[Federal Register Volume 78, Number 48 (Tuesday, March 12, 2013)]
[Notices]
[Pages 15773-15775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-05571]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69038; File No. SR-BATS-2013-016]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Modify the BATS Options Market
Maker Obligation Rule
March 5, 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 March 1, 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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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 Rule 22.6(d) 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\ The Exchange is also proposing to
amend Rule 22.6(d) to suspend the obligation of market makers
registered with BATS (``Market Makers'') to enter continuous bids and
offers during a halt, suspension, or pause in trading of the underlying
security (collectively, a ``Trading Halt'').
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\5\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down
Release'').
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.batstrading.com, at the principal office of the
Exchange, on the Commission's Web site 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange currently requires Market Makers to enter continuous
bids and offers for the options series to which it is registered in at
least 75% of the options series in which the Market Maker is
registered. The purpose of this proposed rule change is to amend BATS
Rule 22.6(d) to suspend a Market Maker's continuous quoting obligations
when the underlying security is subject to a ``Limit State'' or
``Straddle State'' as defined Limit in the Up-Limit Down Plan and
during a Trading Halt.
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.
Under the Plan, a Limit State will be declared if the national best
offer equals the lower price band and does not cross the national best
bid, or the national best bid equals the upper price band and does not
cross the national best offer. A Straddle State is when the national
best bid (offer) is below (above) the lower (upper) price band and the
security is not in a Limit State, and trading in that security deviates
from normal trading characteristics such that declaring a trading pause
would support the Plan's goal to address extraordinary market
volatility. Accordingly, when the underlying security is in a Limit
State or Straddle State, there will not be a reliable price for the
security to serve as a benchmark for the price of the related option.
While, in theory, the liquidity provided by requiring Market Makers to
continue to quote during a Limit or Straddle State could help to
stabilize a volatile market, without a reliable benchmark for pricing
an option, Market Makers would likely respond to the uncertainty by
entering very wide
[[Page 15774]]
quotes, which would not provide any additional stability and could
potentially lead to additional uncertainty. As such, the Exchange is
proposing to eliminate the continuous quoting requirements of Rule
22.6(d) when the underlying security is in a Limit State or Straddle
state. Specifically, the Exchange is proposing to exclude the time
during which the underlying security is in a Limit State or Straddle
state when evaluating whether a Market Maker has met the continuous
quoting requirements of Rule 22.6(d). The Exchange believes that this
relief will help to maintain a fair and efficient marketplace for the
execution of options.
The Exchange is also proposing to amend Rule 22.6(d) to provide an
exception to the continuous quoting requirements for Market Makers
during a Trading Halt. Currently, the Exchange does not provide an
exemption for its requirement that a Market Maker enter continuous bids
and offers for the options series to which it is registered. Much like
when an underlying security is in a Limit State or a Straddle State,
there is no reliable price during a Trading Halt to serve as a
benchmark for the price of the related option because the only
available price is the last trade prior to the Trading Halt. Based on
this concern and for the same reasons discussed above, the Exchange is
proposing to exempt Market Makers from existing continuous quoting
requirements during a Trading Halt.
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.\6\ In particular, the
proposal is consistent with Section 6(b)(5) of the Act,\7\ 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 exempting Market Makers
from the continuous quoting requirements on BATS Options when the
underlying security is in a Limit State or Straddle State or a Trading
Halt will help to prevent executions that might occur at prices that
have not been reliably formed. Further, the proposed changes will allow
Market Makers to enter orders only where the Market Maker is confident
in the price of the option, rather than on a continuous basis in all
series in which the Market Maker is registered, which the Exchange
believes will help to minimize uncertainty during a volatile market.
The Exchange also believes that these changes will help to incentivize
participants registered with BATS as Market Makers to continue to act
as Market Makers, rather than potentially causing Market Makers to de-
register. The Exchange also believes that this change will help to
protect all investors from executions at prices that are not based on a
reliable benchmark for the price of an option during times of
significant volatility, and thus, believes the proposal to be
consistent with the protection of investors and the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 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 other options exchanges are proposing to suspend a market
maker's quoting obligations when the underlying security is subject to
a Limit State or Straddle State in connection with the Limit Up-Limit
Down Plan consistent with the Exchange's handling 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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 No. SR-BATS-2013-016 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-2013-016. 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 No. SR-BATS-2013-016 and should be
submitted on or before April 2, 2013.
[[Page 15775]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05571 Filed 3-11-13; 8:45 am]
BILLING CODE 8011-01-P