[Federal Register Volume 79, Number 209 (Wednesday, October 29, 2014)]
[Notices]
[Pages 64431-64434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25666]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73412; File No. SR-BATS-2014-052]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rules
11.9 and 11.13 of BATS Exchange, Inc.
October 23, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 17, 2014, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission'') a
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 Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rules 11.9 and 11.13 to
modify the routing strategies made available through the Exchange.
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.
[[Page 64432]]
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 Y-Exchange,
Inc. (``BYX'') received approval to effect 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'').\3\ 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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\3\ 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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The specific proposal set forth in more detail below would amend
Rules 11.9 and 11.13, which describe the Exchange's routing options
made available by the Exchange. Specifically, the changes to Rule 11.9
would relocate certain routing strategies identified as order types to
Rule 11.13. The Exchange is also proposing to eliminate an obsolete
routing strategy that is currently listed as an order type. Finally,
the Exchange proposes to add to Rule 11.13 to offer many of the same
routing strategies offered by EDGA and EDGX. The Exchange notes that
the proposed rule text is based on the rules of EDGA and EDGX and is
different only to the extent necessary to conform to the Exchange's
current rules.\4\
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\4\ See EDGA Rules 11.9(b)(2)(c), 11.9(b)(2)(d), 11.9(b)(2)(h),
11.9(b)(2)(i), 11.9(b)(2)(n); EDGX Rules 11.9(b)(2)(c),
11.9(b)(2)(d), 11.9(b)(2)(h), 11.9(b)(2)(i), 11.9(b)(2)(j),
11.9(b)(2)(n).
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Modifications to Rule 11.9
As noted above, the Exchange proposes to re-locate two routing
strategies from Rule 11.9 to Rule 11.13. Rule 11.9 generally contains
order types and order type modifiers whereas Rule 11.13 describes
routing strategies offered by the Exchange. Accordingly, the Exchange
proposes to relocate Destination Specific Orders and Directed
Intermarket Sweep Orders (``Directed ISOs'') from Rule 11.9 to Rule
11.13 because both orders are routing strategies rather than order
types or order type modifiers. The Exchange notes that Rule 11.13 has
always reflected that such descriptions are routing strategies by
containing a cross-reference to such strategies in Rule 11.13(a)(3).
The Exchange is not proposing to modify the description or operation of
either Destination Specific Orders or Directed Intermarket Sweep
Orders. The Exchange notes that it has proposed minor changes to the
wording of both Destination Specific Orders and Directed ISOs in order
to conform such routing strategies with the other strategies described
in Rule 11.13(a)(3).
The Exchange also proposes to delete from Rule 11.9 an obsolete
routing strategy, the Modified Destination Specific Order, which is
currently set forth in Rule 11.9(c)(13). Modified Destination Specified
Orders are market or limit orders that instruct the System \5\ to route
the order to a specified away trading center or centers, as approved by
the Exchange from time to time, without first exposing the order to the
Exchange's order book (the ``BATS Book'').\6\ The Exchange notes that
it has not had any approved away trading centers for Modified
Destination Specific Orders for several years but has retained the
order in the event the Exchange determined to offer such routing
strategy again. The Exchange believes that it is appropriate to
eliminate Modified Destination Specific Orders because they are no
longer offered by the Exchange and are unlikely to be offered by the
Exchange in the near future.
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\5\ As defined in Rule 1.5(aa), the System is 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.
\6\ As defined in Rule 1.5(e).
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Additions to Rule 11.13
The Exchange proposes to add several new routing strategies based
on routing strategies offered by EDGA and/or EDGX, as set forth below.
The Exchange currently offers various routing strategies under
which an order checks the System for available shares if so instructed
by the entering User and then is sent to destinations on the applicable
System routing table.\7\ Specifically, the Exchange offers TRIM, TRIM2,
TRIM3 and SLIM routing strategies. The Exchange proposes to consolidate
these routing strategies into a single rule, Rule 11.13(a)(3)(G), and
to add to this rule three additional routing strategies under which an
order checks the System for available shares and then is sent to
destinations on the applicable System routing table, namely ROUT, ROUX
and ROUZ. The Exchange also proposes to specify for ROUT and ROUX that
the entering User may select either Route To Improve (``RTI'') or Route
To Fill (``RTF''). RTI may route to multiple destinations at a single
price level simultaneously while RTF may route to multiple destinations
and at multiple price levels simultaneously.
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\7\ As set forth in Rule 11.13(a)(3), the term ``System routing
table'' refers to the proprietary process for determining the
specific trading venues to which the System routes orders and the
order in which it routes them.
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The Exchange notes that the RTI option coupled with either ROUT or
ROUX is similar to the Parallel D routing strategy described in current
Rule 11.13(a)(3)(B) in that it routes to multiple destinations
simultaneously but at a single price level whereas the RTF option
coupled with either ROUT or ROUX is similar to the Parallel 2D routing
strategy described in current Rule 11.13(a)(3)(C). The only distinction
between Parallel D and Parallel 2D on one hand and ROUT or ROUX coupled
with RTI or RTF on the other is that the existence of ROUT and ROUX
plus either RTI or RTF will provide additional flexibility by allowing
the Exchange to offer two System routing tables that can be paired with
the applicable routing methodology. In order to allow a gradual
migration from Parallel D and Parallel 2D to the proposed routing
strategies (ROUT or ROUX plus RTI or RTF) the Exchange is not proposing
to eliminate such routing strategies upon effectiveness of this
proposal. Instead, the Exchange proposes to continue to accept orders
designated for Parallel D and Parallel 2D routing and will eventually
retire such routing strategies and remove reference to the routing
strategies from Exchange rules once all affected Users have been
migrated away from Parallel D and Parallel 2D to the new routing
strategies. Further, adding the ROUT and ROUX routing strategies plus
the RTI and RTF options as proposed will ensure
[[Page 64433]]
consistency with EDGA and EDGX with respect to the names used to
describe the strategies.
