Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS Exchange, Inc., 56421-56425 [2014-22326]

Download as PDF Federal Register / Vol. 79, No. 182 / Friday, September 19, 2014 / Notices is consistent with Section 6(b)(5) 17 in particular, in that 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. According to the Exchange, safeguards will remain in place to protect against IFUS Traders gaining an unfair competitive advantage over other market participants. The Exchange emphasizes that IFUS traders do not have wireless hand-held devices, are restricted to trading IFUS products at terminals located in the IFUS Trading Floor, and that IFUS Market Regulation compliance officers perform on-site surveillance on a regular basis. In addition, no IFUS Traders are registered to trade any Exchange securities, and they do not have the ability to enter orders in Exchange-traded securities from the IFUS Trading Floor via the IFUS electronic trading system. The Exchange also notes that there is a limited pricing nexus between products traded on IFUS, and that pricing information about the products traded on the IFUS Trading Floor is contemporaneously and publicly available on Bloomberg and other quotation reporting systems. Finally, the Exchange notes that equities and options on-Floor surveillance staff will continue to be located near the IFUS Trading Floor and FINRA has been provided with the names of the IFUS Traders to assist in identifying any potentially violative trading involving the IFUS Traders. Based on the foregoing, the Commission believes the proposed rule change to eliminate the restrictions on the manner in which the IFUS Traders enter the Exchange’s facilities and the prohibition on IFUS Traders from entering or crossing the Main Room on the way to the IFUS Trading Floor is consistent with the Act. tkelley on DSK3SPTVN1PROD with NOTICES IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR–NYSEMKT– 2014–63), is hereby approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–22332 Filed 9–18–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73093; File No. SR–BATS– 2014–037] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS Exchange, Inc. September 15, 2014. 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 September 3, 2014, 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 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange is proposing to add Rule 11.24, entitled ‘‘Opening Process for Non-BATS-Listed Securities,’’ as well as to make several corresponding changes in order to modify the manner in which the Exchange opens trading for non-BATS-listed securities at the beginning of the day and after trading halts. The text of the proposed rule addition is available at the Exchange’s Web site at https://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 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 17 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:15 Sep 18, 2014 Jkt 232001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 56421 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 purpose of the proposed rule change is to amend Exchange Rules 11.9(b), 11.18(f), and 11.23(a)(22), and to add new Rule 11.24 in order to allow for the entry of Regular Hours Only orders in non-BATS-listed securities and to amend the process by which the Exchange opens trading for non-BATSlisted securities at the beginning of the day and after trading halts. Specifically, the Exchange is proposing to accept Regular Hours Only orders in all nonBATS-listed securities for queuing throughout the Pre-Opening Session,3 as well as to establish a process for handling queued orders in order to open trading on the Exchange for Regular Trading Hours 4 and following a halt. The Exchange is proposing this rule change in order to create a more orderly opening of trading in non-BATS-listed securities and to facilitate the price formation process at the open of trading in non-BATS-listed securities by allowing Users to enter orders during the Pre-Market Session and during a halt rather than requiring them to submit a flood of orders to the Exchange immediately following the beginning of Regular Trading Hours or the resumption of trading following a halt. Currently, the Exchange begins accepting orders in non-BATS-listed securities for trading at the beginning of the Pre-Opening Session and any such orders received by the Exchange are immediately eligible for execution. Any such orders that are on the BATS Book 5 at the beginning of Regular Trading Hours remain on the BATS Book, subject to the User’s instruction, and trading continues into Regular Trading Hours without any transition period. Upon a halt, the Exchange currently cancels all orders on the BATS Book, except Eligible Auction Orders,6 and does not accept any orders until the halt is lifted. The time-in-force of Regular 3 Pre-Opening Session is defined in BATS Rule 1.5(r). 4 Regular Trading Hours is defined in BATS Rule 1.5(w). 5 BATS Book is defined in BATS Rule 1.5(e). 6 Eligible Auction Order is defined in BATS Rule 11.23(a)(8). E:\FR\FM\19SEN1.SGM 19SEN1 56422 Federal Register / Vol. 79, No. 182 / Friday, September 19, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Hours Only 7 that the Exchange currently offers is only available in BATS-listed securities. The Exchange is proposing to implement a process by which the Exchange will accept and queue orders that have a time-in-force of Regular Hours Only (or ‘‘RHO’’) 8 during the PreOpening Session for execution at the midpoint of the NBBO 9 shortly after the beginning of Regular Trading Hours (the ‘‘Opening Process’’). The Exchange is also proposing to implement a similar opening process after a halt, suspension, or pause (a ‘‘Halt’’ and the ‘‘Halt Opening Process’’) in which a User’s orders will remain on the BATS Book, unless the User has designated that its orders be cancelled upon a halt, as further described below. As mentioned above, the Exchange is proposing to delete current rule 11.23(a)(22) defining Regular Hours Only and simultaneously adding Rule 11.9(b)(7) which would define RHO as a time-in-force that applies to all securities, both BATS-listed and nonBATS-listed. Specifically, the Exchange is proposing that RHO means a limit or market order that is designated for execution only during Regular Trading Hours, which includes the Opening Auction, the Closing Auction, and IPO/ Halt Auctions for BATS-listed securities and the Opening Process for non-BATSlisted securities (as such terms are defined in Rule 11.23 and 11.24). Any portion of a market RHO order will be cancelled immediately following any auction in which it is not executed. The Exchange is also proposing to make a non-substantive change to Rule 11.9(b) in order to delete the word ‘‘limit’’ because an RHO order can be both a limit order or a market order. Each other time-in-force clearly states that it applies only to limit orders. The Exchange proposes that prior to the beginning of Regular Trading Hours, Users 10 that wish to participate in the Opening Process may enter orders to buy or sell with a time in force of Regular Hours Only. Orders cancelled before the completion of the Opening Process will not participate in the Opening Process. Any order that is not designated as RHO will not be eligible for participation in the Opening Process. Proposed Rule 11.24(a)(2) provides that all orders that are marked as RHO may participate in the Opening Process 7 Regular Hours Only is defined in BATS Rule 11.23(a)(22). 8 The Exchange is proposing to amend the definition of Regular Hours Only to include nonBATS-listed securities and to move the rule text from Rule 11.23(a)(22) to Proposed Rule 11.9(b)(7). 9 NBBO is defined in BATS Rule 1.5(o). 