Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Fees for Use of BATS Y-Exchange, Inc., 75686-75689 [2012-30793]

Download as PDF 75686 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Notices interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 16 and Rule 19b–4(f)(6)(iii) thereunder.17 A proposed rule change filed under Rule 19b–4(f)(6) 18 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),19 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes that doing so will allow the Exchange to continue uninterrupted, for Floor brokers, the emergency temporary relief necessitated by Hurricane Sandy’s disruption of telephone service, as described herein and in the Exchange’s prior filings seeking such relief, and to help maintain the status quo, until the earlier of when phone service for Floor brokers is fully restored or January 18, 2013. Therefore, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.20 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 16 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 18 17 CFR 240.19b–4(f)(6). 19 17 CFR 240.19b–4(f)(6)(iii). 20 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). mstockstill on DSK4VPTVN1PROD with 17 17 VerDate Mar<15>2010 18:28 Dec 20, 2012 Jkt 229001 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: [FR Doc. 2012–30795 Filed 12–20–12; 8:45 am] Electronic Comments BILLING CODE 8011–01–P • 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–NYSE–2012–73 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–NYSE–2012–73. 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 10:00 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–NYSE– 2012–73 and should be submitted on or before January 11, 2013. PO 00000 Frm 00081 Fmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Kevin M. O’Neill, Deputy Secretary. Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68450; File No. SR–BYX– 2012–024] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Fees for Use of BATS Y-Exchange, Inc. December 17, 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 December 6, 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, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change 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 the fee schedule applicable to Members 5 and non-members of the Exchange pursuant to BYX Rules 15.1(a) and (c). Changes to the fee schedule pursuant to this proposal will be effective upon filing. 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. 21 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 5 A Member is any registered broker or dealer that has been admitted to membership in the Exchange. 1 15 E:\FR\FM\21DEN1.SGM 21DEN1 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Notices 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 mstockstill on DSK4VPTVN1PROD with 1. Purpose On August 14, 2012, the Exchange filed with the Commission a proposed rule change to establish on a one-year pilot basis the Retail Price Improvement (‘‘RPI’’) Program (the ‘‘Program’’).6 The Program seeks to establish a venue for the execution of retail orders with greater price competition and transparency than existing execution arrangements. The Exchange filed an amendment to the proposal on November 13, 2012, proposing to make various minor amendments to the Proposal, including an amendment to limit the Program to a group of up to 25 securities for the first 90 days of the pilot period, and to gradually expand the program on a monthly basis for the remainder of the pilot period. The Program establishes a new class of market participants (Retail Member Organizations) and two new order types (Retail Orders and Retail Price Improvement Orders). Retail Member Organizations will submit Retail Orders to the Exchange. All Exchange Users 7 will be permitted to provide potential price improvement for Retail Orders in the form of non-displayed interest that is better than the national best bid that is a Protected Quotation (‘‘Protected NBB’’) or the national best offer that is a Protected Quotation (‘‘Protected NBO’’, and together with the Protected NBB, the ‘‘Protected NBBO’’).8 Such 6 See Securities Exchange Act Release No. 67734 (August 27, 2012), 77 FR 53242 (SR–BYX–2012– 019) (the ‘‘Proposal’’). 7 A ‘‘User’’ is defined in BYX Rule 1.5(cc) as any member or sponsored participant of the Exchange who is authorized to obtain access to the System. 