Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Market Maker Peg Order Functionality, 21447-21449 [2013-08330]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21447-21449]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08330]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69310; File No. SR-BATS-2013-022]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
Market Maker Peg Order Functionality

April 4, 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 22, 2013, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to amend the 
functionality of the Market Maker Peg Order to more closely resemble 
analogous order types offered by NASDAQ Stock Market LLC (``Nasdaq'') 
and EDGX Exchange, Inc. (``EDGX'') \3\ and to make certain clarifying 
changes to the rule.
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    \3\ The Exchange notes that EDGA Exchange, Inc. also has an 
order type identical to that of EDGX, however, for the purposes of 
this filing, the Exchange is referring only to the order type 
functionality available at EDGX.
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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 purpose of this proposed rule change is to amend BATS Rule 
11.9(c)(16). Specifically, the Exchange proposes to: (1) Remove the 
option to allow Market Maker Peg Orders to be priced and executed 
during the Pre-Opening Session \4\ and the After Hours Trading Session 
\5\ and to cancel all Market Maker Peg Orders that are on the BATS Book 
\6\ at the end of Regular Trading Hours; (2) remove the option for a 
Market Maker Peg Order to be automatically cancelled where there is no 
NBBO and the order is priced based on the last reported sale from the 
single plan processor; (3) remove the functionality that would allow a 
Market Maker to designate a more aggressive offset from the NBBO; (4) 
make clear that a Market Maker Peg Order will not peg to itself; and 
(5) make clear that only registered Market Makers are eligible to enter 
Market Maker Peg Orders. The Exchange is also proposing to reaffirm 
that it will continue to offer the present automated functionality 
provided to market makers under Rule 11.8(e) for a period of three 
months after the implementation of the Market Maker Peg Order.
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    \4\ Pre-Opening Session means the time between 8:00 a.m. and 
9:30 a.m. Eastern Time.
    \5\ After Hours Trading Session means the time between 4:00 p.m. 
and 5:00 p.m. Eastern Time.
    \6\ BATS Book means the System's electronic file of orders.
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Market Maker Peg Orders Entered Outside of Regular Trading Hours
    The Exchange is proposing to amend BATS Rule 11.9(c)(16) to 
eliminate the option for Market Maker Peg Orders to be priced and 
executed outside of Regular Trading Hours and to cancel all Market 
Maker Peg Orders that are on the BATS Book at the end of Regular 
Trading Hours. As currently written, a Market Maker may enter a Market 
Maker Peg Order at any time during the Pre-Opening Session \7\ or 
Regular Trading Hours, with an order entered during the Pre-Opening 
Session, by default, to remain unpriced and unexecutable until Regular 
Trading Hours, however, a Market Maker could designate that the order 
be priced and executable immediately upon entry during the Pre-Opening 
Session.
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    \7\ The Pre-Opening Session means the time between 8:00 a.m. and 
9:30 a.m. Eastern Time.
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    Specifically, the Exchange is proposing rule changes to eliminate 
the ability for a Market Maker to designate that an order be priced and 
executable immediately upon entry during the Pre-Opening Session, to 
state that all Market Maker Peg Orders that are on the BATS Book expire 
at the end of Regular Trading Hours, and to reject all Market Maker Peg 
Orders entered during the After Hours Trading Session. The Exchange is 
proposing these changes in order to make its Market Maker Peg Order 
functionality more closely resemble that of Market Maker Peg Orders at 
Nasdaq and EDGX. Because the Market Maker Peg Order is designed to help 
Market Makers meet their quoting obligation on the Exchange and the 
Exchange's quoting obligations do not include any obligations outside 
of Regular Trading Hours, the Exchange does not believe that allowing 
Market Maker Peg Orders to be priced and executed outside of Regular 
Trading Hours provides Market Makers with any benefit that would 
warrant the additional complexity that the

[[Page 21448]]

