Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 2.11, Entitled “BATS Trading, Inc. as Outbound Router”, 36621-36625 [2013-14450]
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Federal Register / Vol. 78, No. 117 / Tuesday, June 18, 2013 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69748; File No. SR–BATS–
2013–032]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 2.11,
Entitled ‘‘BATS Trading, Inc. as
Outbound Router’’
June 12, 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 June 3,
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 Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 2.11, entitled ‘‘BATS
Trading, Inc. as Outbound Router’’, and
Rule 21.9, entitled ‘‘Order Routing’’,
with respect to the authority of the
Exchange or BATS Trading, Inc. (‘‘BATS
Trading’’) to cancel orders on the
Exchange’s equity securities platform
(‘‘BATS Equities’’) and equity options
platform (‘‘BATS Options’’) when a
technical or system issue occurs, as well
as to describe the operation of an error
account for BATS Trading.
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.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
2 17
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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 filed a proposal The
Exchange proposes to amend Rule
2.11(a) by amending subparagraph (4)
and adding new subparagraphs (6) and
(7) that address the authority of the
Exchange or BATS Trading to cancel
orders when a technical or systems
issue occurs and to describe the
operation of an error account for BATS
Trading as it relates to BATS Equities.5
The Exchange also proposes to amend
Rule 21.9 by adding subparagraphs (g)
and (h) that address the authority of the
Exchange or BATS Trading to cancel
options orders when a technical or
systems issue occurs and to describe the
operation of an error account for BATS
Trading as it relates to BATS Options.
5 BATS Trading is a facility of the Exchange.
Accordingly, under Rule 2.11, the Exchange is
responsible for filing with the Commission rule
changes and fees relating to the functions of BATS
Trading. In addition, the Exchange is using the
phrase ‘‘BATS Trading or the Exchange’’ in this rule
filing to reflect the fact that a decision to take action
with respect to orders affected by a technical or
systems issue may be made in the capacity of BATS
Trading or the Exchange depending on the
circumstances of the issue.
From time to time, the Exchange also uses nonaffiliate third-party broker-dealers to provide
outbound routing services (i.e., third-party Routing
Brokers). In those cases, orders are submitted to the
third-party Routing Broker through BATS Trading,
the third-party Routing Broker routes the orders to
the Routing Destination in its name, and any
executions are submitted for clearance and
settlement in the name of BATS Trading so that any
resulting positions are delivered to BATS Trading
upon settlement. As described above, BATS
Trading normally arranges for any resulting
securities positions to be delivered to the Member
that submitted the corresponding order to the
Exchange. If error positions (as defined in proposed
Rule 2.11(a)(7)) result in connection with the
Exchange’s use of a third-party Routing Broker for
outbound routing, and those positions are delivered
to BATS Trading through the clearance and
settlement process, BATS Trading would be
permitted to resolve those positions in accordance
with proposed Rule 2.11(a)(7)(B)–(E). If the thirdparty Routing Broker received error positions in
connection with its role as a routing broker for the
Exchange, and the error positions were not
delivered to BATS Trading through the clearance
and settlement process, then the third-party Routing
Broker would resolve the error positions itself and
BATS Trading would not be permitted to accept the
error positions, as set forth in proposed Rule
2.11(a)(7)(B).
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BATS Trading is the approved routing
broker of the Exchange for both BATS
Equities and BATS Options, subject to
the conditions listed in Rule 2.11, 2.12,
and 21.9. The Exchange relies on BATS
Trading to provide outbound routing
services from itself to routing
destinations of BATS Trading (‘‘Routing
Destinations’’). Additionally, BATS
Equities relies on BATS Trading to
provide inbound routing services for
BATS Y-Exchange, Inc. (‘‘BYX’’).6 When
BATS Trading routes orders to a
Routing Destination, it does so by
sending a corresponding order in its
own name to the Routing Destination. In
the normal course, routed orders that
are executed at Routing Destinations are
submitted for clearance and settlement
in the name of BATS Trading, and
BATS Trading arranges for any resulting
securities positions to be delivered to
the Member that submitted the
corresponding order to the Exchange.
Examples of Situations That May Lead
to Cancelled Orders
A technical or systems issue may arise
at BATS Trading, a Routing Destination,
or the Exchange that may cause the
Exchange or BATS Trading to take steps
to cancel orders if the Exchange or
BATS Trading determines that such
action is necessary to maintain a fair
and orderly market. The examples set
forth below describe some of the
situations in which the Exchange or
BATS Trading may decide to cancel
orders.7
Example 1. If BATS Trading or a Routing
Destination experiences a technical or
systems issue that results in BATS Trading
not receiving responses to immediate or
cancel (‘‘IOC’’) orders that it sent to the
Routing Destination and that issue is not
resolved in a timely manner, BATS Trading
or the Exchange would seek to cancel the
routed orders affected by the issue.8 For
6 The Exchange has authority to receive inbound
routes of equities orders by BATS Trading from
BYX. See Securities Exchange Act Release No.
66808 (April 13, 2012), 77 FR 23294 (April 18,
2012) (SR–BATS–2012–013).
7 The examples described in this filing are not
intended to be comprehensive or exclusive. Rule
2.11 and 21.9, as proposed, would provide general
authority for the Exchange or BATS Trading to
cancel orders in order to maintain fair and orderly
markets when technical and systems issues occur
and would also set forth the manner in which error
positions may be handled by the Exchange or BATS
Trading. The proposed rule change is not limited
to addressing order cancellation or error positions
resulting only from the specific examples described
in this filing.
8 In a normal situation (i.e., one in which a
technical or systems issue does not occur), BATS
Trading should receive an immediate response to
an IOC order from a Routing Destination and would
pass the resulting fill or cancellation on to the
Member. After submitting an order that is routed to
a Routing Destination, if a Member sends an
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instance, if BATS Trading experiences a
connectivity issue affecting the manner in
which it sends or receives order messages to
or from Routing Destinations, it may be
unable to receive timely execution or
cancellation reports from the Routing
Destinations, and BATS Trading or the
Exchange may consequently seek to cancel
the affected routed orders. Once the decision
is made to cancel those routed orders, any
cancellation that a Member submitted to the
Exchange on its initial order during such a
situation would be honored.9
Example 2. If the Exchange experiences a
systems issue, the Exchange may take steps
to cancel all outstanding orders affected by
that issue and notify affected Members of the
cancellations. In those cases, the Exchange
would seek to cancel any routed orders
related to the Members’ initial orders.
