[Federal Register Volume 74, Number 41 (Wednesday, March 4, 2009)]
[Notices]
[Pages 9452-9454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-4560]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59457; File No. SR-BATS-2009-006]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BATS Rule 11.9, Entitled ``Orders and Modifiers''

February 26, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 20, 2009, BATS Exchange, Inc. (``BATS'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend BATS Rule 11.9, entitled 
``Orders and Modifiers,'' to provide for a new order type, a Partial 
Post Only at Limit Order. In addition, the Exchange is proposing to 
eliminate an Exchange order processing behavior described in Rule 
11.9(c)(4) and (c)(5) as the ``price sliding process'' due to the fact 
that this functionality is rarely selected by Users of the Exchange.
    The text of the proposed rule change is available at the Exchange's 
website 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 change is to provide a new order 
type to Users of the Exchange, a Partial Post Only at Limit Order. The 
Exchange currently allows Users to enter BATS Post Only Orders,\5\ 
which do not remove liquidity from the Exchange. Frequently, Exchange 
Users utilize BATS Post Only Orders because such Users do not want to 
be charged the access fee for removing liquidity from the BATS Book.\6\ 
However, if such Users could receive a price better than their limit 
price (i.e., price improvement), then the Exchange believes that such 
Users may wish to remove that liquidity and pay the access fee. In 
addition, regardless of whether any part of the order is executed with 
price improvement, the Exchange believes that some Users of BATS Post 
Only Orders would be willing to remove from the BATS Book a certain 
amount of liquidity at the order's limit price if the residual of the 
order could then post to the BATS Book at that limit price. 
Accordingly, as proposed, the new order type will enable Users to: (i) 
enter an order to the Exchange that will remove liquidity from the 
Exchange when the order will receive price improvement; and (ii) 
designate a ``Maximum Remove Percentage,'' instructing the Exchange to 
execute up to a designated percentage of the order size remaining after 
any applicable price improvement execution by removing liquidity at the 
order's limit price if the residual, after executions at the limit 
price, can be posted on the BATS Book.\7\
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    \5\ As defined in Exchange Rule 11.9(c)(5).
    \6\ The Exchange currently charges $0.0025 per share removed 
from the BATS Book, except for securities priced below $1.00, for 
which no access fee is charged.
    \7\ Because the Exchange cannot post a bid or offer with a 
partial share amount (e.g., 99.9 shares), any Maximum Remove 
Percentage that would result in such an amount will be rounded down 
to the next whole share amount (e.g., 99 shares).
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    If no Maximum Remove Percentage is entered, then a Partial Post 
Only at Limit Order will only remove liquidity to the extent the order 
will obtain price improvement from its limit price. If no price 
improvement on an order is obtained, but a Maximum Remove

[[Page 9453]]

Percentage has been entered with the order, then the order would 
execute at the limit price up to the Maximum Remove Percentage size 
only if, after removal of the shares set by the Maximum Remove 
Percentage, the order could then post to the BATS Book. As with BATS 
Only and BATS Post Only orders, Users may designate Partial Post Only 
at Limit Orders as being subject to the Exchange's displayed price 
sliding process or may opt-out of displayed price sliding. Regardless 
of which setting is selected, an order with a Maximum Remove Percentage 
will only execute at its limit price if it can be posted to the BATS 
Book at its limit price after executions permitted by the Maximum 
Remove Percentage. Thus, if an order's Maximum Remove Percentage would 
otherwise allow removal of all liquidity from the BATS Book at the 
order's limit price, but would lock or cross another market if posted 
to the BATS Book and displayed by the Exchange at that limit price, the 
order would not remove any liquidity at its limit price, but rather, 
would be cancelled or price slid, depending on the User's 
instructions.\8\
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    \8\ As set forth in Exchange Rule 11.9(c)(4), the displayed 
price sliding process is the default but Users can elect instead to 
opt-out of displayed price sliding, in which case, any remainder of 
the order would be cancelled back to the User.
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    The following examples demonstrate how the Partial Post Only at 
Limit Order will operate on the Exchange. For purposes of these 
examples, assume that in security ``ABC'' the Exchange has 1,000 shares 
of liquidity at a $10.00 offer price and also has resting orders on its 
book to sell 1,000 shares at $10.01 and 1,000 shares at $10.03.
     Example #1: A User submits a Partial Post Only at Limit 
Order to the Exchange to buy 1,000 shares of ABC at $10.01 with no 
Maximum Remove Percentage. The order would be filled in its entirety at 
$10.00.
     Example #2: A User submits a Partial Post Only at Limit 
Order to the Exchange to buy 2,500 shares of ABC at $10.01 with no 
Maximum Remove Percentage. 1,000 shares of the order would be filled at 
$10.00, and the remaining 1,500 shares would be subject to the 
Exchange's displayed price sliding process or would be cancelled back 
to the User because posting such remainder at its limit price would 
lock the BATS Book and the User did not specify a Maximum Remove 
Percentage permitting removal of any liquidity at the order's limit 
price.
     Example #3: A User submits a Partial Post Only at Limit 
Order to the Exchange to buy 2,500 shares of ABC at $10.02 with no 
Maximum Remove Percentage. 1,000 shares of the order would be filled at 
$10.00, 1,000 shares of the order would be filled at $10.01 and the 
remaining 500 shares would be posted as a bid on the BATS Book at 
$10.02.
     Example #4: A User submits a Partial Post Only at Limit 
Order to the Exchange to buy 5,000 shares of ABC at $10.01 with a 
Maximum Remove Percentage of 10 percent. 1,000 shares of the order 
would be filled at $10.00 but the remainder of the order (4,000 shares) 
would be subject to the Exchange's displayed price sliding process or 
would be cancelled back to the User because the order could only remove 
up to 10% of the remaining order, after price improvement, at its limit 
price (or 400 shares) and removal of that amount would leave 600 shares 
of liquidity resting on the BATS Book at the limit price of $10.01. 
Accordingly, the remainder of the User's order could not be posted 
because it would lock the BATS Book at $10.01, and the parameters of 
the designated Maximum Remove Percentage would not permit additional 
shares to be removed at that price.
     Example #5: A User submits a Partial Post Only at Limit 
Order to the Exchange to buy 5,000 shares of ABC at $10.01 with a 
Maximum Remove Percentage of 25 percent. 1,000 shares of the order 
would be filled at $10.00, 1,000 shares would be filled at $10.01, the 
order's limit price, based on the designated Maximum Remove Percentage 
(25% of 4,000 remaining shares would permit maximum removal at the 
limit price of 1,000 shares), and the remaining 3,000 shares would be 
posted as a bid on the BATS Book at $10.01.
     Example #6: A User submits a Partial Post Only at Limit 
Order to the Exchange to buy 5,000 shares of ABC at $10.00 with a 
Maximum Remove Percentage of 25 percent. Although the order would not 
receive any price improvement, 1,000 shares of the order would be 
filled at $10.00, the order's limit price, based on the designated 
Maximum Remove Percentage (25% of the 5,000 share order would permit 
maximum removal at the limit price of up to 1,250 shares), and the 
remaining 4,000 shares would be posted as a bid on the BATS Book at 
$10.00.

