Document ID: SEC-2014-1656-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2014-10-02T04:00Z

[Federal Register Volume 79, Number 191 (Thursday, October 2, 2014)]
[Notices]
[Pages 59541-59544]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23479]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73236; File No. SR-BYX-2014-024]

Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.24 To Permit Members To Designate Their Retail Orders To Be 
Identified as Retail on the Exchange's Proprietary Data Feeds

September 26, 2014.
    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 September 17, 2014, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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 the 
Substance of the Proposed Rule Change

    The Exchange proposed to amend Rule 11.24 to permit Users to 
designate that their Retail Orders \5\ submitted under the Exchange's 
Retail Price Improvement (``RPI Program'') be identified as Retail on 
the Exchange's proprietary data feeds.\6\ The proposed rule change is 
substantially similar to the existing functionality on EDGX Exchange, 
Inc. (``EDGX'').\7\
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    \5\ A Retail Order is defined as (i) an agency or riskless 
principal order that meets the criteria of FINRA Rule 5320.03 that 
originates from a natural person; (ii) is submitted to EDGX by a 
Member, provided that no change is made to the terms of the order; 
and (iii) the order does not originate from a trading algorithm or 
any other computerized methodology. See Exchange Rule 11.24(a)(2).
    \6\ The Exchanges proprietary data feeds are set forth under 
Exchange Rule 11.22.
    \7\ See Footnote 4 of the EDGX fee schedule available at https://www.directedge.com/Trading/EDGXFeeSchedule.aspx. See also 
Securities Exchange Act Release No. 72292 (June 2, 2014), 79 FR 
32798 (June 6, 2014) (SR-EDGX-2014-13) (Order Approving Proposed 
Rule Change to Amend Footnote 4 of the Exchange's Fee Schedule to 
Permit Members to Designate their Retail Orders to be Identified as 
Retail on the EDGX Book Feed).
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    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.

