Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Proposed Rule Change To Amend BYX Rules in Connection With the Implementation of Amendments to Regulation SHO, 5420-5423 [2011-1987]

Download as PDF 5420 Federal Register / Vol. 76, No. 20 / Monday, January 31, 2011 / Notices proposed Rule 11.19 states that it is the entering Member’s responsibility, not the Exchange’s responsibility, to comply with the requirements of Regulation SHO relating to marking of orders as ‘‘short exempt.’’ 20 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.21 In particular, the proposed change is consistent with Section 6(b)(5) of the Act,22 because it would promote just and equitable principles of trade, and, in general, protect investors and the public interest. The Exchange believes that the proposed changes will provide clarity on the short sale order handling procedures employed by the Exchange and certain obligations of Members when sending short sale orders to the Exchange consistent with Regulation SHO, as amended. The Exchange also believes that the proposed short sale price sliding functionality and amendments to the existing displayed price sliding process will assist Users in executing or displaying their orders consistent with Regulation SHO and Regulation NMS, especially under fast moving conditions where the NBBO is quickly updating. In addition, as is currently the case, the amended price sliding process is optional to Users. Specifically, Users can choose to opt-out of the price sliding process, and if they choose to do so, the Exchange will cancel back their orders when such orders contradict the provisions of Regulation SHO or Regulation NMS. (B) Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change imposes any burden on competition. jlentini on DSKJ8SOYB1PROD with NOTICES (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. 20 17 CFR 242.200(g)(2). See also 17 CFR 242.201(c); 17 CFR 242.201(d). 21 15 U.S.C. 78f(b). 22 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 16:38 Jan 28, 2011 Jkt 223001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BATS–2011–002 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–BATS–2011–002. This file number should be included on the subject line if e-mail 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 changes 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. Copies of such filing will also be available for Frm 00093 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–1986 Filed 1–28–11; 8:45 am] BILLING CODE 8011–01–P IV. Solicitation of Comments PO 00000 inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–BATS– 2011–002 and should be submitted on or before February 22, 2011. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63767; File No. SR–BYX– 2011–002] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Proposed Rule Change To Amend BYX Rules in Connection With the Implementation of Amendments to Regulation SHO January 25, 2011. 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 January 14, 2011, BATS Y-Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) 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 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 Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal to amend BYX Rules 11.9, 11.13 and 11.19 to make certain changes consistent with the upcoming implementation of amendments to Regulation SHO.3 The text of the proposed rule change 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. 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 17 CFR 242.200(g); 17 CFR 242.201. 1 15 E:\FR\FM\31JAN1.SGM 31JAN1 Federal Register / Vol. 76, No. 20 / Monday, January 31, 2011 / Notices 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 jlentini on DSKJ8SOYB1PROD with NOTICES 1. Purpose On February 26, 2010, the Commission adopted amendments to Regulation SHO under the Act in the form of Rule 201,4 pursuant to which, among other things, short sale orders in covered securities 5 generally cannot be executed or displayed by a trading center 6 such as BYX at a price that is at or below the current national best bid (‘‘NBB’’) when a short sale circuit breaker is in effect for the covered security (the ‘‘short sale price test restriction’’).7 In anticipation of the 4 See Securities Exchange Act Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). In connection with the adoption of Rule 201, Rule 200(g) of Regulation SHO was also amended to include a ‘‘short exempt’’ marking requirement. The amendments to Rule 201 and Rule 200(g) have a compliance date of February 28, 2011. See Securities Exchange Act Release No. 63247 (Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). See also Division of Trading & Markets, Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO. 5 Rule 201(a)(1) defines the term ‘‘covered security’’ to mean any ‘‘NMS stock’’ as defined under Rule 600(b)(47) of Regulation NMS. Rule 600(b)(47) of Regulation NMS defines an ‘‘NMS stock’’ as ‘‘any NMS security other than an option.’’ Rule 600(b)(46) of Regulation NMS defines an ‘‘NMS security’’ as ‘‘any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.’’ 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(46); and 17 CFR 242.600(b)(47). 6 Rule 201(a)(9) states that the term ‘‘trading center’’ shall have the same meaning as in Rule 600(b)(78) of Regulation NMS. Rule 600(b)(78) defines a ‘‘trading center’’ as ‘‘a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent.’’ 17 CFR 242.600(b)(78). 7 17 CFR 242.201(b)(1). See also Division of Trading & Markets, Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO, VerDate Mar<15>2010 16:38 Jan 28, 2011 Jkt 223001 upcoming February 28, 2011 compliance date for Rule 201, the Exchange is proposing to amend certain BYX rules to describe the manner in which the System 8 will handle short sell orders when a short sale price test restriction is triggered under Rule 201 of Regulation SHO. These changes include establishing a definition for ‘‘short sale price sliding,’’ which is a new form of price sliding the Exchange proposes to offer when the amendments to Regulation SHO become operative, modifying certain BYX rules regarding order execution and routing when a short sale price test restriction is in effect, and modifying BYX rules related to order marking requirements. Additionally, the Exchange proposes to modify the definition of the current ‘‘displayed price sliding process’’ offered by BYX. In order to comply with the short sale price test restriction of Regulation SHO, as amended, the Exchange proposes to offer short sale price sliding, which will be defined in BYX Rule 11.9(g). As a default, the Exchange will subject a User’s 9 orders to the short sale price sliding unless they affirmatively choose to opt-out of the process. As proposed, when a User opts out of the price sliding process, any short sale order that could not be executed or displayed due to a short sale price test restriction would be rejected or cancelled by the Exchange upon entry or while resting on the order book, respectively. When a User’s order is subject to the price sliding process, as proposed, orders subject to short sale price sliding that, at the time of entry, could not be executed or displayed due to a short sale price test restriction will be repriced by the System at one minimum price variation above the current NBB to comply with Rule 201(b)(1)(i).10 An order subject to short sale price sliding will not be readjusted downward even if it could be displayed at a lower price without violation of Rule 201 of Regulation SHO. In the event the NBB changes such that the price of a non-displayed order subject to short sale price sliding would lock or cross the NBB, the order will receive a new timestamp, and will be repriced by the System at one minimum price Q&A Nos. 2.1 and 2.2 (concerning the duration of a short sale price test restriction). 8 The ‘‘System’’ is defined in BYX Rule 1.5(aa) 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.’’ 9 A ‘‘User’’ is defined in BYX Rule 1.5(cc) as any member or sponsored participant of the Exchange who is authorized to obtain access to the System. 10 Any execution or display will also need to be in compliance with applicable rules regarding minimum pricing increments. 17 CFR 242.612. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 5421 variation above the current NBB, again in compliance with Rule 201(b)(1)(i).11 As proposed, neither orders marked ‘‘short exempt’’ nor orders displayed by the System at a price above the then current NBB at the time of initial display when a short sale price test restriction is in effect for a covered security will be subject to short sale price sliding. Certain displayed short sale orders will not be repriced by the System after entry because under Rule 201(b)(1)(iii)(A) a trading center’s policies and procedures must be reasonably designed to permit the execution of short sale orders of covered securities that were displayed at a price above the current NBB at the time of initial display. ‘‘Short exempt’’ orders will not be repriced by the System, but instead, the Exchange will execute, display and/or route such orders without regard to the NBB or any short sale price test restriction in effect under Regulation SHO, as described below. The Exchange currently offers a process called ‘‘displayed price sliding process,’’ as defined in current Rule 11.9(c)(4), which re-prices and/or displays orders at permissible prices when such orders would lock or cross Protected Quotations 12 in a manner inconsistent with Rule 610(d) of Regulation NMS.13 The Exchange proposes to rename the ‘‘displayed price sliding process’’ as ‘‘NMS price sliding,’’ to be included in new paragraph (g) of Rule 11.9, and to define the ‘‘price sliding process’’ as inclusive of both NMS price sliding and short sale price sliding.14 Also, consistent with the changes described above, the Exchange proposes to replace the term ‘‘displayed price sliding process’’ throughout its trading rules with the term ‘‘price sliding process.’’ As is true for displayed price sliding today and short sale price sliding as proposed, if a User chooses to opt-out of the price sliding process, the order will not be subject to NMS price sliding, and thus, the Exchange will 11 See Division of Trading & Markets, Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO, Q&A No. 4.1 (concerning un-displayed orders). 12 As defined in BYX Rule 1.5(t), the term ‘‘Protected Quotation’’ means a quotation that is a Protected Bid or Protected Offer. In turn, a ‘‘Protected Bid’’ or ‘‘Protected Offer’’ shall mean a bid or offer in a stock that is (i) displayed by an automated trading center; (ii) disseminated pursuant to an effective national market system plan; and (iii) an automated quotation that is the best bid or best offer of a national securities exchange or association. 13 17 CFR 242.610(d). 14 The Exchange acknowledges that potential differences can exist between Protected Bids, as defined above (see supra note 12), and the NBB, upon which the requirements of Regulation SHO, as amended, are based. E:\FR\FM\31JAN1.SGM 31JAN1 5422 Federal Register / Vol. 76, No. 20 / Monday, January 31, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES cancel back their orders when display or execution of such orders contradict the provisions of Regulation NMS. The Exchange also proposes a substantive change to NMS price sliding (today known as the displayed price sliding process). Under current System behavior, the Exchange cancels all nondisplayed orders when the national best bid or offer (‘‘NBBO’’) changes such that the non-displayed order would cross a Protected Quotation, regardless of whether the order is subject to the displayed price sliding process. Under the proposed amendment, instead of cancelling such orders, unless a User has opted out of the price sliding process, the Exchange proposes to allow a resting non-displayed order to receive a new timestamp and be repriced at the locking price in the event that the NBBO changes such that the order would cross a Protected Quotation. The Exchange also proposes to amend its Rule 11.13 to make clear that it will execute, display and route an order consistent with Rule 201 of Regulation SHO, and that if it cannot do so, orders will be cancelled back to the applicable Exchange User. In addition, the Exchange proposes to make clear that it will not route orders away from the Exchange that are marked ‘‘short’’ if a short sale price test restriction is in effect. Instead, such orders, if immediate-or-cancel (‘‘IOC’’) or market orders, will be cancelled, and if limit orders, will be posted to the BATS Book,15 subject to the price sliding process. Finally, current Rule 11.19 requires Exchange Users to identify short sale orders as ‘‘short’’ when entered into the Exchange’s System. The Exchange proposes to add the term ‘‘short exempt’’ to Rule 11.19 because pursuant to amended Rule 200(g) of Regulation SHO, a broker-dealer can mark a short sale order as either ‘‘short’’ or ‘‘short exempt.’’16 The Exchange