Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Amendment No. 1, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To Hold a Volatility Closing Auction, 8520-8524 [2014-03005]
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8520
Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Notices
proposal is reasonable because it results
in a decrease in non-member broker
dealer transactions fees for all nonmember broker dealers on the Exchange
in order to enable the Exchange to
improve its overall competitiveness and
strengthen its market quality for all
market participants. The proposed fees
are fair and equitable and not
unreasonably discriminatory because
they will apply equally to all nonmember broker-dealers. All non-member
broker-dealers will be subject to the
same transaction fee, and access to the
Exchange is offered on terms that are
not unfairly discriminatory.
The decrease in transaction fees for
non-member broker-dealers should
incent broker-dealers on other
exchanges to direct additional orders to
the Exchange to allow the Exchange to
compete more effectively with other
options exchanges for such transactions.
To the extent that this purpose is
achieved, the Exchange believes that
other market participants on the
Exchange will benefit from the
additional liquidity and trading
opportunities available from such
orders.
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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. The
Exchange believes that the proposal
increases both intermarket and
intramarket competition by incenting
broker-dealers on other exchanges to
direct additional orders to the Exchange
to allow the Exchange to compete more
effectively with other options exchanges
for such transactions. To the extent that
this purpose is achieved, the Exchange
believes that other market participants
on the Exchange will benefit from the
additional liquidity and trading
opportunities available from such
orders. The Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive. In such an environment,
the Exchange must continually adjust its
fees to remain competitive with other
exchanges and to attract order flow. The
Exchange believes that the proposal
reflects this competitive environment
because it reduces the Exchange’s fees
in a manner that encourages nonmember broker-dealers to provide
liquidity and to attract order flow to the
Exchange.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.7 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2014–06 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–MIAX–2014–06. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml ). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
7 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00092
Fmt 4703
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Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MIAX–
2014–06 and should be submitted on or
before March 5, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–03007 Filed 2–11–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71498; File No. SR–BATS–
2013–066]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of
Amendment No. 1, and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To Adopt Rules To
Hold a Volatility Closing Auction
February 6, 2014.
I. Introduction
On December 19, 2013, BATS
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘BATS’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend
Exchange Rule 11.23 to add a new
auction type known as the Volatility
Closing Auction. The proposed rule
change was published for comment in
the Federal Register on December 27,
2013.3 The Commission received one
comment on the proposal.4 On January
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 71162
(December 20, 2013), 78 FR 79030 (‘‘Notice’’).
4 See Letter to Elizabeth M. Murphy, Secretary,
Commission, from Abraham Kohen, AK FE
1 15
2 17
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Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Notices
14, 2014, BATS filed Amendment No. 1
to the proposed rule change.5 This order
approves the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
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II. Description of the Proposal
In its filing with the Commission, the
Exchange proposes to add a new auction
type to its rules, a Volatility Closing
Auction, which will apply any time that
an Exchange-listed security is halted
during the last 10 minutes of Regular
Trading Hours 6 or where the QuoteOnly Period 7 of a Halt Auction would
be extended during the last 10 minutes
of Regular Trading Hours. In particular,
the Exchange proposes to add the
Volatility Closing Auction in
preparation for the operation during the
last 15 minutes of Regular Trading
Hours of the National Market System
Plan to Address Extraordinary Market
Volatility (the ‘‘Limit Up-Limit Down
Plan’’ or ‘‘Plan’’).8
The Plan is designed to prevent trades
in individual NMS Stocks from
occurring outside of specified Price
Bands.9 The requirements of the Plan
are coupled with Trading Pauses, or
halts, to accommodate more
fundamental price moves (as opposed to
erroneous trades or momentary gaps in
liquidity). The Commission approved
the Plan, as amended, on a one-year
pilot basis.10 The Plan first became
operational in April of 2013, with a
staged rollout with respect to the
Consultants LLC, dated December 23, 2013 (‘‘Kohen
Letter’’). The commenter questioned the Exchange’s
determination to refer to the new auction type as
the Volatility Closing Auction and suggested that a
more specific Web site address should be used
within the Notice to direct readers to the text of the
proposed rule change. The Exchange did not
respond to the comment.
5 In Amendment No. 1, BATS amended the
proposal to make clear that where a halt occurs
before 3:50 p.m. E.T. and the Quote-Only Period for
the associated Halt Auction would be extended
between 3:50 p.m. and 4:00 p.m. E.T. such Halt
Auction will, instead of being extended,
immediately become a Volatility Closing Auction.
The Amendment also proposes to amend the
definition of ‘‘Quote-Only Period’’ as defined in
Exchange Rule 11.23(a)(17) to include Volatility
Closing Auctions.
6 Regular Trading Hours are defined in Exchange
Rule 1.5(w) as the time between 9:30 a.m. to 4:00
p.m. E.T.
7 Quote-Only Period means a designated period of
time prior to a Halt Auction or an IPO Auction
during which Users may submit orders to the
Exchange for participation in the auction. See
Exchange Rule 11.23(a)(17).
8 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012) (File
No. 4–631) (Order Approving, on a Pilot Basis, the
National Market System Plan To Address
Extraordinary Market Volatility).
9 Unless otherwise specified, capitalized terms
used herein are based on the defined terms of the
Plan.
10 See supra note 8.
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portion of the trading day to which the
Plan applies as well as the securities
subject to the Plan. All trading centers
in NMS Stocks, including both those
operated by Participants and those
operated by members of Participants,
are required to establish, maintain, and
enforce written policies and procedures
that are reasonably designed to comply
with the requirements specified in the
Plan. The Exchange is a Participant in
the Plan.
