[Federal Register Volume 81, Number 39 (Monday, February 29, 2016)]
[Notices]
[Pages 10345-10350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04358]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77222; File No. SR-BATS-2016-17]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Amend Its Rules Regarding the Auction Process for 
Securities Subject to an Initial Public Offering

February 24, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 10, 2016, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. On February 22, 
2016, the Exchange filed Amendment No. 1 to the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange proposes to correct a 
technical error regarding incorrect terminology used in a footnote 
and to clarify a sentence regarding an order with a time-in-force of 
RHO that would be converted to an order with a time-in-force of Day 
under the proposed rule change.
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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 Exchange Rule 11.23 entitled 
``Auctions'' to: (i) Modify the definition of the term ``Eligible 
Auction Order'' under paragraph (a)(8) to refine the types of orders 
that may participate in an auction for a BATS listed corporate security 
\4\ in an initial public offering (``IPO'') on the Exchange (``IPO 
Auction'') and make a related change to Exchange Rule 11.1, Hours of 
Trading and Trading Days; (ii) extend the Quote-Only Period \5\ under 
paragraph (d)(1)(A); (iii) state that the Quote-Only Period may be 
extended in the event of an Exchange technical or systems issue under 
proposed paragraph (d)(2)(B)(iv); and (iv) make technical changes to 
paragraphs (b)(1)(A), (c)(1)(A), and (d)(2).
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    \4\ A BATS listed corporate security is a security listed on the 
Exchange pursuant to Chapter 14 of the Exchange's Rules that is not 
an Exchange Traded Product (``ETP'') listed on the Exchange pursuant 
to Exchange Rule 14.11. See also infra note 7.
    \5\ See Exchange Rule 11.23(a)(17).
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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 Exchange Rule 11.23 entitled 
``Auctions'' to: (i) Modify the definition of the term ``Eligible 
Auction Order'' under paragraph (a)(8) to refine the types of orders 
that may participate in an IPO Auction and make a related change to 
Exchange Rule 11.1, Hours of Trading and Trading Days; (ii) extend the 
Quote-Only Period under paragraph (d)(1)(A); (iii) state that the 
Quote-Only Period may be extended in the event of an Exchange technical 
or systems issue under proposed paragraph (d)(2)(B)(iv); and (iv) make 
technical changes to paragraphs (b)(1)(A), (c)(1)(A), and (d)(2).
Eligible Auction Orders
    The Exchange proposes to refine the types of orders that may 
participate in an IPO Auction for a BATS listed corporate security by 
amending the definition of Eligible Auction Orders under Exchange Rule 
11.23(a)(8) to either reject, convert, or ignore certain types of 
orders, as set forth below. As proposed, Limit Orders \6\ and BATS 
Market Orders,\7\ the two main types of orders offered by the Exchange, 
would be allowed to participate in an IPO Auction for a BATS listed 
corporate security. The Exchange does not propose to amend the types of 
Eligible Auction Orders that may participate in an auction for a newly 
listed Exchange Traded Product.\8\ The Exchange believes refining the 
types of orders processed in an IPO Auction and/or placed onto the BATS 
Book \9\ following such IPO Auction would simplify and reduce the 
complexity of the IPO Auction for BATS listed corporate securities. The 
Exchange believes doing so would aid in ensuring a robust but 
streamlined IPO Auction process for a newly listed corporate 
securities.
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    \6\ See Exchange Rule 11.9(a)(1).
    \7\ See Exchange Rule 11.9(a)(2).
    \8\ An Exchange Traded Product is a security that is listed on 
the Exchange pursuant to Rule 14.11.
    \9\ See Exchange Rule 1.5(e).
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    Types of Orders to be Accepted or Rejected. The term Eligible 
Auction Order is currently defined under Exchange Rule 11.23(a)(8) as 
any Market-On-Open (``MOO''),\10\ Limit-On-

[[Page 10346]]

