[Federal Register Volume 81, Number 6 (Monday, January 11, 2016)]
[Notices]
[Pages 1252-1255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00250]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76832; File No. SR-BATS-2015-119]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.22, Data Products, To Describe IPO Auction Viewer

January 5, 2016.
    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 December 23, 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 
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.
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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 amend Rule 11.22 to describe a new 
market data product known as IPO Auction Viewer. The proposed rule 
change is based on Nasdaq Stock Market LLC's (``Nasdaq'') Rule 
7015(j).\5\
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    \5\ See also Securities Exchange Act Release No. 75863 
(September 9, 2015), 80 FR 55406 (September 15, 2015) (SR-Nasdaq-
2015-082) (Order Approving Proposed Rule Change to Introduce an 
Additional Data Element to the IPO Indicator Service).
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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
    The Exchange proposes to amend Rule 11.22 describing a new market 
data product known as IPO Auction Viewer, which would be provided free 
of charge. IPO Auction Viewer would be a data feed that is available to 
designated associated persons of a Member \6\ that is acting as the 
Stabilizing Agent for an IPO Security. ``IPO Security'' would be 
defined under proposed paragraph (l)(2)(A) to Exchange Rule 11.22 as 
``a BATS listed security in an initial public offering for which the 
initial pricing procedures described in Rule 11.23(d) are available.'' 
\7\ The proposed rule change also adds to Rule 11.22(l) definitions of 
``IPO Auction'', ``Stabilizing'', and ``Stabilizing Agent''. ``IPO 
Auction'' would be defined under proposed paragraph (l)(2)(B) as ``the 
initial pricing procedures described in Rule 11.23(d).'' 
``Stabilizing'' would be defined under proposed paragraph (l)(2)(C) as 
``Stabilizing as defined in Rule 100 of Regulation M of the Securities 
Exchange Act of 1934, including engaging in syndicate covering 
transactions.'' Lastly, ``Stabilizing Agent'' would be defined under 
proposed paragraph (l)(2)(D) as ``a Member that will engage in 
Stabilizing with respect to an IPO Security on the day of its initial 
public offering.''
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    \6\ 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).
    \7\ Exchange Rule 11.23(d) sets forth the Exchange's procedures 
for conducting an auction for a BATS listed security in an initial 
public offering.
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    IPO Auction Viewer would assist Members who are acting as a 
Stabilizing Agent in monitoring the orders they have entered for 
execution in the auction process for an IPO Security. The auction 
process under Exchange Rule 11.23(d) is designed to provide an orderly, 
single priced opening of securities subject to an intra-day halt, 
including securities that are the subject of an IPO. Prior to the 
execution of the auction process for an IPO Security (``IPO Auction''), 
Members enter orders eligible for participation in the IPO Auction, and 
the Exchange disseminates certain information regarding buying and 
selling interest and indicative execution price information. The 
quotation only period with respect to an IPO Auction currently 
commences fifteen (15) minutes plus a short random period prior to the 
IPO Auction (``Quote-Only Period'').\8\ Coinciding with the beginning 
of the Quote-Only Period for a security and updated every five seconds 
thereafter, the Reference Price,\9\ Indicative Price,\10\ Auction Only 
Price,\11\ and the lesser of Reference Buy Shares \12\ and Reference 
Sell Shares \13\ associated with the IPO Auction will be 
disseminated.\14\ The IPO Auction executes and regular market trading 
commences in the IPO Security at the conclusion of the IPO Auction.\15\ 
The representative of the underwriting syndicate that serves as lead 
underwriter also serves as the Stabilizing Agent for the IPO Security.
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    \8\ See Exchange Rule 11.23(a)(17).
    \9\ See Exchange Rule 11.23(a)(19).
    \10\ See Exchange Rule 11.23(a)(10).
    \11\ See Exchange Rule 11.23(a)(2).
    \12\ See Exchange Rule 11.23(a)(18).
    \13\ See Exchange Rule 11.23(a)(21).
    \14\ See Exchange Rule 11.23(d)(1) and (2).
    \15\ See Exchange Rule 11.23(d)(3).
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    As discussed above, the Stabilizing Agent has responsibility for 
monitoring the submission of buying and selling interest into the IPO 
Auction and informing the Exchange when the IPO Security is ready to 
initiate trading. Thus, the Stabilizing Agent stands ready

