[Federal Register Volume 78, Number 50 (Thursday, March 14, 2013)]
[Notices]
[Pages 16308-16311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-05893]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69088; File No. SR-BYX-2013-010]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Exchange Rules in Connection With the Limit Up-Limit Down Plan
March 8, 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 February 28, 2013, BATS Y-Exchange, Inc. (``BYX'' or
``Exchange'') 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 11.18 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\
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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 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 proposes to amend Exchange Rule 11.18 to establish
rules to comply with the requirements of the Limit Up-Limit Down Plan.
The Exchange proposes to adopt the changes to become operative on a
date that coincides with the commencement of operations of the Plan,
which is currently scheduled as a one-year pilot to begin on April 8,
2013. Accordingly, as proposed, the Exchange has designated an
operative date of April 8, 2013 to allow the Rules to become effective
and operative on the initial date of operation of the Plan.
Background
Since May 6, 2010, when the markets experienced excessive
volatility in an abbreviated time period, i.e., the ``flash crash,''
the equities exchanges and FINRA have implemented market-wide measures
designed to restore investor confidence by reducing the potential for
excessive market volatility. Among the measures adopted include pilot
plans for stock-by-stock trading pauses \6\ and related changes to the
equities market clearly erroneous execution rules \7\ and more
stringent equities market maker quoting requirements.\8\ On May 31,
2012, the Commission approved the Plan, as amended, on a one-year pilot
basis.\9\ In addition, the Commission approved changes to the equities
market-wide circuit breaker rules on a pilot basis to coincide with the
pilot period for the Plan.\10\
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\6\ See, e.g., Rule 11.18.
\7\ See, e.g., Rule 11.17.
\8\ See, e.g., Rule 11.8.
\9\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving,
on a Pilot Basis, the National Market System Plan To Address
Extraordinary Market Volatility).
\10\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
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The Plan is designed to prevent trades in individual NMS Stocks
from occurring outside of specified Price Bands.\11\ As described more
fully below, the requirements of the Plan are coupled with Trading
Pauses to accommodate more fundamental price moves (as opposed to
erroneous trades or momentary gaps in liquidity). All trading centers
in NMS Stocks, including both those operated by Participants and those
operated by members of Participants, are required to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with the requirements specified in the
Plan.\12\ As set forth in more detail in the Plan, Price Bands
consisting of a Lower Price Band and an Upper Price Band for each NMS
Stock are calculated by the Processors.\13\ When the National Best Bid
(Offer) is below (above) the Lower (Upper) Price Band, the Processors
shall disseminate such National Best Bid (Offer) with an appropriate
flag identifying it as non-executable. When the National Best Bid
(Offer) is equal to the Upper (Lower) Price Band, the Processors shall
distribute such National Best Bid (Offer) with an appropriate flag
identifying it as a Limit State Quotation.\14\ All trading
[[Page 16309]]
centers in NMS Stocks must maintain written policies and procedures
that are reasonably designed to prevent the display of offers below the
Lower Price Band and bids above the Upper Price Band for NMS Stocks.
Notwithstanding this requirement, the Processor shall display an offer
below the Lower Price Band or a bid above the Upper Price Band, but
with a flag that it is non-executable. Such bids or offers shall not be
included in the National Best Bid or National Best Offer
calculations.\15\
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\11\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\12\ The Exchange is a Participant in the Plan.
\13\ See Section (V)(A) of the Plan.
\14\ See Section VI(A) of the Plan.
\15\ See Section VI(A)(3) of the Plan.
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Trading in an NMS Stock immediately enters a Limit State if the
National Best Offer (Bid) equals but does not cross the Lower (Upper)
Price Band.\16\ Trading for an NMS stock exits a Limit State if, within
15 seconds of entering the Limit State, all Limit State Quotations were
executed or canceled in their entirety. If the market does not exit a
Limit State within 15 seconds, then the Primary Listing Exchange would
declare a five-minute Trading Pause pursuant to Section VII of the
Limit Up-Limit Dow Plan, which would be applicable to all markets
trading the security.\17\ In addition, the Plan defines a Straddle
State as when the National Best Bid (Offer) is below (above) the Lower
(Upper) Price Band and the NMS Stock is not in a Limit State. For
example, assume the Lower Price Band for an NMS Stock is $9.50 and the
Upper Price Band is $10.50, such NMS stock would be in a Straddle State
if the National Best Bid were below $9.50, and therefore non-
executable, and the National Best Offer were above $9.50 (including a
National Best Offer that could be above $10.50). If an NMS Stock is in
a Straddle State and trading in that stock deviates from normal trading
characteristics, the Primary Listing Exchange may declare a Trading
Pause for that NMS Stock.
