Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by BATS Y-Exchange, Inc. To Amend BYX Rules Related to Price Sliding Functionality, 50193-50198 [2012-20319]
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Federal Register / Vol. 77, No. 161 / Monday, August 20, 2012 / Notices
would enable Benchmark Orders and
Child Orders generated by the
Application to receive unfair or
unreasonable preferential treatment by
NASDAQ (such as through more
effective access to the matching engine)
as compared to orders generated by
market participants that may choose to
use a competing algorithm.
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IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any others
they may have identified with the
Exchange’s proposal. In particular, the
Commission invites the written views of
interested persons concerning whether
the proposal is consistent with Sections
6(b)(5) and 6(b)(8) under the Act, or any
other provision of the Act or rule or
regulation thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval which would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b-4, any request for an
opportunity to make an oral
presentation.21
The Commission is asking that
commenters address the merit of
NASDAQ’s statements in support of the
proposal, in addition to any other
comments they may wish to submit
about the proposed rule change.
Specifically, the Commission is
requesting comment on the following:
• What are commenters’ views as to
whether NASDAQ has adequately
addressed the potential risks to the
market related to the handling of Child
Orders by NASDAQ’s Application? How
could such risks be addressed and
mitigated by NASDAQ?
• What are commenters’ views with
regard to whether NASDAQ’s proposal
to offer trading algorithms that would
compete with other market participants
would impose an undue burden on
competition or result in unfair
discrimination? In this regard, has
NASDAQ provided adequate assurances
and information regarding whether or
not it would offer preferential treatment
to its service as compared to similar
21 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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competing services offered by other
market participants? For example, what
are commenters’ views regarding
whether NASDAQ’s proposal could
allow for more effective access to the
matching engine that could confer
advantages related to timing, priority, or
otherwise?
Interested persons are invited to
submit written data, views and
arguments regarding whether the
proposal should be approved or
disapproved by October 4, 2012. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by October 19, 2012.
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 rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–059 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–NASDAQ–2012–059. 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 Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of
NASDAQ. 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
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available publicly. All submissions
should refer to File Number SR–
NASDAQ–2012–059 and should be
submitted on or before October 4, 2012.
Rebuttal comments should be submitted
by October 19, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–20318 Filed 8–17–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67656; File No. SR–BYX–
2012–018]
Self-Regulatory Organizations; BATS
Y–Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change by BATS Y–Exchange,
Inc. To Amend BYX Rules Related to
Price Sliding Functionality
August 14, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 3,
2012, BATS Y–Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 11.9, entitled ‘‘Orders and
Modifiers’’ to modify the operation of
the Exchange’s price sliding
functionality described in Rule 11.9.
The Exchange also proposes other minor
changes, including changes to the terms
used to describe price sliding and a
cross-reference contained in Rule 11.13.
22 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
1 15
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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.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
Background
The Exchange currently offers various
forms of sliding which, in all cases,
result in the re-pricing of an order to, or
ranking and/or display of an order at, a
price other than an order’s limit price in
order to comply with applicable
securities laws and/or Exchange rules.
Specifically, the Exchange currently
offers price sliding to ensure
compliance with Regulation NMS and
Regulation SHO. Price sliding currently
offered by the Exchange re-prices and
displays an order upon entry and in
certain cases again re-prices and redisplays an order at a more aggressive
price one time if and when permissible,
but does not continually re-price an
order based on changes in the national
best bid (‘‘NBB’’) or national best offer
(‘‘NBO’’, and together with the NBB, the
‘‘NBBO’’). The Exchange proposes to
modify both forms of price sliding in
order to create an optional order
handling behavior functionality that
will continue to re-price, re-rank and/or
re-display an order based on changes to
the NBBO (‘‘multiple price sliding’’), as
further described below. Multiple price
sliding in the contexts for which it is
being proposed will have to be elected
by a User 5 in order to be applied by the
Exchange. If a User elects to apply
multiple price sliding to an order
submitted to the Exchange, multiple
price sliding will apply with respect to
both display-price sliding and short sale
price sliding in connection with the
handling of the order by the Exchange.
The Exchange also proposes to add
language to make clear that display5 As defined in BYX Rule 1.5(cc), a User is ‘‘any
Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to Rule 11.3.’’
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price sliding is based on Protected
Quotations 6 at equities exchanges other
than the Exchange. If the Exchange has
a Protected Quotation that an incoming
order to the Exchange locks or crosses
then such order either executes against
the resting order, or, if the incoming
order is a BATS Post Only Order or
Partial Post Only at Limit Order, such
order is executed in accordance with
Rules 11.9(c)(6) and (c)(7), respectively,
or cancelled back to the entering User,
as described in further detail below.
Display-Price Sliding
With respect to price sliding offered
to ensure compliance with Regulation
NMS (‘‘display-price sliding’’),7 under
the Exchange’s current rules, if, at the
time of entry, a non-routable order
would cross a Protected Quotation
displayed by another trading center the
Exchange re-prices and ranks such order
at the locking price, and displays such
order at one minimum price variation
below the NBO for bids and above the
NBB for offers. Similarly, in the event a
non-routable order that, at the time of
entry, would lock a Protected Quotation
displayed by another trading center, the
Exchange displays such order at one
minimum price variation below the
NBO for bids and above the NBB for
offers.
As an example of display-price
sliding, assume the Exchange has a
posted and displayed bid to buy 100
shares of a security priced at $10.10 per
share and a posted and displayed offer
to sell 100 shares at $10.13 per share.
Assume the NBBO is $10.10 by $10.12.
If the Exchange receives a non-routable
bid to buy 100 shares at $10.12 per
share the Exchange will rank the order
to buy at $10.12 and display the order
at $10.11 because displaying the bid at
$10.12 would lock an external market’s
Protected Offer to sell for $10.12. If the
NBO then moved to $10.13, the
Exchange would un-slide the bid to buy
and display it at its ranked price (and
limit price) of $10.12.
The Exchange proposes to modify the
description of price sliding to make
clear that price sliding is generally
applied to orders that are eligible for
display, as such orders would violate
6 As defined in BYX Rule 1.5(t), a ‘‘Protected
Quotation’’ is ‘‘a quotation that is a Protected Bid
or Protected Offer.’’ In turn, the term ‘‘Protected
Bid’’ or ‘‘Protected Offer’’ means ‘‘a bid or offer in
a stock that is (i) displayed by an automated trading
center; (ii) disseminated pursuant to an effective
national market system plan; and (iii) an automated
quotation that is the best bid or best offer of a
national securities exchange or association.’’
7 The Exchange’s Rules currently describe this
functionality as ‘‘NMS price sliding’’ but the
Exchange proposes to rename such functionality
‘‘display-price sliding.’’
