Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Proposed Rule Change by BATS Exchange, Inc. To Amend BATS Rule 11.9, Entitled “Orders and Modifiers” and BATS Rule 11.13, Entitled “Order Execution”, 28830-28834 [2011-12132]
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Federal Register / Vol. 76, No. 96 / Wednesday, May 18, 2011 / Notices
half-penny prices.17 The Exchange does
not believe that there is anything novel
or controversial about executing
marketable orders in a fully transparent
manner that is consistent with its other
pre-existing rules, and under the
proposed functionality, both sides to
each transaction executed will receive at
least one half penny price improvement
on their orders. As stated above,
Commission Staff has also publicly
interpreted Rule 612 as allowing subpenny executions due to price
improvement, and arguably has
encouraged such executions by stating
that ‘‘* * * sub-penny executions due
to price improvement are generally
beneficial to retail investors.’’ 18
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
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–BYX–2011–009 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–BYX–2011–009. 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, 100 F Street, NE.,
Washington, DC 20549, on official
business 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–BYX–
2011–009 and should be submitted on
or before June 8, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Cathy H. Ahn,
Deputy Secretary.
Electronic Comments
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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:
BILLING CODE 8011–01–P
[FR Doc. 2011–12131 Filed 5–17–11; 8:45 am]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
id.
Exchange Act Release No. 34–54714 at 4
(November 6, 2006), 71 FR 66352 (November 14,
2006).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64475; File No. SR–BATS–
2011–015]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of
Proposed Rule Change by BATS
Exchange, Inc. To Amend BATS Rule
11.9, Entitled ‘‘Orders and Modifiers’’
and BATS Rule 11.13, Entitled ‘‘Order
Execution’’
May 12, 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 May 9,
2011, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) 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 proposes to amend
BATS Rule 11.9, entitled ‘‘Orders and
Modifiers’’ and BATS Rule 11.13,
entitled ‘‘Order Execution.’’
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.
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.
17 See
18 See
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19 17
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2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
Background
The Exchange proposes a change to its
order handling procedures to allow both
Non-Displayed Orders 3 and orders
subject to price sliding that are not
executable at their most aggressive price
to be executed at one-half minimum
price variation less aggressive than that
price. The reference to the most
‘‘aggressive’’ price, as used in this filing,
means for bids the highest price the
User is willing to pay, and for offers the
lowest price at which the User is willing
to sell. The Exchange believes that the
proposed change to its order handling
procedures will allow for tighter spreads
on the Exchange and will provide both
sides of a given transaction with price
improvement not otherwise available
without such change.
In addition to the proposed changes to
its order handling procedures, the
Exchange proposes to modify the
Exchange’s rules to make clear that an
order subject to ‘‘NMS price sliding’’ (as
described below) can be ranked at the
same price as an order displayed on the
other side of the BATS Book,4 although
temporarily not executable at that price
and displayed at one minimum price
variation less aggressive than its price.
For bids, this means that a price slid
order is displayed at one minimum
price variation less than the current
national best offer (‘‘NBO’’), and for
offers, this means that a price slid order
is displayed at one minimum price
variation more than the current national
best bid (‘‘NBB’’).
Both of the scenarios described below,
(1) Non-Displayed Orders posted
opposite-side, same priced displayed
orders, and (2) orders subject to price
sliding that are ranked at a price equal
to an opposite-side displayed order, can
occur when an order on either side of
the market is a BATS Post Only Order.
As defined in Rule 11.9(c)(6), a BATS
Post Only Order is ‘‘[a]n order that is to
be ranked and executed on the
Exchange pursuant to Rule 11.12 and
Rule 11.13(a)(1) or cancelled, as
appropriate, without routing away to
another trading center except that the
order will not remove liquidity from the
BATS Book.’’ Accordingly, a BATS Post
Only Order does not remove liquidity,
3 As defined in Rule 11.9(c)(11), a Non-Displayed
Order is ‘‘a market or limit order that is not
displayed on the Exchange.’’
4 As defined in Rule 1.5(e), the BATS Book is ‘‘the
System’s electronic file of orders.’’
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but posts to the BATS Book to the extent
permissible.
The Exchange’s allowance of NonDisplayed Orders or ranking of price
slid orders at the locking price is not
inconsistent with the locked markets
provision of Regulation NMS,5 which
applies to quotations that are displayed
at prices that lock other protected
quotations. In the case of a NonDisplayed Order, such an order can rest
at a locking price because the NonDisplayed Order is not displayed.
Similarly, although ranked at the
locking price, a price slid order is
expressly displayed at one minimum
price variation above (below) the NBB
(NBO).
Non-Displayed Orders
Consistent with the Exchange’s rule
regarding priority of orders, Rule 11.12,
certain Non-Displayed Orders cannot be
executed by the Exchange pursuant to
Rule 11.13 when such orders would be
executed at prices equal to displayed
orders on the opposite side of the
market (the ‘‘locking price’’).
Specifically, if incoming orders were
allowed to execute against the resting
Non-Displayed Order at the locking
price, such orders would receive a
priority advantage over the resting,
displayed order at the locking price;
accordingly, such executions at the
locking price are disallowed. The
Exchange proposes to modify its
handling of Non-Displayed Orders to
optimize available liquidity for
incoming orders and to provide price
improvement for market participants, as
further described below.
Below are examples describing the
Exchange’s current handling of NonDisplayed Orders, followed by examples
describing the Exchange’s proposed
order handling procedures.
Example 1: Two Penny Spread—
Current Handling:
Assume the Exchange has a posted
and displayed bid to buy 100 shares of
a security priced at $10.10 per share, a
resting Non-Displayed Order bid to buy
100 shares of a security priced at $10.12
per share, and a posted and displayed
offer to sell 100 shares also at $10.12 per
share. Assume the national best bid or
offer (‘‘NBBO’’) is also $10.10 by $10.12.
