[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10229-10233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03304]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68865; File No. SR-BATS-2013-006]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
the Short Term Options Series Program
February 7, 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 23, 2013, 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) 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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[[Page 10230]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal for the BATS Options Market (``BATS
Options'') to amend its rules to modify the short term option series
(``Short Term Option Series'' or ``STOS'') Program \5\ to permit,
during the week before expiration week and expiration week of an option
class that is selected for the STOS Program, the strike price intervals
for the related non-short term option series options to be the same as
the strike price interval for the Short Term Option Series \6\ options,
to permit the Exchange to open STOS that are opened by other securities
exchanges, and to adopt a rule to open Short Term Option Series for
trading at $0.50 strike price intervals for option classes that trade
in one dollar increments and are in the STOS Program. The Exchange also
proposes to increase the number of expirations, strikes per class, and
classes that are eligible to participate in the STOS Program, along
with a clarifying change regarding the number of initial strikes per
class. Lastly, the Exchange is proposing to amend the definition of
Short Term Option Series in order to reflect the proposed increase in
the number of expirations eligible for participation in the STOS
Program and to add titles to several of its rules in order to make
clear the subject matter that the rule covers.
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\5\ The STOS Program was established in August of 2010 on BATS
Options. See Securities Exchange Act Release No. 62597 (July 29,
2010), 75 FR 47335 (August 5, 2010) (SR-BATS-2010-020) (notice of
filing and immediate effectiveness establishing Short Term Option
Series Program on BATS). Other exchanges have also established
permanent short term option programs, including The NASDAQ Stock
Market LLC (``NOM''), NASDAQ OMX PHLX LLC (``PHLX''), Chicago Board
Options Exchange (``CBOE''), International Securities Exchange
(``ISE''), NYSE Arca Options (``NYSE Arca''), NYSE Amex, LLC
(``Amex''), NASDAQ OMX BX (``BX''), and Boston Options Exchange LLC
(``BOX'').
\6\ Short Term Option Series are series in an option class that
is approved for listing and trading on the Exchange in which the
series is opened for trading on any Thursday or Friday that is a
business day and that expires on the Friday of the next business
week. If a Thursday or Friday is not a business day, the series may
be opened (or shall expire) on the first business day immediately
prior to that Thursday or Friday, respectively. See BATS Rules
16.1(a)(57) and 29.2(n).
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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, 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 proposed rule change is to amend BATS Rules
16.1(a)(57), 19.6, 29.2(n), and 29.11(h) related to the STOS Program.
Specifically, the Exchange proposes to: (1) Adopt a rule to permit the
Exchange to list Short Term Option Series at $0.50 strike price
intervals for option classes that trade in one dollar increments and
are in the STOS Program (``Eligible Option Classes''); (2) expand the
number of expirations to five consecutive expirations under the STOS
Program for trading on the Exchange; (3) increase the number of classes
(from 15 to 30) that are eligible to participate in the STOS Program;
(4) increase the number of strikes that may be listed per class (from
20 to 30) that participates in the STOS Program; (5) allow the Exchange
to open Short Term Option Series that are opened by other securities
exchanges in option classes selected by such exchanges under their
respective short term option rules; (6) indicate that during the
expiration week of an option class that is selected for the STOS
Program, the strike price intervals for the related non-STOS option
shall be the same as the strike price intervals for the STOS option and
that during the week before the expiration week of a STOS option, the
Exchange shall open the related non-STOS option for trading in STOS
option intervals in the same manner as for STOS options; (7) make clear
that the Exchange may open up to 20 initial series for each option
class that participates in the STOS Program; (8) amend the definitions
of Short Term Option Series in order to reflect the proposed increase
in expirations; and (9) make BATS Rules clearer by adding titles to
certain paragraphs.
$0.50 Strikes in the STOS Program
The Exchange is proposing to amend BATS Rules 19.6 and 29.11(h) to
permit the Exchange to list Short Term Option Series at $0.50 strike
price intervals for option classes that trade in one dollar increments
and are in the STOS Program. Currently, BATS Rules do not permit the
Exchange to list Short Term Option Series at $0.50 strike price
intervals. Rather, BATS Rules 19.6 and 29.11(h) only state that after
an option class has been approved for listing and trading on the
Exchange, the Exchange may open for trading on any Thursday or Friday
that is a business day series of options on that class that expire on
the Friday of the following business week that is a business day.
