[Federal Register Volume 80, Number 165 (Wednesday, August 26, 2015)]
[Notices]
[Pages 51852-51855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21083]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75746; File No. SR-EDGX-2015-37]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
2.11, BATS Trading as Outbound Router

August 20, 2015.
    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 August 11, 2015, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 2.11, BATS Trading as 
Outbound Router, in order to conform to the rules of BATS Exchange, 
Inc. (``BZX'') and BATS Y-Exchange, Inc. (``BYX'').\5\
---------------------------------------------------------------------------

    \5\ See BZX and BYX Rules 2.11. See also Securities Exchange Act 
Release Nos. 69744 (June 12, 2015), 78 FR 36612 (June 18, 2015) (SR-
BYX-2013-018); and 69744 (June 12, 2013), 78 FR 36621 (June 18, 
2015) (SR-BATS-2013-032) (notices of filing and immediate 
effectiveness of proposed rule changes to amend BYX and BZX Rules 
2.11, entitled ``BATS Trading, Inc. as Outbound Router'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at 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
    In early 2014, the Exchange and its affiliate, EDGA Exchange, Inc. 
(``EDGA''), received approval to effect a merger (the ``Merger'') of 
the Exchange's parent company, Direct Edge Holdings LLC, with BATS 
Global Markets, Inc., the parent of BZX and BYX (together with EDGA, 
and EDGX, the ``BGM Affiliated Exchanges'').\6\ In the context of the 
Merger, the BGM Affiliated Exchanges are working to align certain 
system and regulatory functionality, retaining only intended 
differences between the BGM Affiliated Exchanges. Thus, the proposal 
set forth below is intended to amend Rule 2.11, BATS Trading as an 
Outbound Router, to make such Rule identical to the corresponding Rule 
2.11 on BZX and BYX. The Exchange does not propose to alter its current 
system functionality with regard to its use of BATS Trading, Inc. 
(``BATS Trading'') as an outbound router and its use of an error 
account. Rather, the proposed rule change is designed to provide a 
consistent rule set across each of the BGM Affiliated Exchanges.\7\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-043; SR-EDGA-
2013-034).
    \7\ See BZX and BYX Rules 2.11. The Exchange notes that EDGA 
intends to file a similar proposal that will align the rules related 
to its use of BATS Trading as an outbound router across each of the 
BGM Affiliated Exchanges.
---------------------------------------------------------------------------

    Pursuant to Exchange Rule 2.11, the Exchange relies on BATS Trading 
to provide outbound routing services from itself to a routing 
destination. Rule 2.11 also provides the authority to the Exchange or 
BATS Trading to cancel orders on the Exchange's equity securities 
platform when a technical or system issue occurs. Rule 2.11 also 
describes the operation of an error account for BATS Trading. The 
Exchange proposes to make the amendments to Rule 2.11 described below 
to align each subparagraph with the corresponding subparagraph within 
BZX and BYX Rules 2.11.\8\ Again, none of these proposed changes alter 
the authority of the Exchange or BATS Trading to cancel orders that 
result from a technical or system issue nor do they amend the operation 
of an error account for BATS Trading.
---------------------------------------------------------------------------

    \8\ The Exchange notes that it does not propose to amend Rules 
2.11(a)(1)--(3) and (b) as those subparagraphs are identical to BZX 
and BYX Rules 2.11(a)(1)-(3) and (b).
---------------------------------------------------------------------------

    First, the Exchange proposes to make the follow ministerial changes 
to Rule 2.11 to conform to BZX and BYX Rules 2.11, none of which amend 
the substance or meaning of each section of the rule:
     Add ``, Inc.'' after ``BATS Trading'' in the title of Rule 
2.11 to align with the title of BZX and BYX Rules 2.11; and
     Replace the word ``accordance'' with the word 
``compliance'' in subparagraph (a)(4) to align with BZX and BYX Rules 
2.11(a)(4);
    None of the above changes alter the meaning of each subparagraph. 
They are simply intended to align each subparagraph with the 
corresponding subparagraph within Rule 2.11.
    Second, the Exchange proposes to amend Rule 2.11(a)(6) to align 
with BZX and BYX Rules 2.11(a)(6). Rule 2.11(a)(6) will continue to 
provide that the Exchange or BATS Trading may cancel orders as either 
deems to be necessary to maintain fair and orderly markets if a 
technical or systems issue occurs at the Exchange, BATS Trading or a 
routing destination. The Exchange proposes to replace: (i) The phrase 
``if and when a systems, technical or operational issue'' with ``if a 
technical or systems issue''; and (ii) the term ``Trading Center'' with 
``routing destination.'' Replacement of these terms do not alter the 
meaning of Rule 2.11(a)(6). Rather, they simply align the rule's text 
with that of BZX and BYX Rules 2.11(a)(6). To further align the rule 
text with BZX and BYX Rules 2.11(a)(6), the Exchange proposes to delete 
the phrase ``of orders'' from the last sentence of Exchange Rule 
2.11(a)(6). Rule 2.11(a)(6) will continue to require that the Exchange 
or BATS Trading provide notice of the cancellation of orders to 
affected Members as soon as practicable.
    Third, the Exchange proposes to amend Rule 2.11(a)(7) to align with 
BZX

