Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order Granting Accelerated Approval of a Proposed Rule Change To Amend BYX Rules in Connection With the Implementation of Amendments to Regulation SHO, 11301-11303 [2011-4479]
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Federal Register / Vol. 76, No. 40 / Tuesday, March 1, 2011 / Notices
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. More specifically, the
Exchange believes that the proposed
rule change will permit the Corporation
to respond to the stockholder proposal
submitted to it while also ensuring
ongoing regulatory comfort concerning
balanced representation in the
governance of the Corporation which
will thereby contribute to perfecting the
mechanism of a free and open market
and a national market system, consistent
with the protection of investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 8 and Rule
19b–4(f)(6) thereunder.9 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) by its terms,
become operative prior to 30 days from
the date on which it was filed, or such
shorter time as the Commission may
designate, if consistent with the
protection of investors and the public
interest, the proposed rule change has
become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6)(iii) thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 10 normally does not
become operative prior to 30 days after
8 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
10 17 CFR 240.19b–4(f)(6).
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),11 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEARCA–2011–04 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
Number SR–NYSEARCA–2011–04. 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 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, on official business
9 17
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11 17
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CFR 240.19b–4(f)(6)(iii).
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11301
days between the hours of 10 a.m. and
3 p.m. Copies of the filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEARCA–2011–04 and
should be submitted on or before March
22, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–4425 Filed 2–28–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63947; File No. SR–BYX–
2011–002]
Self-Regulatory Organizations; BATS
Y–Exchange, Inc.; Order Granting
Accelerated Approval of a Proposed
Rule Change To Amend BYX Rules in
Connection With the Implementation of
Amendments to Regulation SHO
February 23, 2011.
I. Introduction
On January 14, 2011, BATS Y–
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘BYX’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
proposed rule change 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
proposed rule change was published for
comment in the Federal Register on
January 31, 2011.4 The Commission
received no comments on the proposed
rule change. This order approves the
proposed rule change on an accelerated
basis.
II. Description of the Proposal
On February 26, 2010, the
Commission adopted amendments to
Regulation SHO under the Act in the
12 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.
4 See Securities Exchange Act Release No. 63767
(January 25, 2011), 76 FR 5420 (January 31, 2011).
1 15
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Federal Register / Vol. 76, No. 40 / Tuesday, March 1, 2011 / Notices
jlentini on DSKJ8SOYB1PROD with NOTICES
form of Rule 201,5 pursuant to which,
among other things, short sale orders in
covered securities 6 generally cannot be
executed or displayed by a trading
center 7 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’’).8 In anticipation of the
upcoming February 28, 2011
compliance date for Rule 201, the
Exchange proposes to amend certain
BYX rules to describe the manner in
which the System 9 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
5 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.
6 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).
7 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).
8 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).
9 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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‘‘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 10 orders to 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).11 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).12
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
10 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.
11 Any execution or display will also need to be
in compliance with applicable rules regarding
minimum pricing increments. 17 CFR 242.612.
12 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).
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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 13 in a manner
inconsistent with Rule 610(d) of
Regulation NMS.14 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.15 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
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
13 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.
14 17 CFR 242.610(d).
15 The Exchange acknowledges that potential
differences can exist between Protected Bids, as
defined above (see supra note 13), and the NBB,
upon which the requirements of Regulation SHO,
as amended, are based.
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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,16 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.’’ 17 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.18 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 19 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.’’ 20
III. Commission Findings
IV. Conclusion
The Commission finds that the
proposed rule change 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 is
consistent with the Act and the rules
and regulations thereunder applicable to
national securities exchanges and
16 As
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.
18 17 CFR 242.201(b)(1)(iii)(B).
19 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.
20 17 CFR 242.200(g)(2). See also 17 CFR
242.201(c); 17 CFR 242.201(d).
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17 17
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18:42 Feb 28, 2011
national securities associations.21 In
particular, the Commission finds that
the proposal is consistent with the
requirements of Section 6(b) of the
Act 22 and with Section 6(b)(5) of the
Act,23 which, among other things,
requires that rules of national securities
exchanges be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
The Commission believes that the
proposed rule change will provide
clarity on the short sale order handling
procedures employed by the Exchange
and certain obligations of its Members
when sending short sale orders to the
Exchange consistent with Regulation
SHO, as amended. The Commission also
believes that the proposed short sale
price sliding functionality and
amendments to the existing displayed
price sliding process should assist Users
in executing or displaying their orders
consistent with Regulation SHO and
Regulation NMS.
The Commission also finds good
cause, pursuant to Section 19(b)(2) of
the Act,24 for approving the proposed
rule change on an accelerated basis. The
proposed rule change makes changes
consistent with the amendments to
Regulation SHO. The Commission
believes that accelerating approval of
the proposed rule change is appropriate
as it will allow the proposed
amendments to be implemented by the
compliance date for the amendments to
Regulation SHO. In addition, the
Commission believes that the proposed
rule change should further the goals of
investor protection and fair and orderly
markets.
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,25 that the
proposed rule change (File No. SR–
BYX–2011–002) be and hereby is
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–4479 Filed 2–28–11; 8:45 am]
BILLING CODE 8011–01–P
21 In approving the proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78s(b)(2).
25 15 U.S.C. 78s(b)(2).