As currently implemented, the Limit
Up-Limit Down Plan applies to
securities between 9:30 a.m. and 3:45
p.m. E.T. each trading day. In the near
future, the operation of the Plan will be
extended to include the time between
3:45 p.m. and 4:00 p.m. E.T., which is
the end of Regular Trading Hours on the
Exchange and is when the Exchange
typically conducts a Closing Auction for
each of its listed securities. The
Exchange proposes to adopt rules for a
Volatility Closing Auction in connection
with the extension of the Plan to the end
of Regular Trading Hours.
The Exchange proposes to add new
paragraph (e) to Rule 11.23 to govern the
operation of Volatility Closing Auctions
on the Exchange, which will be auctions
of Exchange-listed securities that are
halted in the last 10 minutes of Regular
Trading Hours or where the Quote-Only
Period of a Halt Auction would be
extended during the last 10 minutes of
Regular Trading Hours.11 As noted by
the Exchange, a Volatility Closing
Auction would operate in certain
respects like an Exchange Halt Auction
as described in Exchange Rule 11.23(d)
and in other respects like an Exchange
Closing Auction as described in
Exchange Rule 11.23(c).12
According to the Exchange, similar to
a Halt Auction on the Exchange, a
Volatility Closing Auction will have a
period of time that orders are accepted
for participation in such auction during
which no trading is occurring on the
Exchange (the ‘‘Quote-Only Period’’).13
The Quote-Only Period with respect to
a Volatility Closing Auction would
commence at the time a security is
halted between 3:50 p.m. and 4:00 p.m.
and will end at 4:00 p.m.14 Thus, to the
extent the Exchange halts a security
after 3:55 p.m. but before 4:00 p.m.,
such security will be halted for less than
five minutes prior to the Volatility
Closing Auction.15 The Exchange
11 See
Notice, supra note 3 at 79031.
Id.
13 See Id.
14 See Proposed Rule 11.23(e).
15 See Notice, supra note 3 at 79031. The
Exchange clarified that where a halt occurs before
3:50 p.m. E.T. and the Quote-Only Period for the
associated Halt Auction would be extended
12 See
PO 00000
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8521
believes this is appropriate because it
will ensure that the final auction of the
day in all Exchange-listed securities
consistently occurs at 4:00 p.m. E.T.16
The Exchange notes it will not extend
the Quote-Only Period associated with a
Volatility Closing Auction, which is the
same as with a Closing Auction.17 In
contrast, the Exchange’s rules related to
Exchange Halt Auctions provide that the
Quote-Only Period may be extended
where there are unmatched market
orders on the auction book associated
with the auction and where the
indicative price moves the greater of
10% or fifty (50) cents in the fifteen (15)
seconds prior to the Halt Auction, both
to ensure that there is sufficient interest
and stability after a halt to reopen the
security for trading.18 Halt Auctions,
however, occur during Regular Trading
Hours and the Exchange retains
discretion to not extend the Quote-Only
Period of a Halt Auction such that it
would interfere with a Closing Auction.
While the Exchange acknowledges that
some of the same issues for which the
ability to extend the Quote-Only Period
of a Halt Auction may exist where there
are unmatched market orders or
dramatic price movements near the end
of the Quote-Only Period of the
Volatility Closing Auction, the
Exchange believes that these concerns
are outweighed by the importance of
providing members and the investing
public with a definitive market close
and an official closing price at 4:00 p.m.
E.T. The Exchange believes that the
clarity that comes from requiring that a
Volatility Closing Auction occurs at 4:00
p.m. E.T. will help reduce uncertainty
for members participating in the
Volatility Closing Auction.19
The Exchange highlights certain
elements of its closing process that
promote a fair and orderly closing,
despite its determination to have
Volatility Closing Auctions conclude at
4:00 p.m. E.T. First, the Exchange notes
that, even where a halt is declared very
near 4:00 p.m. E.T., it has proposed that
all Volatility Closing Auctions be
required to close at a price level within
the Collar Price Range 20 in order to
ensure that the Volatility Closing
Auction price is based on rational and
current market conditions.21 Second,
between 3:50 p.m. and 4:00 p.m. E.T., such Halt
Auction will, instead of being extended,
immediately become a Volatility Closing Auction.
See Amendment No. 1.
