Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend BATS Rule 14.11, Entitled “Other Securities”, 47444-47448 [2012-19350]
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47444
Federal Register / Vol. 77, No. 153 / Wednesday, August 8, 2012 / Notices
rule 12b–1 under the Act. Applicants
request an order under section 17(d) and
rule 17d–1 under the Act to permit the
Funds to impose asset-based service
and/or distribution fees. Applicants
have agreed to comply with rules 12b–
1 and 17d–3 as if those rules applied to
closed-end investment companies.
Applicants’ Condition
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Applicants will comply with the
provisions of rules 12b–1, 17d–3 and
18f–3 under the Act, as amended from
time to time or replaced, as if those
rules applied to closed-end management
investment companies, and will comply
with NASD Conduct Rule 2830, as
amended from time to time or replaced,
as if that rule applied to all closed-end
management investment companies.
Additionally, in the event the Fund
imposes a CDSC, the Applicants will
comply with the provisions of rules 6c–
10 and 22d–1 under the Act, as
amended from time to time or replaced,
as if those rules applied to closed-end
management investment companies,
and to the extent the Fund may
determine to waive, impose scheduled
variations of, or eliminate the early
repurchase fee, it will do so consistently
with the requirements of rule 22d–1
under the Act, as amended from time to
time or replaced.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
BILLING CODE 8011–01–P
[Release No. 34–67558; File No. SR–BATS–
2012–030]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of
Proposed Rule Change To Amend
BATS Rule 14.11, Entitled ‘‘Other
Securities’’
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August 1, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that,
on July 20, 2012, BATS Exchange, Inc.
(‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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.
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
2 17
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 14.11, entitled ‘‘Other Securities,’’
to modify the criteria for certain
securities listed on BATS Exchange as
Index Fund Shares. 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.
The proposed rule text can be found in
Exhibit 5.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2012–19366 Filed 8–7–12; 8:45 am]
1 15
change as described in Items I, II, and
III 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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Proposal To Amend Index Fund Shares
Rules
The Exchange proposes certain
changes to Rule 14.11(c), relating to
Index Fund Shares, to conform the
Exchange’s listings criteria for Index
Fund Shares with the analogous criteria
in place for NYSE Arca Equities, Inc.
(‘‘NYSE Arca’’).3 Specifically, the
Exchange proposes to amend Exchange
Rule 14.11(c) (‘‘Index Fund Shares’’) to:
(1) Modify the weight and volume
requirement for component stocks
comprising the applicable index or
portfolio for any U.S. index or portfolio
and any international or global index or
portfolio upon which Index Fund
Shares are based; (2) exclude Index
Fund Shares, Portfolio Depositary
3 The Exchange notes that NYSE Arca uses the
term Investment Company Units to describe the
same products that the Exchange calls Index Fund
Shares.
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Receipts, Trust Issued Receipts, and
Managed Fund Shares (collectively,
‘‘Derivative Securities Products’’)4 when
applying the quantitative generic listing
criteria in Rule 14.11(c); and (3) modify
the minimum number of component
stocks for any U.S. index or portfolio
and any international or global index or
portfolio upon which Index Fund
Shares are based to adopt certain
exceptions for any index or portfolio
that is partially or wholly comprised of
Index Fund Shares or other Derivative
Securities Products.
Rule 14.11(c)(3) provides that the
Exchange may approve a series of Index
Fund Shares for listing and trading
pursuant to Rule 19b–4(e)5 under the
Act if such series satisfies the criteria set
forth in that rule. The Exchange
proposes to amend Rule 14.11(c)(3) to
amend the index weight requirements
and adopt notional volume traded per
month6 to the initial listing standards
for Index Fund Shares, commonly
referred to as exchange-traded funds.
The Exchange proposes to amend the
minimum component stock weight
requirement for monthly trading
volumes from 90% to 70% of the weight
of the underlying index. In addition, the
Exchange proposes to adopt an
alternative notional volume traded per
month.
Currently for U.S. component stock
indexes, Rule 14.11(c)(3)(A)(i)(b)
provides that component stocks that in
the aggregate account for at least 90% of
the weight of the index or portfolio each
shall have a minimum monthly trading
volume during each of the last six
months of at least 250,000 shares. The
Exchange proposes to amend the
minimum component stock weight
requirement from 90% to 70% of the
weight of the underlying index or
portfolio. Further, the Exchange is
proposing to adopt an average minimum
trading volume requirement of 250,000
shares over a six-month period instead
of in each of the last six months and to
adopt a notional volume traded per
month of $25,000,000 averaged over the
4 Rule 14.11 includes criteria for derivative
securities that may be listed or traded on the
Exchange, such as Portfolio Depositary Receipts,
Trust Issued Receipts, and Managed Fund Shares.
5 17 CFR 240.19b–4(e). Rule 19b–4(e) provides
that the listing and trading of a new derivative
securities product by a self-regulatory organization
(‘‘SRO’’) shall not be deemed a proposed rule
change, pursuant to Rule 19b–4(c)(1), if the
Commission has approved, pursuant to Section
19(b) of the Exchange Act, the SRO’s trading rules,
procedures, and listing standards for the product
class that would include the new derivatives
securities product, and the SRO has a surveillance
program for the product class.
6 The notional volume traded per month is the
number of shares traded in a calendar month
multiplied by the monthly closing price.
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last six months as an option for meeting
the listing requirements.
Currently for international or global
indexes, Rule 14.11(c)(3)(A)(ii)(b)
provides that component stocks that in
the aggregate account for at least 90% of
the weight of the index or portfolio each
shall have a minimum worldwide
monthly trading volume during each of
the last six months of at least 250,000
shares. The Exchange proposes to
amend the minimum component stock
weight requirement from 90% to 70% of
the weight of the underlying index or
portfolio. Further, the Exchange is
proposing to adopt an average minimum
trading volume requirement of 250,000
shares over a six-month period instead
of in each of the last six months and to
adopt a worldwide notional volume
traded per month of $25,000,000
averaged over the last six months as an
option for meeting the listing
requirements. Further, the Exchange
proposes to clarify that the component
stock trading volumes are determined
on a global basis.
