[Federal Register Volume 80, Number 58 (Thursday, March 26, 2015)]
[Notices]
[Pages 16031-16040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06890]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74556; File No. SR-BATS-2014-067]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of Amendment No. 2, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, to
BATS Rules 20.3 and 20.6
March 20, 2015.
I. Introduction
On December 4, 2014, BATS Exchange, Inc. (the ``Exchange'' or
[[Page 16032]]
``BATS'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to Exchange Rule 20.6 (relating to the adjustment
and nullification of transactions that occur on the Exchange's equity
options platform) and Exchange Rule 20.3 (relating to trading halts).
On December 17, 2014, the Exchange submitted Amendment No. 1 to the
proposed rule change, which amended and replaced the proposed rule
change in its entirety. The proposed rule change, as modified by
Amendment No. 1, was published for comment in the Federal Register on
December 24, 2014.\3\ The Commission received two comment letters on
the proposed rule change.\4\ On March 4, 2015, the Exchange submitted a
response to the comment letters.\5\ On March 13, 2015, the Exchange
submitted Amendment No. 2 to the proposed rule change.\6\ The
Commission is publishing this notice to solicit comment on Amendment
No. 2 to the proposed rule change from interested persons and is
approving the proposed rule change, as modified by Amendment Nos. 1 and
2, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 73884 (December 18,
2014), 79 FR 77557 (``Notice'').
\4\ See letters to Brent J. Fields, Secretary, Commission, from
Paul M. Russo, Managing Director, Goldman Sachs & Co., dated January
13, 2015 (``Goldman Letter''); and Ellen Greene, Managing Director,
Securities Industry and Financial Markets Association, dated January
28, 2015 (``SIFMA Letter'').
\5\ See letter to Brent J. Fields, Secretary, Commission, from
Anders W. Franzon, Vice President and Associate General Counsel,
BATS Exchange, Inc., dated March 4, 2015 (``BATS Response Letter'').
\6\ In Amendment No. 2, the Exchange: (1) Made technical, non-
substantive corrections to the definition of ``Size Adjustment
Modifier'' in paragraph (a)(4) of Proposed Rule 20.6 and the
criterion used to measure the occurrence of a Significant Market
Event in paragraph (e)(1) of Proposed Rule 20.6; (2) amended the
description in paragraph (b) of Proposed Rule 20.6 to use the last
NBB and last NBO prior to the Exchange's receipt of an order as the
Theoretical Price for determining the execution price at all price
levels when a single order is executed at multiple price levels; (3)
updated the expiration date of the pilot program related to the
suspension of certain provisions of the Proposed Rule to October 23,
2015 in connection with the Limit Up-Limit Down Plan and made clear
that it would provide a publicly available assessment of the
operation of this portion of the Proposed Rule by May 29, 2015; and
(4) proposed an implementation date of May 8, 2015, to allow all the
other options exchanges the time necessary to harmonize their
obvious error rules with the Proposed Rule.
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II. Description of the Proposed Rule Change
The Exchange proposes to replace current Exchange Rule 20.6
(``Current Rule''), entitled ``Obvious Error,'' with new Exchange Rule
20.6 (``Proposed Rule''), entitled ``Nullification and Adjustment of
Options Transactions including Obvious Errors.'' Exchange Rule 20.6
relates to the adjustment and nullification of transactions that occur
on the Exchange's equity options platform (``BATS Options'').
A. Background
The Exchange has been working with other options exchanges to
identify ways to improve the process related to the adjustment and
nullification of erroneous options transactions. The Proposed Rule is
the culmination of a coordinated effort by the options exchanges to
address the August 22, 2013, halt of trading in Nasdaq-listed
securities (``Nasdaq SIP Failure''). Following the Nasdaq SIP Failure,
the Chair of the Commission met with the heads of the securities
exchanges to discuss potential initiatives aimed at addressing market
resilience.\7\ The Proposed Rule responds to the Chair's initiative,
and reflects discussions by the options exchanges to universally adopt:
(1) Certain provisions already in place on one or more options
exchanges; and (2) new provisions that the options exchanges
collectively believe will improve the handling of erroneous options
transactions.
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\7\ See SEC Press Release No. 2013-178 (September 12, 2013),
available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539804861.
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B. Proposed Rule
1. Definitions
The Exchange proposes to adopt various definitions that will be
used in the Proposed Rule, as described below.
First, the Exchange proposes to adopt a definition of ``Customer,''
to make clear that this term would not include any broker-dealer or
Professional Customer.\8\
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\8\ A ``Professional'' is any person or entity that (A) is not a
broker or dealer in securities; and (B) places more than 390 orders
in listed options per day on average during a calendar month for its
own beneficial account(s). See Exchange Rule 16.1(a)(45).
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Second, the Exchange proposes to adopt definitions for both an
``erroneous sell transaction'' and an ``erroneous buy transaction.'' As
proposed, an erroneous sell transaction is one in which the price
received by the person selling the option is erroneously low, and an
erroneous buy transaction is one in which the price paid by the person
purchasing the option is erroneously high.
Third, the Exchange proposes to adopt a definition of ``Official,''
which would mean an Officer of the Exchange or such other employee
designee of the Exchange that is trained in the application of the
Proposed Rule.
Fourth, the Exchange proposes to adopt a new term, a ``Size
Adjustment Modifier,'' which would apply to individual transactions and
would modify the applicable adjustment for transactions under certain
circumstances, as discussed in further detail below. As proposed, the
Size Adjustment Modifier will be applied to individual transactions as
follows:
------------------------------------------------------------------------
Adjustment: Theoretical price
Number of contracts per execution (as defined below) plus/minus
------------------------------------------------------------------------
1-50.................................. N/A.
51-250................................ 2 times adjustment amount.
251-1000.............................. 2.5 times adjustment amount.
1001 or more.......................... 3 times adjustment amount.
------------------------------------------------------------------------
2. Calculation of Theoretical Price
a. Theoretical Price in Normal Circumstances
When reviewing a transaction as potentially erroneous, the Exchange
needs to first determine the ``Theoretical Price'' of the option, i.e.,
the Exchange's estimate of the correct market price for the option.
