Self-Regulatory Organizations; BATS Exchange, Inc.; Order Granting Approval of Proposed Rule Change To Implement a Competitive Liquidity Provider Program, 6608-6610 [2012-2801]
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6608
Federal Register / Vol. 77, No. 26 / Wednesday, February 8, 2012 / Notices
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
of the PIP broadcast. The Exchange
proposes to reduce the duration of the
PIP from one second to one hundred
milliseconds.
III. Discussion and Commission
Findings
[FR Doc. 2012–2834 Filed 2–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66306; File No. SR–BX–
2011–084]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Order Granting
Approval of Proposed Rule Change To
Reduce the Duration of the Price
Improvement Period (‘‘PIP’’) From One
Second to One Hundred Milliseconds
February 2, 2012.
tkelley on DSK3SPTVN1PROD with NOTICES
I. Introduction
On December 7, 2011, NASDAQ OMX
BX, Inc. (‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
reduce the duration of the Price
Improvement Period (‘‘PIP’’) of the
Boston Options Exchange Group, LLC
(‘‘BOX’’), a facility of the Exchange,
from one second to one hundred
milliseconds. The proposed rule change
was published for comment in the
Federal Register on December 22,
2011.3 The Commission received no
comments on the proposal. This order
approves the proposed rule change.
II. Description of the Proposal
The PIP is an auction system that is
used by BOX Options Participants to
execute their agency orders as principal,
with a potential for customer price
improvement. The BOX Options
Participant may submit any size
customer order, along with a matching
contra proprietary order at a price equal
to the national best bid or offer, into the
PIP. After submission of that customer
order, PIP will send out a broadcast
message to other BOX Options
Participants, who may enter orders
(‘‘Improvement Orders’’) competing
against the original contra side
proprietary order. At the conclusion of
the auction, the customer order would
be matched on a price and time priority
with orders on the opposite side, subject
to certain conditions. Currently, the PIP
lasts one second from the dissemination
1 15
U.S.C. 78s(b)(l).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65987
(December 16, 2011), 76 FR 79734 (‘‘Notice’’).
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After careful review, the Commission
finds that the proposal is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.4 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,5 which, among other
things, requires that the rules of a
national securities exchange be
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating transactions in securities,
to remove impediments to and perfect
the mechanism of a free and open
market and a national market system
and, in general, to protect investors and
the public interest.
The Commission believes that, given
advances in the electronic trading
environment, reducing the duration of
the PIP from one second to one hundred
milliseconds could facilitate the prompt
execution of orders while continuing to
provide market participants with an
opportunity to compete for bids and/or
offers without compromising the ability
for adequate exposure and participation
in PIP. To substantiate that BOX
Options Participants could receive,
process, and communicate a response
back to BOX within one hundred
milliseconds, the Exchange stated that it
distributed a survey to its members that
would be affected by this proposal or
that regularly participate in the PIP.
According to the Exchange, 14 of 16
participants responded, at least in part,
to the survey, and nine participants
responded that they can receive,
process, and communicate multiple PIP
responses back to BOX within
substantially less than 100
milliseconds.6
In addition, the Exchange stated that
BOX reviewed PIP execution data by its
participants during the three-month
period from May to July of 2011. The
Exchange stated that BOX’s review
indicated that approximately 85% of
Improvement Orders executed at the
conclusion of a PIP were submitted
within 100 milliseconds of the initial
4 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
5 15 U.S.C. 78f(b)(5).
6 See Notice, supra note 3, 76 FR at 79735.
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PIP Order.7 Approximately 78% of
Improvement Orders executed at the
end of a PIP were submitted in less than
ten milliseconds, and 70% were
submitted in less than five
milliseconds.8 Thus, according to the
Exchange, participants whose PIP
responses averaged greater than one
hundred milliseconds made a conscious
decision to delay responses, but such
participants operate electronic systems
which enable them to sufficiently react
and respond to multiple PIP broadcasts
within one hundred milliseconds, if
they chose to do so.9
Based on the Exchange’s statements
regarding the survey results and the
review of its PIP data, the Commission
believes that market participants should
continue to have meaningful
opportunities to participate in the PIP if
the exposure period is reduced to one
hundred milliseconds, and accordingly,
finds that the proposed rule change is
consistent with the requirement of the
Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,10 that the
proposed rule change (SR–BX–2011–
084), be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–2800 Filed 2–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66307; File No. SR–BATS–
2011–051]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Order Granting
Approval of Proposed Rule Change To
Implement a Competitive Liquidity
Provider Program
February 2, 2012.
