Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Risk Monitoring Functionality Offered by the Exchange, 73577-73580 [2013-29092]
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Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Notices
[Release No. 34–70964; File No. SR–BATS–
2013–060]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify the Risk
Monitoring Functionality Offered by
the Exchange
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
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
December 2, 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 November
18, 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.
emcdonald on DSK67QTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 21.16, entitled ‘‘Risk
Monitor Mechanism’’, in order to
modify the risk monitoring functionality
offered to all Users 5 of the BATS equity
options trading platform (‘‘BATS
Options’’) and to make a clarifying
change to the rule text.
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
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).
5 As defined in Exchange Rule 16.1(a)(63), a User
is any Exchange member or sponsored participant
authorized to obtain access to the Exchange.
2 17
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The purpose of the proposed rule
changes are: (1) to amend Exchange
Rule 21.16(b)(ii) in order add a new
percentage-based Specified Engagement
Trigger 6 to the Risk Monitor
Mechanism; (2) to amend BATS Rule
21.16(c) in order to provide more
granular cancellation of orders under
the Risk Monitor Mechanism; (3) to
make a clarifying change to BATS Rule
22.11; and (4) to add BATS Rule
21.16(e). Specifically, the Exchange
proposes to amend Rule 21.16(b)(ii),
entitled ‘‘Specified Engagement
Triggers’’, in order to adopt a new type
of Specified Engagement Trigger that
will be triggered whenever a trade
counter has calculated that the User has
traded a certain percentage within a
time period specified by the Exchange
against the User’s orders in a specified
class. The Exchange also proposes to
amend Rule 21.16(c) such that an
incoming order that is received prior to
the time that the Risk Monitor
Mechanism is engaged and is executable
against a User’s quotation will execute
up to the entire size of the User’s
quotation that would cause executions
in excess of the User’s Specified
Engagement Trigger, but any additional
executable quotations will be cancelled.
The Exchange further proposes to
amend Rule 22.11 in order to clarify the
functionality of mass cancellation of
trading interest, and to add Rule
21.16(e) in order to make clear that a
User may engage the Risk Monitor
Mechanism in order to implement such
mass cancellation functionality.
Overview
Currently, the Exchange’s Risk
Monitor Mechanism operates by the
System maintaining a counting program
for each User. A single User may
configure a single counting program or
multiple counting programs to govern
its trading activity (i.e., on a port by port
basis). The counting program will count
executions of contracts traded by each
User and in specific Option Categories
(as defined below) by each User. The
counting program counts executions,
6 As
PO 00000
defined in Exchange Rule 21.16(b)(ii).
Frm 00080
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73577
contract volume, and notional value,
within a specified time period
established by each User (the ‘‘specified
time period’’) and on an absolute basis
for the trading day (‘‘absolute limits’’).
The specified time period commences
for an option when a transaction occurs
in any series in such option. The
counting program also counts a User’s
executions, contract volume, and
notional value across all options which
a User trades. The counting program
counts executions in the following
‘‘Options Categories’’: front-month puts,
front-month calls, back-month puts, and
back month calls (each an ‘‘Option
Category’’). The counting program also
counts a User’s executions, contract
volume, and notional value across all
options which a User trades (‘‘Firm
Category’’). For the purposes of the Risk
Monitor Mechanism, a front-month put
or call is an option that expires within
the next two calendar months, including
weeklies and other non-standard
expirations, and a back-month put or
call is an option that expires in any
month more than two calendar months
away from the current month.
The System engages the Risk Monitor
Mechanism in a particular option when
the counting program has determined
that a User’s trading has reached a
Specified Engagement Trigger
established by such User during the
specified time period or on an absolute
basis. When a Specified Engagement
Trigger is reached in an Options
Category, the Risk Monitor Mechanism
will automatically remove such User’s
orders in all series of the particular
option and reject any additional orders
from a User in such option until the
counting program has been reset in
accordance with paragraph (d) of Rule
21.16. The Risk Monitor Mechanism
also attempts to cancel any orders that
have been routed away to other options
exchanges on behalf of the User.
