Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend BYX Rule 11.17, Entitled “Clearly Erroneous Executions”, 51092-51094 [2011-20953]

Download as PDF 51092 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–BATS– 2011–028 and should be submitted on or before September 7, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–20954 Filed 8–16–11; 8:45 am] BILLING CODE 8011–01–P manner after changes to the single stock trading pause process are effective. 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65112; File No. SR–BYX– 2011–019] Self-Regulatory Organizations; BATS Y–Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend BYX Rule 11.17, Entitled ‘‘Clearly Erroneous Executions’’ August 11, 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 August 8, 2011, BATS Y–Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Emcdonald on DSK2BSOYB1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to amend BYX Rule 11.17, entitled ‘‘Clearly Erroneous Executions,’’ so that the rule will continue to operate in the same 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 18:13 Aug 16, 2011 Jkt 223001 Background The Exchanges 3 and FINRA, in consultation with the Commission, have made changes to their respective rules in a concerted effort to strengthen the markets after the severe market disruption that occurred on May 6, 2010. One such effort by the Exchanges and FINRA was to adopt a uniform trading pause process during periods of extraordinary market volatility as a pilot in S&P 500® Index stocks (‘‘Pause Pilot’’),4 approved by the Commission on June 10, 2010.5 On September 10, 2010, the Commission approved the Exchanges’ and FINRA’s proposals to add the securities included in the Russell 1000® Index and specified Exchange Traded Products (‘‘ETPs’’) to 3 For purposes of this filing, the term ‘‘Exchanges’’ refers collectively to BATS Exchange, Inc., BATS Y–Exchange, Inc., NASDAQ OMX BX, Inc., Chicago Board Options Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., International Securities Exchange LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE Amex LLC, NYSE Arca, Inc., National Stock Exchange, Inc., and NASDAX [sic] OMX PHLX LLC. 4 See Rule 11.18(d) and Interpretation and Policy .05 to Rule 11.18. 5 Securities Exchange Act Release Nos. 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010)(File Nos. SR–BATS–2010–014; SR–EDGA–2010–01; SR– EDGX–2010–01; SR–BX–2010–037; SR–ISE– 2010– 48; SR–NYSE–2010–39; SR–NYSEAmex– 2010–46; SR–NYSEArca–2010–41; SR–NASDAQ– 2010–061; SR–CHX–2010–10; SR–NSX–2010–05; and SR– CBOE–2010–047); 62251 (June 10, 2010), 75 FR 34183 (June 16, 2010) (SR–FINRA–2010– 025). PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 the Pause Pilot.6 On September 10, 2010, the Commission also approved changes proposed by the Exchanges to amend certain of their respective rules to set forth clearer standards and curtail their discretion with respect to breaking erroneous trades.7 The changes, among other things, provided uniform treatment of clearly erroneous execution reviews in the event of transactions that result in the issuance of an individual stock trading pause pursuant to the Pause Pilot on the listing market and those that occur up to the time the trading pause message is received by the other markets from the single plan processor responsible for consolidation and dissemination of information for the security (‘‘Latency Trades’’). As part of the changes to the clearly erroneous process under Rule 11.17, the Exchange adopted new text to provide clarity in the clearly erroneous process when a Pause Pilot trading pause is triggered. Pursuant to Rule 11.17(c)(4), Latency Trades will be broken by the Exchange if they exceed the applicable percentage from the Reference Price, as noted in the table found under Rule 11.17(c)(1).8 The Reference Price, for purposes of Rule 11.17(c)(4), is the price that triggered a trading pause pursuant to the Pause Pilot (the ‘‘Trading Pause Trigger Price’’). As such, Latency Trades that occur on the Exchange would be broken by the Exchange pursuant to 11.17(c)(4) if the transaction occurred at either three, five, or ten percent above the Trading Pause Trigger Price.9 On June 23, 2011, the Commission approved a joint proposal to expand the respective Pause Pilot rules of the Exchanges and FINRA to include all remaining NMS stocks (‘‘Phase III 6 See e.g., Securities Exchange Act Release Nos. 62884 (September 10, 2010), 75 FR 56618 (September 16, 2010) (File Nos. SR–BATS–2010– 018; SR–BX–2010–044; SR–CBOE–2010–065; SR– CHX–2010–14; SR–EDGA–2010–05; SR–EDGX– 2010–05; SR–ISE–2010–66; SR–NASDAQ–2010– 079; SR–NYSE–2010–49; SR–NYSEAmex–2010–63; SR–NYSEArca–2010–61; and SR–NSX–2010–08); and Securities Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 (September 16, 2010) (SR–FINRA–2010–033). 