16 See Id.
17 See Id.
18 See Exchange Rule 11.23(d)(2)(B).
19 See Notice, supra note 3 at 79031–2.
20 See Exchange Rule 11.23(a)(6).
21 See Notice, supra note 3 at 79032.
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Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Notices
the Exchange further restricts the price
of a Volatility Closing Auction by using
the Final Last Sale Eligible Trade as the
Volatility Closing Auction price where
no limit orders from one or both sides
would participate in the Volatility
Closing Auction.22 According to the
Exchange, this restriction ensures that
there is crossed limit interest in the
Volatility Closing Auction if the
Volatility Closing Auction price is going
to look to the entered limit interest to
determine the price, which prevents a
single limit order from interacting with
market orders to determine the
Volatility Closing Auction Price.23
Finally, the Exchange notes that it
retains discretion under Rule 11.23(f)
(re-numbered pursuant to this proposal)
to adjust the timing of or suspend an
auction with prior notice to Users where
the interests of a fair and orderly market
so require.24 As noted by the Exchange,
in a situation where the Exchange
deemed it necessary to adjust the timing
of a Volatility Closing Auction in order
to maintain a fair and orderly market,
i.e., to a time later than 4:00 p.m. E.T.,
the Exchange would notify Exchange
Users in advance of the time that the
auction would occur and would provide
for a Quote-Only period prior to such
auction.25
During the Quote-Only Period of a
Volatility Closing Auction, the
Exchange will accept all orders eligible
to participate in both a Halt Auction and
a Closing Auction in order to avoid
participant confusion and to facilitate
participation in the Volatility Closing
Auction. This includes limit and market
orders as well as any Eligible Auction
Orders applicable to a Closing Auction
on the Exchange. Thus, the Exchange
will accept Regular Hours Only orders
(‘‘RHOs’’), Limit-On-Close orders
(‘‘LOCs’’), Late-Limit-On-Close orders
(‘‘LLOCs’’) and Market-On-Close orders
(‘‘MOCs’’) for participation in a
Volatility Closing Auction, and the
typical restrictions on such orders will
apply. For instance, as with a Closing
Auction, the Exchange will not accept
any LOCs or MOCs after 3:55 p.m. E.T.
Similarly, the Exchange will not accept
any LLOCs before 3:55 p.m. E.T. The
Exchange notes, however, that, while
these restrictions remain in place,
regular limit and market orders can be
entered and cancelled without
restriction at any time prior to
execution. In contrast to a typical
Closing Auction, however, because the
Exchange is accepting Eligible Auction
22 See
Proposed Rule 11.23(e)(2)(B).
Notice, supra note 3 at 79032.
24 See Proposed Rule 11.23(f).
25 See Notice, supra note 3 at 79032.
23 See
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Orders only to facilitate participation in
and avoid confusion during the
Volatility Closing Auction and because
a User could alternatively enter and
cancel limit orders and market orders
without restriction during the QuoteOnly Period, Eligible Auction Orders
associated with a Volatility Closing
Auction may also be cancelled at any
time prior to execution.26 The Exchange
believes that allowing participants to
cancel orders specifically designated for
a Closing Auction up to the time of the
Volatility Closing Auction is
appropriate because halts or extensions
of a Quote-Only Period of a Halt
Auction in the last 10 minutes of the
trading day necessitating a Volatility
Closing Auction may be indicative of
price dislocation in a security and
because such orders may have been
entered well before such event
occurred.27
With respect to market data, the
Exchange represents that it will
disseminate the same information that it
does for other auctions conducted on
the Exchange.28 Thus, coinciding with
the beginning of the Quote-Only Period
for a security and updated every five
seconds thereafter, the Reference Price,
Indicative Price, Auction Only Price,
and the lesser of Reference Buy Shares
and Reference Sell Shares associated
with the Volatility Closing Auction will
be disseminated by the Exchange via
electronic means.
The Exchange represents that it will
conduct a Volatility Closing Auction in
a manner similar to a Halt Auction.
Specifically, orders will be executed at
the price that maximizes the number of
shares executed in the auction.29 For
ETPs, orders will be executed at the
price level within the Collar Price Range
that maximizes the number of shares
executed in the auction. In the event of
a volume based tie at multiple price
levels, the price level closest to the
Final Last Sale Eligible Trade will be
used for Volatility Closing Auctions.
Where no limit orders from one or both
sides (the buy side, the sell side, or both
the buy and sell side) would participate
in a Volatility Closing Auction, the
Volatility Closing Auction will occur at
the price of the Final Last Sale Eligible
Trade. According to the Exchange, the
only differences between the processing
of a Halt Auction and a Volatility
Closing Auction are that: (1) The
Volatility Closing Auction price will be
26 In a Closing Auction, LOC and MOC orders
cannot be cancelled in the five minutes leading up
to the auction.
27 See Notice, supra note 3 at 79033.
28 Id. at 79031.
29 See Proposed Rule 11.23(e)(2)(B).
PO 00000
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used as the official closing price for
dissemination to the consolidated tape
(the ‘‘BATS Official Closing Price’’), and
(2) a Volatility Closing Auction will not
be delayed due to a market order
imbalance or due to a significant change
in the Indicative Price, which can
extend the Quote-Only Period of a Halt
Auction, as explained above.30
The Exchange also proposes to
process a Volatility Closing Auction in
a manner consistent with auctions
conducted by the Exchange, in that, as
proposed, market orders, including
MOCs, will have higher priority than
other Volatility Closing Auction Eligible
Orders.31 To the extent there is
executable contra side interest, such
market orders will be executed at the
BATS Official Closing Price according
to time priority. After the execution of
all market orders, the remaining orders
priced at or more aggressively than the
BATS Official Closing Price will be
executed on the basis of price/time
priority.32
The Exchange will transition to the
After Hours Trading Session 33
following a Volatility Closing Auction
in much the way that it does for a
Closing Auction.34 Thus, limit order
shares that are not executed in the
Volatility Closing Auction will remain
on the Exchange’s order book during the
After Hours Trading Session, subject to
a User’s instructions and the fact that
certain auction specific limit orders will
be cancelled.35 RHO, LOC, LLOC, MOC
and market order shares that are not
executed in the Volatility Closing
Auction will be cancelled at the
conclusion of the Volatility Closing
Auction.36 According to the Exchange,
the only difference between this
transition and a typical Closing Auction
is that market orders are also cancelled,
which differs only because such orders
may enter the Volatility Closing Auction
in the first place.37 Other than MOCs,
which are specifically designated for a
Closing Auction, market orders cannot
participate in Closing Auctions because
they do not post to the Continuous
Book,38 and thus the Exchange does not
30 See
Notice, supra note 3 at 79032.