also proposes to make clear in Rule 11.19 that if an order it received is marked ‘‘short exempt,’’ the Exchange will execute, display and/or route the order without regard to the NBB or any short sale price test restriction in effect under Regulation SHO.17 The Exchange also proposes to make clear, as it does in Rule 11.9(d)(1) with respect to intermarket sweep orders, that it relies defined in BYX Rule 1.5(e). CFR 242.200(g). Rule 200(g)(2) provides that a sale order shall be marked ‘‘short exempt’’ only if the provisions of paragraphs (c) or (d) of Rule 201 of Regulation SHO are met. See also Division of Trading and Markets: Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO, Q&A Nos. 5.4 and 5.5. 17 17 CFR 242. 201(b)(1)(iii)(B). on a Member’s 18 marking of an order, in this case the ‘‘short exempt’’ marking, when handling such order. Accordingly, proposed Rule 11.19 states that it is the entering Member’s responsibility, not the Exchange’s responsibility, to comply with the requirements of Regulation SHO relating to marking of orders as ‘‘short exempt.’’ 19 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.20 In particular, the proposed change is consistent with Section 6(b)(5) of the Act,21 because it would promote just and equitable principles of trade, and, in general, protect investors and the public interest. The Exchange believes that the proposed changes will provide clarity on the short sale order handling procedures employed by the Exchange and certain obligations of Members when sending short sale orders to the Exchange consistent with Regulation SHO, as amended. The Exchange also believes that the proposed short sale price sliding functionality and amendments to the existing displayed price sliding process will assist Users in executing or displaying their orders consistent with Regulation SHO and Regulation NMS, especially under fast moving conditions where the NBBO is quickly updating. In addition, as is currently the case, the amended price sliding process is optional to Users. Specifically, Users can choose to opt-out of the price sliding process, and if they choose to do so, the Exchange will cancel back their orders when such orders contradict the provisions of Regulation SHO or Regulation NMS. (B) Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change imposes any burden on competition. 15 As 16 17 VerDate Mar<15>2010 16:38 Jan 28, 2011 Jkt 223001 18 A ‘‘Member’’ is defined in BYX Rule 1.5(n) as any registered broker or dealer that has been admitted to membership in the Exchange. 19 17 CFR 242.200(g)(2). See also 17 CFR 242.201(c); 17 CFR 242.201(d). 20 15 U.S.C. 78f(b). 21 15 U.S.C. 78f(b)(5). PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the 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 proposal is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BYX–2011–002 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–BYX–2011–002. This file number should be included on the subject line if e-mail 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 changes between the Commission and any person, other than E:\FR\FM\31JAN1.SGM 31JAN1 Federal Register / Vol. 76, No. 20 / Monday, January 31, 2011 / Notices 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. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–BYX–2011– 002 and should be submitted on or before February 22, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–1987 Filed 1–28–11; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63769; File No. SR–BX– 2011–003] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Extending the Pilot Period To Receive Inbound Routes of Orders From Nasdaq Execution Services jlentini on DSKJ8SOYB1PROD with NOTICES January 25, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 19, 2011, NASDAQ OMX BX, Inc. (‘‘BX’’ or the ‘‘Exchange’’) 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 BX. The Exchange has designated the proposed rule change as constituting a non-controversial rule change under Rule 19b–4(f)(6) under the Act,3 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 1 15 VerDate Mar<15>2010 16:38 Jan 28, 2011 Jkt 223001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, BX 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. BX has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 22 17 I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change BX submits this proposed rule change to extend the pilot period of BX’s prior approval to receive inbound routes of equities orders from Nasdaq Execution Services, LLC (‘‘NES’’) through June 15, 2011. 