7 Securities Exchange Act Release No. 62886 (September 16, 2010), 75 FR 56613 (September 16, 2010) (File Nos. SR–BATS–2010–016; SR–BX– 2010–040; SR–CBOE–2010–056; SR–CHX–2010–13; SR–EDGA–2010–03; SR–EDGX–2010–03; SR–ISE– 2010–62; SR–NASDAQ–2010–076; SR–NSX–2010– 07; SR–NYSE–2010–47; SR–NYSEAmex–2010–60; and SR–NYSEArca–2010–58). 8 Pursuant to Rule 11.17(c)(1), a security with a Reference Price of greater than zero and up to and including $25.00 is subject to a 10% threshold; a security with a Reference Price of greater than $25.00 and up to and including $50.00 is subject to a 5% threshold; and a security with a Reference Price of greater than $50.00 is subject to a 3% threshold. 9 Rule 11.17(c)(4). E:\FR\FM\17AUN1.SGM 17AUN1 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices Securities’’).10 The new pilot rules, which will be implemented on August 8, 2011, not only expand the application of the Pause Pilot, but also apply larger percentage moves that trigger a pause to the Phase III Securities. The primary listing exchanges, which will continue to calculate trading pauses under the Pause Pilot and disseminate messages when a trading pause has been issued, amended their Pause Pilot rules by adding new subparagraphs to address the treatment of the Phase III Securities in different categories. The primary listing markets continue to treat the original Pause Pilot securities, the S&P 500® Index, the Russell 1000® Index, as well as a pilot list of ETPs, as one category of securities for purposes of imposing trading pauses. All remaining NMS stocks have been categorized in two other groups, one for stocks that had a closing price on the previous trading day of $1 or more and the other for stocks that had a closing price on the previous trading day of less than $1. The Issue Emcdonald on DSK2BSOYB1PROD with NOTICES The recently-approved changes to the Pause Pilot will have the unintended effect of removing the Phase III Securities from the normal clearly erroneous process and potentially result in unfair outcomes in the face of severe volatility in such securities. Phase III Securities are currently subject to the clearly erroneous process under Rules 11.17(c)(1)–(3), which apply to all securities except the current Pause Pilot securities subject to a pause. For purposes of transactions in securities not involving Pause Pilot securities, or transactions involving Pause Pilot securities that occur when there is not a pause pursuant to the Pause Pilot, the Reference Price is the consolidated last sale price immediately prior to the execution(s) under review, subject to certain exceptions.11 As noted above, the Trading Pause Trigger Price is used as the Reference Price when a Pause Pilot pause is in effect. As a consequence, under the current rules a Latency Trade is subject to the clearly erroneous thresholds based on the Trading Pause Trigger Price, which represents a ten percent or greater move in the transacted price of the security in a five minute period. 10 Securities Exchange Act Release No. 64735 (June 23, 2011), 76 FR 38243 (June 29, 2011) (File Nos. SR–BATS–2011–016; SR–BYX–2011–011; SR– BX–2011–025; SR–CBOE–2011–049; SR–CHX– 2011–09; SR–EDGA–2011–15; SR–EDGX–2011–14; SR–FINRA–2011–023; SR–ISE–2011–028; SR– NASDAQ–2011–067; SR–NYSE–2011–21; SR– NYSEAmex–2011–32; SR–NYSEArca–2011–26; SR– NSX–2011–06; SR–Phlx–2011–64). 11 Id. VerDate Mar<15>2010 18:13 Aug 16, 2011 Jkt 223001 Under the new Pause Pilot rules, a Latency Trade in a Phase III Security occurs only after either a 30 or 50 percent (or greater) move in the transacted price of the security in a five minute period. As a result, an Exchange User that trades in a Phase III Security that triggers a clearly erroneous threshold of three, five or ten percent from the Reference Price, yet falls below the Pause Pilot trigger of either 30 or 50 percent, would be able to avail themselves of a clearly erroneous review. A similarly situated User that transacts in the same security as a Latency Trade at a price equal to or greater than the Phase III Security thresholds, yet less than the clearly erroneous thresholds under Rule 11.17(c)(1), would not be able to avail themselves of the clearly erroneous process. Another User that transacts in the same security as a Latency Trade that exceeds three, five, or ten percent from the Trading Pause Trigger Price would automatically receive clearly erroneous relief. The Exchange believes that