As provided in subparagraph (b)(ii) of
BATS Rule 21.16, each User can,
optionally, establish Specified
Engagement Triggers in each Options
Category, per option, or in the Firm
Category. Specified Engagement
Triggers can be set as follows: (A) a
contract volume trigger, measured
against the number of contracts
executed (the ‘‘volume trigger’’); (B) a
notional value trigger, measured against
the notional value of executions 7 (the
‘‘notional trigger’’); and (C) an execution
count trigger, measured against the
number of executions (‘‘count trigger’’).
7 Notional value is calculated as the sum of all
premiums paid times the number of contracts
executed. For example, an option executed with a
premium of $3.00 for 5 contracts would count as
$15.00 notional value.
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Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Notices
Each of these triggers can be established
in isolation (e.g., a User may choose
only to implement a volume trigger) or
a User can establish multiple separate
triggers with different parameters. Also,
as described above, the triggers can be
implemented either as absolute limits or
over a specified period of time.
Rule 22.11, entitled ‘‘Mass
Cancellation of Trading Interest’’
currently provides that a User may
simultaneously cancel all its bids,
offers, and orders in all series of options
by requesting the Exchange staff to
effect such cancellation. The form of
such requests includes but is not limited
to email or phone call from authorized
individuals, and the Risk Monitor
Mechanism. As part of Rule 22.11, a
User may submit a request to cancel a
subset or the entirety of its outstanding
orders.
Percentage-Based Engagement Trigger
The Exchange proposes to create a
new Specified Engagement Trigger to
the Risk Monitor Mechanism based on
percentage under BATS Rule 21.16(b)(ii)
(the ‘‘percentage trigger’’). The proposed
percentage trigger would be triggered
whenever a trade counter has calculated
that the User has traded a set percentage
(designated by the User) within a set
time period (designated by the
Exchange) against the User’s orders in a
specified class. The set percentage is
specified by the User (the ‘‘Specified
Percentage’’) and will be calculated as
Series
follows (and as shown in the examples
below): (1) a counting program would
first calculate, for each series of an
option class, the percentage of a User’s
combined order and quote size that is
executed on each side of the market,
including both displayed and nondisplayed size; and (2) a counting
program would then sum the overall
series percentages for the entire option
class to calculate the percentage.
Example 1
For Examples 1 and 2, if a User enters
orders at the National Best Bid or Offer
(‘‘NBBO’’) in four series of a class and
its Specified Percentage is 100%, a
counting program would calculate such
percentage as follows:
Series 1 ......................................................................................................................
Series 2 ......................................................................................................................
Series 3 ......................................................................................................................
Series 4 ......................................................................................................................
Total ....................................................................................................................
In Example 1, the aggregate number of
contracts executed among all series
during the time period specified by the
Exchange that equals the specified
100
50
200
150
500
percentage of 100% is 95 contracts, at
which point the percentage trigger
would be triggered and the User’s
Series
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Order Cancellation
The Exchange also proposes to amend
Rule 21.16(c) regarding what will
happen to marketable orders that are
executable against a User’s quotation
Frm 00081
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0
0
0
100
100
For Example 3, if a User is quoting at
the NBBO in four series of a particular
option class, and specifies its percentage
trigger at 200%, a trade counter would
calculate such percentage as follows:
# of Contracts
executed
100
50
200
150
500
remaining quotes in the appointed class
would be cancelled.
PO 00000
0
0
0
150
150
Series Percentage
(%)
Example 3
Quote size
Series 1 ......................................................................................................................
Series 2 ......................................................................................................................
Series 3 ......................................................................................................................
Series 4 ......................................................................................................................
Total ....................................................................................................................
In Example 3, the aggregate number of
contracts executed among all series
during the time period specified by the
Exchange that equals the specified
percentage of 200% is 190 contracts, at
which point the percentage trigger
would be triggered and the User’s
# of Contracts
Executed
100
50
200
150
500
would be triggered and the User’s
remaining quotes in the appointed class
would be cancelled.
40
40
10
10
100
Example 2
Quote size
Series
40
20
20
15
95
Series percentage
(%)
remaining orders in the appointed class
would be cancelled.
Series 1 ......................................................................................................................
Series 2 ......................................................................................................................
Series 3 ......................................................................................................................
Series 4 ......................................................................................................................
Total ...........................................................................................................................
