[Federal Register Volume 77, Number 114 (Wednesday, June 13, 2012)]
[Notices]
[Pages 35446-35448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14405]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67162; File No. SR-BATS-2012-019]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
Exchange Rule 11.19, Entitled ``Short Sales''
June 7, 2012.
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 May 24, 2012, 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
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to amend
Exchange Rule 11.19, entitled ``Short Sales,'' to adopt certain changes
related to Regulation SHO in connection with the Exchange's recent
status as the primary listing market for certain securities.
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
On February 26, 2010, the Commission adopted amendments to Rules
200(g) and 201 of Regulation SHO.\3\ Rule 201 of Regulation SHO, as
amended, requires trading centers \4\ such as the Exchange to
establish, maintain, and enforce certain written policies and
procedures reasonably designed to comply with the rule.\5\ The Exchange
has proposed and received approval of rule changes \6\ in connection
with the amendments to Rules 201 and 200 of Regulation SHO that were
implemented in 2011.\7\ The Exchange recently began operation as a
primary listing market of certain securities, and is thus proposing
additional rules in connection with Regulation SHO, as amended.
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\3\ 17 CFR 242.200(g); 17 CFR 242.201. See Securities Exchange
Act Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010)
(``Adopting Release'') (amending Rules 201 and 200 of Regulation SHO
to adopt a short sale price test restriction and ``short exempt''
marking requirement).
\4\ Rule 201(a)(9) states the term ``trading center'' will have
the same meaning as in Rule 600(b)(78). 17 CFR 242.201(a)(9). Rule
600(b)(78) of Regulation NMS defines a ``trading center'' as ``a
national securities exchange or national securities association that
operates an SRO trading facility, an alternative trading system, an
exchange market maker, an OTC market maker, or any other broker or
dealer that executes orders internally by trading as principal or
crossing orders as agent.'' 17 CFR 242.600(b)(78).
\5\ See 17 CFR 242.201(b). The amendments to Rule 200(g) of
Regulation SHO provide a ``short exempt'' marking requirement. See
17 CFR 242.200(g).
\6\ See Securities Exchange Act Release No. 63948 (Feb. 23,
2011), 76 FR 11303 (Mar. 1, 2011) (SR-BATS-2011-002). See Rule
11.9(g)(2), which describes the handling of orders pursuant to
Exchange ``short sale price sliding'' functionality in connection
with the short sale price test restriction; see also, Rule 11.13,
which codifies in the Exchange's rules the execution restrictions of
Rule 201; see also Rule 11.19, which requires marking of short sale
orders as either ``short'' or ``short exempt.''
\7\ See supra note 3; see also Securities Exchange Act Release
No. 63247 (Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010) (extending the
compliance date of the amendments to Rules 201 and 200 of Regulation
SHO until February 28, 2011).
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Proposed Exchange Rule 11.19(b)(1), ``Definitions,'' defines the
terms ``covered security,'' ``listing market,'' and ``national best
bid'' as having the same meaning as such terms have in Rule 201 of
Regulation SHO.\8\
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\8\ See Rule 201(a) of Regulation SHO. The System will utilize
the national best bid from the systems information processor. Rule
201(a)(1) defines ``covered security'' to mean any ``NMS stock'' as
defined under Rule 600(b)(47) of Regulation NMS. 17 CFR
242.201(a)(1). Rule 600(b)(47) of Regulation NMS defines an ``NMS
stock'' as ``any NMS security other than an option.'' 17 CFR
242.600(b)(47). Rule 600(b)(46) of Regulation NMS defines an ``NMS
security'' as ``any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.'' 17 CFR 242.600(b)(46).
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[[Page 35447]]
Under Proposed Exchange Rule 11.19(b)(2), Short Sale Price Test,
the System \9\ will not execute or display a short sale order with
respect to a covered security at a price that is less than or equal to
the current national best bid if the price of that security decreases
by 10% or more from the security's closing price on the listing market
as of the end of regular trading hours on the prior day (``Trigger
Price'').\10\ For covered securities for which the Exchange is the
listing market, the BATS Official Closing Price for each security is
established by the Exchange pursuant to procedures set forth in
Exchange Rule 11.23.\11\
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\9\ See Exchange Rule 1.5(aa). The term ``System'' means the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution and, when applicable, routing away.