Pursuant to the Proposed Rule, if the applicable option series is
traded on at least one other options exchange, then the Theoretical
Price of an option series is the last national best bid (``NBB'') just
prior to the trade in question with respect to an erroneous sell
transaction or the last national best offer (``NBO'') just prior to the
trade in question with respect to an erroneous buy transaction unless
one of the exceptions described below exists. Thus, the Exchange
proposes that whenever the Exchange has a reliable NBB or NBO, as
applicable, just prior to the transaction, then the Exchange will use
this NBB or NBO as the Theoretical Price for determining the execution
price at all price levels.
The Exchange also proposes to set forth in the Proposed Rule
various provisions governing specific situations where the NBB or NBO
is not available or may not be reliable. Specifically, the Exchange is
proposing additional detail specifying situations in which there are no
quotes or no valid quotes (as defined below), when the national best
bid or offer (``NBBO'') is determined to be too
[[Page 16033]]
wide to be reliable, and at the open of trading on each trading day.
b. No Valid Quotes
The Exchange proposes to determine the Theoretical Price if there
are no quotes or no valid quotes for comparison purposes. As proposed,
quotes that are not valid are all quotes in the applicable option
series published at a time where the last NBB is higher than the last
NBO in such series (a ``crossed market''), quotes published by the
Exchange that were submitted by either party to the transaction in
question, and quotes published by another options exchange against
which the Exchange has declared self-help. Thus, in addition to
scenarios where there are literally no quotes to be used as Theoretical
Price, the Exchange will exclude quotes in certain circumstances if
such quotes are not deemed valid.
c. Wide Quotes
The Exchange proposes to determine the Theoretical Price if the
bid/ask differential of the NBB and NBO for the affected series just
prior to the erroneous transaction was equal to or greater than the
Minimum Amount set forth below and there was a bid/ask differential
less than the Minimum Amount during the 10 seconds prior to the
transaction. If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds prior to the transaction then the
Theoretical Price of an option series is the last NBB or NBO just prior
to the transaction in question. The Exchange proposes to use the
following chart (``Wide Quote Chart'') to determine whether a quote is
too wide to be reliable:
------------------------------------------------------------------------
Minimum
Bid price at time of trade amount
------------------------------------------------------------------------
Below $2.00................................................ $0.75
$2.00 to $5.00............................................. 1.25
Above $5.00 to $10.00...................................... 1.50
Above $10.00 to $20.00..................................... 2.50
Above $20.00 to $50.00..................................... 3.00
Above $50.00 to $100.00.................................... 4.50
Above $100.00.............................................. 6.00
------------------------------------------------------------------------
As described above, while the Exchange proposes to determine
Theoretical Price when the bid/ask differential equals or exceeds the
amount set forth in the chart above and within the previous 10 seconds
there was a bid/ask differential smaller than such amount, if a quote
has been persistently wide for at least 10 seconds the Exchange will
use such quote for purposes of Theoretical Price.
d. Transactions at the Open
The Exchanges proposes that, for a transaction occurring as part of
the Opening Process,\9\ the Exchange will determine the Theoretical
Price where there is no NBB or NBO for the affected series just prior
to the erroneous transaction or if the bid/ask differential of the NBBO
just prior to the erroneous transaction is equal to or greater than the
Minimum Amount set forth in the Wide Quote Chart. If, however, there
are valid quotes and the bid/ask differential of the NBBO is less than
the Minimum Amount set forth in the Wide Quote Chart, then the Exchange
proposes to use the NBB or NBO just prior to the transaction as it
would in any other normal review scenario.
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\9\ See Exchange Rule 21.7 for a description of the Exchange's
Opening Process.
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3. Obvious Errors
The Exchange proposes to adopt numerical thresholds similar to
those in place under the Current Rule that would qualify transactions
as ``Obvious Errors.'' As proposed, a transaction will qualify as an
Obvious Error if the Exchange receives a properly submitted filing and
the execution price of a transaction is higher or lower than the
Theoretical Price for the series by an amount equal to at least the
amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
------------------------------------------------------------------------
Below $2.00................................................ $0.25
$2.00 to $5.00............................................. 0.40
Above $5.00 to $10.00...................................... 0.50
Above $10.00 to $20.00..................................... 0.80
Above $20.00 to $50.00..................................... 1.00
Above $50.00 to $100.00.................................... 1.50
Above $100.00.............................................. 2.00
------------------------------------------------------------------------
Under the Proposed Rule, a party that believes that it participated
in a transaction that was the result of an Obvious Error must notify
the Exchange's Trade Desk in the manner specified from time to time by
the Exchange in a circular distributed to Members.
The Exchange also proposes to adopt notification timeframes that
must be met in order for a transaction to qualify as an Obvious Error.
Specifically, as proposed, a filing must be received by the Exchange
within 30 minutes of the execution with respect to an execution of a
Customer order and within 15 minutes of the execution for any other
participant. The Exchange also proposes to provide additional time for
trades that are routed through other options exchanges to the Exchange.
Under the Proposed Rule, any other options exchange will have a total
of 45 minutes for Customer orders and 30 minutes for non-Customer
orders, measured from the time of execution on the Exchange, to file
with the Exchange for review of transactions routed to the Exchange
from that options exchange and executed on the Exchange (``linkage
trades''). This includes filings on behalf of another options exchange
filed by a third-party routing broker if such third-party broker
identifies the affected transactions as linkage trades. In order to
facilitate timely reviews of linkage trades, the Exchange will accept
filings from either the other options exchange or, if applicable, the
third-party routing broker that routed the applicable order(s). The
additional 15 minutes provided with respect to linkage trades shall
only apply to the extent the options exchange that originally received
and routed the order to the Exchange itself received a timely filing
from the entering participant (i.e., within 30 minutes if a Customer
order or 15 minutes if a non-Customer order).
Pursuant to the Proposed Rule, an Official may review a transaction
believed to be erroneous on his/her own motion in the interest of
maintaining a fair and orderly market and for the protection of
investors. A transaction reviewed pursuant to the proposed provision
may be nullified or adjusted only if it is determined by the Official
that the transaction is erroneous in accordance with the provisions of
the Proposed Rule, provided that the time deadlines for filing a
request for review described above shall not apply. The Proposed Rule
would require the Official to act as soon as possible after becoming
aware of the transaction; action by the Official would ordinarily be
expected on the same day that the transaction occurred. However,
because a transaction under review may have occurred near the close of
trading or due to unusual circumstances, the Proposed Rule provides
that the Official shall act no later than 8:30 a.m. Eastern Time on the
next trading day following the date of the transaction in question.