In Example 2, the aggregate number of
contracts executed among all series
during the time period specified by the
Exchange that equals the specified
percentage of 100% is 150 contracts, at
which point the percentage trigger
# of Contracts
executed
Quote size
80
40
40
30
190
Series percentage
(%)
80
80
20
20
200
that are received prior to the time that
the Risk Monitor Mechanism is engaged.
Specifically, the Exchange is proposing
to amend the rule such that where there
are marketable orders that are
executable against a User’s order or
quotation that are received prior to the
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Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Notices
time that the Risk Monitor Mechanism
is engaged will be automatically
executed up to the size of the User’s
quotation (but not all of the User’s
quotations, as currently implemented).
For example, where a single User’s
Specified Engagement Trigger is 150
contracts, the User has entered the
following sell orders in a given series
that are resting at the Exchange, and the
next most aggressively priced sell order
in the series is 10.04:
Price Level
Quoted Size
10.01 .....................................
10.02 .....................................
10.03 .....................................
100
100
150
Where another User then enters a 300
contract buy order priced at 10.03, the
Exchange will allow the orders priced at
10.01 and 10.02 to execute in full, even
though the execution of the 10.02 order
will result in an execution of a total of
200 contracts, which will exceed the
Specified Engagement Trigger of 150
contracts. The Exchange will then
cancel the entirety of the 10.03 order
and the remaining portion of the buy
order will behave as indicated by the
other User indicated upon entry. Under
the current implementation, the
Exchange would allow the entirety of
the buy order to execute before
cancelling any of the User’s orders,
meaning that the orders priced at 10.01
and 10.02 would execute in full and 100
shares of the order priced at 10.03
would execute, at which point the
remaining 50 shares of the order priced
at 10.03 would be cancelled. The
Exchange believes that this change in
the implementation of the Risk Monitor
Mechanism will provide an appropriate
level of additional protection for firms
using the mechanism such that, while
their risk limits can be exceeded to
satisfy an incoming order, such limits
will be better protected by cancelling
interest after the first quotation has been
executed that equals or exceeds the
User’s Specified Engagement Trigger
(i.e., the Exchange will not allow an
incoming order to execute against all of
a User’s quotations even after their risk
limits have been breached).
emcdonald on DSK67QTVN1PROD with NOTICES
Clarifying Changes
The Exchange also proposes to make
a clarifying amendment to Rule 22.11 in
order to make the mass cancellation
functionality more clear. As described
above, a User may submit a request to
cancel any subset or the entirety of its
outstanding orders. The Exchange is
proposing to clarify Rule 22.11 in order
to make clear that a User may request
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17:28 Dec 05, 2013
Jkt 232001
to cancel orders for a specified
underlying security.
Similarly, the Exchange proposes to
make a clarifying change by adding
paragraph 21.16(e) in order to make
clear that a User may engage the Risk
Monitor Mechanism in order to use the
mass cancellation functionality from
Rule 22.11.
2. Statutory Basis
The rule change proposed in this
submission is consistent with the
requirements of the Act and the rules
and regulations thereunder that are
applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the Act.8
Specifically, the proposed change is
consistent with Section 6(b)(5) of the
Act,9 because it is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
and to remove impediments to, and
perfect the mechanism of, a free and
open market and a national market
system. The Exchange believes that the
proposal is appropriate and reasonable
because it offers additional functionality
for Users to manage their risk. Offering
the percentage trigger and more granular
order cancellation as part of the Risk
Monitor Mechanism will provide
Market Makers and other Users with
greater control and flexibility with
respect to managing risk and the manner
in which they enter orders and quotes,
allowing them to quote more
aggressively, which removes
impediments to a free and open market
and benefits all Users of BATS Options.
The Exchange notes that a similar
functionality is offered by NYSE Arca,
Inc. (‘‘NYSE Arca Options’’) and NYSE
Amex Options, Inc. (‘‘NYSE Amex
Options’’).10
(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 current variances between
the Exchange’s Risk Monitor
Mechanism and the risk monitoring
available at other exchanges limit
competition in that other exchanges are
able to employ their risk management
tools using a percentage-based trigger,
8 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
10 See NYSE Arca Options Rule 6.40(d); see also
NYSE Amex Options Rule 928NY(d).
while the Exchange cannot employ such
a trigger. Thus, approval of the proposed
rule change will promote competition
because it will allow the Exchange to
offer its Users similar percentage
triggers as are available at other
exchanges and thus compete with other
exchanges for order flow that a User
may not have directed to the Exchange
if the percentage trigger was not
available.