10 User is defined in BATS Rule 1.5(cc). VerDate Sep<11>2014 17:15 Sep 18, 2014 Jkt 232001 except BATS Post Only Orders,11 Partial Post Only at Limit Orders,12 ISO13 orders not modified by Rule 11.24(a)(1), as described below, and Minimum Quantity Orders.14 Because RHO orders received prior to the completion of the Opening Process are not immediately executable, but rather queued for later participation in the Opening Process, BATS Post Only Orders, Partial Post Only at Limit Orders, and Minimum Quantity Orders marked as RHO do not make sense in the context of the Opening Process and, thus, the Exchange is proposing to exclude them from the Opening Process. Similarly, because an order designated as an ISO implies that there is currently a protected bid or offer and there are no protected bids or offers prior to 9:30 a.m. Eastern Time, the Exchange proposes to reject any ISOs designated RHO entered prior to the beginning of Regular Trading Hours. While this functionality is opposite of the way that ISOs are handled on the Exchange’s options platform (‘‘BATS Options’’) (ISOs are converted to non-ISOs and entered for queuing), the Exchange believes that because there is continuous trading during the PreOpening Session on the Exchange while orders are also being queued for participation in the Opening Process, an ISO tag could be interpreted in various ways and there is no obvious way to eliminate this confusion and, as such, the order should be rejected. On BATS Options, on the other hand, there is no continuous book and all orders entered prior to 9:30 a.m. Eastern Time are queued for participation in the BATS Options opening process, so an ISO tag simply does not make sense in that context and can reasonably be ignored and converted to a non-ISO for queuing. Consistent with this logic and as further detailed below, the Exchange is also proposing that, prior to a re-opening after a halt, any ISO that is not IOC or FOK be converted into a non-ISO for queuing and participation in the reopening process because there is no continuous trading while a security is halted. Limit orders with a Reserve Quantity 15 may participate to the full extent of their displayed size and Reserve Quantity. Discretionary 11 BATS Post Only Order is defined in BATS Rule 11.9(c)(6). 12 Partial Post Only at Limit Order is defined in BATS Rule 11.9(c)(7). 13 ISO is defined in BATS Rule 11.9(d). 14 Minimum Quantity Order is defined in BATS Rule 11.9(c)(5). 15 Reserve Quantity is defined in BATS Rule 11.9(c)(1). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 Orders 16 may participate only up to their ranked price for buy orders or down to their ranked price for sell orders. The discretionary range of such orders will not be eligible for participation in the Opening Process. All Pegged Orders and Mid-Point Peg Orders, as defined in Rule 11.9(c)(8) and (9), will be eligible for execution in the Opening Process based on their pegged prices. The Exchange will then attempt to perform the Opening Process, as described in proposed Rule 11.24(b), in which the Exchange matches buy and sell orders that are executable at the midpoint of the NBBO as described in proposed Rule 11.24(c) below. All orders eligible to trade at the midpoint will be processed in time sequence, beginning with the order with the oldest time stamp. The Exchange believes that handling orders in time priority makes more sense than price-time priority for the Opening Process because the price of the order is not particularly important to the Opening Process, so long as the order is priced at or more aggressively than the Opening Price and, as such, there is no reason to reward a more aggressive order with priority in the Opening Process. Thus, the Exchange is proposing that all orders that are priced equal to or more aggressively than the Opening Price be matched based only on time priority and will be matched until there is no remaining volume or there is an imbalance of orders (the ‘‘Opening Match’’). All MTP modifiers, as defined in Rule 11.9(f), will be ignored as it relates to executions occurring as part of the Opening Match because the counterparty against which an order executes is mostly random and completely out of the control of the User entering the order. It does not make sense to cancel an order because the order happens to execute against an order entered using the same MPID, but to allow both orders to execute at the exact same price to the exact same effect where the orders happen to execute against different orders. An imbalance of orders on the buy side or sell side may result in orders that are not executed in whole or in part. Such orders may, in whole or in part, be placed on the BATS Book, cancelled, executed, or routed to other away Trading Centers 17 in accordance with Rule 11.13(a)(2). If no matches can be made, the Opening Process will conclude with all orders that participated in the Opening Process being placed in the BATS Book, 16 Discretionary Order is defined in BATS Rule 11.9(c)(10). 17 Trading Center is defined in BATS Rule 2.11(a). E:\FR\FM\19SEN1.SGM 19SEN1 tkelley on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 182 / Friday, September 19, 2014 / Notices cancelled, executed, or routed to away Trading Centers in accordance with Rule 11.13(a)(2) related to order execution and routing. Because an RHO order is not executable until the Opening Process (rather than upon entry), to the extent that any order is not executed during the Opening Process and is placed on the BATS Book, such order will receive a time stamp that reflects the time that the order was placed on the BATS Book during the Opening Process and not the time that the order was entered for queuing. Under proposed Rule 11.24(c), the Exchange will determine the price of the Opening Process by using the midpoint of the NBBO, as follows: (a) When the listing exchange is either the NYSE or NYSE MKT, the Opening Process will be priced at the midpoint of the: (i) First NBBO subsequent to the first reported trade on the listing exchange after 9:30:00 a.m. Eastern Time; or (ii) then prevailing NBBO when the first twosided quotation is published by the listing exchange after 9:30:00 a.m. Eastern Time if no first trade is reported by the listing exchange within one second of publication of the first twosided quotation by the listing exchange; or (b) for any other listing market except for the Exchange, the Opening Process will be priced at the midpoint of the first NBBO disseminated after 9:30:00 a.m. Eastern Time. The Exchange is proposing to differentiate the treatment between NYSE and NYSE MKT listed securities and securities listed on any other exchange because NYSE and NYSE MKT do not offer continuous trading prior to 9:30:00 a.m. Eastern Time and the market for trading in securities listed on these exchanges may take a moment to develop. Using the first NBBO disseminated for NYSE and NYSE MKT listed securities to establish the Opening Price may result in executions that are not necessarily reflective of market conditions after the first execution on the listing market or one second after the listing market’s first quote. Every other listing exchange allows for continuous trading prior to 9:30:00 a.m. Eastern Time, which results in a more fully developed market immediately after 9:30:00 a.m. Eastern Time and, thus, a more immediately reliable Opening Price. Proposed Rule 11.24(a)(1) provides that during the period between 9:30 a.m. Eastern Time and the occurrence of the Opening Process, all non-RHO orders, subject to order instructions, and ISOs designated RHO may execute against eligible Pre-Opening Session contra-side interest resting in the BATS Book. The Exchange will convert any unexecuted portion of an ISO designated RHO VerDate Sep<11>2014 17:15 Sep 18, 2014 Jkt 232001 entered during this period into a nonISO and queue the order for participation in the Opening Process. If the conditions to establish the price of the Opening Process set forth under proposed Rule 11.24(c) do not occur by 9:45:00 a.m. Eastern Time, proposed Rule 11.24(d) describes a contingent opening process (the ‘‘Contingent Open Process’’) in which instead of matching orders at the midpoint of the NBBO, orders will be handled in time sequence, beginning with the order with the oldest time stamp, and will be placed on the BATS Book, routed, cancelled, or executed in accordance with the terms of the order. Because an RHO order is not executable until the Opening Process (rather than upon entry), any order subject to the Contingent Open Process that is placed on the BATS Book will receive a time stamp that reflects the time that the order was placed on the BATS Book during the Opening Process and not the time that the order was entered for queuing. In the event of a Halt, the proposed amendment to Rule 11.18(f) provides that, except where a User has designated that its orders be cancelled, all outstanding orders in the System 18 will remain on the BATS Book. Proposed Rule 11.24(e) then provides that the Exchange will accept orders for queuing prior to the resumption of trading in order to participate in the Halt Opening Process. While a non-BATS-listed security is subject to a Halt, the Exchange will accept orders for queuing prior to the resumption of trading in the security for participation in the Halt Opening Process. The Halt Opening Process will occur in the same manner described in proposed Rules 11.24(a)(2) and (b) with the following exceptions: (1) Non-RHO orders will be eligible for participation in the re-opening, but IOC,19 FOK, BATS Post Only Orders, Partial Post Only at Limit Orders, and Minimum Quantity Orders will be cancelled or rejected, as applicable, and any ISO that is not IOC or FOK will be converted into a non-ISO and be queued for participation in the Halt Opening Process; and (2) the re-opening will occur at the midpoint of the: (i) First NBBO subsequent to the first reported trade on the listing exchange following the resumption of trading after a Halt; or (ii) NBBO when the first two-sided quotation is published by the listing exchange following the resumption of trading after a Halt if no first trade is reported by the listing exchange within one second of publication of the first two-sided quotation by the listing exchange. Similar to the rationale for waiting for the sooner of the first execution on the primary or one second to use the midpoint of the NBBO for the Opening Process for NYSE and NYSE MKT, the Exchange is proposing to wait until the sooner of the first execution on the primary or one second to use the midpoint of the NBBO for the Halt Opening Process because there is no continuous trading occurring on any market during a Halt and waiting will provide time for the market to be more fully established before determining the price at which the Halt Opening Process will occur. Where neither of the above conditions required to establish the price of the re-opening have occurred, the security may be opened for trading at the discretion of the Exchange. Where the security is opened by the Exchange subject to this discretion, orders will be handled in the same manner as the Contingent Open Process. 2. Statutory Basis The rule change proposed in this submission 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.20 Specifically, the proposed change is consistent with Section 6(b)(5) of the Act,21 because it is designed to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of, a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that allowing for the entry of RHO orders in non-BATS-listed securities during the Pre-Opening Session and transitioning into Regular Trading Hours pursuant to the Opening Process will help to ensure that the Exchange opens trading in a fair and orderly manner. Specifically, the Exchange believes that allowing Users to enter and cancel orders in non-BATS-listed securities during the Pre-Opening Session to be queued for execution at the midpoint of the NBBO and/or entry on to the BATS Book shortly following the beginning of Regular Trading Hours will create a more orderly opening and facilitate the price formation process at the opening of trading because Users are able to enter orders to participate in the Opening Process during the Pre-Market Session rather than having a flood of orders submitted to the Exchange immediately following the beginning of 18 System 20 15 19 IOC 21 15 PO 00000 is defined in BATS Rule 1.5(aa). is defined in BATS Rule 11.9(b)(1). Frm 00089 Fmt 4703 Sfmt 4703 56423 E:\FR\FM\19SEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 19SEN1 tkelley on DSK3SPTVN1PROD with NOTICES 56424 Federal Register / Vol. 79, No. 182 / Friday, September 19, 2014 / Notices Regular Trading Hours. Similarly, the Exchange believes that implementing substantially similar functionality in non-BATS listed securities for accepting orders during re-opening after a Halt will also create a more orderly opening and facilitate price formation as a security is coming out of a Halt. Additionally, using the midpoint of the NBBO as the price for the Opening Process (regardless of the time at which such NBBO is selected as described under proposed Rule 11.24(c)) will further create a more orderly opening and facilitation of the price formation process by basing the price at which the Opening Process will occur on the best available pricing under current market conditions. The Exchange also believes that excluding BATS Post Only Orders, Partial Post Only at Limit Orders, ISOs, and Minimum Quantity Orders from participation in the Opening Process is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers because, as described above, such order types combined with an RHO time-inforce do not make sense in the context of queuing orders for the Opening Process. Further, the Exchange believes that allowing certain RHO orders and all non-RHO orders to interact with interest (and, in the case of non-RHO orders, to be added to the BATS Book where there is no contra-side interest) from the PreOpening Session after 9:30 a.m. Eastern Time, but before the completion of the Opening Process will also create a more orderly opening and facilitate the price formation process because Users will have the option to enter orders that will either participate in the Opening Process or immediately interact with liquidity from the Pre-Opening Session, allowing trading to continue while the Exchange is waiting for the conditions necessary to complete the Opening Process. The Exchange also believes that allowing an ISO marked RHO to execute against eligible Pre-Opening Session interest after 9:30 a.m. Eastern and before completion of the Opening Process and then converting the unexecuted portion of the order into a non-ISO for queuing for participation in the Opening Process is consistent with the Act because it is consistent with the requirements of Regulation NMS.22 In particular, because after 9:30 a.m. 22 17 CFR 242.600. VerDate Sep<11>2014 17:15 Sep 18, 2014 Jkt 232001 Eastern Time there may be a protected bid or offer displayed by the Exchange that the User entering the order is trying to execute against, the Exchange is proposing to allow an ISO designated as an RHO to interact with liquidity currently on the BATS Book prior to queuing for participation in the Opening Process. The Exchange also believes that the proposal is designed 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 because it would create a contingent opening process under which the orders queued for participation in the Opening Process would be entered on to the BATS Book in the event that the conditions for determining the price of the Opening Process are not met prior to 9:45:00 a.m. Eastern Time, which will further help to ensure that the Exchange opens trading in a fair and orderly manner by providing a means for trading in a nonBATS-listed security to open where there is no two-sided NBBO in the security for fifteen minutes after the beginning of Regular Trading Hours. The Exchange believes that fifteen minutes is a reasonable amount of time to wait for the establishment of a twosided NBBO because it marks a point at which the market in a security has had a sufficient amount of time to develop while simultaneously providing a reasonable cut-off point at which the Exchange may open the security for Regular Trading Hours trading. The Exchange also believes that handling all orders queued for participation in the Opening Process in time sequence after fifteen minutes will help to ensure that trading opens in as fair and orderly a manner as possible. The implementation of the Opening Process will also provide Users with greater control and flexibility with respect to entering orders, allowing them to enter orders for participation during Regular Trading Hours in all non-BATS-listed securities during the Pre-Opening Session, rather than only after Regular Trading Hours begin at 9:30 a.m. Eastern Time. This simplifies the order entry process for Users that do not want to participate in the PreOpening Session by allowing them to enter their orders designated as Regular Hours Only prior to Regular Trading Hours, which removes impediments to a free and open market and benefits all Users of the Exchange. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the act. To the contrary, the Exchange’s inability to accept orders in non-BATS-listed securities prior to 9:30 a.m. Eastern Time for participation during Regular Trading Hours limits competition in that the listing exchange is able to begin accepting orders in such securities, while the Exchange cannot accept such orders. Thus, approval of the proposed rule change will promote competition because it will allow the Exchange to offer its Users the ability to enter orders prior to the beginning of Regular Trading Hours for queuing and entry during Regular Trading Hours and thus compete more directly with other exchanges for order flow that a User may not have directed to the Exchange if they were not able to enter orders for queuing prior to Regular Trading Hours. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date 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 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or E:\FR\FM\19SEN1.SGM 19SEN1 Federal Register / Vol. 79, No. 182 / Friday, September 19, 2014 / Notices • Send an email to rule-comments@ sec.gov. Please include File Number SR– BATS–2014–037 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–73096; File No. SR–NYSE– 2014–39] • 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–BATS–2014–037. 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 (https://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 at 100 F Street NE., Washington, DC 20549–1090 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 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–BATS– 2014–037, and should be submitted on or before October 10, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–22326 Filed 9–18–14; 8:45 am] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change Removing Building Access and Other Restrictions on Traders Conducting Certain Futures and Options Trading on ICE Futures U.S., Inc. in Space Rented From the Exchange September 15, 2014. On July 15, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 filed with the Securities and Exchange Commission (the ‘‘Commission’’) a proposed rule change to removing building access and other restrictions on traders conducting certain futures and options trading on ICE Futures U.S., Inc. The proposed rule change was published for public comment in the Federal Register on August 1, 2014.3 The Commission received no comments on the proposal. This order approves the proposed rule change. I. Background and Introduction The Exchange proposes to remove building access and other restrictions on traders conducting certain futures and options trading on ICE Futures U.S., Inc. (‘‘IFUS’’) 4 in space rented from the Exchange (the ‘‘IFUS Trading Floor’’). 1. Background On February 13, 2013, the Exchange filed a proposed rule change to relocate trading of certain futures and options contracts conducted on IFUS from rented space at the New York Mercantile Exchange (‘‘NYMEX’’) to trading space at 20 Broad Street, New York, New York, commonly known as the ‘‘Blue Room’’, and to amend NYSE Rule 6A, which defines the terms ‘‘Trading Floor’’ and ‘‘NYSE Amex Options Trading Floor’’ (the ‘‘Original Filing’’).5 The Original Filing stated that the IFUS Traders relocating to 20 Broad BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 72681 (July 28, 2014), 70 FR 44906. 4 IFUS is a Designated Contract Market pursuant to the Commodity Exchange Act, as amended, and is regulated by the U.S. Commodity Futures Trading Commission (‘‘CFTC’’). 5 See Securities Exchange Act Release Nos. 68996 (February 27, 2013), 78 FR 14378 (March 5, 2013) (SR–NYSE–2013–13). tkelley on DSK3SPTVN1PROD with NOTICES 2 17 23 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:15 Sep 18, 2014 Jkt 232001 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 56425 Street and their clerical employees 6 would only utilize the 18 Broad Street entrance to access the Blue Room 7 and, once inside, be prohibited from entering the Main Room, where most of the NYSE and NYSE MKT LLC (‘‘NYSE MKT’’) Equities Floor brokers and all NYSE and NYSE MKT Equities Designated Market Makers (‘‘DMMs’’) are located, as well as the NYSE Amex Options trading floor. In addition, the Original Filing represented that the IFUS Traders would sit together in dedicated booth space approximately 40 feet long by 10 feet wide with privacy barriers consisting of eight foot walls on both sides except for the two gated and badge access entry and exit security doors at the front and back of the booth, which are four feet high. A compliance officer from IFUS Market Regulation is also present in the Blue Room performing on-site surveillance on a regular basis. On June 3, 2013, the Exchange filed a proposed rule change to clarify that the IFUS Traders may, on an as needed basis and only prior to 7 a.m., access the Blue Room via the Exchange’s 11 Wall Street facilities, which would entail walking through the Main Room to access the Blue Room, and that the IFUS Traders may access the Blue Room via the Exchange’s 11 Wall Street facilities on days that the Exchange is closed (the ‘‘Supplemental Filing’’).8 2. Proposed Rule Change The Exchange is proposing to: (i) Eliminate the building access restrictions, which would allow the IFUS Traders to enter the Exchange’s facilities from either the 11 Wall Street or 18 Broad Street entrances; (ii) eliminate the restriction on the IFUS Traders entering or crossing the Main 6 Currently, there are 24 IFUS Traders and 13 clerical staff on the IFUS Trading Floor. At the time of the Original Filing, there were 40 IFUS Traders. 7 Specifically, the IFUS Traders must use the 18 Broad Street entrance elevator and enter the Trading Floor using the turnstile nearest the Blue Room. The Exchange has been monitoring badge swipes at other locations to identify instances where the IFUS Traders utilize a different entrance and referring those findings to IFUS Compliance for appropriate action. Last year, there were approximately 22 instances in which individual IFUS Traders or their clerical staff used an entrance or turnstile other than 18 Broad entrance and turnstiles authorized for their use. However, IFUS Compliance found that all of these were inadvertent use of either of a wrong turnstile for the 18 Broad St. entrance, another entrance necessitated for use when gaining visitor access or when the 18 Broad St. entrance was temporarily inaccessible, or to access a bathroom, and therefore, chose not to take any disciplinary action. 8 Certain of the IFUS Traders conduct business on foreign markets on Exchange holidays. See Securities Exchange Act Release Nos. 69763 (June 13, 2013), 78 FR 37265 (June 20, 2013) (SR–NYSE– 2013–38). E:\FR\FM\19SEN1.SGM 19SEN1