The Exchange also proposes to state that a party affected by a
determination to nullify or adjust a transaction after an Official's
review on his or her own motion may appeal such determination, as
described below. The Proposed Rule would make clear that a
determination by an Official not to review a transaction or
determination not to nullify or adjust a transaction for which a review
was conducted on an Official's own motion is not appealable and further
that if a transaction is reviewed and a determination is rendered
pursuant to another provision of the
[[Page 16034]]
Proposed Rule, no additional relief may be granted by an Official.
If it is determined that an Obvious Error has occurred based on the
objective numeric criteria and time deadlines described above, the
Exchange will adjust or nullify the transaction as described below and
promptly notify both parties to the trade electronically or via
telephone. The Exchange proposes different adjustment and nullification
criteria for Customers and non-Customers.
As proposed, where neither party to the transaction is a Customer,
the execution price of the transaction will be adjusted by the Official
pursuant to the table below.
------------------------------------------------------------------------
Buy Sell
transaction transaction
Theoretical price (TP) adjustment: adjustment:
TP Plus TP Minus
------------------------------------------------------------------------
Below $3.00................................... $0.15 $0.15
At or above $3.00............................. 0.30 0.30
------------------------------------------------------------------------
Further, as proposed, any non-Customer Obvious Error exceeding 50
contracts will be subject to the Size Adjustment Modifier described
above.
In contrast to non-Customer orders, where trades will be adjusted
if they qualify as Obvious Errors, pursuant the Proposed Rule, a trade
that qualifies as an Obvious Error will be nullified where at least one
party to the Obvious Error is a Customer. The Exchange also proposes,
however, that if any Member submits requests to the Exchange for review
of transactions pursuant to the Proposed Rule, and in aggregate that
Member has 200 or more Customer transactions under review concurrently
and the orders resulting in such transactions were submitted during the
course of 2 minutes or less, where at least one party to the Obvious
Error is a non-Customer, the Exchange will apply the non-Customer
adjustment criteria described above to such transactions.
4. Catastrophic Errors
The Exchange further proposes to adopt separate numerical
thresholds for review of transactions for which the Exchange does not
receive a filing requesting review within the Obvious Error timeframes
set forth above. Based on this review, these transactions may qualify
as ``Catastrophic Errors.'' As proposed, a Catastrophic Error will be
deemed to have occurred when the execution price of a transaction is
higher or lower than the Theoretical Price for the series by an amount
equal to at least the amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
------------------------------------------------------------------------
Below $2.00................................................ $0.50
$2.00 to $5.00............................................. 1.00
Above $5.00 to $10.00...................................... 1.50
Above $10.00 to $20.00..................................... 2.00
Above $20.00 to $50.00..................................... 2.50
Above $50.00 to $100.00.................................... 3.00
Above $100.00.............................................. 4.00
------------------------------------------------------------------------
Under the Proposed Rule, parties have additional time to submit
transactions for review as Catastrophic Errors. As proposed,
notification requesting review must be received by the Exchange's Trade
Desk by 8:30 a.m. Eastern Time on the first trading day following the
execution. For transactions in an expiring options series that take
place on an expiration day, a party must notify the Exchange's Trade
Desk within 45 minutes after the close of trading that same day. As is
true for requests for review under the Obvious Error provision of the
Proposed Rule, a party requesting review of a transaction as a
Catastrophic Error must notify the Exchange's Trade Desk in the manner
specified from time to time by the Exchange in a circular distributed
to Members. By definition, any execution that qualifies as a
Catastrophic Error is also an Obvious Error.
The Proposed Rule would specify the action to be taken by the
Exchange if it is determined that a Catastrophic Error has occurred, as
described above, and would require the Exchange to promptly notify both
parties to the trade electronically or via telephone. In the event of a
Catastrophic Error, the execution price of the transaction will be
adjusted by the Official pursuant to the table below.
------------------------------------------------------------------------
Buy Sell
transaction transaction
Theoretical price (TP)
adjustment: adjustment:
TP plus TP minus
------------------------------------------------------------------------
Below $2.00................................... $0.50 $0.50
$2.00 to $5.00................................ 1.00 1.00
Above $5.00 to $10.00......................... 1.50 1.50
Above $10.00 to $20.00........................ 2.00 2.00
Above $20.00 to $50.00........................ 2.50 2.50
Above $50.00 to $100.00....................... 3.00 3.00
Above $100.00................................. 4.00 4.00
------------------------------------------------------------------------
Although Customer orders would be adjusted in the same manner as non-
Customer orders, any Customer order that qualifies as a Catastrophic
Error will be nullified if the adjustment would result in an execution
price higher (for buy transactions) or lower (for sell transactions)
than the Customer's limit price.
5. Significant Market Events
Furthermore, the Exchange proposes to adopt a new provision that
calls for coordination between the options exchanges in certain
circumstances and provides limited flexibility in the application of
other provisions of the Proposed Rule in order to promptly respond to a
widespread market event.\10\ The Exchange proposes to describe such an
event as a Significant Market Event (``SME''), and to set forth certain
objective criteria that will determine whether such an event has
occurred. The Exchange developed these objective criteria in
consultation with the other options exchanges by reference to
historical patterns and events with a goal of setting thresholds that
very rarely will be triggered so as to limit the application of the
provision to truly significant market events. As proposed, an SME will
be deemed to have occurred when proposed criterion (A) below is met or
exceeded or the sum of all applicable event statistics, where each is
expressed as a percentage of the relevant threshold in criteria (A)
through (D) below, is greater than or equal to 150%, and at least one
of the event statistics reaches 75% or more of the category, provided
that no single category can contribute more than 100% to the sum of
categories (A) through (D). All categories set forth below will be
measured in aggregate across all exchanges. Any category satisfying
more than 100% will be rounded down to 100%.
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\10\ Although the Exchange has proposed a specific provision
related to coordination amongst options exchanges in the context of
a widespread event, the Exchange does not believe that the SME
provision or any other provision of the proposed rule alters the
Exchange's ability to coordinate with other options exchanges in the
normal course of business with respect to market events or activity.