Proposed Rule 11.23(e)(2)(C).
32 See Id.
33 The After Hours Trading Session is defined in
Exchange Rule 1.5(c) and currently means the time
between 4:00 p.m. to 5:00 p.m. E.T.
34 See Proposed Rule 11.23(e)(3).
35 See Id.
36 See Id.
37 See Notice, supra note 3 at 79032.
38 Market orders received by the Exchange are
executed or routed by the Exchange to other market
centers but do not post to the Exchange’s
Continuous Book. See Rules 11.9(a)(2), 11.13(a)(1)
and 11.13(a)(2). The Continuous Book is defined in
31 See
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Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Notices
address their transition to the After
Hours Trading Session in its Closing
Auction transition process.
In addition to the changes described
above, in order to correct a
typographical error in the original filing
that proposed Rule 11.23, the Exchange
proposes to re-number paragraphs (g),
(h) and (i) as (f), (g) and (h), respectively.
Finally, the Exchange proposes to add a
reference to the new auction type, a
Volatility Closing Auction, to current
paragraph (h) (to be re-numbered as (g).
mstockstill on DSK4VPTVN1PROD with NOTICES
III. Discussion and Commission
Findings
After careful review of the proposal,
as modified by Amendment No. 1, and
the comment letter received 39 the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder that are
applicable to a national securities
exchange.40 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,41 which requires,
among other things, that the rules of an
exchange be designed to promote just
and equitable principles of trade,
remove impediments to, and perfect the
mechanism of, a free and open market
and a national market system, and, in
general, protect investors and the
public.
The Exchange notes that all aspects of
the proposed Volatility Closing Auction
are based upon existing processes built
into both the Exchanges’ Halt Auction
and the Exchange’s Closing Auction.
Consistent with existing auctions, the
Exchange will accept all orders eligible
to participate in both a Halt Auction and
a Closing Auction and market orders,
including MOCs, will have higher
priority than other Volatility Closing
Auction Eligible Orders. Such market
orders, including MOCs, will be
executed at the BATS Official Closing
Price according to time priority to the
extent there is executable contra side
interest, after which remaining orders
priced at or more aggressively than the
BATS Official Closing Price will be
Exchange Rule 11.23(a)(7) as all orders on the BATS
Book that are not Eligible Auction Orders.
39 See Kohen Letter. The Commission believes
that the Exchange may refer to this new auction as
the Volatility Closing Auction as it directly relates
to the policies and procedures necessary to
implement the Limit Up-Limit Down Plan. The
Commission believes that the commenter’s more
general comments regarding the domain address
where an Exchange’s rules are posted are not
germane to this proposed rule change.
40 In approving the proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
41 15 U.S.C. 78f(b)(1).
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executed on the basis of price/time
priority.42 Additionally, the Exchange
will continue to disseminate the same
market data information for Volatility
Closing Auctions as it does with
existing auctions.
Without the proposal, the Exchange
notes that it could potentially have a
Halt Auction within minutes of the
Closing Auction, which could cause
unnecessary confusion. The Exchanges
believes that this proposal is consistent
with the Act and that the operation of
a Volatility Closing Auction for
securities listed on the Exchange will
assist in the price discovery process and
help to ensure a fair and orderly market
for securities listed on the Exchange that
are halted at the end of the trading day.
The Exchange believes this proposal
will ensure that market participants
have a single closing price at the end of
the trading day.
The Exchange’s proposed Volatility
Closing Auctions differs from its Halt
Auctions and Closing Auctions in
certain ways that it believes are
appropriate and consistent with the Act.
As discussed above, the Exchange’s
Volatility Closing Auction differs from
its Halt Auction in that the Quote-Only
Period for the Volatility Closing Auction
will not, as a general matter, be
extended. While the Exchange
acknowledges that some of the same
issues for which the ability to extend
the Quote-Only Period of a Halt Auction
may exist where there are unmatched
market orders or dramatic price
movements near the end of the QuoteOnly Period of the Volatility Closing
Auction, the Exchange believes that
these concerns are outweighed by the
importance of providing members and
the investing public with a definitive
market close and an official closing
price at 4:00 p.m. E.T. The Exchange
believes the clarity that comes from
requiring a Volatility Closing Auction to
occur at 4:00 p.m. E.T. will help reduce
uncertainty for Members participating
in the Volatility Closing Auction.43
Despite its determination to have
Volatility Closing Auctions conclude at
4:00 p.m. E.T., the Exchange highlights
certain elements of its closing process
that it believes promote a fair and
orderly market and closing prices that
are based on rational and current market
conditions. As explained above, the
Exchange has proposed certain price
and execution constraints for the
Volatility Closing Auction to ensure that
the auction occurs at a price that is
based on rational and current market
42 See
43 See
PO 00000
Proposed Rule 11.23(e)(2)(C).
Notice, supra note 3 at 79031–2.
Frm 00095
Fmt 4703
Sfmt 4703
8523
conditions.44 Additionally, the
Exchange reiterates that it retains
discretion under Rule 11.23(f) to adjust
the timing of or suspend an auction
with prior notice to Users where the
interests of a fair and orderly market so
require.
