[Federal Register Volume 80, Number 203 (Wednesday, October 21, 2015)]
[Notices]
[Pages 63849-63852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26677]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76162; File No. SR-BATS-2015-86]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
Rule 2.4, Mandatory Participation in Testing of Backup Systems

October 15, 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 October 2, 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 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

[[Page 63850]]

upon filing with the Commission. 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.
    \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 to adopt business continuity and 
disaster recovery plans (``BC/DR plans'') testing requirements for 
certain Exchange Members \5\ in connection with Regulation Systems 
Compliance and Integrity (``Regulation SCI''), as further described 
below.\6\
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
    \6\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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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 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
    As adopted by the Commission, Regulation SCI applies to certain 
self-regulatory organizations (including the Exchange), alternative 
trading systems (``ATSs''), plan processors, and exempt clearing 
agencies (collectively, ``SCI entities''), and will require these SCI 
entities to comply with requirements with respect to the automated 
systems central to the performance of their regulated activities. Among 
the requirements of Regulation SCI is Rule 1001(a)(2)(v), which 
requires the Exchange and other SCI entities to maintain ``[b]usiness 
continuity and disaster recovery plans that include maintaining backup 
and recovery capabilities sufficiently resilient and geographically 
diverse and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \7\ The Exchange takes pride in 
the reliability and availability of its systems. Historically, Exchange 
systems have been up and available more than 99.9% of the time; yet as 
a precaution, the Exchange has put extensive time and resources toward 
planning for system failures and already maintains robust BC/DR plans 
consistent with the Rule. As set forth below, in connection with 
Regulation SCI, the Exchange is proposing to require certain Members to 
participate in testing of the operation of the Exchange's BC/DR plans.
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    \7\ 17 CFR 242.1001(a)(2)(v).
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    With respect to an SCI entity's BC/DR plans, including its backup 
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI 
entity to: ``[e]stablish standards for the designation of those members 
or participants that the SCI entity reasonably determines are, taken as 
a whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans.'' \8\ Paragraph 
(b) of Rule 1004 further requires each SCI entity to ``[d]esignate 
members or participants pursuant to the standards established in 
paragraph (a) of [Rule 1004] and require participation by such 
designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months.'' \9\ In order to comply 
with Rule 1004 of Regulation SCI, the Exchange proposes to adopt Rule 
2.4, governing mandatory participation in testing of Exchange backup 
systems, as described below.
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    \8\ 17 CFR 242.1004(a).
    \9\ 17 CFR 242.1004(b).
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    First, in paragraph (a) of Rule 2.4, the Exchange proposes to 
include language from paragraph (a) of Rule 1004 of Regulation SCI to 
summarize the Exchange's obligation pursuant to such rule. 
Specifically, the Exchange proposes to state that ``[p]ursuant to 
Regulation SCI and with respect to the Exchange's business continuity 
and disaster recovery plans, including its backup systems, the Exchange 
is required to establish standards for the designation of Members that 
the Exchange reasonably determines are, taken as a whole, the minimum 
necessary for the maintenance of fair and orderly markets in the event 
of the activation of such plans.'' The Exchange further proposes that 
paragraph (a) indicate that the ``Exchange has established standards 
and will designate Members according to those standards'' as set forth 
in the proposed Rule. In addition, the Exchange proposes to make clear 
that all Members are permitted to connect to the Exchange's backup 
systems as well as to participate in testing of such systems. Proposed 
paragraph (a) is consistent with the Commission's adoption of 
Regulation SCI, which encouraged ``SCI entities to permit non-
designated members or participants to participate in the testing of the 
SCI entity's BC/DR plans if they request to do so.'' \10\
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    \10\ See SCI Adopting Release, supra note 6 at 72350.
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    Second, in paragraph (b) of Rule 2.4, the Exchange proposes to 
specify the criteria that will result in a Member receiving a 
designation requiring it to connect to the Exchange's backup systems 
and to participate in functional and performance testing as announced 
by the Exchange, which shall occur at least once every 12 months. 
Specifically, proposed paragraph (b) would require all Members that 
account for a meaningful percentage of the Exchange's volume and 
Members that participate as Lead Market Makers (``LMMs'') with respect 
to one or more securities listed on the Exchange to connect to the 
Exchange's backup systems and to participate in functional and 
performance testing.
    The Exchange notes that it encourages all Members to connect to the 
Exchange's backup systems and to participate in testing of such 
systems. In fact, the Exchange provides logical ports free of charge to 
all Members that connect to Exchange backup systems in order to help 
reduce the economic burden of maintaining connectivity to Exchange 
backup systems. However, in adopting the requirements of Rule 2.4(b), 
including both the requirement to maintain connectivity to Exchange 
backup systems and to participate in mandatory testing of such systems, 
the Exchange intends to subject to the Rule only those Members that the 
Exchange believes are necessary to maintain fair and orderly markets at 
the Exchange. The Exchange believes that designating Members to 
participate in mandatory testing because they either account for a 
meaningful percentage of the Exchange's overall volume or maintain 
exclusive responsibilities with respect to Exchange-listed securities 
is a reasonable means to ensure the maintenance of a fair and orderly

