[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69509-69511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27631]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70865; File No. SR-BATS-2013-057]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the BATS Competitive Liquidity Provider Program
November 13, 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 November 12, 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
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Interpretation and Policy
.02 to Rule 11.8, entitled ``Competitive Liquidity Provider Program.''
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
On August 30, 2011, the Exchange received approval of rules
applicable to the qualification, listing and delisting of securities of
issuers on the Exchange.\3\ More recently, the Exchange received
approval to operate a program that is designed to incentivize certain
market makers registered with the Exchange as Competitive Liquidity
Providers (``CLPs'') to enhance liquidity on the Exchange in Exchange-
listed securities (the ``Competitive Liquidity Provider Program'' or
``CLP Program'').\4\ The Exchange subsequently adopted financial
incentives for the CLP Program\5\ and thereafter amended certain of the
financial incentives and criteria for the CLP Program.\6\
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\3\ See Securities Exchange Act Release No. 65225 (August 30,
2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018).
\4\ See Securities Exchange Act Release No. 66307 (February 2,
2012), 77 FR 6608 (February 8, 2012) (SR-BATS-2011-051).
\5\ See Securities Exchange Act Release No. 66427 (February 21,
2012), 77 FR 11608 (February 27, 2012) (SR-BATS-2012-011).
\6\ See Securities Exchange Act Release Nos. 67854 (September
13, 2012), 77 FR 58198 (September 19, 2012) (SR-BATS-2012-036) and
69190 (March 20 2013), 78 FR 18384 (March 26, 2013) (SR-BATS-2013-
005).
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The purpose of this filing is to modify Interpretation and Policy
.02 of Rule 11.8 regarding certain details around the implementation of
the CLP Program. Specifically, effective December 1, 2013, the Exchange
proposes to: (1) Award up to three CLPs, or more in the case of a tie,
at each size event test (``SET'') with credits (``SET Credits'') based
on their rank in aggregate size at the NBB or NBO at the time of the
SET; (2) base the allocation of daily financial rewards on the number
of SET Credits awarded to CLPs; (3) change the allocation of the daily
financial rewards to a set dollar value per CLP in each class of
security; and (4) make certain cleanup and clarifying changes to
Interpretation and Policy .02 to Rule 11.8.
Increasing Winning SETs and Awarding SET Credits
The Exchange is proposing to award Winning Bid SETs\7\ and Winning
Offer SETs\8\ (collectively, ``Winning SETs'') along with SET Credits
to at least three CLPs each for the bid (``Bid SET Credits'') and offer
(``Offer SET Credits'') based on a CLP's rank in aggregate size at the
NBB or NBO at the time of a SET. Currently, only the CLP with the
greatest aggregate size at the NBB and the CLP with the greatest
aggregate size at the NBO at the time of a SET are considered to have a
Winning Bid SET and a Winning Offer SET, respectively.
[[Page 69510]]
CLPs are not currently awarded SET Credits.
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\7\ As defined in Interpretation and Policy .02 (g)(1) to BATS
Rule 11.8.
\8\ Id.
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The Exchange is proposing to amend Interpretation and Policy
.02(g)(1) to Rule 11.8 such that the three CLPs with the greatest
aggregate size at the NBB and the three CLPs with the greatest
aggregate size at the NBO at the time of each SET will be considered to
have a Winning SET. Where there is a tie, all CLPs with the same
aggregate size at the NBB (NBO) will be considered to have a Winning
Bid (Offer) SET if there are two or less CLPs that have greater
aggregate size at the NBB (NBO). Additionally, all CLPs with a Winning
SET will be awarded SET Credits based on the following: all CLPs with
the greatest aggregate size at the NBB or NBO will receive three SET
Credits; all CLPs with the second greatest aggregate size at the NBB or
NBO will receive two SET Credits; and all CLPs with the third greatest
aggregate size at the NBB will receive one SET Credit.