Agencies

[Federal Register Volume 79, Number 182 (Friday, September 19, 2014)]
[Notices]
[Pages 56421-56425]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22326]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73093; File No. SR-BATS-2014-037]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS 
Exchange, Inc.

September 15, 2014.
    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 September 3, 2014, 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is proposing to add Rule 11.24, entitled ``Opening 
Process for Non-BATS-Listed Securities,'' as well as to make several 
corresponding changes in order to modify the manner in which the 
Exchange opens trading for non-BATS-listed securities at the beginning 
of the day and after trading halts.
    The text of the proposed rule addition is available at the 
Exchange's Web site at https://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 purpose of the proposed rule change is to amend Exchange Rules 
11.9(b), 11.18(f), and 11.23(a)(22), and to add new Rule 11.24 in order 
to allow for the entry of Regular Hours Only orders in non-BATS-listed 
securities and to amend the process by which the Exchange opens trading 
for non-BATS-listed securities at the beginning of the day and after 
trading halts. Specifically, the Exchange is proposing to accept 
Regular Hours Only orders in all non-BATS-listed securities for queuing 
throughout the Pre-Opening Session,\3\ as well as to establish a 
process for handling queued orders in order to open trading on the 
Exchange for Regular Trading Hours \4\ and following a halt. The 
Exchange is proposing this rule change in order to create a more 
orderly opening of trading in non-BATS-listed securities and to 
facilitate the price formation process at the open of trading in non-
BATS-listed securities by allowing Users to enter orders during the 
Pre-Market Session and during a halt rather than requiring them to 
submit a flood of orders to the Exchange immediately following the 
beginning of Regular Trading Hours or the resumption of trading 
following a halt.
---------------------------------------------------------------------------

    \3\ Pre-Opening Session is defined in BATS Rule 1.5(r).
    \4\ Regular Trading Hours is defined in BATS Rule 1.5(w).
---------------------------------------------------------------------------

    Currently, the Exchange begins accepting orders in non-BATS-listed 
securities for trading at the beginning of the Pre-Opening Session and 
any such orders received by the Exchange are immediately eligible for 
execution. Any such orders that are on the BATS Book \5\ at the 
beginning of Regular Trading Hours remain on the BATS Book, subject to 
the User's instruction, and trading continues into Regular Trading 
Hours without any transition period. Upon a halt, the Exchange 
currently cancels all orders on the BATS Book, except Eligible Auction 
Orders,\6\ and does not accept any orders until the halt is lifted. The 
time-in-force of Regular

[[Page 56422]]

Hours Only \7\ that the Exchange currently offers is only available in 
BATS-listed securities.
---------------------------------------------------------------------------

    \5\ BATS Book is defined in BATS Rule 1.5(e).
    \6\ Eligible Auction Order is defined in BATS Rule 11.23(a)(8).
    \7\ Regular Hours Only is defined in BATS Rule 11.23(a)(22).
---------------------------------------------------------------------------

    The Exchange is proposing to implement a process by which the 
Exchange will accept and queue orders that have a time-in-force of 
Regular Hours Only (or ``RHO'') \8\ during the Pre-Opening Session for 
execution at the midpoint of the NBBO \9\ shortly after the beginning 
of Regular Trading Hours (the ``Opening Process''). The Exchange is 
also proposing to implement a similar opening process after a halt, 
suspension, or pause (a ``Halt'' and the ``Halt Opening Process'') in 
which a User's orders will remain on the BATS Book, unless the User has 
designated that its orders be cancelled upon a halt, as further 
described below.
---------------------------------------------------------------------------

