Document ID: SEC-2010-1182-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-08-05T04:00Z

[Federal Register: August 5, 2010 (Volume 75, Number 150)]
[Notices]               
[Page 47335-47337]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au10-104]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62597; File No. SR-BATS-2010-020]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
a Short Term Option Program

July 29, 2010.
    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 July 27, 2010, 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) 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 Rule 19.6 (Series of Options 
Contracts Open for Trading) and Rule 29.11 (Terms of Index Options 
Contracts) in order to list option series that expire one week after 
being opened for trading; to add the definitions of Quarterly Options 
Series and Short Term Option Series to Rules 16.1 and 29.2; and to 
renumber and reletter definitions in Rule 16.1 and Rule 29.2.
    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 establish a short 
term option program on the Exchange (``STO Program'' or ``Short Term 
Option Program'') by proposing to add new Rule 19.6, Interpretation 
Policy .05 and Rule 29.11(h) in order to list option series that expire 
one week after being opened for trading (``Short Term Option Series'' 
or ``STO''). The Exchange also proposes to add the definitions of 
``Quarterly Options Series'' and ``Short Term Option Series'' to Rule 
16.1 and Rule 29.2 ,\5\ and to renumber and reletter definitions in 
Rule 16.1 and Rule 29.2.
---------------------------------------------------------------------------

    \5\ Short Term Option Series is defined as: A series in an 
option class that is approved for listing and trading on the 
Exchange in which the series is opened for trading on any Thursday 
or Friday that is a business day and that expires on the Friday of 
the next business week. If a Thursday or Friday is not a business 
day, the series may be opened (or shall expire) on the first 
business day immediately prior to that Thursday or Friday, 
respectively. Proposed Rules 16.1(a)(56) and 29.2(n).
---------------------------------------------------------------------------

    The Commission approved the Short Term Option Program on a pilot 
basis in 2005 and approved permanent establishment of the Short Term 
Option Program in 2009 on behalf of Chicago Board Options Exchange 
(``CBOE'') in its Rules 5.5 and 24.9.\6\ Thereafter, CBOE amended Rules 
5.5 and 24.9 to permit opening Short Term Option Series not just on 
Friday but also on Thursday.\7\

[[Page 47336]]

Recently, other options exchanges have established or implemented as 
permanent Short Term Option Programs.\8\ The Exchange's proposal is 
based directly on the short term option program (Weeklys Program) in 
CBOE Rules 5.5 and 24.9; PHLX Rules 1012 and Rule 1101A; NOM Rules 
Chapter IV, Section 6 and Chapter XIV, Section 11; BOX Rules Chapter 
IV, Section 6 and Chapter XIV, Section 10; NYSE Arca Rules 5.19 and 
6.4; NYSE Amex Rules 903C and 903; and ISE Rules 504 and 2009.
---------------------------------------------------------------------------