Examples of Situations That May Lead
to Error Positions
In some instances, the technical or
systems issue at BATS Trading, a
Routing Destination, the Exchange, or a
non-affiliate third party Routing Broker
may also result in BATS Trading
acquiring an error position that it must
resolve. The examples set forth below
describe some of the circumstances in
which error positions may arise.
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Example A. Error positions may result
from routed orders that the Exchange or
BATS Trading attempts to cancel but that are
executed before the Routing Destination
receives the cancellation message or that are
executed because the Routing Destination is
unable to process the cancellation message.
Using the situation described in Example 1
above, assume that the Exchange seeks to
cancel orders routed to a Routing Destination
because it is not receiving timely execution
or cancellation reports from the Routing
Destination. In such a situation, BATS
Trading may still receive executions from the
Routing Destination after connectivity is
restored, which it would not then allocate to
Members because of the earlier decision to
cancel the affected routed orders. Instead,
BATS Trading would post those positions
into its error account and resolve the
positions in the manner described below.
Example B. Error positions may result
from an order processing issue at a Routing
Destination. For instance, if a Routing
Destination experienced a systems problem
that affects its order processing, it may
transmit back a message purporting to cancel
a routed order, but then subsequently submit
an execution of that same order (i.e., a
instruction to cancel that order, the cancellation is
held by the Exchange until a response is received
from the Routing Destination. For instance, if the
Routing Destination executes that order, the
execution would be passed on to the Member and
the cancellation instruction would be disregarded.
9 If a Member did not submit a cancellation to the
Exchange, however, that initial order would remain
‘‘live’’ and thus be eligible for execution or posting
on the Exchange, and neither the Exchange nor
BATS Trading would treat any execution of that
initial order or any subsequent routed order related
to that initial order as an error.
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locked-in trade) to The Depository Trust &
Clearing Corporation (‘‘DTCC’’) for clearance
and settlement. In such a situation, the
Exchange would not then allocate the
execution to the Member because of the
earlier cancellation message from the Routing
Destination. Instead, BATS Trading would
post those positions into its error account
and resolve the positions in the manner
described below.
Example C. Error positions may result if
BATS Trading receives an execution report
from a Routing Destination but does not
receive clearing instructions for the
execution from the Routing Destination. For
instance, assume that a Member sends the
Exchange an order to buy 100 shares of ABC
stock, which causes BATS Trading to send an
order to a Routing Destination that is
subsequently executed, cleared, and closed
out by that Routing Destination, and the
execution is ultimately communicated back
to that Member. On the next trading day
(T+1), if the Routing Destination does not
provide clearing instructions for that
execution, BATS Trading would still be
responsible for settling that Member’s
purchase, but would be left with a short
position in its error account.10 BATS Trading
would resolve the position in the manner
described below.
Example D. Error positions may result
from a technical or systems issue that causes
orders to be executed in the name of BATS
Trading that are not related to BATS
Trading’s function as the Exchange’s routing
broker and are not related to any
corresponding orders of Members. As a
result, BATS Trading would not be able to
assign any positions resulting from such an
issue to Members. Instead, BATS Trading
would post those positions into its error
account and resolve the positions in the
manner described below.
Example E. Error positions may result
from a technical or systems issue at the
Exchange through which the Exchange does
not receive sufficient notice that a Member
that has executed trades on the Exchange has
lost the ability to clear trades through DTCC,
as well as where the Exchange received
notice of such Member’s loss of ability to
clear trades through DTCC, but, because of a
technical or systems issue at the Exchange,
the Exchange was unable to react to such
notice in a timely manner. In such a
situation, the Exchange would not have valid
clearing information, which would prevent
the trade from being automatically processed
for clearance and settlement on a locked-in
basis. Accordingly, BATS Trading would
assume that Member’s side of the trades so
that the counterparties can settle the trades.
BATS Trading would post those positions
into its error account and resolve the
positions in the manner described below.
Example F. Error positions may result
from a technical or systems issue at the
Exchange that does not involve routing of
orders through BATS Trading. For example,
a situation may arise in which a posted order
10 To the extent that BATS Trading incurred a
loss in covering its positions, short or long, it would
submit reimbursement claim to that Routing
Destination.
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was validly cancelled, but the system
erroneously matched that order with an order
that was seeking to access it. In such a
situation, BATS Trading would have to
assume the side of the trade opposite the
order seeking to access the cancelled order.
BATS Trading would post the position in its
error account and resolve the position in the
manner described below.
In each of the circumstances
described above, it is possible that
neither the Exchange nor BATS Trading
may learn about an error position until
T+1, either: (1) During the clearing
process when a Routing Destination has
submitted to DTCC a transaction for
clearance and settlement for which
BATS Trading never received an
execution confirmation; or (2) when a
Routing Destination does not recognize
a transaction submitted by BATS
Trading to DTCC for clearance and
settlement. Moreover, the affected
Members’ trades may not be nullified
absent express authority under BATS
rules.11
BATS Equities—Proposed Amendments
to Rule 2.11
The Exchange proposes to amend
Rule 2.11(a) to add new paragraphs (6)
and (7) and to add certain language to
Rule 2.11(a)(4). Specifically, the
Exchange proposes to amend Rule
2.11(a)(4) to state that BATS Trading
may employ an error account in
compliance with proposed paragraph
(a)(7). Under paragraph (6) of the
proposed rule, the Exchange or BATS
Trading would be expressly authorized
to cancel orders as may be necessary to
maintain fair and orderly markets if a
technical or systems issue occurred at
the Exchange, BATS Trading, or a
Routing Destination.12 The Exchange or
BATS Trading would be required to
provide notice of the cancellation to
affected Members as soon as is
practicable.
