Document ID: SEC-2010-0311-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Amend BATS Rule 5.5, Entitled "Information Barrier Procedures," and To Add New BATS Rule 12.13, Entitled "Trading Ahead of Research Reports"
Posted Date: 2010-03-02T05:00Z

[Federal Register Volume 75, Number 40 (Tuesday, March 2, 2010)]
[Notices]
[Pages 9455-9459]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-4230]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61574; File No. SR-BATS-2010-003]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Amend BATS Rule 5.5, Entitled ``Information Barrier Procedures,'' 
and To Add New BATS Rule 12.13, Entitled ``Trading Ahead of Research 
Reports''

February 23, 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 February 11, 2010, BATS Exchange, Inc. (``BATS'' or the 
``Exchange'') 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 BATS. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and is approving the proposed rule change on an 
accelerated basis.
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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 is proposing to amend BATS Rule 5.5, entitled 
``Information Barrier Procedures,'' to modify the Exchange's rule 
regarding information barrier procedures required of certain Exchange 
Members. The Exchange is also proposing to add new Exchange Rule 12.13, 
entitled ``Trading Ahead of Research Reports.''
    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 III 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 eliminate the requirements of BATS Rule 
5.5 that require a Member \3\ that trades for its own account or that 
has a specialist or market maker operation on another market (defined 
in BATS Rule 5.5(a) as a ``specialist'') to establish and maintain 
certain specifically prescribed information barrier procedures and to 
file such procedures with the Exchange. At the same time, the Exchange 
proposes to amend BATS Rule 5.5 to more closely mirror the rules of 
other self-regulatory organizations that create certain obligations for 
all Member firms related to the prevention of the misuse of material, 
non-public information. Finally, the Exchange proposes to add new BATS 
Rule 12.13, which: (i) Prohibits Members from trading ahead of research 
reports, and (ii) requires each Member to establish, maintain and 
enforce procedures regarding the flow of information between research 
department personnel and trading department personnel.
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    \3\ See BATS Rule 1.5(n).
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(i) All Members Must Maintain Policies Concerning the Misuse of 
Material Non-Public Information
    Presently, the Exchange requires that each Member establish, 
maintain and enforce written policies and procedures reasonably 
designed to prevent the misuse of material, non-public information, 
which includes review of employee and proprietary trading, 
memorialization and documentation of

[[Page 9456]]

