[Federal Register Volume 78, Number 56 (Friday, March 22, 2013)]
[Notices]
[Pages 17731-17733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06629]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69160; File No. SR-BATS-2013-019]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend the Minimum Trading Increments 
for Mini Options

    March 18, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 15, 2013, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') 
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) thereunder,\4\ 
which renders it effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule 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 filed a proposal for the BATS Options Market (``BATS 
Options'') to permit the minimum trading increment for Mini Options to 
be the same as the minimum trading increment permitted for standard 
options on the same underlying security. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend BATS Rules to 
permit the minimum trading increment for Mini Options to be the same as 
the minimum trading increment permitted for standard options on the 
same underlying security. Mini Options overlie 10 equity or ETF shares, 
rather than the standard 100 shares.\5\ Mini Options are currently 
approved on the following five (5) underlying securities: SPDR S&P 500 
ETF (``SPY''), Apple Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google 
Inc. (``GOOG''), and Amazon.com, Inc. (``AMZN''). Of the five 
securities on which Mini Options are permitted, four of them (SPY, 
AAPL, GLD, and AMZN) participate in the Penny Pilot Program.\6\ Under 
the Penny Pilot Program, with the exception of three classes,\7\ the 
minimum price variation for all participating options classes is $0.01 
for all quotations in options series that are quoted at less than $3 
per contract and $0.05 for all quotations in options series that are 
quoted at $3 per contract or greater.

[[Page 17732]]

