Document ID: SEC-2010-1425-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2010-09-17T04:00Z

[Federal Register: September 17, 2010 (Volume 75, Number 180)]
[Notices]               
[Page 57097-57098]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se10-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62901; File No. SR-BATS-2010-024]

 
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
BATS Rule 2.12, Entitled ``BATS Trading, Inc. as Inbound Router'' and 
To Make Related Changes

September 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 September 9, 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)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new BATS Rule 2.12, entitled ``BATS 
Trading, Inc. as Inbound Router'' and to make other related changes.
    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
    On August 13, 2010, the Commission approved the application of BATS 
Y-Exchange, Inc. (``BYX''), an affiliate of the Exchange, to register 
as a national securities exchange.\5\ Included in the approved rules of 
BYX is BYX Rule 2.12, which governs the routing of orders by BYX's (and 
the Exchange's) affiliated broker-dealer, BATS Trading, Inc. (``BATS 
Trading'') to BYX as inbound router in its capacity as a routing 
facility of the Exchange. The Exchange is proposing to adopt the same 
inbound routing rule, also numbered Rule 2.12, which will govern BATS 
Trading's status as an inbound router that sends orders to the Exchange 
in its capacity as a routing facility of BYX. Pursuant to proposed Rule 
2.12, BATS Trading's inbound routing services from BYX to the Exchange 
would be subject to the following conditions and limitations:
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    \5\ See Securities Exchange Act Release No. 34-62716 (August 13, 
2010), 75 FR 51295 (August 19, 2010) (order approving application of 
BATS Y-Exchange, Inc. for registration as a national securities 
exchange).
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    (1) The Exchange must enter into (1) a plan pursuant to Rule 17d-2 
under the Act with a non-affiliated self-regulatory organization 
(``SRO'') to relieve the Exchange of regulatory responsibilities for 
BATS Trading with respect to rules that are common rules between the 
Exchange and the non-affiliated SRO, and (2) a regulatory services 
contract (``Regulatory Contract'') with a non-affiliated SRO to perform 
regulatory responsibilities for BATS Trading for unique Exchange rules.
    (2) The Regulatory Contract must require the Exchange to provide 
the non-affiliated SRO with information, in an easily accessible 
manner, regarding all exception reports, alerts, complaints, trading 
errors, cancellations, investigations, and enforcement matters 
(collectively ``Exceptions'') in which BATS Trading is identified as a 
participant that has potentially violated Exchange or Commission Rules, 
and requires that FINRA provide a report, at least quarterly, to the 
Exchange quantifying all Exceptions in which BATS Trading is identified 
as a participant that has potentially violated Exchange or Commission 
rules.
    (3) The Exchange, on behalf of its parent company, BATS Global 
Markets, Inc., must establish and maintain procedures and internal 
controls reasonably designed to ensure that BATS Trading does not 
develop or implement changes to its system based on non-public 
information obtained as a result of its affiliation with the Exchange, 
until such information is available generally to similarly situated 
members of the Exchange.
    The Exchange has proposed adoption of new Rule 2.12 on a pilot 
basis. The Exchange requests that this pilot period run concurrently 
with the twelve month period for BYX's receipt of inbound routes from 
the Exchange, which is set to expire one year after the commencement of 
operations by BYX. BYX currently plans to commence operations on 
October 15, 2010.
    In addition to the adoption of an inbound routing rule, the 
Exchange proposes minor modifications to its existing rule applicable 
to BATS Trading's status as an outbound router. Specifically, Rule 2.11 
currently states that BATS Trading will not engage in any business 
other than its outbound router function and any other activities it may 
engage in as approved by the Commission. The Exchange proposes to add 
acting as inbound router to the list of activities in which BATS 
Trading will engage.

[[Page 57098]]

    Finally, due to the adoption of Rule 2.12, the Exchange proposes to 
re-number existing Rule 2.12 as 2.13.
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.\6\ In particular, the 
proposed change 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, by implementing a rule to allow BATS Trading, Inc. 
to route orders to the Exchange in its capacity as an order routing 
facility of BYX.
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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 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 \8\ and Rule 19b-
4(f)(6)(iii) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    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-2010-024 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-2010-024. 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-2010-024 and should be 
submitted on or before October 8, 2010.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23299 Filed 9-16-10; 8:45 am]
BILLING CODE 8010-01-P