8 The term Protected Quotation is defined in BYX Rule 1.5(t) and has the same meaning as is set forth in Regulation NMS Rule 600(b)(58). The terms Protected NBB and Protected NBO are defined in BYX Rule 1.5(s). The Protected NBB is the bestpriced protected bid and the Protected NBO is the VerDate Mar<15>2010 18:28 Dec 20, 2012 Jkt 229001 price improving interest can be entered either in the form of Retail Price Improvement Orders (or ‘‘RPI Orders’’) or as other non-displayed interest. The Commission recently approved the Program’s operation on a pilot basis.9 Accordingly, the Exchange proposes to modify its fee schedule effective December 6, 2012, in order to adopt pricing for the Program, which will be applicable to the first set of securities selected by the Exchange for inclusion in the Program.10 The Exchange proposes to provide a rebate to Retail Member Organizations for executions of their Retail Orders and to charge Users a fee for executions of their orders against Retail Orders. Further, the Exchange proposes to bifurcate into ‘‘Group 1’’ and ‘‘Group 2’’ the original 20 securities selected by the Exchange to be included in the Program, and to differentiate rebates and fees between such Groups. Group 1, as proposed, will initially include 10 securities, as follows: Apple Inc. (AAPL), SPDR S&P ETF Trust (SPY), Facebook Inc. (FB), Direxion Daily Financial Bull 3X Shares (FAS), Direxion Daily Financial Bear 3X Shares (FAZ), iShares Russell 2000 Index (IWM), Citigroup Inc. (C), General Electric Company (GE), Google Inc. (GOOG), and SPDR Gold Trust (GLD) (‘‘Group 1 Securities’’). The Exchange proposes to provide a rebate of $0.0025 per share for a Retail Order that removes liquidity from the BYX Exchange order book in an RPI Group 1 Security. Similarly, the Exchange proposes to charge $0.0025 per share for any Retail Price Improving Order or non-displayed order that adds liquidity to the BYX Exchange order book in an RPI Group 1 Security and is removed by a Retail Order. Group 2, as proposed, will initially include 10 securities, as follows: Sirius XM Radio Inc. (SIRI), Bank of America Corp. (BAC), Nokia Corporation-ADR (NOK), Sprint Nextel Corporation (S), best-priced protected offer. Generally, the Protected NBB and Protected NBO and the national best bid (‘‘NBB’’) and national best offer (‘‘NBO’’, together with the NBB, the ‘‘NBBO’’) will be the same. However, a market center is not required to route to the NBB or NBO if that market center is subject to an exception under Regulation NMS Rule 611(b)(1) or if such NBB or NBO is otherwise not available for an automatic execution. In such case, the Protected NBB or Protected NBO would be the best-priced protected bid or offer to which a market center must route interest pursuant to Regulation NMS Rule 611. 9 See Securities Exchange Act Release No. 68303 (November 27, 2012), 77 FR 71652 (December 3, 2012) (SR–BYX–2012–019). 10 The Exchange currently plans to implement the Program on December 17, 2012. Although the Program is not yet operative, the Exchange is adopting the applicable fees in anticipation of the Program’s operation. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 75687 Micron Technology, Inc. (MU), Ford Motor Company (F), Advanced Micro Devices, Inc. (AMD), JPMorgan Chase & Co. (JPM), Hewlett-Packard Company (HPQ), and Financial Select Sector SPDR (XLF) (‘‘Group 2 Securities’’). The Exchange proposes to provide a rebate of $0.0010 per share for a Retail Order that removes liquidity from the BYX Exchange order book in an RPI Group 2 Security. Similarly, the Exchange proposes to charge $0.0010 per share for any Retail Price Improving Order or non-displayed order that adds liquidity to the BYX Exchange order book in an RPI Group 2 Security and is removed by a Retail Order. As proposed, the rebates for Retail Orders described above will not apply to Type 2 Retail Orders that remove displayed liquidity from the BYX Exchange order book. Instead, such Retail Orders, when removing displayed liquidity, will receive the standard rebate of $0.0002 per share for orders that remove liquidity. Similarly, a liquidity provider that enters a displayed order that is removed by a Retail Order will be charged the standard fee for adding displayed liquidity (either $0.0003 per share or $0.0002 per share depending on whether such liquidity provider qualifies for tiered pricing incentives). The Exchange is proposing the higher remove rebate and fee to add liquidity for Group 1 Securities because the Exchange believes that, while both Group 1 and Group 2 Securities attract heavy retail investor interest, liquidity providers in the over-the-counter market are generally willing to pay retail brokers higher fees for retail orders in Group 1 Securities. The Exchange’s rebate for Group 1 Securities is designed to compete with such higher fees. The Exchange currently charges a fee of $0.0010 per share to add nondisplayed liquidity to the BYX order book. As explained in the Proposal, the Exchange proposes to execute incoming Retail Orders against all available contra-side interest that will provide price improvement to the Retail Order, including non-displayed orders other than RPI Orders. In the event nondisplayed interest other than an RPI Order interacts