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Rule 610(d) of Regulation NMS if they
were displayed by the Exchange at a
price that locked or crossed a Protected
Quotation. As described in further detail
below, certain price sliding is also
applied to Non-Displayed Orders, and
the Exchange has proposed certain
changes intended to clarify the
application of such price sliding.
The Exchange currently permits Users
to instruct the Exchange not to apply
price sliding functionality to their
orders. As one variation of this
instruction, the Exchange currently
allows Users to elect to apply displayprice sliding only to the extent a
display-eligible order at the time of
entry would create a violation of Rule
610(d) of Regulation NMS by locking a
Protected Quotation of an external
market (‘‘lock-only display-price
sliding’’). For Users that select this order
handling, price sliding is not applied
and any display-eligible order is instead
cancelled if, upon entry, such order
would create a violation of Rule 610(d)
of Regulation NMS by crossing a
Protected Quotation of an external
market. The lock-only display-price
sliding option is a variation of displayprice sliding that is intended to allow
Users to re-evaluate their orders and/or
strategies in the event they are
submitting orders to the Exchange that
are crossing the market. Consistent with
the goal of increasing the clarity of its
price sliding rule, the Exchange
proposes to modify its description of
display-price sliding to clearly define
the lock-only display-price sliding
option.
As an example of lock-only displayprice sliding, assume the Exchange has
a posted and displayed bid to buy 100
shares of a security priced at $10.10 per
share and a posted and displayed offer
to sell 100 shares at $10.14 per share.
Assume the NBBO is $10.10 by $10.12.
If the Exchange receives a non-routable
bid to buy 100 shares at $10.13 per
share and the User has elected lock-only
display-price sliding, the Exchange will
cancel the order back to the User. To
reiterate a basic example of displayprice sliding, if instead the User applied
display-price sliding (and not lock-only
display-price sliding), the Exchange
would rank the order to buy at $10.12
and display the order at $10.11 because
displaying the bid at $10.13 would cross
an external market’s Protected Offer to
sell for $10.12. If the NBO then moved
to $10.13, the Exchange would un-slide
the bid to buy and display it at $10.12.
The Exchange proposes to modify the
description of display-price sliding so
that any order subject to display-price
sliding will retain its original limit price
irrespective of the prices at which such
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order is ranked and displayed.
Accordingly, the Exchange also
proposes to clarify language throughout
its descriptions of display-price sliding
to refer to the ranking and display of an
order rather than using the term reprice. In order to ensure compliance
with Regulation NMS, as it does today,
the Exchange will rank orders subject to
display-price sliding at the locking price
and will display such orders at one
minimum price variation below the
current NBO (for bids) or to one
minimum price variation above the
current NBB (for offers).
The Exchange also proposes to amend
its existing description of display-price
sliding to state that when an order is
displayed by the Exchange through the
display-price sliding process the
Exchange will display such order at the
most aggressive permissible price. The
Exchange’s current description of
display-price sliding states that orders
that are re-displayed by the Exchange
receive new timestamps when this new
display price is established. The
Exchange proposes to retain this
language but also to make clear that all
orders that are re-ranked and redisplayed pursuant to display-price
sliding will retain their priority as
compared to other orders subject to
display-price sliding based upon the
time such orders were initially received
by the Exchange. Finally, the proposed
description of price sliding also states
that following the initial ranking and
display of an order subject to displayprice sliding, an order will only be reranked and re-displayed to the extent it
achieves a more aggressive price.
In order to offer multiple price sliding
to Exchange Users, the Exchange
proposes to make clear that the ranked
and displayed prices of an order subject
to display-price sliding may be adjusted
once or multiple times depending upon
the instructions of a User and changes
to the prevailing NBBO. As noted above,
multiple price sliding is optional and
must be explicitly selected by a User
before it will be applied. The Exchange
proposes to make clear that the default
display-price sliding process will only
adjust the ranked and displayed prices
of an order upon entry and then the
displayed price one time following a
change to the prevailing NBBO. As
explained throughout this filing, orders
subject to multiple price sliding will be
permitted to move all the way back to
their most aggressive price, whereas
orders subject to the current handling
may not be adjusted to their most
aggressive price, depending upon
market conditions.
As an example of multiple price
sliding, assume the Exchange has a
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posted and displayed bid to buy 100
shares of a security priced at $10.10 per
share and a posted and displayed offer
to sell 100 shares at $10.14 per share.
Assume the NBBO is $10.10 by $10.12.
If the Exchange receives a non-routable
bid to buy 100 shares at $10.13 per
share, the Exchange would rank the
order to buy at $10.12 and display the
order at $10.11 because displaying the
bid at $10.13 would cross an external
market’s Protected Offer to sell for
$10.12. If the NBO then moved to
$10.13, the Exchange would un-slide
the bid to buy, rank it at $10.13 and
display it at $10.12. Under current price
sliding functionality, the Exchange
would not further adjust the ranked or
displayed price following this un-slide.
However, under multiple price sliding,
if the NBO then moved to $10.14, the
Exchange would un-slide the bid to buy
and display it at its full limit price of
$10.13.
The Exchange offers display-price
sliding functionality to avoid locking or
crossing other markets’ Protected
Quotations, but does not price slide to
avoid executions on the Exchange’s
order book (‘‘BATS Book’’).8
Specifically, when the Exchange
receives an incoming order that could
execute against resting displayed
liquidity but an execution does not
occur because such incoming order is
designated as an order that will not
remove liquidity (i.e., a BATS Post Only
Order),9 then the Exchange will cancel
8 The Exchange notes that it inadvertently
constructed an example in a previous rule filing
that contradicts this statement. Specifically, in
Example 5 of SR–BYX–2011–009, in order to
establish the possibility of an order that has been
price slid and has a working price ranked at the
same price as an order displayed by the Exchange
on the opposite side of the market, the Exchange
explained that an incoming BATS Post Only bid at
$10.11 would price slide if it locked an offer
displayed by the Exchange at $10.11. See Securities
Exchange Act Release No. 64476 (May 12, 2011), 76
FR 28826, 28828 (May 18, 2011) (SR–BYX–2011–
009) (the ‘‘Order Handling Filing’’). However, at the
time of the Order Handling Filing, under the
current behavior, and as proposed, the Exchange
would not price slide a BATS Post Only order to
avoid an execution against an order displayed by
the Exchange. The Exchange notes that Example 5
from the Order Handling Filing would be accurate
if instead the incoming bid at $10.11 locked a
protected offer displayed by an external market and
not also displayed by the Exchange, was price slid
and displayed at $10.10, ranked at $10.11, and
BATS subsequently received a BATS Post Only
offer at $10.11. In other words, the outcome would
be the same as set forth in Example 5, insofar as
the price slid order could ultimately have a ranked
price that locks the contra-side, however the
sequence leading up to that outcome neither is nor
was possible as described because the Exchange
does not price slide to avoid executions against the
BATS Book.