With regard to the Exchange’s
proposal to amend the minimum
component stock weight requirement for
monthly trading volumes from 90% to
70% of the weight of the underlying
index, the Exchange believes the
proposed standard reasonably ensures
that securities with substantial monthly
trading volumes account for a
substantial portion of the underlying
index and, when applied in conjunction
with the other applicable listing
requirements, remain sufficiently broadbased in scope to minimize potential
manipulation. The Exchange notes that
the Commission has previously
approved the listing and trading of
exchange-traded funds based upon
indices that were composed of stocks
that did not meet the 90% monthly
trading volume weight, but were above
the proposed 70% monthly trading
volume weight criteria.7 In addition,
this standard would conform to existing
7 See Securities Exchange Act Release No. 46306
(August 2, 2002), 67 FR 51916 (August 9, 2002)
(SR–NYSE–2002–28) (approving the following
funds for trading pursuant to unlisted trading
privileges on NYSE: (1) Vanguard Total Stock
Market VIPERs; (2) iShares Russell 2000 Index
Funds; (3) iShares Russell 2000 Value Index Funds;
and (4) iShares Russell 2000 Growth Index Fund);
Securities Exchange Act Release No. 55953 (June
25, 2007), 72 FR 36084 (July 2, 2007) (SR–NYSE–
2007–46) (approving listing on NYSE of
HealthShares Orthopedic Repair Exchange-Traded
Fund); and Securities Exchange Act Release No.
56695 (October 24, 2007), 72 FR 61413 (October 30,
2007) (SR–NYSEArca–2007–111) (approving listing
on NYSE Arca of HealthShares Ophthalmology
Exchange-Traded Fund).
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NYSE Arca requirements approved by
the Commission.8
With respect to adopting, as an
alternative to monthly trading volume,
the notional volume traded for each of
the last six months to the initial listing
standards for both domestic and
international indexes, the Exchange
believes that notional volume traded
averaged per month is a better measure
of the liquidity of component stocks of
the underlying index or indexes.
Specifically, notional volume nullifies
the volume discrepancies that generally
occur between low priced and high
priced stocks.9
With respect to adopting a six-month
average, instead of in each of the last
six-months, criterion for volume and
notional volume, the Exchange believes
that the averaged six-month period is a
better indicator of the current liquidity
on an index and serves to eliminate
seasonal volume fluctuations of
component securities. Further,
investors, exchange-traded fund issuers,
and third-party index sponsors would
also benefit from the Exchange’s ability
to list—without the delay associated
with a stand-alone rule filing—Index
Fund Shares based on a broader group
of indexes promoting competition.
The Exchange also proposes to
exclude Derivative Securities Products
when applying the quantitative listing
requirements of Rule 14.11(c)(3)(A)(i)(a),
(b), and (c) and 14.11(c)(3)(A)(ii)(a), (b),
and (c) relating to listing of Index Fund
Shares based on a U.S index or portfolio
or an international or global index or
portfolio, respectively. Component
stocks in the aggregate, excluding
Derivative Securities Products, would
be required to meet the criteria of these
provisions. Thus, for example, when
determining the component weight for
the most heavily weighted stock and the
five most heavily weighted component
stocks for an underlying index that
includes a Derivative Securities
Product, the weight of any Derivative
Securities Products included in the
underlying index or portfolio would not
be considered.
In addition, the Exchange proposes to
modify the requirement in Rule
14.11(c)(3)(A)(i)(d) that an index or
portfolio shall include a minimum of 13
component stocks for an index or
8 See NYSE Arca Rule 5.2(j)(3), Commentary
.01(a)(A) and (B); see also Securities Exchange Act
Release No. 61240 (December 24, 2009), 75 FR 168
(January 4, 2010) (SR–NYSEArca–2009–101)
(approving proposed rule change to amend NYSE
Arca Equities Rule 5.2(j)(3)).
9 For example, a stock priced at $10 per share that
trades 2,500,000 shares in a month has a notional
volume of $25,000,000. Conversely, a stock priced
at $100 per share that trades 250,000 shares in a
month has a notional volume of $25,000,000.
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47445
portfolio that includes Derivative
Securities Products. Specifically, the
Exchange proposes that there shall be
no minimum number of component
stocks if (a) one or more series of Index
Fund Shares or Portfolio Depositary
Receipts (as defined in Exchange Rule
14.11(b)) constitute, at least in part,
components underlying a series of Index
Fund Shares, or (b) one or more series
of Derivative Securities Products
account for 100% of the weight of the
index or portfolio. Thus, for example, if
the index or portfolio underlying a
series of Index Fund Shares includes
one or more series of Index Fund Shares
or Portfolio Depositary Receipts, or if it
consists entirely of other Derivative
Securities Products, then there would
not be required to be any minimum
number of component stocks (i.e., one
or more components would be
acceptable). However, if the index or
portfolio consists of Derivative
Securities Products other than Index
Fund Shares or Portfolio Depositary
Receipts (e.g., Managed Fund Shares) as
well as securities that are not Derivative
Securities Products (e.g., common
stocks), then there would have to be at
least 13 components in the underlying
index or portfolio.
In addition, the Exchange proposes to
modify the requirement in
14.11(c)(3)(A)(ii)(d) that an index or
portfolio shall include a minimum of 20
component stocks for an international or
global index or portfolio that includes
Derivative Securities Products.
Specifically, the Exchange proposes that
there shall be no minimum number of
component stocks if (a) one or more
series of Index Fund Shares or Portfolio
Depositary Receipts (as defined in
Exchange Rule 14.11(b)) constitute, at
least in part, components underlying a
series of Index Fund Shares, or (b) one
or more series of Derivative Securities
Products account for 100% of the
weight of the index or portfolio. Thus,
for example, if the index or portfolio
underlying a series of Index Fund
Shares includes one or more series of
Index Fund Shares or Portfolio
Depositary Receipts, or if it consists
entirely of other Derivative Securities
Products, then there would not be
required to be any minimum number of
component stocks (i.e., one or more
components would be acceptable).