    \8\ The Exchange is proposing to amend the definition of Regular 
Hours Only to include non-BATS-listed securities and to move the 
rule text from Rule 11.23(a)(22) to Proposed Rule 11.9(b)(7).
    \9\ NBBO is defined in BATS Rule 1.5(o).
---------------------------------------------------------------------------

    As mentioned above, the Exchange is proposing to delete current 
rule 11.23(a)(22) defining Regular Hours Only and simultaneously adding 
Rule 11.9(b)(7) which would define RHO as a time-in-force that applies 
to all securities, both BATS-listed and non-BATS-listed. Specifically, 
the Exchange is proposing that RHO means a limit or market order that 
is designated for execution only during Regular Trading Hours, which 
includes the Opening Auction, the Closing Auction, and IPO/Halt 
Auctions for BATS-listed securities and the Opening Process for non-
BATS-listed securities (as such terms are defined in Rule 11.23 and 
11.24). Any portion of a market RHO order will be cancelled immediately 
following any auction in which it is not executed. The Exchange is also 
proposing to make a non-substantive change to Rule 11.9(b) in order to 
delete the word ``limit'' because an RHO order can be both a limit 
order or a market order. Each other time-in-force clearly states that 
it applies only to limit orders.
    The Exchange proposes that prior to the beginning of Regular 
Trading Hours, Users \10\ that wish to participate in the Opening 
Process may enter orders to buy or sell with a time in force of Regular 
Hours Only. Orders cancelled before the completion of the Opening 
Process will not participate in the Opening Process. Any order that is 
not designated as RHO will not be eligible for participation in the 
Opening Process. Proposed Rule 11.24(a)(2) provides that all orders 
that are marked as RHO may participate in the Opening Process except 
BATS Post Only Orders,\11\ Partial Post Only at Limit Orders,\12\ 
ISO\13\ orders not modified by Rule 11.24(a)(1), as described below, 
and Minimum Quantity Orders.\14\ Because RHO orders received prior to 
the completion of the Opening Process are not immediately executable, 
but rather queued for later participation in the Opening Process, BATS 
Post Only Orders, Partial Post Only at Limit Orders, and Minimum 
Quantity Orders marked as RHO do not make sense in the context of the 
Opening Process and, thus, the Exchange is proposing to exclude them 
from the Opening Process. Similarly, because an order designated as an 
ISO implies that there is currently a protected bid or offer and there 
are no protected bids or offers prior to 9:30 a.m. Eastern Time, the 
Exchange proposes to reject any ISOs designated RHO entered prior to 
the beginning of Regular Trading Hours. While this functionality is 
opposite of the way that ISOs are handled on the Exchange's options 
platform (``BATS Options'') (ISOs are converted to non-ISOs and entered 
for queuing), the Exchange believes that because there is continuous 
trading during the Pre-Opening Session on the Exchange while orders are 
also being queued for participation in the Opening Process, an ISO tag 
could be interpreted in various ways and there is no obvious way to 
eliminate this confusion and, as such, the order should be rejected. On 
BATS Options, on the other hand, there is no continuous book and all 
orders entered prior to 9:30 a.m. Eastern Time are queued for 
participation in the BATS Options opening process, so an ISO tag simply 
does not make sense in that context and can reasonably be ignored and 
converted to a non-ISO for queuing. Consistent with this logic and as 
further detailed below, the Exchange is also proposing that, prior to a 
re-opening after a halt, any ISO that is not IOC or FOK be converted 
into a non-ISO for queuing and participation in the re-opening process 
because there is no continuous trading while a security is halted.
---------------------------------------------------------------------------

    \10\ User is defined in BATS Rule 1.5(cc).
    \11\ BATS Post Only Order is defined in BATS Rule 11.9(c)(6).
    \12\ Partial Post Only at Limit Order is defined in BATS Rule 
11.9(c)(7).
    \13\ ISO is defined in BATS Rule 11.9(d).
    \14\ Minimum Quantity Order is defined in BATS Rule 11.9(c)(5).
---------------------------------------------------------------------------

    Limit orders with a Reserve Quantity \15\ may participate to the 
full extent of their displayed size and Reserve Quantity. Discretionary 
Orders \16\ may participate only up to their ranked price for buy 
orders or down to their ranked price for sell orders. The discretionary 
range of such orders will not be eligible for participation in the 
Opening Process. All Pegged Orders and Mid-Point Peg Orders, as defined 
in Rule 11.9(c)(8) and (9), will be eligible for execution in the 
Opening Process based on their pegged prices.
---------------------------------------------------------------------------

    \15\ Reserve Quantity is defined in BATS Rule 11.9(c)(1).
    \16\ Discretionary Order is defined in BATS Rule 11.9(c)(10).
---------------------------------------------------------------------------

    The Exchange will then attempt to perform the Opening Process, as 
described in proposed Rule 11.24(b), in which the Exchange matches buy 
and sell orders that are executable at the midpoint of the NBBO as 
described in proposed Rule 11.24(c) below. All orders eligible to trade 
at the midpoint will be processed in time sequence, beginning with the 
order with the oldest time stamp. The Exchange believes that handling 
orders in time priority makes more sense than price-time priority for 
the Opening Process because the price of the order is not particularly 
important to the Opening Process, so long as the order is priced at or 
more aggressively than the Opening Price and, as such, there is no 
reason to reward a more aggressive order with priority in the Opening 
Process. Thus, the Exchange is proposing that all orders that are 
priced equal to or more aggressively than the Opening Price be matched 
based only on time priority and will be matched until there is no 
remaining volume or there is an imbalance of orders (the ``Opening 
Match''). All MTP modifiers, as defined in Rule 11.9(f), will be 
ignored as it relates to executions occurring as part of the Opening 
Match because the counterparty against which an order executes is 
mostly random and completely out of the control of the User entering 
the order. It does not make sense to cancel an order because the order 
happens to execute against an order entered using the same MPID, but to 
allow both orders to execute at the exact same price to the exact same 
effect where the orders happen to execute against different orders. An 
imbalance of orders on the buy side or sell side may result in orders 
that are not executed in whole or in part. Such orders may, in whole or 
in part, be placed on the BATS Book, cancelled, executed, or routed to 
other away Trading Centers \17\ in accordance with Rule 11.13(a)(2). If 
no matches can be made, the Opening Process will conclude with all 
orders that participated in the Opening Process being placed in the 
BATS Book,