The BATS Book in this situation can be
depicted as follows, with ‘‘ND’’
identifying the Non-Displayed Order:
5 Rule 610(d) of Regulation NMS requires policies
and procedures to avoid the display of quotations
that lock or cross protected quotations. 17 CFR
242.610(d).
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Bids
BATS .................
$10.12 (ND)
$10.10
Offers
×
$10.12
If an incoming Immediate-or-Cancel
(‘‘IOC’’) 6 offer to sell 100 shares at
$10.11 is entered into the BATS Book,
such order will be cancelled back to the
User entering such order even though
the resting Non-Displayed Order at
$10.12 is willing to buy at a price better
than the limit price of the offer.7 Such
cancellation will occur because an
execution at the Non-Displayed Order’s
price of $10.12 would violate the
Exchange’s priority rule by giving the
later arriving offer an execution ahead of
the displayed offer at $10.12. If the
incoming order was not an IOC, and
thus, was eligible for posting, then the
offer would be posted to the BATS Book
at $10.11; the Non-Displayed bid would
still remain on the BATS Book
unexecuted. If instead the incoming
offer was priced at $10.12 (which is the
full price of the resting and displayed
$10.12 offer), then, depending on the
User’s instructions, such offer would
either cancel or post to the BATS Book
behind the original offer in priority.
Example 2: One Penny Spread—
Current Handling:
As a second example, assume the
Exchange has a posted and displayed
bid to buy 100 shares of a security
priced at $10.10 per share, a resting
Non-Displayed Order bid to buy 100
shares of a security priced at $10.11 per
share, and a posted and displayed offer
to sell 100 shares also at $10.11 per
share. Assume the NBBO is also $10.10
by $10.11. The BATS Book in this
situation can be depicted as follows,
with ‘‘ND’’ identifying the NonDisplayed Order:
Bids
BATS .................
$10.11 (ND)
$10.10
Offers
×
$10.11
If an incoming IOC offer to sell 100
shares at $10.10 is entered into the
BATS Book, such order will be executed
against the bid at $10.10 even though
the resting Non-Displayed Order is
willing to buy at the higher price of
6 As defined in Rule 11.9(b)(1), an IOC Order is
a ‘‘limit order that is to be executed in whole or in
part as soon as such order is received, and the
portion not so executed is to be treated as
cancelled.’’
7 Because the example assumes an NBBO of
$10.10 (bid) by $10.12 (offer), the Exchange would
not route an offer at $10.11 away from the Exchange
even if it was eligible for routing, as there is no
displayed liquidity to which the Exchange can
route. If another market center did have a posted
$10.11 bid, a $10.11 offer eligible for routing would
route to that away market center.
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$10.11. As in the example above, the
Exchange cannot execute the incoming
order against the Non-Displayed Order
because an execution at the NonDisplayed Order’s price of $10.11 would
violate the Exchange’s priority rule by
giving the later arriving offer an
execution ahead of the displayed offer at
$10.11. Also as in the example above, an
offer at the price of the resting and
displayed offer would, subject to the
User’s instructions, either cancel or post
to the BATS Book behind the original
offer in priority.
Under the scenarios described above,
in order to honor its priority rule, the
Exchange is rejecting orders that are
otherwise marketable against liquidity
available on the BATS Book or is
executing incoming orders at prices
worse than if it executed such orders
against Non-Displayed Orders that are
resting but not executable at their limit
price. In order to execute such
otherwise marketable orders consistent
with the Exchange’s priority rule, the
Exchange proposes to execute a resting
Non-Displayed Order at, in the case of
a Non-Displayed bid, one-half minimum
price variation less than the locking
price, and, in the case of a NonDisplayed offer, at one-half minimum
price variation more than the locking
price, in the event that an order
submitted to the Exchange on the side
opposite such a Non-Displayed Order is
a market order or limit order priced
more aggressively than the locking
price. For bids or offers under $1.00 per
share, Non-Displayed Orders priced at
the locking price will not be executed
by the Exchange.8
Example 3: Two Penny Spread—
Proposed Handling:
To demonstrate the proposed
functionality as compared to the first
example above, again assume the
Exchange has a posted and displayed
bid to buy 100 shares of a security
priced at $10.10 per share, a resting
Non-Displayed Order bid to buy 100
shares of a security priced at $10.12 per
share, and a posted and displayed offer
to sell 100 shares also at $10.12 per
share. Assume the NBBO is also $10.10
by $10.12. The BATS Book in this
situation can be depicted as follows,
with ‘‘ND’’ identifying the NonDisplayed Order:
8 With
respect to securities priced below $1.00
per share, the Exchange does not believe that the
proposed functionality is necessary for such
securities given the ability to quote in sub-pennies.
Further, market participants might have system
limitations that would not recognize executions in
any increment finer than $0.0001.
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locking price will be executed at
$10.105 per share, thus providing the
BATS ............... $10.12 (ND)
×
$10.12 resting Non-Displayed bid a half-penny
$10.10
of price improvement from its limit
price of $10.11 and the incoming offer
If an incoming offer to sell 100 shares
a half-penny of price improvement from
at $10.11 is entered into the BATS Book, its limit price of $10.10. The result
the resting Non-Displayed Order at the
would be the same for an incoming
locking price will be executed against
market order to sell or any other
the incoming offer at $10.115 per share, incoming limit order offer priced at
thus providing the resting Non$10.10 or below, which would execute
Displayed bid a half-penny of price
against the Non-Displayed bid at a price
improvement from its limit price of
of $10.105 per share. As above, an offer
$10.12 and the incoming offer a halfat the full price of the resting and
penny of price improvement from its
displayed $10.11 offer would not
limit price of $10.11. If an incoming
execute against the resting Nonoffer to sell 100 shares, priced instead
Displayed bid, but would instead either
at $10.10, is entered into the BATS
cancel or post to the BATS Book behind
Book, the resting Non-Displayed Order
the original $10.11 offer in priority.