9 The Exchange notes that it recently proposed
and implemented a change to Rule 11.9(c)(6)
regarding the Exchange’s handling of BATS Post
Only Orders to permit such orders to remove
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50195
the incoming order. The Exchange
proposes to make clear in the
description of display-price sliding that
any display-eligible BATS Post Only
Order that locks or crosses a Protected
Quotation displayed by the Exchange
upon entry will not be price slid upon
entry but will be executed as set forth
in Rule 11.9(c)(6) or cancelled.
Similarly, the Exchange proposes to
make clear that any display-eligible
Partial Post Only at Limit Order that
locks or crosses a Protected Quotation
displayed by the Exchange upon entry
will be executed as set forth in Rule
11.9(c)(7) or cancelled. The Exchange
also proposes to make clear that any
display-eligible BATS Post Only Order
or Partial Post Only at Limit Order that
locks or crosses a Protected Quotation
displayed by an external market upon
entry will be subject to the display-price
sliding process. Consistent with the
principal of not price sliding to avoid
executions, in the event the NBBO
changes such that a BATS Post Only
Order subject to display-price sliding
would un-slide and would be ranked at
a price at which it could remove
displayed liquidity from the BATS Book
(i.e., when the Exchange is at the NBB
or NBO) the Exchange proposes to
execute 10 or cancel such order.
The Exchange previously proposed
changes to its existing order handling
procedures to permit BATS Post Only
Orders to be posted to the BATS Book
to join the NBB or NBO, as applicable,
even when such orders would be posted
at prices equal to opposite-side orders
ranked at the same price.11 Consistent
with this previously adopted change,
the Exchange proposes to add language
stating that BATS Post Only Orders will
be permitted to post and be displayed
opposite the ranked price of orders
subject to display-price sliding. As is
the case today, in the event an order
subject to display-price sliding is ranked
on the BATS Book with a price equal to
an opposite side order displayed by the
Exchange, it will be subject to
processing as set forth in Rule
11.13(a)(1).
As an example of the Exchange’s
handling of BATS Post Only Orders in
the context of price sliding, assume the
Exchange has a posted and displayed
liquidity from the BATS Book if the value of price
improvement associated with such execution equals
or exceeds the sum of fees charged for such
execution and the value of any rebate that would
be provided if the order posted to the BATS Book
and subsequently provided liquidity. See Securities
Exchange Act Release No. 67092 (June 1, 2012), 77
FR 33800 (June 7, 2012) (SR–BYX–2012–009).
10 As noted above, the Exchange will execute a
BATS Post Only Order in certain circumstances
where it would receive price improvement. See id.
11 See Order Handling Filing, supra note 8.
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bid to buy 100 shares of a security
priced at $10.10 per share and a posted
and displayed offer to sell 100 shares at
$10.12 per share. Assume the NBBO
(including Protected Quotations of other
external markets) is also $10.10 by
$10.12. If the Exchange receives a BATS
Post Only Order bid to buy 100 shares
at $10.12 per share, unless executed
pursuant to Rule 11.9(c)(6),12 the
Exchange would cancel the order back
to the User because absent the BATS
Post Only designation the $10.12 bid
would be able to remove the $10.12
offer, and, as explained above, the
Exchange does not offer price sliding to
avoid executions against orders
displayed by the Exchange.
If the Exchange did not have a
displayed offer to sell at $10.12 in the
example above, but instead the best
offer on the Exchange’s book was
$10.13, the Exchange would apply price
sliding to the incoming bid by ranking
such order at $10.12 and displaying the
order at $10.11. The Exchange’s order
book would now be displayed as $10.11
by $10.13. Assume, however, that after
price sliding the incoming bid from
$10.12 to a display price of $10.11, the
Exchange received a BATS Post Only
offer to sell for $10.12, thus joining the
NBO. As noted above, pursuant to
previously adopted changes, BATS Post
Only Orders are permitted to post and
be displayed opposite the ranked price
of orders subject to display-price
sliding. Accordingly, the Exchange
would allow such the incoming BATS
Post Only offer at $10.12 to post and
display on the Exchange’s order book, as
described above, with an opposite side
price slid order ranked at $10.12 but
displayed at $10.11. Assume that next
the Protected Offers displayed by all
external markets other than the
Exchange moved to $10.13. In this
situation the Exchange would un-slide
but then cancel the bid at $10.12
because, as proposed, in the event the
NBBO changes such that a BATS Post
Only Order subject to display-price
sliding would un-slide and would be
ranked at a price at which it could
remove displayed liquidity from the
BATS Book (i.e., when the Exchange is
at the NBB or NBO) the Exchange
proposes to execute 13 or cancel such
order.
The Exchange currently applies
display-price sliding to Non-Displayed
Orders that cross Protected Quotations
of external markets as well. The
12 See
supra note 9.
noted above, the Exchange will execute a
BATS Post Only Order in certain circumstances
where it would receive price improvement. See
supra note 9.
13 As
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Exchange proposes language that makes
clear that this functionality is offered
both upon entry and once an order has
been posted to the Exchange’s order
book in order to avoid potentially
trading through Protected Quotations of
external markets. The proposed rule
states that Non-Displayed Orders that
are subject to display-price sliding are
ranked at the locking price on entry.
The proposed description also makes
clear that display-price sliding for NonDisplayed Orders is functionally
equivalent to the handling of
displayable orders except that such
orders will not have a displayed price
and will not be re-priced again unless
such orders cross a Protected Quotation
of an external market (i.e., such orders
are not unslid).
As an example of the Exchange’s
handling of Non-Displayed Orders in
the context of price sliding, assume the
Exchange has a posted and displayed
bid to buy 100 shares of a security
priced at $10.10 per share and a posted
and displayed offer to sell 100 shares at
$10.13 per share. Assume the NBBO is
$10.10 by $10.11. If the Exchange
receives a Non-Displayed Order bid to
buy 100 shares at $10.12 per share, the
Exchange would re-price the order to a
$10.11 bid to buy to avoid potentially
trading through the $10.11 offer
displayed as the NBO (i.e., to ensure the
Exchange will not allow the bid to trade
at $10.12 per share). In the event the
NBBO moved to $10.09 by $10.10, the
Exchange would again re-price the NonDisplayed bid to buy 100 shares to
$10.10 per share. If the NBBO then
moved to $10.10 by $10.11, the NonDisplayed bid would not be re-priced to
$10.11, but would remain on the
Exchange’s order book at $10.10.
As described above, the Exchange has
proposed to offer multiple price sliding
to Exchange Users that opt-in to the
functionality. The remaining changes
described above are intended to clarify
and expand upon the written
description of display-price sliding, but
do not represent changes to the existing
functionality offered by the Exchange.