For example:
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CLP Shares at NBB
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CLP1.................................................... 1,000
CLP2.................................................... 900
CLP3.................................................... 800
CLP4.................................................... 800
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Here, all four CLPs will have a Winning Bid SET because CLP1 and
CLP2 are both two of the top three CLPs with the greatest aggregate
size at the NBB, while CLP3 and CLP4 are tied at 800 shares and there
are only two CLPs that have greater aggregate size at the NBB than 800
shares. CLP1 would receive three Bid SET Credits, CLP2 would receive
two Bid SET Credits, and CLP3 and CLP4 would each receive one Bid SET
Credit.
However, if CLP3 had 900 shares at the NBB and all other CLPs
remained the same, only CLP1, CLP2, and CLP3 would have a Winning SET
because CLP2 and CLP3 would be tied and there is only one CLP that has
greater aggregate size than 900 shares (CLP1). CLP4 would have the
fourth greatest aggregate size at the NBB among CLPs and thus would not
qualify for a Winning SET. In this instance, CLP1 would receive three
Bid SET Credits, CLP2 and CLP3 would each receive two Bid SET Credits,
and CLP4 would not receive any Bid SET Credits.
Finally, if CLP1, CLP2, CLP3, and CLP4 all had 1,000 shares at the
NBB, the four CLPs would each receive three Bid SET Credits. In this
scenario, if another CLP (``CLP5'') had 900 shares at the NBB, CLP5
would not qualify for a Winning SET and would not receive any Bid SET
Credits because more than two CLPs have greater aggregate size at the
NBB than the 900 shares posted by CLP5.
The above examples would operate in an identical fashion for the
NBO.
Determining the Recipients of the Daily Financial Rewards
The Exchange is also proposing to amend its Rules in order to base
the allocation of daily financial rewards associated with the CLP
Program on SET Credits instead of Winning SETs. Currently, the daily
financial reward for Tier I securities \9\ and ETPs \10\ is awarded to
the two CLPs with the most Winning Bid SETs and the two CLPs with the
most Winning Offer SETs. For Tier II securities,\11\ the daily
financial reward is awarded to the CLP with the most Winning Bid SETS
and the CLP with the most Winning Offer SETs.
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\9\ As defined in BATS Rule 14.8.
\10\ As defined in Interpretation and Policy .02(d)(2) of BATS
Rule 11.8.
\11\ As defined in BATS Rule 14.9.
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The Exchange proposes to amend Interpretation and Policy .02 (k)(1)
of BATS Rule 11.8 to provide that the daily financial reward for all
securities participating in the Program will be based on SET Credits.
Specifically, the Exchange proposes that the daily financial reward for
Tier I securities and ETPs be awarded to the two CLPs with the most Bid
SET Credits and the two CLPs with the most Offer SET Credits and for
the daily financial reward for Tier II securities to be awarded to the
CLP with the most Bid Set Credits and the CLP with the most Offer SET
Credits. The Exchange notes that it is not proposing to change the
daily quoting requirement that a CLP have Winning Bid SETs or Winning
Offer SETs equal to at least 10% of the total Bid SETs or total Offer
SETs in a security in order to be eligible for the daily financial
reward.
Allocating the Daily Financial Rewards
The Exchange also proposes to change the allocation of the daily
financial rewards to a specified amount per CLP in each class of
security. Currently, the daily financial rewards for Tier I securities
and ETPs are allocated to the two CLPs with the most Winning Bid SETs
and the two CLPs with the most Winning Offer SETs on a pro rata basis,
based on the combined sum of the two CLPs' Winning SETs. The financial
rewards for Tier II securities are allocated to the single CLP with the
most Winning Bid SETs and the single CLP with the most Winning Offer
SETs.
The Exchange proposes to amend Interpretation and Policy .02 (k)(1)
of BATS Rule 11.8 in order to allocate the daily financial rewards to
CLPs on a pre-determined basis rather than on a pro rata basis.