Open (``LOO''),\11\ Late-Limit-On-Open (``LLOO''),\12\ Market-On-Close 
(``MOC''),\13\ Limit-On-Close (``LOC''),\14\ or Late-Limit-On-Close 
(``LLOC'') \15\ order that is entered in compliance with its respective 
cutoff for an Opening or Closing Auction,\16\ any Regular Hours Only 
(``RHO'') \17\ order prior to the Opening Auction, any Limit or Market 
Order not designated to exclusively participate in the Closing Auction 
entered during the Quote-Only Period of an IPO Auction,\18\ and any 
Limit or Market Order not designated to exclusively participate in the 
Opening or Closing Auction entered during the Quote-Only Period of a 
Halt Auction.\19\ The Exchange proposes to amend the definition of 
Eligible Auction Orders to refine the types of orders that may 
participate in an IPO Auction for a BATS listed corporate security.
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    \10\ See Exchange Rule 11.23(a)(16).
    \11\ See Exchange Rule 11.23(a)(14).
    \12\ See Exchange Rule 11.23(a)(12).
    \13\ See Exchange Rule 11.23(a)(15).
    \14\ See Exchange Rule 11.23(a)(13).
    \15\ See Exchange Rule 11.23(a)(11).
    \16\ The Opening and Closing Auction processes are described in 
Exchange Rules 11.23(b) and (c).
    \17\ See Exchange Rule 11.9(b)(7).
    \18\ See Exchange Rules 11.23(d)(1)(A).
    \19\ Id. The Exchange also proposes to amend Rule 11.1 to make 
clear that it will not accept BATS Market Orders that are not 
Eligible Auction Orders prior to 8:00 a.m. Eastern Time.
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    As is currently the case, Limit Orders and BATS Market Orders 
entered during the Quote-Only Period would be allowed to participate in 
an IPO Auction for a BATS listed corporate security provided they do 
not also include one or more of the modifiers described below that 
would result in rejection. Specifically, the Exchange proposes to 
exclude under proposed subparagraph (a)(8)(A) to Rule 11.23 the 
following types of orders from participation in an IPO Auction and to 
reject such orders: Stop Orders \20\ and Stop Limit Orders; \21\ Pegged 
Orders,\22\ Mid-Point Peg Orders,\23\ Market Maker Peg Orders \24\ and 
Supplemental Peg Orders; \25\ Minimum Quantity Orders \26\ and 
Discretionary Orders; \27\ MOC, LOC and LLOC orders; and orders with a 
time-in-force of Fill-or-Kill (``FOK'') \28\ and orders with a time-in-
force of Good-'til-Day (``GTD'') with an expiration time earlier than 
4:00 p.m. Eastern Time.\29\ Such orders entered to participate in an 
IPO Auction would be rejected.
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    \20\ See Exchange Rule 11.9(c)(17).
    \21\ See Exchange Rule 11.9(c)(18).
    \22\ See Exchange Rule 11.9(c)(8).
    \23\ See Exchange Rule 11.9(c)(9).
    \24\ See Exchange Rule 11.9(c)(16).
    \25\ See Exchange Rule 11.9(c)(19).
    \26\ See Exchange Rule 11.9(c)(5).
    \27\ See Exchange Rule 11.9(b)(10) [sic].
    \28\ See Exchange Rule 11.9(c)(6) [sic].
    \29\ See Exchange Rule 11.9(b)(4).
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    The Exchange believes it is reasonable to reject orders with the 
above characteristics from participating in the IPO Auction because 
doing so will aid in reducing systems complexity and risk associated 
both with completing the IPO Auction and with transferring any 
unexecuted portion of such orders to the BATS Book once the auction is 
complete. These orders are also not commonly utilized as compared to 
other types of orders and the rejection of such orders should not have 
a significant impact on Members. In addition, the Exchange believes 
these types of orders contain certain attributes that are not 
compatible with the process of an IPO Auction. For example, Stop Orders 
and Stop Limit Orders are not eligible for execution until their stop 
price is triggered by an execution, which is an attribute that is not 
compatible with the IPO Auction process, as that process will result in 
the first execution for an IPO Security. In addition, Pegged Orders, 
Mid-Point Peg Orders, Market Maker Peg Orders, and Supplemental Peg 
