[Federal Register Volume 79, Number 165 (Tuesday, August 26, 2014)]
[Notices]
[Pages 50975-50977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20207]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72881; File No. SR-BYX-2014-016]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
11.9(f) of BATS Y-Exchange, Inc.
August 20, 2014.
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 August 11, 2014, 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
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.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 11.9(f) to adopt a new
Match Trade Prevention Modifier (``MTP'') called Cancel Smallest. The
Exchange has designated this proposal as non-controversial and provided
the Commission with the notice required by Rule 19b-4(f)(6)(iii) under
the Act.\3\ The Exchange requests that the Commission waive the 30-day
pre-operative waiting period contained in Rule 19b-4(f)(6)(iii) under
the Act.\4\ If such waiver is granted by the Commission, the Exchange
shall implement this rule proposal on or about August 22, 2014.
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\3\ 17 CFR 240.19b-4(f)(6)(iii).
\4\ Id.
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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
Earlier this year, the Exchange and its affiliate BATS Exchange,
Inc. (``BZX'') received approval to affect a merger (the ``Merger'') of
the Exchange's parent company, BATS Global Markets, Inc., with Direct
Edge Holdings LLC, the indirect parent of EDGX Exchange, Inc.
(``EDGX'') and EDGA Exchange, Inc. (``EDGA'', and together with BZX,
BYX and EDGX, the ``BGM Affiliated Exchanges'').\5\ In the context of
the Merger, the BGM Affiliated Exchanges are working to align certain
system functionality, retaining only intended differences between the
BGM Affiliated Exchanges. Thus, the proposal set forth below is
intended to add certain system functionality currently offered by EDGA
and EDGX in order to provide a consistent technology offering for users
of the BGM Affiliated Exchanges.
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\5\ See Securities Exchange Act Release No. 71375 (January 23,
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
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Like EDGA and EDGX,\6\ the Exchange currently offers various MTP
modifiers under BYX Rule 11.9(f) which are designed to prevent two
orders with the same Unique Identifier (as defined below) from
executing against each other. The MTP modifiers can be set at the
market participant identifier (``MPID''), the Exchange Member
identifier or the Exchange Sponsored Participant identifier level (any
such identifier, a ``Unique Identifier'').\7\ To align its MTP
functionality with EDGA and EDGX, the Exchange now proposes add a new
MTP modifier called Cancel Smallest (``MCS'') under BYX Rule 11.9(f).
An incoming order marked with the proposed MCS modifier will not
execute against opposite side resting interest marked with any MTP
modifier originating from the same Unique Identifier. If both orders
are equivalent in size, both orders will be cancelled back to the
originating User.\8\ If the
[[Page 50976]]
orders are not equivalent in size, the smaller of the two orders will
be cancelled back to the originating User and the larger order will
remain on the Book. The Exchange notes that the proposed rule text is
substantively identical to the rules of EDGA and EDGX.\9\
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\6\ See EDGA Rule 11.9(f); EDGX Rule 11.9(f).
\7\ Any Exchange Member that has an MPID issued by FINRA is
identified in the Exchange's internal systems by that MPID. Each
Exchange Member that does not already have an MPID and each
Sponsored Participant is issued an identifier that is specific to
the Exchange and allows the Exchange to determine the User for each
order and trade.
\8\ The term ``User'' is defined under Exchange Rule 11.5(cc) as
``any Member or Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3.''
\9\ See EDGA Rule 11.9(f)(5); EDGX Rule 11.9(f)(5).
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The Exchange believes its MTP functionality allows certain firms to
better internalize their agency order flow, which in turn may decrease
costs to customers of such firms. The Exchange notes that MTP modifiers
do not alleviate, or otherwise exempt, broker-dealers from their best
execution obligations. As such, broker-dealers using MTP modifiers are
obligated to internally cross agency orders at the same price, or a
better price than they would have received had the orders been executed
on the Exchange. Additionally, MTP modifiers assist market participants
in complying with certain rules and regulations of the Employee
Retirement Income Security Act (``ERISA'') that preclude and/or limit
managing broker-dealers of such accounts from trading as principal with
orders generated for those accounts. Finally, the Exchange notes that
offering the MTP modifiers may streamline certain regulatory functions
by reducing false positive results that may occur on Exchange generated
wash trading surveillance reports when orders are executed under the
same Unique Identifier. For these reasons, the Exchange believes the
MTP modifiers offer users enhanced order processing functionality that
may prevent potentially undesirable executions without negatively
impacting broker-dealer best execution obligations.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'')
\10\ and further the objectives of Section 6(b)(5) of the Act \11\
because 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, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and, in general, to protect investors and the public
interest. Specifically, the proposed MCS functionality would allow
firms to better manage order flow and prevent undesirable executions
against themselves, and the proposed change described herein enhances
the choices available to such firms in how they do so. The proposed
rule change also is designed to support the principles of Section
11A(a)(1) \12\ of the Act in that it seeks to assure fair competition
among brokers and dealers and among exchange markets.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ 15 U.S.C. 78k-1(a)(1).
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The proposed rule change is generally intended to add certain
system functionality currently offered by EDGA and EDGX in order to
provide a consistent technology offering for the BGM Affiliated
Exchanges. A consistent technology offering, in turn, will simplify the
technology implementation, changes and maintenance by Users of the
Exchange that are also participants on BZX, EDGA and/or EDGX. The
proposed rule change would also provide Users with access to
functionality that may result in the efficient execution of such orders
and will provide additional flexibility as well as increased
functionality to the Exchange's System and its Users.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
reiterates that the proposed rule change is being proposed in the
context of the technology integration of the BGM Affiliated Exchanges.
Thus, the Exchange believes this proposed rule change is necessary to
permit fair competition among national securities exchanges. In
addition, the Exchange believes the proposed rule change will benefit
Exchange participants in that it is one of several changes necessary to
achieve a consistent technology offering by the BGM Affiliated
Exchanges.
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) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
Because the foregoing 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 is filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\15\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6). 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \16\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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 so that
the proposal may become operative immediately upon filing, noting that
a waiver of the operative delay will allow the Exchange to align its
MTP functionality across the BGM Affiliated Exchanges in a timely
manner, thereby simplifying the technology implementation, changes and
maintenance by Users of the Exchange that are also participants on
other BGM Affiliated Exchanges. The Exchange also states that waiver of
the operative delay is consistent with the protection of investors and
the public interest because it will allow the Exchange to continue to
strive towards a complete technology integration of the BGM Affiliated
Exchanges, with gradual roll-outs of new functionality to ensure
stability of the System. 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
operative delay and designates the proposed rule change operative upon
filing.\18\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ 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. If the
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Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or 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 Number SR-BYX-2014-016 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BYX-2014-016. 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 at 100 F Street NE.,
Washington, DC 20549-1090 on official business days between the hours
of 10 a.m. and 3 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-BYX-2014-016, and should be
submitted on or before September 16, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20207 Filed 8-25-14; 8:45 am]
BILLING CODE 8011-01-P