[Federal Register Volume 79, Number 189 (Tuesday, September 30, 2014)]
[Notices]
[Pages 58845-58847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23224]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73203; File No. SR-BATS-2014-040]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change to Rule 21.7 of BATS Exchange, Inc.
September 24, 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 September 12, 2014, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 21.7, entitled ``Market
Opening Procedures'' in order to modify the process by which the
Exchange's equity options trading platform (``BATS Options'') opens
trading at the beginning of the day and after trading halts.
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 the proposed rule changes is to amend BATS Rule 21.7
in order to amend the Opening Process \3\ by executing orders in the
Opening Process based on time priority instead of price-time priority,
treating orders that are not executed during the Opening Process as if
they had just been entered by a User \4\ rather than cancelling certain
orders, and adding certain clarifying language to the Rule in order to
make the Opening Process more clear. The Exchange is also proposing to
add titles to BATS Rule 21.7(a)(1), (2), (3), and (4) in order to make
the rule text easier to follow. The Exchange is not proposing to amend
the process by which orders are entered or the Opening Price \5\ is
determined or validated.
---------------------------------------------------------------------------
\3\ Opening Process is defined in BATS Rule 21.7(a).
\4\ User is defined in BATS Rule 16.1(a)(63).
\5\ Opening Price is defined in BATS Rule 21.7(a)(1).
---------------------------------------------------------------------------
Currently, after establishing an Opening Price that is also a Valid
Price,\6\ orders and quotes in the System \7\ that are priced equal to
or more aggressively than the Opening Price will be matched based on
price-time priority and in accordance with BATS Rule 21.8. All orders
and quotes or portions thereof that are matched pursuant to the Opening
Process will be executed at the Opening Price. Where orders that meet
the following criteria are not executed during the Opening Process,
they will be cancelled: (i) Limit orders that are priced equal to or
more aggressively than the Opening Price; and (ii) market orders. Where
the Exchange is going to open trading in a series pursuant to Rule
21.7(a)(1)(D) (where there is no NBBO Midpoint, no Print, and no
Previous Close at a Valid Price) (a ``Contingent Open'') and there is
at least one price level at which at least one contract of a limit
order could be executed, the System will similarly cancel all orders
that are priced equal to or more aggressively than the midpoint of the
most aggressively priced bid and the most aggressively priced offer.
Limit orders and quotes that are not executed during the Opening
Process or cancelled as set forth above shall become eligible for
trading on BATS Options immediately following the completion of the
Opening Process. Finally, where there are no orders in a series that
are
[[Page 58846]]
matched at the Opening Price, the System will open the series for
trading.
---------------------------------------------------------------------------
\6\ Valid Price is defined in BATS Rule 21.7(a)(2).
\7\ System is defined in BATS Rule 1.5(aa).
---------------------------------------------------------------------------
The Exchange is proposing to amend its Rules in order to match
orders for execution in the Opening Process based on time priority
rather than price-time priority and in accordance with Rule 21.9. The
Exchange believes that handling orders in time priority makes more
sense than price-time priority for the Opening Process because the
price of the order is not particularly important to the Opening
Process, so long as the order is priced at or more aggressively than
the Opening Price, which can only be one of three prices: the midpoint
of the NBBO; the last regular way print disseminated to the OPRA Plan
\8\ after 9:30 a.m.; or the last regular way transaction from the
previous trading day as disseminated pursuant to OPRA.\9\ Because the
Opening Price is always based on a price-taking process rather than a
price-forming process, there is no reason to reward a more aggressive
order with priority in the Opening Process. Thus, the Exchange is
proposing that all orders and quotes that are priced equal to or more
aggressively than the Opening Price be matched based only on time
priority and will be matched until there is no remaining volume or
there is an imbalance of orders that are not executed in whole or in
part, at which point all matched orders and quotes will be executed at
the Opening Price. Further, the Exchange is also proposing to handle
all orders that are not executed in the Opening Process in time
priority. Specifically, the Exchange is proposing to handle such orders
in time sequence, beginning with the order with the oldest time stamp
and may, in whole or in part, place such orders on the BATS Options
Book,\10\ cancel the orders, execute the orders, or route the orders in
accordance with Rule 21.9. If an order is placed on the BATS Options
Book, it will then be subject to the standard price-time priority and
subject to Rule 21.8. This proposed functionality will apply to all
orders, including both those orders that are not executed under
proposed Rule 21.7(a)(3) and orders in a series that is opening subject
to a Contingent Open. While the Exchange currently cancels any orders
that are not executed in the Opening Process that are priced more
aggressively than the Opening Price, the Exchange is proposing to
simply enter these orders on to the BATS Options Book as described
above in order to minimize the number of orders that are cancelled and
must be reentered by Users. The Exchange notes that all order
protections, including Trade-Through \11\ protection and a BATS Market
Order \12\ collar, will apply to orders entered pursuant to proposed
Rule 21.7(a)(3) and 21.7(a)(4).