Orders are priced in relation to the National Best Bid or Offer 
(``NBBO''). An NBBO is not established until after the IPO Auction is 
complete and secondary trading begins. Therefore, the participation of 
these orders is also incompatible with the IPO Auction process.
    The Exchange also proposes to reject Minimum Quantity Orders and 
Discretionary Orders entered to participate in an IPO Auction. In sum, 
Minimum Quantity Orders will only execute if a minimum number of shares 
can be obtained while a Discretionary Order includes both a displayed 
price and a non-displayed discretionary price. Orders entered to 
participate in an IPO Auction need to represent the full trading 
interest for the security subject to the IPO Auction because that 
auction relies on matching buy and sell orders based on their displayed 
price and full displayed size. Therefore, the Exchange believes it is 
reasonable to reject Discretionary Orders and Minimum Quantity Orders 
entered to participate in the IPO Auction as these types of orders 
contain variables (i.e., minimum execution size or a non-displayed 
discretionary price) that are not compatible with the IPO Auction 
process.
    The Exchange also believes it is reasonable to reject orders with a 
time-in-force of FOK, a time-in-force of GTD with an expiration time 
earlier than 4:00 p.m. Eastern Time, as well as MOC, LOC, and LLOC 
orders that are entered to participate in an IPO Auction. Orders with a 
time-in-force of FOK require that they be executed in full or will be 
cancelled upon receipt by the Exchange. Orders with a time-in-force of 
FOK are therefore not compatible with the IPO Auction process as orders 
participating in the IPO Auction process may not be fully executed in 
the auction and seeking to honor the intent of the instruction would 
complicate the processing of the IPO Auction. The Exchange also 
believes it is reasonable to reject GTD Orders with an expiration time 
earlier than 4:00 p.m. Eastern Time entered to participate in an IPO 
Auction. Doing so would prevent the possibility of entry of GTD Orders 
with an expiration time either prior to, during or immediately 
following the IPO Auction, thereby reducing system complexity 
associated with processing such orders. Lastly, the Exchange also 
believes it is reasonable to reject MOC, LOC, and LLOC orders entered 
to participate in an IPO Auction because the terms of those orders 
require that they participate in the Exchange's closing auction 
process. The Exchange notes that such orders are already excluded from 
an IPO Auction based on the definition of Eligible Auction Order, 
however, the Exchange believes it is reasonable to include such orders 
in the list with other rejected types of orders to avoid potential 
confusion.
    Types of Orders to be Converted. The Exchange also proposes to 
adopt subparagraph (a)(8)(B) to Rule 11.23, which would set forth the 
types of orders that would be converted by the Exchange for purposes of 
participating in the IPO Auction for a BATS listed corporate security. 
First, orders with a time-in-force of Immediate-or-Cancel (``IOC'') 
\30\ will be converted as follows: A Market Order with a time-in-force 
of IOC will be converted to a MOO and a Limit Order with a time-in-
force of IOC will be converted to a LOO. Second, orders with a time-in-
force of RHO will be converted to orders with a time-in-force of Day. 
Third, any orders eligible to be routed will be converted to a BATS 
Only Order.\31\ Upon completion of the IPO Auction, any remainder not 
executed in the auction will be placed on the BATS Book, executed, 
cancelled or routed away in accordance with the converted terms of the 
order. Such orders would not revert back to the original type modifier 
the User included with the order.
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    \30\ See Exchange Rule 11.9(c)(4).
    \31\ See Exchange Rule 11.9(b)(1).
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    As stated above, the types of orders entered to participate in the 
IPO Auction that the Exchange proposes to reject under proposed Rule