[[Page 56423]]

cancelled, executed, or routed to away Trading Centers in accordance 
with Rule 11.13(a)(2) related to order execution and routing. Because 
an RHO order is not executable until the Opening Process (rather than 
upon entry), to the extent that any order is not executed during the 
Opening Process and is placed on the BATS Book, such order will receive 
a time stamp that reflects the time that the order was placed on the 
BATS Book during the Opening Process and not the time that the order 
was entered for queuing.
---------------------------------------------------------------------------

    \17\ Trading Center is defined in BATS Rule 2.11(a).
---------------------------------------------------------------------------

    Under proposed Rule 11.24(c), the Exchange will determine the price 
of the Opening Process by using the midpoint of the NBBO, as follows: 
(a) When the listing exchange is either the NYSE or NYSE MKT, the 
Opening Process will be priced at the midpoint of the: (i) First NBBO 
subsequent to the first reported trade on the listing exchange after 
9:30:00 a.m. Eastern Time; or (ii) then prevailing NBBO when the first 
two-sided quotation is published by the listing exchange after 9:30:00 
a.m. Eastern Time if no first trade is reported by the listing exchange 
within one second of publication of the first two-sided quotation by 
the listing exchange; or (b) for any other listing market except for 
the Exchange, the Opening Process will be priced at the midpoint of the 
first NBBO disseminated after 9:30:00 a.m. Eastern Time. The Exchange 
is proposing to differentiate the treatment between NYSE and NYSE MKT 
listed securities and securities listed on any other exchange because 
NYSE and NYSE MKT do not offer continuous trading prior to 9:30:00 a.m. 
Eastern Time and the market for trading in securities listed on these 
exchanges may take a moment to develop. Using the first NBBO 
disseminated for NYSE and NYSE MKT listed securities to establish the 
Opening Price may result in executions that are not necessarily 
reflective of market conditions after the first execution on the 
listing market or one second after the listing market's first quote. 
Every other listing exchange allows for continuous trading prior to 
9:30:00 a.m. Eastern Time, which results in a more fully developed 
market immediately after 9:30:00 a.m. Eastern Time and, thus, a more 
immediately reliable Opening Price.
    Proposed Rule 11.24(a)(1) provides that during the period between 
9:30 a.m. Eastern Time and the occurrence of the Opening Process, all 
non-RHO orders, subject to order instructions, and ISOs designated RHO 
may execute against eligible Pre-Opening Session contra-side interest 
resting in the BATS Book. The Exchange will convert any unexecuted 
portion of an ISO designated RHO entered during this period into a non-
ISO and queue the order for participation in the Opening Process.
    If the conditions to establish the price of the Opening Process set 
forth under proposed Rule 11.24(c) do not occur by 9:45:00 a.m. Eastern 
Time, proposed Rule 11.24(d) describes a contingent opening process 
(the ``Contingent Open Process'') in which instead of matching orders 
at the midpoint of the NBBO, orders will be handled in time sequence, 
beginning with the order with the oldest time stamp, and will be placed 
on the BATS Book, routed, cancelled, or executed in accordance with the 
terms of the order. Because an RHO order is not executable until the 
Opening Process (rather than upon entry), any order subject to the 
Contingent Open Process that is placed on the BATS Book will receive a 
time stamp that reflects the time that the order was placed on the BATS 
Book during the Opening Process and not the time that the order was 
entered for queuing.
    In the event of a Halt, the proposed amendment to Rule 11.18(f) 
provides that, except where a User has designated that its orders be 
cancelled, all outstanding orders in the System \18\ will remain on the 
BATS Book. Proposed Rule 11.24(e) then provides that the Exchange will 
accept orders for queuing prior to the resumption of trading in order 
to participate in the Halt Opening Process. While a non-BATS-listed 
security is subject to a Halt, the Exchange will accept orders for 
queuing prior to the resumption of trading in the security for 
participation in the Halt Opening Process. The Halt Opening Process 
will occur in the same manner described in proposed Rules 11.24(a)(2) 
and (b) with the following exceptions: (1) Non-RHO orders will be 
eligible for participation in the re-opening, but IOC,\19\ FOK, BATS 
Post Only Orders, Partial Post Only at Limit Orders, and Minimum 
Quantity Orders will be cancelled or rejected, as applicable, and any 
ISO that is not IOC or FOK will be converted into a non-ISO and be 
queued for participation in the Halt Opening Process; and (2) the re-
opening will occur at the midpoint of the: (i) First NBBO subsequent to 
the first reported trade on the listing exchange following the 
resumption of trading after a Halt; or (ii) NBBO when the first two-
sided quotation is published by the listing exchange following the 
resumption of trading after a Halt if no first trade is reported by the 
listing exchange within one second of publication of the first two-
sided quotation by the listing exchange. Similar to the rationale for 
waiting for the sooner of the first execution on the primary or one 
second to use the midpoint of the NBBO for the Opening Process for NYSE 
and NYSE MKT, the Exchange is proposing to wait until the sooner of the 
first execution on the primary or one second to use the midpoint of the 
NBBO for the Halt Opening Process because there is no continuous 
trading occurring on any market during a Halt and waiting will provide 
time for the market to be more fully established before determining the 
price at which the Halt Opening Process will occur. Where neither of 
the above conditions required to establish the price of the re-opening 
have occurred, the security may be opened for trading at the discretion 
of the Exchange. Where the security is opened by the Exchange subject 
to this discretion, orders will be handled in the same manner as the 
Contingent Open Process.
---------------------------------------------------------------------------

