Document ID: SEC-2009-0124-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2009-01-28T05:00Z

[Federal Register: January 28, 2009 (Volume 74, Number 17)]
[Notices]               
[Page 4990-4992]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ja09-89]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59284; File No. SR-BATS-2009-002]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BATS Rule 11.8, Entitled ``Obligations of Market Makers.''

January 23, 2009.
    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 January 15, 2009, BATS Exchange, Inc. (``BATS''

[[Page 4991]]

or the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III 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 11.8, entitled 
``Obligations of Market Makers,'' to provide Exchange functionality to 
Market Makers who wish to have the Exchange automatically enter orders 
on their behalf in order to comply with the obligation to maintain 
continuous two-sided limit orders in securities in which they are 
registered to trade.
    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.

(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 provide any Member of 
the Exchange that is registered as a Market Maker with Exchange system 
functionality to have the Exchange enter and maintain on its behalf 
``stub quotes'' (i.e., quotes that are substantially far away from the 
Exchange's best bid or offer such that they are unlikely to be 
executed).\5\ As part of its Market Maker obligations, pursuant to BATS 
Rule 11.8(a)(1), a Market Maker is required to maintain continuous, 
two-sided limit orders in the securities in which the Market Maker is 
registered to trade. In order to assist Exchange Market Makers with 
this obligation, the Exchange proposes to offer functionality through 
which Market Makers could choose to have the Exchange enter and 
maintain a limit order on either side of the market on their behalf. At 
9 a.m. Eastern Time, the Exchange will extract information submitted by 
the Market Maker that provides specific quote instructions for the 
Exchange to enter a quote on the Market Maker's behalf. Specifically, 
the Market Maker would instruct the Exchange to enter limit orders of 
$0.0001 as a bid and $99,999.99 as an offer in the amount of one round 
lot each. Such orders will be posted by the Exchange as BATS Only 
Orders,\6\ and will be maintained on the Exchange during Regular 
Trading Hours \7\ unless cancelled by the Market Maker pursuant to the 
Exchange's Rules.\8\
---------------------------------------------------------------------------

    \5\ As with all BATS quotes, these stub quotes would be firm 
quotes and, as such, would be immediately and automatically 
executable. However, to the extent such an execution could be 
considered clearly erroneous it would subject to review under Rule 
11.17 (Clearly Erroneous Executions).
    \6\ As defined in BATS Rule 11.9(c)(4).
    \7\ Defined in BATS Rule 1.5(v) as 9:30 a.m. to 4 p.m. Eastern 
Time.
    \8\ See BATS Rule 11.9(e).
---------------------------------------------------------------------------

    According to the Exchange, the proposed rule change would allow the 
Exchange to provide functionality similar to that provided by both the 
Nasdaq Stock Market LLC (``NASDAQ'') and NYSE Arca Equities, Inc. 
(``NYSE Arca'') to market makers registered with such exchanges. In 
particular, the Exchange represents that registered market makers on 
NASDAQ have the ability to enter ``stub quotes'' through the NASDAQ 
system in order to ensure that they are continually meeting their 
quoting obligations.\9\ Similarly, the Exchange represents that NYSE 
Arca provides its registered market makers with the ability to direct 
that exchange to enter orders on their behalf called ``Q Orders,'' 
which automatically refresh in the NYSE Arca system,\10\ including 
orders that would be considered to be ``stub quotes.''
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 56586 (October 1, 
2007), 72 FR 57085 (October 5, 2007) (SR-NASDAQ-2007-069).
    \10\ See NYSE Arca Rule 7.31(k).
---------------------------------------------------------------------------

    Although the Exchange believes that its registered Market Makers 
will be at or near the best bid or offer of the Exchange during much of 
the trading day, without stub quote functionality, and due to the speed 
of the modern trading environment, some Market Makers may not have a 
posted quote on one or both sides of the market for small periods of 
time, even for fractions of a second. The Exchange believes that the 
system functionality provided under the proposed rule change will 
provide Market Makers with a useful tool that they can utilize to meet 
their quoting obligations on the Exchange. Accordingly, the 
modifications to BATS Rule 11.8 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. The Exchange also 
believes that the proposed functionality is similar to that provided by 
other national securities exchanges and permissible under such 
exchanges' approved rules.\11\
---------------------------------------------------------------------------

    \11\ See, e.g., NYSE Arca Rule 7.31(k).
---------------------------------------------------------------------------

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.\12\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\13\ 
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 encouraging Market Makers to register with and 
trade on the Exchange by providing such Market Makers with system 
functionality that will assist them in maintaining continuous, two-
sided limit orders in the securities in which they are registered.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement of 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 Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

[[Page 4992]]

III. Date of Effectiveness of the Proposed Rule Changes 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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Rule 19b-4(f)(6)(iii) \16\ requires the Exchange to give the 
Commission written notice of the Exchange's intent to file a 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 shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    As described above and in its filing with the Commission, the 
Exchange believes that the proposed rule change is consistent with the 
rules of another self-regulatory organization. For the foregoing 
reasons, this rule filing qualifies for immediate effectiveness as a 
``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-
4.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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-2009-002 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-2009-002. 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 changes 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 inspection and 
copying 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 available publicly. All 
submissions should refer to File No. SR-BATS-2009-002 and should be 
submitted on or before February 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-1872 Filed 1-27-09; 8:45 am]

BILLING CODE 8011-01-P