Consistent with achieving better clarity,
the Exchange has proposed structural
changes to the description of displayprice sliding by separating the
description into several sub-paragraphs.
Short Sale Price Sliding
With respect to price sliding offered
to ensure compliance with Regulation
SHO (‘‘short sale price sliding’’), when
an order cannot be executed or
displayed in compliance with Rule 201
of Regulation SHO,14 the Exchange
14 17
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CFR 242.201.
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currently re-prices short sale orders to
one minimum price variation above the
current NBB (‘‘Permitted Price’’). In
order to describe this re-pricing, the
Exchange proposes to add the term
‘‘Permitted Price’’ to its description of
short sale price sliding. In order to offer
multiple price sliding in the short sale
price sliding context, the Exchange
proposes to amend its rules to state that
depending upon the instructions of a
User, to reflect declines in the NBB the
System will continue to re-price a short
sale order at the Permitted Price down
to the order’s original limit price.
Accordingly, short sale orders subject to
multiple price sliding that are adjusted
to lower price levels due to a decline to
the NBB will be priced at one minimum
price variation above the current NBB.
As is true for display-price sliding,
multiple price sliding is optional and
must be explicitly selected by a User
before it will be applied. The
Exchange’s default short sale sliding
process will only re-price an order upon
entry. Accordingly, there will be no
change to existing Users of short sale
price sliding due to the proposed
introduction of multiple price sliding
unless such Users opt-in to the
functionality.
As an example of the Exchange’s
current short sale price sliding, which
adjusts the price of an order only upon
entry, assume the Exchange has a posted
and displayed bid to buy 100 shares of
a security priced at $10.10 per share and
a posted and displayed offer to sell 100
shares at $10.13 per share.15 Assume the
NBBO is $10.10 by $10.12. If the
Exchange receives a non-routable offer
to sell 100 shares at $10.10 per share
and the order is marked ‘‘short’’ the
Exchange will rank and display the
order to sell at $10.11 because executing
the short sale at $10.10, the NBB, would
be in contravention of Regulation SHO.
The result would be the same if the
Exchange had no bids at $10.10 because
the Exchange cannot display an order
marked ‘‘short’’ at the current NBB
(such display would also lock the
protected quote of an external market).
If the NBB then moved to $10.09, under
existing handling, the Exchange would
not re-price or re-display the order, but
instead would leave it as a displayed
offer to sell 100 shares at $10.11. Under
multiple price sliding, however, the
Exchange would re-price and display
the offer at $10.10 if the NBB moved to
$10.09. If, in the example above, the
NBB instead moved upwards to $10.11,
the Exchange would not re-price or
15 For purposes of these examples, Rule 201’s
short sale price test is assumed to be in effect for
the security at the time.
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restrict execution of the resting $10.11
offer under either type of short sale
price sliding. The Exchange notes that if
this were the case, its quotation would
be locked.
In addition to changes to the
description of short sale price sliding to
add the option of multiple price sliding,
the Exchange proposes various changes
to improve the accuracy and the clarity
of the description of short sale price
sliding. For instance, the Exchange
proposes to make clear that when a
short sale price test restriction under
Rule 201 of Regulation SHO is in effect,
the System may execute a displayed
short sale order at a price below the
Permitted Price if, at the time of initial
display of the short sale order, the order
was at a price above the then current
NBB. The Exchange also proposes to
make clear that orders marked ‘‘short
exempt’’ will not be subject to short sale
price sliding.
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.16 Specifically, the proposed change
is consistent with Section 6(b)(5) of the
Act,17 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 changes to price sliding are
consistent with Section 6(b)(5) of the
Act,18 as well as Rule 610 of Regulation
NMS 19 and Rule 201 of Regulation
SHO.20 The Exchange is not modifying
the overall functionality of price sliding,
which, to avoid locking or crossing
quotations of other market centers or to
comply with applicable short sale
restrictions, displays orders at
permissible prices while retaining a
price at which the User is willing to buy
or sell, in the event display at such price
or an execution at such price becomes
possible. Instead, the Exchange is
making changes to adopt an optional
form of price sliding, multiple price
16 15
17 15
sliding, and to clarify portions of its
Rules that describe price sliding.
Rule 610(d) requires exchanges to
establish, maintain, and enforce rules
that require members reasonably to
avoid ‘‘[d]isplaying quotations that lock
or cross any protected quotation in an
NMS stock.’’ 21 Such rules must be
‘‘reasonably designed to assure the
reconciliation of locked or crossed
quotations in an NMS stock,’’ and must
‘‘prohibit * * * members from engaging
in a pattern or practice of displaying
quotations that lock or cross any
quotation in an NMS stock.’’ 22 Thus,
display-price sliding offered by the
Exchange, assists Users by displaying
orders at permissible prices. Similarly,
Rule 201 of Regulation SHO 23 requires
trading centers to establish, maintain,
and enforce written policies and
procedures reasonably designed to
prevent the execution or display of a
short sale order at a price at or below
the current NBB under certain
circumstances. The Exchange’s short
sale price sliding will continue to
operate consistent with this rule,
however, if a User opts-in to multiple
price sliding, the Exchange will re-price
a short sale order based on declines to
the NBB. If, instead, a User maintains
the default form of price sliding, the
Exchange will only re-price and display
an order subject to short sale price
sliding upon entry but will not update
the order to reflect declines to the NBB.
The Exchange notes that the proposed
descriptions of price sliding will also
more closely mirror the description
used by at least one of its competitors,
the Nasdaq Stock Market LLC
(‘‘Nasdaq’’), and thus will help to avoid
confusion amongst Exchange Users that
also utilize analogous functionality at
Nasdaq.
(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.
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
18 Id.
21 17
19 17
22 Id.
CFR 242.610.
20 17 CFR 242.201.
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23 17
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CFR 242.610(d).
CFR 242.201.
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50197
III. Date of Effectiveness of the
Proposed Rule Changes and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 24 and Rule 19b–
4(f)(6)(iii) thereunder.25
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BYX–2012–018 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–BYX–2012–018. 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
24 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
25 17
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50198
Federal Register / Vol. 77, No. 161 / Monday, August 20, 2012 / Notices
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BYX–
2012–018 and should be submitted on
or before September 10, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–20319 Filed 8–17–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67653; File No. SR–FICC–
2012–06]
Self-Regulatory Organizations; The
Fixed Income Clearing Corporation;
Notice of Filing Proposed Change To
Move the Time at Which the MortgageBacked Securities Division Runs Its
Daily Morning Pass
mstockstill on DSK4VPTVN1PROD with NOTICES
August 14, 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 August
6, 2012, the Fixed Income Clearing
Corporation (‘‘FICC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed change
described in Items I, II and III, below,
which Items have been prepared
primarily by FICC. The Commission is
publishing this Notice to solicit
comments on the proposed change from
interested persons.