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\16\ See Section VI(B)(1) of the Plan.
\17\ The primary listing market would declare a trading pause in
an NMS Stock; upon notification by the primary listing market, the
Processor would disseminate this information to the public. No
trades in that NMS Stock could occur during the trading pause, but
all bids and offers may be displayed. See Section VII(A) of the
Plan.
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Proposed Amendment to Rule 11.18
The Exchange is required by the Plan to establish, maintain, and
enforce written policies and procedures that are reasonably designed to
comply with the limit up-limit down and trading pause requirements
specified in the Plan. In response to the new Plan, the Exchange
proposes to amend its Rules accordingly.
The Exchange proposes to add Rule 11.18(e)(1)(A) to define that
``Plan'' means the Plan to Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS under the Act, as amended from
time to time. In addition, proposed Rule 11.18(e)(1)(B) provides that
all capitalized terms not otherwise defined in paragraph (e) of the
Rule shall have the meanings set forth in the Plan or Exchange rules,
as applicable.
The Exchange proposes to add Rule 11.18(e)(2) to provide that the
Exchange is a Participant in, and subject to the applicable
requirements of, the Plan, which establishes procedures to address
extraordinary volatility in NMS Stocks.
The Exchange proposes to add Rule 11.18(e)(3) to provide that
Exchange Members shall comply with the applicable provisions of the
Plan. The Exchange believes that this requirement will help ensure the
compliance by its Members with the provisions of the Plan as required
pursuant to Section II(B) of the Plan.\18\
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\18\ See Section II(B) of the Plan.
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The Exchange proposes to add Rule 11.18(e)(4) to provide that the
Exchange's System \19\ shall not display or execute buy (sell) interest
above (below) the Upper (Lower) Price Bands, unless such interest is
specifically exempted under the Plan. The Exchange believes that this
requirement is reasonably designed to help ensure the compliance with
the limit up-limit down and trading pause requirements specified in the
Plan, by preventing executions outside the Price Bands as required
pursuant to Section VI(A)(1) of the Plan.\20\
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\19\ The ``System'' is defined in BYX Rule 1.5(aa) as ``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.''
\20\ See Section VI(A)(1) of the Plan.
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The Exchange proposes Rules regarding the treatment of certain
trading interest on the Exchange in order to prevent executions outside
the Price Bands and to comply with the new Limit Up-Limit Down Plan. In
particular, the Exchange proposes to add Rule 11.18(e)(5) to provide
that Exchange systems shall re-price and/or cancel buy (sell) interest
that is priced or could be executed \21\ above (below) the Upper
(Lower) Price Band. When re-pricing resting orders because such orders
are above (below) the Upper (Lower) Price Band, the Exchange will
provide new timestamps to such orders. The Exchange will also provide
new timestamps to resting orders at the less aggressive price to which
such orders are re-priced. Any resting interest that is re-priced
pursuant to this Rule shall maintain priority ahead of interest that
was originally less aggressively priced, regardless of the original
timestamps for such orders.
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\21\ The Exchange notes that this includes any interest that is
displayed and/or resting at a less aggressive price but executable
at a more aggressive price, such as orders subject to price sliding
and discretionary order types.
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Specifically, the Exchange proposes the following provisions
regarding the re-pricing or canceling of certain trading interest:
Market Orders and IOC Orders. The System will only execute
BATS market orders or IOC Orders at or within the Price Bands. If a
Market Order or IOC Order cannot be fully executed at or within the
Price Bands, the System shall cancel any unexecuted portion of the
order without posting such order to the Exchange's order book.
Limit-priced Interest. Limit-priced Interest.
[cir] Orders Not Subject to Re-Pricing. Limit-priced interest will
be cancelled if a User has entered instructions not to use the re-
pricing process and such interest to buy (sell) is priced above (below)
the Upper (Lower) Price Band.
[cir] Incoming Orders. If re-pricing is permitted based on a User's
instructions, both displayable and non-displayable incoming limit-
priced interest to buy (sell) that is priced above (below) the Upper
(Lower) Price Band shall be re-priced to the Upper (Lower) Price Band.