Paragraph (a)(7)(A) of the proposed
rule would permit BATS Trading to
maintain an error account for the
purpose of addressing positions that are
the result of an execution or executions
that are not clearly erroneous 13 under
11 See, e.g., Rule 11.17 (regarding clearly
erroneous executions).
12 Such a situation may not cause the Exchange
to declare self-help against the routing destination
pursuant to Rule 611 of Regulation NMS. If the
Exchange or BATS Trading determines to cancel
orders routed to a routing destination under
proposed Rule 2.11(a)(7), but does not declare selfhelp against that routing destination, the Exchange
would continue to be subject to the trade-through
requirements in Rule 611 with respect to that
routing destination.
13 As defined in Rule 11.17(a), a transaction
executed on the Exchange is ‘‘clearly erroneous’’
when there is an obvious error in any term, such
as price, number of shares or other unit of trading,
or identification of the security.
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Rule 11.17 and result from a technical
or systems issue at BATS Trading, the
Exchange, a Routing Destination, or a
non-affiliate third-party Routing Broker
that affects one or more orders (‘‘Error
Positions’’). By definition, an Error
Position would not include any position
that results from an order submitted by
a Member to the Exchange that is
executed on the Exchange and
automatically processed for clearance
and settlement on a locked-in basis.
Under paragraph (a)(7)(B) of the
proposed rule, BATS Trading also
would not be permitted to accept any
positions in its error account from an
account of a Member and could not
permit any Member to transfer any
positions from the Member’s account to
BATS Trading’s error account under the
proposed rule.14 However, under
paragraph (a)(7)(C) of the proposed rule,
if a technical or systems issue results in
the Exchange not having valid clearing
instructions for a Member to a trade,
BATS Trading may assume that
Member’s side of the trade so that the
trade can be processed for clearing and
settlement on a locked-in basis.15
Under paragraph (a)(7)(D), in
connection with a particular technical
or systems issue, BATS Trading or the
Exchange would be permitted to either
(i) assign all resulting Error Positions to
Members; or (ii) have all resulting Error
Positions liquidated, as described
below. Any determination to assign or
liquidate Error Positions, as well as any
resulting assignments, would be
14 The purpose of this provision is to clarify that
BATS Trading may address error positions under
the proposed rule that are caused by a technical or
systems issue, but that BATS Trading may not
accept from a Member positions that are delivered
to the Member through the clearance and settlement
process, even if those positions may have been
related to a technical or systems issue at BATS
Trading, the Exchange, a Routing Destination of
BATS Trading, or a non-affiliate third-party Routing
Broker. This provision would not apply, however,
to situations like the one described in Example C
in which BATS Trading incurred a short position
to settle a Member’s purchase, as the Member did
not yet have a position in its account as a result of
the purchase at the time of BATS Trading’s action
(i.e., BATS Trading’s action was necessary for the
purchase to settle into the Member’s account).
Similarly, the provision would not apply to
situations like the one described in Example F,
where a system issue caused one Member to receive
an execution for which there was not an available
contra-party, in which case action by BATS Trading
would be necessary for the position to settle into
that Member’s account. Moreover, to the extent a
Member receives locked-in positions in connection
with a technical or systems issue, that Member may
seek to rely on BATS Rule 11.16 if it experiences
a loss. That rule provides Members with the ability
to file claims against the Exchange for ‘‘losses
resulting directly from the malfunction of the
Exchange’s physical equipment, devices and/or
programming or the negligent acts or omissions of
its employees.’’
15 See Example E above.
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required to be made in a
nondiscriminatory fashion.
BATS Trading or the Exchange would
be required to assign all Error Positions
resulting from a particular technical or
systems issue to the applicable Members
affected by that technical or systems
issue if BATS Trading or the Exchange:
(i) Determines that it has accurate and
sufficient information (including valid
clearing information) to assign the
positions to all of the applicable
Members affected by that technical or
systems issue; (ii) determines that it has
sufficient time pursuant to normal
clearance and settlement deadlines to
evaluate the information necessary to
assign the positions to all of the
applicable Members affected by that
technical or systems issue; and (iii) does
not determine to cancel all orders
affected by that technical or systems
issue.
For example, a technical or systems
issue of limited scope or duration may
occur at a Routing Destination and the
resulting trades may be submitted for
clearance and settlement by such
Routing Destination to DTCC. If there
were a small number of trades, there
may be sufficient time to match
positions with Member orders and avoid
using the error account.
There may be scenarios, however,
where BATS Trading determines that it
is unable to assign all Error Positions
resulting from a particular technical or
systems issue to all of the affected
Members, or determines to cancel all
affected routed orders. For example, in
some cases, the volume of questionable
executions and positions resulting from
a technical or systems issue might be
such that the research necessary to
determine which Members to assign
those executions to could be expected to
extend past the normal settlement cycle
for such executions. Furthermore, if a
Routing Destination experiences a
technical or systems issue after BATS
Trading has transmitted IOC orders to it
that prevents BATS Trading from
receiving responses to those orders,
BATS Trading or the Exchange may
determine to cancel all routed orders
affected by that issue. In such a
situation, BATS Trading or the
Exchange would not pass on to the
Members any executions on the routed
orders received from the Routing
Destination.
Proposed Rule 2.11(a)(7)(D) would
require BATS Trading to liquidate Error
Positions as soon as practicable.16 In
16 If BATS Trading determines in connection with
a particular technical or systems issue that some
error positions can be assigned to some affected
Members, but other error positions cannot be
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36623
liquidating Error Positions, BATS
Trading would be required to provide
complete time and price discretion for
the trading to liquidate the Error
Positions to a third-party broker-dealer
and could not attempt to exercise any
influence or control over the timing or
methods of trading to liquidate the Error
Positions.17 BATS Trading also would
be required to establish and enforce
policies and procedures reasonably
designed to restrict the flow of
confidential and proprietary
information between the third-party
broker-dealer and BATS Trading/the
Exchange associated with the
liquidation of the Error Positions.
Under proposed paragraph (a)(7)(E),
BATS Trading and the Exchange would
be required to make and keep records to
document all determinations to treat
positions as Error Positions and all
determinations for the assignment of
Error Positions to Members or the
liquidation of Error Positions, as well as
records associated with the liquidation
of Error Positions through the thirdparty broker-dealer.