this would be an inequitable result and an arbitrary application of the clearly erroneous process. Specifically, the Exchange believes that, since the 30 and 50 percent triggers of the Pause Pilot are substantially greater than the 10 percent threshold of the original Pause Pilot, the Phase III Securities should remain under the current clearly erroneous process of Rules 11.17(c)(1)– (3). Applying the clearly erroneous process under Rules 11.17(c)(1)–(3) to the Phase III Securities would allow the Exchange to review all transactions that exceed the normal clearly erroneous thresholds and Reference Price, and, importantly, avoid arbitrary selection of ‘‘winners’’ and ‘‘losers’’ in the face of severe volatile moves in a security of 30 or 50 percent over a five minute period. For example, a User that trades in a security subject to Rule 11.18 that triggers a clearly erroneous threshold of three, five, or ten percent, yet falls below the Pause Pilot trigger threshold trading at 29 percent from the prior day’s closing price, would be potentially entitled to a clearly erroneous break pursuant Rule 11.17(c)(1). Should trading in that same stock trigger a trading pause at a price of 30 or 50 percent greater than the prior day’s close, the User would not be entitled to a clearly erroneous trade break unless that trade exceeded three, five, or ten percent beyond the price that triggered the pause. This scenario causes an inequity among a group of Users that have transactions in the Phase III Securities falling between the three, PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 51093 five, and ten percent thresholds from the Reference Price under the normal Rule 11.17(c)(1) clearly erroneous process and the Pause Pilot clearly erroneous triggers of three, five or ten percent away from the Trading Pause Trigger Price. Such Users would not be provided relief under the clearly erroneous rules merely due to the imposition of a Pause Pilot halt, notwithstanding that other Users with transactions that occur at the same rolling five minute percentage difference. The Exchange believes a better outcome is to afford all Users transacting in Phase III Securities the opportunity of having such trades reviewed. When the rule proposal to expand the Pause Pilot to the Phase III Securities becomes operative, the Exchange will no longer defines [sic] the original Pause Pilot securities within its rules. Accordingly, in order to achieve the objectives of this proposal, the Exchange proposes to adopt a definition of ‘‘Subject Securities’’, to be included in Rule 11.17(c)(4), which will mean the S&P 500® Index, the Russell 1000® Index, as well as a pilot list of ETPs. Summary The expansion of the Pause Pilot to the Phase III Securities will have the unintended consequence of setting the point at which a clearly erroneous transaction occurs once a Pause Pilot pause is initiated far beyond the triggers applied prior to the expansion, which will, in turn, prevent certain market participants from availing themselves of the clearly erroneous rules, notwithstanding that other similarly situated participants are able to do so. The Exchange believes that this would be an arbitrary application of the clearly erroneous process in a manner that is unfair and not consistent with the spirit and purpose of the rule. Accordingly, the Exchange is proposing to amend Rules 11.17(c)(1)–(4) to specify that Rule 11.17(c)(4) applies only to the current securities of Pause Pilot, or Subject Securities.12 2. Statutory Basis The Exchange believes that 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.13 In particular, 12 BATS [sic] notes that the Exchanges are filing similar proposals to make the changes proposed herein. 13 15 U.S.C. 78f(b). E:\FR\FM\17AUN1.SGM 17AUN1 51094 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices the proposed change is consistent with Section 6(b)(5) of the Act,14 because it would promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system, and, in general, protect investors and the public interest. The proposed rule change is also designed to support the principles of Section 11A(a)(1) 15 of the Act in that it seeks to assure fair competition among brokers and dealers and among exchange markets. The Exchange believes that the proposed rule meets these requirements in that it promotes transparency and uniformity across markets concerning reviews of potentially clearly erroneous executions in various contexts, including reviews in the context of a Multi-Stock Event involving twenty or more securities and reviews resulting from a Trigger Trade and any executions occurring immediately after a Trigger Trade but before a trading pause is in effect on the Exchange. Further, the Exchange believes that the proposed changes enhance the objectivity of decisions made by the Exchange with respect to clearly erroneous executions. The Exchange notes that the changes proposed herein will in no way interfere with the operation of the Pause Pilot process, as amended. 