[Federal Register Volume 82, Number 90 (Thursday, May 11, 2017)]
[Notices]
[Pages 22045-22047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09527]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80611; File No. SR-BatsBZX-2017-24]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.15 of Bats BZX Exchange, Inc. To Authorize the Exchange To Share a 
User's Risk Settings With the Clearing Member That Clears Transactions 
on Behalf of the User

May 5, 2017.
    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 24, 2017, 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) 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).
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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 11.15 to authorize the 
Exchange to share a User's \5\ risk settings with the Clearing Member 
that clears transactions on behalf of the User.
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    \5\ A User is defined as ``any Member or Sponsored Participant 
who is authorized to obtain access to the System pursuant to Rule 
11.3.'' See Exchange Rule 1.5(cc).
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to update Rule 11.15, Clearance and 
Settlement; Anonymity, to authorize the Exchange to share any of the 
User's risk settings with the Clearing Member that clears transactions 
on behalf of the User, and to capitalize the term ``Clearing Member''.
    Current Exchange Rule 11.15 requires that all transactions passing 
through the facilities of the Exchange shall be cleared and settled 
through a Qualified Clearing Agency \6\ using a continuous net 
settlement system. This requirement may be satisfied by direct 
participation, use of direct clearing services, or by entry into a 
correspondent clearing arrangement with another Member that clears 
trades through a Qualified Clearing Agency (``Clearing Member''). Rule 
11.15 provides that if a Member clears transactions through another 
Member that is a Clearing Member,\7\ such Clearing Member shall affirm 
to the Exchange in writing, through letter of authorization, letter of 
guarantee or other agreement acceptable to the Exchange, its agreement 
to assume responsibility for clearing and settling any and all trades 
executed by the Member designating it as its clearing firm. The rules 
of any such clearing agency shall govern with respect to the clearance 
and settlement of any transactions executed by the Member on the 
Exchange.
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    \6\ Qualified Clearing Agency is defined as ``a clearing agency 
registered with the Commission pursuant to Section 17A of the Act 
that is deemed qualified by the Exchange.'' See Exchange Rule 
1.5(u).
    \7\ The Exchange notes that it also proposes to amend Rule 
11.15(a) to capitalize the term ``Clearing Member'' to ensure 
consistency within Exchange Rules.
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    Thus, while not all Members are Clearing Members, all Members are 
required to either clear their own transactions or to have in place a 
relationship with a Clearing Member's that has agreed to clear 
transactions on their behalf (or on behalf of any Sponsored 
Participants \8\ for which the Member is a Sponsoring Member \9\) in 
order to conduct business on the Exchange. Each Member that transacts 
through a Clearing Member on the Exchange is required to execute a 
Letter of Guarantee which codifies the relationship between the Member 
and the Clearing Member as it relates to the Exchange, and provides the 
Exchange with notice of which Clearing Members have relationships with 
which Members. Because the Clearing Member that guarantees the Member's 
transactions on the Exchange has a financial interest in understanding 
the risk settings utilized within the System \10\ by the Member, the 
Exchange is proposing to amend Rule 11.15 to authorize the Exchange to 
share any of the User's risk settings (as described below) with the 
Clearing Member that clears transactions on behalf of the User. The 
proposal would provide the Exchange with authority to directly provide 
Clearing Members with information that would otherwise be available to 
such Clearing Members by virtue of their relationship with the 
respective Users (i.e., such Clearing Members could instead require 
each User to provide such information as a condition to continuing to 
clear transactions for such Users). At this time, the Exchange offers a 
variety of risk settings related to the size of an order (e.g., maximum 
notional value per order and maximum shares per order), the order type 
(e.g., pre-market, post-market, short sales and ISOs), restricted 
securities, easy to borrow securities, and