The Exchange does already coordinate with other options exchanges to
the extent possible if such coordination is necessary to maintain a
fair and orderly market and/or to fulfill the Exchange's duties as a
self-regulatory organization.
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The proposed criteria for determining an SME are as follows:
(A) Transactions that are potentially erroneous would result in a
total Worst-Case Adjustment Penalty of $30,000,000, where the Worst-
Case Adjustment Penalty is computed as the sum, across all potentially
erroneous trades, of: (i) $0.30 (i.e., the largest Transaction
Adjustment value listed in sub-paragraph (e)(3)(A) below); times; (ii)
the contract multiplier for each traded contract; times (iii) the
number of contracts for each trade; times (iv) the appropriate Size
Adjustment Modifier for each trade, if any, as defined in sub-paragraph
(e)(3)(A) below;
[[Page 16035]]
(B) Transactions involving 500,000 options contracts are
potentially erroneous;
(C) Transactions with a notional value (i.e., number of contracts
traded multiplied by the option premium multiplied by the contract
multiplier) of $100,000,000 are potentially erroneous;
(D) 10,000 transactions are potentially erroneous.
As described above, the Exchange proposes to adopt the Worst Case
Adjustment Penalty, proposed as criterion (A), which is the only
criterion that can on its own result in an event being designated as a
significant market event. If the Worst Case Adjustment criterion is
equal to or exceeds $30,000,000, then an event is an SME.
As described above, under the Proposed Rule, if the Worst Case
Adjustment Penalty is less than $30,000,000, then an SME has occurred
if the sum of all applicable event statistics (expressed as a
percentage of the relevant thresholds in criteria (A) through (D)
above), is greater than or equal to 150% and 75% or more of at least
one category is reached. The Proposed Rule further provides that no
single category can contribute more than 100% to the sum and any
category contributing more than 100% will be rounded down to 100%.
To ensure consistent application across options exchanges, in the
event of a suspected SME, the Exchange shall initiate a coordinated
review of potentially erroneous transactions with all other affected
options exchanges to determine the full scope of the event. Under the
Proposed Rule, the Exchange will promptly coordinate with the other
options exchanges to determine the appropriate review period as well as
select one or more specific points in time prior to the transactions in
question and use one or more specific points in time to determine
Theoretical Price. Other than the selected points in time, if
applicable, the Exchange will determine Theoretical Price as described
above.
If it is determined that an SME has occurred then, using the
parameters agreed with respect to the times from which Theoretical
Price will be calculated, if applicable, an Official will determine
whether any or all transactions under review qualify as Obvious Errors.
The Proposed Rule would require the Exchange to use the criteria for
determining whether an Obvious Error has occurred, as described above,
for each transaction that was part of the SME. Upon taking any final
action, the Exchange would be required to promptly notify both parties
to the trade electronically or via telephone.
The execution price of each affected transaction will be adjusted
by an Official to the price provided below, unless both parties agree
to adjust the transaction to a different price or agree to bust the
trade.
------------------------------------------------------------------------
Buy Sell
transaction transaction
Theoretical price (TP)
adjustment: adjustment:
TP plus TP minus
------------------------------------------------------------------------
Below $3.00................................... $0.15 $0.15
At or above $3.00............................. 0.30 0.30
------------------------------------------------------------------------
Thus, the proposed adjustment criteria for SMEs are identical to
the proposed adjustment levels for Obvious Errors generally. In
addition, in the context of an SME, any error exceeding 50 contracts
will be subject to the Size Adjustment Modifier described above. Also,
the adjustment criteria would apply equally to all market participants
(i.e., Customers and non-Customers) in an SME. However, as is true for
the proposal with respect to Catastrophic Errors, under the Proposed
Rule where at least one party to the transaction is a Customer, the
trade will be nullified if the adjustment would result in an execution
price higher (for buy transactions) or lower (for sell transactions)
than the Customer's limit price.
Another significant distinction between the proposed Obvious Error
provision and the proposed SME provision is that if the Exchange, in
consultation with other options exchanges, determines that timely
adjustment is not feasible due to the extraordinary nature of the
situation, then the Exchange will nullify some or all transactions
arising out of the SME during the review period selected by the
Exchange and other options exchanges. To the extent the Exchange, in
consultation with other options exchanges, determines to nullify less
than all transactions arising out of the SME, those transactions
subject to nullification will be selected based upon objective criteria
with a view toward maintaining a fair and orderly market and the
protection of investors and the public interest. Furthermore, the
Proposed Rule provides that rulings by the Exchange pursuant to the SME
provision would be non-appealable.
6. Mutual Agreement
The Proposed Rule also proposes to make clear that the
determination as to whether a trade was executed at an erroneous price
may be made by mutual agreement of the affected parties to a particular
transaction. The Proposed Rule provides that a trade may be nullified
or adjusted on the terms that all parties to a particular transaction
agree, provided, however, that such agreement to nullify or adjust must
be conveyed to the Exchange in a manner prescribed by the Exchange
prior to 8:30 a.m. Eastern Time on the first trading day following the
execution. The Exchange also proposes to explicitly state that it is
considered conduct inconsistent with just and equitable principles of
trade for any Member to use the mutual adjustment process to circumvent
any applicable Exchange rule, the Act or any of the rules and
regulations thereunder.
7. Trading Halts
The Exchange additionally proposes to modify Interpretation and
Policy .01 to Exchange Rule 20.3 (Trading Halts), which describes the
Exchange's authority to declare trading halts in one or more options
traded on the Exchange. Currently, Interpretation and Policy .01 states
that the Exchange ``may'' nullify any transaction that occurs: (a)
During a trading halt in the affected option on the Exchange; or (b)
with respect to equity options (including options overlying ETFs),
during a trading halt on the primary listing market for the underlying
security. To ensure consistency with the trading halt provision of
Proposed Rule 20.6, the Exchange proposes to modify Interpretation and
Policy .01 to Exchange Rule 20.3 to state that in either situation
described above, the Exchange ``shall'' nullify such transactions.
8. Erroneous Print and Quotes in Underlying Security
The Exchange proposes to adopt language in the Proposed Rule
stating that a trade resulting from an erroneous print(s) disseminated
by the underlying market that is later nullified by that underlying
market shall be adjusted or busted as set forth in the Obvious Error
provisions of the Proposed Rule, provided a party notifies the
Exchange's Trade Desk in a timely manner, as further described below.
