Document ID: SEC-2013-1730-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2013-10-03T04:00Z

[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Notices]
[Pages 61422-61424]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24165]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70548; File No. SR-BATS-2013-052]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
the Trading Halt Rule of BATS Options

September 27, 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 September 20, 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.
---------------------------------------------------------------------------

    \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 filed a proposal to amend Rule 20.3, entitled 
``Trading Halts,'' to authorize the Exchange to nullify a transaction 
that occurs after a halt has been issued.
    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 purpose of this filing is to amend Rule 20.3, which is 
applicable to the Exchange's equity options platform (``BATS 
Options''), to authorize the Exchange to nullify transactions that 
occur during a trading halt. Specifically, the Exchange proposes to 
adopt Interpretation and Policy .01, which will state that the Exchange 
may nullify any transaction that occurs: (a) During a trading halt in 
the affected option on the Exchange; or (b) with respect to equity 
options (including options overlying exchange traded funds (``ETFs'')), 
during a trading halt on the primary listing market for the underlying 
security. The Exchange believes the proposed rule change will allow the 
Exchange to avoid any unnecessary harm from allowing erroneous trades 
to stand if such trades occur after a trading halt has been issued, as 
explained below.
    With respect to a trading halt in the affected option on the 
Exchange, if any trades occur notwithstanding such halt then the 
Exchange believes it appropriate to nullify such transactions. While 
the Exchange may halt options trading for various reasons, such a 
scenario almost certainly is due to extraordinary circumstances and is 
potentially the result of market-wide coordination to halt options 
trading or trading generally. Accordingly, the Exchange does not 
believe it is appropriate to allow trades to stand if such trades 
should not have occurred in the first place. Similarly, the Exchange 
believes that trades occurring during a trading halt on the primary 
listing market for a security that underlies an equity option should be 
nullified. Executions in options overlying a halted security do not 
have proper reference prices and could diverge significantly from the 
price at which such options will trade when the underlying security is 
re-opened. Thus, nullification of such trades will protect investors 
from potential harm. Further, the halt in the underlying security is 
often issued to prevent harm to investors and the Exchange believes 
that this same protection should be afforded to investors in the 
overlying option. The Exchange notes that primary listing markets for 
equity securities have various authority to halt trading in their 
listed securities, including for regulatory reasons or based upon 
certain notifications provided by an issuer. The Exchange also notes 
that the proposed

[[Page 61423]]

rule change will align the Exchange's rules regarding nullification of 
trades during a trading halt with the rules of certain other options 
exchanges.\5\
---------------------------------------------------------------------------

    \5\ See MIAX Rule 521(c)(4); see also NASDAQ OMX PHLX Rule 
1092(c)(iv); NYSE Arca Options Rule 6.65, Commentary .04; NYSE MKT 
Rule 953NY, Commentary .04.
---------------------------------------------------------------------------

 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. The Exchange believes the proposed rule 
change fulfills these requirements because it will allow the Exchange 
to avoid harm to investors resulting from trades that execute during a 
trading halt. Specifically, the proposal will protect market 
participants from transactions occurring either during extraordinary 
circumstances with respect to options trading or at a time when there 
is no adequate source of information regarding the value of the 
underlying security. Nullifying transactions as proposed in connection 
with the proposed rule will help to protect investors from harm caused 
by trading losses during times of uncertainty or during systemic market 
events. Furthermore, the proposed change is based on the approved rules 
of certain other options exchanges.\8\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See supra note 5.
---------------------------------------------------------------------------

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

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \9\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As previously noted, the proposed rule change will 
align the Exchange's rules regarding the nullification of trades that 
occur during a trading halt with the rules of certain other 
exchanges.\10\ Therefore, the Exchange does not believe the proposed 
change will impose any burden on competition.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(8).
    \10\ See supra note 5.
---------------------------------------------------------------------------

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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 asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to apply the proposed change to the Exchange's trading 
halt rule immediately, which will in turn protect market participants 
from transactions occurring either during extraordinary circumstances 
with respect to options trading or at a time when there is no adequate 
source of information regarding the value of the underlying security. 
The Exchange also stated that nullifying transactions as proposed in 
connection with the proposed rule will help to protect investors from 
harm caused by trading losses during times of uncertainty or during 
systemic market events. For these reasons, the Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission designates 
the proposed rule change to be operative upon filing.\13\
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 proposal 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-BATS-2013-052 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 Number SR-BATS-2013-052. 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 the 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-BATS-2013-052 and should be 
submitted on or before October 24, 2013.

[[Page 61424]]

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

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24165 Filed 10-2-13; 8:45 am]
BILLING CODE 8011-01-P