\10\ See Rule 201(b)(1)(i) of Regulation SHO. Such execution or
display needs to be in compliance with applicable rules concerning
minimum pricing increments. See 17 CFR 242.612.
\11\ See Exchange Rule 11.23. The Closing Auction for any BATS
listed security will occur at 4:00 p.m. EST on each day when the
Exchange is open for business. The Exchange's Closing Auction
establishes the Closing Auction price by determining the price level
that maximizes the number of shares of eligible interest that can be
executed, subject to certain price collars.
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Under Proposed Exchange Rule 11.19(b)(3), ``Determination of
Trigger Price,'' the Exchange will continuously compare each execution
by the System with the BATS Official Closing Price \12\ and alert the
single plan processor \13\ when a Trigger Price has been reached.\14\
The single plan processor will then disseminate a notice to market
participants in accordance with procedures established by the single
plan processor. When the single plan processor disseminates such
notice, the Exchange will systematically apply the short sale price
test restriction for short sale orders in the covered security in the
manner described in Proposed Exchange Rule 11.19(b)(2).
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\12\ Under Proposed Rule 11.19(b)(3)(B), if a covered security
did not trade on the Exchange on the prior trading day (due to a
trading halt, trading suspension, or otherwise), the Exchange's
determination of the Trigger Price shall be based on the last sale
price on the Exchange for that security on the most recent day on
which the security traded. See also Division of Trading and Markets:
Responses to Frequently Asked Questions Concerning Rule 201 of
Regulation SHO, Q&A No. 3.1.
\13\ See 17 CFR 242.201(a)(6).
\14\ See Rule 201(b)(3) of Regulation SHO. See Division of
Trading and Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, Q&A No. 1.1 (explaining
calculation of the Trigger Price).
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Under Proposed Exchange Rule 11.19(b)(4), ``Duration of Short Sale
Price Test,'' once triggered, the short sale price test restriction
shall remain in effect until the next trading day when a national best
bid for the covered security is calculated and disseminated on a
current and continuing basis by a plan processor pursuant to an effect
[sic] national market system [sic],\15\ as provided for in Regulation
SHO Rule 201(b)(1)(ii) (the ``Short Sale Period''). There are two
exceptions in the proposed rule.\16\ First, if the Exchange determines
pursuant to Proposed Exchange Rule 11.19(b)(4)(A) that the short sale
price test restriction for a covered security was triggered because of
a clearly erroneous execution,\17\ the Exchange may lift the short sale
price test restriction before the Short Sale Period ends for covered
securities for which the Exchange is the listing market.\18\ The
Exchange also proposes to include language in Exchange Rule
11.19(b)(4)(A) to provide that the Exchange may also lift the short
sale price test restrictions before the Short Sale Period ends, for
covered securities for which the Exchange is the listing market, if the
Exchange has been informed by another exchange or self-regulatory
organization (``SRO'') that a transaction in the covered security that
occurred at the Trigger Price was a clearly erroneous execution, as
determined by that exchange or SRO under its rules.\19\ Second, if the
Exchange determines pursuant to Proposed Exchange Rule 11.19(b)(4)(B)
that the prior day's closing price for a covered security is incorrect
in the System and resulted in an incorrect determination of the Trigger
Price, the Exchange may correct the prior day's BATS Official Closing
Price and lift the short sale price test restriction before the Short
Sale Period ends.
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\15\ See 17 CFR 242.201(b)(1)(ii). See also Division of Trading
and Markets: Responses to Frequently Asked Questions Concerning Rule
201 of Regulation SHO, Q&A No. 2.1.
\16\ If the price of a covered security declines intra-day by at
least 10% on a day on which the security is already subject to the
short sale price test restriction of Rule 201, the restriction will
be re-triggered and, therefore, will continue in effect for the
remainder of that day and the following day. See Adopting Release,
75 FR at 11253, n. 290. In addition, Rule 201 does not place any
limit on the frequency or number of times the circuit breaker can be
re-triggered with respect to a particular stock. See Division of
Trading and Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, Q&A No. 2.2.