[[Page 51853]]

and BYX Rules 2.11(a)(7). Subparagraph (a)(7) currently states the 
following:

    BATS Trading shall maintain an error account for the purpose of 
liquidating an error position when such position, in the judgment of 
the Exchange or BATS Trading subject to the factors described 
herein, cannot be fairly and practicably assigned to one or more 
Members in its entirety. An error position can be acquired if it 
results from a systems, technical or operational issue experienced 
by BATS Trading, by the Exchange or by a Trading Center to which 
BATS Trading directed an outbound order.

    The Exchange proposes to replace subparagraph (a)(7) in its 
entirety. As amended subparagraph (a)(7) would define ``Error 
Positions'' as ``positions that are the result of an execution or 
executions that are not clearly erroneous under Rule 11.15 and result 
from a technical or systems issue at BATS Trading, the Exchange, a 
routing destination, or a non-affiliate third-party Routing Broker that 
affects one or more orders.'' Subparagraph (a)(7) would also continue 
to state that BATS Trading will maintain an error account for the 
purpose of addressing Error Positions. The assignment and liquidation 
of Error Positions discussed under current subparagraph (a)(7) will be 
addressed under the proposed amendments to subparagraph (a)(7)(D) 
discussed below.
    Fourth, the Exchange proposes to amend subparagraph (a)(7)(A) to 
add the word ``this'' before ``Rule 2.11(a)(7)'' and capitalize 
reference to Error Positions to align with BZX and BYX Rules 
2.11(a)(7)(A). Notwithstanding these changes, subparagraph (a)(7)(A) 
will continue to require that an Error Position not include any 
position that results from an order submitted by a Member to the 
Exchange that is executed on the Exchange and automatically processed 
for clearance and settlement on a locked-in basis.
    Fifth, the Exchange proposes to amend subparagraph (a)(7)(B) to 
pluralize references to the term ``position'' to align with BZX and BYX 
Rules 2.11(a)(7)(B). Subparagraph (a)(7)(B) shall continue to require 
that, except as provided in Rule 2.11(a)(7)(C) (described below), BATS 
Trading not (i) accept any positions in its error account from an 
account of a Member, or (ii) permit any Member to transfer any 
positions from the Member's account to BATS Trading's error account.
    Sixth, the Exchange proposes to amend subparagraph (a)(7)(C) to 
replace reference to: (i) a ``systems, technical or operational issue'' 
with ``technical or systems issue'' and; (ii) ``a Member's trade'' with 
``a Member to a trade''. As amended, subparagraph (a)(7)(C) would state 
that if a technical or systems issue results in the Exchange not having 
valid clearing instructions for a Member to a trade, BATS Trading may 
assume that Member's side of the trade so that the trade can be 
automatically processed for clearance and settlement on a locked-in 
basis. These changes to align subparagraph (a)(7)(C) with BZX and BYX 
Rules 2.11(a)(7)(C) and do not alter its meaning or application.
    Lastly, the Exchange proposes to replace subparagraphs (a)(7)(D), 
(E), and (F) in their entirety with new subparagraphs (D) and (E), the 
text of which are identical to BZX and BYX Rules 2.11(a)(7)(D) and (E). 
Subparagraph (D) would state that, in connection with a particular 
technical or systems issue, BATS Trading or the Exchange shall either 
(1) assign all resulting Error Positions to Members in accordance with 
paragraph (i) below, or (2) have all resulting Error Positions 
liquidated in accordance with subparagraph (ii) below. This provision 
is similar to current subparagraph (a)(7)(D) and (E). Subparagraph (D) 
would further require that any determination to assign or liquidate 
Error Positions, as well as any resulting assignments, shall be made in 
a nondiscriminatory fashion. This provision is substantially similar to 
current subparagraphs (a)(7)(F)(ii).
    Proposed subparagraph (a)(7)(D)(i) would govern the assignment of 
Error Positions. Specifically, BATS Trading or the Exchange are 
required to assign all Error Positions resulting from a particular 
technical or systems issue to the Members affected by that technical or 
systems issue if BATS Trading or the Exchange: (i) Determines under 
proposed subparagraph (a)(7)(D)(i)(1) that it has accurate and 
sufficient information (including valid clearing information) to assign 
the positions to all of the Members affected by that technical or 
systems issue; (ii) determines under proposed subparagraph 
(a)(7)(D)(i)(2) that it has sufficient time pursuant to normal 
clearance and settlement deadlines to evaluate the information 
necessary to assign the positions to all of the Members affected by 
that technical or systems issue; and (iii) has not determined under 
proposed subparagraph (a)(7)(D)(i)(3) to cancel all orders affected by 
that technical or systems issue in accordance with subparagraph (a)(6) 
discussed above. These provisions are similar to current subparagraphs 
(a)(7)(D)(i) and (ii) as well as current subparagraphs (a)(7)(F) and 
(F)(i).
    Proposed subparagraph (a)(7)(D)(ii) would govern the liquidation of 
Error Positions. Under proposed subparagraph (a)(7)(D)(ii) BATS Trading 
must liquidate any Error Positions as soon as practicable where it or 
the Exchange is unable to assign all Error Positions resulting from a 
particular technical or systems issue to all of the affected Members in 
accordance with subparagraph (D) discussed above, or if BATS Trading or 
the Exchange determines to cancel all orders affected by the technical 
or systems issue in accordance with subparagraph (a)(6) above. This 
provision is substantially similar to current subparagraphs (a)(7)(E).
    In liquidating such Error Positions, proposed subparagraph 
(a)(7)(D)(ii)(1) and (2) require BATS Trading to: (i) Provide complete 
time and price discretion for the trading to liquidate the Error 
Positions to a third-party broker-dealer and shall not attempt to 
exercise any influence or control over the timing or methods of such 
trading; and (ii) establish and enforce policies and procedures that 
are reasonably designed to restrict the flow of confidential and 
proprietary information between the third-party broker-dealer and BATS 
Trading/the Exchange associated with the liquidation of the Error 
Positions. These provisions are similar to current subparagraphs 
(a)(7)(E)(i) and (ii).
    Proposed subparagraph (a)(7)(E) would require BATS Trading and the 
Exchange to make and keep records to document all determinations to 
treat positions as Error Positions and all determinations for the 
assignment of Error Positions to Members or the liquidation of Error 
Positions, as well as records associated with the liquidation of Error 
Positions through the third-party broker-dealer. This provision is 
substantially similar to current subparagraphs (a)(7)(F)(ii).
2. Statutory Basis
    The Exchange believes that the proposed rule change 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 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. The Exchange 
does not propose to alter its current system