(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: (1) significantly affect
the protection of investors or the public
interest; (2) impose any significant
burden on competition; and (3) 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 11 and Rule 19b–
4(f)(6)(iii) thereunder.12
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: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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 proposal 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 No. SR–
BATS–2013–060 on the subject line.
9 15
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73579
11 15
12 17
E:\FR\FM\06DEN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
06DEN1
73580
Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Notices
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 No.
SR–BATS–2013–060. 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 changes between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–BATS–
2013–060 and should be submitted on
or before December 27, 2013.
disaster for Public Assistance Only for
the Commonwealth of Pennsylvania
(FEMA–4149–DR), dated 10/01/2013.
Incident: Severe Storms, Tornadoes,
and Flooding.
Incident Period: 06/26/2013 through
07/11/2013.
Effective Date: 11/22/2013.
Physical Loan Application Deadline
Date: 12/02/2013.
Economic Injury (EIDL) Loan
Application Deadline Date: 07/01/2014.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing And
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for Private Non-Profit
organizations in the Commonwealth of
Pennsylvania, dated 10/01/2013, is
hereby amended to include the
following areas as adversely affected by
the disaster.
Primary Counties: Allegheny.
All other information in the original
declaration remains unchanged.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
Illinois Disaster #IL–00043
[FR Doc. 2013–29092 Filed 12–5–13; 8:45 am]
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #13790 and #13791]
emcdonald on DSK67QTVN1PROD with NOTICES
Pennsylvania Disaster Number PA–
00065
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
13 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
17:28 Dec 05, 2013
Jkt 232001
Joseph P. Loddo,
Acting Associate Administrator for Disaster
Assistance.
[FR Doc. 2013–29183 Filed 12–5–13; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
Percent
[Disaster Declaration #13829 and #13830]
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
disaster for the State of Illinois (FEMA–
4157–DR), dated 11/26/2013.
Incident: Severe Storms, Straight-line
Winds, and Tornadoes.
Incident Period: 11/17/2013.
Effective Date: 11/26/2013.
Physical Loan Application Deadline
Date: 01/27/2014.
Economic Injury (EIDL) Loan
Application Deadline Date: 08/26/2014.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
SUMMARY:
BILLING CODE 8011–01–P
SUMMARY:
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
11/26/2013, applications for disaster
loans may be filed at the address listed
above or other locally announced
locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties (Physical Damage and
Economic Injury Loans):
Champaign, Douglas, Fayette,
Grundy, Jasper, La Salle, Massac,
Pope, Tazewell, Vermilion, Wabash,
Washington, Wayne, Will,
Woodford.
Contiguous Counties (Economic Injury
Loans Only): Illinois: Bond, Bureau,
Clark, Clay, Clinton, Coles, Cook,
Crawford, Cumberland, Dekalb,
Dupage, Edgar, Edwards,
Effingham, Ford, Fulton, Hamilton,
Hardin, Iroquois, Jefferson, Johnson,
Kankakee, Kendall, Lawrence, Lee,
Livingston, Logan, Marion,
Marshall, Mason, McLean,
Montgomery, Moultrie, Peoria,
Perry, Piatt, Pulaski, Putnam,
Randolph, Richland, Saint Clair,
Saline, Shelby, White, Williamson.
Indiana:
Benton, Gibson, Knox, Lake,
Vermillion, Warren.
Kentucky:
Livingston, McCracken,
The Interest Rates are:
FOR FURTHER INFORMATION CONTACT:
PO 00000
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For Physical Damage:
Homeowners With Credit
Available Elsewhere ..........
Homeowners Without Credit
Available Elsewhere ..........
Businesses With Credit Available Elsewhere ..................
Businesses Without Credit
Available Elsewhere ..........
Non-Profit Organizations With
Credit Available Elsewhere
Non-Profit
Organizations
Without Credit Available
Elsewhere ..........................
For Economic Injury:
Businesses & Small Agricultural Cooperatives Without
Credit Available Elsewhere
Non-Profit
Organizations
Without Credit Available
Elsewhere ..........................
4.500
2.250
6.000
4.000
2.625
2.625
4.000
2.625
The number assigned to this disaster
for physical damage is 13829C and for
economic injury is 138300.