procedures, substantive supervision of interdepartmental communications 
by the Member's compliance department and procedures concerning 
proprietary trading when the firm is in possession of material, non-
public information.\4\ The Exchange also has specific rules prohibiting 
Members from disadvantaging their customers or other market 
participants by improperly capitalizing on the Members' access to or 
receipt of material, non-public information. For example, the Exchange 
prohibits a Member from trading ahead of its customer's limit 
orders.\5\
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    \4\ See BATS Rule 5.5(a).
    \5\ See BATS Rule 12.6.
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(ii) Proposed Amendments to General Standards and Deletion of Specific 
Information Barrier Procedures
    As noted above, the Exchange currently maintains a general standard 
for all Members to establish, maintain and enforce written policies and 
procedures reasonably designed to prevent the misuse of material, non-
public information, including certain specific procedures. The Exchange 
also currently requires specific information barrier procedures for 
Members that meet the definition in BATS Rule 5.5(a) of a 
``specialist'' and requires such firms to file their information 
barrier procedures with the Exchange. The Exchange proposes amending 
the language that imposes the general standard of preventing the misuse 
of material, non-public information and adding additional language to 
provide clarity regarding the minimum policies and procedures a Member 
must implement to comply with such general standards. As described in 
further detail below, the Exchange also proposes deleting the specific 
information barrier procedures required to be maintained by Exchange 
Members that meet the definition of ``specialist.''
    Under the proposal, amended BATS Rule 5.5 would provide flexibility 
to a BATS Member to develop and maintain procedures and controls to 
prevent the misuse of material, non-public information that are 
effective and appropriate to that Member. The Exchange proposes adding 
Interpretation and Policy .01 to BATS Rule 5.5 that would provide 
examples of conduct that would constitute the misuse of material, non-
public information.\6\ Proposed Interpretation and Policy .02 to BATS 
Rule 5.5 would set forth specific policies and procedures that would be 
required of Members.\7\ However, as made clear by the proposed 
Interpretation and Policy, such policies and procedures would not in 
all cases, satisfy the requirements and intent of amended BATS Rule 
5.5; the adequacy of each Member's policies and procedures would depend 
upon the nature of such Member's business.
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    \6\ Such examples include: (a) Trading in any securities issued 
by a corporation, or in any related securities or related options or 
other derivative securities, while in possession of material, non-
public information concerning that issuer; or (b) Trading in a 
security or related options or other derivative securities, while in 
possession of material non-public information concerning imminent 
transactions in the security or related securities; or (c) 
Disclosing to another person or entity any material, non-public 
information involving a corporation whose shares are publicly traded 
or an imminent transaction in an underlying security or related 
securities for the purpose of facilitating the possible misuse of 
such material, non-public information.
    \7\ The specific policies and procedures required, at a minimum, 
would include: (a) All associated persons of the Member must be 
advised in writing of the prohibition against the misuse of 
material, non-public information; and (b) All associated persons of 
the Member must sign attestations affirming their awareness of, and 
agreement to abide by the aforementioned prohibitions. These signed 
attestations must be maintained for at least three years, the first 
two years in an easily accessible place; and (c) Each Member must 
receive and retain copies of trade confirmations and monthly account 
statements for each account in which an associated person: Has a 
direct or indirect financial interest or makes investment decisions. 
The activity in such brokerage accounts should be reviewed at least 
quarterly by the Member for the purpose of detecting the possible 
misuse of material, non-public information; and (d) All associated 
persons must disclose to the Member whether they, or any person in 
whose account they have a direct or indirect financial interest, or 
make investment decisions, are an officer, director or 10% 
shareholder in a company whose shares are publicly traded. Any 
transaction in the stock (or option thereon) of such company shall 
be reviewed to determine whether the transaction may have involved a 
misuse of material non-public information.
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    The Exchange proposes to eliminate, in their entirety, the 
requirements set forth in BATS Rule 5.5 that require certain members to 
maintain and file with the Exchange specifically prescribed information 
barrier procedures. This proposal is consistent with the change 
recently approved by the Commission for NYSE Arca Equities, Inc. 
(``NYSE Arca''), which allowed the elimination of a specific 
information barrier requirement previously contained in NYSE Arca 
rules.\8\ This proposal is also consistent with the approach currently 
employed by the Nasdaq Stock Market, L.L.C. (``Nasdaq''), which does 
not generally require its members to establish or maintain information 
barriers.
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    \8\ Securities Exchange Act Release No. 60604 (September 1, 
2009), 74 FR 46272 (September 8, 2009) (SR-NYSEArca-2009-78).
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    If the deletion of the requirement to maintain and file with the 
Exchange certain prescribed information barrier procedures is approved, 
the only specific information barrier requirement of the Exchange will 
be the requirement described below, under proposed Rule 12.13, to 
maintain policies and procedures reasonably designed to restrict or 
limit the information flow between those with knowledge of the content 
or timing of a research report and trading department personnel. 
However, the Exchange does not intend to indicate that information 
barriers may not be necessary for Members in other contexts. To the 
contrary, information barrier procedures may be a necessary or 
effective means to manage conflicts of interest or to prevent 
communications of material non-public information between certain 
individuals or groups.\9\ Further, as described above, under proposed 
Interpretation and Policy .02, the adequacy of each Member's policies 
and procedures will depend upon the nature of each Member's business.
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    \9\ The Exchange represents that it will issue a Regulatory 
Circular to its Members notifying such Members of this proposal and 
addressing related regulatory topics. For instance, the Regulatory 
Circular will reinforce the requirement that Members of the Exchange 
maintain policies and procedures that are reasonably designed to 
assure compliance with applicable securities laws, rules, 
regulations and statements of policy promulgated thereunder and the 
Exchange's rules, including those relating to the misuse of material 
non-public information. In addition, the Exchange represents that 
the Regulatory Circular will include the following guidance: 
``Pursuant to the proposed rule change, Members may utilize a 
flexible, principles-based approach to modify their policies and 
procedures as appropriate to reflect changes to their business 
model, business activities, or to the securities market itself. A 
Member should be proactive in assuring that its policies and 
procedures reflect the current state of its business and continue to 
be reasonably designed to achieve compliance with applicable federal 
securities law and regulations, and with applicable Exchange rules. 
While information barriers are not specifically required under the 
proposal, a Member's business model or business activities may 
dictate that an information barrier or a functional separation be 
part of the appropriate set of policies and procedures that would be 
reasonably designed to achieve compliance with applicable securities 
law and regulations, and with applicable Exchange rules.''
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(iii) Proposed Addition of BATS Rule 12.13
    In an attempt to achieve additional consistency with certain other 
market centers, the Exchange further proposes to add new BATS Rule 
12.13, prohibiting Members from establishing, increasing, decreasing or 
liquidating an inventory position in a security or a derivative of such 
security based on non-public advance knowledge of the content or timing 
of a research report in that security. Similar to FINRA Rule 5280 and 
NYSE Arca Rule 6.7, the Exchange also proposes to require Members to 
establish, maintain and enforce procedures reasonably designed to 
restrict or limit the information flow

