Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules in Connection With the Limit Up-Limit Down Plan, 16308-16311 [2013-05893]

Download as PDF 16308 Federal Register / Vol. 78, No. 50 / Thursday, March 14, 2013 / Notices 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 such filing will also 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 No. SR–BATS– 2013–017 and should be submitted on or before April 4, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–05879 Filed 3–13–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69088; File No. SR–BYX– 2013–010] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules in Connection With the Limit UpLimit Down Plan tkelley on DSK3SPTVN1PROD with NOTICES March 8, 2013. 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 February 28, 2013, BATS Y-Exchange, Inc. (‘‘BYX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The 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 15 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). 4 17 CFR 240.19b–4(f)(6)(iii). 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 is proposing to amend Rule 11.18 in connection with the upcoming operation of the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the ‘‘Limit Up-Limit Down Plan’’ or ‘‘Plan’’).5 The text of the proposed rule change is available at the Exchange’s Web site at https://www.batstrading.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Exchange Rule 11.18 to establish rules to comply with the requirements of the Limit Up-Limit Down Plan. The Exchange proposes to adopt the changes to become operative on a date that coincides with the commencement of operations of the Plan, which is currently scheduled as a one-year pilot to begin on April 8, 2013. Accordingly, as proposed, the Exchange has designated an operative date of April 8, 2013 to allow the Rules to become effective and operative on the initial date of operation of the Plan. Background Since May 6, 2010, when the markets experienced excessive volatility in an abbreviated time period, i.e., the ‘‘flash crash,’’ the equities exchanges and FINRA have implemented market-wide 1 15 VerDate Mar<15>2010 16:51 Mar 13, 2013 5 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (the ‘‘Limit Up-Limit Down Release’’). Jkt 229001 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 measures designed to restore investor confidence by reducing the potential for excessive market volatility. Among the measures adopted include pilot plans for stock-by-stock trading pauses 6 and related changes to the equities market clearly erroneous execution rules 7 and more stringent equities market maker quoting requirements.8 On May 31, 2012, the Commission approved the Plan, as amended, on a one-year pilot basis.9 In addition, the Commission approved changes to the equities market-wide circuit breaker rules on a pilot basis to coincide with the pilot period for the Plan.10 The Plan is designed to prevent trades in individual NMS Stocks from occurring outside of specified Price Bands.11 As described more fully below, the requirements of the Plan are coupled with Trading Pauses to accommodate more fundamental price moves (as opposed to erroneous trades or momentary gaps in liquidity). All trading centers in NMS Stocks, including both those operated by Participants and those operated by members of Participants, are required to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with the requirements specified in the Plan.12 As set forth in more detail in the Plan, Price Bands consisting of a Lower Price Band and an Upper Price Band for each NMS Stock are calculated by the Processors.13 When the National Best Bid (Offer) is below (above) the Lower (Upper) Price Band, the Processors shall disseminate such National Best Bid (Offer) with an appropriate flag identifying it as nonexecutable. When the National Best Bid (Offer) is equal to the Upper (Lower) Price Band, the Processors shall distribute such National Best Bid (Offer) with an appropriate flag identifying it as a Limit State Quotation.14 All trading 6 See, e.g., Rule 11.18. e.g., Rule 11.17. 8 See, e.g., Rule 11.8. 9 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4–631) (Order Approving, on a Pilot Basis, the National Market System Plan To Address Extraordinary Market Volatility). 10 See Securities Exchange Act Release No. 67090 (May 31, 2012), 77 FR 33531 (June 6, 2012) (SR– BATS–2011–038; SR–BYX–2011–025; SR–BX– 2011–068; SR–CBOE–2011–087; SR–C2–2011–024; SR–CHX–2011–30; SR–EDGA–2011–31; SR–EDGX– 2011–30; SR–FINRA–2011–054; SR–ISE–2011–61; SR–NASDAQ–2011–131; SR–NSX–2011–11; SR– NYSE–2011–48; SR–NYSEAmex–2011–73; SR– NYSEArca–2011–68; SR–Phlx–2011–129). 11 Unless otherwise specified, capitalized terms used in this rule filing are based on the defined terms of the Plan. 12 The Exchange is a Participant in the Plan. 13 See Section (V)(A) of the Plan. 14 See Section VI(A) of the Plan. 7 See, E:\FR\FM\14MRN1.SGM 14MRN1 Federal Register / Vol. 78, No. 50 / Thursday, March 14, 2013 / Notices centers in NMS Stocks must maintain written policies and procedures that are reasonably designed to prevent the display of offers below the Lower Price Band and bids above the Upper Price Band for NMS Stocks. Notwithstanding this requirement, the Processor shall display an offer below the Lower Price Band or a bid above the Upper Price Band, but with a flag that it is nonexecutable. Such bids or offers shall not be included in the National Best Bid or National Best Offer calculations.15 Trading in an NMS Stock immediately enters a Limit State if the National Best Offer (Bid) equals but does not cross the Lower (Upper) Price Band.16 Trading for an NMS stock exits a Limit State if, within 15 seconds of entering the Limit State, all Limit State Quotations were executed or canceled in their entirety. If the market does not exit a Limit State within 15 seconds, then the Primary Listing Exchange would declare a five-minute Trading Pause pursuant to Section VII of the Limit Up-Limit Dow Plan, which would be applicable to all markets trading the security.17 In addition, the Plan defines a Straddle State as when the National Best Bid (Offer) is below (above) the Lower (Upper) Price Band and the NMS Stock is not in a Limit State. For example, assume the Lower Price Band for an NMS Stock is $9.50 and the Upper Price Band is $10.50, such NMS stock would be in a Straddle State if the National Best Bid were below $9.50, and therefore non-executable, and the National Best Offer were above $9.50 (including a National Best Offer that could be above $10.50). If an NMS Stock is in a Straddle State and trading in that stock deviates from normal trading characteristics, the Primary Listing Exchange may declare a Trading Pause for that NMS Stock. tkelley on DSK3SPTVN1PROD with NOTICES Proposed Amendment to Rule 11.18 The Exchange is required by the Plan to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with the limit up-limit down and trading pause requirements specified in the Plan. In response to the new Plan, the Exchange proposes to amend its Rules accordingly. The Exchange proposes to add Rule 11.18(e)(1)(A) to define that ‘‘Plan’’ 15 See Section VI(A)(3) of the Plan. Section VI(B)(1) of the Plan. 17 The primary listing market would declare a trading pause in an NMS Stock; upon notification by the primary listing market, the Processor would disseminate this information to the public. No trades in that NMS Stock could occur during the trading pause, but all bids and offers may be displayed. See Section VII(A) of the Plan. 16 See VerDate Mar<15>2010 16:51 Mar 13, 2013 Jkt 229001 means the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act, as amended from time to time. In addition, proposed Rule 11.18(e)(1)(B) provides that all capitalized terms not otherwise defined in paragraph (e) of the Rule shall have the meanings set forth in the Plan or Exchange rules, as applicable. The Exchange proposes to add Rule 11.18(e)(2) to provide that the Exchange is a Participant in, and subject to the applicable requirements of, the Plan, which establishes procedures to address extraordinary volatility in NMS Stocks. The Exchange proposes to add Rule 11.18(e)(3) to provide that Exchange Members shall comply with the applicable provisions of the Plan. The Exchange believes that this requirement will help ensure the compliance by its Members with the provisions of the Plan as required pursuant to Section II(B) of the Plan.18 The Exchange proposes to add Rule 11.18(e)(4) to provide that the Exchange’s System 19 shall not display or execute buy (sell) interest above (below) the Upper (Lower) Price Bands, unless such interest is specifically exempted under the Plan. The Exchange believes that this requirement is reasonably designed to help ensure the compliance with the limit up-limit down and trading pause requirements specified in the Plan, by preventing executions outside the Price Bands as required pursuant to Section VI(A)(1) of the Plan.20 The Exchange proposes Rules regarding the treatment of certain trading interest on the Exchange in order to prevent executions outside the Price Bands and to comply with the new Limit Up-Limit Down Plan. In particular, the Exchange proposes to add Rule 11.18(e)(5) to provide that Exchange systems shall re-price and/or cancel buy (sell) interest that is priced or could be executed 21 above (below) the Upper (Lower) Price Band. When repricing resting orders because such orders are above (below) the Upper (Lower) Price Band, the Exchange will provide new timestamps to such orders. The Exchange will also provide new 18 See Section II(B) of the Plan. ‘‘System’’ is defined in BYX Rule 1.5(aa) as ‘‘the electronic communications and trading facility designated by the Board through which securities orders of Users are consolidated for ranking, execution and, when applicable, routing away.’’ 20 See Section VI(A)(1) of the Plan. 21 The Exchange notes that this includes any interest that is displayed and/or resting at a less aggressive price but executable at a more aggressive price, such as orders subject to price sliding and discretionary order types. 19 The PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 16309 timestamps to resting orders at the less aggressive price to which such orders are re-priced. Any resting interest that is re-priced pursuant to this Rule shall maintain priority ahead of interest that was originally less aggressively priced, regardless of the original timestamps for such orders. Specifically, the Exchange proposes the following provisions regarding the re-pricing or canceling of certain trading interest: • Market Orders and IOC Orders. The System will only execute BATS market orders or IOC Orders at or within the Price Bands. If a Market Order or IOC Order cannot be fully executed at or within the Price Bands, the System shall cancel any unexecuted portion of the order without posting such order to the Exchange’s order book. • Limit-priced Interest. Limit-priced Interest. Æ Orders Not Subject to Re-Pricing. Limit-priced interest will be cancelled if a User has entered instructions not to use the re-pricing process and such interest to buy (sell) is priced above (below) the Upper (Lower) Price Band. Æ Incoming Orders. If re-pricing is