The Exchange proposes to define a trade resulting from an erroneous
print(s) as any options trade executed during a period of time for
which one or more executions in the underlying security are nullified
and for one second thereafter. The Exchange also proposes to require
that if a party believes that it participated in an erroneous
transaction resulting from an erroneous print(s) pursuant to the
proposed erroneous print provision it must notify the Exchange's Trade
Desk
[[Page 16036]]
within the timeframes set forth in the Obvious Error provision
described above. The Exchange has also proposed to state that the
allowed notification timeframe commences at the time of notification by
the underlying market(s) of nullification of transactions in the
underlying security. Further, the Exchange proposes that if multiple
underlying markets nullify trades in the underlying security, the
allowed notification timeframe will commence at the time of the first
market's notification.
The Exchange also proposes to add a provision stating that a trade
resulting from an erroneous quote(s) in the underlying security shall
be adjusted or busted as set forth in the Obvious Error provisions of
the Proposed Rule, provided a party notifies the Exchange's Trade Desk
in a timely manner, as further described below. Pursuant to the
Proposed Rule, an erroneous quote occurs when the underlying security
has a width of at least $1.00 and has a width at least five times
greater than the average quote width for such underlying security
during the time period encompassing two minutes before and after the
dissemination of such quote. For purposes of the Proposed Rule, the
average quote width will be determined by adding the quote widths of
sample quotations at regular 15-second intervals during the four-minute
time period referenced above (excluding the quote(s) in question) and
dividing by the number of quotes during such time period (excluding the
quote(s) in question).\11\ Similar to the proposal with respect to
erroneous prints described above, if a party believes that it
participated in an erroneous transaction resulting from an erroneous
quote(s) it must notify the Exchange's Trade Desk in accordance with
the notification provisions of the Obvious Error provision described
above.
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\11\ The Exchange has proposed the price and time parameters for
quote width and average quote width used to determine whether an
erroneous quote has occurred based on established rules of options
exchanges that currently apply such parameters. See, e.g., CBOE Rule
6.25(a)(5); NYSE Arca Rule 6.87(a)(5).
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9. Stop (and Stop-Limit) Order Trades Triggered by Erroneous Trades
As proposed, transactions resulting from the triggering of a stop
or stop-limit order by an erroneous trade in an option contract shall
be nullified by the Exchange, provided a party notifies the Exchange's
Trade Desk in a timely manner as set forth below. If a party believes
that it participated in an erroneous transaction pursuant to the
Proposed Rule it must notify the Exchange's Trade Desk within the
timeframes set forth in the Obvious Error rule above, with the allowed
notification timeframe commencing at the time of notification of the
nullification of transaction(s) that triggered the stop or stop-limit
order.
10. Linkage Trades
The Exchange also proposes to adopt language that provides the
Exchange with authority to take necessary actions when another options
exchange nullifies or adjusts a transaction pursuant to its respective
rules and the transaction resulted from an order that has passed
through the Exchange and been routed on to another options exchange on
behalf of the Exchange. Specifically, if the Exchange routes an order
pursuant to the Intermarket Option Linkage Plan \12\ that results in a
transaction on another options exchange (a ``Linkage Trade'') and such
options exchange subsequently nullifies or adjusts the Linkage Trade
pursuant to its rules, the Exchange will perform all actions necessary
to complete the nullification or adjustment of the Linkage Trade.
Although the Exchange is not utilizing its own authority to nullify or
adjust a transaction related to an action taken on a Linkage Trade by
another options exchange, the Exchange does have to assist in the
processing of the adjustment or nullification of the order, such as
notification to the Member and the OCC of the adjustment or
nullification.
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\12\ As defined in Exchange Rule 27.1(17).
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11. Appeals
The Exchange proposes to maintain its current appeals process in
connection with the Proposed Rule. Specifically, if a member of BATS
Options (``Options Member'') affected by a determination made under the
Proposed Rule requests within the time permitted below, the Obvious
Error Panel will review decisions made by the BATS Official, including
whether an obvious error occurred and whether the correct determination
was made.
The Obvious Error Panel will be comprised of the Exchange's Chief
Regulatory Officer (``CRO'') or a designee of the CRO, a representative
of one (1) Options Member engaged in market making (any such
representative, a ``MM Representative'') and representatives from two
(2) Options Members satisfying one or both of the criteria set forth
below (any such representative, a ``Non-MM Representative''). To
qualify as a Non-MM Representative a person must: Be employed by an
Options Member whose revenues from options market making activity do
not exceed ten percent (10%) of its total revenues; or have as his or
her primary responsibility the handling of Public Customer orders or
supervisory responsibility over persons with such responsibility, and
not have any responsibilities with respect to market making activities.
The Exchange shall further designate at least ten (10) MM
Representatives and at least ten (10) Non-MM Representatives to be
called upon to serve on the Obvious Error Panel as needed. To assure
fairness, in no case shall an Obvious Error Panel include a person
affiliated with a party to the trade in question. Also, to the extent
reasonably possible, the Exchange shall call upon the designated
representatives to participate on an Obvious Error Panel on an equally
frequent basis.
Under the Proposed Rule a request for review on appeal must be made
in writing via email or other electronic means specified from time to
time by the Exchange in a circular distributed to Options Members
within thirty (30) minutes after the party making the appeal is given
notification of the initial determination being appealed. The Obvious
Error Panel shall review the facts and render a decision as soon as
practicable, but generally on the same trading day as the execution(s)
under review. On requests for appeal received after 3:00 p.m. Eastern
Time, a decision will be rendered as soon as practicable, but in no
case later than the trading day following the date of the execution
under review.
The Obvious Error Panel may overturn or modify an action taken by
the BATS Official under this Rule. All determinations by the Obvious
Error Panel shall constitute final action by the Exchange on the matter
at issue.
If the Obvious Error Panel votes to uphold the decision made
pursuant to the Proposed Rule, the Exchange will assess a $500.00 fee
against the Options Member(s) who initiated the request for appeal. In
addition, in instances where the Exchange, on behalf of an Options
Member, requests a determination by another market center that a
transaction is clearly erroneous, the Exchange will pass any resulting
charges through to the relevant Options Member.