at the locking price will be executed
Orders Subject to Price Sliding
against the incoming offer at $10.115
per share, thus providing the resting
The Exchange also proposes to make
Non-Displayed bid a half-penny of price clear in its rules, both through
improvement from its limit price of
amending Rule 11.9 and through the
$10.12 and the incoming offer a full
proposed language for Rule 11.13, that
penny and a half of price improvement
an order subject to NMS price sliding
from its limit price of $10.10. The result can be ranked at a price that is locking
would be the same for an incoming
an order displayed on the other side of
market order to sell or any other
the Exchange. In addition, the Exchange
incoming limit order offer priced at
proposes to apply the proposed order
$10.11 or below, which would execute
handling procedures for Non-Displayed
against the Non-Displayed bid at a price Orders that are otherwise nonof $10.115 per share. An offer at the full executable to orders that are resting
price of the resting and displayed
with a ranked price opposite a
$10.12 offer would not execute against
displayed order on the BATS Book.
the resting Non-Displayed bid, as such
Example 5: NMS Price Sliding
execution would still violate the
original offer’s priority. Instead,
As an example of NMS price sliding
depending on the entering User’s
generally, assume the NBB is $10.10 per
instructions, a later arriving offer at
share, and the Exchange’s best bid is
$10.12 would either cancel or post to
$10.09. Assume the NBO is $10.11 per
the BATS Book behind the original offer share, and the Exchange has a displayed
in priority.
offer at that price.
Example 4: One Penny Spread—
Proposed Handling:
Bid
Offer
To demonstrate the proposed
functionality as compared to the second National best ............. $10.10 ×
$10.11
example above, again assume the
BATS best ................ $10.09 ×
$10.11
Exchange has a posted and displayed
bid to buy 100 shares of a security
Next, assume the Exchange received
priced at $10.10 per share, a resting
an incoming BATS Post Only Order bid
Non-Displayed Order bid to buy 100
to buy at $10.11. The BATS Post Only
shares of a security priced at $10.11 per Order would not remove the posted
share, and a posted and displayed offer
offer on the BATS Book at $10.11, and
to sell 100 shares also at $10.11 per
could not post as a bid at that price
share. Assume the NBBO is also $10.10
because it would lock the NBO. Such
by $10.11. The BATS Book in this
bid, assuming price sliding is enabled,9
situation can be depicted as follows,
would instead be ranked at $10.11 and
with ‘‘ND’’ identifying the Nondisplayed by BATS as a bid at $10.10.
Displayed Order:
The Result would be depicted as
follows:
Bids
Offers
Bids
BATS .................
$10.11 (ND)
$10.10
Offers
×
National best .....
If an incoming offer to sell 100 shares
at $10.10 is entered into the BATS Book,
the resting Non-Displayed Order at the
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Bid
$10.11
$10.10
Offer
×
$10.11
9 As set forth in Rule 11.9(c)(6), BATS Post Only
Orders are subject to the price sliding process by
default, but User can opt-out of price sliding.
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The Exchange is proposing a solution
to address specific conditions that are a
BATS best ........
*$10.10 ×
$10.11 current, natural consequence of other
order handling procedures of the
* Ranked at 10.11, but price slid and disExchange. The Exchange believes that
played at $10.10.
such specific circumstances, without
The BATS displayed $10.10 bid,
modification, will continue to result in
fewer executions or executions with less
ranked at $10.11, is not executable at
$10.11 because any incoming order that price improvement than the Exchange
could otherwise facilitate. The Exchange
would execute against it at the locking
price would receive a priority advantage will conduct surveillance to ensure that
Users are not intentionally seeking to
over the displayed offer at $10.11.
create an internally locked Book for the
Nonetheless, the best bid on the BATS
purpose of obtaining an execution at
Book is a buyer willing to pay up to
one-half minimum price variation. As
$10.11. The Exchange proposes to
such, the Exchange proposes to add
modify its order handling procedures
Interpretation and Policy .01 to Rule
for orders subject to price sliding that
11.13 to state that the Exchange will
are ranked at a price opposite an order
consider it inconsistent with just and
displayed by the Exchange consistent
equitable principles of trade to engage
with the modification described above
in a pattern or practice of using Nonfor Non-Displayed Orders. Specifically,
Displayed Orders or orders subject to
in the event an order submitted to the
price sliding solely for the purpose of
Exchange on the side opposite such a
executing such orders at one-half
price slid order is a market order or a
minimum price variation from the
limit order priced more aggressively
locking price. Evidence of such behavior
than the locking price, the Exchange
may include, but is not limited to, a
will execute the resting order subject to
User’s pattern of entering orders at a
price sliding at, in the case of a resting
price that would lock or be ranked at the
bid, one-half minimum price variation
price of a displayed quotation and
less than the locking price, and, in the
cancelling orders when they no longer
case of a resting offer, at one-half
minimum price variation more than the lock the displayed quotation.
locking price. For bids or offers under
2. Statutory Basis
$1.00 per share, resting orders subject to
The rule change proposed in this
price sliding ranked at the locking price
submission is consistent with the
will not be executed by the Exchange.