[[Page 1253]]

during the course of the day to commit its capital in support of the 
IPO Security, buying from investors that wish to sell the IPO Security 
to realize short-term gains (or to minimize short-term losses). The 
Stabilizing Agent thereby serves to dampen volatility in the IPO 
Security and promote the maintenance of a fair and orderly market. 
Because the function performed by the Stabilizing Agent is unique on 
the day of the IPO, the Exchange has concluded that providing 
additional information about pre-opening interest in the stock to the 
Stabilizing Agent will help it to optimize the opening of the stock and 
manage its own risk, thereby assisting it in promoting a fair and 
orderly market for the IPO Security. Accordingly, the Exchange is 
proposing to introduce the IPO Auction Viewer, a specialized data 
product that will be made available solely to the Stabilizing Agent.
    Access to the IPO Auction Viewer will be limited through a secure 
entitlement process to designated individuals employed by the 
Stabilizing Agent. On the day of an IPO, beginning with the start of 
the Quote-Only Period described in Exchange Rule 11.23(d)(1)(A) and 
ending upon the completion of the IPO Auction for an IPO Security, the 
IPO Auction Viewer will display aggregated buying and selling interest 
information for the IPO Security, reflecting all orders on the BATS 
Book, and consisting of the aggregate size of all orders at each 
permissible price level. The aggregated information provided through 
this data element would include all Eligible Auction Orders \16\ and 
size. Information provided through the IPO Auction Viewer will be 
updated every five seconds, along with updates to the Reference Price, 
Indicative Price, Auction Only Price, and the lesser of Reference Buy 
Shares and Reference Sell Shares.\17\ Access to IPO Auction Viewer 
shall terminate immediately upon the completion of the IPO Auction for 
the IPO Security.
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    \16\ See Exchange Rule 11.23(a)(8).
    \17\ See Exchange Rule 11.23(d)(1)(A).
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    The IPO Auction Viewer will provide no information other than that 
described above, unless the Exchange submits a proposed rule change to 
add additional data to it. In particular, the IPO Auction Viewer will 
not provide any information regarding Eligible Auction Orders other 
than in the aggregated format described above, and will not provide any 
information regarding the identity of Members posting orders. The 
Exchange believes that providing this information to the Stabilizing 
Agent will provide the Stabilizing Agent with insights into the scope 
of demand for, and supply of, the IPO Security, in a manner that will 
allow it to make more informed decisions about the appropriate time to 
initiate the opening of the IPO Security through the IPO Auction. In 
addition, the information will allow the Stabilizing Agent to respond 
in a more informed way to questions from its customers and other 
participants regarding expectations that an Order to buy or sell with a 
stated price and size may be executable in the IPO Auction. Finally, 
the information will assist the Stabilizing Agent in making decisions 
about the appropriate level of capital to commit to support the IPO 
Security once trading commences.
    Once the IPO Auction executes, the IPO Auction Viewer will cease to 
be available, both with respect to the state of the BATS Book during 
the continuous market and with respect to retrospective information 
about the state of the BATS Book leading up to the IPO Auction. Thus, 
the Stabilizing Agent will not be provided with any information not 
available to other market participants once continuous market trading 
in the IPO Security commences.
    Since the aggregated information provided through the IPO Auction 
Viewer is unique and directly available only to the Stabilizing Agent, 
the Exchange believes that it is appropriate to adopt safeguards in 
order to ensure that the aggregated information is not misused.\18\ 
Accordingly, the Exchange's proposed rule will require the Stabilizing 
Agent receiving the IPO Auction Viewer to maintain and enforce written 
policies and procedures reasonably designed to achieve the following 
purposes:
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    \18\ The Exchange notes that the usage of the information 
provided through the IPO Auction Viewer must be consistent with 
Regulation M, including Commission Guidance Regarding Prohibited 
Conduct in Connection with IPO Allocations (Securities Exchange Act 
Rel. No. 33-8565) (April 7, 2005).
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     Restrict electronic access \19\ to aggregated information 
only to associated persons of the Stabilizing Agent who need to know 
the information in connection with establishing the opening price of an 
IPO Security and Stabilizing the IPO Security;
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    \19\ As discussed below, electronic access to the IPO Auction 
Viewer will be available on a displayed basis only.
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     Except as may be required for purposes of maintaining 
books and records for regulatory purposes, prevent the retention of 
aggregated information following the completion of the IPO Auction for 
the IPO Security; and
     Prevent persons with access to aggregated information from 
engaging in transactions in the IPO Security other than transactions in 
the IPO Auction; transactions on behalf of a customer; or Stabilizing. 
Thus, for example, the Stabilizing Agent or its affiliates would not be 
permitted to use the information to engage in proprietary trading other 
than in support of bona fide Stabilizing activity.
    However, for the avoidance of doubt regarding appropriate uses of 
the aggregated information, the proposed rule will also provide that 
nothing contained in the rule shall be construed to prohibit the Member 
acting as the Stabilizing Agent from (i) engaging in Stabilizing 
consistent with that role, or (ii) using the information provided from 
the IPO Auction Viewer to respond to inquiries from any person, 
including, without limitation, other Members, customers, or associated 
persons of the Stabilizing Agent, regarding the expectations of the 
Member acting as the Stabilizing Agent with regard to the possibility 
of executing stated quantities of an IPO Security at stated prices in 
the IPO Auction.
    The aggregated information provided through the IPO Auction Viewer 
will be available solely for display on the screen of a computer for 
which an entitlement has been provided by the Exchange. Under no 
circumstances may a Member redirect aggregated information to another 
computer or reconfigure it for use in a non-displayed format, 
including, without limitation, in any trading algorithm. If a Member 
becomes aware of any violation of the restrictions contained in the 
proposed rule, it must report the violation promptly to the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\20\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\21\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
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 to protect investors and the public 
interest, and that it is not designed to permit unfair discrimination 
among customers, brokers, or dealers.
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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will promote 
the goals of the Act by assisting the

