[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:

------------------------------------------------------------------------
                           CLP                             Shares at NBB
------------------------------------------------------------------------
CLP1....................................................           1,000
CLP2....................................................             900
CLP3....................................................             800
CLP4....................................................             800
------------------------------------------------------------------------

    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