Specifically, the Exchange is proposing to allocate the daily financial
rewards as follows: (i) For the six months after initial listing on the
Exchange in Tier I securities, the CLPs with the most and second most
SET Credits will receive $150 and $100, respectively, for both the bid
and the offer; and (ii) for Tier I securities that have been listed on
the Exchange for more than six months and for ETPs, the CLPs with the
most and second most SET Credits will receive $75 and $50,
respectively, for both the bid and the offer. For Tier II securities,
the CLP with the most SET Credits will continue to receive 100% of the
daily financial reward for both the bid and the offer.
Cleanup Changes
The Exchange also proposes to make several cleanup and clarifying
changes to Interpretation and Policy .02 of BATS Rule 11.8. These
changes include the following: (i) adding ``the time of'' between
``aggregate size at the NBB at'' and ``each SET'' to paragraph (g)(1);
(ii) adding ``the time of'' between ``aggregate size at the NBO at''
and ``each SET'' to paragraph (g)(1); (iii) adding the word ``to''
between the words ``order'' and ``meet'' in paragraph (g)(1)(A); (iv)
to capitalize the ``b'' in each instance of ``bid SET'' that is not
capitalized in paragraph (k)(1); and (v) to capitalize the ``o'' in
each instance of ``offer SET'' that is not capitalized in paragraph
(k)(1).
2. Statutory Basis
The Exchange believes that its proposal 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.\12\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act,\13\ 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. The Exchange also believes that the
combination of fixed financial rewards (rather than awarding financial
rewards on a pro rata basis) and awarding SET Credits to three CLPs per
SET for the bid and offer will promote tighter spreads and deeper
liquidity for all market participants by incentivizing multiple CLPs to
quote at the NBBO. More
[[Page 69511]]
specifically, the Exchange believes that implementing fixed financial
rewards will incentivize additional CLPs to continue to provide
liquidity even where one CLP is winning the majority of SETs, while
awarding three CLPs with SET Credits for each SET will incentivize
multiple CLPs to add liquidity at or inside the NBBO even if another
CLP consistently has greater liquidity at the NBBO than the other CLP.
The Exchange believes that this will foster greater competition and
participation among CLPs which, as outlined above, will enhance market
quality to the benefit of all market participants.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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Further, the Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\14\ in that it provides for
the equitable allocation of reasonable dues, fees and other charges,
and is not unfairly discriminatory. The Exchange believes that the
proposed changes are reasonable and equitably allocated because, while
the proposal does lower the potential high-end of the daily financial
reward available to the CLP with the most SET Credits, it will
incentivize additional CLPs to continue to provide liquidity even where
one CLP is winning the majority of SETs, which, as described above,
will foster greater competition among CLPs and enhance market quality
to the benefit of all market participants. The Exchange also believes
that the proposal is not unfairly discriminatory because registration
as a market maker and, in turn, a CLP, is equally available to all
Members that satisfy the requirements of Rule 11.8.
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\14\ 15 U.S.C. 78f(b)(4).
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(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. The Exchange believes that the
proposal will merely improve the incentives and, in turn, the results,
of its CLP Program. The Exchange believes that the proposed changes
will enhance competition amongst participants in the CLP Program.
(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 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 the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 satisfied this requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay so that the proposal may become operative on December
1, 2013. The Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Doing so will allow the Exchange to promptly implement the
proposed amendments to the CLP Program, which amendments the Exchange
believes will benefit both CLPs and market participants generally by
incentivizing CLPs to provide tighter spreads and deeper liquidity, as
well as by providing additional clarity around existing Exchange rules.
Therefore, the Commission hereby waives the 30-day operative delay and
designates the proposal operative upon filing.\17\
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\17\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal 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 No. SR-BATS-2013-057 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 No. SR-BATS-2013-057. 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 changes 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 will also 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 No. SR-BATS-2013-057 and should be
submitted on or before December 10, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27631 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P