permitted based on a User’s instructions, both displayable and nondisplayable incoming limit-priced interest to buy (sell) that is priced above (below) the Upper (Lower) Price Band shall be re-priced to the Upper (Lower) Price Band. Æ Resting Orders. The System shall re-price resting limit-priced interest to buy (sell) to the Upper (Lower) Price Band if Price Bands move such that the price of resting limit-priced interest to buy (sell) would be above (below) the Upper (Lower) Price Band. If the Price Bands move again and the original limit price of displayed and re-priced interest is at or within the Price Bands and a User has opted into the Exchange’s optional multiple price sliding process, as described in Rule 11.9(g), the System shall re-price such displayed limit interest to the most aggressive permissible price up to the order’s limit price. All other displayed and nondisplayed limit interest re-priced pursuant to this paragraph (e) will remain at its new price unless the Price Bands move such that the price of resting limit-priced interest to buy (sell) would again be above (below) the Upper (Lower) Price Band. • Pegged Interest. Pegged interest to buy (sell) shall peg to the specified pegging price or the Upper (Lower) Price Band, whichever is lower (higher). • Routable Orders. If routing is permitted based on a User’s instructions, orders shall be routed away from the Exchange pursuant to E:\FR\FM\14MRN1.SGM 14MRN1 16310 Federal Register / Vol. 78, No. 50 / Thursday, March 14, 2013 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Rule 11.13. The Exchange is not proposing any changes to its routing functionality in connection with the implementation of the Limit Up-Limit Down Plan. • Sell Short Orders. During a Short Sale Price Test, as defined in Rule 11.19(b)(2), Short Sale Orders priced below the Lower Price Band shall be repriced to the higher of the Lower Price Band or the Permitted Price, as defined in Rule 11.9(g)(2)(A). The Exchange proposes to adopt Rule 11.18(e)(6) to state that securities shall remain subject to the requirements of paragraph (d) of the Rule until such securities become subject to the Plan. Paragraph (d) of the Rule relates to existing individual single stock trading pauses issued by each primary listing market for an NMS Stock. As set forth in proposed Rule 11.18(e)(6), once an NMS Stock is subject to the Plan, the security shall only be subject to a Trading Pause under the Plan consistent with paragraph (f) of the Rule. Thus, paragraph (d) will no longer apply to NMS Stocks subject to the Plan. The Exchange believes that the provisions proposed above are reasonably designed to prevent executions outside the Price Bands as required by the limit up-limit down and trading pause requirements specified in the Plan. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 22 in general, and furthers the objectives of Section 6(b)(5) of the Act 23 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. The proposal will ensure that the Exchange’s System will not display or execute trading interest outside the Price Bands in a manner that promotes just and equitable principles of trade and removes impediments to, and perfects the mechanism of, a free and open market and a national market system. The proposal will also ensure that the trading interest on the Exchange is either re-priced to maintain priority or canceled in a manner that promotes just and equitable principles of trade and removes impediments to, and perfects the mechanism of, a free and open market and a national market system. Specifically, the proposal will help allow market participants to continue to 22 15 23 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Mar<15>2010 16:51 Mar 13, 2013 trade NMS Stocks within Price Bands in compliance with the Plan with certainty on how certain orders and trading interest will be treated. Thus, reducing uncertainty regarding the treatment and priority of trading interest with the Price Bands should help encourage market participants to continue to provide liquidity during extraordinary market volatility. The Exchange believes it is consistent with the protection of investors and the promotion of just and equitable principles of trade to allow resting orders to retain their priority ahead of less aggressively priced liquidity in the event such resting orders are re-priced in compliance with the Plan. To do otherwise, the Exchange believes, would reduce incentives to enter the most aggressively priced, displayed liquidity, and might encourage firms to maintain interest that is one increment away from the most aggressive price level in order to be first in priority in the event of a re-pricing due to a Price Band. 19b–4(f)(6) thereunder.25 Because the 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 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 and Rule 19b–4(f)(6)(iii) thereunder. At any time within 60 days of the filing of such 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. 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 not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes that the proposal enhances cooperation among markets and other trading venues to promote fair and orderly markets and to protect the interests of the public and of investors. The Limit Up-Limit Down Plan is part of a coordinated effort amongst various parties including the Exchange and other self-regulatory organizations as well as other market participants. While the specific proposals to implement changes to Exchange functionality consistent with the Plan may differ in certain ways from the implementation adopted by other market centers, the Exchange believes its proposals are consistent with the requirements and purpose of the Plan. 