1. Purpose Currently, NES is the approved outbound routing facility of the NASDAQ Stock Market LLC (‘‘NASDAQ’’) for cash equities, providing outbound routing from NASDAQ to other market centers.4 BX 4 See Securities Exchange Act Release Nos. 50311 (September 3, 2004), 69 FR 54818 (September 10, 2004) (Order Granting Application for a Temporary Conditional Exemption Pursuant To Section 36(a) of the Exchange Act by the National Association of Securities Dealers, Inc. Relating to the Acquisition of an ECN by The Nasdaq Stock Market, Inc.) and 52902 (December 7, 2005), 70 FR 73810 (December 13, 2005) (SR–NASD–2005–128) (Order Approving a Proposed Rule Change To Establish Rules Governing the Operation of the INET System). See also SR–NASDAQ–2011–004 (January 14, 2011); Securities Exchange Act Release Nos. 63083 (October 13, 2010), 75 FR 64370 (October 19, 2010) (SR–NASDAQ–2010–127); 62736 (August 17, 2010), 75 FR 51861 (August 23, 2010) (SR–NASDAQ– 2010–100); 61682 (March 10, 2010), 75 FR 12592 (March 16, 2010) (SR–NASDAQ–2010–030); 61460 (February 1, 2010), 75 FR 6077 (February 5, 2010) (SR–NASDAQ–2010–018); 60039 (June 3, 2009), 74 FR 27365 (June 9, 2009) (SR–NASDAQ–2009–050); 59875 (May 6, 2009), 74 FR 22794 (May 14, 2009) (SR–NASDAQ–2009–043); 59807 (April 21, 2009), 74 FR 19251 (April 28, 2009) (SR–NASDAQ–2009– 036); 59153 (December 23, 2008), 73 FR 80485 (December 31, 2008) (SR–NASDAQ–2008–098); 58752 (October 8, 2008), 73 FR 61181 (October 15, 2008) (SR–NASDAQ–2008–079); 58135 (July 10, 2008), 73 FR 40898 (July 16, 2008) (SR–NASDAQ– 2008–061); 58069 (June 30, 2008), 73 FR 39360 (July 9, 2008) (SR–NASDAQ–2008–054); 56708 (October 26, 2007), 72 FR 61925 (November 1, 2007) (SR– NASDAQ–2007–078); 56867 (November 29, 2007), 72 FR 69263 (December 7, 2007) (SR–NASDAQ– 2007–065); 55335 (February 23, 2007), 72 FR 9369 (March 1, 2007) (SR–NASDAQ–2007–005); 54613 (October 17, 2006), 71 FR 62325 (October 24, 2006) PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 5423 also has been previously approved to receive inbound routes of equities orders by NES in its capacity as an order routing facility of NASDAQ on a pilot basis.5 The Exchange hereby seeks to extend a previously approved pilot period for such inbound routing (with the attendant obligations and conditions) for an additional 6 months from the date of this filing through June 15, 2011.6 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,7 in general, and with Section 6(b)(5) of the Act,8 in particular, in that the proposal 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 regulating, clearing, settling, processing information with respect to, and 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. Specifically, the proposed rule change will allow the Exchange to continue receiving inbound routes of equities orders from NES acting in its capacity as a facility of Nasdaq, in a manner consistent with prior approvals and established protections. The Exchange believes that extending the previously approved pilot period for six months is of sufficient length to permit both the Exchange and the Commission to assess the impact of the Exchange’s authority to receive direct inbound routes of equities orders via NES (including the attendant obligations and conditions). B. Self-Regulatory Organization’s Statement on Burden on Competition BX 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, as amended. (SR–NASDAQ 2006–043); 54271 (August 3, 2006), 71 FR 45876 (August 10, 2006) (SR–NASDAQ– 2006–027); and 54155 (July 14, 2006), 71 FR 41291 (July 20, 2006) (SR–NASDAQ–2006–001). 5 See Securities Exchange Act Release Nos. 59154 (December 23, 2008), 73 FR 80468 (December 31, 2008) (SR–BX–2008–048); 61271 (December 31, 2009), 75 FR 1102 (January 8, 2010) (SR–BX–2009– 085); 61782 (March 25, 2010), 75 FR 16534 (April 1, 2010) (SR–BX–2010–021); 62528 (July 19, 2010), 75 FR 43210 (July 23, 2010) (SR–BX–2010–048). 6 During this pilot period, the Exchange will file a separate proposal with the Commission seeking permanent approval of the BX and NES Routing Relationship. 7 15 U.S.C. 78f. 8 15 U.S.C. 78f(b)(5). E:\FR\FM\31JAN1.SGM 31JAN1