BATS Options—Proposed Amendments
to Rule 21.9
In order to maintain consistency
between analogous services offered by
BATS Equities and BATS Options, the
Exchange proposes to modify the rules
of BATS Options to conform with the
changes described above related to the
cancellation of orders and the
management of the BATS Trading error
account as it relates to BATS Equities.
Accordingly, the exchange proposes to
add paragraphs (g) to Rule 21.9.
As proposed, Rule 21.9(g)(1) and (2)
are identical to the description set forth
in proposed Rule 2.11(a)(6) and (7) and
described above with the exception of
minor references necessary due to the
difference between rules applicable to
BATS Equities and BATS Options.
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
assigned, BATS Trading would be required under
the proposed rule to liquidate all such error
positions (including those positions that could be
assigned to the affected Members).
17 This provision is not intended to preclude
BATS Trading from providing the third-party
broker with standing instructions with respect to
the manner in which it should handle all error
account transactions. For example, BATS Trading
might instruct the broker to treat all orders as ‘‘not
held’’ and to attempt to minimize any market
impact on the price of the stock being traded.
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requirements of Section 6 of the Act.18
Specifically, the Exchange believes that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,19 in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, 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, and it is not designed to
permit unfair discrimination among
customers, brokers, or dealers. The
Exchange believes that this proposal is
in keeping with those principles since
BATS Trading’s or the Exchange’s
ability to cancel orders during a
technical and systems issue and to
maintain an error account facilitates the
smooth and efficient operation of the
market. Specifically, the Exchange
believes that allowing BATS Trading or
the Exchange to cancel orders during a
technical or systems issue would allow
the Exchange to maintain fair and
orderly markets. Moreover, the
Exchange believes that allowing BATS
Trading to assume Error Positions in an
error account and to liquidate those
positions, subject to the conditions set
forth in the proposed amendments to
Rule 2.11 and 21.9, would be the least
disruptive means to correct these errors,
except in cases where BATS Trading
can assign all such Error Positions to all
affected Members of the Exchange.
Overall, the proposed amendments are
designed to ensure full trade certainty
for market participants and to avoid
disrupting the clearance and settlement
process. The proposed amendments are
also designed to provide a consistent
methodology for handling Error
Positions in a manner that does not
discriminate among Members. The
proposed amendments are also
consistent with Section 6 of the Act
insofar as they would require BATS
Trading to establish controls to restrict
the flow of any confidential information
between the third-party broker and
BATS Trading/the Exchange associated
with the liquidation of Error Positions.
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 amendment will
18 15
19 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
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align the Exchange’s rules with other
competing market centers. Specifically,
the rule change proposed herein is
substantially similar to the rules of other
exchanges, including NASDAQ Stock
Market LLC (‘‘Nasdaq’’) Rule 4758(d),
Nasdaq Options Market (‘‘NOM’’)
Chapter VI, Section 11(g), NYSE Arca
Equities, Inc. (‘‘Arca’’) Rule 7.45(d)(2),
and EDGX Exchange, Inc. (‘‘EDGX’’)
Rule 2.11(a).
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: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 20 and Rule 19b–
4(f)(6) 21 thereunder.
The Exchange has asked the
Commission to waive the 30-day
operative delay. The Commission
believes that waiver of the operative
delay is consistent with the protection
of investors and the public interest.
Such waiver would allow the Exchange,
without delay, to implement the
proposed rule change, which is
designed to provide a consistent
methodology for handling Error
Positions in a manner that does not
discriminate among Members. The
Commission also notes that the
proposed rule change is based on, and
substantially similar to, rules of NYSE
Arca, Inc.,22 EDGX Exchange, Inc,23 and
NASDAQ Stock Market LLC,24 which
the Commission previously approved.
20 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). 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 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.
22 See Securities Exchange Act Release No. 66963
(May 10, 2012), 77 FR 28919 (May 16, 2012) (SR–
NYSEArca–2012–22).
23 See Securities Exchange Act Release No. 67010
(May 17, 2012), 77 FR 30564 (May 23, 2012) (SR–
EDGX–2012–08).
24 See Securities Exchange Act Release No. 67281
(June 27, 2012), 77 FR 39543 (July 3, 2012) (SR–
NASDAQ–2012–057).
21 17
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
Accordingly, the Commission
designates the proposal operative upon
filing.25
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BATS–2013–032 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–2013–032. 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.,
25 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
E:\FR\FM\18JNN1.SGM
18JNN1
Federal Register / Vol. 78, No. 117 / Tuesday, June 18, 2013 / Notices
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–
2013–032 and should be submitted on
or before July 9, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–14450 Filed 6–17–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69743; File No. SR–CME–
2013–04]
Self-Regulatory Organizations;
Chicago Mercantile Exchange Inc.;
Notice of Designation of a Longer
Period for Commission Action on
Proposed Rule Change Related to the
Liquidity Factor of CME’s CDS Margin
Methodology
mstockstill on DSK4VPTVN1PROD with NOTICES
June 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–14394 Filed 6–17–13; 8:45 am]
BILLING CODE 8011–01–P
On April 9, 2013, Chicago Mercantile
Exchange Inc. (‘‘CME’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
make adjustments to the liquidity risk
factor component of its credit default
swap (‘‘CDS’’) margin model. CME
proposes to use an index portfolio’s
market risk rather than its gross notional
as the basis for determining the margins
associated with the liquidity risk factor
component. The proposed rule change
was published for comment in the
FEDERAL REGISTER on April 29, 2013.3
The Commission did not receive
comments on the proposal.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 69435
(Apr. 23, 2013), 78 FR 25116 (Apr. 29, 2013) (SR–
CME–2013–04).
4 15 U.S.C. 78s(b)(2).
1 15
VerDate Mar<15>2010
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day from the
publication of notice of filing of this
proposed rule change is June 13, 2013.
The Commission is extending this 45day time period.
The Commission finds it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change, which would implement a
significant change to CME’s CDS margin
methodology.
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the Act,5
designates July 28, 2013, as the date by
which the Commission should either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–CME–2013–04).
