Document ID: SEC-2011-1662-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2011-10-31T04:00Z

[Federal Register Volume 76, Number 210 (Monday, October 31, 2011)]
[Notices]
[Pages 67238-67239]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28047]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65619, File No. SR-BATS-2011-032]

Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Approving Proposed Rule Change by BATS Exchange, Inc. To Adopt Rules 
Applicable to Auctions Conducted by the Exchange for Exchange-Listed 
Securities

October 25, 2011.

I. Introduction

    On August 22, 2011, BATS Exchange, Inc. (``BATS'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt rules governing auctions conducted on the Exchange for securities 
listed on BATS (``Exchange Auctions''). The proposed rule change was 
published for comment in the Federal Register on September 12, 2011.\3\ 
The Commission received no comment letters regarding the proposal. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65266 (September 6, 
2011), 76 FR 56249 (September 12, 2011) (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to adopt rules to govern Exchange Auctions. 
Specifically, the Exchange proposes to conduct: (1) An opening auction 
(``Opening Auction'') and determine an official opening price for 
dissemination to the consolidated tape; (2) a closing auction 
(``Closing Auction'') and determine an official closing price for 
dissemination to the consolidated tape; (3) an auction in the event of 
an initial public offering (``IPO Auction''); and (4) an auction in the 
event of a halt of trading in a security (``Halt Auction''). The 
Opening Auction, IPO Auction, Halt Auction, and Closing Auction 
operated by BATS will be a single-price Dutch auction to match buy and 
sell orders at the price at which the most shares would execute. In 
addition, the Exchange seeks to establish order types to participate in 
the Opening and Closing Auction and to offer a new data feed to 
Exchange data recipients \4\ in connection with Exchange Auctions, 
(``BATS Auction Feed'').\5\
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    \4\ The Exchange represents that Exchange data recipients 
include Members of the Exchange as well as non-Members that have 
entered into an agreement with the Exchange that permits them to 
receive Exchange data. See Notice supra note 3, at 76 FR 56250 n. 4.
    \5\ See Notice supra note 3, at 76 FR 56249 n.4.
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A. BATS Auction Feed

    The Exchange represents that the BATS Auction Feed would provide 
data recipients with uncompressed real-time data regarding the current 
status of price and size information related to Exchange Auctions.\6\ 
In addition, the Exchange represents that the BATS Auction Feed would 
be made available to all data recipients equally and without charge via 
subscription through an established connection to the Exchange through 
extranets, direct connection, and Internet-based virtual private 
networks.\7\
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    \6\ See id.
    \7\ See id.
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B. Order Types To Participate in Auctions

    The Exchange proposes to offer the following order types in 
connection with Opening Auctions: ``Market-On-Open'' or ``MOO'' order, 
``Limit-On-Open'' or ``LOO'' order, and a ``Late-Limit-On-Open'' or 
``LLOO'' order. The Exchange proposes to offer the following order 
types in connection with Closing Auctions: ``Market-On-Close'' or 
``MOC'' order, ``Limit-On-Close'' or ``LOC'' order, and a ``Late-Limit-
On-Close'' or ``LLOC.'' In addition, the Exchange seeks to offer a 
``Regular Hours Only'' or ``RHO'' order, which would be a BATS order 
that is designated for execution only during Regular Trading Hours,\8\ 
which includes the Opening Auction, the Closing Auction, and IPO/Halt 
Auctions.
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    \8\ BATS Rule 1.5(w) defines ``Regular Trading Hours'' is the 
time between 9:30 a.m. and 4 p.m. Eastern Time.
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C. Opening Auction

    The Exchange will conduct an Opening Auction for all BATS listed 
securities. The Exchange will permit Users \9\ to submit orders to the 
Exchange starting at 8 a.m., the beginning of the Pre-Opening 
Session.\10\ Any Eligible Auction Orders \11\ designated for the 
Opening Auction would be queued until 9:30 a.m. at which time they 
would be eligible to be executed in the Opening Auction. BATS proposes 
to disseminate and update the BATS Auction Feed associated with the 
Opening Auction at 9:28 a.m. and every five seconds thereafter via 
electronic means.
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    \9\ BATS Rule 1.5(c) defines ``User'' as any member or sponsored 
participant of the Exchange who is authorized to obtain access to 
the System.
    \10\ BATS Rule 1.5(r) defines the ``Pre-Opening Session'' as the 
time between 8 a.m. and 9:30 a.m. Eastern Time.
    \11\ Proposed BATS Rule 11.23(a)(8) defines ``Eligible Auction 
Orders'' as any MOO, LOO, LLOO, MOC, LOC, or LLOC order that is 
entered in compliance with its respective cutoff for an Opening or 
Closing Auction, any RHO order prior to the Opening Auction, and any 
limit or market order not designated to exclusively participate in 
the Opening and Closing Auction entered during the Quote-Only Period 
of an IPO or Halt Auction.
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D. Closing Auction

