[Federal Register Volume 78, Number 25 (Wednesday, February 6, 2013)]
[Notices]
[Pages 8652-8655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02558]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68790; File No. SR-BYX-2013-003]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend BYX
Rules Related to Price Sliding Functionality
January 31, 2013.
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 25, 2013, BATS Y-Exchange, Inc. (the ``Exchange'' or
``BYX'') 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)(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 Rule 11.9, entitled ``Orders and
Modifiers'' to modify the operation of the Exchange's price sliding
functionality described in BYX Rule 11.9.
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 Exchange currently offers various forms of sliding which, in
all cases, result in the ranking and/or display of an order at a price
other than an order's limit price in order to comply with applicable
securities laws and/or Exchange rules. Specifically, the Exchange
currently offers price sliding to ensure compliance with Regulation NMS
and Regulation SHO. Price sliding currently offered by the Exchange re-
prices and displays an order upon entry and in certain cases again re-
prices and re-displays an order at a more aggressive price based on
changes in the national best bid (``NBB'') or national best offer
(``NBO'', and together with the NBB, the ``NBBO''). As described below,
the Exchange proposes to modify the operation of display-price sliding
in the event the Exchange displays an order subject to price sliding as
a Protected
[[Page 8653]]
Quotation \5\ and such order's displayed price is locked or crossed by
another market.
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\5\ As defined in BYX Rule 1.5(t) a ``Protected Quotation'' is
``a quotation that is a Protected Bid or Protected Offer.'' In turn,
the term ``Protected Bid'' or ``Protected Offer'' means ``a bid or
offer in a stock that is (i) displayed by an automated trading
center; (ii) disseminated pursuant to an effective national market
system plan; and (iii) an automated quotation that is the best bid
or best offer of a national securities exchange or association.''
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Under the Exchange's current rules, if, at the time of entry, an
order would lock or cross a Protected Quotation displayed by another
trading center the Exchange ranks orders subject to display-price
sliding at the locking price and displays such orders at one minimum
price variation below the current NBO (for bids) or to one minimum
price variation above the current NBB (for offers). Following the
initial ranking and display of an order subject to display-price
sliding, an order is typically only re-ranked and re-displayed to the
extent it achieves a more aggressive price. However, the Exchange
proposes to re-rank an order at the same price as the displayed price
(i.e., a less aggressive price) in the event such order's displayed
price is locked or crossed by a Protected Quotation of an external
market.\6\ This will avoid the potential of a ranked price that crosses
the Protected Quotation displayed by such external market, which could,
in turn, lead to a trade through of such Protected Quotation at such
ranked price. The Exchange notes that, as described below, when an
external market crosses the Exchange's Protected Quotation and the
Exchange's Protected Quotation is a displayed order subject to price
sliding, the Exchange proposes to re-rank such order at the displayed
price. Thus, the order displayed by the Exchange will still be ranked
and permitted to execute at a price that crosses the other market's
Protected Quotation, which is consistent with Rule 611(b)(4) of
Regulation NMS.\7\
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\6\ The Exchange notes that as a general matter Regulation NMS
should prevent external markets from displaying Protected Quotations
that lock or cross Protected Quotations displayed by the Exchange.
However, in a dynamic market, such an event can and does happen for
a variety of reasons. For example, if the Exchange updates its
Protected Quotation for a security at the same time another market
updates its contra-side Protected Quotation, it is possible that
such quotations lock or cross each other. Neither the Exchange nor
the other market would know in this circumstance that such
quotations would lock or cross each other when publishing their
quotation updates. As another example, in the event another market
receives an intermarket sweep order, such market may permissibly
display such order without regard to other Protected Quotations,
including quotations displayed by the Exchange that lock or cross
such order.
\7\ 17 CFR 242.611(b)(4).