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. Emcdonald on DSK2BSOYB1PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. U.S.C. 78f(b)(5). U.S.C. 78k–1(a)(1). 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6)(iii) requires that a self-regulatory 15 15 VerDate Mar<15>2010 18:13 Aug 16, 2011 Jkt 223001 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–BYX–2011–019 on the subject line. Paper Comments III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 16 and Rule 19b– 4(f)(6)(iii) thereunder.17 The Exchange 14 15 has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because such waiver will allow the clearly erroneous rules to continue to operate as they did prior to the effectiveness of the Pause Pilot expansion to Phase III Securities so that similarly situated market participants are provided the same opportunity of a clearly erroneous review. Accordingly, the Commission waives the 30-day operative delay requirement and designates the proposed rule change as operative upon filing with the Commission.18 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. • 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–2011–019. This file organization submit to the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the filing of the proposed rule change, or such shorter time as designated by the Commission. The Commission is waiving the five day written notice requirement in this case. Therefore, the Commission notes that the Exchange has satisfied this requirement. 18 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–BYX– 2011–019 and should be submitted on or before September 7, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–20953 Filed 8–16–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65103; File No. SR–CBOE– 2011–078] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to the CBSX Clearly Erroneous Policy Pilot Program August 11, 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 August 8, 2011, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\17AUN1.SGM 17AUN1

Agencies

[Federal Register Volume 76, Number 159 (Wednesday, August 17, 2011)]
[Notices]
[Pages 51092-51094]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20953]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65112; File No. SR-BYX-2011-019]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend BYX Rule 11.17, Entitled 
``Clearly Erroneous Executions''

August 11, 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 August 8, 2011, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend BYX Rule 11.17, entitled 
``Clearly Erroneous Executions,'' so that the rule will continue to 
operate in the same manner after changes to the single stock trading 
pause process are effective.
    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.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The Exchanges \3\ and FINRA, in consultation with the Commission, 
have made changes to their respective rules in a concerted effort to 
strengthen the markets after the severe market disruption that occurred 
on May 6, 2010. One such effort by the Exchanges and FINRA was to adopt 
a uniform trading pause process during periods of extraordinary market 
volatility as a pilot in S&P 500[supreg] Index stocks (``Pause 
Pilot''),\4\ approved by the Commission on June 10, 2010.\5\ On 
September 10, 2010, the Commission approved the Exchanges' and FINRA's 
proposals to add the securities included in the Russell 1000[supreg] 
Index and specified Exchange Traded Products (``ETPs'') to the Pause 
Pilot.\6\ On September 10, 2010, the Commission also approved changes 
proposed by the Exchanges to amend certain of their respective rules to 
set forth clearer standards and curtail their discretion with respect 
to breaking erroneous trades.\7\ The changes, among other things, 
provided uniform treatment of clearly erroneous execution reviews in 
the event of transactions that result in the issuance of an individual 
stock trading pause pursuant to the Pause Pilot on the listing market 
and those that occur up to the time the trading pause message is 
received by the other markets from the single plan processor 
responsible for consolidation and dissemination of information for the 
security (``Latency Trades'').