[[Page 9457]]

between research department personnel and trading department personnel, 
so as to prevent trading department personnel from utilizing non-public 
advance knowledge of the issuance or content of a research report.
(iv) Members Retain Responsibility for Compliance
    By prohibiting the misuse of material, non-public information, the 
Exchange believes it has appropriately defined the behavior that its 
participants must avoid. However, the Exchange also believes that 
prescribing the form that these policies and procedures must take is 
unnecessarily burdensome. By defining certain prohibited behavior 
(e.g., BATS Rule 12.6) the Exchange has placed its participants on 
notice as to their specific compliance burdens with respect to 
preventing the misuse of material, non-public information. Further, 
BATS Rule 5.1 requires each Member to establish, maintain and enforce 
written procedures that enable such Member to supervise the activities 
of associated persons of the Member and to assure their compliance with 
applicable securities laws and regulations, and with BATS Rules. 
Pursuant to this proposed rule change, Members may utilize a flexible, 
principles-based approach to modify their policies and procedures as 
appropriate to reflect changes to their business model, business 
activities, or to the securities market itself. A Member should be 
proactive in assuring that its policies and procedures reflect the 
current state of its business and continue to be reasonably designed to 
achieve compliance with applicable federal securities law and 
regulations, and with applicable Exchange rules. In addition, in the 
context of approving a similar proposal by NYSE Arca, the Commission 
stated that, ``while information barriers are not specifically required 
under the proposal, a [firm's] business model or business activities 
may dictate that an information barrier or a functional separation be 
part of the appropriate set of policies and procedures that would be 
reasonably designed to achieve compliance with applicable securities 
law and regulations, and with applicable Exchange rules.'' \10\
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    \10\ See Securities Exchange Act Release No. 60604 (September 1, 
2009), 74 FR at 46275 (September 8, 2009) (SR-NYSEArca-2009-78).
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(v) Comparison to Framework Employed by Nasdaq and NYSE Arca
    By amending its rules in accordance with this proposal, the 
Exchange reinforces a regulatory structure that clearly identifies 
prohibited conduct (e.g., misuse of material, non-public information) 
without further requiring Members to establish and maintain specific 
compliance mechanisms (e.g., information barriers). For example, Nasdaq 
prohibits the misuse of material, non-public information but does not 
generally require that its members establish and maintain information 
barriers,\11\ and NYSE Arca recently eliminated a requirement 
applicable to NYSE Arca market makers specifically requiring 
information barriers. In conjunction with such amendment, NYSE Arca 
adopted NYSE Arca Rule 6.7, a rule that the Exchange has mirrored with 
its proposal of BATS Rule 12.13. Finally, similar to BATS Rule 5.1, 
Nasdaq Rule 3010 and NYSE Arca Rule 6.18 require the members of Nasdaq 
and NYSE Arca, respectively, to establish and maintain systems to 
supervise the activities of associated persons that are reasonably 
designed to achieve compliance with applicable federal securities laws 
and regulations, and the applicable rules of the exchange.
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    \11\ See Nasdaq Rules 2110-2, 2110-3, and 2110-4.
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    The Exchange believes that the approach proposed herein is 
consistent with Nasdaq and NYSE Arca's respective structures. First, 
like Nasdaq and NYSE Arca, market makers registered with BATS and other 
firms that are Members of BATS that trade for their own accounts do not 
have any advantages regarding relevant trading information provided by 
the Exchange, either at, or prior to, the point of execution vis-
[agrave]-vis other market participants. Second, BATS has similar 
requirements to Nasdaq and NYSE Arca concerning the maintenance of a 
supervisory system and written supervisory procedures. The Exchange 
notes that FINRA and BATS have previously acknowledged, pursuant to the 
provisions of Rule 17d-2 under the Securities Exchange Act of 1934 
(``17d-2 Agreement''), that, collectively, BATS Rules 5.1, 5.2, 5.3 and 
5.4 are substantially similar to FINRA's NASD Rule 3010, which Nasdaq 
and NYSE Arca rules incorporate by reference. For instance, BATS Rule 
5.4 is similar to Rule 3010(c), which requires each FINRA member to 
conduct an annual review of the businesses in which it engages and to 
conduct annual office inspections including the ``periodic examination 
of customer accounts to detect and prevent irregularities or abuses.'' 
Although the Exchange has not incorporated Rule 3010(c) into its Rules 
by reference, Rule 3010(c) would apply to all broker-dealers that 
engage in a customer business, because such firms are required to be 
members of FINRA.\12\ Also, although not as detailed as Rule 3010(c) 
with respect to the requirements of the inspection, BATS Rule 5.4 is 
nearly identical in that it requires BATS Members to ``review the 
activities of each office, which shall include the periodic examination 
of customer accounts to detect and prevent irregularities or abuses.''
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    \12\ See 15 U.S.C. 78o(b)(8); see also 17 CFR 240.15b9-1(a).
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    Based on the foregoing, it is appropriate for the Exchange to 
establish a similar approach with respect to information barriers 
employed by Nasdaq and NYSE Arca.\13\
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    \13\ BATS notes that its current examination procedure regarding 
its review for appropriate supervisory systems and procedures will 
remain in place.
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(vi) Conclusion: Flexibility and Accountability
    Eliminating substantial portions of BATS Rule 5.5, and adding to 
the general standards set forth therein to prohibit the misuse of 
material, non-public information, as proposed by this filing, offers 
Exchange participants both certainty and flexibility. BATS Members are 
on notice as to their obligations to maintain and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, non-public information. Like Nasdaq and NYSE Arca 
participants, BATS Members will now be afforded the same flexibility to 
maintain compliance mechanisms of their own design. The Exchange 
believes that this approach fosters a fair and orderly marketplace 
without being overly burdensome upon its Members.
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.\14\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\15\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system. Eliminating portions of BATS Rule 
5.5 that prescribe specific procedures and information barriers that 
must be maintained by certain Member firms,