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]]>Agencies
[Federal Register Volume 78, Number 235 (Friday, December 6, 2013)]
[Notices]
[Pages 73577-73580]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29092]
[[Page 73577]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70964; File No. SR-BATS-2013-060]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
the Risk Monitoring Functionality Offered by the Exchange
December 2, 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 November 18, 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 21.16, entitled ``Risk
Monitor Mechanism'', in order to modify the risk monitoring
functionality offered to all Users \5\ of the BATS equity options
trading platform (``BATS Options'') and to make a clarifying change to
the rule text.
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\5\ As defined in Exchange Rule 16.1(a)(63), a User is any
Exchange member or sponsored participant authorized to obtain access
to the Exchange.
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The text of the proposed rule change is available at the Exchange's
Web site at https://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
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 the proposed rule changes are: (1) to amend Exchange
Rule 21.16(b)(ii) in order add a new percentage-based Specified
Engagement Trigger \6\ to the Risk Monitor Mechanism; (2) to amend BATS
Rule 21.16(c) in order to provide more granular cancellation of orders
under the Risk Monitor Mechanism; (3) to make a clarifying change to
BATS Rule 22.11; and (4) to add BATS Rule 21.16(e). Specifically, the
Exchange proposes to amend Rule 21.16(b)(ii), entitled ``Specified
Engagement Triggers'', in order to adopt a new type of Specified
Engagement Trigger that will be triggered whenever a trade counter has
calculated that the User has traded a certain percentage within a time
period specified by the Exchange against the User's orders in a
specified class. The Exchange also proposes to amend Rule 21.16(c) such
that an incoming order that is received prior to the time that the Risk
Monitor Mechanism is engaged and is executable against a User's
quotation will execute up to the entire size of the User's quotation
that would cause executions in excess of the User's Specified
Engagement Trigger, but any additional executable quotations will be
cancelled. The Exchange further proposes to amend Rule 22.11 in order
to clarify the functionality of mass cancellation of trading interest,
and to add Rule 21.16(e) in order to make clear that a User may engage
the Risk Monitor Mechanism in order to implement such mass cancellation
functionality.
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\6\ As defined in Exchange Rule 21.16(b)(ii).
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Overview
Currently, the Exchange's Risk Monitor Mechanism operates by the
System maintaining a counting program for each User. A single User may
configure a single counting program or multiple counting programs to
govern its trading activity (i.e., on a port by port basis). The
counting program will count executions of contracts traded by each User
and in specific Option Categories (as defined below) by each User. The
counting program counts executions, contract volume, and notional
value, within a specified time period established by each User (the
``specified time period'') and on an absolute basis for the trading day
(``absolute limits''). The specified time period commences for an
option when a transaction occurs in any series in such option. The
counting program also counts a User's executions, contract volume, and
notional value across all options which a User trades. The counting
program counts executions in the following ``Options Categories'':
front-month puts, front-month calls, back-month puts, and back month
calls (each an ``Option Category''). The counting program also counts a
User's executions, contract volume, and notional value across all
options which a User trades (``Firm Category''). For the purposes of
the Risk Monitor Mechanism, a front-month put or call is an option that
expires within the next two calendar months, including weeklies and
other non-standard expirations, and a back-month put or call is an
option that expires in any month more than two calendar months away
from the current month.
The System engages the Risk Monitor Mechanism in a particular
option when the counting program has determined that a User's trading
has reached a Specified Engagement Trigger established by such User
during the specified time period or on an absolute basis. When a
Specified Engagement Trigger is reached in an Options Category, the
Risk Monitor Mechanism will automatically remove such User's orders in
all series of the particular option and reject any additional orders
from a User in such option until the counting program has been reset in
accordance with paragraph (d) of Rule 21.16. The Risk Monitor Mechanism
also attempts to cancel any orders that have been routed away to other
options exchanges on behalf of the User.
As provided in subparagraph (b)(ii) of BATS Rule 21.16, each User
can, optionally, establish Specified Engagement Triggers in each
Options Category, per option, or in the Firm Category. Specified
Engagement Triggers can be set as follows: (A) a contract volume
trigger, measured against the number of contracts executed (the
``volume trigger''); (B) a notional value trigger, measured against the
notional value of executions \7\ (the ``notional trigger''); and (C) an
execution count trigger, measured against the number of executions
(``count trigger'').