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    \3\ For purposes of this filing, the term ``Exchanges'' refers 
collectively to BATS Exchange, Inc., BATS Y-Exchange, Inc., NASDAQ 
OMX BX, Inc., Chicago Board Options Exchange, Inc., Chicago Stock 
Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., 
International Securities Exchange LLC, The NASDAQ Stock Market LLC, 
New York Stock Exchange LLC, NYSE Amex LLC, NYSE Arca, Inc., 
National Stock Exchange, Inc., and NASDAX [sic] OMX PHLX LLC.
    \4\ See Rule 11.18(d) and Interpretation and Policy .05 to Rule 
11.18.
    \5\ Securities Exchange Act Release Nos. 62252 (June 10, 2010), 
75 FR 34186 (June 16, 2010)(File Nos. SR-BATS-2010-014; SR-EDGA-
2010-01; SR-EDGX-2010-01; SR-BX-2010-037; SR-ISE- 2010-48; SR-NYSE-
2010-39; SR-NYSEAmex- 2010-46; SR-NYSEArca-2010-41; SR-NASDAQ- 2010-
061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-CBOE-2010-047); 62251 
(June 10, 2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010- 025).
    \6\ See e.g., Securities Exchange Act Release Nos. 62884 
(September 10, 2010), 75 FR 56618 (September 16, 2010) (File Nos. 
SR-BATS-2010-018; SR-BX-2010-044; SR-CBOE-2010-065; SR-CHX-2010-14; 
SR-EDGA-2010-05; SR-EDGX-2010-05; SR-ISE-2010-66; SR-NASDAQ-2010-
079; SR-NYSE-2010-49; SR-NYSEAmex-2010-63; SR-NYSEArca-2010-61; and 
SR-NSX-2010-08); and Securities Exchange Act Release No. 62883 
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033).
    \7\ Securities Exchange Act Release No. 62886 (September 16, 
2010), 75 FR 56613 (September 16, 2010) (File Nos. SR-BATS-2010-016; 
SR-BX-2010-040; SR-CBOE-2010-056; SR-CHX-2010-13; SR-EDGA-2010-03; 
SR-EDGX-2010-03; SR-ISE-2010-62; SR-NASDAQ-2010-076; SR-NSX-2010-07; 
SR-NYSE-2010-47; SR-NYSEAmex-2010-60; and SR-NYSEArca-2010-58).
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    As part of the changes to the clearly erroneous process under Rule 
11.17, the Exchange adopted new text to provide clarity in the clearly 
erroneous process when a Pause Pilot trading pause is triggered. 
Pursuant to Rule 11.17(c)(4), Latency Trades will be broken by the 
Exchange if they exceed the applicable percentage from the Reference 
Price, as noted in the table found under Rule 11.17(c)(1).\8\ The 
Reference Price, for purposes of Rule 11.17(c)(4), is the price that 
triggered a trading pause pursuant to the Pause Pilot (the ``Trading 
Pause Trigger Price''). As such, Latency Trades that occur on the 
Exchange would be broken by the Exchange pursuant to 11.17(c)(4) if the 
transaction occurred at either three, five, or ten percent above the 
Trading Pause Trigger Price.\9\
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    \8\ Pursuant to Rule 11.17(c)(1), a security with a Reference 
Price of greater than zero and up to and including $25.00 is subject 
to a 10% threshold; a security with a Reference Price of greater 
than $25.00 and up to and including $50.00 is subject to a 5% 
threshold; and a security with a Reference Price of greater than 
$50.00 is subject to a 3% threshold.
    \9\ Rule 11.17(c)(4).
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    On June 23, 2011, the Commission approved a joint proposal to 
expand the respective Pause Pilot rules of the Exchanges and FINRA to 
include all remaining NMS stocks (``Phase III

[[Page 51093]]

Securities'').\10\ The new pilot rules, which will be implemented on 
August 8, 2011, not only expand the application of the Pause Pilot, but 
also apply larger percentage moves that trigger a pause to the Phase 
III Securities. The primary listing exchanges, which will continue to 
calculate trading pauses under the Pause Pilot and disseminate messages 
when a trading pause has been issued, amended their Pause Pilot rules 
by adding new subparagraphs to address the treatment of the Phase III 
Securities in different categories. The primary listing markets 
continue to treat the original Pause Pilot securities, the S&P 
500[supreg] Index, the Russell 1000[supreg] Index, as well as a pilot 
list of ETPs, as one category of securities for purposes of imposing 
trading pauses. All remaining NMS stocks have been categorized in two 
other groups, one for stocks that had a closing price on the previous 
trading day of $1 or more and the other for stocks that had a closing 
price on the previous trading day of less than $1.