[[Page 1254]]

Stabilizing Agent for an IPO Security in promoting a fair and orderly 
market. Specifically, by providing unique, aggregated information 
concerning all orders on the BATS Book prior to the commencement of an 
IPO Auction, the IPO Auction Viewer will give the Stabilizing Agent 
information that will assist it in achieving a range of goals. Further, 
by being able to share aggregated information with other Members and 
customers, the Stabilizing Agent will enable greater participation in 
the IPO Auction because it will be able to provide more certain 
information about the ability of investors to execute orders at 
particular sizes and prices. Moreover, being able to compare 
information about potential interest in participating in the IPO 
Auction with more detailed information about the state of the BATS Book 
will enable the Stabilizing Agent to determine with more certainty the 
appropriate time to allow the IPO Auction to execute. Finally, having 
greater knowledge about the range of trading interest in the BATS Book 
prior to the execution of the IPO Auction will enable the Stabilizing 
Agent to make more informed decisions about the extent of capital it 
may need to commit after the commencement of trading in order to 
stabilize the price of the IPO Security and thereby dampen volatility 
that might undermine investor confidence.
    The Exchange further believes that the restrictions it proposes to 
impose on the use of the IPO Auction Viewer will protect against 
possible misuse of the provided information. Notably, the information 
will be provided only prior to the completion of the IPO Auction and 
may not be retained thereafter, except to the extent necessary for 
record-retention purposes. The information will be disseminated in a 
display format only and may not be redirected or reconfigured for non-
display usage (such as usage by a trading algorithm). Moreover, 
electronic access to the information will be available only to certain 
designated individuals with a role in conducting Stabilizing 
activities, and persons with access may not engage in transactions 
other than Stabilizing or transactions in the IPO Auction or on behalf 
of a customer. The Exchange further believes that the safeguards it 
proposes around the use of such aggregated information by its Members 
will provide added assurance to Members and the investing public that 
the IPO Auction Viewer will not be misused.
    In addition, the Exchange notes that although the IPO Auction 
Viewer will be available only to Stabilizing Agents, this limitation is 
consistent with the protection of investors because the Stabilizing 
Agent plays a unique role on the day of an IPO because it must decide 
when the IPO Security should commence trading and must commit capital 
in support of the IPO Security once trading begins. Because the IPO 
Auction Viewer will assist the Stabilizing Agent in performing these 
functions, which are performed by no other broker, the Exchange 
believes that it is reasonable to limit access to the IPO Auction 
Viewer to the Stabilizing Agent. Moreover, because the IPO Auction 
Viewer will cease to be available once regular trading in the IPO 
Security commences and the information provided therein will quickly 
become stale, the Exchange does not believe that access to the 
information will provide the Stabilizing Agent with any unfair 
advantage.
    The Exchange believes that the proposal to add certain defined 
terms to Rule 11.22(l) is consistent with the Act because the 
definitions are intended to promote a clear understanding of the rule 
text by delineating the products addressed by the rule and the scope of 
activities to which they pertain. The Exchange further believes that 
the proposal to make the IPO Auction Viewer available to eligible 
recipients at no charge is consistent with Section 6(b)(4) of the Act 
\22\ because it will not result in any increase in the costs incurred 
by a Stabilizing Agent to receive the additional information. The 
Exchange further believes that the proposal is consistent with an 