Agencies

[Federal Register Volume 76, Number 20 (Monday, January 31, 2011)]
[Notices]
[Pages 5420-5423]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1987]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63767; File No. SR-BYX-2011-002]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Proposed Rule Change To Amend BYX Rules in Connection With the 
Implementation of Amendments to Regulation SHO

January 25, 2011.
    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 January 14, 2011, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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 
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to amend BYX 
Rules 11.9, 11.13 and 11.19 to make certain changes consistent with the 
upcoming implementation of amendments to Regulation SHO.\3\
---------------------------------------------------------------------------

    \3\ 17 CFR 242.200(g); 17 CFR 242.201.
---------------------------------------------------------------------------

    The text of the proposed rule change 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.

[[Page 5421]]

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
    On February 26, 2010, the Commission adopted amendments to 
Regulation SHO under the Act in the form of Rule 201,\4\ pursuant to 
which, among other things, short sale orders in covered securities \5\ 
generally cannot be executed or displayed by a trading center \6\ such 
as BYX at a price that is at or below the current national best bid 
(``NBB'') when a short sale circuit breaker is in effect for the 
covered security (the ``short sale price test restriction'').\7\ In 
anticipation of the upcoming February 28, 2011 compliance date for Rule 
201, the Exchange is proposing to amend certain BYX rules to describe 
the manner in which the System \8\ will handle short sell orders when a 
short sale price test restriction is triggered under Rule 201 of 
Regulation SHO. These changes include establishing a definition for 
``short sale price sliding,'' which is a new form of price sliding the 
Exchange proposes to offer when the amendments to Regulation SHO become 
operative, modifying certain BYX rules regarding order execution and 
routing when a short sale price test restriction is in effect, and 
modifying BYX rules related to order marking requirements. 
Additionally, the Exchange proposes to modify the definition of the 
current ``displayed price sliding process'' offered by BYX.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 61595 (February 26, 
2010), 75 FR 11232 (March 10, 2010). In connection with the adoption 
of Rule 201, Rule 200(g) of Regulation SHO was also amended to 
include a ``short exempt'' marking requirement. The amendments to 
Rule 201 and Rule 200(g) have a compliance date of February 28, 
2011. See Securities Exchange Act Release No. 63247 (Nov. 4, 2010), 
75 FR 68702 (Nov. 9, 2010). See also Division of Trading & Markets, 
Responses to Frequently Asked Questions Concerning Rule 201 of 
Regulation SHO.
    \5\ Rule 201(a)(1) defines the term ``covered security'' to mean 
any ``NMS stock'' as defined under Rule 600(b)(47) of Regulation 
NMS. Rule 600(b)(47) of Regulation NMS defines an ``NMS stock'' as 
``any NMS security other than an option.'' Rule 600(b)(46) of 
Regulation NMS defines an ``NMS security'' as ``any security or 
class of securities for which transaction reports are collected, 
processed, and made available pursuant to an effective transaction 
reporting plan, or an effective national market system plan for 
reporting transactions in listed options.'' 17 CFR 242.201(a)(1); 17 
CFR 242.600(b)(46); and 17 CFR 242.600(b)(47).
    \6\ Rule 201(a)(9) states that the term ``trading center'' shall 
have the same meaning as in Rule 600(b)(78) of Regulation NMS. Rule 
600(b)(78) defines a ``trading center'' as ``a national securities 
exchange or national securities association that operates an SRO 
trading facility, an alternative trading system, an exchange market 
maker, an OTC market maker, or any other broker or dealer that 
executes orders internally by trading as principal or crossing 
orders as agent.'' 17 CFR 242.600(b)(78).
    \7\ 17 CFR 242.201(b)(1). See also Division of Trading & 
Markets, Responses to Frequently Asked Questions Concerning Rule 201 
of Regulation SHO, Q&A Nos. 2.1 and 2.2 (concerning the duration of 
a short sale price test restriction).
    \8\ The ``System'' is defined in BYX Rule 1.5(aa) 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.''
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    In order to comply with the short sale price test restriction of 
Regulation SHO, as amended, the Exchange proposes to offer short sale 
price sliding, which will be defined in BYX Rule 11.9(g). As a default, 
the Exchange will subject a User's \9\ orders to the short sale price 
sliding unless they affirmatively choose to opt-out of the process. As 
proposed, when a User opts out of the price sliding process, any short 
sale order that could not be executed or displayed due to a short sale 
price test restriction would be rejected or cancelled by the Exchange 
upon entry or while resting on the order book, respectively. When a 
User's order is subject to the price sliding process, as proposed, 
orders subject to short sale price sliding that, at the time of entry, 
could not be executed or displayed due to a short sale price test 
restriction will be repriced by the System at one minimum price 
variation above the current NBB to comply with Rule 201(b)(1)(i).\10\ 
An order subject to short sale price sliding will not be readjusted 
downward even if it could be displayed at a lower price without 
violation of Rule 201 of Regulation SHO. In the event the NBB changes 
such that the price of a non-displayed order subject to short sale 
price sliding would lock or cross the NBB, the order will receive a new 
timestamp, and will be repriced by the System at one minimum price 
variation above the current NBB, again in compliance with Rule 
201(b)(1)(i).\11\
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    \9\ A ``User'' is defined in BYX Rule 1.5(cc) as any member or 
sponsored participant of the Exchange who is authorized to obtain 
access to the System.
    \10\ Any execution or display will also need to be in compliance 
with applicable rules regarding minimum pricing increments. 17 CFR 
242.612.
    \11\ See Division of Trading & Markets, Responses to Frequently 
Asked Questions Concerning Rule 201 of Regulation SHO, Q&A No. 4.1 
(concerning un-displayed orders).
---------------------------------------------------------------------------

