Document ID: SEC-2015-0629-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2015-04-13T04:00Z

[Federal Register Volume 80, Number 70 (Monday, April 13, 2015)]
[Notices]
[Pages 19707-19709]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08337]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74666; File No. SR-BATS-2015-26]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
20.6 To Adopt a New Provision To Account for Erroneous Trades Occurring 
From Disruptions and/or Malfunctions of Exchange Systems

April 7, 2015.
    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 April 1, 2015, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Item II 
below, which Item has 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 20.6, Nullification and 
Adjustment of Options Transactions including Obvious Errors, to adopt a 
new provision to account for erroneous trades occurring from 
disruptions and/or malfunctions of Exchange systems. The proposed rule 
change is based on the rules of NYSE Arca, Inc. (``NYSE Arca'') and the 
International Securities Exchange, LLC (``ISE'').\5\ Therefore, the 
Exchange has designated this proposal as non-controversial and provided 
the Commission with the notice required by Rule 19b-4(f)(6)(iii) under 
the Act.\6\ The text of the proposed rule change is available at the 
Exchange's Web site at www.batstrading.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.
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    \5\ See ISE Rule 720A and NYSE Arca Rule 6.89. See also 
Securities Exchange Act Release No. 72490 (June 27, 2014), 79 FR 
38105 (July 3, 2014) (SR-ISE-2014-34) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Establish New 
Rule 720A). The proposed rule change is also based in part on Nasdaq 
OMX PHLX, LLC (``PHLX'') Rule 1092(c)(ii)(A), and in addition, is 
substantially similar to Chicago Board Options Exchange, Inc. 
(``CBOE'') Rule 6.25(a)(3).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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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 amend Rule 20.6, Nullification and 
Adjustment of Options Transactions including Obvious Errors, to adopt a 
new provision to account for erroneous trades occurring from 
disruptions and/or malfunctions of Exchange systems. Specifically, 
proposed paragraph (k) to Rule 20.6 would provide that any transaction 
that arises out of a ``verifiable systems disruption or malfunction'' 
in the use or operation of an Exchange automated quotation, 
dissemination, execution, or communication system may either be 
nullified or adjusted by an Official. Under the proposed paragraph (k), 
an Official may act, on his or her own motion, to review erroneous 
transactions. The proposed rule change is based on the rules of NYSE 
Arca and the ISE.\7\
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    \7\ See supra note 5.
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    According to the proposal, in the event of any verifiable 
disruption or malfunction in the use or operation of an Exchange 
automated quotation, dissemination, execution, or communication system, 
in which the nullification or modification of transactions may be 
necessary to maintain a fair and orderly market or the protection of 
investors and the public interest exists, an Official, on his or her 
own motion, may review such transactions and declare the transactions 
occurring during such period null and void or adjust the price of those 
transaction to their Theoretical Price, as defined in paragraph (b) of 
Rule 20.6. Pursuant to the proposal, an Official, absent extraordinary 
circumstances, must initiate action under this authority within sixty 
(60) minutes of the occurrence of the erroneous transaction that was a 
result of a verifiable disruption or malfunction.
    Each Options Member involved in the transaction shall be notified 
as soon as practicable, and any Options Member aggrieved by the action 
may appeal such action in accordance with the provisions of proposed 
renumbered paragraph (l) of Rule 20.6. Current subparagraph (k), which 
sets for the appeals process of decisions made by an

[[Page 19708]]

Official \8\ pursuant to Rule 20.6, would be renumbered as paragraph 
(l) and cross references to current paragraph (k) within Rule 20.6 
would be updated to reference renumbered paragraph (l) accordingly.
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    \8\ An Official is defined under current Rule 20.6(d) as ``[a]n 
Officer of the Exchange or such other employee designee of the 
Exchange that is trained in the application of this rule [20.6].''
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    The Exchange notes that the Commission recently approved amendments 
to Rule 20.6 \9\ and that other options markets are to file proposed 
rule changes with the Commission to harmonize their respective obvious 
and catastrophic error rules with Rule 20.6. The Exchange understands 
that the provision it proposes to add to Rule 20.6 herein is to be 
retained by other options exchanges as part of their harmonized rules. 
Therefore, the Exchange believes it is critical to its ability to 
maintain fair and orderly markets and to protect investors to propose 
to add this provision to its rules.
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    \9\ See Securities Exchange Act. Release No. 74556 (March 20, 
2015) (SR-BATS-2014-067). The Exchange notes that a comment letter 
received in response to the proposed rule change suggesting that the 
Exchange also include a rule provision covering verifiable 
disruptions or malfunctions of Exchange systems as proposed herein. 
See letter from Joanna Fields, Principal, Aplomb Strategies Inc. to 
Brent Fields, Secretary, Commission, dated March 23, 2015.
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    The Exchange believes it is appropriate to provide the flexibility 
and authority provided for in proposed paragraph (k) to Rule 20.6 so as 
not to limit the Exchange's ability to plan for and respond to 
unforeseen problems and malfunctions. The proposed rule change would 
provide the Exchange with the same authority to nullify or adjust 
trades in the event of a ``verifiable disruption or malfunction'' in 
the use or operation of its systems as other exchanges have.\10\ For 
this reason, the Exchange believes that, in the interest of maintaining 
a fair and orderly market and for the protection of investors, 
authority to nullify or adjust trades in these circumstances, 
consistent with the authority on other exchanges, is warranted.
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    \10\ See supra note 5.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\11\ which requires, among other 
things, that the Exchange's rules be 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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    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
national market system and promote a fair and orderly market because it 
would provide authority to the Exchange to nullify or adjust trades 
that may have resulted from a verifiable systems disruption or 
malfunction. The Exchange believes that it is appropriate to provide 
the flexibility and authority provided for in the proposed rule change 
so as not to limit the Exchange's ability to plan for and respond to 
unforeseen systems problems or malfunctions that may result in harm to 
the public. Allowing for the nullification or modification of 
transactions that result from verifiable disruptions and/or 
malfunctions of Exchange systems will offer market participants on the 
Exchange a level of relief not presently available. The Exchange 
further notes that when acting under its own motion of nullify or 
adjust trades pursuant to proposed paragraph (k) of Rule 20.6, the 
Exchange must consider whether taking such action would be in the 
interest of maintaining a fair and orderly market and for the 
protection of investors. The Exchange also notes that proposed rule 
change is based on the rules of other exchanges.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, the Exchange 
believes the proposed rule change will enhance competition because it 
will align the Exchange's rules with the rules of other markets, 
including CBOE, NYSE Arca, the ISE, and PHLX. By adopting paragraph (k) 
to Rule 20.6 the Exchange will be in a position to treat transactions 
that are the result of a verifiable systems disruption or malfunction 
in a manner similar to other exchanges.

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)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). 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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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2015-26 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2015-26. 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

[[Page 19709]]

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 
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 Number SR-BATS-2015-26, and should be submitted on or before May 
4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-08337 Filed 4-10-15; 8:45 am]
 BILLING CODE 8011-01-P