Document ID: SEC-2012-0443-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2012-03-19T04:00Z

[Federal Register Volume 77, Number 53 (Monday, March 19, 2012)]
[Notices]
[Pages 16110-16112]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6495]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66580; File No. SR-BATS-2012-012]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
Exchange Rule 14.3, Entitled ``General Procedures and Prerequisites for 
Initial and Continued Listing on the Exchange''

March 13, 2012.
    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 March 8, 2012, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') 
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 the Exchange. 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 filing with the Commission a proposal to amend Rule 
14.3, entitled ``General Procedures and Prerequisites for Initial and 
Continued Listing on the Exchange'' to include additional requirements 
for the listing of securities that are issued by the Exchange or any of 
its affiliates.
    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 Exchange is proposing a rule change to adopt a new Rule 14.3(e) 
that would impose additional reporting requirements on the Exchange 
should the Exchange or an affiliate of the Exchange list a security on 
the Exchange (collectively, the ``BATS Affiliates''). In the event that 
a BATS Affiliate seeks to list a security on the Exchange (the 
``Affiliate Security''), the proposed rule change would require that 
prior to the initial listing of the Affiliate Security on the Exchange, 
Exchange personnel determine that such security satisfies the 
Exchange's rules for listing, and such finding must be approved by the 
Regulatory Oversight Committee of the Exchange's Board of Directors. 
The proposed rule change would also require the Exchange to prepare a

[[Page 16111]]

quarterly report for the Regulatory Oversight Committee of the 
Exchange's Board of Directors detailing: (1) The Exchange's monitoring 
of the Affiliate Security's compliance with the Exchange's listing 
standards, including the Affiliate Security's compliance with the 
Exchange's minimum share price requirement and the Affiliate Security's 
compliance with each of the quantitative continued listing 
requirements; and (2) the Exchange's monitoring of the trading of the 
Affiliate Security, including summaries of all related surveillance 
alerts, complaints, regulatory referrals, trades cancelled or adjusted 
pursuant to Rule 11.17, investigations, examinations, formal and 
informal disciplinary actions, exception reports and trading data used 
to ensure the Affiliate Security's compliance with the Exchange's 
listing and trading rules. The Exchange would be required to promptly 
furnish a copy of this quarterly report to the Commission.
    To the extent the Exchange uses Exchange staff to conduct 
surveillance of trading activity on the Exchange, which it does today, 
the Exchange would be required to engage an independent third party 
once a year to review and prepare a report regarding surveillance of 
the Affiliate Security and promptly forward to the Regulatory Oversight 
Committee of the Exchange's Board of Directors and the Commission a 
copy of the report prepared by the independent third party. In 
connection with the engagement of this third party, the Exchange would 
look for appropriate subject-matter expertise and would consider 
engaging appropriately qualified entities such as independent 
accounting firms, law firms, consulting firms or other self-regulatory 
organizations. The Exchange would also be required to commission an 
annual review and report by an independent accounting firm of the 
compliance of the Affiliate Security with the Exchange's listing 
requirements. The Exchange would be required to promptly furnish a copy 
of this annual report to the Regulatory Oversight Committee of the 
Exchange's Board of Directors and the Commission.
    In the event that the Exchange determines that the BATS Affiliate 
is not in compliance with any of the Exchange's listing standards, the 
rule would require the Exchange to notify the issuer of such non-
compliance promptly and request a plan of compliance. The Exchange 
would be required to file a report with the Commission within five 
business days of providing such notice to the issuer of its non-
compliance. The required report would identify the date of the non-
compliance, type of non-compliance, and any other material information 
conveyed to the issuer in the notice of non-compliance. Within five 
business days of receipt of a plan of compliance from the issuer, the 
Exchange would be again required to notify the Commission of such 
receipt, whether the plan of compliance was accepted by the Exchange or 
what other action was taken with respect to the plan and the time 
period provided to regain compliance with the Exchange's listing 
standards, if any.
    The Exchange is proposing to exclude from the definition of Rule 
14.3(e)--solely for purposes of this rule--securities that meet the 
definition of ``Portfolio Depository Receipts'' and ``Index Fund 
Shares'' under Rules 14.11(b)(1)(A) and 14.11(c)(1)(A), respectively. 
These securities, commonly referred to as ``exchange traded funds'' or 
``ETFs,'' are issued by investment companies registered under the 
Investment Company Act of 1940 and are based on an index or portfolio 
of securities. An ETF is designed to provide investment results that 
correspond generally to the price and yield performance of the 
underlying index or portfolio of securities. The Exchange believes that 
such securities do not present the same concerns as other securities, 
even if issued by a BATS Affiliate. ETFs, which do not represent 
investments in an individual company, are already exempt from a number 
of listing standards including corporate governance rules standards, 
such as the requirement to have a board of directors comprised of a 
majority of independent directors and to have a code of conduct 
applicable to all employees and directors. The Exchange does not 
believe that the additional reporting requirements in the proposed rule 
change would provide any value in this context because ETFs would not 
constitute an investment in a BATS Affiliate. Further, these issuers 
are already subject to a comprehensive scheme of regulation pursuant to 
the Investment Company Act of 1940.
    The listing of securities of a BATS Affiliate could potentially 
create a conflict of interest between the Exchange's self regulatory 
responsibility to vigorously oversee the listing and trading of the 
stock on its market, and its own commercial or economic interests. Such 
``self-listing'' may raise questions as to the Exchange's ability to 
independently and effectively enforce its rules against an affiliate or 
the operator/owner of its facility. In addition, such listing has the 
potential to exacerbate possible conflicts that may arise when the 
Exchange oversees competitors that may also be listed on the Exchange. 
The Exchange believes that the proposed rule change, by requiring 
heightened reporting by the Exchange to the Commission with respect to 
the Exchange's oversight of the listing and trading on the Exchange of 
the securities of any BATS Affiliate, will help protect against any 
concern that the Exchange will not effectively enforce its rules with 
respect to the listing and trading of these securities. In addition, 
the requirement that an independent accounting firm review such 
issuer's compliance with the Exchange's listing standards adds a degree 
of independent oversight to the Exchange's regulation of the listing of 
these securities, which should help mitigate against any potential or 
actual conflicts of interest. The Exchange also believes that the 
additional requirements contained in the proposed rule change would 
provide additional assurance that any Affiliate Securities listed on 
the Exchange by a BATS Affiliate comply with the Exchange's listing 
standards on an on-going basis. Finally, the Exchange believes that the 
proposed rule change would eliminate any perception of a potential 
conflict of interest if a BATS Affiliate seeks to list a security on 
the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal 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.\3\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\4\ 
because 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 mechanism of, a free and open market and a national market system. 
Specifically, the Exchange believes that the proposed rule change, by 
requiring heightened reporting by the Exchange to the Commission with 
respect to oversight of the listing and trading on the Exchange of 
Affiliate Securities, will help protect against concerns that the 
Exchange will not effectively enforce its rules with respect to the 
listing and trading of these securities. In addition, the requirement 
that an independent accounting firm review such issuer's compliance 
with