The Exchange also proposes to add the Post to Away routing option,
which will route the remainder of a routed order to and posts such
order on the order book of a destination on the System routing table as
specified by the User. The Post to Away routing option is an
alternative to either cancelling a routed order back to a User or
posting such order to the BATS Book to the extent an order is not
completely filled through the routing process. The Post to Away routing
option can be combined with the following routing strategies (each of
which is separately described in this filing): ROUT, ROUX, ROUZ, INET,
RDOT, RDOX and ROLF.
The Exchange also proposes to adopt four additional routing
strategies under which an order checks the System for available shares
and is sent to a specified destination. Although the Exchange currently
has similar order routing options through the Destination Specific
routing option, the Exchange is proposing certain additional
functionality with the proposed routing strategies to match
functionality offered by EDGA and EDGX. The Exchange also believes that
retaining the same names for such routing options as are utilized by
EDGA and EDGX will help to promote the integration of the BGM
Affiliated Exchanges. These proposed routing strategies that are
focused on particular destinations and/or particular functionality
offered by such destinations are set forth below:
INET. The Exchange proposes to add the INET routing option
under which an order will check the System for available shares and
then will be sent to Nasdaq. If shares remain unexecuted after routing
through the INET routing option, they will be posted on the Nasdaq
book, unless otherwise instructed by the User.
RDOT. The Exchange proposes to add the RDOT routing option
under which an order will check the System for available shares and
then will be sent to destinations on the System routing table. If
shares remain unexecuted after routing, they will be sent to NYSE and
can be re-routed by the NYSE. If shares remain unexecuted after
routing, they will be posted to the NYSE, unless otherwise instructed
by the User.
RDOX. The Exchange proposes to add the RDOX option under
which an order will check the System for available shares, then will be
sent to the NYSE and can be re-routed by the NYSE. If shares remain
unexecuted after routing, they will be posted on the NYSE book, unless
otherwise instructed by the User.
ROLF. The Exchange proposes to add the ROLF routing option
under which an order will check the System for available shares and
then will be sent to LavaFlow ECN. If shares remain unexecuted after
routing they will be cancelled, unless otherwise instructed by the
User.
The Exchange also proposes to add the ROOC routing option for
orders that the entering User wishes to designate for participation in
the opening, re-opening (following a halt, suspension, or pause), or
closing process of a primary listing market (NYSE, Nasdaq, NYSE MKT, or
NYSE Arca) if received before the opening/re-opening/closing time of
such market. If shares remain unexecuted after attempting to execute in
the opening, re-opening, or closing process, they will be posted to the
BATS Book, executed, or routed to destinations on the System routing
table.
In addition to the changes proposed above, the Exchange also
proposes to re-number various existing paragraphs of Rule 11.13(a)(3)
in connection with the addition of the proposed routing strategies. The
Exchange also proposes to correct a typographical error in Rule
11.13(a)(3)(I), which describes SWP orders, by referencing Rule
11.18(e) instead of Rule 11.8(e) with respect to the Limit Up-Limit
Down Plan.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'')
\8\ and further the objectives of Section 6(b)(5) of the Act \9\
because they are 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. The proposed rule change also is designed to support the
principles of Section 11A(a)(1) \10\ of the Act in that it seeks to
assure fair competition among brokers and dealers and among exchange
markets. In particular, the proposed change to introduce additional
routing strategies will provide market participants with greater
flexibility in routing orders consistent with Regulation NMS without
developing order routing strategies on their own.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78k-1(a)(1).
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As noted above, the proposed rule changes to add functionality are
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 BYX, EDGA and/or
EDGX. The proposed rule changes 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. As explained
elsewhere in this proposal, all of the proposed routing options are
similar to routing strategies on other market centers, including EDGA
and EDGX.
The Exchange also believes that re-locating certain routing options
from Rule 11.9 to Rule 11.13 is consistent with the protection of
investors and the public interest pursuant to the Act because such
changes will enable those reviewing the Exchange's rules to more
clearly understand such rules.
Finally, the Exchange believes that elimination of the Modified
Destination Specific Order is consistent with the Act because such
routing strategy is not currently offered by the Exchange because there
are no currently approved destinations for such strategy. Thus,
eliminating reference to such strategy will avoid confusion by market
participants.
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
provides routing services in a highly competitive market in which
participants may avail themselves of a wide variety of routing options
offered by self-regulatory organizations, alternative trading systems,
other broker-dealers, market participants' own proprietary routing
systems, and service bureaus. In such an environment, system
enhancements such as the changes proposed in this rule filing do not
burden competition, because they can succeed in attracting order flow
to the Exchange only if they offer investors higher quality and better
value than services offered by others. The Exchange reiterates that the
proposed rule change
[[Page 64434]]
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 \11\ and Rule 19b-4(f)(6) thereunder.\12\
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.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
\13\ 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 \14\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ 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 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 Exchange also believes that the benefit to
Exchange Users expected from the proposed rule change--greater
flexibility in their efforts to fill orders--should not be delayed.
Further, the Exchange states that introduction of the optional routing
strategies will not require any systems changes by Exchange Users that
would necessitate a delay, as selection of the routing strategies is
entirely optional and Users will not be affected by the change unless
they select to use the newly offered functionality. 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.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ 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 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-BATS-2014-052 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-2014-052. 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 offices 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-2014-052,
and should be submitted on or before November 19, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25666 Filed 10-28-14; 8:45 am]
BILLING CODE 8011-01-P