[[Page 51854]]

functionality with regard the treatment of Error Positions set forth 
under current Exchange Rules. Rather, the proposed rule change is 
designed to provide a consistent rule set across each of the BGM 
Affiliated Exchanges. As mentioned above, the proposed rule changes, 
combined with the planned filing for EDGA,\11\ would allow the BGM 
Affiliated Exchanges to provide a consistent set of rules as it relates 
to the treatment of Error Positions across each of the BGM Affiliated 
Exchanges. Consistent rules, in turn, will simplify the regulatory 
requirements for Members of the Exchange that are also participants on 
EDGA, BZX and/or BYX. The proposed rule change would provide greater 
harmonization between rules of similar purpose on the BGM Affiliated 
Exchanges, resulting in greater uniformity and less burdensome and more 
efficient regulatory compliance and understanding of Exchange Rules. As 
such, the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system. Similarly, the 
Exchange also believes that, by harmonizing the rules and across each 
BGM Affiliated Exchange with respect to the treatment of Error 
Positions, the proposal will provide consistent rules and methodology 
for handling Error Positions across the BGM Affiliated Exchanges, 
meaning that the proposed rule change is equitable and will promote 
fairness in the market place.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See supra note 7.
---------------------------------------------------------------------------

(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. To the contrary, allowing the 
Exchange to implement substantively identical rules across each of the 
BGM Affiliated Exchanges regarding the treatment of Error Positions 
does not present any competitive issues, but rather is designed to 
provide greater harmonization among Exchange, EDGA, BYX, and BZX rules 
of similar purpose.

(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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) of the Act \12\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\13\ The proposed rule change effects a change that 
(A) does not significantly affect the protection of investors or the 
public interest; (B) does not impose any significant burden on 
competition; and (C) by its terms, does not become operative for 30 
days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that the self-regulatory organization 
has given 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.\14\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4.
    \14\ The Exchange has fulfilled this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\16\ the Commission 
may 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 believes 
that waiver of the 30-day operative delay would benefit investors 
because it will allow the Exchange to have consistent rules across each 
of the BGM Affiliated Exchanges regarding the treatment of Error 
Positions. The Exchange also notes that the proposed rule change does 
not alter its current system functionality with regard to the treatment 
of Error Positions set forth under current Exchange Rules. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will harmonize the treatment of Error Positions across the BGM 
Affiliated Exchanges. Therefore, the Commission hereby waives the 30-
day operative delay and designates the proposed rule change to be 
operative upon filing with the Commission.\17\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily temporarily suspend such rule 
change if it appears to the Commission that such action is: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.

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-EDGX-2015-37 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-EDGX-2015-37. 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 will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments

[[Page 51855]]

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-EDGX-2015-37 and should be 
submitted on or before September 16, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21083 Filed 8-25-15; 8:45 am]
 BILLING CODE 8011-01-P