[Federal Register Volume 81, Number 78 (Friday, April 22, 2016)]
[Notices]
[Pages 23768-23770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09320]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77639; File No. SR-BatsBZX-2016-08]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
14.3 Regarding the Requirements for the Listing of Securities That Are 
Issued by the Exchange or Any of Its Affiliates

April 18, 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 April 13, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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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 is proposing a rule change to make a series of changes 
to paragraph (e) of Exchange Rule 14.3 regarding the requirements for 
the listing of securities that are issued by the Exchange or any of its 
affiliates.
    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 is proposing to make a series of changes to paragraph 
(e) of Exchange Rule 14.3 regarding the reporting requirements on the 
Exchange should the Exchange or BZX Affiliate \5\ list a security on 
the Exchange (the ``Affiliate Security''). These changes are: (i) 
Expanding the definition of Affiliate Security under Exchange Rule 
14.3(e)(1)(B); (ii) specifying that the Exchange shall also prepare a 
report describing the Exchange's monitoring of the trading of an 
Affiliate Security; and (iii) making a series of organizational 
changes.
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    \5\ Exchange Rule 14.3(e)(1)(A) defines ``BZX Affiliate'' as 
``the Exchange and any entity that directly or indirectly, through 
one or more intermediaries, controls, is controlled by, or is under 
common control with the Exchange, where ``control'' means that one 
entity possesses, directly or indirectly, voting control of the 
other entity either through ownership of capital stock or other 
equity securities or through majority representation on the board of 
directors or other management body of such entity.'' The Exchange 
does not propose to amend the definition of BZX Affiliate.
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    Exchange Rule 14.3(e)(1)(B) currently defines Affiliate Security as 
``any security issued by a BZX Affiliate, with the exception of 
Portfolio Depository Receipts as defined in Rule 14.11(b) and Index 
Fund Shares as defined in Rule 14.11(c).'' The Exchange proposes to 
expand the definition of Affiliate Security to include any Exchange-
listed option on any security issued by a BZX Affiliate.
    In the event that a BZX Affiliate seeks to list an Affiliate 
Security, paragraph (e)(2) of Rule 14.3 requires that prior to the 
initial listing of the Affiliate Security on the Exchange, Exchange 
personnel shall determine that such security satisfies the Exchange's 
rules for listing, and such finding must be approved by the Regulatory 
Oversight Committee of the Exchange's Board of Directors. The Exchange 
proposes to renumber this paragraph as (e)(2)(A) and rename paragraph 
(2) as ``Affiliate Securities Listed on the Exchange.'' The Exchange 
does not propose any

[[Page 23769]]

