Document ID: SEC-2010-1594-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-10-19T04:00Z

[Federal Register: October 19, 2010 (Volume 75, Number 201)]
[Notices]               
[Page 64387-64388]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc10-99]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63090; File No. SR-BATS-2010-027]

 
 Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change by BATS 
Exchange, Inc. To Amend BATS Rule 21.9, Entitled ``Order Routing''

October 13, 2010.
    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 October 4, 2010, 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.
---------------------------------------------------------------------------

    \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, on behalf of the BATS Options Market (``BATS 
Options''), proposes to amend BATS Rule 21.9, entitled ``Order 
Execution,'' to modify the existing general description of Exchange 
routing functionality and to describe available routing strategies in 
greater detail.
    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, at 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 21.9, which describes its order 
routing processes, to modify the existing general description of 
Exchange routing functionality and to describe available routing 
strategies in greater detail. Also, subject to User instructions, the 
Exchange currently allows orders that have been routed and then posted 
to the Exchange's order book to be re-routed if the order is 
subsequently locked or crossed by another options exchange (``RECYCLE 
Option''). The Exchange proposes to add a reference to the ``RECYCLE 
Option'' in its Rule, consistent with the general goal of the proposed 
changes to align the routing strategies offered by the Exchange with 
the rule text by providing additional specificity. The Exchange also 
wishes to make clear that, unless otherwise specified, the RECYCLE 
Option may be combined with any of the System routing strategies 
specified in Rule 21.9.
    The Exchange is also amending Rule 21.9 to include a definition of 
``System routing table,'' defined as the proprietary process for 
determining the specific options exchanges to which the Exchange System 
routes orders and the order in which it routes them. The definition 
reflects the fact that the Exchange, like other options exchanges, 
maintains different routing tables for different routing strategies and 
modifies them on a regular basis to reflect assessments about the 
destination markets. Such assessments consider factors such as a 
destination's latency, fill rates, reliability, and cost. Accordingly, 
the definition specifies that the Exchange reserves the right to 
maintain a different routing table for different routing strategies and 
to modify routing tables at any time without notice.
    Although the current rule language for Exchange routing strategies 
describes the available variations of strategies in general terms, the 
Exchange believes that understanding of these strategies would be 
enhanced by describing the different versions as separately named 
routing strategies.
    Below is a description of the various routing strategies proposed 
pursuant to new paragraph (a)(2) of Rule 21.9.
     CYCLE. CYCLE is a routing strategy offered by the Exchange 
under which an order checks the System for available shares and then is 
sent sequentially to destinations on the System routing table for the 
full remaining size of such order.
     Parallel D. Parallel D is a routing strategy offered by 
the Exchange under which an order checks the System for available 
shares and then is sent to destinations on the System routing table. 
The System may route to multiple destinations at a single price level 
simultaneously through Parallel D routing.
     Parallel 2D. Parallel 2D is a routing strategy offered by 
the Exchange under which an order checks the System for available 
shares and then is sent to destinations on the System routing table. 
The System may route to multiple destinations and at multiple price 
levels simultaneously through Parallel 2D routing.
     Parallel T. Parallel T is a routing strategy offered by 
the Exchange under which an order checks the System for available 
displayed shares and then is sent only to Protected Quotations and only 
for displayed size. The System may route to multiple destinations and 
at multiple price levels simultaneously through Parallel T routing.
     ``Destination Specific Orders'' and ``Directed ISOs'' are 
routed orders described in Rule 21.1.
    In addition to the changes described above, the Exchange is 
proposing additional modifications to paragraph (a)(1) of Rule 21.9 to 
further align Rule 21.9 with the corollary routing rule applicable to 
the Exchange's equity securities platform.
2. Statutory Basis
    The rule change proposed in this submission is consistent with the

[[Page 64388]]

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.\5\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\6\ 
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. 
The proposed change to provide additional clarity and specificity to 
the Exchange's Rules regarding routing strategies further enhances 
transparency with respect to Exchange routing offerings. Furthermore, 
the Exchange believes that the routing strategies that it offers 
provide market participants with greater flexibility in routing orders 
without developing complicated order routing strategies on their own. 
Finally, many of the Exchange's Members that trade options on or 
through BATS Options also actively trade on the Exchange's equity 
securities platform. The Exchange believes that aligning the rules 
between its options and equities platform will help to alleviate 
potential confusion for such Members.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 Change 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 \7\ and Rule 19b-
4(f)(6)(iii) thereunder.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\9\ 
However, Rule 19b-4(f)(6)(iii) \10\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Exchange believes that 
its routing strategies benefit market participants and their customers 
by allowing them greater flexibility in their efforts to fill orders 
and minimize trading costs.\11\ In addition, the Exchange notes that 
the proposal is consistent with the Exchange's existing equities 
routing rule as well as the existing rules of another national 
securities exchange.\12\ The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest and hereby designates the proposal operative upon 
filing.\13\
---------------------------------------------------------------------------

    \9\ 17 CFR 240.19b-4(f)(6)(iii). 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.
    \10\ Id.
    \11\ See SR-BATS-2010-027, Item7.
    \12\ See SR-BATS-2010-027, Item7 and 8. See also BATS Rule 11.13 
and The NASDAQ Stock Market LLC Rule 4758.
    \13\ For the 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).
---------------------------------------------------------------------------

    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 No. SR-BATS-2010-027 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-2010-027. 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 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-2010-027 and should be 
submitted on or before November 9, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26209 Filed 10-18-10; 8:45 am]
BILLING CODE 8011-01-P