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As an example of the behavior described above, assume the Exchange
has a posted and displayed bid to buy 100 shares of a security priced
at $10.10 per share and a posted and displayed offer to sell 100 shares
at $10.13 per share. Assume the NBBO is $10.10 by $10.12. If the
Exchange receives a non-routable bid to buy 100 shares at $10.12 per
share the Exchange will rank the order to buy at $10.12 and display the
order at $10.11 because displaying the bid at $10.12 would lock an
external market's Protected Offer to sell for $10.12. If an external
market then updated its Protected Offer to $10.11, thus locking the
Exchange's displayed bid (i.e., the order subject to price sliding that
is ranked at $10.12 and displayed at $10.11), then the Exchange
proposes to modify the ranked price of such bid to the same price as
the displayed price (i.e., $10.11). By re-ranking the bid in this
example to $10.11, the Exchange will not allow an order to maintain a
ranked price that is crossing the NBO when the displayed price of such
order is locking the NBO, and thus, such order will not have the
ability to trade through the NBO if the Exchange receives a marketable
contra-side offer during the locked market condition.
The Exchange notes that as proposed when an external market
publishes a Protected Quotation that crosses an order displayed by the
Exchange, the Exchange has proposed to slide the ranked price of its
displayed order to the displayed price. Thus, an order will still be
permitted to be ranked at a price that crosses an external market's
Protected Quotation, and could thus trade through such quotation if
executed. For instance, using the example above, assume that the NBBO
is $10.10 by $10.12 and the Exchange has a price slid bid to buy 100
shares that is ranked at $10.12 and displayed at $10.11. If an external
market then updated its Protected Offer to $10.10, thus crossing the
Exchange's displayed bid (i.e., the order subject to price sliding that
is ranked at $10.12 and displayed at $10.11), then the Exchange will
modify the ranked price of such bid to the same price as the displayed
price (i.e., $10.11). The order displayed by the Exchange will be
permitted to remain executable at a price that crosses the other
market's Protected Offer. The Exchange has proposed this functionality
because it is consistent with its proposed functionality when an
external market locks the Exchange's Protected Quotation. While the
Exchange believes such an order should still be permitted to execute
pursuant to the exception in Regulation NMS when the market is crossed,
and does not believe that the displayed price of its Protected
Quotations should be adjusted based on another market published
Protected Quotations that lock or cross such quotations, the Exchange
believes that executing such an order at the displayed price of such
order is a better result because the existence of a crossing quotation
is evidence of some price discrepancy in the market. The Exchange also
believes that consistency between the functionality when the Exchange's
quotation is locked and when the Exchange's quotation is crossed is
preferable.\8\
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\8\ Id.
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The Exchange also proposes to make clear that this re-ranking will
not result in a change in priority for the order at its displayed
price. For instance, in the example above, assume the bid described had
been posted and displayed at $10.11 and ranked at $10.12 (``Order A''),
and then a later arriving bid is received by the Exchange at $10.11
(``Order B'') and posted as well, with priority behind Order A. If the
Exchange then re-ranks Order A because it has been locked or crossed by
another market center's Protected Quotation, the Exchange does not
believe it would be fair to cause such order to lose priority when it
was originally first in priority amongst displayed orders on the
Exchange.
As set forth in the Exchange's current price sliding rules, the
ranked and displayed prices of an order subject to display-price
sliding may be adjusted once or multiple times depending upon the
instructions of a User \9\ and changes to the prevailing NBBO. The
Exchange's default price sliding process slides and ranks an order on
entry so that it is ranked at the locking price and displayed at one
price less aggressive and then unslides the order so that it is
displayed at the ranked/locking price one time if such display becomes
permissible. Multiple price sliding continues to rank and display
orders at the most aggressive permissible prices based on changes to
the NBBO. Multiple price sliding is optional and must be explicitly
selected by a User before it will be applied. The Exchange proposes to
make clear that, in connection with the changes above, if an order
subject to the Exchange's default price sliding process has been locked
or crossed by a Protected Quotation of an external market then the
Exchange will adjust the ranked price of such order and it will not be
further re-ranked or re-
[[Page 8654]]
displayed at any other price. While in most circumstances the Exchange
unslides orders subject to price sliding to a more aggressive price
when permissible, in this limited circumstance, when such an order's
displayed price is locked or crossed by an external market the Exchange
will be sliding the ranked price to the less aggressive displayed price
and will not further unslide the order. Orders subject to the optional
multiple price sliding process will be further re-ranked and re-
displayed as permissible based on changes to the prevailing NBBO. Thus,
once slid, an order subject to multiple price sliding, including its
ranked price, will be slid to more aggressive prices as permissible.