The proposed Volatility Closing
Auction also differs from Closing
Auctions. Specifically, orders
specifically designated for the Closing
Auction are not permitted to be
canceled after a certain time for Closing
Auctions. In contrast, the Exchange
proposes to allow participants to cancel
orders specifically designated for a
Closing Auction up to the time of the
Volatility Closing Auction. The
Exchange states that this is appropriate
because the halt of trading of a security
or extension of the Quote-Only Period of
a Halt Auction in the last 10 minutes of
the trading day necessitating a Volatility
Closing Auction may be indicative of
price dislocation in a security and
because such orders may have been
entered well before such halt
occurred.45 The Exchange believes it is
appropriate and in the best interests of
investors and the public interest to
allow orders to be cancelled in such an
event.
For the various reasons noted above,
the Commission finds that the proposed
rule change as modified by Amendment
No. 1 is consistent with the Act,
including Section 6(b)(5) of the Act,46
which requires, among other things, that
the rules of an exchange be designed to
promote just and equitable principles of
trade, remove impediments to, and
perfect the mechanism of, a free and
open market and a national market
system, and, in general, protect
investors and the public.
The Commission finds good cause to
approve the filing, as modified by
Amendment No. 1 to the proposed rule
change, prior to the thirtieth day after
the date of the publication of notice of
the filing thereof in the Federal
Register. The proposed revisions should
further enhance the Exchange’s policies
and procedures with respect to the
operation of the Limit Up-Limit Down
Plan. Accelerated approval would allow
the Exchange to update its rule text
immediately, thus providing users with
greater clarity and certainty with respect
to the use of the new Volatility Closing
Auction functionality offered by the
Exchange in anticipation of the
application of the Limit Up-Limit Down
44 See
supra notes 21–26, 30, and accompanying
text.
45 The Exchange notes that its existing Halt
Auction process allows orders to be cancelled prior
to such auction.
46 15 U.S.C. 78f(b)(1).
E:\FR\FM\12FEN1.SGM
12FEN1
8524
Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Notices
plan through the end of Regular Trading
Hours. Accordingly, the Commission
finds that good cause exists, consistent
with Section 6(b)(5) of the Act, to
approve the filing, as modified by
Amendment No. 1, on an accelerated
basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
mstockstill on DSK4VPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BATS–2013–066 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–BATS–2013–066. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml ). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room on official business
days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of such filing also
will be available for inspection and
copying at the principal offices of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BATS–
2013–066, and should be submitted on
or before March 5, 2014.
VerDate Mar<15>2010
17:11 Feb 11, 2014
Jkt 232001
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,47 that the
proposed rule change, SR–BATS–2013–
066, as modified by amendment No. 1,
be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–03005 Filed 2–11–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71503; File No. SR–
NYSEArca–2014–13]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Equities Schedule of Fees and
Charges for Exchange Services To
Add a New Pricing Tier Applicable to
Orders That Add Liquidity on the
Exchange
February 6, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
28, 2014, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Schedule of Fees
and Charges for Exchange Services
(‘‘Fee Schedule’’) to add a new pricing
tier applicable to orders that add
liquidity on the Exchange. The
Exchange proposes to implement the fee
change on February 1, 2014. The text of
the proposed rule change is available on
the Exchange’s Web site at
www.nyse.com, at the principal office of
47 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
48 17
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to add a new pricing tier
applicable to orders that add liquidity
on the Exchange. The Exchange
proposes to implement the fee change
effective February 1, 2014.
The Exchange proposes to add a new
‘‘Step Up Tier 3’’ applicable to an ETP
Holder, including a Market Maker, that
on a daily basis, measured monthly,
directly executes providing volume
(‘‘Adding ADV’’) during the billing
month that is both (i) at least 0.20% of
U.S. consolidated average daily volume
(‘‘U.S. CADV’’) for the billing month
and (ii) at least 0.125% taken as a
percentage of U.S. CADV for the billing
month over the ETP Holder’s December
2013 Adding ADV taken as a percentage
of U.S. CADV in December 2013
(‘‘Baseline % CADV’’).4 For example, if
U.S. CADV during the billing month is
7 billion shares, an ETP Holder’s
Adding ADV during the billing month
would first need to be at least 14 million
shares (i.e., at least 0.20% of U.S. CADV
for the billing month). If U.S. CADV in
December 2013 was 6 billion shares and
an ETP Holder’s December 2013 Adding
ADV was 6 million shares, the ETP
Holder’s Baseline % CADV would be
0.10% (i.e., the ETP Holder’s December
2013 Adding ADV taken as a percentage
4 U.S. CADV means United States Consolidated
Average Daily Volume for transactions reported to
the Consolidated Tape, excluding odd lots through
January 31, 2014 (except for purposes of Lead
Market Maker pricing), and excludes volume on
days when the market closes early. Transactions
that are not reported to the Consolidated Tape are
not included in U.S. CADV. An ETP Holder with
zero Adding ADV in December 2013 (e.g., a firm
that became an ETP Holder after December 2013)
would be treated as having Baseline % CADV of
zero for purposes of the proposed Step Up Tier 3.
E:\FR\FM\12FEN1.SGM
12FEN1
]]>Agencies
[Federal Register Volume 79, Number 29 (Wednesday, February 12, 2014)]
[Notices]
[Pages 8520-8524]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03005]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71498; File No. SR-BATS-2013-066]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of Amendment No. 1, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To
Hold a Volatility Closing Auction
February 6, 2014.
