Document ID: SEC-2010-0292-0001
Agency: sec
Document Type: Notice
Title: Application for Exemption from Rule Filing Requirements: BATS Exchange, Inc.
Posted Date: 2010-02-25T05:00Z

[Federal Register: February 25, 2010 (Volume 75, Number 37)]
[Notices]               
[Page 8760-8761]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25fe10-134]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61534]

 
Order Granting Application for Exemption Pursuant to Section 
36(a) of the Exchange Act by BATS Exchange, Inc. From the Rule Filing 
Requirements of Section 19(b) of the Exchange Act With Respect to 
Certain Rules Incorporated by Reference

February 18, 2010.
    BATS Exchange, Inc. (``BATS Exchange'') has filed with the 
Securities and Exchange Commission (``Commission'') an application for 
an exemption under Section 36(a)(1) of the Securities Exchange Act of 
1934 (``Exchange Act'') \1\ from the rule filing requirements of 
Section 19(b) of the Exchange Act \2\ with respect to certain rules of 
another self-regulatory organization (``SRO'') that BATS Exchange seeks 
to incorporate by reference. Section 36 of the Exchange Act authorizes 
the Commission to conditionally or unconditionally exempt any person, 
security, or transaction, or any class thereof, from any provision of 
the Exchange Act or

[[Page 8761]]

rule thereunder, if necessary or appropriate in the public interest and 
consistent with the protection of investors.
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    \1\ 15 U.S.C. 78mm(a)(1).
    \2\ 15 U.S.C. 78s(b).
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    On January 26, 2010, the Commission approved new rules governing 
the trading of options on the BATS Exchange Options Market (``Options 
Rules'').\3\ Certain of the Options Rules incorporate by reference 
existing rules of the Chicago Board Options Exchange, Incorporated 
(``CBOE''), Financial Industry Regulatory Authority, Inc. (``FINRA''), 
formerly known as the National Association of Securities Dealers, Inc. 
(``NASD''),\4\ and NYSE. Thus, for certain Options Rules, BATS Exchange 
members will comply with a BATS Exchange rule by complying with the 
CBOE, FINRA, or NYSE rule referenced therein.
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    \3\ See Securities Exchange Act Release No. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031).
    \4\ Although NASD is now known as FINRA, some rules in the FINRA 
rule book are still referred to as ``NASD rules.'' FINRA is in the 
process of consolidating the member rules of the New York Stock 
Exchange, LLC (``NYSE'') and NASD rules into a single rule book. For 
purposes of the FINRA rule book, harmonized rules are referred to as 
FINRA rules, while rules that originally were NASD rules, but have 
yet to be harmonized, are referred to as NASD rules.
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    BATS Exchange has requested, pursuant to Rule 0-12 under the 
Exchange Act,\5\ that the Commission grant it an exemption from the 
rule filing requirements of Section 19(b) of the Exchange Act for 
changes to the Options Rules that are effected solely by virtue of a 
change to a cross-referenced CBOE, FINRA, or NYSE rule. Specifically, 
BATS Exchange requests that it be permitted to incorporate by reference 
changes made to each CBOE, FINRA, or NYSE rule (or series of rules) 
that is cross-referenced in BATS Exchange Rules 2.12, 18.7, 18.9, 
26.16, 28.3, 29.5, and 29.7 without the need for BATS Exchange to file 
separately the same proposed rule changes pursuant to Section 19(b) of 
the Exchange Act.\6\ BATS Exchange proposes to incorporate by reference 
(1) CBOE rules governing position and exercise limits for equity and 
index options; (2) the margin rules of CBOE and the NYSE; (3) FINRA's 
rules governing communications with the public; and (4) FINRA's rule 
governing fidelity bonds, for members for which BATS Exchange is the 
Designated Examining Authority. BATS Exchange represents that the rules 
it has incorporated by reference into the Options Rules are categories 
of CBOE, FINRA, or NYSE rules (rather than individual rules within a 
category) that are not trading rules. The Exchange has agreed to 
provide written notice to its members whenever CBOE, FINRA, or NYSE 
proposes a change to a cross-referenced CBOE, FINRA, or NYSE rule.\7\
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    \5\ 17 CFR 240.0-12.
    \6\ See Letter from Eric Swanson, SVP, General Counsel, BATS 
Exchange, to Elizabeth M. Murphy, Secretary, Commission, dated 
January 20, 2010 (``BATS Exemptive Request'').
    \7\ Id. BATS Exchange states that it will provide this notice on 
its Web site where it posts its own proposed rule change filings 
within the same time frame required of its own filings pursuant to 
Rule 19b-4(l), 17 CFR 240.19b-4(l). Id. at note 8. In addition, BATS 
Exchange states that the posting will include a link to the location 
on CBOE, FINRA, or NYSE's Web site where the proposed rule change is 
posted. Id.
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    The Commission has issued exemptions to other exchanges similar to 
BATS Exchange's request.\8\ The Commission stated in 2004, when 
granting one such exemption, that it would consider similar future 
exemption requests from other SROs, provided that:
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    \8\ For example, NYSE Amex LLC (formerly NYSE Alternext U.S., 
LLC), the International Securities Exchange, LLC (``ISE''), the 
Municipal Securities Rulemaking Board, and NASDAQ OMX PHLX, Inc. 
(formerly the Philadelphia Stock Exchange, Inc.) incorporate the 
FINRA Code of Arbitration Procedure, while the ISE, NYSE Arca, Inc., 
and the Boston Options Exchange, a facility of NASDAQ OMX BX, Inc. 
(formerly Boston Stock Exchange, Inc.), incorporate by reference the 
margin rules of NYSE and CBOE. See Securities Exchange Act Release 
No. 49260 (February 17, 2004), 69 FR 8500 (February 24, 2004). See 
also Securities Exchange Act Release Nos. 57478 (March 12, 2008), 73 
FR 14521, 14539-40 (March 18, 2008) (order approving SR-NASDAQ-2007-
004 and SR-NASDAQ-2007-080) and 53128 (January 13, 2006), 71 FR 
3550, 3565-66 (January 23, 2006) (File No. 10-131) (approving The 
NASDAQ Stock Market LLC's exchange application).
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     An SRO wishing to incorporate rules of another SRO by 
reference has submitted a written request for an order exempting it 
from the requirement in Section 19(b) of the Exchange Act to file 
proposed rule changes relating to the rules incorporated by reference, 
has identified the applicable originating SRO(s), together with the 
rules it wants to incorporate by reference, and otherwise has complied 
with the procedural requirements set forth in the Commission's release 
governing procedures for requesting exemptive orders pursuant to Rule 
0-12 under the Exchange Act; \9\
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    \9\ See 17 CFR 240.0-12 and Securities Exchange Act Release No. 
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission 
Procedures for Filing Applications for Orders for Exemptive Relief 
Pursuant to Section 36 of the Exchange Act; Final Rule).
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     An incorporating SRO has requested incorporation of 
categories of rules (rather than individual rules within a category) 
that are not trading rules (e.g., the SRO has requested incorporation 
of rules such as margin, suitability, or arbitration); and
     The incorporating SRO has reasonable procedures in place 
to provide written notice to its members each time a change is proposed 
to the incorporated rules of another SRO.\10\
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    \10\ See Securities Exchange Act Release No. 49260, supra note 
8.

