[Federal Register Volume 80, Number 192 (Monday, October 5, 2015)]
[Notices]
[Pages 60210-60213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25177]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76015; File No. SR-BATS-2015-76]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Restructure and Amend Rule 11.17, Clearly Erroneous Executions
September 29, 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 September 21, 2015, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') 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 Substance
of the Proposed Rule Change
The Exchange filed a proposal to restructure and amend Rule 11.17,
Clearly Erroneous Executions, in order to conform to the rules of EDGA
Exchange, Inc. (``EDGA'') and EDGX Exchange, Inc. (``EDGX'').\3\
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\3\ See EDGA and EDGX Rule 11.15.
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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
[[Page 60211]]
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, BATS Y-Exchange,
Inc. (``BYX''), received approval to effect a merger (the ``Merger'')
of the Exchange's parent company, BATS Global Markets, Inc., with
Direct Edge Holdings LLC, the indirect parent of EDGX and EDGA
(together with BZX, BYX and EDGX, the ``BGM Affiliated Exchanges'').\4\
In the context of the Merger, the BGM Affiliated Exchanges are working
to align their rules, retaining only intended differences between the
BGM Affiliated Exchanges. Thus, the Exchange proposes to restructure
and amend Rule 11.17, Clearly Erroneous Executions, in order to conform
to the corresponding rules of EDGA and EDGX and provide a consistent
rule set across each of the BGM Affiliated Exchanges.\5\
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\4\ See Securities Exchange Act Release No. 71375 (January 23,
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
\5\ The Exchange notes that BYX intends to file an identical
proposal with the Commission to restructure and amend its Rule
11.17, Clearly Erroneous Executions, to conform to EDGA and EDGX
Rules 11.15.
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Background
On September 10, 2010, the Commission approved, on a pilot basis,
changes to BATS Rule 11.17 to provide for uniform treatment: (1) Of
clearly erroneous \6\ execution reviews in multi-stock events involving
twenty or more securities; and (2) in the event transactions occur that
result in the issuance of an individual stock trading pause by the
primary listing market and subsequent transactions that occur before
the trading pause is in effect on the Exchange.\7\ The Exchange also
adopted additional changes to Rule 11.17 that reduced the ability of
the Exchange to deviate from the objective standards set forth in Rule
11.17,\8\ and in 2013, adopted a provision designed to address the
operation of the Plan to Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or the ``Plan'').\9\ In 2014, the Exchange adopted
two additional provisions providing that: (i) A series of transactions
in a particular security on one or more trading days may be viewed as
one event if all such transactions were effected based on the same
fundamentally incorrect or grossly misinterpreted issuance information
resulting in a severe valuation error for all such transactions (the
``Multi-Day Event''); and (ii) in the event of any disruption or
malfunction in the operation of the electronic communications and
trading facilities of an Exchange, another SRO, or responsible single
plan processor in connection with the transmittal or receipt of a
trading halt, an Officer, acting on his or her own motion, shall
nullify any transaction that occurs after a trading halt has been
declared by the primary listing market for a security and before such
trading halt has officially ended according to the primary listing
market.\10\
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\6\ The terms of a transaction executed on the Exchange are
``clearly erroneous'' when there is an obvious error in any term,
such as price, number of shares or other unit of trading, or
identification of the security. A transaction made in clearly
erroneous error and cancelled by both parties or determined by the
Exchange to be clearly erroneous will be removed from the
Consolidated Tape. See Exchange Rule 11.17(a).
\7\ Securities Exchange Act Release No. 62886 (Sept. 10, 2010),
75 FR 56613 (Sept. 16, 2010) (SR-BATS-2010-016).
\8\ Id.
\9\ See Securities Exchange Act Release No. 68797 (Jan. 31,
2013), 78 FR 8635 (Feb. 6, 2013) (SR-BATS-2013-008); see also
current BATS Rule 11.17(h).
\10\ See Securities Exchange Act Release No. 72434 (June 19,
2014), 79 FR 36110 (June 25, 2014) (SR-BATS-2014-014).
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Proposed Amendments to Rule 11.17
First, the Exchange proposes to add new subparagraph (h) to Rule
11.17 which would describe the process for nullifying trades in UTP
Securities that are the subject of an initial public offering
(``IPOs''). The provisions of proposed paragraph (h) are substantially
similar to EDGA and EDGX Rules 11.15(h) and differs only to the extent
to conform to existing phrasing and terminology within other provisions
of Rule 11.17.\11\
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\11\ The Exchange notes that EDGA and EDGX are to file rule
changes with the Commission to proposes a series of ministerial
changes to their Rules 11.15, Clearly Erroneous Executions, to
conform with other provisions of BZX and BYX Rule 11.17 to ensure
each of the BGM Affiliated Exchange have identical rule text with
regard to the review and handling of clearly erroneous executions.