\17\ See Exchange Rule 11.17, which sets forth the standards for
determining when a trade is ``clearly erroneous.'' The terms of a
transaction executed on the Exchange are ``clearly erroneous'' when
there is an obvious error in any term, such as price, number of
shares or other unit of trading, or identification of the security.
A transaction made in clearly erroneous error and cancelled by both
parties or determined by the Exchange to be clearly erroneous will
be removed from the consolidated tape.
\18\ See 17 CFR 242.201(a)(3).
\19\ The Exchange will only lift the short sale price test
restrictions before the Short Sale Period ends under these
circumstances when informed by another exchange or SRO that a
triggering transaction has been determined to be a clearly erroneous
execution under the rules of the exchange or SRO, consistent with
the authority of that exchange or SRO for making such
determinations.
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The proposed language for Exchange Rule 11.19(b) is substantively
identical to paragraphs (a) through (d) of Rule 4763 of the rules of
The NASDAQ Stock Market LLC (``Nasdaq''), paragraphs (a) through (d) of
Rule 440B of the rules of the New York Stock Exchange, LLC (``NYSE'')
and sub-paragraphs (i) through (iv) of Rule 7.16(f) of the rules of
NYSE Arca Equities, Inc. (``NYSE Arca''). The Exchange has separately
adopted rules implementing other aspects related to the amendments to
Regulation SHO, which are described in the remainder of Nasdaq Rule
4763, NYSE Rule 440B and NYSE Arca Rule 7.16.\20\
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\20\ See supra note 6.
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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.\21\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act,\22\ because
it would promote just and equitable principles of trade. Regulation
SHO, among other purposes, was implemented to help to strengthen
investor confidence in the markets and, thus, was intended to enhance
and promote capital formation.\23\ The Exchange believes that the
proposed rule promotes just and equitable principles of trade in that
it implements rules adopted by the Commission in
[[Page 35448]]
Regulation SHO under the Act. The proposed rule change is also
consistent with Section 11A(a)(1) of the Act \24\ in that it seeks to
assure fair competition among brokers and dealers and exchange
markets.\25\ The Exchange believes that the proposed rule change
promotes just and equitable principles of trade in that it promotes
uniformity across listing markets concerning the application of
Regulation SHO, as amended.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ The Commission notes that Rule 201 of Regulation SHO was
adopted to prevent short selling, including potentially manipulative
or abusive short selling, from driving down further the price of a
security that has already experienced a significant intra-day price
decline, facilitate the ability of long sellers to sell first upon
such a decline and address erosions in investor confidence.
\24\ 15 U.S.C. 78k-1(a)(1).
\25\ See supra note 3.
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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, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6)(iii) thereunder.\27\
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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest.\28\ The Commission notes the proposal is substantially
similar to and based on the rules of other exchanges,\29\ and does not
raise any new regulatory issues. In addition, the Exchange's operation
as a listing market for certain securities requires it to comply with
the provisions of Rule 201 of Regulation SHO. Codification within the
Exchange's rules of the provisions of Rule 201 of Regulation SHO as
described above will help to avoid any confusion regarding the
Exchange's status as a listing market, including, but not limited to,
the manner in which the Exchange calculates the Trigger Price and the
Exchange's ability to lift a Short Sale Price Test in the event it was
triggered by a clearly erroneous execution. Accordingly, waiver of the
operative delay will help to ensure uniformity across listing markets
concerning the application of Rule 201 of Regulation SHO. For these
reasons, the Commission designates the proposed rule change as
operative upon filing.
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\28\ 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).
\29\ See, e.g., Nasdaq Rule 4763(a)-(d); NYSE Rule 440B(a)-(d);
NYSE Arca Rule 7.16(f)(i)-(iv).
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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 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 [email protected]. Please include
File No. SR-BATS-2012-019 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-2012-019. 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 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 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 such filing will also 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 No. SR-BATS-2012-019 and should be
submitted on or before July 5, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14405 Filed 6-12-12; 8:45 am]
BILLING CODE 8011-01-P