Any determination by an Officer or by the Obvious Error Panel shall
be rendered without prejudice as to the rights of the parties to the
transaction to submit their dispute to arbitration.
12. Limit Up-Limit Down Plan
The Exchange is proposing to adopt Interpretation and Policy .01 to
Proposed Rule 20.6 (``LULD Options
[[Page 16037]]
Pilot'') to provide for how the Exchange will treat Obvious and
Catastrophic Errors in response to the Regulation NMS Plan to Address
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS
under the Act (the ``Limit Up-Limit Down Plan'' or the ``Plan''),\13\
which is applicable to all NMS stocks, as defined in Regulation NMS
Rule 600(b)(47).\14\ Under the Proposed Rule, during a pilot period to
coincide with the pilot period for the Plan,\15\ including any
extensions to the pilot period for the Plan, an execution will not be
subject to review as an Obvious Error or Catastrophic Error pursuant to
paragraph (c) or (d) of the Proposed Rule if it occurred while the
underlying security was in a ``Limit State'' or ``Straddle State,'' as
defined in the Plan. The Exchange, however, proposes to retain
authority to review transactions on an Official's own motion pursuant
to sub-paragraph (c)(3) of the Proposed Rule and to bust or adjust
transactions pursuant to the proposed SME provision, the proposed
trading halts provision, the proposed provisions with respect to
erroneous prints and quotes in the underlying security, or the proposed
provision related to stop and stop limit orders that have been
triggered by an erroneous execution.
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\13\ Securities Exchange Act Release No. 67091 (May 31, 2012),
77 FR 33498 (June 6, 2012) (order approving the Plan on a pilot
basis).
\14\ 17 CFR 242.600(b)(47).
\15\ The Commission notes that the Exchange has amended its LULD
Options Pilot date from August 20, 2015 to October 23, 2015. See
Amendment No. 2, supra note 6.
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During a Limit or Straddle State, options prices may deviate
substantially from those available immediately prior to or following
such States. Thus, determining a Theoretical Price in such situations
would often be very subjective, creating unnecessary uncertainty and
confusion for investors. Because of this uncertainty, the Exchange is
proposing to amend Rule 20.6 to provide that the Exchange will not
review transactions as Obvious Errors or Catastrophic Errors when the
underlying security is in a Limit or Straddle State.
The Exchange notes that there are additional protections in place
outside of the Obvious and Catastrophic Error Rule that will continue
to safeguard customers. First, the Exchange rejects all un-priced
options orders received by the Exchange (i.e., Market Orders) during a
Limit or Straddle State for the underlying security. Second, SEC Rule
15c3-5 requires that, ``financial risk management controls and
supervisory procedures must be reasonably designed to prevent the entry
of orders that exceed appropriate pre-set credit or capital thresholds,
or that appear to be erroneous.'' \16\ Third, the Exchange has price
checks applicable to limit orders that reject limit orders that are
priced sufficiently far through the national best bid or national best
offer (``NBBO'') that it seems likely an error occurred. The rejection
of Market Orders, the requirements placed upon broker dealers to adopt
controls to prevent the entry of orders that appear to be erroneous,
and Exchange functionality that filters out orders that appear to be
erroneous, will all serve to sharply reduce the incidence of erroneous
transactions.
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\16\ See Securities and Exchange Act Release No. 63241 (November
3, 2010), 75 FR 69791 (November 15, 2010) (File No. S7-03-10).
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The Exchange has agreed to provide the Commission with relevant
data to assess the impact of this proposed rule change. As part of its
analysis, the Exchange will evaluate (1) the options market quality
during Limit and Straddle States, (2) assess the character of incoming
order flow and transactions during Limit and Straddle States, and (3)
review any complaints from Members and their customers concerning
executions during Limit and Straddle States. The Exchange has also
agreed to provide to the Commission data requested to evaluate the
impact of the inapplicability of the Obvious Error and Catastrophic
Error provisions, including data relevant to assessing the various
analyses noted above.
In connection with this proposed rule change, the Exchange will
provide to the Commission and the public a dataset containing the data
for each Straddle State and Limit State in NMS Stocks underlying
options traded on the Exchange beginning in the month during which the
proposed rule change is approved, limited to those option classes that
have at least one (1) trade on the Exchange during a Straddle State or
Limit State. For each of those option classes affected, each data
record will contain the following information:
Stock symbol, option symbol, time at the start of the
Straddle or Limit State, an indicator for whether it is a Straddle or
Limit State.
for activity on the Exchange:
executed volume, time-weighted quoted bid-ask spread,
time-weighted average quoted depth at the bid, time-weighted average
quoted depth at the offer;
high execution price, low execution price;
number of trades for which a request for review for error
was received during Straddle and Limit States;
an indicator variable for whether those options outlined
above have a price change exceeding 30% during the underlying stock's
Limit or Straddle State compared to the last available option price as
reported by OPRA before the start of the Limit or Straddle State (1 if
observe 30% and 0 otherwise). Another indicator variable for whether
the option price within five minutes of the underlying stock leaving
the Limit or Straddle state (or halt if applicable) is 30% away from
the price before the start of the Limit or Straddle State.
In addition, by May 29, 2015, the Exchange shall provide to the
Commission and the public assessments relating to the impact of the
operation of the Obvious Error rules during Limit and Straddle States
as follows: (1) Evaluate the statistical and economic impact of Limit
and Straddle States on liquidity and market quality in the options
markets; and (2) Assess whether the lack of Obvious Error rules in
effect during the Straddle and Limit States are problematic. The timing
of this submission would coordinate with Participants' proposed time
frame to submit to the Commission assessments as required under
Appendix B of the Plan. The Exchange notes that the pilot program is
intended to run concurrent with the pilot period of the Plan, which has
been extended to October 23, 2015. The Exchange proposes to reflect
this date in the Proposed Rule.
13. No Adjustments to a Worse Price
Finally, the Exchange proposes to include Interpretation and Policy
.02 to the Proposed Rule, which would make clear that to the extent the
provisions of the proposed Rule would result in the Exchange applying
an adjustment of an erroneous sell transaction to a price lower than
the execution price or an erroneous buy transaction to a price higher
than the execution price, the Exchange will not adjust or nullify the
transaction, but rather, the execution price will stand.