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: C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 24 and Rule 24 15 Jkt 229001 PO 00000 U.S.C. 78s(b)(3)(A)(iii). Frm 00068 Fmt 4703 Sfmt 4703 IV. Solicitation of Comments 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–2013–010 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–2013–010. 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 25 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires the Exchange to give the Commission written notice of the Exchange’s 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. E:\FR\FM\14MRN1.SGM 14MRN1 Federal Register / Vol. 78, No. 50 / Thursday, March 14, 2013 / Notices 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–BYX– 2013–010 and should be submitted on or before April 4, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–05893 Filed 3–13–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69075; File No. SR–CHX– 2013–07] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Amending Article 1, Rule 2 (Order Types and Conditions); Article 20, Rule 4 (Eligible Orders); and Article 20, Rule 6 (Locked and Crossed Markets) To Modify the Operation of the CHX Only Order Type and Post Only Order Modifier tkelley on DSK3SPTVN1PROD with NOTICES March 8, 2013. 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 March 1, 2013, the Chicago Stock Exchange, Inc. (‘‘CHX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 16:51 Mar 13, 2013 Jkt 229001 organization. CHX has filed this proposal pursuant to Rule 19b–4(f)(6) under the Act,3 which renders the proposal 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 CHX proposes to amend its rules to modify the operation of the CHX Only order type and Post Only order modifier. The text of this proposed rule change is available on the Exchange’s Web site at www.chx.com and in the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the CHX included statements concerning the purpose of and basis for the proposed rule changes 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 CHX has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its rules that collectively govern the CHX Only order type and the Repricing Processes and the Post Only order modifier, as detailed below.4 Through this proposed rule change, the Exchange seeks to promote greater market liquidity and competition, while maintaining compliance with relevant provisions of the Act,5 Regulation NMS 6 and Rule 201 of Regulation SHO.7 Background In 2011, the Exchange introduced the CHX Only order type, which was designed to encourage displayed liquidity on the Exchange and reduce automatic cancellations by the Matching 3 17 CFR 240.19b–4(f)(6). Article 1, Rule 2 (Order Types and Conditions); CHX Article 20, Rule 4 (Eligible Orders); CHX Article 20, Rule 8 (Operation of the Matching System). 5 15 U.S.C. 78a et seq. 6 17 CFR 242.610(d). 7 17 CFR 242.201. 4 CHX PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 16311 System.8 The CHX Only order is a limit order that is to be ranked and executed on the Exchange, without routing away to another trading center.9 Order senders have the option to default all limit orders to ‘‘CHX Only’’ and therefore be subject to repricing. Notably, the CHX Only order type features an order handling functionality comprised of Regulation NMS repricing (‘‘NMS repricing’’) and Short Sale repricing (Short Sale repricing together with NMS repricing, the ‘‘Repricing Processes’’), to ensure compliance with Regulation NMS 10 and Rule 201 of Regulation SHO.11 The Repricing Processes are applied to all CHX Only orders that, at the time of order entry, would be in violation of Regulation NMS 12 and/or Rule 201 of Regulation SHO,13 if displayed or executed at the limit price. However, a CHX Only order that, at the time of order entry, can be displayed or executed in compliance with Regulation NMS 14 and Rule 201 of Regulation SHO 15 will not be subject to the Repricing Processes and shall be displayed and will be executable without repricing. The Repricing Processes currently result in the repricing 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 Regulation NMS 16 and Rule 201 of Regulation SHO.17 Specifically, NMS repricing currently reprices and displays an order upon entry and in certain cases again reprices and re-displays an order at a more aggressive price one time if and when permissible, but does not continually reprice an order based on changes in the National Best Bid (‘‘NBB’’) or National Best Offer (‘‘NBO’’, and together with the NBB, the ‘‘NBBO’’). Also, Short Sale repricing currently reprices an order once upon order entry and does not again reprice such an order after it has 8 Securities Exchange Act Release No. 64319 (Apr. 21, 2011), 76 FR 23634 (Apr. 27, 2011) (SR– CHX–2011–04); CHX Article 1, Rule 2 (Order Types and Conditions); CHX Article 20, Rule 4 (Eligible Orders). 9 The Exchange currently offers one order subtype (i.e. CHX Only) and two order modifiers (‘‘Do Not Route,’’ under CHX Article 1, Rule 2(k) and ‘‘Post Only,’’ under CHX Article 20, Rule 4(b)(18)) that require order execution on the Exchange only. Of the three, only orders marked CHX Only are eligible for the current Repricing processes. An order that is not marked CHX Only shall not be eligible for the current Repricing processes. 10 17 CFR 242.610(d). 11 17 CFR 242.201. 12 17 CFR 242.610(d). 13 17 CFR 242.201. 14 17 CFR 242.610(d). 15 17 CFR 242.201. 16 17 CFR 242.610(d). 17 17 CFR 242.201. E:\FR\FM\14MRN1.SGM 14MRN1