I. Introduction
On December 19, 2013, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Exchange Rule 11.23 to add a new auction
type known as the Volatility Closing Auction. The proposed rule change
was published for comment in the Federal Register on December 27,
2013.\3\ The Commission received one comment on the proposal.\4\ On
January
[[Page 8521]]
14, 2014, BATS filed Amendment No. 1 to the proposed rule change.\5\
This order approves the proposed rule change, as modified by Amendment
No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 71162 (December 20,
2013), 78 FR 79030 (``Notice'').
\4\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Abraham Kohen, AK FE Consultants LLC, dated December 23, 2013
(``Kohen Letter''). The commenter questioned the Exchange's
determination to refer to the new auction type as the Volatility
Closing Auction and suggested that a more specific Web site address
should be used within the Notice to direct readers to the text of
the proposed rule change. The Exchange did not respond to the
comment.
\5\ In Amendment No. 1, BATS amended the proposal to make clear
that where a halt occurs before 3:50 p.m. E.T. and the Quote-Only
Period for the associated Halt Auction would be extended between
3:50 p.m. and 4:00 p.m. E.T. such Halt Auction will, instead of
being extended, immediately become a Volatility Closing Auction. The
Amendment also proposes to amend the definition of ``Quote-Only
Period'' as defined in Exchange Rule 11.23(a)(17) to include
Volatility Closing Auctions.
---------------------------------------------------------------------------
II. Description of the Proposal
In its filing with the Commission, the Exchange proposes to add a
new auction type to its rules, a Volatility Closing Auction, which will
apply any time that an Exchange-listed security is halted during the
last 10 minutes of Regular Trading Hours \6\ or where the Quote-Only
Period \7\ of a Halt Auction would be extended during the last 10
minutes of Regular Trading Hours. In particular, the Exchange proposes
to add the Volatility Closing Auction in preparation for the operation
during the last 15 minutes of Regular Trading Hours of the National
Market System Plan to Address Extraordinary Market Volatility (the
``Limit Up-Limit Down Plan'' or ``Plan'').\8\
---------------------------------------------------------------------------
\6\ Regular Trading Hours are defined in Exchange Rule 1.5(w) as
the time between 9:30 a.m. to 4:00 p.m. E.T.
\7\ Quote-Only Period means a designated period of time prior to
a Halt Auction or an IPO Auction during which Users may submit
orders to the Exchange for participation in the auction. See
Exchange Rule 11.23(a)(17).
\8\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving,
on a Pilot Basis, the National Market System Plan To Address
Extraordinary Market Volatility).
---------------------------------------------------------------------------
The Plan is designed to prevent trades in individual NMS Stocks
from occurring outside of specified Price Bands.\9\ The requirements of
the Plan are coupled with Trading Pauses, or halts, to accommodate more
fundamental price moves (as opposed to erroneous trades or momentary
gaps in liquidity). The Commission approved the Plan, as amended, on a
one-year pilot basis.\10\ The Plan first became operational in April of
2013, with a staged rollout with respect to the portion of the trading
day to which the Plan applies as well as the securities subject to the
Plan. All trading centers in NMS Stocks, including both those operated
by Participants and those operated by members of Participants, are
required to establish, maintain, and enforce written policies and
procedures that are reasonably designed to comply with the requirements
specified in the Plan. The Exchange is a Participant in the Plan.
---------------------------------------------------------------------------
\9\ Unless otherwise specified, capitalized terms used herein
are based on the defined terms of the Plan.
\10\ See supra note 8.
---------------------------------------------------------------------------
As currently implemented, the Limit Up-Limit Down Plan applies to
securities between 9:30 a.m. and 3:45 p.m. E.T. each trading day. In
the near future, the operation of the Plan will be extended to include
the time between 3:45 p.m. and 4:00 p.m. E.T., which is the end of
Regular Trading Hours on the Exchange and is when the Exchange
typically conducts a Closing Auction for each of its listed securities.
The Exchange proposes to adopt rules for a Volatility Closing Auction
in connection with the extension of the Plan to the end of Regular
Trading Hours.
The Exchange proposes to add new paragraph (e) to Rule 11.23 to
govern the operation of Volatility Closing Auctions on the Exchange,
which will be auctions of Exchange-listed securities that are halted in
the last 10 minutes of Regular Trading Hours or where the Quote-Only
Period of a Halt Auction would be extended during the last 10 minutes
of Regular Trading Hours.\11\ As noted by the Exchange, a Volatility
Closing Auction would operate in certain respects like an Exchange Halt
Auction as described in Exchange Rule 11.23(d) and in other respects
like an Exchange Closing Auction as described in Exchange Rule
11.23(c).\12\
---------------------------------------------------------------------------
\11\ See Notice, supra note 3 at 79031.
\12\ See Id.
---------------------------------------------------------------------------
According to the Exchange, similar to a Halt Auction on the
Exchange, a Volatility Closing Auction will have a period of time that
orders are accepted for participation in such auction during which no
trading is occurring on the Exchange (the ``Quote-Only Period'').\13\
The Quote-Only Period with respect to a Volatility Closing Auction
would commence at the time a security is halted between 3:50 p.m. and
4:00 p.m. and will end at 4:00 p.m.\14\ Thus, to the extent the
Exchange halts a security after 3:55 p.m. but before 4:00 p.m., such
security will be halted for less than five minutes prior to the
Volatility Closing Auction.\15\ The Exchange believes this is
appropriate because it will ensure that the final auction of the day in
all Exchange-listed securities consistently occurs at 4:00 p.m.