additional changes to this section of Rule 14.3.
    Current Rule 14.3(e)(3) states that throughout the continued 
listing of the Affiliate Security on the Exchange, the Exchange will 
prepare a quarterly report for the Regulatory Oversight Committee of 
the Exchange's Board of Directors. Current sub-paragraph (i) of the 
Rule 14.3(e)(3) requires that the report describe the Exchange's 
monitoring of the Affiliate Security's compliance with the Exchange's 
listing standards, including, as described in current sub-paragraph 
(i)(a), the Affiliate Security's compliance with the Exchange's minimum 
share price requirement, and, as described under current sub-paragraph 
(i)(b) the Affiliate Security's compliance with each of the 
quantitative continued listing requirements.
    The Exchange proposes to renumber paragraph (3)(A) of Rule 14.3(e) 
as paragraph as (2)(B) and reformat this section of the rule as 
follows. Paragraph (2)(B) would state that throughout the continued 
listing of the Affiliate Security on the Exchange, the Exchange will 
prepare a quarterly report for the Regulatory Oversight Committee of 
the Exchange's Board of Directors describing the Exchange's monitoring 
of the Affiliate Security's compliance with the Exchange's listing 
standards. Paragraph (2)(B)(i) would require that the report include a 
description of the Affiliate Security's compliance with the Exchange's 
minimum share price requirement and paragraph (2)(B)(ii) would require 
that the report include a description of the Affiliate Security's 
compliance with each of the quantitative continued listing 
requirements. The Exchange does not propose any substantive changes to 
this section of the rule.
    Current sub-paragraph (ii) of Rule 14.3(e)(3)(A) states that the 
report shall also describe the Exchange's monitoring of the trading of 
the Affiliate Security, including summaries of all related surveillance 
alerts, complaints, regulatory referrals, trades cancelled or adjusted 
pursuant to Rule 11.17, investigations, examinations, formal and 
informal disciplinary actions, exception reports and trading data used 
to ensure the Affiliate Security's compliance with the Exchange's 
listing and trading rules. The Exchange proposes to relocate current 
sub-paragraph (3)(A)(ii) under new sub-paragraph (3) to Rule 14.3(e). 
The Exchange proposes to include additional language specifying that 
the Exchange shall prepare a quarterly report on the Affiliate Security 
for the Regulatory Oversight Committee of the Exchange's Board of 
Directors that describes the activity described in the sub-paragraph. 
The Exchange proposes to include additional language that these 
requirements will be applicable throughout the trading of the Affiliate 
Security on the Exchange. Current sub-paragraph (3)(B) of Rule 14.3(e) 
also states that to the extent the Exchange uses Exchange staff to 
conduct surveillance of trading activity on the Exchange, the Exchange 
is required to engage an independent third party once a year to review 
and prepare a report regarding surveillance of the Affiliate Security 
and promptly forward to the Regulatory Oversight Committee of the 
Exchange's Board of Directors and the Commission a copy of the report 
prepared by the independent third party. The Exchange proposes to 
eliminate the requirements of current sub-paragraph (3)(B) based on the 
fact that this requirement is not applicable on other national 
securities exchanges with similar rules regarding the listing or 
trading of an affiliate security.\6\ The Exchange does not propose any 
additional substantive changes to these sections of the rule.
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    \6\ See, e.g., NYSE Rule 497; Nasdaq Rule 4370.
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    Current Rule 14.3(e)(3)(A) also requires that the Exchange to 
promptly furnish a copy of the quarterly report required by current 
paragraph (e)(3)(A) to the Commission. The Exchange proposes to 
renumber this paragraph as (e)(4) and revise it to state that a copy of 
the reports required by proposed renumbered sub-paragraphs (2) and (3) 
of Rule 14.3(e), discussed above, will be forwarded promptly to the 
Commission.
    Current sub-paragraph (C) of Rule 14.3(e)(3) requires the Exchange 
to commission an annual review and report by an independent accounting 
firm of the compliance of the Affiliate Security with the Exchange's 
listing requirements. The Exchange is required to promptly furnish a 
copy of this annual report to the Regulatory Oversight Committee of the 
Exchange's Board of Directors and the Commission. The Exchange proposes 
to renumber this paragraph as (2)(C) of Rule 14.3(e) to conform with 
the reformatting of Rule 14.3(e) proposed above. The Exchange also 
proposes to delete the requirement that the report also be sent to the 
Commission as this requirement is proposed to be included in proposed 
paragraph (e)(4) discussed below. The Exchange does not propose any 
substantive changes to this section of the rule.
    Lastly, current Rule 14.3(e)(4) states that in the event the 
Exchange determines that the BZX Affiliate is not in compliance with 
any of the Exchange's listing standards, the Exchange is required to 
notify the issuer of such non-compliance promptly and request a plan of 
compliance. The Exchange is also required to file a report with the 
Commission within five business days of providing such notice to the 
issuer of its non-compliance. The required report identifies the date 
of the non-compliance, type of non-compliance, and any other material 
information conveyed to the issuer in the notice of non-compliance. 
Within five business days of receipt of a plan of compliance from the 
issuer, the Exchange is again required to notify the Commission of such 
receipt, whether the plan of compliance was accepted by the Exchange or 
what other action was taken with respect to the plan and the time 
period provided to regain compliance with the Exchange's listing 
standards, if any. The Exchange proposes to renumber this section of 
the rule as (2)(D) of Rule 14.3(e) to conform with the reformatting of 
Rule 14.3(e) proposed above. The Exchange does not propose any 
substantive changes to this section of the rule.
2. Statutory Basis
    The Exchange believes that its proposal 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.\7\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\8\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system. 
Specifically, the Exchange believes that the proposed rule change, by 
requiring heightened reporting by the Exchange to the Commission with 
respect to oversight of the listing and trading on the Exchange of 
Affiliate Securities, will continue to help protect against concerns 
that the Exchange will not effectively enforce its rules with respect 
to the listing and trading of these securities. The Exchange believes 
that the proposed amendments to Rule 14.3(e) would continue to 
eliminate any perception of a potential conflict of interest if a BZX 
Affiliate seeks to list a security on the Exchange. The Exchange notes 
that the elimination of current

[[Page 23770]]

sub-paragraph (3)(B) does not present any risk to investors or the 
public interest, as the Exchange is retaining the requirement to 
furnish quarterly reports to both the Regulatory Oversight Committee of 
the Exchange's Board and to the Commission. The Exchange also notes 
that other national securities exchanges with similar rules do not have 
such a provision.\9\ Lastly, the Exchange believes that the 
reorganization of, and the additional specificity proposed to be 
included in Rule 14.3(e) promotes just and equitable principles of 
trade and remove impediments to a free and open market by providing 
greater transparency concerning the controls in place to address the 
potential conflicts of interest that may arise in the listing or 
trading of Affiliate Securities on the Exchange.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ See supra, note 6.
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues, but rather provide 
additional specificity and transparency to Members, Users, and the 
investing public regarding the Exchange's controls that are in place to 
address the potential conflicts of interest that may arise in the 
listing of Affiliate Securities on the Exchange.

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

    Written comments were neither solicited nor received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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. The Exchange has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\14\ normally does not become operative for 30 days after the date of 
filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
waiver of the operative delay will allow the Exchange to implement the 
proposed rule change immediately in the event an Affiliate seeks to 
list on the Exchange or the Exchange seeks to trade an Affiliate 
Security on the Exchange. The Exchange further states that the proposal 
will provide greater transparency concerning the controls in place to 
address the potential conflicts of interest that may arise in the 
listing of Affiliate Securities on the Exchange. Based on the 
foregoing, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest.\16\ The Commission hereby grants the Exchange's request and 
designates the proposal operative upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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-BatsBZX-2016-08 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 Number SR-BatsBZX-2016-08. 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 the 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-BatsBZX-2016-08 and should 
be submitted on or before May 13, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09320 Filed 4-21-16; 8:45 am]
 BILLING CODE 8011-01-P