[[Page 9458]]

while establishing more clarity regarding the minimum procedures that 
must be maintained by any Member, consistent with other self-regulatory 
organizations, should eliminate unnecessary regulatory burdens while at 
the same time retaining an appropriate mechanism designed to ensure 
that material, non-public information continues to be protected. In 
particular, the proposed rule change will reduce the burdens on certain 
Members that are currently required to maintain, and file with the 
Exchange, specified information barriers. The Exchange believes that 
the proposed changes will make compliance obligations with respect to 
prevention of the misuse of material, non-public information more clear 
to Exchange Members. The amended rule structure will be more consistent 
with that of other exchanges and will nonetheless continue to ensure 
protection of investors through existing regulations relevant to misuse 
of material, non-public information that apply to Exchange Members 
through the applicability and enforcement of relevant provisions of the 
Act, including Section 15(f); \16\ rules imposed by other self-
regulatory organizations; a joint industry effort to surveil for 
potential insider trading violations through a Rule 17d-2 Agreement\17\ 
and Regulatory Services Agreements between all self-regulatory 
organizations that trade equity securities; and through the Exchange's 
examination program.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78o(f).
    \17\ See Securities Exchange Act Release 58806 (October 17, 
2008), 73 FR 63216 (October 23, 2008); Securities Exchange Act 
Release No. 58536 (September 12, 2008), 73 FR 54646 (September 22, 
2008).
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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. 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-2010-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2010-003. 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 such filing also will be available for 
inspection and copying at the principal office of BATS. 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 publicly available. All 
submissions should refer to File Number SR-BATS-2010-003 and should be 
submitted on or before March 23, 2010.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\18\ The Commission believes that the proposal is consistent 
with Section 6(b)(5) \19\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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.
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    \18\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange is proposing to amend BATS Rule 5.5 to replace the 
specifically prescribed information barrier requirement with a more 
principles-based approach that would permit a Member to develop and 
apply its own policies and procedures to, among other things, prohibit 
the misuse of material nonpublic information. BATS Rule 5.5 addresses 
concerns arising from the potential for the sharing of material non-
public information between a Member's market making activities and 
other business activities of the Member or its affiliates. For 
instance, one such concern is that the Member or affiliate engaging in 
other business activities might use non-public information that was 
acquired by the Member through its role as a market maker. Another 
concern is that the Member might use material non-public information 
received from the entity engaging in other business activities, such as 
trading based on a change in the firm's buy or sell recommendation.\20\
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    \20\ See Securities Exchange Act Release No. 58328 (August 7, 
2008), 73 FR 48260 (August 18, 2008) (SR-NYSE-2008-45) (articulating 
concerns in the context of approving changes to NYSE Rule 98).
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    While amended BATS Rule 5.5 will no longer specify policies and 
procedures a Member must establish, the proposal will require that the 
policies and procedures be reasonably designed to ensure compliance 
with applicable Federal securities law and regulations, and with 
Exchange rules. The Commission believes that, with adequate oversight 
by the Exchange of its members, elimination of prescriptive information 
barrier requirements should not reduce the effectiveness of BATS rules 
requiring Members to establish and maintain systems to supervise the 
activities of Members, and written procedures that are reasonably 
designed to comply with applicable securities laws and Exchange rules, 
including the prohibition on misuse of material nonpublic information.
    Specifically, amended BATS Rule 5.5 will require Members to 
establish,