functionality would require. As such, the Exchange believes that 
eliminating the ability to have Market Maker Peg Orders price and 
execute outside of Regular Trading Hours will, in conjunction with the 
other changes proposed in this filing, act to simplify the Market Maker 
Peg Order type, thereby increasing its utility to Market Makers and 
decreasing the likelihood of unforeseen complications.
Pricing Market Maker Peg Orders to the Last Reported Sale
    The Exchange is proposing to amend BATS Rule 11.9(c)(16) to 
eliminate the functionality that would allow a Market Maker to 
designate Market Maker Peg Orders to be cancelled where there is no 
NBBO and the order would otherwise be priced to the last reported sale 
from the single plan processor. Currently, a Market Maker may 
optionally designate that a Market Maker Peg Order be cancelled where 
it would be priced to the last reported sale from the single plan 
processor.
    The Exchange is proposing to eliminate this functionality in order 
to make its Market Maker Peg Order functionality more closely resemble 
that of Market Maker Peg Orders at Nasdaq and EDGX. Additionally, the 
Exchange believes that removing the ability to designate that Market 
Maker Peg Orders be cancelled where the order would peg based on the 
last reported sale will, in conjunction with the other changes proposed 
in this filing, act to simplify the Market Maker Peg Order type, 
thereby increasing its utility to Market Makers and decreasing the 
likelihood of unforeseen complications.
Eliminating More Aggressive Offsets From the NBBO
    The Exchange is proposing to amend BATS Rule 11.9(c)(16) in order 
to eliminate the functionality that would allow a Market Maker to 
designate a more aggressive offset from the NBBO than the Designated 
Percentage. As currently written, the rule allows a Market Maker to 
designate a more aggressive offset from the NBBO and a percentage away 
from the NBBO or the price of the last reported sale from the 
responsible single plan processor at which the order will be adjusted 
back to the Market Maker-designated offset.
    The Exchange is proposing to eliminate this functionality in order 
to, as mentioned above, simplify the Market Maker Peg Order 
functionality. Market Makers will still be able to enter orders priced 
more aggressively than the automatically priced Market Maker Peg Orders 
and will have access to existing pegged order functionality. The 
Exchange believes that this existing functionality will provide Market 
Makers with the necessary tools to enter orders priced more 
aggressively than the Market Maker Peg Order while not adding an 
additional level of complexity by requiring Market Makers to establish 
additional parameters for their Market Maker Peg Orders.
Preventing Market Maker Peg Orders From Pegging to Itself
    The Exchange is proposing to amend BATS Rule 11.9(c)(16) in order 
to make clear that a Market Maker Peg Order will not use its own pegged 
price as the basis for adjusting the order's price. Where there is no 
NBBO and a Market Maker Peg Order, whether upon entry or already on the 
BATS Book, is pegged to the last reported sale from the single plan 
processor, the Market Maker Peg Order will be reported to the SIPs and 
will be disseminated to the Exchange as the NBBO. The Exchange is 
seeking to make clear that, in this situation, the Exchange will not 
reprice the order based on the fact that the Market Maker Peg Order is 
the NBBO. Rather, the Exchange will only adjust the market Maker Peg 
Order when there is either a new consolidated last sale or a new NBBO 
is established by a national securities exchange.
Restriction of Market Maker Peg Orders to Market Makers
    The Exchange is proposing to amend BATS Rule 11.9(c)(16) in order 
to make clear that only a registered Market Maker can enter a Market 
Maker Peg Order. The Exchange believes that, as currently constructed, 
only a registered Market Maker is allowed to enter Market Maker Peg 
Orders under Rule 11.9(c)(16) despite lacking any explicit language 
stating as much. As discussed above, the order type was created to help 
Market Makers comply with their quoting requirements on the Exchange 
and, for that reason, the behaviors of the Market Maker Peg Order are 
based specifically on the Exchange's quoting requirements. The Exchange 
does not make the order type available to other market participants 
because it does not believe that there would be any demand for the 
order type or that it would be particularly useful for market 
participants that are not Market Makers, especially given the 
availability of more customizable peg orders.\8\ In order to make it 
abundantly clear, however, the Exchange is proposing to amend the rule 
to explicitly state that only registered Market Makers can enter Market 
Maker Peg Orders.
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    \8\ Including Primary Pegged Order, Market Pegged Order, Mid-
Point Peg Order, and Alternative Mid-Point Peg Order [sic], as 
described in BATS Rules 11.9(c)(8) and (9).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general to protect investors and the public interest. The Exchange 
believes that eliminating the ability of Market Maker Peg Orders to be 
priced and executed outside of Regular Trading Hours and cancelling all 
Market Maker Peg Orders on the BATS Book at the end of Regular Trading 
Hours will result in a continuing benefit to market participants by 
simplifying the process of entering and cancelling Market Maker Peg 
Orders and including only the functionality necessary for Market Makers 
to meet their regulatory obligations. Additionally, the Exchange 
believes that the proposal will foster cooperation and coordination 
with processing information with respect to transactions in securities 
by preventing the Exchange from sending a potentially significantly 
larger than normal number of orders to the SIPs at the beginning of 
Regular Trading Hours when Market Maker Peg Orders entered during the 
Pre-Opening Session would be priced and become eligible for execution 
at exactly the same time. Similarly, the Exchange believes that 
eliminating the option to have a Market Maker Peg Order automatically 
cancel an order that would be priced based on the last reported sale 
from the single plan processor will result in a continuing benefit to 
market participants by simplifying the functionality and corresponding 
complexity of implementation of Market Maker Peg Orders. The Exchange 
also believes that removing the functionality that would allow a Market 
Maker to designate a more aggressive offset from the NBBO will result 
in a continuing benefit to market participants by further simplifying 
the functionality of Market Maker Peg Orders to include only the 
functionality necessary for Market Makers to meet their regulatory

[[Page 21449]]

obligations. The Exchange does not believe that removing this 
functionality will disincentivize Market Makers from posting more 
aggressive quotes. Rather, the Exchange believes that, similar to the 
market maker quoter, Market Makers will use the Market Maker Peg Order 
to satisfy the Exchange's quoting requirements, while continuing to 
enter and manage more aggressively priced orders using existing order 
types.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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 proposed 
changes to the Market Maker Peg Order type functionality will further 
align the Exchange's functionality with that offered by certain other 
competing market centers. Specifically, the rule change proposed herein 
is based on Nasdaq Rule 4751(f)(15) and EDGX Rule 11.5(c)(15).\11\ By 
adopting changes to functionality to align with functionality in place 
elsewhere, as well as simplifying such functionality, the Exchange 
believes that it is reducing the potential for confusion amongst market 
participants.
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    \11\ See Securities Exchange Act Release Nos. 67203 (June 14, 
2012), 77 FR 37086 (June 20, 2012) (SR NASDAQ-2012-066); 67959 
(October 2, 2012), 77 FR 61449 (October 9, 2012) (SR-EDGX-2012-44); 
68596 (January 7, 2013), 78 FR 2477 (January 11, 2013) (SR-EDGX-
2012-49).
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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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Doing so will allow the Exchange to make the 
improvements and clarifications to the Market Maker Peg Order effective 
immediately and address any technical or operative issues that member 
organizations may experience if the Exchange's implementation of Market 
Maker Peg Order is different from that of other exchanges.
    Therefore, the Commission designates the proposal operative upon 
filing.\14\
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    \14\ 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).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \15\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2013-022 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2013-022. 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-BATS-2013-022 and should be 
submitted on or before May 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08330 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P