equitable allocation of fees and not unfairly discriminatory because 
additional information is being provided to a limited group of 
potential users in order to assist in the promotion of fair and orderly 
markets during an IPO. Accordingly, the absence of an additional fee is 
designed to encourage eligible Members to accept the information in 
order to ensure that the goals of the proposal are advanced to the 
greatest extent possible.
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    \22\ 15 U.S.C. 78f(b)(4).
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    Lastly, the Exchange notes that the proposed IPO Auction Viewer is 
based on Nasdaq's IPO Book Viewer, which was recently approved by the 
Commission.\23\ However, the Exchange notes that while the proposed IPO 
Auction Viewer would be identical to Nasdaq's IPO Book Viewer in many 
respects, the products would differ in the following two ways. First, 
Nasdaq's IPO Book Viewer provides the total number of orders while the 
proposed IPO Auction Viewer would not but instead would only provide 
the number of shares. Second, the proposed IPO Action Viewer would 
group the aggregate size of all orders at each permissible price 
increment, while Nasdaq limits the grouping to price increments of 
$0.05, $0.10, or $0.25, depending on the election of the User. All 
other aspects of IPO Auction Viewer under Exchange Rule 11.22(l) would 
be identical to Nasdaq Rule 7015(j).
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    \23\ See supra note 5.
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    The Exchange views these differences as immaterial because the 
Exchange does not believe that either distinction would provide an 
inappropriate level of detail but rather that these differences are 
simply the result of different designs. Notwithstanding these 
differences, the Exchange believes the proposed IPO Auction Viewer 
would provide the Stabilizing Agent the necessary information to: (i) 
Enable greater participation in the IPO Auction because it will be able 
to provide more certain information about the ability of investors to 
execute orders at particular sizes and prices; (ii) compare potential 
interest in participating in the IPO Auction, enabling it to determine 
with more certainty the appropriate time to allow the IPO Auction to 
execute; and (iii) make more informed decisions about the extent of 
capital it may need to commit after the commencement of trading in 
order to stabilize the price of the IPO Security and thereby dampen 
volatility.

(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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
by being able to share aggregated information with other Members and 
customers, the Stabilizing Agent will enable greater participation in 
the IPO Auction because it will be able to provide more certain 
information about the ability of investors to execute orders at 
particular sizes and prices, thus increasing competition. In addition, 
given that the proposal will result in a Stabilizing Agent's usage of 
the information being subject to greater restrictions, the Exchange 
does not believe that there can be any reasonable objection to the 
proposal on competitive grounds.

(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.

[[Page 1255]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \24\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\25\ the Exchange has 
designated this rule filing as non-controversial. The Exchange 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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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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 summarily may 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-2015-119 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-2015-119. 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 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-2015-119 and should be 
submitted on or before February 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00250 Filed 1-8-16; 8:45 am]
 BILLING CODE 8011-01-P