    \6\ CBOE refers to its short term option program as the 
``Weeklys Program.'' See Securities Exchange Act Release Nos. 52011 
(July 12, 2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63) 
(approval order establishing Weeklys Pilot Program) and 59824 (April 
27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) (approval 
order permanently establishing Weeklys Program).
    \7\ See Securities Exchange Act Release No. 62170 (May 25, 
2010), 75 FR 30889 (June 2, 2010) (SR-CBOE-2010-048) (notice of 
filing and immediate effectiveness allowing opening Short Term 
Option Series on any Thursday or Friday).
    \8\ See Securities Exchange Act Release Nos. 62296 (June 15, 
2010), 75 FR 35115 (June 21, 2010) (SR-PHLX-2010-084) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change by 
NASDAQ OMX PHLX, Inc. To Establish a Short Term Option Program); 
62297 (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR-NOM-2010-073) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change by The NASDAQ Stock Market LLC To Establish a Short Term 
Option Program); 62369 (June 23, 2010), 75 FR 37868 (June 23, 2010) 
(SR-Arca-2010-059) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change by NYSE Arca To Expand and Permanently 
Establish its Short Term Option Program); 62370 (June 23, 2010), 75 
FR 35870 (June 30, 2010) (SR-Amex-2010-062) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change by NYSE Amex, LLC To 
Expand and Permanently Establish Its Short Term Option Program).
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to establish a Short Term 
Option Program for non-index options (e.g., equity options and ETF 
options) in new Interpretation and Policy .05 to Rule 19.6; and for 
index options in new Rule 29.11(h). The Short Term Option Program 
allows the Exchange to list and trade Short Term Option Series. Thus, 
after an option class has been approved for listing and trading on the 
Exchange, the Exchange may open for trading on any Thursday or Friday 
that is a business day (``Short Term Option Opening Date'') series of 
options on that class that expire on the Friday of the following 
business week that is a business day (``Short Term Option Expiration 
Date''). If the Exchange is not open for business on the respective 
Thursday or Friday, the Short Term Option Opening Date will be the 
first business day immediately prior to that respective Thursday or 
Friday. Similarly, if the Exchange is not open for business on the 
Friday of the following business week, the Short Term Option Expiration 
Date will be the first business day immediately prior to that 
Friday.\9\
---------------------------------------------------------------------------

    \9\ See proposed Rule 19.6, Interpretation and Policy .05 and 
Rule 29.11(h).
---------------------------------------------------------------------------

    Under the STO Program, the Exchange may select up to five (5) 
approved option classes on which Short Term Option Series could be 
opened. The Exchange also may list Short Term Option Series on any 
option classes that are selected by other securities exchanges that 
employ a similar program under their respective rules.\10\ For each 
class selected for the STO Program, the Exchange may open up to twenty 
Short Term Option Series for each expiration date in that class, with 
approximately the same number of strike prices above and below the 
value of the underlying security or calculated index value at about the 
time that the Short Term Option Series is opened. The interval between 
strike prices on Short Term Option Series shall be the same as the 
strike prices for series in that same option class that expire in 
accordance with the normal monthly expiration cycle.\11\
---------------------------------------------------------------------------

    \10\ See proposed Rule 19.6, Interpretation and Policy .05(a) 
and Rule 29.11(h)(l).
    \11\ See proposed Rule 19.6, Interpretation and Policy .05(e) 
and Rule 29.11(h)(5).
---------------------------------------------------------------------------

    Any strike prices listed by the Exchange shall be within thirty 
percent (30%) above or below the current value of the underlying 
index.\12\ If the Exchange opens less than twenty Short Term Option 
Series for a given expiration date, additional series may be opened for 
trading on the Exchange when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand, or when the 
current value of the underlying security or index moves substantially 
from the previously listed exercise prices. The total number of series 
for a given expiration date, however, will not exceed twenty series. 
Any additional strike prices listed by the Exchange shall be within 30% 
above or below the current price of the underlying security. The 
Exchange may also open additional strike prices of Short Term Option 
Series that are more than 30% above or below the current price of the 
underlying security provided that demonstrated customer interest exists 
for such series, as expressed by institutional, corporate or individual 
customers or their brokers. Market-Makers trading for their own account 
shall not be considered when determining customer interest under this 
provision. Moreover, the opening of the new Short Term Option Series 
shall not affect the series of options of the same class previously 
opened.\13\
---------------------------------------------------------------------------

    \12\ See proposed Rule 19.6, Interpretation and Policy .05(c) 
and Rule 29.11(h)(3).
    \13\ See proposed Rule 19.6, Interpretation and Policy .05(d) 
and Rule 29.11(h)(4).
---------------------------------------------------------------------------