[[Page 10347]]

11.23(a)(8)(A) are less commonly used and the rejection of such orders 
should not have a significant impact on Members. In contrast, the types 
of orders the Exchange proposes to convert into other types of orders 
are more commonly used by Members. Also, the types of orders that the 
Exchange proposes to convert to do not materially deviate from the type 
of order that was originally entered. The Exchange believes it is 
reasonable to convert rather than reject the above types of orders 
because it would accommodate those Members that have automated their 
systems to send orders to the Exchange without significantly altering 
the operation of the order from what the Member originally instructed. 
Such Members may also not be able to re-submit a rejected order with 
the correct modifier in time to participate in the IPO Auction. 
Therefore, the Exchange is concerned that rejecting, rather than 
converting those types of orders as proposed, would inappropriately 
burden those Members and deter their participation in an IPO Auction.
    First, the Exchange believes it is reasonable to convert Market 
Orders with a time-in-force of IOC to MOOs and Limit Orders with a 
time-in-force of IOC to LOOs and notes that each of these orders would 
operate in substantially similar ways. Each of the above orders would 
be eligible for execution in the IPO Auction and any remainder would be 
cancelled once the IPO Auction is complete. Second, the Exchange also 
believes that converting the time-in-force of RHO to the time-in-force 
of Day is also reasonable based on the similarity between these times-
in-force. For instance, both orders with a time-in-force of RHO and 
orders with a time-in-force of Day are ineligible for execution until 
the start of Regular Trading Hours \32\ at 9:30 a.m.\33\ and are 
cancelled at 4:00 p.m. Eastern Time.\34\ By converting the order, 
however, the Exchange is able to reduce the number of types of orders 
that will be handled in an IPO Auction and/or placed on the BATS Book 
following such IPO Auction. Lastly, the Exchange also believes it is 
reasonable to convert routable orders to BATS Only Orders because there 
would be no other markets to route orders to from the time of the IPO 
Auction until secondary trading commences. Any remainder of a routable 
order that is converted to a BATS Only Order would be posted to the 
BATS Book upon completion of an IPO Auction. At that time, the Member 
could cancel the order and resubmit a routable order if such Member 
wished to do so.
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    \32\ See Exchange Rule 1.5(w).
    \33\ An IPO Auction will only occur after 9:30 a.m. Eastern 
Time.
    \34\ The Exchange notes that any portion of a market order with 
a time-in-force of RHO will be cancelled immediately following any 
auction in which it is not executed. See Exchange Rule 11.9(c)(7). 
The Exchange does not accept market orders with a time-in-force of 
Day.
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    Modifiers to be Ignored. The Exchange also proposes to adopt 
subparagraph (a)(8)(C) to Rule 11.23, which would set forth the 
modifiers on an order that has been entered to participate in an IPO 
Auction that would be ignored for purposes of completing the IPO 
Auction. Such modifiers would be permanently ignored with respect to an 
order, including after placement on the BATS Book, unless otherwise 
specified in the proposed Rule. First, as proposed, Match Trade 
Prevention (``MTP'') modifiers \35\ will not be applied until the IPO 
Auction is complete but will be applied in the event any unexecuted 
portion is placed on the BATS Book. Pursuant to Rule 11.9(f), any 
incoming order designated with an MTP modifier will normally be 
prevented from executing against a resting opposite side order also 
designated with an MTP modifier and originating from the same User. 
However, during an IPO Auction the MTP Modifier would be ignored and 
such orders may be matched against each other. Upon completion of the 
IPO Auction, an MTP modifier will be recognized and any remainder not 
executed in the auction will be placed on the BATS Book and executed or 
cancelled in accordance with the original MTP modifier appended to the 
order. The Exchange believes it is reasonable to ignore an MTP modifier 
during the IPO Auction as preventing such a Member's orders from 
executing against each other during an IPO Auction would add 
unnecessary complexity. Most Members that utilize MTP modifiers have 
configured their connectivity to the Exchange to add the MTP Modifier 
to all of their orders. If the Exchange were to reject orders with a 
MTP modifier it would impose an inappropriate burden on Members who 
utilize such modifiers, thereby impairing their ability to participate 
in the IPO Auction. The Exchange notes that any remainder not executed 
in the IPO Auction will be executed or cancelled in accordance with the 
original MTP modifier.
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    \35\ See Exchange Rule 11.9(f).
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    Second, an instruction to treat an order as an Attributable Order 
will be ignored, meaning that any such order's execution will be 
displayed anonymously.\36\ The Exchange believes it is reasonable to 
ignore such instructions as orders entered into an IPO Auction as not 
displayed individually but instead as aggregated interest in the 
Exchange's data feeds.
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    \36\ See also Nasdaq Stock Market LLC (``Nasdaq'') Rule 
4753(b)(4) (stating that orders executed as part of the Nasdaq Halt 
Cross shall be trade reported anonymously).
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    Third, an ISO instruction or a Post Only instruction included with 
a Limit Order will also be ignored during the IPO Auction. The Exchange 
believes it is reasonable to ignore an ISO instruction are such 
instructions are incompatible with an IPO Auction. For instance, an ISO 
instruction informs the Exchange that the sender simultaneously routed 
one or more additional limit orders, as necessary, to execute against 
the full displayed size of any protected bid or offer with a price that 
is superior to the limit price of the limit order identified as an ISO. 
The Exchange is the sole market for a security subject to an IPO 
Auction up until the time secondary trading commences and the ISO 
designation is therefore incompatible with the IPO Auction. Similarly, 
BATS Post Only Order is an order that instructs the Exchange not to 
remove liquidity from the BATS Book, provided that BATS Post Only 
Orders do remove liquidity under certain circumstances outlined in Rule 
11.9(c)(6). In an IPO Auction, orders are matched and there is no true 
``adder'' or ``remover'' of liquidity. Accordingly, a Post Only 
instruction is incompatible with the IPO Auction. In contrast to orders 
under proposed Rule 11.23(a)(8)(A) discussed above, which the Exchange 
proposes to reject, the Exchange believes that it is reasonable to 
ignore an ISO instruction or a Post Only instruction on an order rather 
than to reject such orders because such orders are sufficiently common 
and may require additional programming by Members in order to avoid 
sending such instructions solely for an IPO Auction.
    Lastly, the Maximum Remove Percentage of a Partial Post Only at 
Limit Order \37\ as well as the replenishment range of a Reserve Order 
with a Random Replenishment instruction will be ignored during the IPO 
Auction.\38\ The Exchange also

