[Federal Register Volume 78, Number 25 (Wednesday, February 6, 2013)]
[Notices]
[Pages 8628-8630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02634]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68798; File No. SR-BYX-2013-005]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 11.17, Entitled ``Clearly Erroneous Executions''
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 30, 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to extend a
pilot program related to Rule 11.17, entitled ``Clearly Erroneous
Executions.'' The Exchange also proposes to adopt new paragraph (h) to
Rule 11.17 in connection with the upcoming operation of the Plan to
Address Extraordinary Market Volatility Pursuant to Rule 608 of
Regulation NMS under the Act (the ``Limit Up-Limit Down Plan'' or
``Plan'').\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down
Release'').
---------------------------------------------------------------------------
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 this filing is to extend the effectiveness of the
Exchange's current rule applicable to Clearly Erroneous Executions and
to adopt new paragraph (h) to Rule 11.17 in connection with upcoming
operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
Portions of Rule 11.17, explained in further detail below, are
currently operating as a pilot program set to expire on February 4,
2013.\6\ The Exchange proposes to extend the pilot program to September
30, 2013.
---------------------------------------------------------------------------
\6\ Securities Exchange Act Release No. 67521 (July 27, 2012),
77 FR 46132 (August 2, 2012) (SR-BYX-2012-016).
---------------------------------------------------------------------------
On October 4, 2010, the Exchange filed an immediately effective
filing to adopt various rule changes to bring BYX Rules up to date with
the changes that had been made to the rules of BATS Exchange, Inc., the
Exchange's affiliate, while BYX's Form 1 Application to register as a
national security exchange was pending approval. Such changes included
changes to the Exchange's Rule 11.17, on a pilot basis, to provide for
uniform treatment: (1) of clearly erroneous execution reviews in multi-
stock events involving twenty or more securities; and (2) in the event
transactions occur that result in the issuance of an individual stock
trading pause by the primary market and subsequent transactions that
occur before the trading pause is in effect on the Exchange.\7\ The
Exchange also adopted additional changes to Rule 11.17 that reduced the
ability of the Exchange to deviate from the objective standards set
forth in Rule 11.17.\8\ The Exchange believes the benefits to market
participants from the more objective clearly erroneous executions rule
should continue on a pilot basis through September 30, 2013, which is
the date that the Exchange anticipates that the phased implementation
of the Limit Up-Limit Down Plan will be complete. As explained in
further detail below, although the Limit Up-Limit Down Plan is intended
to prevent executions that would need to be nullified as clearly
erroneous, the Exchange believes that certain protections should be
maintained while the industry gains initial experience operating with
the Limit Up-Limit Down Plan, including the provisions of Rule 11.17
that currently operate as a pilot.
---------------------------------------------------------------------------
\7\ Securities Exchange Act Release No. 63097 (October 13,
2010), 75 FR 64767 (October 20, 2010) (SR-BYX-2010-002).
\8\ Id.
---------------------------------------------------------------------------
Proposed Limit Up-Limit Down Provision to Rule 11.17
The Exchange proposes to adopt new paragraph (h) to Rule 11.17, to
provide that the existing provisions of Rule 11.17 will continue to
apply to all Exchange transactions, including transactions in
securities subject to the Plan, other than as set forth in proposed
paragraph (h). Accordingly, other than as proposed below, the Exchange
proposes to maintain and continue to apply the Clearly Erroneous
Execution standards in the same way that it does today. Notably, this
means that the Exchange might nullify transactions that occur within
the price bands disseminated pursuant to the Limit Up-Limit Down Plan
to the extent such
[[Page 8629]]
transactions qualify as clearly erroneous under existing criteria. As
an example, assume that a Tier 1 security pursuant to the Plan has a
reference price pursuant to both the Plan and Rule 11.17 of $100.00.
The lower pricing band under the Plan would be $95.00 and the upper
pricing band under the Plan would be $105.00. An execution could occur
on the Exchange in this security at $96.00, as this is within the
Plan's pricing bands. However, if subjected to review as potentially
clearly erroneous, the Exchange would nullify an execution at $96.00 as
clearly erroneous because it exceeds the 3% threshold that is in place
pursuant to Rule 11.17(c)(1) for securities priced above $50.00 (i.e.,
with a reference price of $100.00, any transactions at or below $97.00
or above $103.00 could be nullified as clearly erroneous). Accordingly,
this proposal maintains the status quo with respect to reviews of
Clearly Erroneous Executions and the application of objective numerical
guidelines by the Exchange. The proposal does not increase the
discretion afforded to the Exchange in connection with reviews of
Clearly Erroneous Executions.