requirements of the Act and the rules
Additional Discussion
and regulations thereunder that are
applicable to a national securities
Under all of the scenarios described
exchange, and, in particular, with the
above, the Non-Displayed Order or
requirements of Section 6(b) of the
order subject to price sliding is priced
Act.10 Specifically, the proposed change
at the very inside of the market but is
is consistent with Section 6(b)(5) of the
temporarily un-executable at its full
Act,11 because it is designed to prevent
limit price due to the Exchange’s
fraudulent and manipulative acts and
priority rule and order handling
practices, to promote just and equitable
procedures. The proposed change will
principles of trade, to foster cooperation
provide incoming orders with price
and coordination with persons engaged
improvement against such aggressively
in facilitating transactions in securities,
priced, resting orders. The Exchange
and to remove impediments to, and
notes that by permitting a Member’s
perfect the mechanism of, a free and
Non-Displayed Order to rest at a locking open market and a national market
price on the other side of a displayed
system. The proposed change to execute
order, the Exchange is incenting
marketable orders that are currently not
Member’s to post aggressively priced
executed under specific scenarios that
liquidity, rather than discouraging such can occur will only serve to improve
liquidity by leaving it unexecuted.
execution quality for participants
Incoming orders executing against
sending orders to the Exchange. Further,
aggressively priced Non-Displayed
the proposed change will help to
Orders and price slid orders will derive
provide price improvement to market
an obvious benefit from the price
participants, again, in scenarios that at
improvement received. In addition, if
times, such participants are not even
the BATS Book changes so that such
receiving executions from the Exchange
orders are no longer resting or ranked
or are receiving less price improvement
opposite a displayed order, then such
than is currently available. Thus, the
orders will again be executable at their
Exchange believes that its proposed
full limit price, and in the case of price
10 15 U.S.C. 78f(b).
slid orders, will be displayed at that
11 15 U.S.C. 78f(b)(5).
price.
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Bid
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28833
order handling process in the scenario
described in this filing will benefit
market participants and their customers
by allowing them greater flexibility in
their efforts to fill orders and minimize
trading costs.
The Exchange notes that the specific
scenarios for which the Exchange is
proposing an improved order handling
process are possible due to the existence
of orders that by definition will not
remove liquidity from the BATS Book,
BATS Post Only Orders. The Exchange
believes that BATS Post Only Orders are
consistent with the Act, particularly,
Section 6(b)(5) of the Act,12 because
they help to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to, and
perfect the mechanism of, a free and
open market and a national market
system. BATS Post Only Orders allow
Users to post aggressively priced
liquidity, as such Users have certainty
as to the fee or rebate they will receive
from the Exchange if their order is
executed. Without such ability, the
Exchange believes that certain Users
would simply post less aggressively
priced liquidity, and prices available for
market participants, including retail
investors, would deteriorate.
Accordingly, the Exchange believes that
BATS Post Only Orders enhance the
liquidity available to all market
participants by allowing market makers
and other liquidity providers to add
liquidity to the Exchange at or near the
inside of the market.
The proposed rule change is also
consistent with Rule 612 of Regulation
NMS.13 Rule 612 generally prohibits a
national securities exchange from
displaying, ranking or accepting a bid,
offer or order in any NMS stock priced
in an increment smaller than $0.01 if
such bid, offer or order is priced at
$1.00 per share or greater. Commission
Staff has specifically interpreted Rule
612 to allow a market center to provide
sub-penny price improvement,
compared to the NBBO in an NMS stock
for which sub-penny quotations are
prohibited by the Rule, provided that
the execution does not result from an
order, quotation, or indication of
interest that was itself priced in an
impermissible sub-penny increment.14
The staff also indicated that this
interpretation may not apply when
12 15
U.S.C. 78f(b)(5).
CFR 242.612.
14 See Division of Market Regulation: Responses
to Frequently Asked Questions (‘‘FAQs’’) concerning
Rule 612 (Minimum Pricing Increment) of
Regulation NMS, Question 13 (Oct. 21, 2005).
13 17
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18MYN1
28834
Federal Register / Vol. 76, No. 96 / Wednesday, May 18, 2011 / Notices
unconditional price improvement
guarantees are involved.15
The proposed rule change does
exactly what the response to Question
13 of the FAQs allows. The Exchange
will provide price improvement in a
sub-penny increment only when
circumstances dictate, i.e., only: (1)
When a Non-Displayed Order is resting
on the opposite side of the market from
a displayed order at the locking price,
or (2) when an order subject to price
sliding is ranked at a price opposite a
displayed order.
All orders and quotations in these
scenarios are accepted, displayed and/or
ranked in a permissible penny
increment price and are only executed
in a sub-penny increment under certain
limited circumstances—if the displayed
order opposite the resting NonDisplayed Order or price slid order is
cancelled or executed, then the NonDisplayed order or price slide order is
again available at its full limit price.16
There are also no unconditional price
improvement guarantees involved.
The Exchange notes that this proposal
does not propose any new policies or
provisions that are unique or unproven,
as the Exchange and multiple other
exchanges allow orders to execute at
half-penny prices.17 The Exchange does
not believe that there is anything novel
or controversial about executing
marketable orders in a fully transparent
manner that is consistent with its other
pre-existing rules, and under the
proposed functionality, both sides to
each transaction executed will receive at
least one half penny price improvement
on their orders. As stated above,
Commission Staff has also publicly
interpreted Rule 612 as allowing subpenny executions due to price
improvement, and arguably has
encouraged such executions by stating
that ‘‘ * * * sub-penny executions due
to price improvement are generally
beneficial to retail investors.’’ 18
15 Id.
srobinson on DSKHWCL6B1PROD with NOTICES
16 The
Exchange notes that permitting an
execution in a sub-penny increment under certain
limited circumstances, while never ranking the
applicable orders at such sub-penny increments,
has already been implemented by multiple
exchanges, including the Exchange, in the form of
mid-point orders. See BATS Rule 11.9(c)(9) (‘‘MidPoint Peg Orders’’); see also, NASDAQ Rule
4751(f)(4) (‘‘Midpoint Peg’’ orders); NYSE Arca
Equities Rule 7.31(h)(5) (‘‘Mid-Point Passive
Liquidity Orders’’); EDGX Rule 11.5(c)(7) (‘‘MidPoint Match Orders’’). The order types listed above
are not displayed but can execute at the mid-point
of the NBBO, including in penny-wide markets.