However, if the index or portfolio
consists of Derivative Securities
Products other than Index Fund Shares
or Portfolio Depositary Receipts (e.g.,
Managed Fund Shares) as well as
securities that are not Derivative
Securities Products (e.g., common
stocks), then there would have to be at
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Federal Register / Vol. 77, No. 153 / Wednesday, August 8, 2012 / Notices
least 20 components in the underlying
index or portfolio.
The Exchange believes it is
appropriate to exclude Derivative
Securities Products from the generic
criteria specified above for Index Fund
Shares and to adopt the above-described
exceptions in so far as Derivative
Securities Products that may be
included in an index or portfolio
underlying a series of Index Fund
Shares are themselves subject to specific
listing and continued listing
requirements of the national securities
exchange on which they are listed. Such
Derivative Securities Products would
have been listed and traded on a
national securities exchange pursuant to
a filing submitted pursuant to Section
19(b)(2) 10 or 19(b)(3)(A) 11 of the Act, or
would have been listed by a national
securities exchange pursuant to the
requirements of Rule 19b–4(e)12 under
the Act. Finally, Derivative Securities
Products are derivatively priced, and,
therefore, it is not necessary to apply the
generic quantitative criteria (market
capitalization, trading volume, index or
portfolio component weighting)
applicable to non-Derivative Securities
Products (e.g., common stocks) to such
products.
In addition to the changes set forth
above, the Exchange proposes to correct
a typographical error in Rule 14.11(c)(4),
where there currently are two subsections (c)(4)(B). The Exchange
proposes to change the second reference
to (c)(4)(C).
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General Provisions
To the extent not specifically
addressed in the proposed rules, the
following general provisions of the
Exchange’s rules will continue to apply
to all subject securities affected by the
proposed rules (‘‘securities’’).
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
Members in an Information Circular of
the special characteristics and risks
associated with trading the securities.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of the securities (and/or
that the securities are not individually
redeemable); (2) Exchange Rule 3.7,
which imposes suitability obligations on
Exchange Members with respect to
recommending transactions in the
securities to customers; (3) how
information regarding the Intraday
10 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(3)(A).
12 17 CFR 240.19b–4(e).
11 15
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Indicative Value is disseminated; (4) the
risks involved in trading the securities
during the Pre-Opening 13 and After
Hours Trading Sessions 14 when an
updated Intraday Indicative Value will
not be calculated or publicly
disseminated; (5) the requirement that
Members deliver a prospectus to
investors purchasing newly issued
securities prior to or concurrently with
the confirmation of a transaction; and
(6) trading information.
In addition, the Information Circular
will advise Members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the securities. Members
purchasing securities for resale to
investors will deliver a prospectus to
such investors. The Information Circular
will also discuss any exemptive, noaction, and interpretive relief granted by
the Commission from any rules under
the Act.
In addition, the Information Circular
will reference that the securities are
subject to various fees and expenses
described in the registration statement.
The Information Circular will also
disclose the trading hours of the
securities and, if applicable, the Net
Asset Value (‘‘NAV’’) calculation time
for the securities. The Information
Circular will disclose that information
about the securities and the
corresponding indexes, if applicable,
will be publicly available on the Web
site for the securities.
Trading Rules
The Exchange deems the securities to
be equity securities, thus rendering
trading in the securities subject to the
Exchange’s existing rules governing the
trading of equity securities. The
securities will trade on the Exchange
from 8:00 a.m. until 5:00 p.m. Eastern
Time. The Exchange has appropriate
rules to facilitate transactions in the
securities during all trading sessions.
The minimum price increment for
quoting and entry of orders in equity
securities traded on the Exchange is
$0.01, with the exception of securities
that are priced less than $1.00 for which
the minimum price increment for order
entry is $0.0001.15
13 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
14 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
15 See, e.g., Rule 11.11(a). Regulation NMS Rule
612, Minimum Pricing Increment, provides:
a. No national securities exchange, national
securities association, alternative trading system,
vendor, or broker or dealer shall display, rank, or
accept from any person a bid or offer, an order, or
an indication of interest in any NMS stock priced
in an increment smaller than $0.01 if that bid or
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Surveillance
The Exchange believes that its
surveillance procedures are adequate to
address any concerns about the trading
of the securities on the Exchange.
Trading of the securities on the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including the
securities. The Exchange may obtain
information via the Intermarket
Surveillance Group (‘‘ISG’’) from other
exchanges who are members or affiliates
of the ISG 16 or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. The Exchange has a general
policy prohibiting the distribution of
material, non-public information by its
employees.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the securities.
Trading in the securities may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the securities
inadvisable. These may include: (1) The
extent to which trading in the
underlying asset or assets is not
occurring; or (2) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present. In addition, trading
in the securities will be subject to
trading halts caused by extraordinary
market volatility pursuant to Rule 11.18
or by the halt or suspension of the
trading of the current underlying asset
or assets.
If the applicable Intraday Indicative
Value, value of the underlying index, or
the value of the underlying asset or
assets (e.g., securities, commodities,
currencies, futures contracts, or other
assets) is not being disseminated as
required, the Exchange may halt trading
offer, order, or indication of interest is priced equal
to or greater than $1.00 per share.
b. No national securities exchange, national
securities association, alternative trading system,
vendor, or broker or dealer shall display, rank, or
accept from any person a bid or offer, an order, or
an indication of interest in any NMS stock priced
in an increment smaller than $0.0001 if that bid or
offer, order, or indication of interest is priced less
than $1.00 per share.
c. The Commission, by order, may exempt from
the provisions of this section, either
unconditionally or on specified terms and
conditions, any person, security, quotation, or
order, or any class or classes of persons, securities,
quotations, or orders, if the Commission determines
that such exemption is necessary or appropriate in
the public interest, and is consistent with the
protection of investors.