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    \10\ Securities Exchange Act Release No. 64735 (June 23, 2011), 
76 FR 38243 (June 29, 2011) (File Nos. SR-BATS-2011-016; SR-BYX-
2011-011; SR-BX-2011-025; SR-CBOE-2011-049; SR-CHX-2011-09; SR-EDGA-
2011-15; SR-EDGX-2011-14; SR-FINRA-2011-023; SR-ISE-2011-028; SR-
NASDAQ-2011-067; SR-NYSE-2011-21; SR-NYSEAmex-2011-32; SR-NYSEArca-
2011-26; SR-NSX-2011-06; SR-Phlx-2011-64).
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The Issue
    The recently-approved changes to the Pause Pilot will have the 
unintended effect of removing the Phase III Securities from the normal 
clearly erroneous process and potentially result in unfair outcomes in 
the face of severe volatility in such securities. Phase III Securities 
are currently subject to the clearly erroneous process under Rules 
11.17(c)(1)-(3), which apply to all securities except the current Pause 
Pilot securities subject to a pause. For purposes of transactions in 
securities not involving Pause Pilot securities, or transactions 
involving Pause Pilot securities that occur when there is not a pause 
pursuant to the Pause Pilot, the Reference Price is the consolidated 
last sale price immediately prior to the execution(s) under review, 
subject to certain exceptions.\11\ As noted above, the Trading Pause 
Trigger Price is used as the Reference Price when a Pause Pilot pause 
is in effect. As a consequence, under the current rules a Latency Trade 
is subject to the clearly erroneous thresholds based on the Trading 
Pause Trigger Price, which represents a ten percent or greater move in 
the transacted price of the security in a five minute period.
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

    Under the new Pause Pilot rules, a Latency Trade in a Phase III 
Security occurs only after either a 30 or 50 percent (or greater) move 
in the transacted price of the security in a five minute period. As a 
result, an Exchange User that trades in a Phase III Security that 
triggers a clearly erroneous threshold of three, five or ten percent 
from the Reference Price, yet falls below the Pause Pilot trigger of 
either 30 or 50 percent, would be able to avail themselves of a clearly 
erroneous review. A similarly situated User that transacts in the same 
security as a Latency Trade at a price equal to or greater than the 
Phase III Security thresholds, yet less than the clearly erroneous 
thresholds under Rule 11.17(c)(1), would not be able to avail 
themselves of the clearly erroneous process. Another User that 
transacts in the same security as a Latency Trade that exceeds three, 
five, or ten percent from the Trading Pause Trigger Price would 
automatically receive clearly erroneous relief. The Exchange believes 
that this would be an inequitable result and an arbitrary application 
of the clearly erroneous process. Specifically, the Exchange believes 
that, since the 30 and 50 percent triggers of the Pause Pilot are 
substantially greater than the 10 percent threshold of the original 
Pause Pilot, the Phase III Securities should remain under the current 
clearly erroneous process of Rules 11.17(c)(1)-(3).