17 See id.
18 See Exchange Act Release No. 34–54714 at 4
(November 6, 2006), 71 FR 66352 (November 14,
2006).
VerDate Mar<15>2010
16:31 May 17, 2011
Jkt 223001
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 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–BATS–2011–015 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–BATS–2011–015. 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
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
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–BATS–
2011–015 and should be submitted on
or before June 8, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–12132 Filed 5–17–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64485; File No. SR–CBOE–
2011–046]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Orders
Qualifying for Certain Quantity-Based
Fee Waivers
May 13, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934, 15
U.S.C. 78s(b)(1), notice is hereby given
that on April 29, 2011, Chicago Board
Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) 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 CBOE. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
19 17
E:\FR\FM\18MYN1.SGM
CFR 200.30–3(a)(12).
18MYN1
]]>Agencies
[Federal Register Volume 76, Number 96 (Wednesday, May 18, 2011)]
[Notices]
[Pages 28830-28834]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-12132]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64475; File No. SR-BATS-2011-015]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of Proposed Rule Change by BATS Exchange, Inc. To Amend BATS
Rule 11.9, Entitled ``Orders and Modifiers'' and BATS Rule 11.13,
Entitled ``Order Execution''
May 12, 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 May 9, 2011, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'')
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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BATS Rule 11.9, entitled ``Orders
and Modifiers'' and BATS Rule 11.13, entitled ``Order Execution.''
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.
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.
[[Page 28831]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
The Exchange proposes a change to its order handling procedures to
allow both Non-Displayed Orders \3\ and orders subject to price sliding
that are not executable at their most aggressive price to be executed
at one-half minimum price variation less aggressive than that price.
The reference to the most ``aggressive'' price, as used in this filing,
means for bids the highest price the User is willing to pay, and for
offers the lowest price at which the User is willing to sell. The
Exchange believes that the proposed change to its order handling
procedures will allow for tighter spreads on the Exchange and will
provide both sides of a given transaction with price improvement not
otherwise available without such change.
---------------------------------------------------------------------------
\3\ As defined in Rule 11.9(c)(11), a Non-Displayed Order is ``a
market or limit order that is not displayed on the Exchange.''
---------------------------------------------------------------------------
In addition to the proposed changes to its order handling
procedures, the Exchange proposes to modify the Exchange's rules to
make clear that an order subject to ``NMS price sliding'' (as described
below) can be ranked at the same price as an order displayed on the
other side of the BATS Book,\4\ although temporarily not executable at
that price and displayed at one minimum price variation less aggressive
than its price. For bids, this means that a price slid order is
displayed at one minimum price variation less than the current national
best offer (``NBO''), and for offers, this means that a price slid
order is displayed at one minimum price variation more than the current
national best bid (``NBB'').
---------------------------------------------------------------------------
\4\ As defined in Rule 1.5(e), the BATS Book is ``the System's
electronic file of orders.''
---------------------------------------------------------------------------
Both of the scenarios described below, (1) Non-Displayed Orders
posted opposite-side, same priced displayed orders, and (2) orders
subject to price sliding that are ranked at a price equal to an
opposite-side displayed order, can occur when an order on either side
of the market is a BATS Post Only Order. As defined in Rule 11.9(c)(6),
a BATS Post Only Order is ``[a]n order that is to be ranked and
executed on the Exchange pursuant to Rule 11.12 and Rule 11.13(a)(1) or
cancelled, as appropriate, without routing away to another trading
center except that the order will not remove liquidity from the BATS
Book.'' Accordingly, a BATS Post Only Order does not remove liquidity,
but posts to the BATS Book to the extent permissible.
The Exchange's allowance of Non-Displayed Orders or ranking of
price slid orders at the locking price is not inconsistent with the
locked markets provision of Regulation NMS,\5\ which applies to
quotations that are displayed at prices that lock other protected
quotations. In the case of a Non-Displayed Order, such an order can
rest at a locking price because the Non-Displayed Order is not
displayed. Similarly, although ranked at the locking price, a price
slid order is expressly displayed at one minimum price variation above
(below) the NBB (NBO).
---------------------------------------------------------------------------
\5\ Rule 610(d) of Regulation NMS requires policies and
procedures to avoid the display of quotations that lock or cross
protected quotations. 17 CFR 242.610(d).
---------------------------------------------------------------------------
Non-Displayed Orders
Consistent with the Exchange's rule regarding priority of orders,
Rule 11.12, certain Non-Displayed Orders cannot be executed by the
Exchange pursuant to Rule 11.13 when such orders would be executed at
prices equal to displayed orders on the opposite side of the market
(the ``locking price''). Specifically, if incoming orders were allowed
to execute against the resting Non-Displayed Order at the locking
price, such orders would receive a priority advantage over the resting,
displayed order at the locking price; accordingly, such executions at
the locking price are disallowed. The Exchange proposes to modify its
handling of Non-Displayed Orders to optimize available liquidity for
incoming orders and to provide price improvement for market
participants, as further described below.
Below are examples describing the Exchange's current handling of
Non-Displayed Orders, followed by examples describing the Exchange's
proposed order handling procedures.