CFR 200.30–3(a)(12).
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 Change
FICC proposes to move the time at
which its Mortgage-Backed Securities
Division (‘‘MBSD’’) runs its first
processing pass of the day from 2 p.m.
to 4 p.m. Eastern Standard Time. The
proposed change does not require
revisions to MBSD’s rules because those
rules do not address the times of
MBSD’s processing passes. Even so,
FICC is notifying its members and the
public of the proposed change via this
filing in an effort to provide them with
adequate notice.
change will be announced to MBSD
members via Important Notice, and is
anticipated to be November 2, 2012,
subject to the Commission’s approval.
FICC believes the proposed change is
consistent with the requirements of the
Act, including Section 17A,4 and the
rules and regulations thereunder
applicable to FICC. Specifically, FICC
believes the proposed change will foster
the prompt and accurate clearance and
settlement of securities transactions
because a greater proportion of
transactions will be included in the net,
fewer fails will result, and operational
risk will therefore be reduced.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed
Change
In its filing with the Commission,
FICC included statements concerning
the purpose and basis for the proposed
change and discussed any comments it
received on the proposed change. The
text of these statements and comments
may be examined at the places specified
in Item IV below. FICC has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of these statements.3
B. Self-Regulatory Organization’s
Statement on Burden on Competition
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed
Change
The purpose of this filing is to notify
members that MBSD intends to move
the time at which it runs its first
processing pass of the day (historically
referred to as the ‘‘AM Pass’’) from 2
p.m. to 4 p.m. Eastern Standard Time.
MBSD also executes an evening pass
(referred to as the ‘‘PM Pass’’) at 8 p.m.
Eastern Standard Time, which will
remain unchanged. On days when
MBSD executes its To-Be-Announced
Netting cycle, this cycle immediately
follows the completion of the first pass
of the day. The proposed change to 4
p.m. for the first pass of the day will
allow more trades to be included into
the To-Be-Announced Net, which will
assist in reducing both the amount of
fails in the market and the related
operational risk. The above change is
being made at the request of the
Securities Industry and Financial
Markets Association (‘‘SIFMA’’) MBS
Operations Committee. MBSD advised
members of the proposed change via
Important Notice dated August 1, 2012.
The proposed change does not require
amendments to the text of the Rules of
the MBSD. The effective date of this
Within 45 days of the date of
publication of this notice in the Federal
Register, or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed change, or
(B) Institute proceedings to determine
whether the proposed change should be
disapproved.
26 17
1 15
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3 The Commission has modified the text of the
summaries provided by FICC.
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FICC does not believe that the
proposed change will have any impact,
or impose any burden, on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Change Received From
Members, Participants, or Others
FICC will notify the Commission of
any written comments received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed change
is consistent with the Act. Comments
may be submitted by any of the
following methods:
• Electronic comments may be
submitted by using the Commission’s
Internet comment form (https://
www.sec.gov/rules/sro.shtml), or by
sending an email to rulecomments@sec.gov. Please include File
No. SR–FICC–2012–06 on the subject
line.
• Paper comments should be sent in
triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange
4 15
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U.S.C. 78q–1.
20AUN1
]]>Agencies
[Federal Register Volume 77, Number 161 (Monday, August 20, 2012)]
[Notices]
[Pages 50193-50198]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20319]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67656; File No. SR-BYX-2012-018]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change by BATS Y-
Exchange, Inc. To Amend BYX Rules Related to Price Sliding
Functionality
August 14, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 3, 2012, BATS Y-Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 11.9, entitled ``Orders and
Modifiers'' to modify the operation of the Exchange's price sliding
functionality described in Rule 11.9. The Exchange also proposes other
minor changes, including changes to the terms used to describe price
sliding and a cross-reference contained in Rule 11.13.
[[Page 50194]]
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
Background
The Exchange currently offers various forms of sliding which, in
all cases, result in the re-pricing of an order to, or ranking and/or
display of an order at, a price other than an order's limit price in
order to comply with applicable securities laws and/or Exchange rules.
Specifically, the Exchange currently offers price sliding to ensure
compliance with Regulation NMS and Regulation SHO. Price sliding
currently offered by the Exchange re-prices and displays an order upon
entry and in certain cases again re-prices and re-displays an order at
a more aggressive price one time if and when permissible, but does not
continually re-price an order based on changes in the national best bid
(``NBB'') or national best offer (``NBO'', and together with the NBB,
the ``NBBO''). The Exchange proposes to modify both forms of price
sliding in order to create an optional order handling behavior
functionality that will continue to re-price, re-rank and/or re-display
an order based on changes to the NBBO (``multiple price sliding''), as
further described below. Multiple price sliding in the contexts for
which it is being proposed will have to be elected by a User \5\ in
order to be applied by the Exchange. If a User elects to apply multiple
price sliding to an order submitted to the Exchange, multiple price
sliding will apply with respect to both display-price sliding and short
sale price sliding in connection with the handling of the order by the
Exchange. The Exchange also proposes to add language to make clear that
display-price sliding is based on Protected Quotations \6\ at equities
exchanges other than the Exchange. If the Exchange has a Protected
Quotation that an incoming order to the Exchange locks or crosses then
such order either executes against the resting order, or, if the
incoming order is a BATS Post Only Order or Partial Post Only at Limit
Order, such order is executed in accordance with Rules 11.9(c)(6) and
(c)(7), respectively, or cancelled back to the entering User, as
described in further detail below.
---------------------------------------------------------------------------
\5\ As defined in BYX Rule 1.5(cc), a User is ``any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.''
\6\ As defined in BYX Rule 1.5(t), a ``Protected Quotation'' is
``a quotation that is a Protected Bid or Protected Offer.'' In turn,
the term ``Protected Bid'' or ``Protected Offer'' means ``a bid or
offer in a stock that is (i) displayed by an automated trading
center; (ii) disseminated pursuant to an effective national market
system plan; and (iii) an automated quotation that is the best bid
or best offer of a national securities exchange or association.''
---------------------------------------------------------------------------
Display-Price Sliding
With respect to price sliding offered to ensure compliance with
Regulation NMS (``display-price sliding''),\7\ under the Exchange's
current rules, if, at the time of entry, a non-routable order would
cross a Protected Quotation displayed by another trading center the
Exchange re-prices and ranks such order at the locking price, and
displays such order at one minimum price variation below the NBO for
bids and above the NBB for offers. Similarly, in the event a non-
routable order that, at the time of entry, would lock a Protected
Quotation displayed by another trading center, the Exchange displays
such order at one minimum price variation below the NBO for bids and
above the NBB for offers.