with a Retail Order, the Exchange proposes to charge the User that entered such non-displayed interest the same fee as is imposed for an RPI Order execution. As set forth above, the Exchange proposes to charge a fee of $0.0025 per share for any Retail Price Improving Order or non-displayed order that adds liquidity to the BYX Exchange order book in an RPI Group 1 Security and is removed by a Retail Order. Accordingly, the Exchange proposes E:\FR\FM\21DEN1.SGM 21DEN1 75688 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Notices language to the existing text related to liquidity fees to make clear that any non-displayed order removed by a Retail Order will pay the applicable fee under the Retail Pricing Improvement program for such execution. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.11 Specifically, the Exchange believes that the proposed rule change is consistent with Sections 6(b)(4) and (b)(5) of the Act,12 in that it provides for the equitable allocation of reasonable dues, fees and other charges among issuers, and it does not unfairly discriminate between customers, issuers, brokers or dealers. The Program is intended to increase competition among execution venues, encourage additional liquidity, and offer the potential for price improvement to retail investors. The Exchange notes that a significant percentage of the orders of individual investors are executed overthe-counter.13 The Exchange believes that it is appropriate to create a financial incentive to bring more retail order flow to a public market where it may be subject to greater competition from multiple liquidity providers. The Exchange understands that Section 6(b)(5) of the Act 14 prohibits an exchange from establishing rules that treat market participants in an unfairly discriminatory manner. However, Section 6(b)(5) of the Act does not prohibit exchange members or other broker-dealers from discriminating, so long as their activities are otherwise consistent with the federal securities laws. Nor does Section 6(b)(5) of the Act require exchanges to preclude discrimination by broker-dealers. Broker-dealers commonly differentiate between customers based on the nature and profitability of their business. The 11 15 U.S.C. 78f. U.S.C. 78f(b)(4) and (b)(5). 13 See Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 (January 21, 2010) (noting that dark pools and internalizing broker-dealers executed approximately 25.4% of share volume in September 2009). See also Mary L. Schapiro, Strengthening Our Equity Market Structure (Speech at the Economic Club of New York, Sept. 7, 2010) (available on the Commission’s Web site). In her speech, Chairman Schapiro noted that nearly 30 percent of volume in U.S.-listed equities was executed in venues that do not display their liquidity or make it generally available to the public and the percentage was increasing nearly every month. 14 15 U.S.C. 78f(b)(5). mstockstill on DSK4VPTVN1PROD with 12 15 VerDate Mar<15>2010 18:28 Dec 20, 2012 Jkt 229001 differentiation established by the Exchange in connection with the Program is not designed to permit unfair discrimination, but instead to promote a competitive process around retail executions such that retail investors would receive better prices than they currently do through bilateral internalization arrangements. The Exchange believes that the proposed rebates for Retail Orders are fair and equitable in that they are designed to compete with internalization arrangements established by executing broker-dealers. The Exchange further believes that differentiation between the two types of securities (Groups 1 and 2) is fair and equitable and not unreasonably discriminatory because this differentiation is based on the Exchange’s belief as to relative economic value of order flow, namely, that order flow in Group 1 Securities is more valuable, and in turn, is rewarded with better economic arrangements by broker-dealers, than is order flow in Group 2 Securities. As set forth above, in addition to establishing pricing for orders particularly designated to participate in the Program, namely Retail Orders and RPI Orders, the proposal will impact non-displayed orders that interact with Retail Orders in Group 1 Securities in that such orders will be charged a higher fee than they do today. The Exchange believes that the proposal to treat non-displayed orders differently depending on the parties with whom they interact is consistent with Section 6(b)(5) of the Act,15 which requires that the rules of an exchange are not designed to permit unfair discrimination. The Exchange believes that such a differential pricing structure for non-displayed orders is not unfairly discriminatory. As stated in the NYSE RLP Approval Order, the ‘‘Commission has previously recognized that the markets generally distinguish between individual retail investors, whose orders are considered desirable by liquidity providers because such retail investors are presumed on average to be less informed about short-term price movements, and professional traders, whose orders are presumed on average to be more informed.’’ 