16 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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during the day in which such
interruption to the dissemination
occurs. If the interruption to the
dissemination of the applicable Intraday
Indicative Value, value of the
underlying index, or the value of the
underlying asset or assets persists past
the trading day in which it occurred, the
Exchange will halt trading no later than
the beginning of the trading day
following the interruption. In addition,
if the Exchange becomes aware that the
NAV with respect to a series of the
securities is not disseminated to all
market participants at the same time, it
will halt trading in such series until
such time as the NAV is available to all
market participants.
Suitability
Currently, Exchange Rule 3.7 governs
Recommendations to Customers
(Suitability). Prior to the
commencement of trading of any
inverse, leveraged, or inverse leveraged
securities, the Exchange will inform its
Members of the suitability requirements
of the Exchange Rule 3.7 in an
Information Circular. Specifically,
Members will be reminded in the
Information Circular that, in
recommending transactions in these
securities, they must have a reasonable
basis to believe that (1) the
recommendation is suitable for a
customer given reasonable inquiry
concerning the customer’s investment
objectives, financial situation, needs,
and any other information known by
such Member, and (2) the customer can
evaluate the special characteristics, and
is able to bear the financial risks, of an
investment in the securities. In
connection with the suitability
obligation, the Information Circular will
also provide that Members must make
reasonable efforts to obtain the
following information: (1) The
customer’s financial status; (2) the
customer’s tax status; (3) the customer’s
investment objectives; and (4) such
other information used or considered to
be reasonable by such Member or
registered representative in making
recommendations to the customer.
In addition, FINRA has implemented
increased sales practice and customer
margin requirements for FINRA
members applicable to inverse,
leveraged, and inverse leveraged
securities and options on such
securities, as described in FINRA
Regulatory Notices 09–31 (June 2009),
09–53 (August 2009) and 09–65
(November 2009) (‘‘FINRA Regulatory
Notices’’). Members that carry customer
accounts will be required to follow the
FINRA guidance set forth in the FINRA
Regulatory Notices. The Information
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Circular will reference the FINRA
Regulatory Notices regarding sales
practice and customer margin
requirements for FINRA members
applicable to inverse, leveraged, and
inverse leveraged securities and options
on such securities.
The Exchange notes that, for such
inverse, leveraged, and inverse
leveraged securities, the corresponding
funds seek leveraged, inverse, or
leveraged inverse returns on a daily
basis, and do not seek to achieve their
stated investment objective over a
period of time greater than one day
because compounding prevents the
funds from perfectly achieving such
results. Accordingly, results over
periods of time greater than one day
typically will not be a leveraged
multiple (+200%), the inverse (-100%),
or a leveraged inverse multiple (-200%)
of the period return of the applicable
benchmark and may differ significantly
from these multiples. The Exchange’s
Information Circular, as well as the
applicable registration statement, will
provide information regarding the
suitability of an investment in such
securities.
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.17 Specifically, the proposed change
is consistent with Section 6(b)(5) of the
Act,18 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 Exchange believes that the
proposed rules will facilitate the listing
and trading of additional types of
exchange-traded products on the
Exchange that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
In addition, the listing and trading
criteria set forth in the proposed rules
are intended to protect investors and the
public interest.
The Exchange’s listing requirements
as proposed herein are at least as
stringent as those of another national
securities exchange and, consequently,
the proposed rule change is consistent
17 15
18 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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47447
with the protection of investors and the
public interest. Additionally, the
proposal is designed to prevent
fraudulent and manipulative acts and
practices, as all of the proposed new
products are subject to existing
Exchange trading rules, together with
surveillance procedures, suitability, and
prospectus requirements, and requisite
Exchange approvals, all set forth above.
The proposal is also designed to
promote just and equitable principles of
trade by way of initial and continued
listing standards which, if not
maintained, will result in the
discontinuation of trading in the
affected products. These requirements,
together with the applicable Exchange
equity trading rules (which apply to the
proposed products), ensure that no
investor would have an unfair
advantage over another respecting the
trading of the subject products. On the
contrary, all investors will have the
same access to, and use of, information
concerning the specific products and
trading in the specific products, all to
the benefit of public customers and the
marketplace as a whole.
Furthermore, the proposal is designed
to remove impediments to and perfect
the mechanism of a free and open
market and a national market system by
adopting listing standards that will lead
ultimately to the trading of the proposed
new products on the Exchange, just as
they are currently traded on other
exchanges. The Exchange believes that
individuals and entities permitted to
make markets on the Exchange in the
proposed new products should enhance
competition within the mechanism of a
free and open market and a national
market system, and customers and other
investors in the national market system
should benefit from more depth and
liquidity in the market for the proposed
new products.
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 Changes 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 (i)
E:\FR\FM\08AUN1.SGM
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47448
Federal Register / Vol. 77, No. 153 / Wednesday, August 8, 2012 / Notices
as the Commission may designate up to
90 days of such date 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:
wreier-aviles on DSK7SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BATS–2012–030 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–2012–030. This file
number should be included on the
subject line if email 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 Section, 100 F Street, NE.,
Washington, DC 20549, on official
business days between 10:00 a.m. and
3:00 p.m. Copies of the filing will also
be available for inspection and copying
at the Exchange’s principal office. All
comments received will be posted
without change; the Commission does
not edit personal identifying
VerDate Mar<15>2010
15:11 Aug 07, 2012
Jkt 226001
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–BATS–2012–030 and
should be submitted on or before
August 29, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–19350 Filed 8–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67571; File No. SR–BX–
2012–055]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Extend the
Pilot Period of the Trading Pause for
NMS Stocks Other Than Rights and
Warrants
August 2, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 19,
2012, NASDAQ OMX BX, Inc.