---------------------------------------------------------------------------
\7\ The Exchange's Rules currently describe this functionality
as ``NMS price sliding'' but the Exchange proposes to rename such
functionality ``display-price sliding.''
---------------------------------------------------------------------------
As an example of display-price sliding, assume the Exchange has a
posted and displayed bid to buy 100 shares of a security priced at
$10.10 per share and a posted and displayed offer to sell 100 shares at
$10.13 per share. Assume the NBBO is $10.10 by $10.12. If the Exchange
receives a non-routable bid to buy 100 shares at $10.12 per share the
Exchange will rank the order to buy at $10.12 and display the order at
$10.11 because displaying the bid at $10.12 would lock an external
market's Protected Offer to sell for $10.12. If the NBO then moved to
$10.13, the Exchange would un-slide the bid to buy and display it at
its ranked price (and limit price) of $10.12.
The Exchange proposes to modify the description of price sliding to
make clear that price sliding is generally applied to orders that are
eligible for display, as such orders would violate Rule 610(d) of
Regulation NMS if they were displayed by the Exchange at a price that
locked or crossed a Protected Quotation. As described in further detail
below, certain price sliding is also applied to Non-Displayed Orders,
and the Exchange has proposed certain changes intended to clarify the
application of such price sliding.
The Exchange currently permits Users to instruct the Exchange not
to apply price sliding functionality to their orders. As one variation
of this instruction, the Exchange currently allows Users to elect to
apply display-price sliding only to the extent a display-eligible order
at the time of entry would create a violation of Rule 610(d) of
Regulation NMS by locking a Protected Quotation of an external market
(``lock-only display-price sliding''). For Users that select this order
handling, price sliding is not applied and any display-eligible order
is instead cancelled if, upon entry, such order would create a
violation of Rule 610(d) of Regulation NMS by crossing a Protected
Quotation of an external market. The lock-only display-price sliding
option is a variation of display-price sliding that is intended to
allow Users to re-evaluate their orders and/or strategies in the event
they are submitting orders to the Exchange that are crossing the
market. Consistent with the goal of increasing the clarity of its price
sliding rule, the Exchange proposes to modify its description of
display-price sliding to clearly define the lock-only display-price
sliding option.
As an example of lock-only display-price sliding, assume the
Exchange has a posted and displayed bid to buy 100 shares of a security
priced at $10.10 per share and a posted and displayed offer to sell 100
shares at $10.14 per share. Assume the NBBO is $10.10 by $10.12. If the
Exchange receives a non-routable bid to buy 100 shares at $10.13 per
share and the User has elected lock-only display-price sliding, the
Exchange will cancel the order back to the User. To reiterate a basic
example of display-price sliding, if instead the User applied display-
price sliding (and not lock-only display-price sliding), the Exchange
would rank the order to buy at $10.12 and display the order at $10.11
because displaying the bid at $10.13 would cross an external market's
Protected Offer to sell for $10.12. If the NBO then moved to $10.13,
the Exchange would un-slide the bid to buy and display it at $10.12.
The Exchange proposes to modify the description of display-price
sliding so that any order subject to display-price sliding will retain
its original limit price irrespective of the prices at which such
[[Page 50195]]
order is ranked and displayed. Accordingly, the Exchange also proposes
to clarify language throughout its descriptions of display-price
sliding to refer to the ranking and display of an order rather than
using the term re-price. In order to ensure compliance with Regulation
NMS, as it does today, the Exchange will rank orders subject to
display-price sliding at the locking price and will display such orders
at one minimum price variation below the current NBO (for bids) or to
one minimum price variation above the current NBB (for offers).
The Exchange also proposes to amend its existing description of
display-price sliding to state that when an order is displayed by the
Exchange through the display-price sliding process the Exchange will
display such order at the most aggressive permissible price. The
Exchange's current description of display-price sliding states that
orders that are re-displayed by the Exchange receive new timestamps
when this new display price is established. The Exchange proposes to
retain this language but also to make clear that all orders that are
re-ranked and re-displayed pursuant to display-price sliding will
retain their priority as compared to other orders subject to display-
price sliding based upon the time such orders were initially received
by the Exchange. Finally, the proposed description of price sliding
also states that following the initial ranking and display of an order
subject to display-price sliding, an order will only be re-ranked and
re-displayed to the extent it achieves a more aggressive price.
In order to offer multiple price sliding to Exchange Users, the
Exchange proposes to make clear that the ranked and displayed prices of
an order subject to display-price sliding may be adjusted once or
multiple times depending upon the instructions of a User and changes to
the prevailing NBBO. As noted above, multiple price sliding is optional
and must be explicitly selected by a User before it will be applied.
The Exchange proposes to make clear that the default display-price
sliding process will only adjust the ranked and displayed prices of an
order upon entry and then the displayed price one time following a
change to the prevailing NBBO. As explained throughout this filing,
orders subject to multiple price sliding will be permitted to move all
the way back to their most aggressive price, whereas orders subject to
the current handling may not be adjusted to their most aggressive
price, depending upon market conditions.
As an example of multiple price sliding, assume the Exchange has a
posted and displayed bid to buy 100 shares of a security priced at
$10.10 per share and a posted and displayed offer to sell 100 shares at
$10.14 per share. Assume the NBBO is $10.10 by $10.12. If the Exchange
receives a non-routable bid to buy 100 shares at $10.13 per share, the
Exchange would rank the order to buy at $10.12 and display the order at
$10.11 because displaying the bid at $10.13 would cross an external
market's Protected Offer to sell for $10.12. If the NBO then moved to
$10.13, the Exchange would un-slide the bid to buy, rank it at $10.13
and display it at $10.12. Under current price sliding functionality,
the Exchange would not further adjust the ranked or displayed price
following this un-slide. However, under multiple price sliding, if the
NBO then moved to $10.14, the Exchange would un-slide the bid to buy
and display it at its full limit price of $10.13.
The Exchange offers display-price sliding functionality to avoid
locking or crossing other markets' Protected Quotations, but does not
price slide to avoid executions on the Exchange's order book (``BATS
Book'').\8\ Specifically, when the Exchange receives an incoming order
that could execute against resting displayed liquidity but an execution
does not occur because such incoming order is designated as an order
that will not remove liquidity (i.e., a BATS Post Only Order),\9\ then
the Exchange will cancel the incoming order. The Exchange proposes to
make clear in the description of display-price sliding that any
display-eligible BATS Post Only Order that locks or crosses a Protected
Quotation displayed by the Exchange upon entry will not be price slid
upon entry but will be executed as set forth in Rule 11.9(c)(6) or
cancelled. Similarly, the Exchange proposes to make clear that any
display-eligible Partial Post Only at Limit Order that locks or crosses
a Protected Quotation displayed by the Exchange upon entry will be
executed as set forth in Rule 11.9(c)(7) or cancelled. The Exchange
also proposes to make clear that any display-eligible BATS Post Only
Order or Partial Post Only at Limit Order that locks or crosses a
Protected Quotation displayed by an external market upon entry will be
subject to the display-price sliding process. Consistent with the
principal of not price sliding to avoid executions, in the event the
NBBO changes such that a BATS Post Only Order subject to display-price
sliding would un-slide and would be ranked at a price at which it could
remove displayed liquidity from the BATS Book (i.e., when the Exchange
is at the NBB or NBO) the Exchange proposes to execute \10\ or cancel
such order.