Example 1: Two Penny Spread--Current Handling:
Assume the Exchange has a posted and displayed bid to buy 100
shares of a security priced at $10.10 per share, a resting Non-
Displayed Order bid to buy 100 shares of a security priced at $10.12
per share, and a posted and displayed offer to sell 100 shares also at
$10.12 per share. Assume the national best bid or offer (``NBBO'') is
also $10.10 by $10.12. The BATS Book in this situation can be depicted
as follows, with ``ND'' identifying the Non-Displayed Order:
------------------------------------------------------------------------
Bids Offers
------------------------------------------------------------------------
BATS............................... $10.12 (ND) x $10.12
$10.10
------------------------------------------------------------------------
If an incoming Immediate-or-Cancel (``IOC'') \6\ offer to sell 100
shares at $10.11 is entered into the BATS Book, such order will be
cancelled back to the User entering such order even though the resting
Non-Displayed Order at $10.12 is willing to buy at a price better than
the limit price of the offer.\7\ Such cancellation will occur because
an execution at the Non-Displayed Order's price of $10.12 would violate
the Exchange's priority rule by giving the later arriving offer an
execution ahead of the displayed offer at $10.12. If the incoming order
was not an IOC, and thus, was eligible for posting, then the offer
would be posted to the BATS Book at $10.11; the Non-Displayed bid would
still remain on the BATS Book unexecuted. If instead the incoming offer
was priced at $10.12 (which is the full price of the resting and
displayed $10.12 offer), then, depending on the User's instructions,
such offer would either cancel or post to the BATS Book behind the
original offer in priority.
---------------------------------------------------------------------------
\6\ As defined in Rule 11.9(b)(1), an IOC Order is a ``limit
order that is to be executed in whole or in part as soon as such
order is received, and the portion not so executed is to be treated
as cancelled.''
\7\ Because the example assumes an NBBO of $10.10 (bid) by
$10.12 (offer), the Exchange would not route an offer at $10.11 away
from the Exchange even if it was eligible for routing, as there is
no displayed liquidity to which the Exchange can route. If another
market center did have a posted $10.11 bid, a $10.11 offer eligible
for routing would route to that away market center.
---------------------------------------------------------------------------
Example 2: One Penny Spread--Current Handling:
As a second example, assume the Exchange has a posted and displayed
bid to buy 100 shares of a security priced at $10.10 per share, a
resting Non-Displayed Order bid to buy 100 shares of a security priced
at $10.11 per share, and a posted and displayed offer to sell 100
shares also at $10.11 per share. Assume the NBBO is also $10.10 by
$10.11. The BATS Book in this situation can be depicted as follows,
with ``ND'' identifying the Non-Displayed Order:
------------------------------------------------------------------------
Bids Offers
------------------------------------------------------------------------
BATS............................... $10.11 (ND) x $10.11
$10.10
------------------------------------------------------------------------
If an incoming IOC offer to sell 100 shares at $10.10 is entered into
the BATS Book, such order will be executed against the bid at $10.10
even though the resting Non-Displayed Order is willing to buy at the
higher price of
[[Page 28832]]
$10.11. As in the example above, the Exchange cannot execute the
incoming order against the Non-Displayed Order because an execution at
the Non-Displayed Order's price of $10.11 would violate the Exchange's
priority rule by giving the later arriving offer an execution ahead of
the displayed offer at $10.11. Also as in the example above, an offer
at the price of the resting and displayed offer would, subject to the
User's instructions, either cancel or post to the BATS Book behind the
original offer in priority.
Under the scenarios described above, in order to honor its priority
rule, the Exchange is rejecting orders that are otherwise marketable
against liquidity available on the BATS Book or is executing incoming
orders at prices worse than if it executed such orders against Non-
Displayed Orders that are resting but not executable at their limit
price. In order to execute such otherwise marketable orders consistent
with the Exchange's priority rule, the Exchange proposes to execute a
resting Non-Displayed Order at, in the case of a Non-Displayed bid,
one-half minimum price variation less than the locking price, and, in
the case of a Non-Displayed offer, at one-half minimum price variation
more than the locking price, in the event that an order submitted to
the Exchange on the side opposite such a Non-Displayed Order is a
market order or limit order priced more aggressively than the locking
price. For bids or offers under $1.00 per share, Non-Displayed Orders
priced at the locking price will not be executed by the Exchange.\8\
---------------------------------------------------------------------------
\8\ With respect to securities priced below $1.00 per share, the
Exchange does not believe that the proposed functionality is
necessary for such securities given the ability to quote in sub-
pennies. Further, market participants might have system limitations
that would not recognize executions in any increment finer than
$0.0001.
---------------------------------------------------------------------------
Example 3: Two Penny Spread--Proposed Handling:
To demonstrate the proposed functionality as compared to the first
example above, again assume the Exchange has a posted and displayed bid
to buy 100 shares of a security priced at $10.10 per share, a resting
Non-Displayed Order bid to buy 100 shares of a security priced at
$10.12 per share, and a posted and displayed offer to sell 100 shares
also at $10.12 per share. Assume the NBBO is also $10.10 by $10.12. The
BATS Book in this situation can be depicted as follows, with ``ND''
identifying the Non-Displayed Order:
------------------------------------------------------------------------
Bids Offers
------------------------------------------------------------------------
BATS............................... $10.12 (ND) x $10.12
$10.10
------------------------------------------------------------------------
If an incoming offer to sell 100 shares at $10.11 is entered into the
BATS Book, the resting Non-Displayed Order at the locking price will be
executed against the incoming offer at $10.115 per share, thus
providing the resting Non-Displayed bid a half-penny of price
improvement from its limit price of $10.12 and the incoming offer a
half-penny of price improvement from its limit price of $10.11. If an
incoming offer to sell 100 shares, priced instead at $10.10, is entered
into the BATS Book, the resting Non-Displayed Order at the locking
price will be executed against the incoming offer at $10.115 per share,
thus providing the resting Non-Displayed bid a half-penny of price
improvement from its limit price of $10.12 and the incoming offer a
full penny and a half of price improvement from its limit price of
$10.10. The result would be the same for an incoming market order to
sell or any other incoming limit order offer priced at $10.11 or below,
which would execute against the Non-Displayed bid at a price of $10.115
per share. An offer at the full price of the resting and displayed
$10.12 offer would not execute against the resting Non-Displayed bid,
as such execution would still violate the original offer's priority.