(‘‘Exchange’’), filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by 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 extend the
pilot period of the trading pause for
individual NMS stocks other than rights
and warrants, so that the pilot will now
expire on February 4, 2013.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
brackets.
*
*
*
*
*
IM–4120–3. Circuit Breaker Securities Pilot
The provisions of paragraph (a)(11) of this
Rule shall be in effect during a pilot set to
end on February 4, 2013 [July 31, 2012].
During the pilot, the term ‘‘Circuit Breaker
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
Securities’’ shall mean all NMS stocks except
rights and warrants.
*
*
*
*
*
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On June 10, 2010, the Commission
granted accelerated approval for a pilot
period to end December 10, 2010, for a
proposed rule change submitted by the
Exchange, together with related rule
changes of the BATS Exchange, Inc.,
Chicago Board Options Exchange,
Incorporated, Chicago Stock Exchange,
Inc., EDGA Exchange, Inc., EDGX
Exchange, Inc., International Securities
Exchange LLC, The NASDAQ Stock
Market LLC (‘‘NASDAQ’’), New York
Stock Exchange LLC (‘‘NYSE’’), NYSE
MKT LLC (‘‘NYSE MKT’’) (formerly,
NYSE Amex LLC), NYSE Arca, Inc.
(‘‘NYSE Arca’’), and National Stock
Exchange, Inc. (collectively, the
‘‘Exchanges’’), to pause trading during
periods of extraordinary market
volatility in S&P 500 stocks.3 The rules
require the Listing Markets 4 to issue
five-minute trading pauses for
individual securities for which they are
the primary Listing Market if the
transaction price of the security moves
ten percent or more from a price in the
preceding five-minute period. The
Listing Markets are required to notify
the other Exchanges and market
participants of the imposition of a
trading pause by immediately
disseminating a special indicator over
the consolidated tape. Under the rules,
once the Listing Market issues a trading
pause, the other Exchanges are required
to pause trading in the security on their
markets. On September 10, 2010, the
3 Securities Exchange Act Release No. 62252
(June 10, 2010), 75 FR 34186 (June 16, 2010) (SR–
BX–2010–037).
4 The term ‘‘Listing Markets’’ refers collectively to
NYSE, NYSE MKT, NYSE Arca, and the Exchange.
E:\FR\FM\08AUN1.SGM
08AUN1
Agencies
[Federal Register Volume 77, Number 153 (Wednesday, August 8, 2012)]
[Notices]
[Pages 47444-47448]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19350]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67558; File No. SR-BATS-2012-030]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of Proposed Rule Change To Amend BATS Rule 14.11, Entitled
``Other Securities''
August 1, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on July 20, 2012, BATS Exchange, Inc.
(``Exchange'' or ``BATS'') 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 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 Rule 14.11, entitled ``Other
Securities,'' to modify the criteria for certain securities listed on
BATS Exchange as Index Fund Shares. 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. The proposed rule text can be
found in Exhibit 5.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Proposal To Amend Index Fund Shares Rules
The Exchange proposes certain changes to Rule 14.11(c), relating to
Index Fund Shares, to conform the Exchange's listings criteria for
Index Fund Shares with the analogous criteria in place for NYSE Arca
Equities, Inc. (``NYSE Arca'').\3\ Specifically, the Exchange proposes
to amend Exchange Rule 14.11(c) (``Index Fund Shares'') to: (1) Modify
the weight and volume requirement for component stocks comprising the
applicable index or portfolio for any U.S. index or portfolio and any
international or global index or portfolio upon which Index Fund Shares
are based; (2) exclude Index Fund Shares, Portfolio Depositary
Receipts, Trust Issued Receipts, and Managed Fund Shares (collectively,
``Derivative Securities Products'')\4\ when applying the quantitative
generic listing criteria in Rule 14.11(c); and (3) modify the minimum
number of component stocks for any U.S. index or portfolio and any
international or global index or portfolio upon which Index Fund Shares
are based to adopt certain exceptions for any index or portfolio that
is partially or wholly comprised of Index Fund Shares or other
Derivative Securities Products.
---------------------------------------------------------------------------
\3\ The Exchange notes that NYSE Arca uses the term Investment
Company Units to describe the same products that the Exchange calls
Index Fund Shares.
\4\ Rule 14.11 includes criteria for derivative securities that
may be listed or traded on the Exchange, such as Portfolio
Depositary Receipts, Trust Issued Receipts, and Managed Fund Shares.
---------------------------------------------------------------------------
Rule 14.11(c)(3) provides that the Exchange may approve a series of
Index Fund Shares for listing and trading pursuant to Rule 19b-4(e)\5\
under the Act if such series satisfies the criteria set forth in that
rule. The Exchange proposes to amend Rule 14.11(c)(3) to amend the
index weight requirements and adopt notional volume traded per month\6\
to the initial listing standards for Index Fund Shares, commonly
referred to as exchange-traded funds. The Exchange proposes to amend
the minimum component stock weight requirement for monthly trading
volumes from 90% to 70% of the weight of the underlying index. In
addition, the Exchange proposes to adopt an alternative notional volume
traded per month.
---------------------------------------------------------------------------
\5\ 17 CFR 240.19b-4(e). Rule 19b-4(e) provides that the listing
and trading of a new derivative securities product by a self-
regulatory organization (``SRO'') shall not be deemed a proposed
rule change, pursuant to Rule 19b-4(c)(1), if the Commission has
approved, pursuant to Section 19(b) of the Exchange Act, the SRO's
trading rules, procedures, and listing standards for the product
class that would include the new derivatives securities product, and
the SRO has a surveillance program for the product class.
\6\ The notional volume traded per month is the number of shares
traded in a calendar month multiplied by the monthly closing price.
