders described in Rule 11.9(c)(6) to permit such orders to remove 
liquidity from the Exchange's order book (``BATS Book'') if the value 
of price improvement associated with such execution equals or exceeds 
the sum of fees charged for such execution and the value of any rebate 
that would be provided if the order posted to the BATS Book and 
subsequently provided liquidity.
    The Exchange proposes identical changes to the description of a 
BATS Post Only order with respect to BATS Options, as set forth in Rule 
21.1(d)(9).
Match Trade Prevention
    In addition to the changes described above, the Exchange proposes 
to enhance its existing match trade prevention (``MTP'') functionality, 
which is a process through which Users can delineate certain orders as 
being ineligible to match with another order from the same trading 
firm. Under current MTP functionality, a User can prevent orders from 
matching with other orders from the same market participant identifier 
(``MPID''), Exchange member identifier or sponsored participant 
identifier. The Exchange proposes to allow Users to apply more MTP 
functionality at a more granular, trading group level. By allowing 
Users to establish MTP at a trading group level, the Exchange will 
allow such Users to prevent matched trades amongst traders or desks 
within a certain firm, but permit orders from outside such group or 
desk to interact with other firm orders.
2. Statutory Basis
    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.\6\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\7\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed modification to the 
handling of BATS Post Only Orders is consistent with the requirements 
of Section 6(b) of the Act,\8\ particularly Section 6(b)(5),\9\ in that 
the change will help to enhance executions for market participants that 
utilize BATS Post Only Orders. The Exchange believes that the provision 
of an additional level at which a User may apply match trade prevention 
is consistent with the requirements of Section 6(b)(5) of the Act,\10\ 
because the ability to prevent matches amongst the same trading group 
identifier will allow Users to better manage order flow and prevent 
undesirable executions against themselves. The Exchange notes that a 
similar functionality was effective upon filing with the Commission for 
EDGX Exchange, Inc. (``EDGX'').\11\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See EDGX Exchange, Inc. Rule 11.9(f); Securities and 
Exchange Act Release No. 53428 (December 3, 2010), 75 FR 76763 
(December 9, 2010) (SR-EDGX-2010-18), which was based on NYSE Arca 
Equities Rule 7.31(qq).
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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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 \14\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6) \15\ 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. The proposal would 
allow the Exchange to immediately offer price-improving or 
economically-neutral executions on BATS Post Only Orders that currently 
would be cancelled and MTP functionality similar to that already 
offered by other exchanges.\16\ The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest.\17\ Therefore, the Commission 
designates the proposal operative upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ See NASDAQ Rules 4751(f)(10) and 4757(a)(4); EDGX Rule 
11.9(f); NYSE Arca Equities Rule 7.31(qq).
    \17\ 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.

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 Exchange 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-2012-018 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.

[[Page 33800]]

All submissions should refer to File Number SR-BATS-2012-018. 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 the 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-2012-018 and should be 
submitted on or before June 28, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13765 Filed 6-6-12; 8:45 am]
BILLING CODE 8011-01-P