I. Introduction
On December 16, 2011, BATS
Exchange, Inc. (‘‘BATS’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
7 Id.
8 Id.
9 Id.
10 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
11 17
E:\FR\FM\08FEN1.SGM
08FEN1
Federal Register / Vol. 77, No. 26 / Wednesday, February 8, 2012 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
thereunder,2 a proposed rule change to
implement a Competitive Liquidity
Provider Program. The proposed rule
change was published for comment in
the Federal Register on December 29,
2011.3 The Commission received no
comment letters on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposal
BATS proposes to create a new
category of market participants, known
as Competitive Liquidity Providers
(‘‘CLPs’’), to enhance liquidity on the
Exchange in Exchange-listed securities
through participating in a Competitive
Liquidity Provider Program (‘‘CLP
Program’’).
The securities eligible to be included
in the CLP Program would include any
security that is listed on the Exchange
pursuant to Exchange Rules 14.8
(relating to Tier I securities), 14.9
(relating to Tier II securities) or 14.11
(relating to exchange traded funds and
other exchange traded products
(collectively, ‘‘ETPs’’)), unless and until
such security has had a consolidated
average daily volume (‘‘CADV’’) 4 of
equal to or greater than 2 million shares
for two consecutive calendar months
during the first two years the security is
subject to the CLP Program, or until the
security has been subject to the CLP
Program for two years. In addition, the
Exchange proposes to permit ETPs that
are initially listed on the Exchange to
remain in the CLP Program for six
months regardless of CADV.
To qualify as a CLP, a member must
be a registered market maker in good
standing with the Exchange.5 The
Exchange would also require each
member seeking to qualify as a CLP to
have and maintain: (1) Adequate
technology to support electronic trading
through the systems and facilities of the
Exchange; (2) one or more unique
identifiers that identify to the Exchange
CLP trading activity in assigned CLP
securities; (3) adequate trading
infrastructure to support CLP trading
activity, which includes support staff to
maintain operational efficiencies in the
CLP program and adequate
administrative staff to manage the
member’s participation in the CLP
program; (4) quoting and volume
performance that demonstrates an
ability to meet the CLP quoting
requirement in each assigned security
on a daily and monthly basis; (5) a
2 17
CFR 240.19b–4.
Exchange Act Release No. 66034
(December 22, 2011), 76 FR 82011 (‘‘Notice’’).
4 CADV will be measured by statistics provided
through the consolidated tape plans.
5 See Exchange Rules 11.5–11.8.
3 Securities
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disciplinary history that is consistent
with just and equitable business
practices; and (6) the business unit of
the member acting as a CLP must have
in place adequate information barriers
between the CLP unit and the member’s
customer, research and investment
banking business.
To become a CLP, a member must
submit a CLP application form with all
supporting documentation to the
Exchange. Exchange personnel in the
Exchange’s membership department
would process such applications.
Exchange personnel would determine
whether an applicant is qualified to
become a CLP based on the
qualifications described above. After an
applicant submits a CLP application to
the Exchange, with supporting
documentation, the Exchange shall
notify the applicant member of its
decision. After Exchange approval, the
applicant must establish connectivity
with relevant Exchange systems before
such applicant would be permitted to
trade as a CLP on the Exchange. In the
event an applicant is disapproved by the
Exchange, such applicant may seek
review under Chapter X of the
Exchange’s rules governing adverse
action and/or reapply for CLP status at
least three calendar months following
the month in which the applicant
received the disapproval notice from the
Exchange.6 A CLP may withdraw from
the CLP Program by giving notice to the
Exchange. Such withdrawal shall
become effective within 30 days of the
CLP’s notice, or when the Exchange
reassigns that CLP’s securities to
another CLP, whichever comes sooner.
The Exchange would measure the
performance of a CLP in assigned
securities by calculating Size Event
Tests (‘‘SETs’’) during Regular Trading
Hours 7 on every day on which the
Exchange is open for business. The
Exchange will measure each CLP’s
quoted size at the NBB and NBO 8 at
least once per second during such
trading hours to determine SETs. The
CLP with the greatest aggregate size at
the NBB and NBO at each SET would
be considered to have a ‘‘winning SET.’’
