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]

Download as PDF 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 http://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 VerDate Mar<15>2010 17:28 Dec 05, 2013 Jkt 232001 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 Fmt 4703 Sfmt 4703 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. E:\FR\FM\06DEN1.SGM 06DEN1 73578 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 emcdonald on DSK67QTVN1PROD with NOTICES VerDate Mar<15>2010 19:35 Dec 05, 2013 Jkt 232001 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 Fmt 4703 Sfmt 4703 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 E:\FR\FM\06DEN1.SGM 06DEN1 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 VerDate Mar<15>2010 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 (http://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 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 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 (http://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 Frm 00083 Fmt 4703 Sfmt 4703 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. E:\FR\FM\06DEN1.SGM 06DEN1

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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at http://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.
---------------------------------------------------------------------------

    \6\ As defined in Exchange Rule 21.16(b)(ii).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

(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\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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 (http://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 (http://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\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29092 Filed 12-5-13; 8:45 am]
BILLING CODE 8011-01-P