This filing would include changes to EDGA and EDGX Rules 11.15(h) to
mirror Exchange Rule 11.17(h) as proposed herein.
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Pursuant to Rule 12f-2 of the Securities Exchange Act of 1934,\12\
the Exchange may extend unlisted trading privileges to a security that
is the subject of an IPO when at least one transaction in the subject
security has been effected on the national securities exchange or
association upon which the security is listed and the transaction has
been reported pursuant to an effective transaction reporting plan.
Under proposed paragraph (h), a clearly erroneous error may be deemed
to have occurred in the opening transaction of the subject security if
the execution price of the opening transaction on the Exchange is the
lesser of $1.00 or 10% away from the opening price on the listing
exchange or association. In such circumstances, the Officer of the
Exchange or other senior level employee designee shall declare the
opening transaction null and void or shall decline to take action in
connection with the completed trade(s). Clearly erroneous executions of
subsequent transactions of the subject security will be reviewed in the
same manner as the procedure set forth in Exchange Rule 11.17(e)(1).
Absent extraordinary circumstances, any such action of the Officer of
the Exchange or other senior level employee designee pursuant to
proposed subparagraph (h) shall be taken in a timely fashion, generally
within thirty (30) minutes of the detection of the erroneous
transaction. When extraordinary circumstances exist, any such action of
the Officer of the Exchange or other senior level employee designee
must be taken by no later than the start of Regular Trading Hours on
the trading day following the date of execution(s) under review. Each
party involved in the transaction shall be notified as soon as
practicable by the Exchange, and the party aggrieved by the action may
appeal such action in accordance with the provisions of Exchange Rule
11.17(e)(2). As stated above, proposed paragraph (h) is substantially
similar to EDGA and EDGX Rules 11.15(h) and differs only to the extent
to conform to existing phrasing and terminology within other provisions
of Rule 11.17.
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\12\ 17 CFR 240.12f-2.
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The Exchange also proposes the following ministerial amendments to
Rule 11.17 as a result of proposing new paragraph (h). First, the
Exchange proposes to renumber current paragraph
[[Page 60212]]
(h) as (i), current paragraph (i) as (j), and current paragraph (j) as
(k). In addition, the Exchange proposes to update the references to
these paragraph in the introductory section of Rule 11.17 to reflect
these changes and the addition of proposed paragraph (h).
Lastly, the Exchange proposes the following changes to further
conform Rule 11.17 to EDGA and EDGX Rules 11.15:
Amend paragraph (e)(1) to clarify that a determination
made pursuant to this paragraph shall be made generally within thirty
(30) minutes of receipt of the complaint, but in no case later than the
start of Regular Trading Hours on the following trading day, rather
than simply stating the following day. This proposed change would make
paragraph (e)(1) identical to EDGA and EDGX Rule 11.15(e)(1).
Amend paragraph (e)(2)(A) to define CRO as the
``Exchange's Chief Regulatory Officer''. This proposed change would
make paragraph (e)(2)(A) identical to EDGA and EDGX Rule
11.15(e)(2)(A).
Amend paragraph (e)(2)(F) to replace the term ``Officer'' with
``Official'' in order to use consistent terminology throughout Rule
11.17.
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.\13\
Specifically, the proposed change is consistent with Section 6(b)(5) of
the Act,\14\ 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. As mentioned
above, the proposed rule changes, combined with the planned filing for
the BYX, EDGA, and EDGX, would allow the BGM Affiliated Exchanges to
provide a consistent set of rules as it relates to clearly erroneous
executions. Consistent rules, in turn, will simplify the regulatory
requirements for Members of the Exchange that are also participants on
EDGA, EDGX 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 across each BGM
Affiliated Exchange, the proposal will enhance the Exchange's ability
to fairly and efficiently regulate its Members, meaning that the
proposed rule change is equitable and will promote fairness in the
market place.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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Finally, the Exchange believes that the non-substantive,
ministerial changes discussed above will contribute to the protection
of investors and the public interest by helping to avoid confusion with
respect to Exchange Rules.
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 clearly erroneous executions does
not present any competitive issues, but rather is designed to provide
greater harmonization among Exchange, BYX, EDGX, and EDGA rules of
similar purpose. The proposed rule change should, therefore, result in
less burdensome and more efficient regulatory compliance and
understanding of Exchange Rules for common members of the BGM
Affiliated Exchanges and an enhanced ability of the BGM Affiliated
Exchanges to fairly and efficiently regulate Members.
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 \15\ and paragraph (f)(6) of Rule
19b-4 thereunder.\16\ 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.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4.
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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 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-2015-76 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2015-76. 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
[[Page 60213]]
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-BATS-2015-76, and should be
submitted on or before October 26, 2015.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25177 Filed 10-2-15; 8:45 am]
BILLING CODE 8011-01-P