[[Page 59542]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Earlier this year, the Exchange and its affiliate BATS Exchange, 
Inc. (``BZX'') received approval to effect a merger (the ``Merger'') of 
the Exchange's parent company, BATS Global Markets, Inc., with Direct 
Edge Holdings LLC, the indirect parent of EDGX and EDGA Exchange, Inc. 
(``EDGA'', and together with BZX, BYX and EDGX, the ``BGM Affiliated 
Exchanges'').\8\ In the context of the Merger, the BGM Affiliated 
Exchanges are working to align certain system functionality, retaining 
only intended differences between the BGM Affiliated Exchanges. Thus, 
the proposal set forth below is intended to add certain system 
functionality currently offered by EDGX in order to provide a 
consistent technology offering for users of the BGM Affiliated 
Exchanges.\9\
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    \8\ See Securities Exchange Act Release No. 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
    \9\ The Exchange anticipates that EDGA and BZX will submit 
proposed rule changes in the future to add a definition for ``Retail 
Order'' and to permit members to designate that their Retail Orders 
be identified as Retail on their respective proprietary data feeds.
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    Similar to EDGX,\10\ the Exchange established the RPI Program in an 
attempt to attract retail order flow to the Exchange.\11\ Under the RPI 
Program, all Exchange Users \12\ are permitted to submit Retail Price 
Improvement Orders (``RPI Orders'') \13\ which are designed to provide 
potential price improvement for Retail Orders in the form of non-
displayed interest that is better than the national best bid that is a 
Protected Quotation (``Protected NBB'') or the national best offer that 
is a Protected Quotation (``Protected NBO'', and together with the 
Protected NBB, the ``Protected NBBO'').\14\ Exchange Rule 11.24 defines 
a Retail Order \15\ and provides an attestation requirement \16\ that 
Users must complete to send Retail Orders to the Exchange.\17\
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    \10\ Under the EDGX program, eligible EDGX members may qualify 
for a rebate under the Retail Order Tier included in Footnote 4 of 
the Exchange's fee schedule. Footnote 4 of the EDGX fee schedule 
defines a Retail Order and provides an attestation requirement that 
Users must complete to send Retail Orders to the Exchange. See 
Footnote 4 of the Exchange's Fee Schedule available at http://www.directedge.com/Trading/EDGXFeeSchedule.aspx; Securities Exchange 
Act Release No. 68310 (November 28, 2012), 77 FR 71860 (December 4, 
2012) (SR-EDGX-2012-47) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change to Amend EDGX Rule 15.1(a) and 
(c)); Securities Exchange Act Release No. 69378 (April 15, 2013), 78 
FR 23617 (April 19, 2013) (SR-EDGX-2013-13) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Amend Footnote 4 
of the Exchange's Fee Schedule Regarding Retail Orders); supra note 
7.
    \11\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012) (``RPI Approval Order'') (SR-
BYX-2012-019). See also Securities Exchange Act Release Nos. 71249 
(January 7, 2014), 79 FR 2229 (January 13, 2014) (SR-BYX-2014-001) 
(Notice of Filing and Immediate Effectiveness [sic] to Extend the 
Pilot Period for the Retail Price Improvement Program); and 72730 
(July 31, 2014) (SR-BYX-2014-013) (Notice of Filing and Immediate 
Effectiveness [sic] to Amend Rule 11.24(a)(2) to Include Riskless 
Principal Orders to the Types of Orders that May Qualify as Retail 
Orders under the Retail Price Improvement Program).
    \12\ A ``User'' is defined ``as any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.'' BYX Rule 1.5(cc).
    \13\ A ``Retail Price Improvement Order'' is defined in Rule 
11.24(a)(3) as an order that consists of non-displayed interest on 
the Exchange that is priced better than the Protected NBB or 
Protected NBO by at least $0.001 and that is identified as such. See 
Rule 11.24(a)(3).
    \14\ The term Protected Quotation is defined in BYX Rule 1.5(t) 
and has the same meaning as is set forth in Regulation NMS Rule 
600(b)(58). The terms Protected NBB and Protected NBO are defined in 
BYX Rule 1.5(s). The Protected NBB is the best-priced protected bid 
and the Protected NBO is the best-priced protected offer. Generally, 
the Protected NBB and Protected NBO and the national best bid 
(``NBB'') and national best offer (``NBO'', together with the NBB, 
the ``NBBO'') will be the same. However, a market center is not 
required to route to the NBB or NBO if that market center is subject 
to an exception under Regulation NMS Rule 611(b)(1) or if such NBB 
or NBO is otherwise not available for an automatic execution. In 
such case, the Protected NBB or Protected NBO would be the best-
priced protected bid or offer to which a market center must route 
interest pursuant to Regulation NMS Rule 611.
    \15\ See supra note 5.
    \16\ Users must submit a signed written attestation, in a form 
prescribed by the Exchange, that they have implemented policies and 
procedures that are reasonably designed to ensure that substantially 
all orders designated by the Member as a ``Retail Order'' comply 
with the above requirements. See Exchange Rule 11.24(b).
    \17\ The attestation requirements and definition of Retail Order 
under Exchange Rule 11.24 are substantially similar to Footnote 4 of 
the EDGX fee schedule. See Footnote 4 of the Exchange's Fee Schedule 
available at http://www.directedge.com/Trading/EDGXFeeSchedule.aspx.
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    Currently, Users may elect that their display-eligible orders 
entered into the Exchange utilize Attributable Orders \18\ to include 
their market participant identifier (``MPID'') with their published 
quotations on the Exchange's proprietary data feeds. Under the EDGX 
program, eligible members may designate that their Retail Orders be 
identified as Retail on the EDGX book feed.\19\ To align functionality 
with EDGX, the Exchange now proposes to add paragraph (i) to Rule 11.24 
to permit Users to designate that their Retail Orders submitted under 
the Exchange's RPI Program be identified as Retail on the Exchange's 
proprietary data feeds, rather than by their MPID.\20\ Users will still 
be permitted to designate their Retail Orders by their MPID if they do 
not choose this optional functionality. The Exchange proposes to allow 
Users to designate their orders as Retail on an order-by-order basis or 
by establishing a port setting such that all orders submitted through a 
specific order entry port are designated as Retail.
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    \18\ An Attributable Order is defined as, ``[a]n order that is 
designated for display (price and size) including the User's market 
participant identifier (`MPID').'' See Rule 11.9(c)(14).
    \19\ See supra note 7.
    \20\ A Member's decision on whether to identify their Retail 
Order as Retail under the proposed rule change will not impact that 
Member's eligibility to qualify as a Retail Member Organization 
under Rule 11.24.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\21\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\22\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal will benefit market 
participants and help to promote transparency by providing additional 
information regarding quotations displayed on the Exchange and 
disseminated via the Exchange's proprietary data feeds. Specifically, 
any Member who satisfies the requirement under Rule 11.24(b) that 
wishes to disclose via the Exchange's proprietary data feeds that their 
order is a Retail Order will be permitted to do so, and such 
functionality is substantially similar to that currently offered by 
EDGX.\23\ The proposal also promotes transparency by disseminating 
additional order information from Users who may otherwise designate 
their order as non-attributable, and thereby not include their MPID 
with their published quote on the Exchange's proprietary data 
feeds.\24\ As a result, the proposal will provide Users additional 
visibility into the types of orders they may interact with when an 
order is