Agencies

[Federal Register Volume 78, Number 50 (Thursday, March 14, 2013)]
[Notices]
[Pages 16308-16311]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05893]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69088; File No. SR-BYX-2013-010]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Exchange Rules in Connection With the Limit Up-Limit Down Plan

March 8, 2013.
    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 February 28, 2013, BATS Y-Exchange, Inc. (``BYX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 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.
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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).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend Rule 11.18 in connection with 
the upcoming operation of the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the 
``Limit Up-Limit Down Plan'' or ``Plan'').\5\
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    \5\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
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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.

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
    The Exchange proposes to amend Exchange Rule 11.18 to establish 
rules to comply with the requirements of the Limit Up-Limit Down Plan. 
The Exchange proposes to adopt the changes to become operative on a 
date that coincides with the commencement of operations of the Plan, 
which is currently scheduled as a one-year pilot to begin on April 8, 
2013. Accordingly, as proposed, the Exchange has designated an 
operative date of April 8, 2013 to allow the Rules to become effective 
and operative on the initial date of operation of the Plan.
Background
    Since May 6, 2010, when the markets experienced excessive 
volatility in an abbreviated time period, i.e., the ``flash crash,'' 
the equities exchanges and FINRA have implemented market-wide measures 
designed to restore investor confidence by reducing the potential for 
excessive market volatility. Among the measures adopted include pilot 
plans for stock-by-stock trading pauses \6\ and related changes to the 
equities market clearly erroneous execution rules \7\ and more 
stringent equities market maker quoting requirements.\8\ On May 31, 
2012, the Commission approved the Plan, as amended, on a one-year pilot 
basis.\9\ In addition, the Commission approved changes to the equities 
market-wide circuit breaker rules on a pilot basis to coincide with the 
pilot period for the Plan.\10\
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    \6\ See, e.g., Rule 11.18.
    \7\ See, e.g., Rule 11.17.
    \8\ See, e.g., Rule 11.8.
    \9\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving, 
on a Pilot Basis, the National Market System Plan To Address 
Extraordinary Market Volatility).
    \10\ See Securities Exchange Act Release No. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
---------------------------------------------------------------------------