Instead, depending on the entering User's instructions, a later
arriving offer at $10.12 would either cancel or post to the BATS Book
behind the original offer in priority.
Example 4: One Penny Spread--Proposed Handling:
To demonstrate the proposed functionality as compared to the second
example above, again assume the Exchange has a posted and displayed bid
to buy 100 shares of a security priced at $10.10 per share, a resting
Non-Displayed Order bid to buy 100 shares of a security priced at
$10.11 per share, and a posted and displayed offer to sell 100 shares
also at $10.11 per share. Assume the NBBO is also $10.10 by $10.11. The
BATS Book in this situation can be depicted as follows, with ``ND''
identifying the Non-Displayed Order:
------------------------------------------------------------------------
Bids Offers
------------------------------------------------------------------------
BATS............................... $10.11 (ND) x $10.11
$10.10
------------------------------------------------------------------------
If an incoming offer to sell 100 shares at $10.10 is entered into the
BATS Book, the resting Non-Displayed Order at the locking price will be
executed at $10.105 per share, thus providing the resting Non-Displayed
bid a half-penny of price improvement from its limit price of $10.11
and the incoming offer a half-penny of price improvement from its limit
price of $10.10. The result would be the same for an incoming market
order to sell or any other incoming limit order offer priced at $10.10
or below, which would execute against the Non-Displayed bid at a price
of $10.105 per share. As above, an offer at the full price of the
resting and displayed $10.11 offer would not execute against the
resting Non-Displayed bid, but would instead either cancel or post to
the BATS Book behind the original $10.11 offer in priority.
Orders Subject to Price Sliding
The Exchange also proposes to make clear in its rules, both through
amending Rule 11.9 and through the proposed language for Rule 11.13,
that an order subject to NMS price sliding can be ranked at a price
that is locking an order displayed on the other side of the Exchange.
In addition, the Exchange proposes to apply the proposed order handling
procedures for Non-Displayed Orders that are otherwise non-executable
to orders that are resting with a ranked price opposite a displayed
order on the BATS Book.
Example 5: NMS Price Sliding
As an example of NMS price sliding generally, assume the NBB is
$10.10 per share, and the Exchange's best bid is $10.09. Assume the NBO
is $10.11 per share, and the Exchange has a displayed offer at that
price.
------------------------------------------------------------------------
Bid Offer
------------------------------------------------------------------------
National best.................................... $10.10 x $10.11
BATS best........................................ $10.09 x $10.11
------------------------------------------------------------------------
Next, assume the Exchange received an incoming BATS Post Only Order
bid to buy at $10.11. The BATS Post Only Order would not remove the
posted offer on the BATS Book at $10.11, and could not post as a bid at
that price because it would lock the NBO. Such bid, assuming price
sliding is enabled,\9\ would instead be ranked at $10.11 and displayed
by BATS as a bid at $10.10. The Result would be depicted as follows:
---------------------------------------------------------------------------
\9\ As set forth in Rule 11.9(c)(6), BATS Post Only Orders are
subject to the price sliding process by default, but User can opt-
out of price sliding.
------------------------------------------------------------------------
Bid Offer
------------------------------------------------------------------------
National best................................ $10.10 x $10.11
[[Page 28833]]
BATS best.................................... *$10.10 x $10.11
------------------------------------------------------------------------
* Ranked at 10.11, but price slid and displayed at $10.10.
The BATS displayed $10.10 bid, ranked at $10.11, is not executable
at $10.11 because any incoming order that would execute against it at
the locking price would receive a priority advantage over the displayed
offer at $10.11. Nonetheless, the best bid on the BATS Book is a buyer
willing to pay up to $10.11. The Exchange proposes to modify its order
handling procedures for orders subject to price sliding that are ranked
at a price opposite an order displayed by the Exchange consistent with
the modification described above for Non-Displayed Orders.
Specifically, in the event an order submitted to the Exchange on the
side opposite such a price slid order is a market order or a limit
order priced more aggressively than the locking price, the Exchange
will execute the resting order subject to price sliding at, in the case
of a resting bid, one-half minimum price variation less than the
locking price, and, in the case of a resting offer, at one-half minimum
price variation more than the locking price. For bids or offers under
$1.00 per share, resting orders subject to price sliding ranked at the
locking price will not be executed by the Exchange.
Additional Discussion
Under all of the scenarios described above, the Non-Displayed Order
or order subject to price sliding is priced at the very inside of the
market but is temporarily un-executable at its full limit price due to
the Exchange's priority rule and order handling procedures. The
proposed change will provide incoming orders with price improvement
against such aggressively priced, resting orders. The Exchange notes
that by permitting a Member's Non-Displayed Order to rest at a locking
price on the other side of a displayed order, the Exchange is incenting
Member's to post aggressively priced liquidity, rather than
discouraging such liquidity by leaving it unexecuted. Incoming orders
executing against aggressively priced Non-Displayed Orders and price
slid orders will derive an obvious benefit from the price improvement
received. In addition, if the BATS Book changes so that such orders are
no longer resting or ranked opposite a displayed order, then such
orders will again be executable at their full limit price, and in the
case of price slid orders, will be displayed at that price.
