[Federal Register Volume 76, Number 146 (Friday, July 29, 2011)]
[Notices]
[Pages 45636-45638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19236]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64957; File No. SR-BATS-2011-023]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
BATS Rules in Connection With the Elimination of a Directed Order
Program for BATS Options
July 25, 2011.
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 July 22, 2011, 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)
[[Page 45637]]
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 is proposing to amend BATS Rule 21.1, entitled
``Definitions,'' to remove two order types, Market Maker Price
Improving Orders and Directed Orders, from the types of approved order
types offered by the BATS options market (``BATS Options''). Through
this amendment, the Exchange is eliminating its recently approved rules
related to the establishment of a directed order program on a pilot
basis for BATS Options.\5\
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\5\ See Securities Exchange Act Release No. 64781 (June 30,
2011), 76 FR 39953 (July 7, 2011) (SR-BATS-2011-023).
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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, at http://www.sec.gov, 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 Exchange recently received approval to operate a directed order
program for BATS Options on a pilot basis.\6\ The BATS Options directed
order program would allow members of BATS Options (``Options Members'')
to direct an order to a particular BATS Options Market Maker for
potential execution at a price improved over the existing National Best
Bid (``NBB'') or National Best Offer (``NBO''). The goal of the
directed order program was to create a competitive structure to enhance
aggressive quoting and shift economics associated with non-transparent
payment for order flow arrangements to better execution prices for
customer orders on the Exchange. While pending, the proposal to operate
a directed order program received several comments from competitors of
the Exchange and other market participants, some of which raised
concerns that the directed order program may foster internalization and
a widening of quoted spreads.\7\ During this time period, the Exchange
also discussed the proposal with several Options Members, and the
Exchange has continued these discussions following the approval of the
proposal. While the Exchange continues to believe that the proposal is
consistent with the Act and contains appropriate requirements to incent
competitive quotations and further the public price discovery process,
based on on-going discussions with Options Members, the Exchange
believes there is sufficient reason to withdraw the directed order
program and continue analyzing potential refinements that may better
achieve the Exchange's goal. The Exchange notes that it has not yet
implemented the directed order program.
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\6\ Id.
\7\ See e.g., Letters to Elizabeth M. Murphy, Secretary,
Commission, from Thomas F. Price, Managing Director, Securities
Industry and Financial Markets Association, dated June 30, 2011;
Christopher Nagy, Managing Director Order Strategy, TD Ameritrade,
dated June 30, 2011; Jennifer M. Lamie, Assistant General Counsel,
Legal Division, Chicago Board Options Exchange, dated June 29, 2011;
Tom Wittman, The NASDAQ OMX PHLX, Inc. and The NASDAQ Options
Market, dated June 24, 2011; Janet L. McGinness, SVP & Corporate
Secretary, Legal & Government Affairs, NYSE Euronext, dated June 17,
2011; Michael J. Simon, Secretary, International Securities
Exchange, LLC, dated June 17, 2011; Anthony D. McCormick, Chief
Executive Officer, BOX Options Exchange Group, LLC, dated June 13,
2011; John C. Nagel, Managing Director and General Counsel, Asset
Management and Markets, Citadel LLC, dated April 25, 2011; Andrew
Stevens, Legal Counsel, IMC Chicago, LLC d/b/a IMC Financial
Markets, dated April 21, 2011. The Exchange also notes that other
options exchanges filed with the Commission a joint petition related
to the directed order program following the approval of the directed
order program.
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Based on the foregoing, the Exchange proposes to eliminate the
definitions for Market Maker Price Improving Orders and Directed Orders
from the types of approved order types offered by the BATS Options
pursuant to Rule 21.1.
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.\8\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\9\
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. The Exchange believes that elimination of the
directed order program will provide the Exchange and the options
industry as a whole with additional time to evaluate the potential
benefits of a program such as the directed order program.
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\8\ 15 U.S.C. 78f(b).
\9\ 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, if
consistent with the protection of investors and the public interest, 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). In addition, Rule 19b-4(f)(6)(iii)
requires the self-regulatory organization to 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. BATS is deemed to have satisfied this requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission has determined that waiving the 30-day
operative delay of the Exchange's proposal is consistent with the
protection of investors and the public interest because the Exchange
would like additional time to consider potential refinements to the
directed
[[Page 45638]]
order program and the directed order program has not been
implemented.\12\ Therefore, the Commission designates the proposal
operative upon filing.
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\12\ For 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 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 [email protected]. Please include
File Number SR-BATS-2011-023 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-2011-023. 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 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
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-2011-023 and should be submitted on or before August 19, 2011.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19236 Filed 7-28-11; 8:45 am]
BILLING CODE 8011-01-P