16 The Exchange’s 15 15 U.S.C. 78f(b)(5). Securities Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673, at 40679–40680 (July 10, 2012) (SR–NYSE–2011–55; SR–NYSEAmex– 2011–84) (citing Concept Release on Equity Market Structure and approval of an options exchange program related to price improvement for retail orders). Certain options exchanges deploy this same rationale today through pricing structures that vary for a trading participant based on the capacity of the 16 See PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 proposed differential pricing structure for non-displayed orders recognizes that not only are liquidity providers willing to provide better prices to retail investors, they are also willing to pay higher fees to trade certain securities with retail investors and, hence, raises substantively identical policy considerations as the rules approved by the Commission in the NYSE RLP Approval Order, which account for the difference of assumed information and sophistication level between different trading participants by providing Retail Orders access to better execution prices as well as more favorable access fees. Finally, as set forth above, the rebates for Retail Orders described above will not apply to Type 2 Retail Orders that remove displayed liquidity from the BYX Exchange order book. Instead, such Retail Orders, when removing displayed liquidity, will receive the standard rebate of $0.0002 per share for orders that remove liquidity. Type 2 Retail Orders under the Program are designated by the entering Member as willing to remove all available liquidity, after receiving any available price improving liquidity, including removing the Exchange’s displayed best bid or offer. The Exchange believes that Type 2 Retail Orders that remove displayed liquidity should receive the same pricing as any other order that removes displayed liquidity from the Exchange and that applying its existing pricing structure for any executions of Retail Orders against displayed quotations is fair and equitable and not unreasonably discriminatory. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received. contra-side trading participant. See, e.g., Securities Exchange Act Release No. 63632 (January 3, 2011), 76 FR 1205 (January 7, 2011) (SR–BATS–2010–038) (notice of filing and immediate effectiveness of proposal to modify fees for BATS Options, including liquidity rebates that are variable depending on the capacity of the contra-party to the transaction; see also Securities Exchange Act Release No. 67171 (June 8, 2012), 77 FR 35732 (June 14, 2012) (SR–NASDAQ–2012–068) (notice of filing and immediate effectiveness of proposal to modify fees for the NASDAQ Options Market, including certain fees and rebates that are variable depending on the capacity of the contra-party to the transaction). E:\FR\FM\21DEN1.SGM 21DEN1 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Pursuant to Section 19(b)(3)(A)(ii) of the Act 17 and Rule 19b–4(f)(2) thereunder,18 the Exchange has designated this proposal as establishing or changing a due, fee, or other charge applicable to the Exchange’s Members and non-members, which renders the proposed rule change effective upon filing. 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: mstockstill on DSK4VPTVN1PROD with 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–2012–024 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–2012–024. 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 17 15 18 17 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). VerDate Mar<15>2010 18:28 Dec 20, 2012 Jkt 229001 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 20549–1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of BYX. 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– 2012–024, and should be submitted on or before January 11, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–30793 Filed 12–20–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68453; File No. PCAOB– 2012–01] Public Company Accounting Oversight Board; Order Granting Approval of Proposed Rules on Auditing Standard No. 16, Communications With Audit Committees, and Related and Transitional Amendments to PCAOB Standards December 17, 2012. I. Introduction On August 28, 2012, the Public Company Accounting Oversight Board (the ‘‘Board’’ or the ‘‘PCAOB’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 107(b) 1 of the Sarbanes-Oxley Act of 2002 (the ‘‘Sarbanes-Oxley Act’’) and Section 19(b) 2 of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), proposed rules to adopt PCAOB Auditing Standard No. 16, ‘‘Communications with Audit Committees,’’ and related and transitional amendments to PCAOB standards (collectively, the ‘‘Proposed Rules’’). The Proposed Rules were published for comment in the Federal Register on September 17, 2012.3 At the time the notice was issued, the 19 17 CFR 200.30–3(a)(12). U.S.C. 7217(b). 