The Exchange proposes to adopt both
daily and monthly quoting
requirements. First, a CLP must have at
least 10% of the winning SETs on any
6 Chapter X of the Exchange’s rules provides any
persons who are or are about to be aggrieved by an
adverse action taken by the Exchange with a
process to apply for an opportunity to be heard and
to have the complained of action reviewed.
7 The term ‘‘Regular Trading Hours’’ is defined in
Exchange Rule 1.5(w) as the time between 9:30 a.m.
and 4:00 p.m. Eastern Time.
8 Exchange Rule 1.5(o) defines ‘‘NBB’’ as the
national best bid, and ‘‘NBO’’ as the national best
offer.
PO 00000
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Sfmt 4703
6609
trading day in order meet its daily
quoting requirement and to be eligible
for any daily quotation rebate provided
by the Exchange (each such CLP, an
‘‘Eligible CLP’’). Eligible CLPs would be
ranked according to the number of
winning SETs each trading day, and
only the Eligible CLP ranked number
one, and in some cases the Eligible CLP
ranked number two, would receive the
daily rebate. In addition to providing a
daily rebate to CLPs that have the
highest demonstrated size at the NBB
and NBO during the trading day, the
Exchange also plans to propose
incentives by providing special pricing
for executions that occur in any auction
operated by the Exchange pursuant to
Exchange Rule 11.23. The financial
incentives to be proposed by the
Exchange would specify the amount and
allocation of rebates provided to CLPs as
well as the parameters for receiving
special pricing in Exchange auctions.
Second, a CLP must be quoting at the
NBB or the NBO 10% of the time the
Exchange calculates SETs to meet its
monthly quoting requirement. For
purposes of calculating whether a CLP
is in compliance with its CLP quoting
requirements, the CLP must post
displayed liquidity in round lots in its
assigned securities at the NBB or the
NBO. A CLP may post non-displayed
liquidity; however, such liquidity will
not be counted as credit towards the
CLP quoting requirements. The CLP
would not be subject to any minimum
or maximum quoting size requirement
in assigned securities apart from the
requirement that an order be for at least
one round lot. The CLP quoting
requirements would be measured by
utilizing the unique identifiers for CLP
trading activity. A CLP that fails to meet
its monthly quoting requirements in any
of its assigned securities for three
consecutive months may be subject to
disqualification from the CLP Program.
CLPs may only enter orders
electronically directly into Exchange
systems and facilities. All CLP orders
must only be for the proprietary account
of the member.
The Exchange, in its discretion,
would assign to the CLP one or more
securities consisting of Exchange-listed
securities for CLP trading purposes. The
Exchange would determine the number
of Exchange-listed securities within the
group of securities assigned to each
CLP. The Exchange, in its discretion,
would assign one or more CLPs to each
security subject to the CLP Program,
depending upon the trading activity of
the security. The Exchange would
restrict the CLPs assigned to any newly
issued security that is listed on the
Exchange pursuant to Exchange Rule
E:\FR\FM\08FEN1.SGM
08FEN1
6610
Federal Register / Vol. 77, No. 26 / Wednesday, February 8, 2012 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
14.11, which relates to ETPs, to those
members that have actively participated
in the development or funding of such
product. This restriction would remain
in effect for six months following the
initial offering of the ETP on the
Exchange after which time there would
be no limitation on the members that
can be assigned as CLPs for such a
product.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change 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.9 In particular,
the proposed change is consistent with
Section 6(b)(5) of the Act,10 because it
would promote just and equitable
principles of trade, and, in general,
protect investors and the public
interest.11
The Commission believes that the
CLP Program may benefit investors
because it is reasonably designed to
provide greater liquidity for the
securities that participate in the CLP
Program. The securities eligible for the
CLP Program are generally newly listed
securities that could particularly benefit
from potentially greater liquidity as a
result of enhanced quoting obligations.
As proposed by the Exchange, each
CLP must comply with a monthly
quoting requirement in order to remain
a CLP, and must comply with a daily
quoting requirement in order to be
eligible for the financial incentives of
the CLP Program. With respect to the
monthly quoting requirement, a CLP
must be quoting at the NBB or NBO
10% of the time that the Exchange is
calculating SETs. With respect to the
daily quoting requirement, the CLP with
the greatest aggregate size at the NBB
and NBO at each SET would be
considered to have the winning SET,
with the CLP with the greatest number
of winning SETs (and, in some
instances, the CLP with second-greatest
number of winning SETs) each day
receiving the daily rebate. Thus, this
proposal would incentivize both
quoting frequency at the NBBO and
quoted size at the NBBO, potentially
improving the market quality of the
securities that participate in the CLP
Program.
