[Federal Register Volume 78, Number 41 (Friday, March 1, 2013)]
[Notices]
[Pages 13915-13916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04768]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68975; File No. SR-BYX-2013-008]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing of Proposed Rule Change Amending the Attestation Requirement of 
Rule 11.24 Allowing a Retail Member Organization To Attest That 
``Substantially All'' Orders Submitted to The Retail Price Improvement 
Program Will Qualify as ``Retail Orders''

February 25, 2013.
    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 12, 2013, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend the attestation requirement of 
BYX Rule 11.24 to allow a Retail Member Organization \3\ (``RMO'') to 
attest that ``substantially all'' orders submitted to the Retail Price 
Improvement Program (the ``Program'') will qualify as Retail Orders.\4\ 
BYX Rule 11.24(b)(2)(C) currently requires RMOs to attest that ``any 
order'' will so qualify, effectively preventing certain significant 
retail brokers from participating in the Program due to operational 
constraints.
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    \3\ A Retail Member Organization is a Member (or a division 
thereof) that has been approved by the Exchange under BATS Rule 
11.24 to submit Retail Orders.
    \4\ A Retail Order is an agency order that originates from a 
natural person and is submitted to the Exchange by a RMO, provided 
that no change is made to the terms of the order with respect to 
price or side of market and the order does not originate from a 
trading algorithm or any computerized methodology.
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    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing an amendment to BYX Rule 11.24 to provide 
that an RMO may attest that ``substantially all'' of the orders it 
submits to the Program are Retail Orders, replacing the requirement 
that the RMO must attest that all submitted orders qualify as Retail 
Orders. Currently, under BYX Rule 11.24(b)(2)(C), a Member \5\ wishing 
to become an RMO must submit: (A) An application form; (B) supporting 
documentation; and (C) an attestation that ``any order'' submitted as a 
Retail Order will qualify as such under BYX Rule 11.24.
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    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    The Exchange believes that the categorical nature of the current 
attestation language is preventing certain Members with retail 
customers from participating in the Program. In particular, the 
Exchange understands that some Members wishing to participate in the 
Program represent both Retail Orders as well as other agency flow that 
may not meet the strict definition of ``Retail Order.'' The Exchange 
further understands that limitations in order management systems and 
routing networks used by such Members may make it infeasible for them 
to isolate 100% of Retail Orders from other agency, non-Retail Order 
flow that they would direct to the Program. Unable to make the 
categorical attestation required by the current language of BYX Rule 
11.24, some Members have chosen not to participate, notwithstanding 
that substantially all order flow from such Members would be Retail 
Orders. This limitation has the effect of preventing their retail 
customers from benefiting from the enhanced price competition and 
transparency of the Program.
    Accordingly, the Exchange is proposing a de minimis relaxation of 
the RMO attestation requirement in order to accommodate these system 
limitations and expand the access of retail customers to the benefits 
of the Program. Specifically, as proposed, an RMO would be permitted to 
send de minimis quantities of agency orders to the Exchange as Retail 
Orders that cannot be explicitly attested to under existing definitions 
of the Program.
    The Exchange will issue notice to its Members to make clear that 
the ``substantially all'' language is meant to permit the presence of 
only isolated and de minimis quantities of agency orders that do not 
qualify as Retail Orders that cannot be segregated from Retail Orders 
due to systems limitations. In this regard, an RMO would need to 
retain, in its books and records, adequate substantiation that 
substantially all orders sent to the Exchange as Retail Orders met the 
strict definition and that those orders not meeting the strict 
definition are agency orders that cannot be segregated from Retail 
Orders due to system limitations, and are de minimis

[[Page 13916]]

in terms of the overall number of Retail Orders sent to the Exchange.
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.\6\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\7\ in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because, while 
the proposed rule change represents a relaxation of the attestation 
requirements, the change is a de minimis relaxation that still requires 
the RMO applicant to attest that ``substantially all'' of its orders 
will qualify as Retail Orders. The slight relaxation will allow enough 
flexibility to accommodate system limitations while still ensuring that 
only a fractional amount of orders submitted to the Program would not 
qualify as Retail Orders.
    The Exchange believes that the proposed rule change promotes just 
and equitable principles of trade because it will ensure that similarly 
situated Members who have only slight differences in the capability of 
their systems will be able to equally benefit from the Program.
    The Exchange believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it will allow Members, who are 
concerned about its system limitations not allowing 100% certification 
that submitted orders are Retail Orders, to still participate in the 
Program. By removing impediments to participation in the Program, the 
proposed change would permit expanded access of retail customers to the 
price improvement and transparency offered by the Program and thereby 
potentially stimulate further price competition for retail orders.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the amendment, by increasing the level of participation in the Program, 
will increase the level of competition around retail executions such 
that retail investors would receive better prices than they currently 
do on the Exchange and potentially through bilateral internalization 
arrangements. The Exchange believes that the transparency and 
competitiveness of operating a program such as the Program on an 
exchange market would result in better prices for retail investors and 
benefits retail investors by expanding the capabilities of Exchanges to 
encompass practices currently allowed on non-exchange venues.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BYX-2013-008 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-BYX-2013-008. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BYX-2013-008, and should be 
submitted on or before March 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04768 Filed 2-28-13; 8:45 am]
BILLING CODE 8011-01-P