16:52 Jun 17, 2013
Jkt 229001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69739; File No. SR–MIAX–
2013–27]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Modify the Definition of
‘‘Attributable Order’’
June 12, 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 June 4,
2013, Miami International Securities
Exchange LLC (‘‘Exchange’’ or ‘‘MIAX’’)
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
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
36625
organization. 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 is filing a proposal to
amend Exchange Rule 516 to modify the
definition of ‘‘Attributable Order.’’
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/filter/
wotitle/rule_filing, at MIAX’s principal
office, 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 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 received approval to be
registered as a national securities
exchange on December 3, 2012 3 and
commenced trading operations on
December 7, 2012. At that time, the
Exchange included in Exchange Rule
516 definitions of order types that the
Exchange intended to use after the
commencement of trading on the
Exchange. The preamble of Rule 516
notes that not all of the order types
listed and described in Rule 516 will be
initially available for use on the
Exchange. In addition, Rule 516
provides that the Exchange will issue a
Regulatory Circular listing which order
types, among the order types defined in
Rule 516, are available and that
additional Regulatory Circulars will be
issued as additional order types become
available for use on the Exchange.
The Attributable Order type, defined
in Rule 514(e), exists as one such order
type that was not originally available at
the commencement of trading on the
5 15
6 17
PO 00000
Frm 00120
Fmt 4703
3 See Securities Exchange Act Release No. 68341
(December 3, 2012) 77 FR 73089 (December 7, 2012)
(File No. 10–207).
Sfmt 4703
E:\FR\FM\18JNN1.SGM
18JNN1
]]>Agencies
[Federal Register Volume 78, Number 117 (Tuesday, June 18, 2013)]
[Notices]
[Pages 36621-36625]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-14450]
[[Page 36621]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69748; File No. SR-BATS-2013-032]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 2.11, Entitled ``BATS Trading, Inc. as Outbound Router''
June 12, 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 June 3, 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 Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 2.11, entitled ``BATS
Trading, Inc. as Outbound Router'', and Rule 21.9, entitled ``Order
Routing'', with respect to the authority of the Exchange or BATS
Trading, Inc. (``BATS Trading'') to cancel orders on the Exchange's
equity securities platform (``BATS Equities'') and equity options
platform (``BATS Options'') when a technical or system issue occurs, as
well as to describe the operation of an error account for BATS Trading.
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 filed a proposal The Exchange proposes to amend Rule
2.11(a) by amending subparagraph (4) and adding new subparagraphs (6)
and (7) that address the authority of the Exchange or BATS Trading to
cancel orders when a technical or systems issue occurs and to describe
the operation of an error account for BATS Trading as it relates to
BATS Equities.\5\ The Exchange also proposes to amend Rule 21.9 by
adding subparagraphs (g) and (h) that address the authority of the
Exchange or BATS Trading to cancel options orders when a technical or
systems issue occurs and to describe the operation of an error account
for BATS Trading as it relates to BATS Options.
---------------------------------------------------------------------------
\5\ BATS Trading is a facility of the Exchange. Accordingly,
under Rule 2.11, the Exchange is responsible for filing with the
Commission rule changes and fees relating to the functions of BATS
Trading. In addition, the Exchange is using the phrase ``BATS
Trading or the Exchange'' in this rule filing to reflect the fact
that a decision to take action with respect to orders affected by a
technical or systems issue may be made in the capacity of BATS
Trading or the Exchange depending on the circumstances of the issue.
From time to time, the Exchange also uses non-affiliate third-
party broker-dealers to provide outbound routing services (i.e.,
third-party Routing Brokers). In those cases, orders are submitted
to the third-party Routing Broker through BATS Trading, the third-
party Routing Broker routes the orders to the Routing Destination in
its name, and any executions are submitted for clearance and
settlement in the name of BATS Trading so that any resulting
positions are delivered to BATS Trading upon settlement. As
described above, BATS Trading normally arranges for any resulting
securities positions to be delivered to the Member that submitted
the corresponding order to the Exchange. If error positions (as
defined in proposed Rule 2.11(a)(7)) result in connection with the
Exchange's use of a third-party Routing Broker for outbound routing,
and those positions are delivered to BATS Trading through the
clearance and settlement process, BATS Trading would be permitted to
resolve those positions in accordance with proposed Rule
2.11(a)(7)(B)-(E). If the third-party Routing Broker received error
positions in connection with its role as a routing broker for the
Exchange, and the error positions were not delivered to BATS Trading
through the clearance and settlement process, then the third-party
Routing Broker would resolve the error positions itself and BATS
Trading would not be permitted to accept the error positions, as set
forth in proposed Rule 2.11(a)(7)(B).
---------------------------------------------------------------------------
BATS Trading is the approved routing broker of the Exchange for
both BATS Equities and BATS Options, subject to the conditions listed
in Rule 2.11, 2.12, and 21.9. The Exchange relies on BATS Trading to
provide outbound routing services from itself to routing destinations
of BATS Trading (``Routing Destinations''). Additionally, BATS Equities
relies on BATS Trading to provide inbound routing services for BATS Y-
Exchange, Inc. (``BYX'').\6\ When BATS Trading routes orders to a
Routing Destination, it does so by sending a corresponding order in its
own name to the Routing Destination. In the normal course, routed
orders that are executed at Routing Destinations are submitted for
clearance and settlement in the name of BATS Trading, and BATS Trading
arranges for any resulting securities positions to be delivered to the
Member that submitted the corresponding order to the Exchange.
---------------------------------------------------------------------------
\6\ The Exchange has authority to receive inbound routes of
equities orders by BATS Trading from BYX. See Securities Exchange
Act Release No. 66808 (April 13, 2012), 77 FR 23294 (April 18, 2012)
(SR-BATS-2012-013).