    The Plan is designed to prevent trades in individual NMS Stocks 
from occurring outside of specified Price Bands.\11\ As described more 
fully below, the requirements of the Plan are coupled with Trading 
Pauses to accommodate more fundamental price moves (as opposed to 
erroneous trades or momentary gaps in liquidity). All trading centers 
in NMS Stocks, including both those operated by Participants and those 
operated by members of Participants, are required to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with the requirements specified in the 
Plan.\12\ As set forth in more detail in the Plan, Price Bands 
consisting of a Lower Price Band and an Upper Price Band for each NMS 
Stock are calculated by the Processors.\13\ When the National Best Bid 
(Offer) is below (above) the Lower (Upper) Price Band, the Processors 
shall disseminate such National Best Bid (Offer) with an appropriate 
flag identifying it as non-executable. When the National Best Bid 
(Offer) is equal to the Upper (Lower) Price Band, the Processors shall 
distribute such National Best Bid (Offer) with an appropriate flag 
identifying it as a Limit State Quotation.\14\ All trading

[[Page 16309]]

centers in NMS Stocks must maintain written policies and procedures 
that are reasonably designed to prevent the display of offers below the 
Lower Price Band and bids above the Upper Price Band for NMS Stocks. 
Notwithstanding this requirement, the Processor shall display an offer 
below the Lower Price Band or a bid above the Upper Price Band, but 
with a flag that it is non-executable. Such bids or offers shall not be 
included in the National Best Bid or National Best Offer 
calculations.\15\
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    \11\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \12\ The Exchange is a Participant in the Plan.
    \13\ See Section (V)(A) of the Plan.
    \14\ See Section VI(A) of the Plan.
    \15\ See Section VI(A)(3) of the Plan.
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    Trading in an NMS Stock immediately enters a Limit State if the 
National Best Offer (Bid) equals but does not cross the Lower (Upper) 
Price Band.\16\ Trading for an NMS stock exits a Limit State if, within 
15 seconds of entering the Limit State, all Limit State Quotations were 
executed or canceled in their entirety. If the market does not exit a 
Limit State within 15 seconds, then the Primary Listing Exchange would 
declare a five-minute Trading Pause pursuant to Section VII of the 
Limit Up-Limit Dow Plan, which would be applicable to all markets 
trading the security.\17\ In addition, the Plan defines a Straddle 
State as when the National Best Bid (Offer) is below (above) the Lower 
(Upper) Price Band and the NMS Stock is not in a Limit State. For 
example, assume the Lower Price Band for an NMS Stock is $9.50 and the 
Upper Price Band is $10.50, such NMS stock would be in a Straddle State 
if the National Best Bid were below $9.50, and therefore non-
executable, and the National Best Offer were above $9.50 (including a 
National Best Offer that could be above $10.50). If an NMS Stock is in 
a Straddle State and trading in that stock deviates from normal trading 
characteristics, the Primary Listing Exchange may declare a Trading 
Pause for that NMS Stock.
---------------------------------------------------------------------------