[[Page 22046]]

order cut-off (e.g., block new orders and cancel all open orders).\11\ 
The Exchange proposes to codify these risk settings in proposed 
Interpretation and Policy .01 to Rule 11.13, as further described 
below, and to reference such Interpretation and Policy in proposed 
paragraph (f) of Rule 11.15.
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    \8\ A Sponsored Participant is defined as ``a person which has 
entered into a sponsorship arrangement with a Sponsoring Member 
pursuant to Rule 11.3.'' See Exchange Rule 1.5(x).
    \9\ A Sponsoring Member is defined as ``a broker-dealer that has 
been issued a membership by the Exchange who has been designated by 
a Sponsored Participant to execute, clear and settle transactions 
resulting from the System. The Sponsoring Member shall be either (i) 
a clearing firm with membership in a clearing agency registered with 
the Commission that maintains facilities through which transactions 
may be cleared or (ii) a correspondent firm with a clearing 
arrangement with any such clearing firm.'' See Exchange Rule 1.5(y).
    \10\ System is defined as ``the electronic communications and 
trading facility designated by the Board through which securities 
orders of Users are consolidated for ranking, execution and, when 
applicable, routing away.'' See Exchange Rule 1.5(aa).
    \11\ See Securities Exchange Act Release Nos. 60236 (July 2, 
2009), 74 FR 34068 (July 14, 2009) (SR-BATS-2009-019) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to 
Establish a Sponsored Access Risk Management Tool); 68330 (November 
30, 2012), 77 FR 72894 (December 6, 2012) (SR-BATS-2012-045) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change to 
Expand the Availability of Risk Management Tools).
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    Proposed Interpretation and Policy .01 to Rule 11.13 would state 
that the risk settings currently offered by the Exchange include:
    [ssquf] Controls related to the size of an order (including 
restrictions on the maximum notional value per order and maximum shares 
per order);
    [ssquf] controls related to the price of an order (including 
percentage-based and dollar-based controls);
    [ssquf] controls related to the order types or modifiers that can 
be utilized (including pre-market, post-market, short sales, ISOs and 
Directed ISOs);
    [ssquf] controls to restrict the types of securities transacted 
(including restricted securities and easy to borrow securities as well 
as restricting activity to test symbols only);
    [ssquf] controls to prohibit duplicative orders;
    [ssquf] controls to restrict the overall rate of orders; and
    [ssquf] controls related to the size of an order as compared to the 
average daily volume of the security (including the ability to specify 
the minimum average daily volume of the securities for which such 
controls will be activated); and
    [ssquf] credit controls measuring both gross and net exposure that 
warn when approached and, when breached, prevent submission of either 
all new orders or BZX market orders only.
    In addition to these controls, the Exchange proposes to codify in 
proposed Interpretation and Policy .01 other risk functionality that: 
(i) Permits Users to block new orders submitted, to cancel all open 
orders, or to both block new orders and cancel all open orders; and 
(ii) that automatically cancels a User's orders to the extent the User 
loses its connection to the Exchange. As set forth above, the proposal 
to authorize the Exchange to share any of the User's risk settings with 
the Clearing Member that clears transactions on behalf of the User 
would be limited to the risk settings specified in Rule 11.13, 
Interpretation and Policy .01. The Exchange notes that the use by a 
User of the risk settings offered by the Exchange is optional.\12\ By 
using these optional risk settings, following this proposed rule change 
a User therefore also opts-in to the Exchange sharing its designated 
risk settings with its Clearing Member. The Exchange also notes that 
any Member that does not wish to share its designated risk settings 
with its Clearing Member could avoid sharing such settings by becoming 
a Clearing Member.
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    \12\ The Exchange does set a maximum allowable order rate 
threshold in order to ensure the integrity of the System. A User may 
optionally set a more restrictive order rate threshold but cannot 
override the Exchange's maximum threshold.
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    The Exchange believes that its proposal to share a User's risk 
settings directly with Clearing Members reduces the administrative 
burden on participants on the Exchange, including both Clearing Members 
and Users, and ensures that Clearing Members are receiving information 
that is up to date and conforms to the settings active in the System. 
Further, the Exchange believes that the proposal will help such 
Clearing Members to better monitor and manage the potential risks that 
they assume when clearing for Users of the Exchange.
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.\13\ In particular, 