---------------------------------------------------------------------------
Currently for U.S. component stock indexes, Rule
14.11(c)(3)(A)(i)(b) provides that component stocks that in the
aggregate account for at least 90% of the weight of the index or
portfolio each shall have a minimum monthly trading volume during each
of the last six months of at least 250,000 shares. The Exchange
proposes to amend the minimum component stock weight requirement from
90% to 70% of the weight of the underlying index or portfolio. Further,
the Exchange is proposing to adopt an average minimum trading volume
requirement of 250,000 shares over a six-month period instead of in
each of the last six months and to adopt a notional volume traded per
month of $25,000,000 averaged over the
[[Page 47445]]
last six months as an option for meeting the listing requirements.
Currently for international or global indexes, Rule
14.11(c)(3)(A)(ii)(b) provides that component stocks that in the
aggregate account for at least 90% of the weight of the index or
portfolio each shall have a minimum worldwide monthly trading volume
during each of the last six months of at least 250,000 shares. The
Exchange proposes to amend the minimum component stock weight
requirement from 90% to 70% of the weight of the underlying index or
portfolio. Further, the Exchange is proposing to adopt an average
minimum trading volume requirement of 250,000 shares over a six-month
period instead of in each of the last six months and to adopt a
worldwide notional volume traded per month of $25,000,000 averaged over
the last six months as an option for meeting the listing requirements.
Further, the Exchange proposes to clarify that the component stock
trading volumes are determined on a global basis.
With regard to the Exchange's proposal to amend the minimum
component stock weight requirement for monthly trading volumes from 90%
to 70% of the weight of the underlying index, the Exchange believes the
proposed standard reasonably ensures that securities with substantial
monthly trading volumes account for a substantial portion of the
underlying index and, when applied in conjunction with the other
applicable listing requirements, remain sufficiently broad-based in
scope to minimize potential manipulation. The Exchange notes that the
Commission has previously approved the listing and trading of exchange-
traded funds based upon indices that were composed of stocks that did
not meet the 90% monthly trading volume weight, but were above the
proposed 70% monthly trading volume weight criteria.\7\ In addition,
this standard would conform to existing NYSE Arca requirements approved
by the Commission.\8\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 46306 (August 2,
2002), 67 FR 51916 (August 9, 2002) (SR-NYSE-2002-28) (approving the
following funds for trading pursuant to unlisted trading privileges
on NYSE: (1) Vanguard Total Stock Market VIPERs; (2) iShares Russell
2000 Index Funds; (3) iShares Russell 2000 Value Index Funds; and
(4) iShares Russell 2000 Growth Index Fund); Securities Exchange Act
Release No. 55953 (June 25, 2007), 72 FR 36084 (July 2, 2007) (SR-
NYSE-2007-46) (approving listing on NYSE of HealthShares Orthopedic
Repair Exchange-Traded Fund); and Securities Exchange Act Release
No. 56695 (October 24, 2007), 72 FR 61413 (October 30, 2007) (SR-
NYSEArca-2007-111) (approving listing on NYSE Arca of HealthShares
Ophthalmology Exchange-Traded Fund).
\8\ See NYSE Arca Rule 5.2(j)(3), Commentary .01(a)(A) and (B);
see also Securities Exchange Act Release No. 61240 (December 24,
2009), 75 FR 168 (January 4, 2010) (SR-NYSEArca-2009-101) (approving
proposed rule change to amend NYSE Arca Equities Rule 5.2(j)(3)).
---------------------------------------------------------------------------
With respect to adopting, as an alternative to monthly trading
volume, the notional volume traded for each of the last six months to
the initial listing standards for both domestic and international
indexes, the Exchange believes that notional volume traded averaged per
month is a better measure of the liquidity of component stocks of the
underlying index or indexes. Specifically, notional volume nullifies
the volume discrepancies that generally occur between low priced and
high priced stocks.\9\
---------------------------------------------------------------------------
\9\ For example, a stock priced at $10 per share that trades
2,500,000 shares in a month has a notional volume of $25,000,000.
Conversely, a stock priced at $100 per share that trades 250,000
shares in a month has a notional volume of $25,000,000.
---------------------------------------------------------------------------
With respect to adopting a six-month average, instead of in each of
the last six-months, criterion for volume and notional volume, the
Exchange believes that the averaged six-month period is a better
indicator of the current liquidity on an index and serves to eliminate
seasonal volume fluctuations of component securities. Further,
investors, exchange-traded fund issuers, and third-party index sponsors
would also benefit from the Exchange's ability to list--without the
delay associated with a stand-alone rule filing--Index Fund Shares
based on a broader group of indexes promoting competition.
The Exchange also proposes to exclude Derivative Securities
Products when applying the quantitative listing requirements of Rule
14.11(c)(3)(A)(i)(a), (b), and (c) and 14.11(c)(3)(A)(ii)(a), (b), and
(c) relating to listing of Index Fund Shares based on a U.S index or
portfolio or an international or global index or portfolio,
respectively. Component stocks in the aggregate, excluding Derivative
Securities Products, would be required to meet the criteria of these
provisions. Thus, for example, when determining the component weight
for the most heavily weighted stock and the five most heavily weighted
component stocks for an underlying index that includes a Derivative
Securities Product, the weight of any Derivative Securities Products
included in the underlying index or portfolio would not be considered.
In addition, the Exchange proposes to modify the requirement in
Rule 14.11(c)(3)(A)(i)(d) that an index or portfolio shall include a
minimum of 13 component stocks for an index or portfolio that includes
Derivative Securities Products. Specifically, the Exchange proposes
that there shall be no minimum number of component stocks if (a) one or
more series of Index Fund Shares or Portfolio Depositary Receipts (as
defined in Exchange Rule 14.11(b)) constitute, at least in part,
components underlying a series of Index Fund Shares, or (b) one or more
series of Derivative Securities Products account for 100% of the weight
of the index or portfolio. Thus, for example, if the index or portfolio
underlying a series of Index Fund Shares includes one or more series of
Index Fund Shares or Portfolio Depositary Receipts, or if it consists
entirely of other Derivative Securities Products, then there would not
be required to be any minimum number of component stocks (i.e., one or
more components would be acceptable). However, if the index or
portfolio consists of Derivative Securities Products other than Index
Fund Shares or Portfolio Depositary Receipts (e.g., Managed Fund
Shares) as well as securities that are not Derivative Securities
Products (e.g., common stocks), then there would have to be at least 13
components in the underlying index or portfolio.