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
11 In approving the proposed rule change, the
Commission notes that it has considered the
proposed rules’ impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
The Commission also finds that this
program is reasonably designed to
encourage listings on the Exchange.
This may promote competition among
listing venues, and an issuer seeking to
list its securities could benefit from the
potential impact such competition has
on listing fees or quoting obligations
across venues.
The Commission also finds that the
proposal is not unfairly discriminatory.
Registration as an Exchange market
maker is available to all Exchange
members that satisfy the requirements of
Exchange Rule 11.7, and all Exchange
market makers are eligible to apply to
become CLPs. The Commission finds
further that the proposal to establish
procedures for the registration,
withdrawal, and disqualification of
CLPs, and the CLP quoting
requirements, are consistent with the
requirements of Section 6(b)(5) of the
Act. The Exchange’s proposed rules
provide an objective process by which
a member could become a CLP and for
appropriate oversight by the Exchange
to monitor for continued compliance
with the terms of these provisions. The
Commission also notes that these
provisions, including the CLP quoting
requirements, are similar to those of at
least one other exchange.12 As a result,
the Commission believes that these
aspects of the proposal are consistent
with the requirements of the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,13 that the
proposed rule change (SR–BATS–2011–
051) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–2801 Filed 2–7–12; 8:45 am]
BILLING CODE 8011–01–P
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[Release No. 34–66308; File No. SR–
NYSEAmex–2012–02]
Self-Regulatory Organizations; NYSE
Amex LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending NYSE Amex
Options Rule 902NY To Create a
Reserve Floor Market Maker Amex
Trading Permit
Securities and Exchange
Commission.
ACTION: Notice; correction.
AGENCY:
The Securities and Exchange
Commission published a document in
the Federal Register on January 31,
2012 concerning a Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending NYSE Amex
Options Rule 902NY To Create a
Reserve Floor Market Maker Amex
Trading Permit by NYSEAmex LLC. An
incorrect release number was assigned
to that document.
FOR FURTHER INFORMATION CONTACT:
Office of the Secretary, Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549, (202) 551–5400.
SUMMARY:
Correction
In the Federal Register of January 31,
2012, in FR Doc. 2012–2036, on page
4848, in the middle column, in the 14th
line, the release number is corrected to
read as noted above.
Dated: February 2, 2012.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–2812 Filed 2–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66310; File No. SR–
NASDAQ–2012–015]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
4618
February 2, 2012.
9 15
10 15
SECURITIES AND EXCHANGE
COMMISSION
12 See NYSE Rule 107B (governing Supplemental
Liquidity Providers).
13 15 U.S.C. 78s(b)(2).
14 17 CFR 200.30–3(a)(12).
PO 00000
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
January 19, 2012, the NASDAQ Stock
Market LLC (‘‘NASDAQ’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I and II
1 15
E:\FR\FM\08FEN1.SGM
U.S.C. 78s(b)(1).
08FEN1
]]>Agencies
[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Notices]
[Pages 6608-6610]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2801]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66307; File No. SR-BATS-2011-051]
Self-Regulatory Organizations; BATS Exchange, Inc.; Order
Granting Approval of Proposed Rule Change To Implement a Competitive
Liquidity Provider Program
February 2, 2012.
I. Introduction
On December 16, 2011, BATS Exchange, Inc. (``BATS'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
[[Page 6609]]
thereunder,\2\ a proposed rule change to implement a Competitive
Liquidity Provider Program. The proposed rule change was published for
comment in the Federal Register on December 29, 2011.\3\ The Commission
received no comment letters on the proposal. This order approves the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 66034 (December 22,
2011), 76 FR 82011 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
BATS proposes to create a new category of market participants,
known as Competitive Liquidity Providers (``CLPs''), to enhance
liquidity on the Exchange in Exchange-listed securities through
participating in a Competitive Liquidity Provider Program (``CLP
Program'').
