Document ID: SEC-2011-1063-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2011-07-25T04:00Z

[Federal Register Volume 76, Number 142 (Monday, July 25, 2011)]
[Notices]
[Pages 44388-44390]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18683]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64914; File No. SR-BATS-2011-022]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 

Filing and Immediate Effectiveness of Proposed Rule Change by BATS 

Exchange, Inc. To Expand the Short Term Option Program

 July 19, 2011.

    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 13, 2011, BATS Exchange, Inc. (the ``Exchange'' or 

``BATS'') filed with the Securities and Exchange Commission (the 

``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.

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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 Rules 19.6 and 29.11 to expand 

the Short Term Option Series Program (``STO Program'' or ``Program'') 

\3\ so that the Exchange may select fifteen option classes on which 

Short Term Option Series \4\ may be opened.

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    \3\ The STO Program was established about a year ago on BATS 

Options. See Securities Exchange Act Release No. 62597 (July 29, 

2010), 75 FR 47335 (August 5, 2010) (SR-BATS-2010-020) (notice of 

filing and immediate effectiveness establishing Short Term Option 

Series Program on BATS). Other exchanges have also established 

permanent short term option programs, including The NASDAQ Stock 

Market LLC (``NOM''), NASDAQ OMX PHLX LLC (``Phlx''), Chicago Board 

Options Exchange (``CBOE''), International Securities Exchange 

(``ISE''), NYSE Arca Options (``Arca''), NYSE Amex, LLC (``Amex''), 

and NASDAQ OMX BX (``BX'').

    \4\ Short Term Option Series are 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. BATS Rules 

16.1(a)(56) and 29.2(n).

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    The text of the proposed rule change is available from 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.

[[Page 44389]]

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 the 

Statutory Basis for, the Proposed Rule Change

1. Purpose

    The purpose of this proposed rule change is to modify Rule 19.6 and 

Rule 29.11 to expand the STO Program so that the Exchange may select 

fifteen option classes on which Short Term Option Series may be opened. 

This proposal is based directly on the recent expansion of the STO 

Program by Phlx.\5\

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    \5\ See Securities Exchange Act Release No. 63875 (February 9, 

2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order 

granting approval of expansion of short term option program). Other 

exchanges have similarly expanded their short term option programs. 

See Securities Exchange Act Release Nos. 64009 (March 2, 2011), 76 

FR 12771 (March 8, 2011) (SR-BX-2011-014) (notice of filing and 

immediate effectiveness); 63877 (February 9, 2011), 76 FR 8794 

(February 15, 2011) (SR-CBOE-2011-012) (notice of filing and 

immediate effectiveness); and 63878 (February 9, 2011), 76 FR 8796 

(February 15, 2011) (SR-ISE-2011-08) (notice of filing and immediate 

effectiveness).

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    The STO Program is codified in Interpretation and Policy .05 to 

Rule 19.6 and Rule 29.11(h). These sections state that 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 series of options on no more than five option classes that 

expire on the Friday of the following business week that is a business 

day. In addition to the five-option class limitation, there is also a 

limitation that no more than twenty series for each expiration date in 

those classes that may be opened for trading.\6\ Furthermore, the 

strike price of each short term option has to be fixed with 

approximately the same number of strike prices being opened above and 

below the value of the underlying security at about the time that the 

short term options are initially opened for trading on the Exchange, 

and with strike prices being within thirty percent (30%) above or below 

the closing price of the underlying security from the preceding day. 

The Exchange does not propose any changes to these additional Program 

limitations. The Exchange proposes only to increase from five to 

fifteen the number of option classes that may be opened pursuant to the 

Program.

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    \6\ If the Exchange opens less than twenty (20) Short Term 

Option Series for a Short Term Option 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 market price of the underlying security moves 

substantially from the exercise price or prices of the series 

already opened. Any additional strike prices listed by the Exchange 

shall be within thirty percent (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. The opening of the new Short Term Option Series shall not 

affect the series of options of the same class previously opened. 