[[Page 10348]]

believes it is reasonable to ignore these order instructions for the 
same reason it proposes to reject Discretionary Orders and Minimum 
Quantity Order under proposed Rule 11.23(a)(8)(A) discussed above. 
Orders entered to participate in an IPO Auction need to represent the 
full trading interest for the security subject to the IPO Auction 
because that auction relies on matching buy and sell orders based on 
their displayed prices and full displayed size. Therefore, the Exchange 
believes it is reasonable to ignore the Maximum Remove Percentage of a 
Partial Post Only at Limit Order and the replenishment range of a 
Reserve Order with a Random Replenishment instruction entered to 
participate in the IPO Auction as these types of order instructions 
contain variables (i.e., maximum remove requirements or non-displayed 
size) that are not compatible with the IPO Auction process. In contrast 
to Discretionary Orders and Minimum Quantity Orders under proposed Rule 
11.23(a)(8)(A) discussed above, which the Exchange proposes to reject, 
the Exchange believes that it is reasonable to ignore the Maximum 
Remove Percentage of a Partial Post Only at Limit Order and the 
replenishment range of a Reserve Order with a Random Replenishment 
instruction rather than to reject such orders because such orders can 
still be handled consistent with the overall intent of the order.
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    \37\ See Exchange Rule 11.9(c)(7). In sum, the Maximum Remove 
Percentage enables a User to enter a Partial Post Only at Limit 
Order instructing the Exchange to also remove liquidity from the 
BATS Book at the order's limit price up to a designated percentage 
of the remaining size of the order after any execution pursuant to 
paragraph (A) of Rule 11.9(c)(7). See Exchange Rule 11.9(c)(7)(B).
    \38\ Random Replenishment is an instruction that a User may 
attach to an order with Reserve Quantity where replenishment 
quantities for the order are randomly determined by the System 
within a replenishment range established by the User. In particular, 
the User entering an order into the System subject to the Random 
Replenishment instruction must select a replenishment value and a 
Max Floor. The initial Display Quantity will be the Max Floor. The 
Display Quantity of an order when replenished will be determined by 
the System randomly selecting a round lot number of shares within a 
replenishment range that is between: (i) the Max Floor minus the 
replenishment value; and (ii) the Max Floor plus the replenishment 
value. See Exchange Rule 11.9(c)(1)(A).
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    With the exception of MTP modifiers discussed above, all modifiers 
listed under proposed Rule 11.23(a)(8)(C) will not be further 
considered with respect to an order upon completion of the IPO Auction. 
Any remainder not executed in the auction will be placed on the BATS 
Book, executed, cancelled or routed away in accordance with the 
modified terms of the order.
Extension of Quote-Only Period
    The Exchange proposes to extend the Quote-Only Period for an IPO 
Auction under Exchange Rule 11.23(d)(1)(A). The Quote-Only Period is 
the designated period of time prior to a Halt Auction, a Volatility 
Closing Auction, or an IPO Auction during which Users may submit orders 
to the Exchange for participation in the auction.\39\ With regard to an 
IPO Auction, the Quote-Only Period currently begins fifteen (15) 
minutes plus a short random period prior to such Auction.\40\ The 
Exchange proposes to amend Rule 11.23(d)(1)(A) to extend the Quote-Only 
Period for an ETP such that it commences at 8:00 a.m., which is the 
beginning of the Exchange's Pre-Opening Session. With regard to an ETP, 
the Exchange does not believe that there is reason to restrict quoting 
in such products to a specified amount of time prior to the auction and 
that additional time is warranted. In particular, the Exchange believes 
that allowing a longer Quote-Only Period will encourage the entry of 
orders prior to an IPO Auction for a newly issued ETP, which typically 
have low participation rates especially when compared to IPO Auctions 
for corporate securities. Further, while an IPO Auction for a corporate 
security is typically conducted at least 30 minutes after the 
commencement of Regular Trading Hours, an IPO Auction for a newly 