Additional information relating to the proposed rule change can be
found in the Notice.\17\ The Exchange has proposed that this proposed
rule change become effective on May 8, 2015. The Exchange notes that
this delayed implementation is to ensure that other options exchanges
will have sufficient time to adopt similar rules consistent with the
proposed rule change and to coordinate the effectiveness of such
harmonized rules.
---------------------------------------------------------------------------
\17\ See supra note 3.
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[[Page 16038]]
III. Discussion of Comment Letters and Commission Findings
As noted previously, the Commission received two comment letters on
the proposed rule change and a response letter from the Exchange.\18\
Both commenters generally support the principles underlying the
proposed rule change, including greater transparency and more
consistent results for investors, market participants, and the public
regarding the handling of nullification and adjustment of options
transactions including obvious erroneous transactions.\19\ Both
commenters applaud the Exchange's effort to adopt a harmonized rule
related to the adjustment of erroneous options transactions, as well as
a specific provision related to coordination in connection with
SMEs.\20\ However, both commenters provide additional suggestions for
the proposed rule change and further encourage the Commission to
continue to work with the Exchange and the other options exchanges and
market participants to consider ways to develop increased pre-trade
risk controls on exchanges, which could prevent erroneous trades before
they occur.\21\ The Exchange has responded to the commenters, as
discussed below.\22\
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\18\ See supra notes 4-5.
\19\ See Goldman Letter, supra note 4; SIFMA Letter, supra note
4.
\20\ See id.
\21\ See id.
\22\ See BATS Response Letter, supra note 5.
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A. Summary of Comment Letters Received
The Goldman Letter supports the goal and much of the substance of
the Proposed Rule, including the efforts to ensure predictability in
the case of an SME.\23\ However, the Goldman Letter believes that, in
the case of an SME, BATS and other impacted exchanges should nullify
all affected trades.\24\ The Goldman Letter argues that providing a
higher degree of certainty in the outcome during such an event would
reduce residual economic harm to the parties involved and would promote
a timely remediation of the event without unnecessary delay and
uncertainty.\25\
---------------------------------------------------------------------------
\23\ See Goldman Letter, supra note 4, at 1-2.
\24\ See id. at 3.
\25\ See id.
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The SIFMA Letter generally supports the proposed rule change, but
notes that there are critical aspects that will require additional time
to allow for exchange and industry discussion, including the
development of a method to ensure greater objectivity and uniformity
with respect to the calculation of Theoretical Price.\26\ SIFMA also
supports the use of a third party vendor system that would generate
theoretical values, and encourages the exchanges to work expeditiously
towards accomplishing such a goal.\27\
---------------------------------------------------------------------------
\26\ See SIFMA Letter, supra note 4, at 3.
\27\ See id.
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The Goldman and SIFMA Letters both advocate for the Commission and
the exchanges to work towards the establishment of pre-trade controls
designed to prevent erroneous trades before they occur.\28\ Both
commenters believe this can be accomplished through a set of pre-trade
risk controls (e.g., kill switches), and SIFMA also believes this can
be further accomplished with post-trade risk controls, both designed to
reduce the frequency and magnitude of market disruptions.\29\
---------------------------------------------------------------------------
\28\ See Goldman Letter, supra note 4, at 3-4; and SIFMA Letter,
supra note 4, at 3.
\29\ See id.
---------------------------------------------------------------------------
In its response to commenters, the Exchange reiterates its belief
that the Proposed Rule will provide greater transparency and finality
with respect to the adjustment and nullification of erroneous options
transactions.\30\ The Exchange notes that it agrees with the
commenters' suggestions that it continue to work towards additional
objectivity and uniformity with respect to the calculation of
Theoretical Price and that it pursue other tools to prevent erroneous
transactions, including pre-trade risk functionality.\31\ In addition,
the Exchange emphasizes its commitment to working with other options
exchanges, SIFMA, and market participants in connection with such
initiatives.\32\
---------------------------------------------------------------------------
\30\ See BATS Response Letter, supra note 5, at 1-2.
\31\ See id. at 2.
\32\ See id.
---------------------------------------------------------------------------
With respect to the proposal to adjust or nullify erroneous
transactions in connection with an SME, the Exchange notes that the
Proposed Rule would permit the Exchange to coordinate with other
options exchanges in certain circumstances and would provide limited
flexibility in the application of the general obvious error provisions
of the Proposed Rule in order to allow the Exchange to promptly respond
to a widespread market event that meets the criteria of an SME.\33\
Such coordination would be used to determine the specific points in
time to be used to determine Theoretical Price, as well as whether or
not timely adjustment of affected transactions would be feasible.\34\
The Exchange acknowledges the concern presented in the Goldman Letter
and reiterates that the Proposed Rule allows the Exchange to nullify
some or all transactions arising out of an SME if timely adjustments
are not feasible.\35\ However, the Exchange notes its belief that long-
standing principles in the options market support the need for
adjustments when they can reasonably be provided.\36\ The Exchange
states that because market participants, and particularly liquidity
providers, commonly engage in hedging transactions, adjustments are
necessary when possible to limit the potential negative economic impact
to such participants, which is magnified during an SME.\37\ Moreover,
the Exchange believes the Proposed Rule adequately balances the
competing interests of mitigating harm through the longstanding
practice of timely adjusting erroneous options trades and the need for
certainty when timely adjustments are not feasible by preserving the
discretion to nullify some or all transactions arising out of an
SME.\38\
---------------------------------------------------------------------------
\33\ See id. at 2-3.
\34\ See id.
\35\ See id. at 3.
\36\ See id.
\37\ See id.
\38\ See id.
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B. Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\39\ In
particular, the Commission finds that the proposed rule change, as
amended, is consistent with the requirements of Section 6(b) of the Act
\40\ and with Section 6(b)(5) of the Act,\41\ which requires, among
other things, that the Exchange's rules be designed to prevent
fraudulent and manipulative acts and practices, 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.
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\39\ In approving this proposed rule change, as amended, the
Commission notes that it has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\40\ 15 U.S.C. 78f(b).
\41\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposal to adopt Rule 20.6 will
help assure greater objectivity, transparency, and clarity with respect
to the adjustment and nullification of erroneous options transactions.