Therefore, the minimum trading increment for AAPL, GLD, and AMZN is 
$0.01 for option series under $3 and $0.05 for options quoted at $3 or 
greater, while the minimum trading increment for SPY, which is not 
subject to a price test, is $0.01 across all option series. The 
Exchange notes that GOOG is not in the Penny Pilot Program and 
therefore, standard options in GOOG have a minimum increment of $0.05 
and $0.10 per contract depending on the price at which the standard 
option on GOOG is quoted.
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    \5\ See Securities Exchange Act Release No. 69018 (March 1, 
2013), 78 FR 15090 (March 8, 2013) (Notice of filing and immediate 
effectiveness allowing Mini Options to be listed and traded on BATS 
Options) (SR-BATS-2013-013). The Exchange expects to begin listing 
and trading Mini Options on March 18, 2013.
    \6\ The rules of BATS Options, including rules applicable to 
BATS Options' participation in the Penny Pilot, were approved on 
January 26, 2010. See Securities Exchange Act Release No. 61419 
(January 26, 2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-
031). BATS Options commenced operations on February 26, 2010. The 
Penny Pilot was extended for BATS Options through June 30, 2013. See 
Securities Exchange Act Release No. 67306 (December 21, 2012), 77 FR 
77176 (December 31, 2012) (SR-BATS-2012-048).
    \7\ The three classes are the Nasdaq-100 Index Tracking Stock 
(``QQQQ''), SPY, and the iShares Russell 2000 Index Fund (``IWM''). 
QQQQ, SPY, and IWM are quoted in $0.01 for all options series.
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    This proposed rule change will permit the minimum trading increment 
for Mini Options to be identical to the minimum trading increment 
applicable to standard options on the same underlying security. The 
Exchange believes having different trading increments for Mini Options 
than those permitted for standard options on the same underlying 
security would be detrimental to the success of this new product 
offering and would also lead to investor confusion. The Exchange notes 
that the Commission approved Mini Options on SPY, AAPL, GLD, GOOG, and 
AMZN because of their high price and current volume levels and because 
of the level of retail investor participation in trading options on 
these underlying securities. Mini Options are a natural extension to 
the options overlying these securities and therefore should retain the 
most important characteristic, i.e., trading increments. The Exchange 
believes that by reducing the minimum trading increments for Mini 
Options, the proposed rule change will provide market participants with 
meaningful trading opportunities in this product. Further, quoting and 
trading in smaller increments will enable market participants to trade 
Mini Options with greater precision as to price. Providing these more 
refined increments will permit the Exchange's market makers the 
opportunity to provide better fills (meaning less spread than the 
current wider minimum increments rules allow) to customers. Therefore, 
the Exchange proposes to amend its rules to permit the listing and 
trading of Mini Options in the same increment permitted for standard 
options on the same underlying security.
    With this proposed rule change, although certain Mini Options would 
be trading in penny increments, they would not be considered part of 
the Penny Pilot Program.
    The Exchange's proposal to quote and trade certain option classes 
that are outside of the Penny Pilot Program in $0.01 increments is not 
novel. Specifically, the Commission has approved proposals by 
International Securities Exchange LLC (``ISE'') and Chicago Board 
Options Exchange, Incorporated (``CBOE'') that allows the exchanges to 
permit the minimum trading increment for Mini Options to be the same as 
the minimum trading increment permitted for standard options on the 
same underlying security.\8\ Similarly, the Commission has approved 
proposals by ISE and NASDAQ OMX PHLX, Inc. that permitted the exchanges 
to set the minimum increment for foreign currency options in $0.01 
increments, regardless of the price at which the option is quoted.\9\
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    \8\ See Securities Exchange Act Release No. 69124 (March 12, 
2013) (order approving proposal to permit the minimum trading 
increment for Mini Options to be the same as the minimum trading 
increment permitted for standard options on the same underlying 
security) (SR-CBOE-2013-016; SR-ISE-2013-08).
    \9\ See Securities Exchange Act Release Nos. 56933 (December 7, 
2007), 72 FR 71185 (December 14, 2007) (SR-PHLX-2007-70) and 57019 
(December 20, 2007), 72 FR 73937 (December 28, 2007) (SR-ISE-2007-
120).
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    In support of this proposed rule change, the Exchange proposes to 
amend BATS Rule 19.6 Interpretation and Policy .07 by adding new 
paragraph (d) to the rule which provides that the minimum trading 
increment for Mini Options shall be the same as the minimum trading 
increment permitted for standard options on the same underlying 
security.
    With regard to the impact of this proposal on system capacity, the 
Exchange represents that it and the Options Price Reporting Authority 
have the necessary systems capacity to handle the potential additional 
traffic associated with this proposal. The Exchange does not believe 
that this increased traffic will become unmanageable since Mini Options 
are limited to a fixed number of underlying securities.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
will assure that standard options and Mini Options on the same 
underlying security will trade in similar increments and therefore 
provide market participants meaningful trading opportunities and enable 
them to trade Mini Options with greater precision as to price. The 
Exchange also believes that the proposed rule change will avoid 
investor confusion if both standard options and Mini Options on the 
same underlying security are permitted to trade in similar trading 
increments. The Exchange further believes that investors and other 
market participants will benefit from this proposed rule change because 
it proposes to clarify and establish the minimum trading increment for 
Mini Options prior to the commencement of trading. The Exchange 
believes that investors generally will be expecting the minimum trading 
increment for Mini Options to be the same as the minimum trading 
increment for standard options on the same underlying security. This 
proposed rule change will therefore lessen investor confusion because 
Mini Options and standard options on the same underlying security will 
have the same minimum trading increment.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to the CBOE and ISE filings. The Exchange believes 
this proposed rule change is necessary to permit fair competition among 
the options exchanges.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received 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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to

[[Page 17733]]

Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 Exchange has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the proposed rule change may 
coincide with the anticipated launch of trading in Mini Options. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\14\ Waiver of the operative delay will allow the Exchange to 
implement its proposal consistent with the commencement of trading in 
Mini Options as scheduled and expected by members and other 
participants on March 18, 2013. For these reasons, the Commission 
designates the proposed rule change as operative upon filing.
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    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-BATS-2013-019 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-2013-019. 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-2013-019 and should be 
submitted on or before April 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06629 Filed 3-21-13; 8:45 am]
BILLING CODE 8011-01-P