issued ETP is typically conducted at the beginning of Regular Trading 
Hours (i.e., 9:30 Eastern Time), and thus may not afford much time for 
participants to enter orders prior to such auction. For these reasons, 
the Exchange believes that a longer Quote-Only Period for ETPs is 
warranted.
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    \39\ See Exchange Rule 11.23(a)(17).
    \40\ See Exchange Rule 11.23(d)(1)(A).
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    The Exchange proposes to extend the Quote-Only Period for a BATS 
listed corporate security to begin at a time announced in advance by 
the Exchange that shall be between fifteen (15) and thirty (30) minutes 
plus a short random period prior to such IPO Auction. The Exchange 
believes that extending the Quote-Only period as proposed is reasonable 
as it would provide market participants more time to enter orders to 
participate in the IPO Auction. Extension of the Quote-Only Period 
would also enable the underwriters more time to evaluate the scope of 
demand for, and supply of, the security subject to the IPO Auction 
(``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. The Exchange would 
determine the length of time of the Quote-Only Period for a BATS listed 
corporate security (i.e., what time between fifteen (15) and thirty 
(30) minutes) in consultation with the issuer of the IPO security and 
would announce the length of time for the Quote-Only Period in advance 
of the commencement of such period.\41\
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    \41\ The scope of market participants notified regarding the 
anticipated commencement the Quote-Only Period (or extension of 
Quote-Only Period, as described below) would include but would not 
be limited to Members of the Exchange. Such notice would also 
include those market participants, individuals or entities that have 
subscribed to the Exchange's notification system. The Exchange 
intends to send notifications regarding the Quote-Only Period via 
email, as it does with most public notifications today. The Exchange 
notes that it does, in certain circumstances, post information on 
its public Web site in addition to email dissemination.
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    (a) [sic] Currently, the Exchange may extend the Quote-Only Period 
under Rule 11.23(d)(2)(B) for an IPO Auction beyond the above 
timeframes where: (i) There are unmatched Market Orders on the Auction 
Book; (ii) the underwriter requests an extension; or (iii) where the 
Indicative Price moves the greater of 10% or fifty (50) cents in the 
fifteen (15) seconds prior to the auction. The Exchange proposes to 
amend Rule 11.23(d)(2)(B) to enable it to also extend the Quote-Only 
Period in the event of a technical or systems issue at the Exchange 
that may impair the ability of Users to participate in the IPO Auction 
or of the Exchange to complete the IPO Auction. The Exchange believes 
it is reasonable to be able to extend the Quote-Only Period in the 
event of a technical or systems issue at the Exchange as such an issue 
may prevent market participants from entering orders during the Quote-
Only Period, resulting in less liquidity which may prevent the 
underwriters from adequately accessing the trading interest of the IPO 
Security. In such case, the Exchange believes it is reasonable to 
extend the Quote-Only Period in the event of a technical or systems 
issue to provide market participants the adequate time to enter orders 
to participate in the IPO auction. The Exchange also proposes to adopt 
paragraph (C) to codify its intention to notify market participants 
regarding extensions to the Quote-Only Period. As proposed, the 
Exchange will notify market participants in the event of any extension 
to the Quote-Only Period pursuant to paragraph (B), including details 
regarding the circumstances and length of the extension.\42\ In 
connection with this change, the Exchange proposes to designate current 
paragraph (C) of Rule 11.23(d)(2) as paragraph (D).
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    \42\ Id.
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Technical Changes
    The Exchange also proposes to make the following technical changes 
to Rule 11.23:
     Amend paragraphs (b)(1)(A) and (c)(1)(A) to replace the 
phrase ``starting at 8:00 a.m., the beginning of the Pre-