---------------------------------------------------------------------------
Examples of Situations That May Lead to Cancelled Orders
A technical or systems issue may arise at BATS Trading, a Routing
Destination, or the Exchange that may cause the Exchange or BATS
Trading to take steps to cancel orders if the Exchange or BATS Trading
determines that such action is necessary to maintain a fair and orderly
market. The examples set forth below describe some of the situations in
which the Exchange or BATS Trading may decide to cancel orders.\7\
---------------------------------------------------------------------------
\7\ The examples described in this filing are not intended to be
comprehensive or exclusive. Rule 2.11 and 21.9, as proposed, would
provide general authority for the Exchange or BATS Trading to cancel
orders in order to maintain fair and orderly markets when technical
and systems issues occur and would also set forth the manner in
which error positions may be handled by the Exchange or BATS
Trading. The proposed rule change is not limited to addressing order
cancellation or error positions resulting only from the specific
examples described in this filing.
Example 1. If BATS Trading or a Routing Destination experiences
a technical or systems issue that results in BATS Trading not
receiving responses to immediate or cancel (``IOC'') orders that it
sent to the Routing Destination and that issue is not resolved in a
timely manner, BATS Trading or the Exchange would seek to cancel the
routed orders affected by the issue.\8\ For
[[Page 36622]]
instance, if BATS Trading experiences a connectivity issue affecting
the manner in which it sends or receives order messages to or from
Routing Destinations, it may be unable to receive timely execution
or cancellation reports from the Routing Destinations, and BATS
Trading or the Exchange may consequently seek to cancel the affected
routed orders. Once the decision is made to cancel those routed
orders, any cancellation that a Member submitted to the Exchange on
its initial order during such a situation would be honored.\9\
---------------------------------------------------------------------------
\8\ In a normal situation (i.e., one in which a technical or
systems issue does not occur), BATS Trading should receive an
immediate response to an IOC order from a Routing Destination and
would pass the resulting fill or cancellation on to the Member.
After submitting an order that is routed to a Routing Destination,
if a Member sends an instruction to cancel that order, the
cancellation is held by the Exchange until a response is received
from the Routing Destination. For instance, if the Routing
Destination executes that order, the execution would be passed on to
the Member and the cancellation instruction would be disregarded.
\9\ If a Member did not submit a cancellation to the Exchange,
however, that initial order would remain ``live'' and thus be
eligible for execution or posting on the Exchange, and neither the
Exchange nor BATS Trading would treat any execution of that initial
order or any subsequent routed order related to that initial order
as an error.
---------------------------------------------------------------------------
Example 2. If the Exchange experiences a systems issue, the
Exchange may take steps to cancel all outstanding orders affected by
that issue and notify affected Members of the cancellations. In
those cases, the Exchange would seek to cancel any routed orders
related to the Members' initial orders.
Examples of Situations That May Lead to Error Positions
In some instances, the technical or systems issue at BATS Trading,
a Routing Destination, the Exchange, or a non-affiliate third party
Routing Broker may also result in BATS Trading acquiring an error
position that it must resolve. The examples set forth below describe
some of the circumstances in which error positions may arise.
Example A. Error positions may result from routed orders that
the Exchange or BATS Trading attempts to cancel but that are
executed before the Routing Destination receives the cancellation
message or that are executed because the Routing Destination is
unable to process the cancellation message. Using the situation
described in Example 1 above, assume that the Exchange seeks to
cancel orders routed to a Routing Destination because it is not
receiving timely execution or cancellation reports from the Routing
Destination. In such a situation, BATS Trading may still receive
executions from the Routing Destination after connectivity is
restored, which it would not then allocate to Members because of the
earlier decision to cancel the affected routed orders. Instead, BATS
Trading would post those positions into its error account and
resolve the positions in the manner described below.
Example B. Error positions may result from an order processing
issue at a Routing Destination. For instance, if a Routing
Destination experienced a systems problem that affects its order
processing, it may transmit back a message purporting to cancel a
routed order, but then subsequently submit an execution of that same
order (i.e., a locked-in trade) to The Depository Trust & Clearing
Corporation (``DTCC'') for clearance and settlement. In such a
situation, the Exchange would not then allocate the execution to the
Member because of the earlier cancellation message from the Routing
Destination. Instead, BATS Trading would post those positions into
its error account and resolve the positions in the manner described
below.
Example C. Error positions may result if BATS Trading receives
an execution report from a Routing Destination but does not receive
clearing instructions for the execution from the Routing
Destination. For instance, assume that a Member sends the Exchange
an order to buy 100 shares of ABC stock, which causes BATS Trading
to send an order to a Routing Destination that is subsequently
executed, cleared, and closed out by that Routing Destination, and
the execution is ultimately communicated back to that Member. On the
next trading day (T+1), if the Routing Destination does not provide
clearing instructions for that execution, BATS Trading would still
be responsible for settling that Member's purchase, but would be
left with a short position in its error account.\10\ BATS Trading
would resolve the position in the manner described below.
---------------------------------------------------------------------------
\10\ To the extent that BATS Trading incurred a loss in covering
its positions, short or long, it would submit reimbursement claim to
that Routing Destination.
---------------------------------------------------------------------------
Example D. Error positions may result from a technical or
systems issue that causes orders to be executed in the name of BATS
Trading that are not related to BATS Trading's function as the
Exchange's routing broker and are not related to any corresponding
orders of Members. As a result, BATS Trading would not be able to
assign any positions resulting from such an issue to Members.
Instead, BATS Trading would post those positions into its error
account and resolve the positions in the manner described below.
Example E. Error positions may result from a technical or
systems issue at the Exchange through which the Exchange does not
receive sufficient notice that a Member that has executed trades on
the Exchange has lost the ability to clear trades through DTCC, as
well as where the Exchange received notice of such Member's loss of
ability to clear trades through DTCC, but, because of a technical or
systems issue at the Exchange, the Exchange was unable to react to
such notice in a timely manner. In such a situation, the Exchange
would not have valid clearing information, which would prevent the
trade from being automatically processed for clearance and
settlement on a locked-in basis. Accordingly, BATS Trading would
assume that Member's side of the trades so that the counterparties
can settle the trades. BATS Trading would post those positions into
its error account and resolve the positions in the manner described
below.