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\8\ The Exchange notes that it inadvertently constructed an
example in a previous rule filing that contradicts this statement.
Specifically, in Example 5 of SR-BYX-2011-009, in order to establish
the possibility of an order that has been price slid and has a
working price ranked at the same price as an order displayed by the
Exchange on the opposite side of the market, the Exchange explained
that an incoming BATS Post Only bid at $10.11 would price slide if
it locked an offer displayed by the Exchange at $10.11. See
Securities Exchange Act Release No. 64476 (May 12, 2011), 76 FR
28826, 28828 (May 18, 2011) (SR-BYX-2011-009) (the ``Order Handling
Filing''). However, at the time of the Order Handling Filing, under
the current behavior, and as proposed, the Exchange would not price
slide a BATS Post Only order to avoid an execution against an order
displayed by the Exchange. The Exchange notes that Example 5 from
the Order Handling Filing would be accurate if instead the incoming
bid at $10.11 locked a protected offer displayed by an external
market and not also displayed by the Exchange, was price slid and
displayed at $10.10, ranked at $10.11, and BATS subsequently
received a BATS Post Only offer at $10.11. In other words, the
outcome would be the same as set forth in Example 5, insofar as the
price slid order could ultimately have a ranked price that locks the
contra-side, however the sequence leading up to that outcome neither
is nor was possible as described because the Exchange does not price
slide to avoid executions against the BATS Book.
\9\ The Exchange notes that it recently proposed and implemented
a change to Rule 11.9(c)(6) regarding the Exchange's handling of
BATS Post Only Orders to permit such orders to remove liquidity from
the BATS Book if the value of price improvement associated with such
execution equals or exceeds the sum of fees charged for such
execution and the value of any rebate that would be provided if the
order posted to the BATS Book and subsequently provided liquidity.
See Securities Exchange Act Release No. 67092 (June 1, 2012), 77 FR
33800 (June 7, 2012) (SR-BYX-2012-009).
\10\ As noted above, the Exchange will execute a BATS Post Only
Order in certain circumstances where it would receive price
improvement. See id.
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The Exchange previously proposed changes to its existing order
handling procedures to permit BATS Post Only Orders to be posted to the
BATS Book to join the NBB or NBO, as applicable, even when such orders
would be posted at prices equal to opposite-side orders ranked at the
same price.\11\ Consistent with this previously adopted change, the
Exchange proposes to add language stating that BATS Post Only Orders
will be permitted to post and be displayed opposite the ranked price of
orders subject to display-price sliding. As is the case today, in the
event an order subject to display-price sliding is ranked on the BATS
Book with a price equal to an opposite side order displayed by the
Exchange, it will be subject to processing as set forth in Rule
11.13(a)(1).
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\11\ See Order Handling Filing, supra note 8.
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As an example of the Exchange's handling of BATS Post Only Orders
in the context of price sliding, assume the Exchange has a posted and
displayed
[[Page 50196]]
bid to buy 100 shares of a security priced at $10.10 per share and a
posted and displayed offer to sell 100 shares at $10.12 per share.
Assume the NBBO (including Protected Quotations of other external
markets) is also $10.10 by $10.12. If the Exchange receives a BATS Post
Only Order bid to buy 100 shares at $10.12 per share, unless executed
pursuant to Rule 11.9(c)(6),\12\ the Exchange would cancel the order
back to the User because absent the BATS Post Only designation the
$10.12 bid would be able to remove the $10.12 offer, and, as explained
above, the Exchange does not offer price sliding to avoid executions
against orders displayed by the Exchange.
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\12\ See supra note 9.
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If the Exchange did not have a displayed offer to sell at $10.12 in
the example above, but instead the best offer on the Exchange's book
was $10.13, the Exchange would apply price sliding to the incoming bid
by ranking such order at $10.12 and displaying the order at $10.11. The
Exchange's order book would now be displayed as $10.11 by $10.13.
Assume, however, that after price sliding the incoming bid from $10.12
to a display price of $10.11, the Exchange received a BATS Post Only
offer to sell for $10.12, thus joining the NBO. As noted above,
pursuant to previously adopted changes, BATS Post Only Orders are
permitted to post and be displayed opposite the ranked price of orders
subject to display-price sliding. Accordingly, the Exchange would allow
such the incoming BATS Post Only offer at $10.12 to post and display on
the Exchange's order book, as described above, with an opposite side
price slid order ranked at $10.12 but displayed at $10.11. Assume that
next the Protected Offers displayed by all external markets other than
the Exchange moved to $10.13. In this situation the Exchange would un-
slide but then cancel the bid at $10.12 because, as proposed, in the
event the NBBO changes such that a BATS Post Only Order subject to
display-price sliding would un-slide and would be ranked at a price at
which it could remove displayed liquidity from the BATS Book (i.e.,
when the Exchange is at the NBB or NBO) the Exchange proposes to
execute \13\ or cancel such order.
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\13\ As noted above, the Exchange will execute a BATS Post Only
Order in certain circumstances where it would receive price
improvement. See supra note 9.
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The Exchange currently applies display-price sliding to Non-
Displayed Orders that cross Protected Quotations of external markets as
well. The Exchange proposes language that makes clear that this
functionality is offered both upon entry and once an order has been
posted to the Exchange's order book in order to avoid potentially
trading through Protected Quotations of external markets. The proposed
rule states that Non-Displayed Orders that are subject to display-price
sliding are ranked at the locking price on entry. The proposed
description also makes clear that display-price sliding for Non-
Displayed Orders is functionally equivalent to the handling of
displayable orders except that such orders will not have a displayed
price and will not be re-priced again unless such orders cross a
Protected Quotation of an external market (i.e., such orders are not
unslid).