E.T.\16\
---------------------------------------------------------------------------
\13\ See Id.
\14\ See Proposed Rule 11.23(e).
\15\ See Notice, supra note 3 at 79031. The Exchange clarified
that where a halt occurs before 3:50 p.m. E.T. and the Quote-Only
Period for the associated Halt Auction would be extended between
3:50 p.m. and 4:00 p.m. E.T., such Halt Auction will, instead of
being extended, immediately become a Volatility Closing Auction. See
Amendment No. 1.
\16\ See Id.
---------------------------------------------------------------------------
The Exchange notes it will not extend the Quote-Only Period
associated with a Volatility Closing Auction, which is the same as with
a Closing Auction.\17\ In contrast, the Exchange's rules related to
Exchange Halt Auctions provide that the Quote-Only Period may be
extended where there are unmatched market orders on the auction book
associated with the auction and where the indicative price moves the
greater of 10% or fifty (50) cents in the fifteen (15) seconds prior to
the Halt Auction, both to ensure that there is sufficient interest and
stability after a halt to reopen the security for trading.\18\ Halt
Auctions, however, occur during Regular Trading Hours and the Exchange
retains discretion to not extend the Quote-Only Period of a Halt
Auction such that it would interfere with a Closing Auction. While the
Exchange acknowledges that some of the same issues for which the
ability to extend the Quote-Only Period of a Halt Auction may exist
where there are unmatched market orders or dramatic price movements
near the end of the Quote-Only Period of the Volatility Closing
Auction, the Exchange believes that these concerns are outweighed by
the importance of providing members and the investing public with a
definitive market close and an official closing price at 4:00 p.m. E.T.
The Exchange believes that the clarity that comes from requiring that a
Volatility Closing Auction occurs at 4:00 p.m. E.T. will help reduce
uncertainty for members participating in the Volatility Closing
Auction.\19\
---------------------------------------------------------------------------
\17\ See Id.
\18\ See Exchange Rule 11.23(d)(2)(B).
\19\ See Notice, supra note 3 at 79031-2.
---------------------------------------------------------------------------
The Exchange highlights certain elements of its closing process
that promote a fair and orderly closing, despite its determination to
have Volatility Closing Auctions conclude at 4:00 p.m. E.T. First, the
Exchange notes that, even where a halt is declared very near 4:00 p.m.
E.T., it has proposed that all Volatility Closing Auctions be required
to close at a price level within the Collar Price Range \20\ in order
to ensure that the Volatility Closing Auction price is based on
rational and current market conditions.\21\ Second,
[[Page 8522]]
the Exchange further restricts the price of a Volatility Closing
Auction by using the Final Last Sale Eligible Trade as the Volatility
Closing Auction price where no limit orders from one or both sides
would participate in the Volatility Closing Auction.\22\ According to
the Exchange, this restriction ensures that there is crossed limit
interest in the Volatility Closing Auction if the Volatility Closing
Auction price is going to look to the entered limit interest to
determine the price, which prevents a single limit order from
interacting with market orders to determine the Volatility Closing
Auction Price.\23\ Finally, the Exchange notes that it retains
discretion under Rule 11.23(f) (re-numbered pursuant to this proposal)
to adjust the timing of or suspend an auction with prior notice to
Users where the interests of a fair and orderly market so require.\24\
As noted by the Exchange, in a situation where the Exchange deemed it
necessary to adjust the timing of a Volatility Closing Auction in order
to maintain a fair and orderly market, i.e., to a time later than 4:00
p.m. E.T., the Exchange would notify Exchange Users in advance of the
time that the auction would occur and would provide for a Quote-Only
period prior to such auction.\25\
---------------------------------------------------------------------------
\20\ See Exchange Rule 11.23(a)(6).
\21\ See Notice, supra note 3 at 79032.
\22\ See Proposed Rule 11.23(e)(2)(B).
\23\ See Notice, supra note 3 at 79032.
\24\ See Proposed Rule 11.23(f).
\25\ See Notice, supra note 3 at 79032.
---------------------------------------------------------------------------
During the Quote-Only Period of a Volatility Closing Auction, the
Exchange will accept all orders eligible to participate in both a Halt
Auction and a Closing Auction in order to avoid participant confusion
and to facilitate participation in the Volatility Closing Auction. This
includes limit and market orders as well as any Eligible Auction Orders
applicable to a Closing Auction on the Exchange. Thus, the Exchange
will accept Regular Hours Only orders (``RHOs''), Limit-On-Close orders
(``LOCs''), Late-Limit-On-Close orders (``LLOCs'') and Market-On-Close
orders (``MOCs'') for participation in a Volatility Closing Auction,
and the typical restrictions on such orders will apply. For instance,
as with a Closing Auction, the Exchange will not accept any LOCs or
MOCs after 3:55 p.m. E.T. Similarly, the Exchange will not accept any
LLOCs before 3:55 p.m. E.T. The Exchange notes, however, that, while
these restrictions remain in place, regular limit and market orders can
be entered and cancelled without restriction at any time prior to
execution. In contrast to a typical Closing Auction, however, because
the Exchange is accepting Eligible Auction Orders only to facilitate
participation in and avoid confusion during the Volatility Closing
Auction and because a User could alternatively enter and cancel limit
orders and market orders without restriction during the Quote-Only
Period, Eligible Auction Orders associated with a Volatility Closing
Auction may also be cancelled at any time prior to execution.\26\ The
Exchange believes that allowing participants to cancel orders
specifically designated for a Closing Auction up to the time of the
Volatility Closing Auction is appropriate because halts or extensions
of a Quote-Only Period of a Halt Auction in the last 10 minutes of the
trading day necessitating a Volatility Closing Auction may be
indicative of price dislocation in a security and because such orders
may have been entered well before such event occurred.\27\
---------------------------------------------------------------------------
\26\ In a Closing Auction, LOC and MOC orders cannot be
cancelled in the five minutes leading up to the auction.