[[Page 63851]]

market on the Exchange. The Exchange notes that it has not proposed 
initially to extend the requirement to Members that are registered as 
``Competitive Liquidity Providers'' or ``CLPs'', based on the fact that 
such Members do not have exclusive responsibilities with respect to 
Exchange-listed securities but instead are participating in a 
competitive incentive program with multiple market makers per product.
    In addition to paragraphs (a) and (b) described above, the Exchange 
also proposes to adopt Interpretation and Policy .01, which would 
provide additional detail regarding the notice that will be provided to 
Members that have been designated pursuant to subparagraph (b) of the 
Rule as well as the Exchange's method for measuring the volume 
threshold. As proposed, Interpretation and Policy .01 would state that 
for purposes of identifying Members that account for a meaningful 
percentage of the Exchange's overall volume, the Exchange will measure 
volume executed on the Exchange on a quarterly basis. The percentage of 
volume that the Exchange considers to be meaningful for purposes of 
this Interpretation and Policy .01 will be determined by the Exchange 
and will be published in a circular distributed to Members. The 
Exchange will publish the first circular consistent with this proposal 
prior to the Regulation SCI compliance date of November 3, 2015. The 
proposed Interpretation and Policy would also require the Exchange to 
notify individual Members quarterly that are subject to proposed 
paragraph (b) based on the prior calendar quarter's volume. Finally, as 
proposed, if a Member has not previously been subject to the 
requirements of proposed paragraph (b), then such Member would have 
until the next calendar quarter before such requirements are 
applicable. The Exchange believes the proposed notice requirements are 
necessary to provide Members with proper advance notice in the event 
they become subject to proposed Rule 2.4(b). The proposed timeframes 
would also provide Members with adequate time to become compliant with 
such Rule due to the necessary infrastructure changes it may take to 
connect to the Exchange's backup systems for a Member that is not 
already connected.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ 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. The proposal will ensure that the Members necessary to ensure 
the maintenance of a fair and orderly market are properly designated 
consistent with Rule 1004 of Regulation SCI. Specifically, the proposal 
will adopt criteria with respect to the designation of Members that are 
required to participate in the testing of the Exchange's BC/DR plans, 
as well as appropriate notification regarding such designation. As set 
forth in the SCI Adopting Release, ``SROs have the authority, and legal 
responsibility, under Section 6 of the Exchange Act, to adopt and 
enforce rules (including rules to comply with Regulation SCI's 
requirements relating to BC/DR testing) applicable to their members or 
participants that are designed to, among other things, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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.'' \13\ The Exchange believes that this proposal is consistent 
with such authority and legal responsibility.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ See SCI Adopting Release, supra note 6 at 72350.
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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. To the contrary, the proposal 
is not a competitive proposal but rather is necessary for the 
Exchange's compliance with Regulation SCI.

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 \14\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 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-2015-86 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-BATS-2015-86. 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

[[Page 63852]]

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 
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-2015-86 and should 
be submitted on or before November 12, 2015.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26677 Filed 10-20-15; 8:45 am]
BILLING CODE 8011-01-P