The securities eligible to be included in the CLP Program would
include any security that is listed on the Exchange pursuant to
Exchange Rules 14.8 (relating to Tier I securities), 14.9 (relating to
Tier II securities) or 14.11 (relating to exchange traded funds and
other exchange traded products (collectively, ``ETPs'')), unless and
until such security has had a consolidated average daily volume
(``CADV'') \4\ of equal to or greater than 2 million shares for two
consecutive calendar months during the first two years the security is
subject to the CLP Program, or until the security has been subject to
the CLP Program for two years. In addition, the Exchange proposes to
permit ETPs that are initially listed on the Exchange to remain in the
CLP Program for six months regardless of CADV.
---------------------------------------------------------------------------
\4\ CADV will be measured by statistics provided through the
consolidated tape plans.
---------------------------------------------------------------------------
To qualify as a CLP, a member must be a registered market maker in
good standing with the Exchange.\5\ The Exchange would also require
each member seeking to qualify as a CLP to have and maintain: (1)
Adequate technology to support electronic trading through the systems
and facilities of the Exchange; (2) one or more unique identifiers that
identify to the Exchange CLP trading activity in assigned CLP
securities; (3) adequate trading infrastructure to support CLP trading
activity, which includes support staff to maintain operational
efficiencies in the CLP program and adequate administrative staff to
manage the member's participation in the CLP program; (4) quoting and
volume performance that demonstrates an ability to meet the CLP quoting
requirement in each assigned security on a daily and monthly basis; (5)
a disciplinary history that is consistent with just and equitable
business practices; and (6) the business unit of the member acting as a
CLP must have in place adequate information barriers between the CLP
unit and the member's customer, research and investment banking
business.
---------------------------------------------------------------------------
\5\ See Exchange Rules 11.5-11.8.
---------------------------------------------------------------------------
To become a CLP, a member must submit a CLP application form with
all supporting documentation to the Exchange. Exchange personnel in the
Exchange's membership department would process such applications.
Exchange personnel would determine whether an applicant is qualified to
become a CLP based on the qualifications described above. After an
applicant submits a CLP application to the Exchange, with supporting
documentation, the Exchange shall notify the applicant member of its
decision. After Exchange approval, the applicant must establish
connectivity with relevant Exchange systems before such applicant would
be permitted to trade as a CLP on the Exchange. In the event an
applicant is disapproved by the Exchange, such applicant may seek
review under Chapter X of the Exchange's rules governing adverse action
and/or reapply for CLP status at least three calendar months following
the month in which the applicant received the disapproval notice from
the Exchange.\6\ A CLP may withdraw from the CLP Program by giving
notice to the Exchange. Such withdrawal shall become effective within
30 days of the CLP's notice, or when the Exchange reassigns that CLP's
securities to another CLP, whichever comes sooner.
---------------------------------------------------------------------------
\6\ Chapter X of the Exchange's rules provides any persons who
are or are about to be aggrieved by an adverse action taken by the
Exchange with a process to apply for an opportunity to be heard and
to have the complained of action reviewed.
---------------------------------------------------------------------------
The Exchange would measure the performance of a CLP in assigned
securities by calculating Size Event Tests (``SETs'') during Regular
Trading Hours \7\ on every day on which the Exchange is open for
business. The Exchange will measure each CLP's quoted size at the NBB
and NBO \8\ at least once per second during such trading hours to
determine SETs. The CLP with the greatest aggregate size at the NBB and
NBO at each SET would be considered to have a ``winning SET.''
---------------------------------------------------------------------------
\7\ The term ``Regular Trading Hours'' is defined in Exchange
Rule 1.5(w) as the time between 9:30 a.m. and 4:00 p.m. Eastern
Time.
\8\ Exchange Rule 1.5(o) defines ``NBB'' as the national best
bid, and ``NBO'' as the national best offer.
---------------------------------------------------------------------------
The Exchange proposes to adopt both daily and monthly quoting
requirements. First, a CLP must have at least 10% of the winning SETs
on any trading day in order meet its daily quoting requirement and to
be eligible for any daily quotation rebate provided by the Exchange
(each such CLP, an ``Eligible CLP''). Eligible CLPs would be ranked
according to the number of winning SETs each trading day, and only the
Eligible CLP ranked number one, and in some cases the Eligible CLP
ranked number two, would receive the daily rebate. In addition to
providing a daily rebate to CLPs that have the highest demonstrated
size at the NBB and NBO during the trading day, the Exchange also plans
to propose incentives by providing special pricing for executions that
occur in any auction operated by the Exchange pursuant to Exchange Rule
11.23. The financial incentives to be proposed by the Exchange would
specify the amount and allocation of rebates provided to CLPs as well
as the parameters for receiving special pricing in Exchange auctions.
