Document ID: SEC-2010-0751-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-05-21T04:00Z

[Federal Register: May 21, 2010 (Volume 75, Number 98)]
[Notices]               
[Page 28670-28672]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21my10-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62102; File No. SR-BATS-2010-011]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BATS Rule 11.9, Entitled ``Orders and Modifiers''

May 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 May 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.
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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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make a modification to the existing 
technology that it provides to a User that wishes to avoid trading 
against orders from that same User (currently referred to as ``Member 
Match Trade Prevention'' or ``MMTP'').
    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 proposes to make a minor change to its Member Match 
Trade Prevention, or MMTP, functionality, described in BATS Rules 
11.9(f) and 21.1(g) and to rename the functionality as Match Trade 
Prevention (``MTP'').
    MMTP modifiers are designed to prevent two orders with the same 
Unique Identifier (as defined below) from executing against each other. 
The Exchange currently offers four MMTP modifiers that can be set at 
the market participant identifier (``MPID''), the Exchange Member 
identifier or the Exchange Sponsored Participant identifier level (any 
such identifier, a ``Unique Identifier'').\5\ BATS is proposing a 
change to the MMTP Decrement and Cancel identifier (``MDC''); none of 
the other MMTP identifiers are affected by this proposal, other than to 
change the references throughout the rule text to MTP.
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    \5\ Any Exchange Member that has an MPID issued by FINRA is 
identified in the Exchange's internal systems by that MPID. Each 
Exchange Member that does not already have an MPID and each 
Sponsored Participant is issued an identifier that is specific to 
the Exchange and allows the Exchange to determine the User for each 
order and trade.
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    Under the existing rules, an incoming order marked with the MDC 
modifier will not execute against opposite side resting interest marked 
with any MMTP modifier originating from the same Unique Identifier. If 
both orders are equivalent in size, both orders will be cancelled back 
to the originating User. If the orders are not equivalent in size, the 
equivalent size will be cancelled back to the originating User and the 
larger order will be decremented by the size of the smaller order, with 
the balance remaining on the BATS Book; provided, however, that if the 
resting order is marked with any MMTP modifier other than MDC, and the 
incoming order is smaller in size than the resting order, then both 
orders will be cancelled back to the originating User (the ``MDC 
Exception''). Thus, as shown in the example below, rather than 
decrementing either order, pursuant to the MDC Exception both orders 
are cancelled in their entirety when the resting order contains an MMTP 
modifier other than MDC and is larger than the incoming order.
    Current MDC Exception--Example: An order to buy 500 shares @ $22.00 
is

[[Page 28671]]

marked with any MMTP modifier other than MDC and becomes a resting 
order in the BATS Book. Subsequently, an order to sell 400 shares @ 
$22.00 is entered with the same Unique Identifier and marked with the 
MDC modifier.
    Current MDC Exception--Result: The resting buy order for 500 shares 
at $22.00 marked with a MMTP modifier other than MDC is cancelled back 
to the originating User. The incoming sell order for 400 shares @ 
$22.00 marked with the MDC modifier is cancelled back to the 
originating User.
    The Exchange proposes to allow Users to opt-out of the default 
behavior of the MDC Exception to allow an incoming MDC order to result 
in a decremented order even when it is smaller than the resting order 
and the resting order contains an MMTP modifier other than MDC.
    Proposed Opt-Out of MDC--Example: An order to buy 500 shares @ 
$22.00 is marked with any MMTP modifier and becomes a resting order in 
the BATS Book. Subsequently, an order to sell 400 shares @ $22.00 is 
entered with the same Unique Identifier and marked with the MDC 
modifier.
    Proposed Opt-Out of MDC--Result: 400 of the 500 shares on the 
resting buy order at $22.00 marked with any MMTP modifier are cancelled 
back to the originating User. The outstanding 100 shares remain on the 
BATS Book. The incoming sell order for 400 shares @ $22.00 marked with 
the MDC modifier is cancelled back to the originating User.
    Although the Exchange intentionally created the MDC Exception based 
on conversations with its Users regarding the best way to implement the 
MDC modifier, other Users have requested that the Exchange allow them 
to have the incoming order control the result in all situations, and 
thus, have requested to be able to opt-out of the MDC Exception. The 
Exchange notes that NYSE Arca Equities (``NYSE Arca'') has implemented 
its version of match trade prevention without the MDC Exception, and 
thus, allowing Users to opt-out of the exception is consistent with 
NYSE Arca's STP Decrement and Cancel option.\6\ The Exchange will allow 
a User to opt-out of the MDC Exception by changing the settings of its 
order entry ports. The Exchange may also permit Users to opt-out of the 
MDC Exception on an order-by-order basis through use of a specific tag 
attached to each order.
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    \6\ See NYSE Arca Rule 7.31(qq)(3).
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Additional Discussion

    In addition to the modification to the MDC modifier described 
above, the Exchange proposes to change the references throughout its 
rules from ``Member Match Trade Prevention'' to ``Match Trade 
Prevention'' and from ``MMTP'' to ``MTP''.
    The Exchange believes that its Match Trade Prevention functionality 
allows certain firms to better internalize their agency order flow, 
which in turn may decrease costs to customers of such firms. The 
Exchange notes that MTP modifiers do not alleviate, or otherwise 
exempt, broker-dealers from their best execution obligations. As such, 
broker-dealers using MTP modifiers are obligated to internally cross 
agency orders at the same price, or a better price than they would have 
received had the orders been executed on the Exchange. Additionally, 
MTP modifiers assist market participants in complying with certain 
rules and regulations of the Employee Retirement Income Security Act 
(``ERISA'') that preclude and/or limit managing broker-dealers of such 
accounts from trading as principal with orders generated for those 
accounts. Finally, the Exchange notes that offering the MTP modifiers 
may streamline certain regulatory functions by reducing false positive 
results that may occur on Exchange generated wash trading surveillance 
reports when orders are executed under the same Unique Identifier. For 
these reasons, the Exchange believes the MTP modifiers offer users 
enhanced order processing functionality that may prevent potentially 
undesirable executions without negatively impacting broker-dealer best 
execution obligations.
2. Statutory Basis
    The rule change proposed in this submission 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.\7\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\8\ 
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, Match Trade Prevention functionality allows firms to 
better manage order flow and prevent undesirable executions against 
themselves, and the proposed change described herein enhances the 
choices available to such firms in how they do so.
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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.

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 rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) become operative for 30 
days after the date of this filing, or such shorter time as the 
Commission may designate, it 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).
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    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.\11\ 
However, Rule 19b-4(f)(6)(iii)\12\ 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 so that the Exchange may 
immediately offer Exchange Users another choice with respect to MTP 
modifiers. The Commission notes that the proposal is consistent with 
the rules of another national securities exchange.\13\ Based on the 
foregoing, 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.\14\
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    \11\ 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.
    \12\ Id.
    \13\ See supra note 6.
    \14\ 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).

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[[Page 28672]]

    At any time within 60 days of the filing of such proposed rule 
change the Commission may summarily abrogate 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-2010-011 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-2010-011. 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,\15\ 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-2010-011 and 
should be submitted on or before June 11, 2010.
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    \15\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12226 Filed 5-20-10; 8:45 am]
BILLING CODE 8011-01-P