See Interpretation and Policy .05 to BATS Rule 19.6 and BATS Rule 

29.11.

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    The principal reason for the proposed expansion is customer demand 

for adding, or not removing, short term option classes from the 

Program. In order that the Exchange not exceed the five-option class 

restriction, the Exchange has had to discontinue trading short term 

option classes before it could begin trading other option classes 

within the Program. Moreover, since there is reciprocity in matching 

other exchange STO choices, the Exchange discontinues trading STO 

classes that other exchanges change from week-to-week. This has 

negatively impacted investors and traders, particularly retail public 

customers, who have on several occasions requested the Exchange not to 

remove short term option classes or add short term option classes.

    The Exchange understands that a retail investor has recently 

requested another exchange (Phlx) to reinstate a short term option 

class that the exchange had to remove from trading because of the five-

class option limit within the Program. The investor advised that the 

removed class was a powerful tool for hedging a market sector, and that 

various strategies that the investor put into play were disrupted and 

eliminated when the class was removed. The Exchange feels that it is 

essential that such negative, potentially very costly impacts on retail 

investors are eliminated by modestly expanding the Program to enable 

additional classes to be traded.

    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 

trading of an expanded number of classes in the Program.

    The Exchange believes that the STO Program has provided investors 

with greater trading opportunities and flexibility and the ability to 

more closely tailor their investment and risk management strategies and 

decisions. Furthermore, the Exchange has had to eliminate option 

classes on numerous occasions because of the limitation imposed by the 

Program. For these reasons, the Exchange requests an expansion of the 

current Program and the opportunity to provide investors with 

additional short term option classes for investment, trading, and risk 

management purposes.

2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 

6(b) of the Act \7\ in general, and furthers the objectives of Section 

6(b)(5) of the Act \8\ in particular, in that it is designed to promote 

just and equitable principles of trade, 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. 

The Exchange believes that expanding the current STO Program will 

result in a continuing benefit to investors by giving them more 

flexibility to closely tailor their investment and hedging decisions in 

greater number of securities. While the expansion of the STO Program 

will generate additional quote traffic, the Exchange does not believe 

that this increased traffic will become unmanageable since the proposal 

is limited to a fixed number of classes. Further, the Exchange does not 

believe that the proposal will result in a material proliferation of 

additional series because it is limited to a fixed number of classes 

and the Exchange does not believe that the additional price points will 

result in fractured liquidity.

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    \7\ 15 U.S.C. 78f(b).

    \8\ 15 U.S.C. 78f(b)(5).

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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.

[[Page 44390]]

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: (i) Does not significantly affect 

the protection of investors or the public interest; (ii) does not 

impose any significant burden on competition; and (iii) does not become 

operative for 30 days after the date of the filing, 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 \9\ and 

Rule 19b-4(f)(6) thereunder.\10\

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    \9\ 15 U.S.C. 78s(b)(3)(A).

    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 

requires that a self-regulatory organization submit to the 

Commission written notice of its 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 Exchange has satisfied this requirement.

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    The Exchange has requested that the Commission waive the 30-day 

operative delay. The Commission believes that waiving the 30-day 

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 has been approved by the Commission.\11\ 

Therefore, the Commission designates the proposed rule change to be 

operative upon filing with the Commission.\12\

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    \11\ See Securities Exchange Act Release No. 63875 (February 9, 

2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order 

approving expansion of Short Term Option Program).

    \12\ 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 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-2011-022 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-2011-022. 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-2011-022 and should be 

submitted on or before August 15, 2011.

    For the Commission, by the Division of Trading and Markets, 

pursuant to delegated authority.\13\

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    \13\ 17 CFR 200.30-3(a)(12).

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Elizabeth M. Murphy,

Secretary.

[FR Doc. 2011-18683 Filed 7-22-11; 8:45 am]

BILLING CODE 8011-01-P