[[Page 73578]]
Each of these triggers can be established in isolation (e.g., a User
may choose only to implement a volume trigger) or a User can establish
multiple separate triggers with different parameters. Also, as
described above, the triggers can be implemented either as absolute
limits or over a specified period of time.
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\7\ Notional value is calculated as the sum of all premiums paid
times the number of contracts executed. For example, an option
executed with a premium of $3.00 for 5 contracts would count as
$15.00 notional value.
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Rule 22.11, entitled ``Mass Cancellation of Trading Interest''
currently provides that a User may simultaneously cancel all its bids,
offers, and orders in all series of options by requesting the Exchange
staff to effect such cancellation. The form of such requests includes
but is not limited to email or phone call from authorized individuals,
and the Risk Monitor Mechanism. As part of Rule 22.11, a User may
submit a request to cancel a subset or the entirety of its outstanding
orders.
Percentage-Based Engagement Trigger
The Exchange proposes to create a new Specified Engagement Trigger
to the Risk Monitor Mechanism based on percentage under BATS Rule
21.16(b)(ii) (the ``percentage trigger''). The proposed percentage
trigger would be triggered whenever a trade counter has calculated that
the User has traded a set percentage (designated by the User) within a
set time period (designated by the Exchange) against the User's orders
in a specified class. The set percentage is specified by the User (the
``Specified Percentage'') and will be calculated as follows (and as
shown in the examples below): (1) a counting program would first
calculate, for each series of an option class, the percentage of a
User's combined order and quote size that is executed on each side of
the market, including both displayed and non-displayed size; and (2) a
counting program would then sum the overall series percentages for the
entire option class to calculate the percentage.
Example 1
For Examples 1 and 2, if a User enters orders at the National Best
Bid or Offer (``NBBO'') in four series of a class and its Specified
Percentage is 100%, a counting program would calculate such percentage
as follows:
----------------------------------------------------------------------------------------------------------------
of
Series Quote size Contracts Series percentage
executed (%)
----------------------------------------------------------------------------------------------------------------
Series 1............................................... 100 40 40
Series 2............................................... 50 20 40
Series 3............................................... 200 20 10
Series 4............................................... 150 15 10
Total.............................................. 500 95 100
----------------------------------------------------------------------------------------------------------------
In Example 1, the aggregate number of contracts executed among all
series during the time period specified by the Exchange that equals the
specified percentage of 100% is 95 contracts, at which point the
percentage trigger would be triggered and the User's remaining orders
in the appointed class would be cancelled.
Example 2
----------------------------------------------------------------------------------------------------------------
of
Series Quote size Contracts Series Percentage
Executed (%)
----------------------------------------------------------------------------------------------------------------
Series 1............................................... 100 0 0
Series 2............................................... 50 0 0
Series 3............................................... 200 0 0
Series 4............................................... 150 150 100
Total.................................................. 500 150 100
----------------------------------------------------------------------------------------------------------------
In Example 2, the aggregate number of contracts executed among all
series during the time period specified by the Exchange that equals the
specified percentage of 100% is 150 contracts, at which point the
percentage trigger would be triggered and the User's remaining quotes
in the appointed class would be cancelled.
Example 3
For Example 3, if a User is quoting at the NBBO in four series of a
particular option class, and specifies its percentage trigger at 200%,
a trade counter would calculate such percentage as follows:
----------------------------------------------------------------------------------------------------------------
of
Series Quote size Contracts Series percentage
executed (%)
----------------------------------------------------------------------------------------------------------------
Series 1............................................... 100 80 80
Series 2............................................... 50 40 80
Series 3............................................... 200 40 20
Series 4............................................... 150 30 20
Total.............................................. 500 190 200
----------------------------------------------------------------------------------------------------------------
In Example 3, the aggregate number of contracts executed among all
series during the time period specified by the Exchange that equals the
specified percentage of 200% is 190 contracts, at which point the
percentage trigger would be triggered and the User's remaining quotes
in the appointed class would be cancelled.