The principal reason for the proposed structure is to compete on an
equal playing field with other options exchanges in satisfying the high
market demand for weekly options. Multiple options exchanges, including
ISE, have implemented substantially similar STOS Programs, although
there are some differences in the practical implementation of permitted
strike prices. ISE's STOS Program differs from the other programs in
that ISE permits $0.50 strike price intervals for weekly options for
option classes that trade in one dollar increments and are in the STOS
Program.\7\ On the other hand, PHLX, for instance, permits $0.50 strike
price intervals when the strike price is below $75, and $1 strike price
intervals when the strike price is between $75 and $150.\8\ The
Exchange is proposing to allow $0.50 strikes in a manner identical to
ISE.
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\7\ See Securities Exchange Act Release No. 67754 (August 29,
2012), 77 FR 54629 (September 5, 2012) (SR-ISE-2012-33).
\8\ See Securities Exchange Act Release No. 67753 (August 29,
2012) 77 FR 54635 (September 5, 2012) (SR-PHLX-2012-78).
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There is continuing strong customer demand for having the ability
to execute hedging and trading strategies effectively via STOS,
particularly in the current fast, multi-faceted trading and investing
environment that extends across numerous markets and platforms.\9\ The
Exchange has observed increased demand for STOS classes and/or series,
particularly when market moving events such as significant market
volatility, corporate events, or large market, sector, or individual
issue price swings have occurred. The STOS Program is one of the most
popular and
[[Page 10231]]
quickly expanding options expiration programs.
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\9\ These include, without limitation, options, equities,
futures, derivatives, indexes, exchange traded funds, exchange
traded notes, currencies, and over-the-counter instruments.
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The changes proposed by the Exchange should allow execution of more
trading and hedging strategies on the Exchange. The Exchange notes that
in conformance with Exchange Rules, the Exchange shall not list $0.50
or $1 strike price intervals on Related non-STOS options within five
(5) days of expiration. For example, if a Related non-STOS in an
options class is set to expire on Friday, September 21, the Exchange
could begin to trade $0.50 strike price intervals surrounding that
Related non-STOS on Thursday, September 13, but no later than Friday
September 14.
The Exchange believes that there are substantial benefits to market
participants in the ability to trade the Eligible Option Classes at
more granular strike price intervals [sic] the proposed interval for
the Eligible Option Classes would allow traders and investors, and in
particular public (retail) investors to more effectively and with
greater precision consummate trading and hedging strategies on the
Exchange. The Exchange believes that this precision is increasingly
necessary, and in fact crucial, as traders and investors engage in
trading and hedging strategies across various investment platforms
(e.g. equity and ETF, index, derivatives, futures, foreign currency,
and even commodities products).
Additional STOS Program Expirations
The Exchange is also proposing to amend BATS Rules 19.6 and
29.11(h) to permit the Exchange to open up to five consecutive
expirations under the STOS Program for trading on the Exchange.
Currently under the STOS Program, the Exchange may open STOS option
series for only one week expirations.
This proposal seeks to allow the Exchange to add a maximum of five
consecutive week expirations under the STOS Program, however it will
not add a STOS expiration in the same week that a monthly options
series expires or, in the case of Quarterly Option Series, on an
expiration that coincides with an expiration of Quarterly Option Series
on the same class. In other words, the total number of consecutive
expirations will be five, including any existing monthly or quarterly
expirations.\10\ As noted above, the STOS Program has been well-
received by market participants, in particular by retail investors, and
the Exchange believes that the proposed revision to the STOS Program
will permit the Exchange to meet increased customer demand and provide
market participants with the ability to hedge in a greater number of
option classes and series as well as to allow the Exchange to compete
with other options exchanges offering similar short term options
programs, such as NYSE Arca.\11\
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\10\ For example, if quarterly options expire week 1 and monthly
options expire week 3, the proposal would allow the following
expirations: week 1 quarterly, week 2 STOS, week 3 monthly, week 4
STOS, and week 5 STOS. If quarterly options expire week 3 and
monthly options expire week 5, the following expirations would be
allowed: week 1 STOS, week 2 STOS, week 3 quarterly, week 4 STOS,
and week 5 monthly.
\11\ See Securities Exchange Act Release No. 68190 (November 8,
2012), 77 FR 68193 (November 15, 2012) (SR-NYSEArca-2012-95).
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Additional Classes Participating in the STOS Program
The Exchange is also proposing to amend BATS Rules 19.6 and
29.11(h) to permit the Exchange to increase the number of classes that
are eligible to participate in the STOS Program from 15 to 30.