Example F. Error positions may result from a technical or
systems issue at the Exchange that does not involve routing of
orders through BATS Trading. For example, a situation may arise in
which a posted order was validly cancelled, but the system
erroneously matched that order with an order that was seeking to
access it. In such a situation, BATS Trading would have to assume
the side of the trade opposite the order seeking to access the
cancelled order. BATS Trading would post the position in its error
account and resolve the position in the manner described below.
In each of the circumstances described above, it is possible that
neither the Exchange nor BATS Trading may learn about an error position
until T+1, either: (1) During the clearing process when a Routing
Destination has submitted to DTCC a transaction for clearance and
settlement for which BATS Trading never received an execution
confirmation; or (2) when a Routing Destination does not recognize a
transaction submitted by BATS Trading to DTCC for clearance and
settlement. Moreover, the affected Members' trades may not be nullified
absent express authority under BATS rules.\11\
---------------------------------------------------------------------------
\11\ See, e.g., Rule 11.17 (regarding clearly erroneous
executions).
---------------------------------------------------------------------------
BATS Equities--Proposed Amendments to Rule 2.11
The Exchange proposes to amend Rule 2.11(a) to add new paragraphs
(6) and (7) and to add certain language to Rule 2.11(a)(4).
Specifically, the Exchange proposes to amend Rule 2.11(a)(4) to state
that BATS Trading may employ an error account in compliance with
proposed paragraph (a)(7). Under paragraph (6) of the proposed rule,
the Exchange or BATS Trading would be expressly authorized to cancel
orders as may be necessary to maintain fair and orderly markets if a
technical or systems issue occurred at the Exchange, BATS Trading, or a
Routing Destination.\12\ The Exchange or BATS Trading would be required
to provide notice of the cancellation to affected Members as soon as is
practicable.
---------------------------------------------------------------------------
\12\ Such a situation may not cause the Exchange to declare
self-help against the routing destination pursuant to Rule 611 of
Regulation NMS. If the Exchange or BATS Trading determines to cancel
orders routed to a routing destination under proposed Rule
2.11(a)(7), but does not declare self-help against that routing
destination, the Exchange would continue to be subject to the trade-
through requirements in Rule 611 with respect to that routing
destination.
---------------------------------------------------------------------------
Paragraph (a)(7)(A) of the proposed rule would permit BATS Trading
to maintain an error account for the purpose of addressing positions
that are the result of an execution or executions that are not clearly
erroneous \13\ under
[[Page 36623]]
Rule 11.17 and result from a technical or systems issue at BATS
Trading, the Exchange, a Routing Destination, or a non-affiliate third-
party Routing Broker that affects one or more orders (``Error
Positions''). By definition, an Error Position would not include any
position that results from an order submitted by a Member to the
Exchange that is executed on the Exchange and automatically processed
for clearance and settlement on a locked-in basis. Under paragraph
(a)(7)(B) of the proposed rule, BATS Trading also would not be
permitted to accept any positions in its error account from an account
of a Member and could not permit any Member to transfer any positions
from the Member's account to BATS Trading's error account under the
proposed rule.\14\ However, under paragraph (a)(7)(C) of the proposed
rule, if a technical or systems issue results in the Exchange not
having valid clearing instructions for a Member to a trade, BATS
Trading may assume that Member's side of the trade so that the trade
can be processed for clearing and settlement on a locked-in basis.\15\
---------------------------------------------------------------------------
\13\ As defined in Rule 11.17(a), a transaction executed on the
Exchange is ``clearly erroneous'' when there is an obvious error in
any term, such as price, number of shares or other unit of trading,
or identification of the security.
\14\ The purpose of this provision is to clarify that BATS
Trading may address error positions under the proposed rule that are
caused by a technical or systems issue, but that BATS Trading may
not accept from a Member positions that are delivered to the Member
through the clearance and settlement process, even if those
positions may have been related to a technical or systems issue at
BATS Trading, the Exchange, a Routing Destination of BATS Trading,
or a non-affiliate third-party Routing Broker. This provision would
not apply, however, to situations like the one described in Example
C in which BATS Trading incurred a short position to settle a
Member's purchase, as the Member did not yet have a position in its
account as a result of the purchase at the time of BATS Trading's
action (i.e., BATS Trading's action was necessary for the purchase
to settle into the Member's account). Similarly, the provision would
not apply to situations like the one described in Example F, where a
system issue caused one Member to receive an execution for which
there was not an available contra-party, in which case action by
BATS Trading would be necessary for the position to settle into that
Member's account. Moreover, to the extent a Member receives locked-
in positions in connection with a technical or systems issue, that
Member may seek to rely on BATS Rule 11.16 if it experiences a loss.
That rule provides Members with the ability to file claims against
the Exchange for ``losses resulting directly from the malfunction of
the Exchange's physical equipment, devices and/or programming or the
negligent acts or omissions of its employees.''
\15\ See Example E above.
---------------------------------------------------------------------------
Under paragraph (a)(7)(D), in connection with a particular
technical or systems issue, BATS Trading or the Exchange would be
permitted to either (i) assign all resulting Error Positions to
Members; or (ii) have all resulting Error Positions liquidated, as
described below. Any determination to assign or liquidate Error
Positions, as well as any resulting assignments, would be required to
be made in a nondiscriminatory fashion.
BATS Trading or the Exchange would be required to assign all Error
Positions resulting from a particular technical or systems issue to the
applicable Members affected by that technical or systems issue if BATS
Trading or the Exchange: (i) Determines that it has accurate and
sufficient information (including valid clearing information) to assign
the positions to all of the applicable Members affected by that
technical or systems issue; (ii) determines that it has sufficient time
pursuant to normal clearance and settlement deadlines to evaluate the
information necessary to assign the positions to all of the applicable
Members affected by that technical or systems issue; and (iii) does not
determine to cancel all orders affected by that technical or systems
issue.
For example, a technical or systems issue of limited scope or
duration may occur at a Routing Destination and the resulting trades
may be submitted for clearance and settlement by such Routing
Destination to DTCC. If there were a small number of trades, there may
be sufficient time to match positions with Member orders and avoid
using the error account.