The Exchange believes that the proposed order type benefits its Users 
by providing additional flexibility, in a single order type, to meet 
the true trading interests of market participants.
    The Exchange is also proposing to eliminate references to the 
``price sliding process,'' from the Exchange Rule 11.9. Very few 
Exchange Users currently utilize the price sliding process, and in 
fact, on certain trading days, the Exchange does not receive any orders 
where a User has selected this process. Instead, most Users either 
submit orders with the default ``displayed price sliding'' option 
selected or opt-out of displayed price sliding. Accordingly, the 
proposed rule change deleting the price sliding process and adopting 
Partial Post Only at Limit Orders without reference to the price 
sliding process would simplify the Exchange's Rules by eliminating an 
option seldom used by Users of the Exchange.
    In addition to the proposed changes above, the Exchange is 
proposing to make certain non-substantive changes to Exchange Rule 
11.12 to update and correct cross-references to other Exchange Rules.
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.\9\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\10\ 
because it would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system, and, in general, protect investors and 
the public interest, by allowing Users to enter a modified form of 
``post only'' order that will execute to the extent such order will 
receive price improvement or remove a designated portion of the 
remaining order, after price improvement, at its limit price if such 
order could then post to the BATS Book. In addition, removal of the 
references to the price sliding process will simplify the Exchange's 
Rules by deleting a functionality offered by the Exchange but not 
frequently used by market participants that submit orders to the 
Exchange.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that Users that submit BATS Post Only Orders 
to the Exchange are primarily seeking to avoid access fees charged for 
removing liquidity, but that such Users would be willing to pay an 
access fee to the extent their order could obtain price improvement. 
Because of this price improvement, the Exchange believes that the order 
proposed in this rule filing will help Users obtain better

[[Page 9454]]

prices for their orders submitted to the Exchange, even if such orders 
are subject to an access fee. In addition, the Exchange believes that 
some Users would like the added efficiency of being able to submit one 
order to the Exchange that will remove a certain amount of liquidity at 
the order's limit price (based on the size of the order following price 
improvement), and then, provided all liquidity has been removed at its 
limit price, post to the BATS Book, rather than first submitting an 
order to remove liquidity at a certain price level and then submitting 
a BATS Post Only Order.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

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

    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 was 
filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and public interest, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    Normally, a proposed rule change filed under 19b-4(f)(6) may not 
become operative prior to 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \13\ 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. The Exchange represents that 
immediate implementation of the new proposed order type will permit the 
Exchange to remain competitive with another market center that has 
recently adopted a similar order type pursuant to an immediately 
effective rule filing.\14\ In addition, with respect to the Exchange's 
proposal to eliminate the price sliding process, the Exchange 
represents that very few Exchange Users currently utilize the price 
sliding process, and in fact, on certain trading days, the Exchange 
does not receive any orders where a User has selected this process. 
Further, the Exchange represents that it has communicated with the 
limited number of Users that have utilized the price sliding process 
over the past several months to inform such Users of the Exchange's 
intent to eliminate this functionality, and such Users have indicated 
that they have no objection to the elimination of this 
functionality.\15\ On this basis, the Commission has determined that 
waiving the 30-day operative date is consistent with the protection of 
investors and the public interest and designates the proposal as 
operative upon filing.\16\
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    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that the Exchange has satisfied the 
five-day pre-filing notice requirement.
    \14\ See Securities Exchange Act Release No. 59259 (January 15, 
2009), 74 FR 4491 (January 26, 2009) (notice of immediate 
effectiveness of rule change to establish a Post Only Order for 
NASDAQ OMX BX, Inc.).
    \15\ Telephone conversation between Anders Franzon, Associate 
General Counsel, BATS Exchange, Inc., and Rebekah Liu, Special 
Counsel, Division of Trading and Markets, Commission, on February 
19, 2009.
    \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 may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-BATS-2009-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2009-006. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal office of 
the Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
BATS-2009-006 and should be submitted on or before March 25, 2009.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-4560 Filed 3-3-09; 8:45 am]
BILLING CODE 8011-01-P