[[Page 59543]]

identified as a Retail Order. The Exchange also believes that the 
proposed rule change is reasonable, equitable and not unfairly 
discriminatory because it would encourage Users who wish to execute 
against Retail Orders to send additional orders to the Exchange. 
Therefore, the Exchange believes the increased liquidity would 
potentially stimulate further price competition for Retail Orders, 
deepening the Exchange's liquidity pool, supporting the quality of 
price discovery, and promoting market transparency.
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    \23\ See supra note 7.
    \24\ The Exchange understands that, to date, EDGX has not 
experienced members who attribute orders by their MPID electing to 
instead attribute their Retail Orders as Retail on the EDGX book 
feed. On the contrary, the Exchange understands that EDGX members 
who previously did not attribute their order have chosen to do so as 
Retail under the EDGX program. Therefore, the Exchange does not 
anticipate its Members who currently utilize Attributable Orders to 
now elect that their Retail Orders be attributed as Retail.
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    The Exchange believes that allowing a User to designate orders as 
Retail on either an order-by-order or on a port-by-port basis is 
consistent with the Act for the same reasons as the proposal as a whole 
is consistent with the Act. The Exchange believes that either method of 
designation results in the same message being received and processed by 
the Exchange's systems, and thus, merely reflects a detail in 
connection with the implementation of the optional designation.
    The proposed rule change is also generally intended to add certain 
system functionality currently offered by EDGX in order to provide a 
consistent technology offering for the Exchange and EDGX. A consistent 
technology offering, in turn, will simplify the technology 
implementation, changes and maintenance by Users of the Exchange that 
are also participants on EDGX. The proposed rule change would also 
provide Users with access to functionality that may result in the 
efficient execution of such orders and will provide additional 
flexibility as well as increased functionality to the Exchange's System 
and its Users.

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

    The Exchange believes its proposed amendments would not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed amendment will not burden intramarket competition because the 
ability to designate Retail Orders to be identified as Retail on the 
Exchange's proprietary data feeds, rather than by their MPID, would be 
open to all Users that wish to send Retail Orders to the Exchange. The 
Exchange believes the proposed rule change would increase intermarket 
competition by identifying orders as Retail via the Exchange's 
proprietary data feeds would enable the Exchange to better compete with 
other exchanges that offer similar retail order programs.\25\ The 
Exchange believes that the amendment, by increasing the amount of 
disseminated information regarding Retail Orders, will increase the 
level of competition around retail executions resulting in better 
prices for retail investors.
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    \25\ See New York Stock Exchange, Inc.'s (``NYSE'') Rule 
107C(j). See also NYSE MKT LLC (``NYSE MKT'') Rule 107C(j); NYSE 
Arca, Inc. (``NYSE Arca'') Rule 7.44(j).
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    The Exchange reiterates that the proposed rule change is being 
proposed in the context of the technology integration of the BGM 
Affiliated Exchanges. Thus, the Exchange believes this proposed rule 
change is necessary to permit fair competition among national 
securities exchanges. In addition, the Exchange believes the proposed 
rule change will benefit Exchange participants in that it is one of 
several changes necessary to achieve offering consistent functionality 
by the BGM Affiliated 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \26\ and Rule 19b-4(f)(6) thereunder.\27\ 
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 prior to 
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 and Rule 19b-
4(f)(6)(iii) thereunder.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \27\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\29\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Exchange believes 
that waiver will provide market participants with additional 
transparency by disseminating additional order information regarding 
the types of orders they may interact with when an order is identified 
as a Retail Order in a timelier manner. The Exchange further believes 
that waiver will immediately encourage market participants to send 
additional orders to the Exchange, thereby potentially stimulating 
further price competition for Retail Orders, deepening the Exchange's 
liquidity pool, supporting the quality of price discovery, and 
promoting market transparency. The Commission believes that waiver of 
the operative delay is consistent with investor protection and the 
public interest. As a result, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative upon filing.\30\
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    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6)(iii).
    \30\ 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. 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-BYX-2014-024 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.

[[Page 59544]]

All submissions should refer to File Number SR-BYX-2014-024. 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 Number SR-BYX-2014-024, and should be 
submitted on or before October 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23479 Filed 10-1-14; 8:45 am]
BILLING CODE 8011-01-P