2 15 U.S.C. 78s(b). 3 See Release No. 34–67804 (September 10, 2012), 77 FR 57408 (September 17, 2012). 1 15 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 75689 Commission designated a longer period to act on the Proposed Rules, until December 17, 2012.4 The Commission received five comment letters in response to the notice.5 On November 9, 2012, the PCAOB submitted a letter addressing certain comments received by the Commission.6 This order approves the Proposed Rules. II. Description of the Proposed Rules Auditing Standard No. 16 will supersede PCAOB interim auditing standard AU section 380, ‘‘Communication with Audit Committees’’ (‘‘AU sec. 380’’), and interim auditing standard AU section 310, ‘‘Appointment of the Independent Auditor’’ (‘‘AU sec. 310’’). Auditing Standard No. 16 retains or enhances existing audit committee communication requirements, incorporates SEC auditor communication requirements set forth in Rule 2–07 of Regulation S–X,7 provides a definition of the term ‘audit committee’ for issuers and non-issuers, and adds new communication requirements that are generally linked to performance requirements set forth in other PCAOB auditing standards. Auditing Standard No. 16 requires the auditor to establish an understanding of the terms of the audit engagement with the audit committee. This requirement aligns the auditing standard with the provision of the Exchange Act, as amended by the Sarbanes-Oxley Act, that requires the audit committee of listed companies to be responsible for the appointment of the external auditor.8 Additionally, Auditing Standard No. 16 requires the auditor to record the terms of the engagement in an engagement letter and to have the engagement letter executed by the appropriate party or parties on behalf of the company and determine that the audit committee has acknowledged and agreed to the terms. Auditing Standard No. 16 requires the communications with the audit committee to occur before the issuance 4 Ibid. 5 See letters to the Commission from Howard B. Levy, Principal and Director, Technical Services, Piercy Bowler Taylor & Kern, dated September 28, 2012 (‘‘Piercy Letter’’); Robert L. Leclerc, Chairman, Quest Rare Minerals Ltd., dated September 30, 2012 (‘‘Quest Letter’’); Tom Quaadman, Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, dated October 5, 2012 (‘‘Chamber Letter’’); Deloitte & Touche LLP, dated October 5, 2012 (‘‘Deloitte Letter’’); and Cindy M. Fornelli, Executive Director of the Center for Audit Quality, dated October 9, 2012 (‘‘CAQ Letter’’). 6 See letter to the Commission from the PCAOB, dated November 9, 2012. 7 17 CFR 210.2–07. 8 See Section 10A(m) of the Exchange Act, as added by Section 301 of the Sarbanes-Oxley Act. E:\FR\FM\21DEN1.SGM 21DEN1

Agencies

[Federal Register Volume 77, Number 246 (Friday, December 21, 2012)]
[Notices]
[Pages 75686-75689]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68450; File No. SR-BYX-2012-024]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Fees for Use of BATS Y-Exchange, Inc.

December 17, 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 December 6, 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, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the fee schedule applicable to 
Members \5\ and non-members of the Exchange pursuant to BYX Rules 
15.1(a) and (c). Changes to the fee schedule pursuant to this proposal 
will be effective upon filing.
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    \5\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    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.

[[Page 75687]]

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
    On August 14, 2012, the Exchange filed with the Commission a 
proposed rule change to establish on a one-year pilot basis the Retail 
Price Improvement (``RPI'') Program (the ``Program'').\6\ The Program 
seeks to establish a venue for the execution of retail orders with 
greater price competition and transparency than existing execution 
arrangements. The Exchange filed an amendment to the proposal on 
November 13, 2012, proposing to make various minor amendments to the 
Proposal, including an amendment to limit the Program to a group of up 
to 25 securities for the first 90 days of the pilot period, and to 
gradually expand the program on a monthly basis for the remainder of 
the pilot period.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 67734 (August 27, 
2012), 77 FR 53242 (SR-BYX-2012-019) (the ``Proposal'').