There may be scenarios, however, where BATS Trading determines that
it is unable to assign all Error Positions resulting from a particular
technical or systems issue to all of the affected Members, or
determines to cancel all affected routed orders. For example, in some
cases, the volume of questionable executions and positions resulting
from a technical or systems issue might be such that the research
necessary to determine which Members to assign those executions to
could be expected to extend past the normal settlement cycle for such
executions. Furthermore, if a Routing Destination experiences a
technical or systems issue after BATS Trading has transmitted IOC
orders to it that prevents BATS Trading from receiving responses to
those orders, BATS Trading or the Exchange may determine to cancel all
routed orders affected by that issue. In such a situation, BATS Trading
or the Exchange would not pass on to the Members any executions on the
routed orders received from the Routing Destination.
Proposed Rule 2.11(a)(7)(D) would require BATS Trading to liquidate
Error Positions as soon as practicable.\16\ In liquidating Error
Positions, BATS Trading would be required to provide complete time and
price discretion for the trading to liquidate the Error Positions to a
third-party broker-dealer and could not attempt to exercise any
influence or control over the timing or methods of trading to liquidate
the Error Positions.\17\ BATS Trading also would be required to
establish and enforce policies and procedures reasonably designed to
restrict the flow of confidential and proprietary information between
the third-party broker-dealer and BATS Trading/the Exchange associated
with the liquidation of the Error Positions.
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\16\ If BATS Trading determines in connection with a particular
technical or systems issue that some error positions can be assigned
to some affected Members, but other error positions cannot be
assigned, BATS Trading would be required under the proposed rule to
liquidate all such error positions (including those positions that
could be assigned to the affected Members).
\17\ This provision is not intended to preclude BATS Trading
from providing the third-party broker with standing instructions
with respect to the manner in which it should handle all error
account transactions. For example, BATS Trading might instruct the
broker to treat all orders as ``not held'' and to attempt to
minimize any market impact on the price of the stock being traded.
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Under proposed paragraph (a)(7)(E), BATS Trading and the Exchange
would be required to make and keep records to document all
determinations to treat positions as Error Positions and all
determinations for the assignment of Error Positions to Members or the
liquidation of Error Positions, as well as records associated with the
liquidation of Error Positions through the third-party broker-dealer.
BATS Options--Proposed Amendments to Rule 21.9
In order to maintain consistency between analogous services offered
by BATS Equities and BATS Options, the Exchange proposes to modify the
rules of BATS Options to conform with the changes described above
related to the cancellation of orders and the management of the BATS
Trading error account as it relates to BATS Equities. Accordingly, the
exchange proposes to add paragraphs (g) to Rule 21.9.
As proposed, Rule 21.9(g)(1) and (2) are identical to the
description set forth in proposed Rule 2.11(a)(6) and (7) and described
above with the exception of minor references necessary due to the
difference between rules applicable to BATS Equities and BATS Options.
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
[[Page 36624]]
requirements of Section 6 of the Act.\18\ Specifically, the Exchange
believes that the proposed rule change is consistent with Section
6(b)(5) of the Act,\19\ in that it is designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, 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, and it is not designed to permit unfair discrimination
among customers, brokers, or dealers. The Exchange believes that this
proposal is in keeping with those principles since BATS Trading's or
the Exchange's ability to cancel orders during a technical and systems
issue and to maintain an error account facilitates the smooth and
efficient operation of the market. Specifically, the Exchange believes
that allowing BATS Trading or the Exchange to cancel orders during a
technical or systems issue would allow the Exchange to maintain fair
and orderly markets. Moreover, the Exchange believes that allowing BATS
Trading to assume Error Positions in an error account and to liquidate
those positions, subject to the conditions set forth in the proposed
amendments to Rule 2.11 and 21.9, would be the least disruptive means
to correct these errors, except in cases where BATS Trading can assign
all such Error Positions to all affected Members of the Exchange.
Overall, the proposed amendments are designed to ensure full trade
certainty for market participants and to avoid disrupting the clearance
and settlement process. The proposed amendments are also designed to
provide a consistent methodology for handling Error Positions in a
manner that does not discriminate among Members. The proposed
amendments are also consistent with Section 6 of the Act insofar as
they would require BATS Trading to establish controls to restrict the
flow of any confidential information between the third-party broker and
BATS Trading/the Exchange associated with the liquidation of Error
Positions.
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\18\ 15 U.S.C. 78f.
\19\ 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
amendment will align the Exchange's rules with other competing market
centers. Specifically, the rule change proposed herein is substantially
similar to the rules of other exchanges, including NASDAQ Stock Market
LLC (``Nasdaq'') Rule 4758(d), Nasdaq Options Market (``NOM'') Chapter
VI, Section 11(g), NYSE Arca Equities, Inc. (``Arca'') Rule 7.45(d)(2),
and EDGX Exchange, Inc. (``EDGX'') Rule 2.11(a).
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: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6)
\21\ thereunder.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). 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 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 asked the Commission to waive the 30-day operative
delay. The Commission believes that waiver of the operative delay is
consistent with the protection of investors and the public interest.
Such waiver would allow the Exchange, without delay, to implement the
proposed rule change, which is designed to provide a consistent
methodology for handling Error Positions in a manner that does not
discriminate among Members. The Commission also notes that the proposed
rule change is based on, and substantially similar to, rules of NYSE
Arca, Inc.,\22\ EDGX Exchange, Inc,\23\ and NASDAQ Stock Market
LLC,\24\ which the Commission previously approved. Accordingly, the
Commission designates the proposal operative upon filing.\25\
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\22\ See Securities Exchange Act Release No. 66963 (May 10,
2012), 77 FR 28919 (May 16, 2012) (SR-NYSEArca-2012-22).
\23\ See Securities Exchange Act Release No. 67010 (May 17,
2012), 77 FR 30564 (May 23, 2012) (SR-EDGX-2012-08).
\24\ See Securities Exchange Act Release No. 67281 (June 27,
2012), 77 FR 39543 (July 3, 2012) (SR-NASDAQ-2012-057).
\25\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 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 to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2013-032 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-2013-032. 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.,
[[Page 36625]]
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-2013-032 and should be
submitted on or before July 9, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14450 Filed 6-17-13; 8:45 am]
BILLING CODE 8011-01-P
