Document ID: SEC-2013-0472-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-03-12T04:00Z

[Federal Register Volume 78, Number 48 (Tuesday, March 12, 2013)]
[Notices]
[Pages 15773-15775]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05571]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69038; File No. SR-BATS-2013-016]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Modify the BATS Options Market 
Maker Obligation Rule

March 5, 2013.
    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 March 1, 2013, 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 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 Substance 
of the Proposed Rule Change

    The Exchange filed a proposal for the BATS Options Market (``BATS 
Options'') to amend Rule 22.6(d) in connection with the upcoming 
operation of the Plan to Address Extraordinary Market Volatility 
Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or ``Plan'').\5\ The Exchange is also proposing to 
amend Rule 22.6(d) to suspend the obligation of market makers 
registered with BATS (``Market Makers'') to enter continuous bids and 
offers during a halt, suspension, or pause in trading of the underlying 
security (collectively, a ``Trading Halt'').
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    \5\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.batstrading.com, at the principal office of the 
Exchange, on the Commission's Web site at http://www.sec.gov, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange currently requires Market Makers to enter continuous 
bids and offers for the options series to which it is registered in at 
least 75% of the options series in which the Market Maker is 
registered. The purpose of this proposed rule change is to amend BATS 
Rule 22.6(d) to suspend a Market Maker's continuous quoting obligations 
when the underlying security is subject to a ``Limit State'' or 
``Straddle State'' as defined Limit in the Up-Limit Down Plan and 
during a Trading Halt.
    The Limit Up-Limit Down Plan is designed to prevent executions from 
occurring outside of dynamic price bands disseminated to the public by 
the single plan processor as defined in the Limit Up-Limit Down Plan. 
Under the Plan, a Limit State will be declared if the national best 
offer equals the lower price band and does not cross the national best 
bid, or the national best bid equals the upper price band and does not 
cross the national best offer. A Straddle State is when the national 
best bid (offer) is below (above) the lower (upper) price band and the 
security is not in a Limit State, and trading in that security deviates 
from normal trading characteristics such that declaring a trading pause 
would support the Plan's goal to address extraordinary market 
volatility. Accordingly, when the underlying security is in a Limit 
State or Straddle State, there will not be a reliable price for the 
security to serve as a benchmark for the price of the related option. 
While, in theory, the liquidity provided by requiring Market Makers to 
continue to quote during a Limit or Straddle State could help to 
stabilize a volatile market, without a reliable benchmark for pricing 
an option, Market Makers would likely respond to the uncertainty by 
entering very wide

[[Page 15774]]

quotes, which would not provide any additional stability and could 
potentially lead to additional uncertainty. As such, the Exchange is 
proposing to eliminate the continuous quoting requirements of Rule 
22.6(d) when the underlying security is in a Limit State or Straddle 
state. Specifically, the Exchange is proposing to exclude the time 
during which the underlying security is in a Limit State or Straddle 
state when evaluating whether a Market Maker has met the continuous 
quoting requirements of Rule 22.6(d). The Exchange believes that this 
relief will help to maintain a fair and efficient marketplace for the 
execution of options.
    The Exchange is also proposing to amend Rule 22.6(d) to provide an 
exception to the continuous quoting requirements for Market Makers 
during a Trading Halt. Currently, the Exchange does not provide an 
exemption for its requirement that a Market Maker enter continuous bids 
and offers for the options series to which it is registered. Much like 
when an underlying security is in a Limit State or a Straddle State, 
there is no reliable price during a Trading Halt to serve as a 
benchmark for the price of the related option because the only 
available price is the last trade prior to the Trading Halt. Based on 
this concern and for the same reasons discussed above, the Exchange is 
proposing to exempt Market Makers from existing continuous quoting 
requirements during a Trading Halt.
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.\6\ In particular, the 
proposal is consistent with Section 6(b)(5) of the Act,\7\ 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. The Exchange believes that exempting Market Makers 
from the continuous quoting requirements on BATS Options when the 
underlying security is in a Limit State or Straddle State or a Trading 
Halt will help to prevent executions that might occur at prices that 
have not been reliably formed. Further, the proposed changes will allow 
Market Makers to enter orders only where the Market Maker is confident 
in the price of the option, rather than on a continuous basis in all 
series in which the Market Maker is registered, which the Exchange 
believes will help to minimize uncertainty during a volatile market. 
The Exchange also believes that these changes will help to incentivize 
participants registered with BATS as Market Makers to continue to act 
as Market Makers, rather than potentially causing Market Makers to de-
register. The Exchange also believes that this change will help to 
protect all investors from executions at prices that are not based on a 
reliable benchmark for the price of an option during times of 
significant volatility, and thus, believes the proposal to be 
consistent with the protection of investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that other options exchanges are proposing to suspend a market 
maker's quoting obligations when the underlying security is subject to 
a Limit State or Straddle State in connection with the Limit Up-Limit 
Down Plan consistent with the Exchange's handling proposed by this 
filing.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 No. SR-BATS-2013-016 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-2013-016. 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 
10:00 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 No. SR-BATS-2013-016 and should be 
submitted on or before April 2, 2013.

[[Page 15775]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05571 Filed 3-11-13; 8:45 am]
BILLING CODE 8011-01-P