    \18\ System is defined in BATS Rule 1.5(aa).
    \19\ IOC is defined in BATS Rule 11.9(b)(1).
---------------------------------------------------------------------------

2. Statutory Basis
    The rule change proposed in this submission 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.\20\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\21\ 
because it is designed to promote just and equitable principles of 
trade, to remove impediments to, and perfect the mechanism of, a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. The Exchange believes that 
allowing for the entry of RHO orders in non-BATS-listed securities 
during the Pre-Opening Session and transitioning into Regular Trading 
Hours pursuant to the Opening Process will help to ensure that the 
Exchange opens trading in a fair and orderly manner. Specifically, the 
Exchange believes that allowing Users to enter and cancel orders in 
non-BATS-listed securities during the Pre-Opening Session to be queued 
for execution at the midpoint of the NBBO and/or entry on to the BATS 
Book shortly following the beginning of Regular Trading Hours will 
create a more orderly opening and facilitate the price formation 
process at the opening of trading because Users are able to enter 
orders to participate in the Opening Process during the Pre-Market 
Session rather than having a flood of orders submitted to the Exchange 
immediately following the beginning of

[[Page 56424]]

Regular Trading Hours. Similarly, the Exchange believes that 
implementing substantially similar functionality in non-BATS listed 
securities for accepting orders during re-opening after a Halt will 
also create a more orderly opening and facilitate price formation as a 
security is coming out of a Halt. Additionally, using the midpoint of 
the NBBO as the price for the Opening Process (regardless of the time 
at which such NBBO is selected as described under proposed Rule 
11.24(c)) will further create a more orderly opening and facilitation 
of the price formation process by basing the price at which the Opening 
Process will occur on the best available pricing under current market 
conditions.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also believes that excluding BATS Post Only Orders, 
Partial Post Only at Limit Orders, ISOs, and Minimum Quantity Orders 
from participation in the Opening Process is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest; and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers because, as described above, such order 
types combined with an RHO time-in-force do not make sense in the 
context of queuing orders for the Opening Process. Further, the 
Exchange believes that allowing certain RHO orders and all non-RHO 
orders to interact with interest (and, in the case of non-RHO orders, 
to be added to the BATS Book where there is no contra-side interest) 
from the Pre-Opening Session after 9:30 a.m. Eastern Time, but before 
the completion of the Opening Process will also create a more orderly 
opening and facilitate the price formation process because Users will 
have the option to enter orders that will either participate in the 
Opening Process or immediately interact with liquidity from the Pre-
Opening Session, allowing trading to continue while the Exchange is 
waiting for the conditions necessary to complete the Opening Process. 
The Exchange also believes that allowing an ISO marked RHO to execute 
against eligible Pre-Opening Session interest after 9:30 a.m. Eastern 
and before completion of the Opening Process and then converting the 
unexecuted portion of the order into a non-ISO for queuing for 
participation in the Opening Process is consistent with the Act because 
it is consistent with the requirements of Regulation NMS.\22\ In 
particular, because after 9:30 a.m. Eastern Time there may be a 
protected bid or offer displayed by the Exchange that the User entering 
the order is trying to execute against, the Exchange is proposing to 
allow an ISO designated as an RHO to interact with liquidity currently 
on the BATS Book prior to queuing for participation in the Opening 
Process.
---------------------------------------------------------------------------

    \22\ 17 CFR 242.600.
---------------------------------------------------------------------------

    The Exchange also believes that the proposal is designed 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 because it would create a contingent opening process 
under which the orders queued for participation in the Opening Process 
would be entered on to the BATS Book in the event that the conditions 
for determining the price of the Opening Process are not met prior to 
9:45:00 a.m. Eastern Time, which will further help to ensure that the 
Exchange opens trading in a fair and orderly manner by providing a 
means for trading in a non-BATS-listed security to open where there is 
no two-sided NBBO in the security for fifteen minutes after the 
beginning of Regular Trading Hours. The Exchange believes that fifteen 
minutes is a reasonable amount of time to wait for the establishment of 
a two-sided NBBO because it marks a point at which the market in a 
security has had a sufficient amount of time to develop while 
simultaneously providing a reasonable cut-off point at which the 
Exchange may open the security for Regular Trading Hours trading. The 
Exchange also believes that handling all orders queued for 
participation in the Opening Process in time sequence after fifteen 
minutes will help to ensure that trading opens in as fair and orderly a 
manner as possible.
    The implementation of the Opening Process will also provide Users 
with greater control and flexibility with respect to entering orders, 
allowing them to enter orders for participation during Regular Trading 
Hours in all non-BATS-listed securities during the Pre-Opening Session, 
rather than only after Regular Trading Hours begin at 9:30 a.m. Eastern 
Time. This simplifies the order entry process for Users that do not 
want to participate in the Pre-Opening Session by allowing them to 
enter their orders designated as Regular Hours Only prior to Regular 
Trading Hours, which removes impediments to a free and open market and 
benefits all Users of the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the act. To the contrary, the Exchange's 
inability to accept orders in non-BATS-listed securities prior to 9:30 
a.m. Eastern Time for participation during Regular Trading Hours limits 
competition in that the listing exchange is able to begin accepting 
orders in such securities, while the Exchange cannot accept such 
orders. Thus, approval of the proposed rule change will promote 
competition because it will allow the Exchange to offer its Users the 
ability to enter orders prior to the beginning of Regular Trading Hours 
for queuing and entry during Regular Trading Hours and thus compete 
more directly with other exchanges for order flow that a User may not 
have directed to the Exchange if they were not able to enter orders for 
queuing prior to Regular Trading Hours.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or

[[Page 56425]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2014-037 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-BATS-2014-037. 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 (https://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 at 100 F Street NE., 
Washington, DC 20549-1090 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 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-
BATS-2014-037, and should be submitted on or before October 10, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22326 Filed 9-18-14; 8:45 am]
BILLING CODE 8011-01-P
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