In addition, the Exchange proposes to modify the requirement in
14.11(c)(3)(A)(ii)(d) that an index or portfolio shall include a
minimum of 20 component stocks for an international or global index or
portfolio that includes Derivative Securities Products. Specifically,
the Exchange proposes that there shall be no minimum number of
component stocks if (a) one or more series of Index Fund Shares or
Portfolio Depositary Receipts (as defined in Exchange Rule 14.11(b))
constitute, at least in part, components underlying a series of Index
Fund Shares, or (b) one or more series of Derivative Securities
Products account for 100% of the weight of the index or portfolio.
Thus, for example, if the index or portfolio underlying a series of
Index Fund Shares includes one or more series of Index Fund Shares or
Portfolio Depositary Receipts, or if it consists entirely of other
Derivative Securities Products, then there would not be required to be
any minimum number of component stocks (i.e., one or more components
would be acceptable). However, if the index or portfolio consists of
Derivative Securities Products other than Index Fund Shares or
Portfolio Depositary Receipts (e.g., Managed Fund Shares) as well as
securities that are not Derivative Securities Products (e.g., common
stocks), then there would have to be at
[[Page 47446]]
least 20 components in the underlying index or portfolio.
The Exchange believes it is appropriate to exclude Derivative
Securities Products from the generic criteria specified above for Index
Fund Shares and to adopt the above-described exceptions in so far as
Derivative Securities Products that may be included in an index or
portfolio underlying a series of Index Fund Shares are themselves
subject to specific listing and continued listing requirements of the
national securities exchange on which they are listed. Such Derivative
Securities Products would have been listed and traded on a national
securities exchange pursuant to a filing submitted pursuant to Section
19(b)(2) \10\ or 19(b)(3)(A) \11\ of the Act, or would have been listed
by a national securities exchange pursuant to the requirements of Rule
19b-4(e)\12\ under the Act. Finally, Derivative Securities Products are
derivatively priced, and, therefore, it is not necessary to apply the
generic quantitative criteria (market capitalization, trading volume,
index or portfolio component weighting) applicable to non-Derivative
Securities Products (e.g., common stocks) to such products.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(2).
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
In addition to the changes set forth above, the Exchange proposes
to correct a typographical error in Rule 14.11(c)(4), where there
currently are two sub-sections (c)(4)(B). The Exchange proposes to
change the second reference to (c)(4)(C).
General Provisions
To the extent not specifically addressed in the proposed rules, the
following general provisions of the Exchange's rules will continue to
apply to all subject securities affected by the proposed rules
(``securities'').
Information Circular
Prior to the commencement of trading, the Exchange will inform its
Members in an Information Circular of the special characteristics and
risks associated with trading the securities. Specifically, the
Information Circular will discuss the following: (1) The procedures for
purchases and redemptions of the securities (and/or that the securities
are not individually redeemable); (2) Exchange Rule 3.7, which imposes
suitability obligations on Exchange Members with respect to
recommending transactions in the securities to customers; (3) how
information regarding the Intraday Indicative Value is disseminated;
(4) the risks involved in trading the securities during the Pre-Opening
\13\ and After Hours Trading Sessions \14\ when an updated Intraday
Indicative Value will not be calculated or publicly disseminated; (5)
the requirement that Members deliver a prospectus to investors
purchasing newly issued securities prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
---------------------------------------------------------------------------
\13\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
\14\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
---------------------------------------------------------------------------
In addition, the Information Circular will advise Members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the securities. Members purchasing securities for resale
to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act.
In addition, the Information Circular will reference that the
securities are subject to various fees and expenses described in the
registration statement. The Information Circular will also disclose the
trading hours of the securities and, if applicable, the Net Asset Value
(``NAV'') calculation time for the securities. The Information Circular
will disclose that information about the securities and the
corresponding indexes, if applicable, will be publicly available on the
Web site for the securities.
Trading Rules
The Exchange deems the securities to be equity securities, thus
rendering trading in the securities subject to the Exchange's existing
rules governing the trading of equity securities. The securities will
trade on the Exchange from 8:00 a.m. until 5:00 p.m. Eastern Time. The
Exchange has appropriate rules to facilitate transactions in the
securities during all trading sessions. The minimum price increment for
quoting and entry of orders in equity securities traded on the Exchange
is $0.01, with the exception of securities that are priced less than
$1.00 for which the minimum price increment for order entry is
$0.0001.\15\
---------------------------------------------------------------------------
\15\ See, e.g., Rule 11.11(a). Regulation NMS Rule 612, Minimum
Pricing Increment, provides:
a. No national securities exchange, national securities
association, alternative trading system, vendor, or broker or dealer
shall display, rank, or accept from any person a bid or offer, an
order, or an indication of interest in any NMS stock priced in an
increment smaller than $0.01 if that bid or offer, order, or
indication of interest is priced equal to or greater than $1.00 per
share.
b. No national securities exchange, national securities
association, alternative trading system, vendor, or broker or dealer
shall display, rank, or accept from any person a bid or offer, an
order, or an indication of interest in any NMS stock priced in an
increment smaller than $0.0001 if that bid or offer, order, or
indication of interest is priced less than $1.00 per share.
c. The Commission, by order, may exempt from the provisions of
this section, either unconditionally or on specified terms and
conditions, any person, security, quotation, or order, or any class
or classes of persons, securities, quotations, or orders, if the
Commission determines that such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
---------------------------------------------------------------------------
Surveillance
The Exchange believes that its surveillance procedures are adequate
to address any concerns about the trading of the securities on the
Exchange. Trading of the securities on the Exchange will be subject to
the Exchange's surveillance procedures for derivative products,
including the securities. The Exchange may obtain information via the
Intermarket Surveillance Group (``ISG'') from other exchanges who are
members or affiliates of the ISG \16\ or with which the Exchange has
entered into a comprehensive surveillance sharing agreement. The
Exchange has a general policy prohibiting the distribution of material,
non-public information by its employees.