    \16\ See Section VI(B)(1) of the Plan.
    \17\ The primary listing market would declare a trading pause in 
an NMS Stock; upon notification by the primary listing market, the 
Processor would disseminate this information to the public. No 
trades in that NMS Stock could occur during the trading pause, but 
all bids and offers may be displayed. See Section VII(A) of the 
Plan.
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Proposed Amendment to Rule 11.18
    The Exchange is required by the Plan to establish, maintain, and 
enforce written policies and procedures that are reasonably designed to 
comply with the limit up-limit down and trading pause requirements 
specified in the Plan. In response to the new Plan, the Exchange 
proposes to amend its Rules accordingly.
    The Exchange proposes to add Rule 11.18(e)(1)(A) to define that 
``Plan'' means the Plan to Address Extraordinary Market Volatility 
Pursuant to Rule 608 of Regulation NMS under the Act, as amended from 
time to time. In addition, proposed Rule 11.18(e)(1)(B) provides that 
all capitalized terms not otherwise defined in paragraph (e) of the 
Rule shall have the meanings set forth in the Plan or Exchange rules, 
as applicable.
    The Exchange proposes to add Rule 11.18(e)(2) to provide that the 
Exchange is a Participant in, and subject to the applicable 
requirements of, the Plan, which establishes procedures to address 
extraordinary volatility in NMS Stocks.
    The Exchange proposes to add Rule 11.18(e)(3) to provide that 
Exchange Members shall comply with the applicable provisions of the 
Plan. The Exchange believes that this requirement will help ensure the 
compliance by its Members with the provisions of the Plan as required 
pursuant to Section II(B) of the Plan.\18\
---------------------------------------------------------------------------

    \18\ See Section II(B) of the Plan.
---------------------------------------------------------------------------

    The Exchange proposes to add Rule 11.18(e)(4) to provide that the 
Exchange's System \19\ shall not display or execute buy (sell) interest 
above (below) the Upper (Lower) Price Bands, unless such interest is 
specifically exempted under the Plan. The Exchange believes that this 
requirement is reasonably designed to help ensure the compliance with 
the limit up-limit down and trading pause requirements specified in the 
Plan, by preventing executions outside the Price Bands as required 
pursuant to Section VI(A)(1) of the Plan.\20\
---------------------------------------------------------------------------

    \19\ The ``System'' is defined in BYX Rule 1.5(aa) as ``the 
electronic communications and trading facility designated by the 
Board through which securities orders of Users are consolidated for 
ranking, execution and, when applicable, routing away.''
    \20\ See Section VI(A)(1) of the Plan.
---------------------------------------------------------------------------

    The Exchange proposes Rules regarding the treatment of certain 
trading interest on the Exchange in order to prevent executions outside 
the Price Bands and to comply with the new Limit Up-Limit Down Plan. In 
particular, the Exchange proposes to add Rule 11.18(e)(5) to provide 
that Exchange systems shall re-price and/or cancel buy (sell) interest 
that is priced or could be executed \21\ above (below) the Upper 
(Lower) Price Band. When re-pricing resting orders because such orders 
are above (below) the Upper (Lower) Price Band, the Exchange will 
provide new timestamps to such orders. The Exchange will also provide 
new timestamps to resting orders at the less aggressive price to which 
such orders are re-priced. Any resting interest that is re-priced 
pursuant to this Rule shall maintain priority ahead of interest that 
was originally less aggressively priced, regardless of the original 
timestamps for such orders.
---------------------------------------------------------------------------

    \21\ The Exchange notes that this includes any interest that is 
displayed and/or resting at a less aggressive price but executable 
at a more aggressive price, such as orders subject to price sliding 
and discretionary order types.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes the following provisions 
regarding the re-pricing or canceling of certain trading interest:
     Market Orders and IOC Orders. The System will only execute 
BATS market orders or IOC Orders at or within the Price Bands. If a 
Market Order or IOC Order cannot be fully executed at or within the 
Price Bands, the System shall cancel any unexecuted portion of the 
order without posting such order to the Exchange's order book.
     Limit-priced Interest. Limit-priced Interest.
    [cir] Orders Not Subject to Re-Pricing. Limit-priced interest will 
be cancelled if a User has entered instructions not to use the re-
pricing process and such interest to buy (sell) is priced above (below) 
the Upper (Lower) Price Band.
    [cir] Incoming Orders. If re-pricing is permitted based on a User's 
instructions, both displayable and non-displayable incoming limit-
priced interest to buy (sell) that is priced above (below) the Upper 
(Lower) Price Band shall be re-priced to the Upper (Lower) Price Band.
    [cir] Resting Orders. The System shall re-price resting limit-
priced interest to buy (sell) to the Upper (Lower) Price Band if Price 
Bands move such that the price of resting limit-priced interest to buy 
(sell) would be above (below) the Upper (Lower) Price Band. If the 
Price Bands move again and the original limit price of displayed and 
re-priced interest is at or within the Price Bands and a User has opted 
into the Exchange's optional multiple price sliding process, as 
described in Rule 11.9(g), the System shall re-price such displayed 
limit interest to the most aggressive permissible price up to the 
order's limit price. All other displayed and non-displayed limit 
interest re-priced pursuant to this paragraph (e) will remain at its 
new price unless the Price Bands move such that the price of resting 
limit-priced interest to buy (sell) would again be above (below) the 
Upper (Lower) Price Band.
     Pegged Interest. Pegged interest to buy (sell) shall peg 
to the specified pegging price or the Upper (Lower) Price Band, 
whichever is lower (higher).
     Routable Orders. If routing is permitted based on a User's 
instructions, orders shall be routed away from the Exchange pursuant to