[[Page 10349]]

Opening Session'' with ``as set forth in Rule 11.1''. Paragraph 
(b)(1)(A) sets forth when a User may enter or cancel orders that are to 
participate in the opening auction. Paragraph (c)(1)(A) sets forth when 
a User may enter or cancel orders that are to participate in the 
closing auction. Rule 11.1 governs when orders may be entered into the 
System and when they may be eligible for execution. The Exchange 
believes cross-referencing Rule 11.1 within paragraphs (b)(1)(A) and 
(c)(1)(A) would assist in avoiding investor confusion as Rule 11.1 
provides additional detail on when and orders may be entered into the 
System
     Amend paragraph (d)(2)(A) to replace with term ``quotation 
only period'' with the defined term ``Quote-Only Period''.
    Neither of the above proposed changes would amend the meaning or 
operation of paragraphs (b)(1)(A), (c)(1)(A), or (d)(2)(A) of Rule 
11.23. The Exchange simply proposes these changes to make the rules 
easier to understand and avoid potential investor confusion.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\43\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\44\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. The Exchange believes amending the definition 
of Eligible Auction Orders to reject, convert, or ignore certain types 
of orders in connection with the IPO Auction process for a BATS listed 
corporate security would promote just and equitable principles of trade 
by simplifying and reducing the complexity of the auction process as 
well as the process of transferring unexecuted interest to the BATS 
Book following the auction process. The Exchange also believes the 
proposed limitations remove impediments to and perfect the mechanism of 
a free and open market and a national market system by appropriately 
limiting the types of orders that may participate to those types of 
orders that are consistent with the purpose of an IPO Auction.
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    \43\ 15 U.S.C. 78f.
    \44\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes extending the Quote-Only period would promote 
just and equitable principles of trade, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system by providing market participants with additional time to 
enter orders to participate in the IPO Auction. The Exchange believes 
that allowing a longer Quote-Only Period for ETPs will encourage the 
entry of orders prior to an IPO Auction for a newly issued ETP. 
Extension of the Quote-Only Period for a corporate security would 
similarly provide market participants with additional time to enter 
orders to participate in the IPO Auction and would also enable the 
underwriters more time to evaluate 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.
    The Exchange believes that extending the Quote-Only Period in the 
event of a technical or systems issue at the Exchange also remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. A technical or systems issue may prevent 
market participants from entering orders during the Quote-Only Period 
or prevent the Exchange from successfully completing the IPO Auction. 
In such case, the Exchange believes it is reasonable to extend the 
Quote-Only Period to provide market participants with additional time 
to enter orders and access the market for the IPO Security after the 
technical or systems issue is remedied.
    Lastly, the Exchange believes that the technical changes to 
paragraphs (b)(1)(A), (c)(1)(A), or (d)(2)(A) of Rule 11.23 are 
consistent with Section 6(b)(5) of the Act \45\ because they are 
intended to make the rules easier to understand and avoid potential 
investor confusion, thereby removing impediments to and perfecting the 
mechanism of a free and open market and a national market system, and, 
in general, protecting investors and the public interest.
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    \45\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed rule change would not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes the 
proposal would increase competition by reducing the complexity of its 
IPO Auction process for BATS listed corporate securities through 
reducing the number of allowable types of orders. In addition, the 
Exchange believes that the proposed extensions of the Quote-Only Period 
would also increase competition by providing additional time for market 
participants to enter orders to participate in the IPO Auction, 
potentially resulting in improved liquidity and price discovery. 
Lastly, the Exchange believes that the technical changes to paragraphs 
(b)(1)(A), (c)(1)(A), or (d)(2)(A) of Rule 11.23 would not impose any 
burden on completion as they are not intended to amend the meaning or 
operation of these rules.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from Members or other interested 
parties.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:

(A) By Order Approve or Disapprove Such Proposed Rule Change, or

(B) Institute Proceedings To Determine Whether the Proposed Rule Change 
Should Be 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, as modified by Amendment No. 1, 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-2016-17 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.


[[Page 10350]]


All submissions should refer to File Number SR-BATS-2016-17. 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 also will be available 
for inspection and copying at the principal offices 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-2016-17, 
and should be submitted on or before March 21, 2016.
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    \46\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04358 Filed 2-26-16; 8:45 am]
BILLING CODE 8011-01-P