Second, a CLP must be quoting at the NBB or the NBO 10% of the time
the Exchange calculates SETs to meet its monthly quoting requirement.
For purposes of calculating whether a CLP is in compliance with its CLP
quoting requirements, the CLP must post displayed liquidity in round
lots in its assigned securities at the NBB or the NBO. A CLP may post
non-displayed liquidity; however, such liquidity will not be counted as
credit towards the CLP quoting requirements. The CLP would not be
subject to any minimum or maximum quoting size requirement in assigned
securities apart from the requirement that an order be for at least one
round lot. The CLP quoting requirements would be measured by utilizing
the unique identifiers for CLP trading activity. A CLP that fails to
meet its monthly quoting requirements in any of its assigned securities
for three consecutive months may be subject to disqualification from
the CLP Program.
CLPs may only enter orders electronically directly into Exchange
systems and facilities. All CLP orders must only be for the proprietary
account of the member.
The Exchange, in its discretion, would assign to the CLP one or
more securities consisting of Exchange-listed securities for CLP
trading purposes. The Exchange would determine the number of Exchange-
listed securities within the group of securities assigned to each CLP.
The Exchange, in its discretion, would assign one or more CLPs to each
security subject to the CLP Program, depending upon the trading
activity of the security. The Exchange would restrict the CLPs assigned
to any newly issued security that is listed on the Exchange pursuant to
Exchange Rule
[[Page 6610]]
14.11, which relates to ETPs, to those members that have actively
participated in the development or funding of such product. This
restriction would remain in effect for six months following the initial
offering of the ETP on the Exchange after which time there would be no
limitation on the members that can be assigned as CLPs for such a
product.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change 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.\9\ In particular, the proposed change is consistent with
Section 6(b)(5) of the Act,\10\ because it would promote just and
equitable principles of trade, and, in general, protect investors and
the public interest.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ In approving the proposed rule change, the Commission notes
that it has considered the proposed rules' impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
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The Commission believes that the CLP Program may benefit investors
because it is reasonably designed to provide greater liquidity for the
securities that participate in the CLP Program. The securities eligible
for the CLP Program are generally newly listed securities that could
particularly benefit from potentially greater liquidity as a result of
enhanced quoting obligations.
As proposed by the Exchange, each CLP must comply with a monthly
quoting requirement in order to remain a CLP, and must comply with a
daily quoting requirement in order to be eligible for the financial
incentives of the CLP Program. With respect to the monthly quoting
requirement, a CLP must be quoting at the NBB or NBO 10% of the time
that the Exchange is calculating SETs. With respect to the daily
quoting requirement, the CLP with the greatest aggregate size at the
NBB and NBO at each SET would be considered to have the winning SET,
with the CLP with the greatest number of winning SETs (and, in some
instances, the CLP with second-greatest number of winning SETs) each
day receiving the daily rebate. Thus, this proposal would incentivize
both quoting frequency at the NBBO and quoted size at the NBBO,
potentially improving the market quality of the securities that
participate in the CLP Program.
The Commission also finds that this program is reasonably designed
to encourage listings on the Exchange. This may promote competition
among listing venues, and an issuer seeking to list its securities
could benefit from the potential impact such competition has on listing
fees or quoting obligations across venues.
The Commission also finds that the proposal is not unfairly
discriminatory. Registration as an Exchange market maker is available
to all Exchange members that satisfy the requirements of Exchange Rule
11.7, and all Exchange market makers are eligible to apply to become
CLPs. The Commission finds further that the proposal to establish
procedures for the registration, withdrawal, and disqualification of
CLPs, and the CLP quoting requirements, are consistent with the
requirements of Section 6(b)(5) of the Act. The Exchange's proposed
rules provide an objective process by which a member could become a CLP
and for appropriate oversight by the Exchange to monitor for continued
compliance with the terms of these provisions. The Commission also
notes that these provisions, including the CLP quoting requirements,
are similar to those of at least one other exchange.\12\ As a result,
the Commission believes that these aspects of the proposal are
consistent with the requirements of the Act.
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\12\ See NYSE Rule 107B (governing Supplemental Liquidity
Providers).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-BATS-2011-051) be, and it
hereby is, approved.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-2801 Filed 2-7-12; 8:45 am]
BILLING CODE 8011-01-P