    As proposed, neither orders marked ``short exempt'' nor orders 
displayed by the System at a price above the then current NBB at the 
time of initial display when a short sale price test restriction is in 
effect for a covered security will be subject to short sale price 
sliding. Certain displayed short sale orders will not be repriced by 
the System after entry because under Rule 201(b)(1)(iii)(A) a trading 
center's policies and procedures must be reasonably designed to permit 
the execution of short sale orders of covered securities that were 
displayed at a price above the current NBB at the time of initial 
display. ``Short exempt'' orders will not be repriced by the System, 
but instead, the Exchange will execute, display and/or route such 
orders without regard to the NBB or any short sale price test 
restriction in effect under Regulation SHO, as described below.
    The Exchange currently offers a process called ``displayed price 
sliding process,'' as defined in current Rule 11.9(c)(4), which re-
prices and/or displays orders at permissible prices when such orders 
would lock or cross Protected Quotations \12\ in a manner inconsistent 
with Rule 610(d) of Regulation NMS.\13\ The Exchange proposes to rename 
the ``displayed price sliding process'' as ``NMS price sliding,'' to be 
included in new paragraph (g) of Rule 11.9, and to define the ``price 
sliding process'' as inclusive of both NMS price sliding and short sale 
price sliding.\14\ Also, consistent with the changes described above, 
the Exchange proposes to replace the term ``displayed price sliding 
process'' throughout its trading rules with the term ``price sliding 
process.'' As is true for displayed price sliding today and short sale 
price sliding as proposed, if a User chooses to opt-out of the price 
sliding process, the order will not be subject to NMS price sliding, 
and thus, the Exchange will

[[Page 5422]]

cancel back their orders when display or execution of such orders 
contradict the provisions of Regulation NMS.
---------------------------------------------------------------------------

    \12\ As defined in BYX Rule 1.5(t), the term ``Protected 
Quotation'' means a quotation that is a Protected Bid or Protected 
Offer. In turn, a ``Protected Bid'' or ``Protected Offer'' shall 
mean a bid or offer in a stock that is (i) displayed by an automated 
trading center; (ii) disseminated pursuant to an effective national 
market system plan; and (iii) an automated quotation that is the 
best bid or best offer of a national securities exchange or 
association.
    \13\ 17 CFR 242.610(d).
    \14\ The Exchange acknowledges that potential differences can 
exist between Protected Bids, as defined above (see supra note 12), 
and the NBB, upon which the requirements of Regulation SHO, as 
amended, are based.
---------------------------------------------------------------------------