    The Exchange will conduct a Closing Auction for all BATS listed 
securities. The Exchange would permit Users to submit orders to the 
Exchange starting at 8 a.m., the beginning of the Pre-Opening Session. 
Any Eligible Auction Orders designated for the Closing Auction would be 
queued until 4 p.m. at which time they would be eligible to be executed 
in the Closing Auction. BATS proposes to disseminate and update the 
BATS Auction Feed associated with the Closing Auction at 3:55 p.m. and 
every 5 seconds thereafter via electronic means.

E. IPO and Halt Auctions

    For trading in a BATS listed security in an IPO or following a 
trading halt in that security, the Exchange proposes to conduct an IPO 
or Halt Auction. The Quote-Only Period \12\ with respect to a

[[Page 67239]]

Halt Auction would commence five minutes prior to such Halt Auction and 
with respect to an IPO Auction would commence fifteen minutes plus a 
short random period prior to such IPO Auction. Any Eligible Auction 
Orders associated with an IPO or Halt Auction would be queued until the 
end of the Quote-Only Period at which time they would be eligible to be 
executed in the associated auction. The Exchange proposes to require 
that all orders associated with IPO or Halt Auctions be received prior 
to the end of the Quote-Only Period in order to participate in the 
auction. The Exchange would permit Eligible Auction Orders associated 
with an IPO or Halt Auction to be cancelled at any time prior to 
execution. Coinciding with the beginning of the Quote-Only Period for a 
security, the Exchange further proposes to disseminate and update the 
BATS Auction Feed associated with the IPO or Halt Auction every five 
seconds thereafter via electronic means.
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    \12\ The Quote-Only Period is a period of time prior to an IPO 
or Halt Auction during which the Exchange will permit Users to 
submit orders but the Exchange will not execute any transactions in 
the applicable security (i.e., there are no Continuous Book 
executions occurring while orders are collected). See Notice supra 
note 3, at 76 FR 56252.
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III. Discussion

    After careful consideration of the proposed rule change, the 
Commission finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\13\ The Commission believes that the 
proposed rule change is consistent with Section 6(b) of the Act, in 
general, and Section 6(b)(5) of the Act,\14\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    BATS notes that the current proposal is integral to its listing 
rules,\15\ and would provide companies with an alternative venue to 
list and trade securities in an orderly fashion at the open and close 
of trading, as well as in the context of an IPO or halted trading in 
the security.\16\ The Exchange believes that operation of Exchange 
Auctions for securities listed on the Exchange will assist in the price 
discovery process and help to ensure a fair and orderly market for 
securities listed on the Exchange.\17\
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    \15\ The Commission notes that the Exchange separately proposed, 
and the Commission approved, rules for the qualification, listing, 
and delisting of companies on the Exchange. See Securities Exchange 
Act Release No. 34-65225 (August 30, 2011), 76 FR 55148 (September 
6, 2011) (SR-BATS-2011-018).
    \16\ See Notice, supra note 3, 76 FR at 56253.
    \17\ See id. at 56253.
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    The Commission notes that the Exchange has proposed to operate 
Exchange Auctions as a single price Dutch auction to match buy and sell 
orders at the price at which most shares would execute. The Exchange 
has designed Exchange Auctions to be conducted within specified periods 
of time and in accordance with specified order entry, cancellation, 
pricing, and execution priority parameters. The Exchange may adjust the 
timing of or suspend Exchange Auctions with prior notice to Members 
whenever, in the judgment of the Exchange, it would be required by the 
interests of a fair and orderly market.\18\ The Exchange also has 
designed the BATS Auction Feed to disseminate information regarding the 
current status of price and size information related to auctions being 
conducted. The Exchange has represented that the BATS Auction Feed will 
be available to data recipients equally and without charge.\19\
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    \18\ See Proposed BATS Rule 11.23(g).
    \19\ The Commission notes that should the Exchange determine to 
charge fees associated the BATS Auction Feed, the Exchange would 
submit a proposed rule change to the Commission in order to 
implement those fees.
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    The Commission believes that the proposal is designed to assist the 
price discovery process, should help minimize price volatility, and 
should promote a fair and orderly market for securities listed on the 
Exchange. The Commission believes that the BATS Auction Feed should 
enhance transparency and promote competition among orders by 
facilitating the public dissemination of current trading interest in a 
particular security during Exchange Auctions.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-BATS-2011-032) be, and 
hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28047 Filed 10-28-11; 8:45 am]
BILLING CODE 8011-01-P