[[Page 9459]]

maintain and enforce written procedures reasonably designed to prevent 
the misuse of material non-public information by the Member or persons 
associated with the Member. The misuse of material non-public 
information includes trading in a security or related securities or 
options or other derivative securities, while in possession of material 
non-public information concerning the issuer, or while in possession of 
material non-public information concerning imminent transactions in the 
security or related securities.\21\ The Exchange also proposes to add 
BATS Rule 12.13, which will prohibit a Member from establishing, 
increasing, decreasing or liquidating an inventory position in a 
security or derivative of that security based on advance non-public 
knowledge of the content or timing of a research report concerning that 
security.
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    \21\ See BATS Rule 5.5, Commentary .01.
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    Further, BATS Rules 5.1, 5.2, 5.3 and 5.4, which relate to a 
Member's responsibilities or obligations related to conduct or 
supervision, will continue to apply. For example, BATS Rule 5.1 
requires BATS Members to ``establish, maintain and enforce written 
procedures which will enable it to supervise properly the activities of 
associated persons of the Member and to assure their compliance with 
applicable securities laws, rules, regulations and statements of policy 
promulgated thereunder, with the rules of the designated self-
regulatory organization, where appropriate, and with Exchange Rules.'' 
In addition, BATS Rule 5.4 requires BATS Members to ``review the 
activities of each office, which shall include the periodic examination 
of customer accounts to detect and prevent irregularities or abuses.'' 
These rules thus provide additional clarification that the supervisory 
systems and internal inspections of Members must be reasonably designed 
to achieve compliance with applicable securities laws and regulations 
and with applicable BATS rules, including those relating to the misuse 
of material non-public information.
    Pursuant to this proposal rule change, Members may utilize the 
flexible, principles-based approach to modify their policies and 
procedures as appropriate to reflect changes to their business model, 
business activities, or to the securities market itself. A Member 
should be proactive in assuring that its policies and procedures 
reflect the current state of its business and continue to be reasonably 
designed to achieve compliance with applicable federal securities law 
and regulations, and with applicable Exchange rules. In addition, the 
Commission notes that, while information barriers are not specifically 
required under the proposal, a Member's business model or business 
activities may dictate that an information barrier or a functional 
separation be part of the appropriate set of policies and procedures 
that would be reasonably designed to achieve compliance with applicable 
securities law and regulations, and with applicable Exchange rules. In 
this regard, the Exchange included in Interpretation and Policy .02 to 
amended BATS Rule 5.5 a statement that the adequacy of each Member's 
policies and procedures relating to the misuse of material non-public 
information will depend upon the nature of such Member's business.
    The Commission believes that the regulatory approach in this 
proposed rule change is substantially similar to the regulatory 
approach of Nasdaq and NYSE Arca. In particular, the BATS approach, 
like the Nasdaq and NYSE Arca approach, (i) enumerates the conduct that 
is prohibited by its members, including the potential misuse of 
material non-public information and (ii) provides for the policies and 
procedures that must be reasonably designed to ensure compliance with 
the same. In addition, the Commission notes that the Exchange has 
represented that its current examination procedure for the review of 
appropriate supervisory systems and procedures will remain in place.
    The Commission also finds good cause, pursuant to Section 19(b)(2) 
of the Act,\22\ for approving the proposed rule change prior to the 
30th day after the date of publication of notice in the Federal 
Register. Although this proposed rule change does not require that 
Members maintain specifically-prescribed information barriers, it will 
continue to mandate that Members establish and maintain a set of 
policies and procedures reasonably designed to achieve compliance with 
applicable securities law and regulations, and with applicable Exchange 
rules. As such, the Exchange is adopting an approach that is 
substantially similar to the approach currently employed by Nasdaq and 
NYSE Arca.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ See Securities Exchange Act Release No. 53128 (Jan. 13, 
2006), 71 FR 3550 (January 23, 2006) (adopting Nasdaq IM-2110-2; IM-
2110-3; IM-2110-4, and Rule 3010); 60604 (September 1, 2009), 74 FR 
46272 (September 8, 2009) (SR-NYSEArca-2009-78).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-BATS-2010-003) be, and it 
hereby is, approved on an accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).
    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4230 Filed 3-1-10; 8:45 am]
BILLING CODE 8011-01-P