---------------------------------------------------------------------------
\16\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
---------------------------------------------------------------------------
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the securities. Trading in the securities may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the securities inadvisable. These may
include: (1) The extent to which trading in the underlying asset or
assets is not occurring; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. In addition, trading in the securities will be
subject to trading halts caused by extraordinary market volatility
pursuant to Rule 11.18 or by the halt or suspension of the trading of
the current underlying asset or assets.
If the applicable Intraday Indicative Value, value of the
underlying index, or the value of the underlying asset or assets (e.g.,
securities, commodities, currencies, futures contracts, or other
assets) is not being disseminated as required, the Exchange may halt
trading
[[Page 47447]]
during the day in which such interruption to the dissemination occurs.
If the interruption to the dissemination of the applicable Intraday
Indicative Value, value of the underlying index, or the value of the
underlying asset or assets persists past the trading day in which it
occurred, the Exchange will halt trading no later than the beginning of
the trading day following the interruption. In addition, if the
Exchange becomes aware that the NAV with respect to a series of the
securities is not disseminated to all market participants at the same
time, it will halt trading in such series until such time as the NAV is
available to all market participants.
Suitability
Currently, Exchange Rule 3.7 governs Recommendations to Customers
(Suitability). Prior to the commencement of trading of any inverse,
leveraged, or inverse leveraged securities, the Exchange will inform
its Members of the suitability requirements of the Exchange Rule 3.7 in
an Information Circular. Specifically, Members will be reminded in the
Information Circular that, in recommending transactions in these
securities, they must have a reasonable basis to believe that (1) the
recommendation is suitable for a customer given reasonable inquiry
concerning the customer's investment objectives, financial situation,
needs, and any other information known by such Member, and (2) the
customer can evaluate the special characteristics, and is able to bear
the financial risks, of an investment in the securities. In connection
with the suitability obligation, the Information Circular will also
provide that Members must make reasonable efforts to obtain the
following information: (1) The customer's financial status; (2) the
customer's tax status; (3) the customer's investment objectives; and
(4) such other information used or considered to be reasonable by such
Member or registered representative in making recommendations to the
customer.
In addition, FINRA has implemented increased sales practice and
customer margin requirements for FINRA members applicable to inverse,
leveraged, and inverse leveraged securities and options on such
securities, as described in FINRA Regulatory Notices 09-31 (June 2009),
09-53 (August 2009) and 09-65 (November 2009) (``FINRA Regulatory
Notices''). Members that carry customer accounts will be required to
follow the FINRA guidance set forth in the FINRA Regulatory Notices.
The Information Circular will reference the FINRA Regulatory Notices
regarding sales practice and customer margin requirements for FINRA
members applicable to inverse, leveraged, and inverse leveraged
securities and options on such securities.
The Exchange notes that, for such inverse, leveraged, and inverse
leveraged securities, the corresponding funds seek leveraged, inverse,
or leveraged inverse returns on a daily basis, and do not seek to
achieve their stated investment objective over a period of time greater
than one day because compounding prevents the funds from perfectly
achieving such results. Accordingly, results over periods of time
greater than one day typically will not be a leveraged multiple
(+200%), the inverse (-100%), or a leveraged inverse multiple (-200%)
of the period return of the applicable benchmark and may differ
significantly from these multiples. The Exchange's Information
Circular, as well as the applicable registration statement, will
provide information regarding the suitability of an investment in such
securities.
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.\17\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\18\
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 Exchange believes that the proposed rules will facilitate the
listing and trading of additional types of exchange-traded products on
the Exchange that will enhance competition among market participants,
to the benefit of investors and the marketplace. In addition, the
listing and trading criteria set forth in the proposed rules are
intended to protect investors and the public interest.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange's listing requirements as proposed herein are at least
as stringent as those of another national securities exchange and,
consequently, the proposed rule change is consistent with the
protection of investors and the public interest. Additionally, the
proposal is designed to prevent fraudulent and manipulative acts and
practices, as all of the proposed new products are subject to existing
Exchange trading rules, together with surveillance procedures,
suitability, and prospectus requirements, and requisite Exchange
approvals, all set forth above.
The proposal is also designed to promote just and equitable
principles of trade by way of initial and continued listing standards
which, if not maintained, will result in the discontinuation of trading
in the affected products. These requirements, together with the
applicable Exchange equity trading rules (which apply to the proposed
products), ensure that no investor would have an unfair advantage over
another respecting the trading of the subject products. On the
contrary, all investors will have the same access to, and use of,
information concerning the specific products and trading in the
specific products, all to the benefit of public customers and the
marketplace as a whole.
Furthermore, the proposal is designed to remove impediments to and
perfect the mechanism of a free and open market and a national market
system by adopting listing standards that will lead ultimately to the
trading of the proposed new products on the Exchange, just as they are
currently traded on other exchanges. The Exchange believes that
individuals and entities permitted to make markets on the Exchange in
the proposed new products should enhance competition within the
mechanism of a free and open market and a national market system, and
customers and other investors in the national market system should
benefit from more depth and liquidity in the market for the proposed
new products.
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 Changes 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 (i)
[[Page 47448]]
as the Commission may designate up to 90 days of such date 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 email to rule-comments@sec.gov. Please include
File Number SR-BATS-2012-030 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-2012-030. This file
number should be included on the subject line if email 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 Section, 100 F Street,
NE., Washington, DC 20549, on official business days between 10:00 a.m.
and 3:00 p.m. Copies of the filing will also be available for
inspection and copying at the Exchange's principal office. 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-2012-030 and should be
submitted on or before August 29, 2012.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19350 Filed 8-7-12; 8:45 am]
BILLING CODE 8011-01-P