26 17 CFR 200.30–3(a)(12).
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11303
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63948; File No. SR–BATS–
2011–002]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Order Granting
Accelerated Approval of a Proposed
Rule Change To Amend BATS Rules in
Connection With the Implementation of
Amendments to Regulation SHO
February 23, 2011.
I. Introduction
On January 14, 2011, BATS Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend BATS Rules 11.9,
11.13 and 11.19 to make certain changes
consistent with the upcoming
implementation of amendments to
Regulation SHO.3 The proposed rule
change was published for comment in
the Federal Register on January 31,
2011.4 The Commission received no
comments on the proposed rule change.
This order approves the proposed rule
change on an accelerated basis.
II. Description of the Proposal
On February 26, 2010, the
Commission adopted amendments to
Regulation SHO under the Act in the
form of Rule 201,5 pursuant to which,
among other things, short sale orders in
covered securities 6 generally cannot be
executed or displayed by a trading
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 242.200(g); 17 CFR 242.201.
4 See Securities Exchange Act Release No. 63766
(January 25, 2011), 76 FR 5418 (January 31, 2011).
5 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.
6 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).
2 17
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]]>Agencies
[Federal Register Volume 76, Number 40 (Tuesday, March 1, 2011)]
[Notices]
[Pages 11301-11303]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4479]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63947; File No. SR-BYX-2011-002]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order
Granting Accelerated Approval of a Proposed Rule Change To Amend BYX
Rules in Connection With the Implementation of Amendments to Regulation
SHO
February 23, 2011.
I. Introduction
On January 14, 2011, BATS Y-Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change 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 proposed rule change was published
for comment in the Federal Register on January 31, 2011.\4\ The
Commission received no comments on the proposed rule change. This order
approves the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 242.200(g); 17 CFR 242.201.
\4\ See Securities Exchange Act Release No. 63767 (January 25,
2011), 76 FR 5420 (January 31, 2011).
---------------------------------------------------------------------------
II. Description of the Proposal
On February 26, 2010, the Commission adopted amendments to
Regulation SHO under the Act in the
[[Page 11302]]
form of Rule 201,\5\ pursuant to which, among other things, short sale
orders in covered securities \6\ generally cannot be executed or
displayed by a trading center \7\ 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'').\8\ In anticipation of the upcoming February 28,
2011 compliance date for Rule 201, the Exchange proposes to amend
certain BYX rules to describe the manner in which the System \9\ 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.
---------------------------------------------------------------------------
\5\ 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.
\6\ 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).
\7\ 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).
\8\ 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).
\9\ 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 \10\ orders to 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).\11\
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).\12\
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\10\ 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.
\11\ Any execution or display will also need to be in compliance
with applicable rules regarding minimum pricing increments. 17 CFR
242.612.
\12\ 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).
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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 \13\ in a manner inconsistent
with Rule 610(d) of Regulation NMS.\14\ 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.\15\ 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 cancel back their orders when display or
execution of such orders contradict the provisions of Regulation NMS.
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\13\ 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.
\14\ 17 CFR 242.610(d).
\15\ The Exchange acknowledges that potential differences can
exist between Protected Bids, as defined above (see supra note 13),
and the NBB, upon which the requirements of Regulation SHO, as
amended, are based.
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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
[[Page 11303]]
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,\16\ subject to the
price sliding process.
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\16\ As defined in BYX Rule 1.5(e).
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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.'' \17\ 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.\18\ 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 \19\ 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.'' \20\
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\17\ 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.
\18\ 17 CFR 242.201(b)(1)(iii)(B).
\19\ 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.
\20\ 17 CFR 242.200(g)(2). See also 17 CFR 242.201(c); 17 CFR
242.201(d).
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III. Commission Findings
The Commission finds that the proposed rule change 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 is consistent
with the Act and the rules and regulations thereunder applicable to
national securities exchanges and national securities associations.\21\
In particular, the Commission finds that the proposal is consistent
with the requirements of Section 6(b) of the Act \22\ and with Section
6(b)(5) of the Act,\23\ which, among other things, requires that rules
of national securities exchanges be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
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\21\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed rule change will provide
clarity on the short sale order handling procedures employed by the
Exchange and certain obligations of its Members when sending short sale
orders to the Exchange consistent with Regulation SHO, as amended. The
Commission also believes that the proposed short sale price sliding
functionality and amendments to the existing displayed price sliding
process should assist Users in executing or displaying their orders
consistent with Regulation SHO and Regulation NMS.
The Commission also finds good cause, pursuant to Section 19(b)(2)
of the Act,\24\ for approving the proposed rule change on an
accelerated basis. The proposed rule change makes changes consistent
with the amendments to Regulation SHO. The Commission believes that
accelerating approval of the proposed rule change is appropriate as it
will allow the proposed amendments to be implemented by the compliance
date for the amendments to Regulation SHO. In addition, the Commission
believes that the proposed rule change should further the goals of
investor protection and fair and orderly markets.
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\24\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\25\ that the proposed rule change (File No. SR-BYX-2011-002) be
and hereby is approved on an accelerated basis.
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\25\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4479 Filed 2-28-11; 8:45 am]
BILLING CODE 8011-01-P