the proposal is consistent with Section 6(b)(5) of the Act \14\ 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, 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    As set forth above, the proposed change to Rule 11.15 will allow 
the Exchange to directly provide a Member's designated risk settings to 
the Clearing Member that clears trades on behalf of the Member. Because 
a Clearing Member that executes a clearing Letter of Guarantee on 
behalf of a Member guarantees all transactions of that Member, and 
therefore bears the risk associated with those transactions, the 
Exchange believes that it is appropriate for the Clearing Member to 
have knowledge of what risk settings the Member may utilize within the 
System. The proposal will permit Clearing Members who have a financial 
interest in the risk settings of Members with whom the Clearing 
Participant has entered into a Letter of Guarantee to better monitor 
and manage the potential risks assumed by Clearing Members, thereby 
providing Clearing Members with greater control and flexibility over 
setting their own risk tolerance and exposure and aiding Clearing 
Members in complying with the Act. To the extent a Clearing Member 
might reasonably require a Member to provide access to its risk setting 
as a prerequisite to continuing to clear trades on the Member's behalf, 
the Exchange's proposal to share those risk settings directly reduces 
the administrative burden on participants on the Exchange, including 
both Clearing Members and Users. The proposal also ensures that 
Clearing Members are receiving information that is up to date and 
conforms to the settings active in the System. The Exchange believes 
that the proposal is consistent with the Act, particularly Section 
6(b)(5),\15\ because it will foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and more 
generally, will protect investors and the public interest, by reducing 
administrative burden on both Clearing Members and other Users and by 
allowing Clearing Members to better monitor their risk exposure.
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    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the rule change to adopt paragraph (f) to 
Rule 11.15 is based on and substantively identical to Exchange Rule 
21.17 and Bats EDGX Exchange (``EDGX'') Rule 21.17, each of which is 
applicable to options participants. The Exchange also notes that other 
equities exchanges offer functionality that allows clearing firms to 
not only directly monitor but also to set certain risk settings in 
connection with the activities of the firms for which they clear.\16\
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    \16\ See, e.g., Nasdaq Rules 6110 and 6120 relating to the 
Nasdaq Risk Management Service.
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    The Exchange further believes that codifying the risk settings 
described above in Interpretation and Policy .01 to Rule 11.13 is 
consistent with the Act as it will provide additional transparency to 
Exchange Users regarding the optional risk settings offered by the 
Exchange. As noted above, these settings have been described by the 
Exchange in prior filings \17\ and further information regarding such 
settings is

[[Page 22047]]

available in technical specifications made available by the Exchange. 
However, the Exchange believes it is appropriate to provide additional 
details regarding these risk settings in Exchange rules. As such, the 
Exchange believes that the proposal is consistent with the Act, 
particularly Section 6(b)(5),\18\ because it will foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities and more generally, will protect investors and the public 
interest, by providing additional transparency regarding optional risk 
settings offered by the Exchange.
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    \17\ See supra note 11.
    \18\ 15 U.S.C. 78f(b)(5).
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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 and does not pose an 
undue burden on non-Clearing Members because, unlike Clearing Members, 
non-Clearing Members do not guarantee the execution of a Member's 
transactions on the Exchange. The proposal is structured to offer the 
same enhancement to all Clearing Members, regardless of size, and would 
not impose a competitive burden on any Member. Any Member that does not 
wish to share its designated risk settings with its Clearing Member 
could avoid sharing such settings by becoming a Clearing Member.

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 written comments from members or other interested parties.

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

    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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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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    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 change 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 No. SR-BatsBZX-2017-24 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-BatsBZX-2017-24. 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 No. SR-BatsBZX-2017-24, and should be 
submitted on or before June 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09527 Filed 5-10-17; 8:45 am]
BILLING CODE 8011-01-P