Order Cancellation
The Exchange also proposes to amend Rule 21.16(c) regarding what
will happen to marketable orders that are executable against a User's
quotation that are received prior to the time that the Risk Monitor
Mechanism is engaged. Specifically, the Exchange is proposing to amend
the rule such that where there are marketable orders that are
executable against a User's order or quotation that are received prior
to the
[[Page 73579]]
time that the Risk Monitor Mechanism is engaged will be automatically
executed up to the size of the User's quotation (but not all of the
User's quotations, as currently implemented). For example, where a
single User's Specified Engagement Trigger is 150 contracts, the User
has entered the following sell orders in a given series that are
resting at the Exchange, and the next most aggressively priced sell
order in the series is 10.04:
------------------------------------------------------------------------
Price Level Quoted Size
------------------------------------------------------------------------
10.01................................................... 100
10.02................................................... 100
10.03................................................... 150
------------------------------------------------------------------------
Where another User then enters a 300 contract buy order priced at
10.03, the Exchange will allow the orders priced at 10.01 and 10.02 to
execute in full, even though the execution of the 10.02 order will
result in an execution of a total of 200 contracts, which will exceed
the Specified Engagement Trigger of 150 contracts. The Exchange will
then cancel the entirety of the 10.03 order and the remaining portion
of the buy order will behave as indicated by the other User indicated
upon entry. Under the current implementation, the Exchange would allow
the entirety of the buy order to execute before cancelling any of the
User's orders, meaning that the orders priced at 10.01 and 10.02 would
execute in full and 100 shares of the order priced at 10.03 would
execute, at which point the remaining 50 shares of the order priced at
10.03 would be cancelled. The Exchange believes that this change in the
implementation of the Risk Monitor Mechanism will provide an
appropriate level of additional protection for firms using the
mechanism such that, while their risk limits can be exceeded to satisfy
an incoming order, such limits will be better protected by cancelling
interest after the first quotation has been executed that equals or
exceeds the User's Specified Engagement Trigger (i.e., the Exchange
will not allow an incoming order to execute against all of a User's
quotations even after their risk limits have been breached).
Clarifying Changes
The Exchange also proposes to make a clarifying amendment to Rule
22.11 in order to make the mass cancellation functionality more clear.
As described above, a User may submit a request to cancel any subset or
the entirety of its outstanding orders. The Exchange is proposing to
clarify Rule 22.11 in order to make clear that a User may request to
cancel orders for a specified underlying security.
Similarly, the Exchange proposes to make a clarifying change by
adding paragraph 21.16(e) in order to make clear that a User may engage
the Risk Monitor Mechanism in order to use the mass cancellation
functionality from Rule 22.11.
2. Statutory Basis
The rule change proposed in this submission is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\8\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\9\
because it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to, and perfect
the mechanism of, a free and open market and a national market system.
The Exchange believes that the proposal is appropriate and reasonable
because it offers additional functionality for Users to manage their
risk. Offering the percentage trigger and more granular order
cancellation as part of the Risk Monitor Mechanism will provide Market
Makers and other Users with greater control and flexibility with
respect to managing risk and the manner in which they enter orders and
quotes, allowing them to quote more aggressively, which removes
impediments to a free and open market and benefits all Users of BATS
Options. The Exchange notes that a similar functionality is offered by
NYSE Arca, Inc. (``NYSE Arca Options'') and NYSE Amex Options, Inc.
(``NYSE Amex Options'').\10\
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ See NYSE Arca Options Rule 6.40(d); see also NYSE Amex
Options Rule 928NY(d).
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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 current
variances between the Exchange's Risk Monitor Mechanism and the risk
monitoring available at other exchanges limit competition in that other
exchanges are able to employ their risk management tools using a
percentage-based trigger, while the Exchange cannot employ such a
trigger. Thus, approval of the proposed rule change will promote
competition because it will allow the Exchange to offer its Users
similar percentage triggers as are available at other exchanges and
thus compete with other exchanges for order flow that a User may not
have directed to the Exchange if the percentage trigger was not
available.
(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: (1)
significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3)
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 \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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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: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 proposal 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 No. SR-BATS-2013-060 on the subject line.
[[Page 73580]]
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 No. SR-BATS-2013-060. 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 changes between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-BATS-2013-060 and should be
submitted on or before December 27, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29092 Filed 12-5-13; 8:45 am]
BILLING CODE 8011-01-P