The Commission notes that the Proposed
[[Page 16039]]
Rule is designed to achieve more consistent results for participants
across U.S. options exchanges than under the current rules while
maintaining a fair and orderly market, protecting investors, and
protecting the public interest. In the Commission's view, the proposed
rule change will help assure that the determination of whether an
erroneous options transaction has occurred will generally be based on
clear and objective criteria, and that the resolution of the incident
will occur promptly through a transparent process. Based on the
foregoing, the Commission believes that the proposed rule change is
consistent with Section 6(b)(5) of the Act \42\ in that Proposed Rule
20.6 will foster cooperation and coordination with persons engaged in
regulating and facilitating transactions.
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission notes that the Exchange represented in its filing
that the Exchange and all other options exchanges have been working to
further improve the review of potentially erroneous transactions as
well as their subsequent adjustment by creating a more objective and
uniform way to determine Theoretical Price in the event a reliable NBBO
is not available, as in, for example, such cases where there is a wide
quote or no valid quote, as described above.\43\ Specifically, the
Exchange and all other options exchanges are considering utilizing an
independent third party to calculate and disseminate or make available
Theoretical Price in order to better achieve uniform results during an
event in which a potentially erroneous transaction involving the same
option is under review at more than one exchange.\44\ The Exchange
notes, however, that this initiative requires additional Exchange and
industry discussion as well as additional time for development and
implementation.\45\ The Commission expects the Exchange and the other
national securities exchanges to continue to work with other options
exchanges and the options industry towards the goal of additional
objectivity and uniformity with respect to the calculation of
Theoretical Price in these circumstances.
---------------------------------------------------------------------------
\43\ See Notice, supra note 3, at 77558.
\44\ See id.
\45\ See id.
---------------------------------------------------------------------------
The Commission appreciates the suggestions and responses offered by
both commenters to improve the process by which the Exchange addresses
the harmonization of rules related to the adjustment and nullification
of erroneous options transactions.\46\ The Commission believes that the
proposed rule changes represent a significant first step by the options
exchanges to bring greater clarity and transparency to the process for
the adjustment and nullification of erroneous options transactions, and
that these improvements should not be delayed pending consideration of
further initiatives. The Commission notes that the Exchange intends to
continue to work with other options exchanges and market participants
to further develop, as appropriate, additional objectivity with respect
to their processes for the adjustment and nullification of erroneous
options transactions.\47\ Regarding the comment that the Exchange
should nullify all affected transactions when an SME has occurred,\48\
the Commission believes that the Exchange's approach to permit
transactions that occur during an SME to be adjusted in certain
circumstances is reasonable, as adjustments may limit the potential
negative impact to market participants who commonly engage in hedging
transactions.
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\46\ See SIFMA Letter, supra note 4, at 3; and Goldman Letter,
supra note 4, at 3-4. In addition, the Commission acknowledges the
comment that the Commission and the exchanges work towards the
establishment of pre-trade controls designed to prevent erroneous
trades before they occur but believes that such comment is outside
the scope of the proposed rule change. See id.
\47\ See Notice, supra note 3, at 77558; BATS Response Letter,
supra note 5, at 2.
\48\ See Goldman Letter, supra note 4, at 3.
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Finally, the Commission notes that the proposed rule change will
become operative on May 8, 2015. This delayed implementation is to
ensure that other options exchanges will have sufficient time to put in
place similar rules consistent with this proposed rule change and to
coordinate the date of implementation of such harmonized rules.
IV. Solicitation of Comments on Amendment No. 2
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
to 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-2014-067 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2014-067. 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 the 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-2014-067 and should be
submitted on or before April 16, 2015.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 1 and 2, prior to the 30th day
after the date of publication of notice of Amendment No. 2 in the
Federal Register. As discussed above, Amendment No. 2 revised the
proposed rule change by: (1) Making technical, non-substantive
corrections to the definition of ``Size Adjustment Modifier'' in
paragraph (a)(4) of Proposed Rule 20.6 and the criterion used to
measure the occurrence of a Significant Market Event in paragraph
(e)(1) of Proposed Rule 20.6; (2) amending the description in paragraph
(b) of Proposed Rule 20.6 to use the last NBB and last NBO prior to the
Exchange's receipt of an order as the Theoretical Price for determining
the
[[Page 16040]]
execution price at all price levels when a single order is executed at
multiple price levels; (3) updating the expiration date of the pilot
program related to the suspension of certain provisions of the Proposed
Rule to October 23, 2015 in connection with the Limit Up-Limit Down
Plan and making clear that the Exchange would provide a publicly
available assessment of the operation of this portion of the Proposed
Rule by May 29, 2015; and (4) proposing an implementation date of May
8, 2015 to allow all the other options exchanges the time necessary to
harmonize their rules with the Proposed Rule.\49\
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\49\ See Amendment No. 2, supra note 6.
---------------------------------------------------------------------------
The Commission believes Amendment No. 2 would provide market
participants with additional clarity by making technical, non-
substantive corrections to certain portions of the filing.\50\ The
Commission believes the amendment to the determination of Theoretical
Price when a single order is executed at multiple price levels is
consistent with the protection of investors because the revised
provision provides additional certainty to market participants and
eliminates the discretion of the Exchange to determine Theoretical
Price in certain circumstances.\51\ The Commission further believes
that approval of the proposed rule change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis would permit other options
exchanges to complete the process of filing similar proposals to adopt
the new, harmonized rule on a timely basis.\52\
---------------------------------------------------------------------------
\50\ See id.
\51\ See id.
\52\ See id.
---------------------------------------------------------------------------
As discussed above, the Commission believes that the revisions in
Amendment No. 2 are being made to provide additional clarity to the
proposed rule change and to provide additional certainty and
consistency by eliminating the discretion of the Exchange to determine
Theoretical Price in certain circumstances. The Commission believes
Amendment No. 2 is consistent with the purpose of the proposed rule
change and is consistent with the protection of investors and the
public interest. Accordingly, the Commission finds good cause, pursuant
to Section 19(b)(2) of the Act,\53\ to approve the proposed rule
change, as modified by Amendment Nos. 1 and 2, on an accelerated basis.
---------------------------------------------------------------------------
\53\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\54\ that the proposed rule change, as modified by Amendment Nos. 1
and 2 (SR-BATS-2014-067) be, and hereby is, approved on an accelerated
basis.
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\54\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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\55\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-06890 Filed 3-25-15; 8:45 am]
BILLING CODE 8011-01-P