Currently, for each option class that has been approved for listing and
trading on the Exchange, the Exchange may open for trading on any
Thursday or Friday that is a business day series of options on no more
than fifteen option classes that expire on the Friday of the following
business week that is a business day.
Several other options exchanges, including NASDAQ Options Market
(``NOM''),\12\ have rules that allow 30 classes to be eligible to
participate in their STOS Programs. As a result, the Exchange is
competitively disadvantaged because it operates a substantially similar
STOS Program as ISE, NOM, and PHLX, but is limited to selecting only 15
classes that may participate in its STOS Program (whereas ISE, NOM, and
PHLX may each select 30 classes).
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\12\ See Securities Exchange Act Release No. 65528 (October 11,
2011), 76 FR 64142 (October 17, 2011) (SR-NASDAQ-2011-138).
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The proposed increase to the number of classes eligible to
participate in the STOS Program is required for competitive purposes as
well as to ensure consistency and uniformity among the competing
options exchanges that have adopted similar short term options series
programs.
Additional Series per Class in the STOS Program
The Exchange is also proposing to amend its rules to permit the
Exchange to increase the number of series that the Exchange may open
per class that is eligible to participate in the STOS Program from 20
to 30 as well as to make a clarifying change that states that the
Exchange may open 20 initial series for each option class that
participates in the STOS Program. Currently, for each class that has
been approved for listing and trading on the Exchange as part of the
STOS Program, the Exchange may open up to 20 series.
ISE's rules and the rules of other exchanges allow them to open up
to 30 STOS for each option class eligible for participation in the STOS
Program.\13\ As a result, the Exchange is competitively disadvantaged
because it operates a substantially similar STOS Program as ISE and
other exchanges but is limited to opening only 20 series per expiration
in each class that is eligible to participate in its STOS Program
(whereas ISE may select 30 series).
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\13\ See Securities Exchange Act Release Nos. 65771 (November
17, 2011), 76 FR 72472 (November 23, 2011) (SR-ISE-2011-60) and
65806 (November 22, 2011), 76 FR 73753 (November 29, 2011) (SR-
NYSEArca-2011-88).
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The Exchange is proposing to amend its rules to allow the Exchange
to open up to ten additional series (a total of 30) for each option
class that participates in the STOS Program when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand, or
when the market price of the underlying security moves substantially
from the exercise price or prices of the series already opened. The
Exchange is also proposing to amend its rules in order to clarify that
it may open up to 20 initial series for each option class that
participates in the STOS Program.
STOS Opened by Other Exchanges
The Exchange is also proposing to amend its rules to allow the
Exchange to open STOS that are opened by other securities exchanges in
option classes selected by other exchanges under their respective short
term option rules. Currently, for each option class eligible for
participation in the STOS Program, the Exchange may open up to 20 short
term option series for each expiration date in that class.\14\
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\14\ As previously discussed, the Exchange is also proposing to
increase the number of series that may be opened on each class from
20 series per class to 30 series per class.
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This proposal seeks to allow the Exchange to open STOS that are
opened by other securities exchanges in option classes selected by
other exchanges under their respective short term option rules. This
change is being proposed notwithstanding the current cap of 20 series
per class under the STOS Program. This too is a competitive change and
is based on approved filings and existing rules of ISE, NOM, and
PHLX.\15\
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\15\ See Securities Exchange Act Release Nos. 65775 (November
17, 2011), 76 FR 72473 (November 23, 2011) (SR-NASDAQ-2011-138)
(order granting approval of proposed rule change expanding the short
term option series program) and 65776 (November 17, 2011), 76 FR
72482 (November 23, 2011) (SR-PHLX-2011-131) (order granting
approval of proposed rule to increase the number of series permitted
per class in the short term option series program); see also
Securities Exchange Act Release No. 66623 (March 20, 2012), 77 FR
17531 (March 26, 2012) (SR-ISE-2012-23).
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[[Page 10232]]
The Exchange is competitively disadvantaged because it operates a
substantially similar STOS Program as ISE, NOM, and PHLX, but is
limited to listing a maximum of 20 series per options class that
participates in its STOS Program (whereas ISE, NOM, and PHLX are not
similarly restricted).
The Exchange again notes that the STOS Program has been well-
received by market participants, in particular by retail investors. The
Exchange believes that the current proposed revision to the STOS
Program will permit the Exchange to meet increased customer demand and
provide market participants with the ability to hedge in a greater
number of option classes and series, as well as provide consistency and
uniformity among competing options exchanges.