As an example of the Exchange's handling of Non-Displayed Orders in
the context of price sliding, assume the Exchange has a posted and
displayed bid to buy 100 shares of a security priced at $10.10 per
share and a posted and displayed offer to sell 100 shares at $10.13 per
share. Assume the NBBO is $10.10 by $10.11. If the Exchange receives a
Non-Displayed Order bid to buy 100 shares at $10.12 per share, the
Exchange would re-price the order to a $10.11 bid to buy to avoid
potentially trading through the $10.11 offer displayed as the NBO
(i.e., to ensure the Exchange will not allow the bid to trade at $10.12
per share). In the event the NBBO moved to $10.09 by $10.10, the
Exchange would again re-price the Non-Displayed bid to buy 100 shares
to $10.10 per share. If the NBBO then moved to $10.10 by $10.11, the
Non-Displayed bid would not be re-priced to $10.11, but would remain on
the Exchange's order book at $10.10.
As described above, the Exchange has proposed to offer multiple
price sliding to Exchange Users that opt-in to the functionality. The
remaining changes described above are intended to clarify and expand
upon the written description of display-price sliding, but do not
represent changes to the existing functionality offered by the
Exchange. Consistent with achieving better clarity, the Exchange has
proposed structural changes to the description of display-price sliding
by separating the description into several sub-paragraphs.
Short Sale Price Sliding
With respect to price sliding offered to ensure compliance with
Regulation SHO (``short sale price sliding''), when an order cannot be
executed or displayed in compliance with Rule 201 of Regulation
SHO,\14\ the Exchange currently re-prices short sale orders to one
minimum price variation above the current NBB (``Permitted Price''). In
order to describe this re-pricing, the Exchange proposes to add the
term ``Permitted Price'' to its description of short sale price
sliding. In order to offer multiple price sliding in the short sale
price sliding context, the Exchange proposes to amend its rules to
state that depending upon the instructions of a User, to reflect
declines in the NBB the System will continue to re-price a short sale
order at the Permitted Price down to the order's original limit price.
Accordingly, short sale orders subject to multiple price sliding that
are adjusted to lower price levels due to a decline to the NBB will be
priced at one minimum price variation above the current NBB. As is true
for display-price sliding, multiple price sliding is optional and must
be explicitly selected by a User before it will be applied. The
Exchange's default short sale sliding process will only re-price an
order upon entry. Accordingly, there will be no change to existing
Users of short sale price sliding due to the proposed introduction of
multiple price sliding unless such Users opt-in to the functionality.
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\14\ 17 CFR 242.201.
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As an example of the Exchange's current short sale price sliding,
which adjusts the price of an order only upon entry, assume the
Exchange has a posted and displayed bid to buy 100 shares of a security
priced at $10.10 per share and a posted and displayed offer to sell 100
shares at $10.13 per share.\15\ Assume the NBBO is $10.10 by $10.12. If
the Exchange receives a non-routable offer to sell 100 shares at $10.10
per share and the order is marked ``short'' the Exchange will rank and
display the order to sell at $10.11 because executing the short sale at
$10.10, the NBB, would be in contravention of Regulation SHO. The
result would be the same if the Exchange had no bids at $10.10 because
the Exchange cannot display an order marked ``short'' at the current
NBB (such display would also lock the protected quote of an external
market). If the NBB then moved to $10.09, under existing handling, the
Exchange would not re-price or re-display the order, but instead would
leave it as a displayed offer to sell 100 shares at $10.11. Under
multiple price sliding, however, the Exchange would re-price and
display the offer at $10.10 if the NBB moved to $10.09. If, in the
example above, the NBB instead moved upwards to $10.11, the Exchange
would not re-price or
[[Page 50197]]
restrict execution of the resting $10.11 offer under either type of
short sale price sliding. The Exchange notes that if this were the
case, its quotation would be locked.
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\15\ For purposes of these examples, Rule 201's short sale price
test is assumed to be in effect for the security at the time.
---------------------------------------------------------------------------
In addition to changes to the description of short sale price
sliding to add the option of multiple price sliding, the Exchange
proposes various changes to improve the accuracy and the clarity of the
description of short sale price sliding. For instance, the Exchange
proposes to make clear that when a short sale price test restriction
under Rule 201 of Regulation SHO is in effect, the System may execute a
displayed short sale order at a price below the Permitted Price if, at
the time of initial display of the short sale order, the order was at a
price above the then current NBB. The Exchange also proposes to make
clear that orders marked ``short exempt'' will not be subject to short
sale price sliding.
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.\16\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\17\
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.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed changes to price sliding
are consistent with Section 6(b)(5) of the Act,\18\ as well as Rule 610
of Regulation NMS \19\ and Rule 201 of Regulation SHO.\20\ The Exchange
is not modifying the overall functionality of price sliding, which, to
avoid locking or crossing quotations of other market centers or to
comply with applicable short sale restrictions, displays orders at
permissible prices while retaining a price at which the User is willing
to buy or sell, in the event display at such price or an execution at
such price becomes possible. Instead, the Exchange is making changes to
adopt an optional form of price sliding, multiple price sliding, and to
clarify portions of its Rules that describe price sliding.
---------------------------------------------------------------------------
\18\ Id.
\19\ 17 CFR 242.610.
\20\ 17 CFR 242.201.
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Rule 610(d) requires exchanges to establish, maintain, and enforce
rules that require members reasonably to avoid ``[d]isplaying
quotations that lock or cross any protected quotation in an NMS
stock.'' \21\ Such rules must be ``reasonably designed to assure the
reconciliation of locked or crossed quotations in an NMS stock,'' and
must ``prohibit * * * members from engaging in a pattern or practice of
displaying quotations that lock or cross any quotation in an NMS
stock.'' \22\ Thus, display-price sliding offered by the Exchange,
assists Users by displaying orders at permissible prices. Similarly,
Rule 201 of Regulation SHO \23\ requires trading centers to establish,
maintain, and enforce written policies and procedures reasonably
designed to prevent the execution or display of a short sale order at a
price at or below the current NBB under certain circumstances. The
Exchange's short sale price sliding will continue to operate consistent
with this rule, however, if a User opts-in to multiple price sliding,
the Exchange will re-price a short sale order based on declines to the
NBB. If, instead, a User maintains the default form of price sliding,
the Exchange will only re-price and display an order subject to short
sale price sliding upon entry but will not update the order to reflect
declines to the NBB. The Exchange notes that the proposed descriptions
of price sliding will also more closely mirror the description used by
at least one of its competitors, the Nasdaq Stock Market LLC
(``Nasdaq''), and thus will help to avoid confusion amongst Exchange
Users that also utilize analogous functionality at Nasdaq.
---------------------------------------------------------------------------
\21\ 17 CFR 242.610(d).
\22\ Id.
\23\ 17 CFR 242.201.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-
4(f)(6)(iii) thereunder.\25\
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BYX-2012-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BYX-2012-018. 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
[[Page 50198]]
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-BYX-2012-018 and should be
submitted on or before September 10, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20319 Filed 8-17-12; 8:45 am]
BILLING CODE 8011-01-P