    The Short Term Option Program provides that no Short Term Option 
Series may expire in the same week in which monthly option series on 
the same class expire or, in the case of Quarterly Options Series, on 
an expiration that coincides with an expiration of Quarterly Options 
Series on the same class.\14\ With regard to the impact of this 
proposal on system capacity, the Exchange has analyzed its capacity and 
represents that it and the Options Price Reporting Authority (``OPRA'') 
have the necessary systems capacity to handle the potential additional 
traffic associated with the listing and trading of options pursuant to 
the Short Term Option Program.
---------------------------------------------------------------------------

    \14\ See proposed Rule 19.6, Interpretation and Policy .05(b) 
and Rule 29.11(h)(2). Moreover, the Exchange expects that Short Term 
Option Series will settle (e.g., in terms of A.M. or P.M.) in the 
same manner as do the monthly expiration series in the same option 
class.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to add a definition of Quarterly 
Options Series (``QOS'') to Rule 16.1 and Rule 29.2. The definition was 
inadvertently left out when the rules for BATS Options, including QOS 
listing standards, were adopted for the Exchange,\15\ and the addition 
conforms the noted BATS Options rule language to Phlx Rules 1000 and 
1000A as well as the rules of CBOE.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) (notice of 
approval of a proposal to establish rules governing the trading of 
options on the BATS Options Exchange).
---------------------------------------------------------------------------

    The Exchange believes that the Short Term Option Program will 
provide investors with a flexible and valuable tool to manage risk 
exposure, minimize capital outlays, and be more responsive to the 
timing of events affecting the securities that underlie options 
contracts. The Exchange also believes that providing the flexibility to 
list all Short Term Option series (equity and index) on any Thursday or 
Friday will help implement the program more effectively and avoid 
investor confusion.
    The Exchange has agreed for the purposes of this filing, to submit 
one report to the Commission providing an analysis of the Exchange's 
Short Term Option Program (the ``Report''). The Report will cover the 
period from the date of effectiveness of the STO Program through the 
first quarter of 2011, and will describe the experience of the Exchange 
with the STO Program in respect of the options classes included by the 
Exchange in such program.\16\ The

[[Page 47337]]

Report will be submitted by May 1, 2011, under separate cover and will 
seek confidential treatment under the Freedom of Information Act.
---------------------------------------------------------------------------

    \16\ The Report would include the following: (1) Data and 
written analysis on the open interest and trading volume in the 
classes for which Short Term Option Series were opened; (2) an 
assessment of the appropriateness of the option classes selected for 
the STO Program; (3) an assessment of the impact of the STO Program 
on the capacity of the Exchange, OPRA, and market data vendors (to 
the extent data from market data vendors is available); (4) any 
capacity problems or other problems that arose during the operation 
of the STO Program and how the Exchange addressed such problems; (5) 
any complaints that the Exchange received during the operation of 
the STO Program and how the Exchange addressed them; and (6) any 
additional information that would assist in assessing the operation 
of the STO Program.
---------------------------------------------------------------------------

2. Statutory Basis
    Approval of the rule change proposed in this submission is 
consistent with Section 6(b) of the Act \17\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \18\ in particular in that 
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 mechanisms of a free and open market and a national market system, 
by establishing a Short Term Option Program that will provide investors 
with a flexible and valuable tool to manage risk exposure, minimize 
capital outlays, and be more responsive to the timing of events 
affecting the securities that underlie option contracts.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 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 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)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\ 
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 \21\ and Rule 19b-
4(f)(6) thereunder.\22\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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 
Commission has waived the five-day pre-filing requirement in this 
case.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that was approved by the Commission.\23\ Therefore, 
the Commission designates the proposal operative upon filing.\24\
---------------------------------------------------------------------------

    \23\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018).
    \24\ 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).
---------------------------------------------------------------------------

    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 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 Number SR-BATS-2010-020 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 Number SR-BATS-2010-020. This file 
number should be included on the subject line 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 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-2010-020 and should be 
submitted on or before August 26, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19243 Filed 8-3-10; 8:45 am]
BILLING CODE 8010-01-P