[[Page 16310]]

Rule 11.13. The Exchange is not proposing any changes to its routing 
functionality in connection with the implementation of the Limit Up-
Limit Down Plan.
     Sell Short Orders. During a Short Sale Price Test, as 
defined in Rule 11.19(b)(2), Short Sale Orders priced below the Lower 
Price Band shall be re-priced to the higher of the Lower Price Band or 
the Permitted Price, as defined in Rule 11.9(g)(2)(A).
    The Exchange proposes to adopt Rule 11.18(e)(6) to state that 
securities shall remain subject to the requirements of paragraph (d) of 
the Rule until such securities become subject to the Plan. Paragraph 
(d) of the Rule relates to existing individual single stock trading 
pauses issued by each primary listing market for an NMS Stock. As set 
forth in proposed Rule 11.18(e)(6), once an NMS Stock is subject to the 
Plan, the security shall only be subject to a Trading Pause under the 
Plan consistent with paragraph (f) of the Rule. Thus, paragraph (d) 
will no longer apply to NMS Stocks subject to the Plan.
    The Exchange believes that the provisions proposed above are 
reasonably designed to prevent executions outside the Price Bands as 
required by the limit up-limit down and trading pause requirements 
specified in the Plan.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \22\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \23\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The proposal will ensure that the Exchange's System will not 
display or execute trading interest outside the Price Bands in a manner 
that promotes just and equitable principles of trade and removes 
impediments to, and perfects the mechanism of, a free and open market 
and a national market system.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposal will also ensure that the trading interest on the 
Exchange is either re-priced to maintain priority or canceled in a 
manner that promotes just and equitable principles of trade and removes 
impediments to, and perfects the mechanism of, a free and open market 
and a national market system. Specifically, the proposal will help 
allow market participants to continue to trade NMS Stocks within Price 
Bands in compliance with the Plan with certainty on how certain orders 
and trading interest will be treated. Thus, reducing uncertainty 
regarding the treatment and priority of trading interest with the Price 
Bands should help encourage market participants to continue to provide 
liquidity during extraordinary market volatility. The Exchange believes 
it is consistent with the protection of investors and the promotion of 
just and equitable principles of trade to allow resting orders to 
retain their priority ahead of less aggressively priced liquidity in 
the event such resting orders are re-priced in compliance with the 
Plan. To do otherwise, the Exchange believes, would reduce incentives 
to enter the most aggressively priced, displayed liquidity, and might 
encourage firms to maintain interest that is one increment away from 
the most aggressive price level in order to be first in priority in the 
event of a re-pricing due to a Price Band.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposal enhances cooperation among markets and other 
trading venues to promote fair and orderly markets and to protect the 
interests of the public and of investors. The Limit Up-Limit Down Plan 
is part of a coordinated effort amongst various parties including the 
Exchange and other self-regulatory organizations as well as other 
market participants. While the specific proposals to implement changes 
to Exchange functionality consistent with the Plan may differ in 
certain ways from the implementation adopted by other market centers, 
the Exchange believes its proposals are consistent with the 
requirements and purpose of the Plan.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\ 
Because the 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 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 and Rule 19b-
4(f)(6)(iii) thereunder.
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    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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-2013-010 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-2013-010. 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

[[Page 16311]]

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 
such filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make publicly available. All submissions should refer to 
File Number SR-BYX-2013-010 and should be submitted on or before April 
4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05893 Filed 3-13-13; 8:45 am]
BILLING CODE 8011-01-P
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