The Limit Up-Limit Down Plan is designed to prevent executions from
occurring outside of dynamic price bands disseminated to the public by
the single plan processor as defined in the Limit Up-Limit Down
Plan.\9\ The possibility remains that the Exchange could experience a
technology or systems problem with respect to the implementation of the
price bands disseminated pursuant to the Plan. To address such
possibilities, the Exchange proposes to adopt language to make clear
that if an Exchange technology or systems issue results in any
transaction occurring outside of the price bands disseminated pursuant
to the Plan, an Officer of the Exchange or senior level employee
designee, acting on his or her own motion or at the request of a third
party, shall review and declare any such trades null and void. Absent
extraordinary circumstances, any such action of the Officer of the
Exchange or other senior level employee designee shall be taken in a
timely fashion, generally within thirty (30) minutes of the detection
of the erroneous transaction. When extraordinary circumstances exist,
any such action of the Officer of the Exchange or other senior level
employee designee must be taken by no later than the start of Regular
Trading Hours \10\ on the trading day following the date on which the
execution(s) under review occurred. Although the Exchange will act as
promptly as possible and the proposed objective standard (i.e., whether
an execution occurred outside the band) should make it feasible to
quickly make a determination, there may be circumstances in which
additional time may be needed for verification of facts or coordination
with outside parties, including the single plan processor responsible
for disseminating the price bands and other market centers.
Accordingly, the Exchange believes it necessary to maintain some
flexibility to make a determination outside of the thirty (30) minute
guideline. In addition, the Exchange proposes that a transaction that
is nullified pursuant to new paragraph (h) would be appealable in
accordance with the provisions of Rule 11.17(e)(2). In addition, the
Exchange proposes to make clear that in the event that a single plan
processor experiences a technology or systems problem that prevents the
dissemination of price bands, the Exchange would make the determination
of whether to nullify transactions based on Rule 11.17(a)-(g).
---------------------------------------------------------------------------
\9\ See Limit Up-Limit Down Release, supra note 5.
\10\ Regular Trading Hours commence at 9:30 a.m. Eastern Time.
See BYX Rule 1.5(w).
---------------------------------------------------------------------------
The Exchange believes that cancelling trades that occur outside of
the price bands disseminated pursuant to the Plan is consistent with
the purpose and intent of the Plan, as such transactions are not
intended to occur in the first place. If transactions do occur outside
of the price bands and no exception applies--which necessarily would be
caused by a technology or systems issue--then the Exchange believes the
appropriate result is to nullify such transactions.
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.\11\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act,\12\ 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. The Exchange believes that the pilot
program promotes just and equitable principles of trade in that it
promotes transparency and uniformity across markets concerning review
of transactions as clearly erroneous. More specifically, the Exchange
believes that the extension of the pilot would help assure that the
determination of whether a clearly erroneous trade has occurred will be
based on clear and objective criteria, and that the resolution of the
incident will occur promptly through a transparent process. The
proposed rule change would also help assure consistent results in
handling erroneous trades across the U.S. markets, thus furthering fair
and orderly markets, the protection of investors and the public
interest. Although the Limit Up-Limit Down Plan will be operational
during the same time period as the proposed extended pilot, the
Exchange believes that maintaining the pilot for at least through the
phased implementation of the Plan is operational will help to protect
against unanticipated consequences. To that end, the extension will
allow the Exchange to determine whether Rule 11.17 is necessary once
the Plan is operational and, if so, whether improvements can be made.
Further, the Exchange believes it consistent with the protection of
investors and the public interest to adopt objective criteria to
nullify transactions that occur outside of the Plan's price bands when
such transactions should not have been executed but were due to a
systems or technology issue.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change
implicates any competitive issues. To the contrary, the Exchange
believes that FINRA and other national securities exchanges are also
filing similar proposals, and thus, that the proposal will help to
ensure consistent rules across market centers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
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 if
[[Page 8630]]
consistent with the protection of investors and the public interest,
the proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)(iii) thereunder.\14\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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 asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Commission believes that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest,
as it will allow the pilot program to continue uninterrupted, thereby
avoiding the investor confusion that could result from a temporary
interruption in the pilot program. For this reason, the Commission
designates the proposed rule change to be operative upon filing.\15\
---------------------------------------------------------------------------
\15\ 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).
---------------------------------------------------------------------------
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-2013-005 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-2013-005. 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 on official business
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal offices 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-2013-005, and should be submitted on or before
February 27, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------
\16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02634 Filed 2-5-13; 8:45 am]
BILLING CODE 8011-01-P