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\9\ As defined in BYX Rule 1.5(cc), a User is ``any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.''
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As a continuation of the example above, assume that the NBBO is
$10.10 by $10.12 and the Exchange has a price slid bid to buy 100
shares that is ranked at $10.12 and displayed at $10.11. If an external
market then updated its Protected Offer to $10.11, thus locking the
Exchange's displayed bid (i.e., the order subject to price sliding that
is ranked at $10.12 and displayed at $10.11), then the Exchange will
modify the ranked price of such bid to the same price as the displayed
price (i.e., $10.11). If a User has selected the default price sliding
process then the order will not further re-rank or re-display such
order, even if the NBO moves back to $10.12 such that the order could
again be ranked at that price. However, if a User has opted into
multiple price sliding, the Exchange will re-rank such order at $10.12
(still displayed at $10.11), and if the NBO then moved to $10.13, the
Exchange will re-display such order at $10.12.
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.\10\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\11\
because it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to, and perfect
the mechanism of, a free and open market and a national market system.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed changes to price sliding
are consistent with Section 6(b)(5) of the Act,\12\ as well as Rules
610 and 611 of Regulation NMS.\13\ The Exchange is not modifying the
overall functionality of price sliding, which, to avoid locking or
crossing quotations of other market centers, displays orders at
permissible prices while retaining a price at which the User is willing
to buy or sell, in the event display at such price or an execution at
such price becomes possible. Instead, the Exchange is making changes to
ensure that if the Exchange's own Protected Quotation is a price slid
order that is locked or crossed by an external market's Protected
Quotation, that [sic] the Exchange will re-rank such order so that its
displayed price is the same as its ranked price.
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\12\ Id.
\13\ 17 CFR 242.610; 17 CFR 242.611.
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Rule 610(d) requires exchanges to establish, maintain, and enforce
rules that require members reasonably to avoid ``[d]isplaying
quotations that lock or cross any protected quotation in an NMS
stock.'' \14\ Such rules must be ``reasonably designed to assure the
reconciliation of locked or crossed quotations in an NMS stock,'' and
must ``prohibit * * * members from engaging in a pattern or practice of
displaying quotations that lock or cross any quotation in an NMS
stock.'' \15\ Thus, display-price sliding offered by the Exchange
assists Users by displaying orders at permissible prices.
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\14\ 17 CFR 242.610(d).
\15\ Id.
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Rule 611 requires trading centers to ``establish, maintain, and
enforce written policies and procedures that are reasonably designed to
prevent trade-throughs on that trading center of protected quotations''
unless an exception applies. The Exchange believes that the proposal to
modify its price sliding functionality to prevent the ranked prices of
orders subject to price sliding from working at a price that could
trade through other market centers when the Exchange's quotation is
locked is consistent with this Rule 611. Similarly, although a trade
through would be permissible if the Exchange's quotation is crossed by
another market center based on an applicable exception, the Exchange
believes that the proposal to re-rank orders in such a circumstance to
the displayed price is consistent with the protection of investors and
the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition.
To the contrary, the proposal will ensure that the Exchange's processes
are designed to prevent trade throughs consistent with Regulation NMS
in the event the Exchange's own quotations are locked or crossed by
external markets.
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 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, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6)
thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give 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 requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \18\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6) \19\ 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 asked
the Commission to waive the 30-day operative delay, noting that doing
so will allow the Exchange to immediately enhance its price sliding
functionality to avoid potential trade throughs when the Exchange's
quotation is locked by an external market. The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest. Therefore, the Commission hereby
waives the 30-day operative
[[Page 8655]]
delay and designates the proposal operative upon filing.\20\
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6).
\20\ 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 email to [email protected]. Please include
File Number SR-BYX-2013-003 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-BYX-2013-003. 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 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, 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 the 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-BYX-2013-003 and should be
submitted on or before February 27, 2013.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02558 Filed 2-5-13; 8:45 am]
BILLING CODE 8011-01-P