Strike Price Intervals in the non-STOS Options
The Exchange is also proposing to add Rule 19.6(g) and to amend
Rule 19.6 Commentary .05(e) and Rule 29.11(h)(5) to indicate during the
expiration week of an option class that is selected for the STOS
Program, the strike price intervals for the related non-STOS option
shall be the same as the strike price intervals for the STOS option.
Currently, the Exchange does not list STOS options during the
expiration week of an option class. The Exchange is not proposing to
change this functionality, but rather, the Exchange is proposing to
allow the use of the same strike price intervals for the related non-
short term option during expiration week as are used for the short term
option. This will allow option classes that are selected for the STOS
Program that are trading at narrower strike price intervals as part of
the STOS Program to continue trading at the narrower strike price
intervals during expiration week, even though the short term option
will not be traded during that week. In addition, the Exchange proposes
that during the week before the expiration week of a STOS option, the
Exchange shall open the related non-STOS option for trading in STOS
option intervals in the same manner that they are opened for STOS
options. Thus, a non-STOS option may be opened in STOS option intervals
on a Thursday or Friday that is a business day before the non-STOS
option expiration week. This functionality is identical to that of
BOX,\16\ among others, and would promote consistency in strike prices
during the week prior to expiration, when the Exchange does not list
short term options.
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\16\ See Securities Exchange Act Release No. 67870 (September
17, 2012), 77 FR 58600 (September 21, 2012) (SR-BOX-2012-012).
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Definition of STOS
The Exchange is also proposing to amend Rules 16.1(a)(57) and
29.2(n) to make the definition of Short Term Option Series accurately
reflect the proposed additional expirations proposed above. Currently,
the definitions only include one expiration for STOS. The Exchange is
proposing to include the additional expirations proposed above in both
definitions of STOS.
Adding Titles to Certain Paragraphs
The Exchange is also proposing to amend its rules in order to make
more clear which paragraphs are related to the initials series and
additional series for each option class that participates in the STOS
Program as well as the strike intervals on Short Term Option Series.
With regard to the impact of these proposals on system capacity,
the Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority have the necessary systems capacity
to handle the potential additional traffic associated with proposed
expansion to the STOS Program.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \17\ in general, and furthers the objectives of Section
6(b)(5) of the Act \18\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. This will be effectuated by the following rule changes: STOS
Program strike price intervals of $0.50 for option classes that trade
in $1 increments; during the expiration week of the non-short term
option, the strike price intervals for the non-short term option will
be the same as for the short term option; allowing the Exchange to open
STOS that are opened by other securities exchanges in option classes
selected under their respective short term option rules; expanding the
number of expirations to five consecutive expirations under the STOS
Program for trading on the Exchange; and increasing the number of
classes and strikes that are eligible to participate in the STOS
Program. The Exchange believes that expanding the current STOS Program
will result in a continuing benefit to investors by giving them more
flexibility to closely tailor their investment and hedging decisions,
while ensuring conformity between short term options and related non-
short term options. While the expansion of the STOS Program will
generate additional quote traffic, the Exchange does not believe that
this increased traffic will become unmanageable since the proposal is
limited to a limited number of classes. Further, the Exchange does not
believe that the proposal will result in a material proliferation of
additional series because it is limited to a fixed number of classes
and the Exchange does not believe that the additional price points will
result in fractured liquidity.
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\17\ 15 U.S.C. 78f(b).
\18\ 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 will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the Exchange
believes that the proposal will allow the Exchange to compete more
effectively with other options exchanges that have already adopted
changes to their short term options series programs that are identical
to the changes proposed by this filing.
(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 significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and by its terms, does
not 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
[[Page 10233]]
Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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 satisfied this requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposal is substantially similar to those of
other exchanges that have expanded and modified their STOS programs,
which been approved by the Commission or filed for immediate
effectiveness as ``copycat'' filings.\21\ Waiver of the delay would
allow BATS to compete with these exchanges and clarify its rules
without undue delay. Therefore, the Commission grants the Exchange's
waiver request and designates the proposal operative upon filing.\22\
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\21\ See supra, notes 7-8, 11-13, and 15-16.
\22\ 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 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.
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-BATS-2013-006 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-2013-006. 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 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-2013-006 and should be
submitted on or before March 6, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03304 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P