Document ID: SEC-2009-0115-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2009-01-27T05:00Z

[Federal Register: January 27, 2009 (Volume 74, Number 16)]
[Notices]               
[Page 4788-4790]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ja09-69]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59258; File No. SR-BATS-2009-001]

 
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''

January 15, 2009.
    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 January 12, 2009, BATS Exchange, Inc. (``BATS'' or the 
``Exchange'') 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 is proposing to amend BATS Rule 11.9, entitled 
``Orders and Modifiers,'' to provide Exchange system functionality that 
will cancel any portion of a market order submitted to the Exchange (a 
``BATS market order'') that would execute at a price that is more than 
50 cents or 5 percent worse than the NBBO at the time the order 
initially reaches the Exchange (the ``Initial NBBO''), whichever is 
greater.
    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 the proposed rule change is to protect market 
participants

[[Page 4789]]

from executions at prices that are significantly worse than the NBBO at 
the time of order entry by providing Exchange system functionality that 
will cancel any portion of a BATS market order that would execute at a 
price that is 50 cents or 5 percentage points worse than the Initial 
NBBO, whichever is greater. Any portion of a BATS market order that 
would otherwise execute outside of these thresholds will be immediately 
cancelled back to the User.\5\ The Exchange believes that Users who 
submit market orders to the Exchange generally intend to receive 
executions for the full size of their orders at or near the Initial 
NBBO and are not always aware that there may not be enough liquidity at 
that price to fill the entire size of their orders. The Exchange 
believes that the market order thresholds proposed in this rule filing 
will help avoid executions of BATS market orders at prices that are 
significantly worse than the Initial NBBO, particularly in thinly-
traded securities. The following example demonstrates how the BATS 
market order thresholds would operate:
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    \5\ As defined in Exchange Rule 1.5(bb).
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     A User submits a routable BATS market order \6\ (i.e., not 
designated as a ``BATS Only'' order) to buy 1,000 shares of ABC;
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    \6\ If the order is not routable then it would be executed on 
the Exchange only if such executions would not trade through the 
protected quotations of other market centers. If the order is a 
routable order, then such order will be executed in accordance with 
BATS Rule 11.13(a), however, orders will not be routed away for 
execution at prices outside of the market order thresholds proposed 
in this rule filing, which applies both to market orders executed on 
the Exchange and to market orders that are to be routed away.
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     The Initial NBBO in security ABC is $8.00 (bid) by $8.05 
(offer), 100 shares each, both published by ``Market Center A'';
     The Exchange has 100 shares of liquidity at the $8.05 
offer price and also has resting orders on its book to sell 100 shares 
at $8.15, 100 shares at $8.20 and 1,000 shares at $8.60; and
     Other than the $8.05 offer published by Market Center A 
there are no offers to sell the security at or between $8.05 and $8.60 
at other market centers.

Under the circumstances described above, with the Initial NBBO of $8.00 
(bid) by $8.05 (offer), the BATS market order would be executed as 
follows:
     100 shares executed at the $8.05 price on the Exchange;
     900 shares routed to Market Center A as an immediate or 
cancel order with a price of $8.05;
     100 shares executed at Market Center A (presuming this 
offer was still available and there was no additional non-displayed 
liquidity at that price);
     800 shares returned to the Exchange;
     100 shares executed at the Exchange at the $8.15 price 
level;
     100 shares executed at the Exchange at the $8.20 price 
level.

Under this example, 400 shares of the BATS market order would be 
executed. The remaining 600 shares of the BATS market order would be 
cancelled back to the User because the liquidity on the Exchange at the 
$8.60 price level exceeds the BATS market order thresholds set forth in 
proposed Rule 11.9(a)(2), and such order is not eligible for routing 
outside of such thresholds. Such BATS market order could only be 
executed or routed by the Exchange up to and including a price of $8.55 
($0.50 worse than the Initial NBBO).
    For those Users who intend to trade against liquidity at multiple 
price points from the Initial NBBO beyond the BATS market order 
thresholds proposed in this rule filing, those Users can clearly and 
unambiguously specify that intent by submitting a marketable limit 
order to the Exchange. For example, using the scenario described above, 
if the User submitted a limit order to buy 1,000 shares of security ABC 
with a limit price of $9.00, such order would be executed up to its 
full size, either on the Exchange (provided that the Exchange would not 
trade through protected quotations) or at away market centers if the 
order was routable.
2. Statutory Basis
    The Exchange believes the 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).\7\ In particular, for the 
reasons described above, the proposed change is consistent with Section 
6(b)(5) of the Act,\8\ 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 helping to avoid 
executions of market orders on the Exchange at prices that are 
significantly worse than the NBBO at the time an order is initially 
received by the Exchange. The Exchange believes that the Initial NBBO 
is a fair representation of then-available prices and accordingly 
provides for an appropriate pricing mechanism such that BATS market 
orders should not be executed at a significantly worse price. Also, the 
Exchange believes that this proposal is consistent with existing 
exchange rules that allow for the breaking of trades deemed clearly 
erroneous by reference to objective thresholds away from the NBBO.\9\ 
Accordingly, the modifications to BATS Rule 11.9 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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ See, e.g., NASDAQ Rule 11890. 11890.
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A. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

B. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.
i. Date of Effectiveness of the Proposed Rule Changes 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 \10\ and Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\12\ 
However, Rule 19b-4(f)(6)(iii) \13\ 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 proposal may 
become operative upon filing. The Commission believes that waiving the 
30-day operative delay is consistent with the

[[Page 4790]]

protection of investors and the public interest because such waiver 
will allow BATS Users to immediately benefit from the protections 
provided by BATS market orders. The Commission hereby grants the 
Exchange's request and designates the proposal operative upon 
filing.\14\
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    \12\ 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 notice requirement.
    \13\ Id.
    \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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    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.
ii. 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 e-mail to rule-comments@sec.gov. Please include 
File No. SR-BATS-2009-001 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-2009-001. 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 changes 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 inspection and 
copying 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-2009-001 and should be 
submitted on or before February 17, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-1670 Filed 1-26-09; 8:45 am]

BILLING CODE 8011-01-P