---------------------------------------------------------------------------

    The Program establishes a new class of market participants (Retail 
Member Organizations) and two new order types (Retail Orders and Retail 
Price Improvement Orders). Retail Member Organizations will submit 
Retail Orders to the Exchange. All Exchange Users \7\ will be permitted 
to provide potential price improvement for Retail Orders in the form of 
non-displayed interest that is better than the national best bid that 
is a Protected Quotation (``Protected NBB'') or the national best offer 
that is a Protected Quotation (``Protected NBO'', and together with the 
Protected NBB, the ``Protected NBBO'').\8\ Such price improving 
interest can be entered either in the form of Retail Price Improvement 
Orders (or ``RPI Orders'') or as other non-displayed interest.
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    \7\ A ``User'' is defined in BYX Rule 1.5(cc) as any member or 
sponsored participant of the Exchange who is authorized to obtain 
access to the System.
    \8\ The term Protected Quotation is defined in BYX Rule 1.5(t) 
and has the same meaning as is set forth in Regulation NMS Rule 
600(b)(58). The terms Protected NBB and Protected NBO are defined in 
BYX Rule 1.5(s). The Protected NBB is the best-priced protected bid 
and the Protected NBO is the best-priced protected offer. Generally, 
the Protected NBB and Protected NBO and the national best bid 
(``NBB'') and national best offer (``NBO'', together with the NBB, 
the ``NBBO'') will be the same. However, a market center is not 
required to route to the NBB or NBO if that market center is subject 
to an exception under Regulation NMS Rule 611(b)(1) or if such NBB 
or NBO is otherwise not available for an automatic execution. In 
such case, the Protected NBB or Protected NBO would be the best-
priced protected bid or offer to which a market center must route 
interest pursuant to Regulation NMS Rule 611.
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    The Commission recently approved the Program's operation on a pilot 
basis.\9\ Accordingly, the Exchange proposes to modify its fee schedule 
effective December 6, 2012, in order to adopt pricing for the Program, 
which will be applicable to the first set of securities selected by the 
Exchange for inclusion in the Program.\10\
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    \9\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012) (SR-BYX-2012-019).
    \10\ The Exchange currently plans to implement the Program on 
December 17, 2012. Although the Program is not yet operative, the 
Exchange is adopting the applicable fees in anticipation of the 
Program's operation.
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    The Exchange proposes to provide a rebate to Retail Member 
Organizations for executions of their Retail Orders and to charge Users 
a fee for executions of their orders against Retail Orders. Further, 
the Exchange proposes to bifurcate into ``Group 1'' and ``Group 2'' the 
original 20 securities selected by the Exchange to be included in the 
Program, and to differentiate rebates and fees between such Groups.
    Group 1, as proposed, will initially include 10 securities, as 
follows: Apple Inc. (AAPL), SPDR S&P ETF Trust (SPY), Facebook Inc. 
(FB), Direxion Daily Financial Bull 3X Shares (FAS), Direxion Daily 
Financial Bear 3X Shares (FAZ), iShares Russell 2000 Index (IWM), 
Citigroup Inc. (C), General Electric Company (GE), Google Inc. (GOOG), 
and SPDR Gold Trust (GLD) (``Group 1 Securities''). The Exchange 
proposes to provide a rebate of $0.0025 per share for a Retail Order 
that removes liquidity from the BYX Exchange order book in an RPI Group 
1 Security. Similarly, the Exchange proposes to charge $0.0025 per 
share for any Retail Price Improving Order or non-displayed order that 
adds liquidity to the BYX Exchange order book in an RPI Group 1 
Security and is removed by a Retail Order.
    Group 2, as proposed, will initially include 10 securities, as 
follows: Sirius XM Radio Inc. (SIRI), Bank of America Corp. (BAC), 
Nokia Corporation-ADR (NOK), Sprint Nextel Corporation (S), Micron 
Technology, Inc. (MU), Ford Motor Company (F), Advanced Micro Devices, 
Inc. (AMD), JPMorgan Chase & Co. (JPM), Hewlett-Packard Company (HPQ), 
and Financial Select Sector SPDR (XLF) (``Group 2 Securities''). The 
Exchange proposes to provide a rebate of $0.0010 per share for a Retail 
Order that removes liquidity from the BYX Exchange order book in an RPI 
Group 2 Security. Similarly, the Exchange proposes to charge $0.0010 
per share for any Retail Price Improving Order or non-displayed order 
that adds liquidity to the BYX Exchange order book in an RPI Group 2 
Security and is removed by a Retail Order.