The Commission believes that BATS Exchange has satisfied each of these 
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conditions.

The Commission also believes that granting BATS Exchange an exemption 
from the rule filing requirements under Section 19(b) of the Exchange 
Act will promote efficient use of Commission and BATS Exchange 
resources by avoiding duplicative rule filings based on simultaneous 
changes to identical rule text sought by more than one SRO.\11\ The 
Commission therefore finds that it is necessary and appropriate in the 
public interest and consistent with the protection of investors to 
exempt BATS Exchange from the rule filing requirements under Section 
19(b) of the Exchange Act with respect to the rules it has incorporated 
by reference. This exemption is conditioned upon BATS Exchange 
providing written notice to its members whenever CBOE, FINRA, or NYSE 
proposes to change a rule that BATS Exchange has incorporated by 
reference.
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    \11\ See id., 69 FR at 8502.
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    Accordingly, it is ordered, pursuant to Section 36 of the Exchange 
Act,\12\ that BATS Exchange is exempt from the rule filing requirements 
of Section 19(b) of the Exchange Act solely with respect to changes to 
the rules identified in its request that incorporate by reference 
certain rules of CBOE, FINRA, and NYSE,\13\ provided that BATS Exchange 
provides written notice to its members whenever CBOE, FINRA, or NYSE 
proposes to change a rule that BATS Exchange has incorporated by 
reference.
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    \12\ 15 U.S.C. 78mm.
    \13\ See BATS Exemptive Request, supra note 6.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(76).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3772 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P