---------------------------------------------------------------------------
\8\ OPRA Plan is defined in BATS Rule 27.1(15).
\9\ OPRA is defined in BATS Rule 27.1(14).
\10\ BATS Options Book is defined in BATS Rule 16.1(a)(9).
\11\ Trade-Through is defined in BATS Rule 27.1(22).
\12\ BATS Market Order is defined in BATS Rule 21.1(d)(5).
---------------------------------------------------------------------------
The Exchange is also proposing to eliminate the current
functionality of cancelling orders that are not executed during the
Opening Process that fit the following criteria: (i) Limit orders that
are priced equal to or more aggressively than the Opening Price; and
(ii) market orders. Further, the Exchange is proposing to eliminate the
current functionality for a series subject to a Contingent Open where,
if there is at least one price level at which at least one contract of
a limit order can be executed, the System will cancel all orders that
are priced equal to or more aggressively than the midpoint of the most
aggressively priced bid and the most aggressively priced offer. While
not cancelling these orders might result in executions at a price that
is not the same as the Opening Price that occur as the orders are
handled in time sequence (either on BATS Options or upon routing to
another options exchange), these executions would be part of regular
way trading and are distinct from the opening execution that occurs as
a result of the Opening Process. For many Users, cancelling orders that
were entered for participation in the Opening Process negates the
advantages of allowing orders to be entered prior to the beginning of
regular way trading and the Opening Process. As such, the Exchange is
proposing this functionality in order to provide Users with the
certainty that orders that are entered prior to the Opening Process
will not be cancelled based on market conditions outside of a User's
control.
Finally, the Exchange is proposing to clarify its rules around the
Opening Process. Specifically, the Exchange is proposing to add
language to Rule 21.7(a)(3) stating that the Opening Process will be
performed after the establishment of an Opening Price that is a Valid
Price \13\ and that matches will occur until there is no remaining
volume or there is an imbalance of orders, both of which it believes
are implicit, but will make the rule text more clear. The Exchange is
also proposing to add titles to Rules 21.7(a)(1) through (4) in order
to make the rule text easier to follow. The Exchange is also proposing
to delete Rule 21.7(a)(5), which states that where no orders are
matched at the Opening Price, the System will open the series for
trading because such situation will be covered by proposed Rule
21.7(a)(3), as described above.
---------------------------------------------------------------------------
\13\ Valid Price is defined in BATS Rule 21.7(a)(2).
---------------------------------------------------------------------------
2. Statutory Basis
The rule change proposed in this submission 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.\14\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\15\
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, and, in general, to
protect investors and the public interest. The Exchange believes that
the Opening Process for options listed on the Exchange will help to
ensure that BATS Options opens trading in options contracts in a fair
and orderly manner. Specifically, the Exchange believes that handling
orders in time priority will both create a more orderly opening and
makes more sense than price-time priority for the Opening Process
because the price of the order is not particularly important to the
Opening Process, so long as the order is priced at or more aggressively
than the Opening Price and, as such, there is no reason to reward a
more aggressive order with priority in the Opening Process.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange also believes that entering orders in time sequence
based on the time that they were received instead of cancelling certain
orders will create a more orderly opening because Users will enter
orders and quotes prior to the opening of trading that they know will
either participate in the Opening Process or be handled as if they were
entered immediately following the Opening Process and, more
importantly, will not be cancelled, unless otherwise instructed by the
User.
Modifying the Opening Process will also provide Market Makers and
other Users with greater control and flexibility with respect to
entering orders and quotes, allowing them to enter orders and quotes in
advance of the Opening Process that they know will not be cancelled
because of market conditions out of the control of the User that
entered the order. This simplifies the
[[Page 58847]]
process for Market Makers and other Users by providing them certainty
as to when orders and quotes can be submitted without having to
resubmit orders in options series that have been cancelled, which
removes impediments to a free and open market and benefits all Users of
BATS Options.
As described above, the Exchange believes that the other proposed
changes to its rulebook to clarify and add additional detail provides
further clarification to Members, Users, and the investing public
regarding the functionality of the Opening Process.
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's
current Opening Process in which certain orders and quotes may be
cancelled based on market conditions beyond the entering User's control
limits competition in that other exchanges are able to accept orders
and quotes before trading in options opens that will not be cancelled.
Thus, approval of the proposed rule change will promote competition
because it will allow the Exchange to offer its Users the ability to
enter orders and quotes prior to the opening of trading that will not
be cancelled and thus compete with other exchanges for order flow that
a User may not have directed to the Exchange if they were not able to
enter orders and quotes prior to the open that were not eligible to be
cancelled.
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
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 Exchange 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 Number SR-BATS-2014-040 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-BATS-2014-040. 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-2014-040, and should be
submitted on or before October 21, 2014.
---------------------------------------------------------------------------
\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23224 Filed 9-29-14; 8:45 am]
BILLING CODE 8011-01-P