[cir] Resting Orders. The System shall re-price resting limit-
priced interest to buy (sell) to the Upper (Lower) Price Band if Price
Bands move such that the price of resting limit-priced interest to buy
(sell) would be above (below) the Upper (Lower) Price Band. If the
Price Bands move again and the original limit price of displayed and
re-priced interest is at or within the Price Bands and a User has opted
into the Exchange's optional multiple price sliding process, as
described in Rule 11.9(g), the System shall re-price such displayed
limit interest to the most aggressive permissible price up to the
order's limit price. All other displayed and non-displayed limit
interest re-priced pursuant to this paragraph (e) will remain at its
new price unless the Price Bands move such that the price of resting
limit-priced interest to buy (sell) would again be above (below) the
Upper (Lower) Price Band.
Pegged Interest. Pegged interest to buy (sell) shall peg
to the specified pegging price or the Upper (Lower) Price Band,
whichever is lower (higher).
Routable Orders. If routing is permitted based on a User's
instructions, orders shall be routed away from the Exchange pursuant to
[[Page 16310]]
Rule 11.13. The Exchange is not proposing any changes to its routing
functionality in connection with the implementation of the Limit Up-
Limit Down Plan.
Sell Short Orders. During a Short Sale Price Test, as
defined in Rule 11.19(b)(2), Short Sale Orders priced below the Lower
Price Band shall be re-priced to the higher of the Lower Price Band or
the Permitted Price, as defined in Rule 11.9(g)(2)(A).
The Exchange proposes to adopt Rule 11.18(e)(6) to state that
securities shall remain subject to the requirements of paragraph (d) of
the Rule until such securities become subject to the Plan. Paragraph
(d) of the Rule relates to existing individual single stock trading
pauses issued by each primary listing market for an NMS Stock. As set
forth in proposed Rule 11.18(e)(6), once an NMS Stock is subject to the
Plan, the security shall only be subject to a Trading Pause under the
Plan consistent with paragraph (f) of the Rule. Thus, paragraph (d)
will no longer apply to NMS Stocks subject to the Plan.
The Exchange believes that the provisions proposed above are
reasonably designed to prevent executions outside the Price Bands as
required by the limit up-limit down and trading pause requirements
specified in the Plan.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \22\ in general, and furthers the objectives of Section
6(b)(5) of the Act \23\ 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. The proposal will ensure that the Exchange's System will not
display or execute trading interest outside the Price Bands in a manner
that promotes just and equitable principles of trade and removes
impediments to, and perfects the mechanism of, a free and open market
and a national market system.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
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The proposal will also ensure that the trading interest on the
Exchange is either re-priced to maintain priority or canceled in a
manner that promotes just and equitable principles of trade and removes
impediments to, and perfects the mechanism of, a free and open market
and a national market system. Specifically, the proposal will help
allow market participants to continue to trade NMS Stocks within Price
Bands in compliance with the Plan with certainty on how certain orders
and trading interest will be treated. Thus, reducing uncertainty
regarding the treatment and priority of trading interest with the Price
Bands should help encourage market participants to continue to provide
liquidity during extraordinary market volatility. The Exchange believes
it is consistent with the protection of investors and the promotion of
just and equitable principles of trade to allow resting orders to
retain their priority ahead of less aggressively priced liquidity in
the event such resting orders are re-priced in compliance with the
Plan. To do otherwise, the Exchange believes, would reduce incentives
to enter the most aggressively priced, displayed liquidity, and might
encourage firms to maintain interest that is one increment away from
the most aggressive price level in order to be first in priority in the
event of a re-pricing due to a Price Band.
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 enhances cooperation among markets and other
trading venues to promote fair and orderly markets and to protect the
interests of the public and of investors. The Limit Up-Limit Down Plan
is part of a coordinated effort amongst various parties including the
Exchange and other self-regulatory organizations as well as other
market participants. While the specific proposals to implement changes
to Exchange functionality consistent with the Plan may differ in
certain ways from the implementation adopted by other market centers,
the Exchange believes its proposals are consistent with the
requirements and purpose of the Plan.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\
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 prior to
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, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\24\ 15 U.S.C. 78s(b)(3)(A)(iii).
\25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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 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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At any time within 60 days of the filing of such 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-2013-010 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-2013-010. 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
[[Page 16311]]
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 publicly available. All submissions should refer to
File Number SR-BYX-2013-010 and should be submitted on or before April
4, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05893 Filed 3-13-13; 8:45 am]
BILLING CODE 8011-01-P