[[Page 16112]]

the Exchange's listing standards adds a degree of independent oversight 
to the Exchange's regulation of the listing of these securities, which 
may mitigate any potential or actual conflicts of interest. Further, 
the additional requirements contained in the proposed rule change would 
help to provide additional assurance that any Affiliate Securities 
listed on the Exchange by a BATS Affiliate comply with the Exchange's 
listing standards both upon the initial listing of the BATS Affiliate 
and on an on-going basis. The Exchange believes that the proposed rule 
change would eliminate any perception of a potential conflict of 
interest if a BATS Affiliate seeks to list a security on the Exchange.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 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.

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 Changes and Timing for 
Commission Action

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \5\ and Rule 19b-
4(f)(6) thereunder.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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 
Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Exchange believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because it would permit the Exchange to immediately implement the 
proposed rule change in the event an Affiliate seeks to list on the 
Exchange.\7\ The Commission believes that waiver of the operative delay 
is consistent with the protection of investors and the public interest 
because such waiver would allow the Exchange to implement protections 
against potential conflicts of interest that may arise from listing an 
Affiliate security on the Exchange without undue delay. The Commission 
notes that the proposed rule change is based on and similar to New York 
Stock Exchange Rule 497.\8\ Therefore, the Commission designates the 
proposal operative upon filing.\9\
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    \7\ See SR-BATS-2012-012, Item 7.
    \8\ See id. See also Securities Exchange Act Release Nos. 53382 
(February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-77) and 
55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-
2006-120).
    \9\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2012-012 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-2012-012. 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 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 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 publicly available. All 
submissions should refer to File Number SR-BATS-2012-012 and should be 
submitted on or before April 9, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6495 Filed 3-16-12; 8:45 am]
BILLING CODE 8011-01-P