    Applying the clearly erroneous process under Rules 11.17(c)(1)-(3) 
to the Phase III Securities would allow the Exchange to review all 
transactions that exceed the normal clearly erroneous thresholds and 
Reference Price, and, importantly, avoid arbitrary selection of 
``winners'' and ``losers'' in the face of severe volatile moves in a 
security of 30 or 50 percent over a five minute period. For example, a 
User that trades in a security subject to Rule 11.18 that triggers a 
clearly erroneous threshold of three, five, or ten percent, yet falls 
below the Pause Pilot trigger threshold trading at 29 percent from the 
prior day's closing price, would be potentially entitled to a clearly 
erroneous break pursuant Rule 11.17(c)(1). Should trading in that same 
stock trigger a trading pause at a price of 30 or 50 percent greater 
than the prior day's close, the User would not be entitled to a clearly 
erroneous trade break unless that trade exceeded three, five, or ten 
percent beyond the price that triggered the pause. This scenario causes 
an inequity among a group of Users that have transactions in the Phase 
III Securities falling between the three, five, and ten percent 
thresholds from the Reference Price under the normal Rule 11.17(c)(1) 
clearly erroneous process and the Pause Pilot clearly erroneous 
triggers of three, five or ten percent away from the Trading Pause 
Trigger Price. Such Users would not be provided relief under the 
clearly erroneous rules merely due to the imposition of a Pause Pilot 
halt, notwithstanding that other Users with transactions that occur at 
the same rolling five minute percentage difference. The Exchange 
believes a better outcome is to afford all Users transacting in Phase 
III Securities the opportunity of having such trades reviewed.
    When the rule proposal to expand the Pause Pilot to the Phase III 
Securities becomes operative, the Exchange will no longer defines [sic] 
the original Pause Pilot securities within its rules. Accordingly, in 
order to achieve the objectives of this proposal, the Exchange proposes 
to adopt a definition of ``Subject Securities'', to be included in Rule 
11.17(c)(4), which will mean the S&P 500[supreg] Index, the Russell 
1000[supreg] Index, as well as a pilot list of ETPs.
Summary
    The expansion of the Pause Pilot to the Phase III Securities will 
have the unintended consequence of setting the point at which a clearly 
erroneous transaction occurs once a Pause Pilot pause is initiated far 
beyond the triggers applied prior to the expansion, which will, in 
turn, prevent certain market participants from availing themselves of 
the clearly erroneous rules, notwithstanding that other similarly 
situated participants are able to do so. The Exchange believes that 
this would be an arbitrary application of the clearly erroneous process 
in a manner that is unfair and not consistent with the spirit and 
purpose of the rule. Accordingly, the Exchange is proposing to amend 
Rules 11.17(c)(1)-(4) to specify that Rule 11.17(c)(4) applies only to 
the current securities of Pause Pilot, or Subject Securities.\12\
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    \12\ BATS [sic] notes that the Exchanges are filing similar 
proposals to make the changes proposed herein.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that 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.\13\ In particular,

[[Page 51094]]

the proposed change is consistent with Section 6(b)(5) of the Act,\14\ 
because it would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system, and, in general, protect investors and 
the public interest. The proposed rule change is also designed to 
support the principles of Section 11A(a)(1) \15\ of the Act in that it 
seeks to assure fair competition among brokers and dealers and among 
exchange markets. The Exchange believes that the proposed rule meets 
these requirements in that it promotes transparency and uniformity 
across markets concerning reviews of potentially clearly erroneous 
executions in various contexts, including reviews in the context of a 
Multi-Stock Event involving twenty or more securities and reviews 
resulting from a Trigger Trade and any executions occurring immediately 
after a Trigger Trade but before a trading pause is in effect on the 
Exchange. Further, the Exchange believes that the proposed changes 
enhance the objectivity of decisions made by the Exchange with respect 
to clearly erroneous executions. The Exchange notes that the changes 
proposed herein will in no way interfere with the operation of the 
Pause Pilot process, as amended.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6)(iii) thereunder.\17\ The Exchange has asked the Commission to 
waive the 30-day operative delay so that the proposal may become 
operative immediately upon filing. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because such waiver will allow the 
clearly erroneous rules to continue to operate as they did prior to the 
effectiveness of the Pause Pilot expansion to Phase III Securities so 
that similarly situated market participants are provided the same 
opportunity of a clearly erroneous review. Accordingly, the Commission 
waives the 30-day operative delay requirement and designates the 
proposed rule change as operative upon filing with the Commission.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Commission is waiving the five day written notice 
requirement in this case. Therefore, the Commission notes that the 
Exchange has satisfied this requirement.
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-BYX-2011-019 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-2011-019. 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 such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-BYX-2011-019 and should be 
submitted on or before September 7, 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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20953 Filed 8-16-11; 8:45 am]
BILLING CODE 8011-01-P
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