    The Exchange also proposes a substantive change to NMS price 
sliding (today known as the displayed price sliding process). Under 
current System behavior, the Exchange cancels all non-displayed orders 
when the national best bid or offer (``NBBO'') changes such that the 
non-displayed order would cross a Protected Quotation, regardless of 
whether the order is subject to the displayed price sliding process. 
Under the proposed amendment, instead of cancelling such orders, unless 
a User has opted out of the price sliding process, the Exchange 
proposes to allow a resting non-displayed order to receive a new 
timestamp and be repriced at the locking price in the event that the 
NBBO changes such that the order would cross a Protected Quotation.
    The Exchange also proposes to amend its Rule 11.13 to make clear 
that it will execute, display and route an order consistent with Rule 
201 of Regulation SHO, and that if it cannot do so, orders will be 
cancelled back to the applicable Exchange User. In addition, the 
Exchange proposes to make clear that it will not route orders away from 
the Exchange that are marked ``short'' if a short sale price test 
restriction is in effect. Instead, such orders, if immediate-or-cancel 
(``IOC'') or market orders, will be cancelled, and if limit orders, 
will be posted to the BATS Book,\15\ subject to the price sliding 
process.
---------------------------------------------------------------------------

    \15\ As defined in BYX Rule 1.5(e).
---------------------------------------------------------------------------

    Finally, current Rule 11.19 requires Exchange Users to identify 
short sale orders as ``short'' when entered into the Exchange's System. 
The Exchange proposes to add the term ``short exempt'' to Rule 11.19 
because pursuant to amended Rule 200(g) of Regulation SHO, a broker-
dealer can mark a short sale order as either ``short'' or ``short 
exempt.''\16\ The Exchange also proposes to make clear in Rule 11.19 
that if an order it received is marked ``short exempt,'' the Exchange 
will execute, display and/or route the order without regard to the NBB 
or any short sale price test restriction in effect under Regulation 
SHO.\17\ The Exchange also proposes to make clear, as it does in Rule 
11.9(d)(1) with respect to intermarket sweep orders, that it relies on 
a Member's \18\ marking of an order, in this case the ``short exempt'' 
marking, when handling such order. Accordingly, proposed Rule 11.19 
states that it is the entering Member's responsibility, not the 
Exchange's responsibility, to comply with the requirements of 
Regulation SHO relating to marking of orders as ``short exempt.'' \19\
---------------------------------------------------------------------------

    \16\ 17 CFR 242.200(g). Rule 200(g)(2) provides that a sale 
order shall be marked ``short exempt'' only if the provisions of 
paragraphs (c) or (d) of Rule 201 of Regulation SHO are met. See 
also Division of Trading and Markets: Responses to Frequently Asked 
Questions Concerning Rule 201 of Regulation SHO, Q&A Nos. 5.4 and 
5.5.
    \17\ 17 CFR 242. 201(b)(1)(iii)(B).
    \18\ A ``Member'' is defined in BYX Rule 1.5(n) as any 
registered broker or dealer that has been admitted to membership in 
the Exchange.
    \19\ 17 CFR 242.200(g)(2). See also 17 CFR 242.201(c); 17 CFR 
242.201(d).
---------------------------------------------------------------------------

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.\20\ In particular, 
the proposed change is consistent with Section 6(b)(5) of the Act,\21\ 
because it would promote just and equitable principles of trade, and, 
in general, protect investors and the public interest. The Exchange 
believes that the proposed changes will provide clarity on the short 
sale order handling procedures employed by the Exchange and certain 
obligations of Members when sending short sale orders to the Exchange 
consistent with Regulation SHO, as amended. The Exchange also believes 
that the proposed short sale price sliding functionality and amendments 
to the existing displayed price sliding process will assist Users in 
executing or displaying their orders consistent with Regulation SHO and 
Regulation NMS, especially under fast moving conditions where the NBBO 
is quickly updating. In addition, as is currently the case, the amended 
price sliding process is optional to Users. Specifically, Users can 
choose to opt-out of the price sliding process, and if they choose to 
do so, the Exchange will cancel back their orders when such orders 
contradict the provisions of Regulation SHO or Regulation NMS.
---------------------------------------------------------------------------

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

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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 proposal is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-BYX-2011-002 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-BYX-2011-002. This file 
number should be included on the subject line if e-mail 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 changes between the Commission and any person, other 
than

[[Page 5423]]

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. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-BYX-2011-002 and should be 
submitted on or before February 22, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1987 Filed 1-28-11; 8:45 am]
BILLING CODE 8011-01-P
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