    As proposed, the rebates for Retail Orders described above will not 
apply to Type 2 Retail Orders that remove displayed liquidity from the 
BYX Exchange order book. Instead, such Retail Orders, when removing 
displayed liquidity, will receive the standard rebate of $0.0002 per 
share for orders that remove liquidity. Similarly, a liquidity provider 
that enters a displayed order that is removed by a Retail Order will be 
charged the standard fee for adding displayed liquidity (either $0.0003 
per share or $0.0002 per share depending on whether such liquidity 
provider qualifies for tiered pricing incentives).
    The Exchange is proposing the higher remove rebate and fee to add 
liquidity for Group 1 Securities because the Exchange believes that, 
while both Group 1 and Group 2 Securities attract heavy retail investor 
interest, liquidity providers in the over-the-counter market are 
generally willing to pay retail brokers higher fees for retail orders 
in Group 1 Securities. The Exchange's rebate for Group 1 Securities is 
designed to compete with such higher fees.
    The Exchange currently charges a fee of $0.0010 per share to add 
non-displayed liquidity to the BYX order book. As explained in the 
Proposal, the Exchange proposes to execute incoming Retail Orders 
against all available contra-side interest that will provide price 
improvement to the Retail Order, including non-displayed orders other 
than RPI Orders. In the event non-displayed interest other than an RPI 
Order interacts with a Retail Order, the Exchange proposes to charge 
the User that entered such non-displayed interest the same fee as is 
imposed for an RPI Order execution. As set forth above, the Exchange 
proposes to charge a fee of $0.0025 per share for any Retail Price 
Improving Order or non-displayed order that adds liquidity to the BYX 
Exchange order book in an RPI Group 1 Security and is removed by a 
Retail Order. Accordingly, the Exchange proposes

[[Page 75688]]

language to the existing text related to liquidity fees to make clear 
that any non-displayed order removed by a Retail Order will pay the 
applicable fee under the Retail Pricing Improvement program for such 
execution.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\11\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Sections 6(b)(4) and (b)(5) of the Act,\12\ in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among issuers, and it does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4) and (b)(5).
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    The Program is intended to increase competition among execution 
venues, encourage additional liquidity, and offer the potential for 
price improvement to retail investors. The Exchange notes that a 
significant percentage of the orders of individual investors are 
executed over-the-counter.\13\ The Exchange believes that it is 
appropriate to create a financial incentive to bring more retail order 
flow to a public market where it may be subject to greater competition 
from multiple liquidity providers.
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    \13\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September 
2009). See also Mary L. Schapiro, Strengthening Our Equity Market 
Structure (Speech at the Economic Club of New York, Sept. 7, 2010) 
(available on the Commission's Web site). In her speech, Chairman 
Schapiro noted that nearly 30 percent of volume in U.S.-listed 
equities was executed in venues that do not display their liquidity 
or make it generally available to the public and the percentage was 
increasing nearly every month.
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    The Exchange understands that Section 6(b)(5) of the Act \14\ 
prohibits an exchange from establishing rules that treat market 
participants in an unfairly discriminatory manner. However, Section 
6(b)(5) of the Act does not prohibit exchange members or other broker-
dealers from discriminating, so long as their activities are otherwise 
consistent with the federal securities laws. Nor does Section 6(b)(5) 
of the Act require exchanges to preclude discrimination by broker-
dealers. Broker-dealers commonly differentiate between customers based 
on the nature and profitability of their business. The differentiation 
established by the Exchange in connection with the Program is not 
designed to permit unfair discrimination, but instead to promote a 
competitive process around retail executions such that retail investors 
would receive better prices than they currently do through bilateral 
internalization arrangements.
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    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rebates for Retail Orders 
are fair and equitable in that they are designed to compete with 
internalization arrangements established by executing broker-dealers. 