The Exchange is proposing a solution to address specific conditions
that are a current, natural consequence of other order handling
procedures of the Exchange. The Exchange believes that such specific
circumstances, without modification, will continue to result in fewer
executions or executions with less price improvement than the Exchange
could otherwise facilitate. The Exchange will conduct surveillance to
ensure that Users are not intentionally seeking to create an internally
locked Book for the purpose of obtaining an execution at one-half
minimum price variation. As such, the Exchange proposes to add
Interpretation and Policy .01 to Rule 11.13 to state that the Exchange
will consider it inconsistent with just and equitable principles of
trade to engage in a pattern or practice of using Non-Displayed Orders
or orders subject to price sliding solely for the purpose of executing
such orders at one-half minimum price variation from the locking price.
Evidence of such behavior may include, but is not limited to, a User's
pattern of entering orders at a price that would lock or be ranked at
the price of a displayed quotation and cancelling orders when they no
longer lock the displayed quotation.
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.\10\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\11\
because it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to, and perfect
the mechanism of, a free and open market and a national market system.
The proposed change to execute marketable orders that are currently not
executed under specific scenarios that can occur will only serve to
improve execution quality for participants sending orders to the
Exchange. Further, the proposed change will help to provide price
improvement to market participants, again, in scenarios that at times,
such participants are not even receiving executions from the Exchange
or are receiving less price improvement than is currently available.
Thus, the Exchange believes that its proposed order handling process in
the scenario described in this filing will benefit market participants
and their customers by allowing them greater flexibility in their
efforts to fill orders and minimize trading costs.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange notes that the specific scenarios for which the
Exchange is proposing an improved order handling process are possible
due to the existence of orders that by definition will not remove
liquidity from the BATS Book, BATS Post Only Orders. The Exchange
believes that BATS Post Only Orders are consistent with the Act,
particularly, Section 6(b)(5) of the Act,\12\ because they help to
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and to remove impediments to,
and perfect the mechanism of, a free and open market and a national
market system. BATS Post Only Orders allow Users to post aggressively
priced liquidity, as such Users have certainty as to the fee or rebate
they will receive from the Exchange if their order is executed. Without
such ability, the Exchange believes that certain Users would simply
post less aggressively priced liquidity, and prices available for
market participants, including retail investors, would deteriorate.
Accordingly, the Exchange believes that BATS Post Only Orders enhance
the liquidity available to all market participants by allowing market
makers and other liquidity providers to add liquidity to the Exchange
at or near the inside of the market.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed rule change is also consistent with Rule 612 of
Regulation NMS.\13\ Rule 612 generally prohibits a national securities
exchange from displaying, ranking or accepting a bid, offer or order in
any NMS stock priced in an increment smaller than $0.01 if such bid,
offer or order is priced at $1.00 per share or greater. Commission
Staff has specifically interpreted Rule 612 to allow a market center to
provide sub-penny price improvement, compared to the NBBO in an NMS
stock for which sub-penny quotations are prohibited by the Rule,
provided that the execution does not result from an order, quotation,
or indication of interest that was itself priced in an impermissible
sub-penny increment.\14\ The staff also indicated that this
interpretation may not apply when
[[Page 28834]]
unconditional price improvement guarantees are involved.\15\
---------------------------------------------------------------------------
\13\ 17 CFR 242.612.
\14\ See Division of Market Regulation: Responses to Frequently
Asked Questions (``FAQs'') concerning Rule 612 (Minimum Pricing
Increment) of Regulation NMS, Question 13 (Oct. 21, 2005).
\15\ Id.
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The proposed rule change does exactly what the response to Question
13 of the FAQs allows. The Exchange will provide price improvement in a
sub-penny increment only when circumstances dictate, i.e., only: (1)
When a Non-Displayed Order is resting on the opposite side of the
market from a displayed order at the locking price, or (2) when an
order subject to price sliding is ranked at a price opposite a
displayed order.
All orders and quotations in these scenarios are accepted,
displayed and/or ranked in a permissible penny increment price and are
only executed in a sub-penny increment under certain limited
circumstances--if the displayed order opposite the resting Non-
Displayed Order or price slid order is cancelled or executed, then the
Non-Displayed order or price slide order is again available at its full
limit price.\16\ There are also no unconditional price improvement
guarantees involved.
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\16\ The Exchange notes that permitting an execution in a sub-
penny increment under certain limited circumstances, while never
ranking the applicable orders at such sub-penny increments, has
already been implemented by multiple exchanges, including the
Exchange, in the form of mid-point orders. See BATS Rule 11.9(c)(9)
(``Mid-Point Peg Orders''); see also, NASDAQ Rule 4751(f)(4)
(``Midpoint Peg'' orders); NYSE Arca Equities Rule 7.31(h)(5)
(``Mid-Point Passive Liquidity Orders''); EDGX Rule 11.5(c)(7)
(``Mid-Point Match Orders''). The order types listed above are not
displayed but can execute at the mid-point of the NBBO, including in
penny-wide markets.
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The Exchange notes that this proposal does not propose any new
policies or provisions that are unique or unproven, as the Exchange and
multiple other exchanges allow orders to execute at half-penny
prices.\17\ The Exchange does not believe that there is anything novel
or controversial about executing marketable orders in a fully
transparent manner that is consistent with its other pre-existing
rules, and under the proposed functionality, both sides to each
transaction executed will receive at least one half penny price
improvement on their orders. As stated above, Commission Staff has also
publicly interpreted Rule 612 as allowing sub-penny executions due to
price improvement, and arguably has encouraged such executions by
stating that `` * * * sub-penny executions due to price improvement are
generally beneficial to retail investors.'' \18\
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\17\ See id.
\18\ See Exchange Act Release No. 34-54714 at 4 (November 6,
2006), 71 FR 66352 (November 14, 2006).
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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 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 rule-comments@sec.gov. Please include
File Number SR-BATS-2011-015 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-BATS-2011-015. 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 website viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
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-BATS-2011-015 and should be
submitted on or before June 8, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-12132 Filed 5-17-11; 8:45 am]
BILLING CODE 8011-01-P