The Exchange further believes that differentiation between the two 
types of securities (Groups 1 and 2) is fair and equitable and not 
unreasonably discriminatory because this differentiation is based on 
the Exchange's belief as to relative economic value of order flow, 
namely, that order flow in Group 1 Securities is more valuable, and in 
turn, is rewarded with better economic arrangements by broker-dealers, 
than is order flow in Group 2 Securities.
    As set forth above, in addition to establishing pricing for orders 
particularly designated to participate in the Program, namely Retail 
Orders and RPI Orders, the proposal will impact non-displayed orders 
that interact with Retail Orders in Group 1 Securities in that such 
orders will be charged a higher fee than they do today. The Exchange 
believes that the proposal to treat non-displayed orders differently 
depending on the parties with whom they interact is consistent with 
Section 6(b)(5) of the Act,\15\ which requires that the rules of an 
exchange are not designed to permit unfair discrimination. The Exchange 
believes that such a differential pricing structure for non-displayed 
orders is not unfairly discriminatory. As stated in the NYSE RLP 
Approval Order, the ``Commission has previously recognized that the 
markets generally distinguish between individual retail investors, 
whose orders are considered desirable by liquidity providers because 
such retail investors are presumed on average to be less informed about 
short-term price movements, and professional traders, whose orders are 
presumed on average to be more informed.'' \16\ The Exchange's proposed 
differential pricing structure for non-displayed orders recognizes that 
not only are liquidity providers willing to provide better prices to 
retail investors, they are also willing to pay higher fees to trade 
certain securities with retail investors and, hence, raises 
substantively identical policy considerations as the rules approved by 
the Commission in the NYSE RLP Approval Order, which account for the 
difference of assumed information and sophistication level between 
different trading participants by providing Retail Orders access to 
better execution prices as well as more favorable access fees.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See Securities Exchange Act Release No. 67347 (July 3, 
2012), 77 FR 40673, at 40679-40680 (July 10, 2012) (SR-NYSE-2011-55; 
SR-NYSEAmex-2011-84) (citing Concept Release on Equity Market 
Structure and approval of an options exchange program related to 
price improvement for retail orders). Certain options exchanges 
deploy this same rationale today through pricing structures that 
vary for a trading participant based on the capacity of the contra-
side trading participant. See, e.g., Securities Exchange Act Release 
No. 63632 (January 3, 2011), 76 FR 1205 (January 7, 2011) (SR-BATS-
2010-038) (notice of filing and immediate effectiveness of proposal 
to modify fees for BATS Options, including liquidity rebates that 
are variable depending on the capacity of the contra-party to the 
transaction; see also Securities Exchange Act Release No. 67171 
(June 8, 2012), 77 FR 35732 (June 14, 2012) (SR-NASDAQ-2012-068) 
(notice of filing and immediate effectiveness of proposal to modify 
fees for the NASDAQ Options Market, including certain fees and 
rebates that are variable depending on the capacity of the contra-
party to the transaction).
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    Finally, as set forth above, the rebates for Retail Orders 
described above will not apply to Type 2 Retail Orders that remove 
displayed liquidity from the BYX Exchange order book. Instead, such 
Retail Orders, when removing displayed liquidity, will receive the 
standard rebate of $0.0002 per share for orders that remove liquidity. 
Type 2 Retail Orders under the Program are designated by the entering 
Member as willing to remove all available liquidity, after receiving 
any available price improving liquidity, including removing the 
Exchange's displayed best bid or offer. The Exchange believes that Type 
2 Retail Orders that remove displayed liquidity should receive the same 
pricing as any other order that removes displayed liquidity from the 
Exchange and that applying its existing pricing structure for any 
executions of Retail Orders against displayed quotations is fair and 
equitable and not unreasonably discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received.

[[Page 75689]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(3)(A)(ii) of the Act \17\ and Rule 19b-
4(f)(2) thereunder,\18\ the Exchange has designated this proposal as 
establishing or changing a due, fee, or other charge applicable to the 
Exchange's Members and non-members, which renders the proposed rule 
change effective upon filing.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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-2012-024 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-2012-024. 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 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal offices of BYX. 
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-2012-024, 
and should be submitted on or before January 11, 2013.

    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. 2012-30793 Filed 12-20-12; 8:45 am]
BILLING CODE 8011-01-P
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