\27\ See Notice, supra note 3 at 79033.
---------------------------------------------------------------------------
With respect to market data, the Exchange represents that it will
disseminate the same information that it does for other auctions
conducted on the Exchange.\28\ Thus, coinciding with the beginning of
the Quote-Only Period for a security and updated every five seconds
thereafter, the Reference Price, Indicative Price, Auction Only Price,
and the lesser of Reference Buy Shares and Reference Sell Shares
associated with the Volatility Closing Auction will be disseminated by
the Exchange via electronic means.
---------------------------------------------------------------------------
\28\ Id. at 79031.
---------------------------------------------------------------------------
The Exchange represents that it will conduct a Volatility Closing
Auction in a manner similar to a Halt Auction. Specifically, orders
will be executed at the price that maximizes the number of shares
executed in the auction.\29\ For ETPs, orders will be executed at the
price level within the Collar Price Range that maximizes the number of
shares executed in the auction. In the event of a volume based tie at
multiple price levels, the price level closest to the Final Last Sale
Eligible Trade will be used for Volatility Closing Auctions. Where no
limit orders from one or both sides (the buy side, the sell side, or
both the buy and sell side) would participate in a Volatility Closing
Auction, the Volatility Closing Auction will occur at the price of the
Final Last Sale Eligible Trade. According to the Exchange, the only
differences between the processing of a Halt Auction and a Volatility
Closing Auction are that: (1) The Volatility Closing Auction price will
be used as the official closing price for dissemination to the
consolidated tape (the ``BATS Official Closing Price''), and (2) a
Volatility Closing Auction will not be delayed due to a market order
imbalance or due to a significant change in the Indicative Price, which
can extend the Quote-Only Period of a Halt Auction, as explained
above.\30\
---------------------------------------------------------------------------
\29\ See Proposed Rule 11.23(e)(2)(B).
\30\ See Notice, supra note 3 at 79032.
---------------------------------------------------------------------------
The Exchange also proposes to process a Volatility Closing Auction
in a manner consistent with auctions conducted by the Exchange, in
that, as proposed, market orders, including MOCs, will have higher
priority than other Volatility Closing Auction Eligible Orders.\31\ To
the extent there is executable contra side interest, such market orders
will be executed at the BATS Official Closing Price according to time
priority. After the execution of all market orders, the remaining
orders priced at or more aggressively than the BATS Official Closing
Price will be executed on the basis of price/time priority.\32\
---------------------------------------------------------------------------
\31\ See Proposed Rule 11.23(e)(2)(C).
\32\ See Id.
---------------------------------------------------------------------------
The Exchange will transition to the After Hours Trading Session
\33\ following a Volatility Closing Auction in much the way that it
does for a Closing Auction.\34\ Thus, limit order shares that are not
executed in the Volatility Closing Auction will remain on the
Exchange's order book during the After Hours Trading Session, subject
to a User's instructions and the fact that certain auction specific
limit orders will be cancelled.\35\ RHO, LOC, LLOC, MOC and market
order shares that are not executed in the Volatility Closing Auction
will be cancelled at the conclusion of the Volatility Closing
Auction.\36\ According to the Exchange, the only difference between
this transition and a typical Closing Auction is that market orders are
also cancelled, which differs only because such orders may enter the
Volatility Closing Auction in the first place.\37\ Other than MOCs,
which are specifically designated for a Closing Auction, market orders
cannot participate in Closing Auctions because they do not post to the
Continuous Book,\38\ and thus the Exchange does not
[[Page 8523]]
address their transition to the After Hours Trading Session in its
Closing Auction transition process.
---------------------------------------------------------------------------
\33\ The After Hours Trading Session is defined in Exchange Rule
1.5(c) and currently means the time between 4:00 p.m. to 5:00 p.m.
E.T.
\34\ See Proposed Rule 11.23(e)(3).
\35\ See Id.
\36\ See Id.
\37\ See Notice, supra note 3 at 79032.
\38\ Market orders received by the Exchange are executed or
routed by the Exchange to other market centers but do not post to
the Exchange's Continuous Book. See Rules 11.9(a)(2), 11.13(a)(1)
and 11.13(a)(2). The Continuous Book is defined in Exchange Rule
11.23(a)(7) as all orders on the BATS Book that are not Eligible
Auction Orders.
---------------------------------------------------------------------------
In addition to the changes described above, in order to correct a
typographical error in the original filing that proposed Rule 11.23,
the Exchange proposes to re-number paragraphs (g), (h) and (i) as (f),
(g) and (h), respectively. Finally, the Exchange proposes to add a
reference to the new auction type, a Volatility Closing Auction, to
current paragraph (h) (to be re-numbered as (g).
III. Discussion and Commission Findings
After careful review of the proposal, as modified by Amendment No.
1, and the comment letter received \39\ the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder that are applicable to a national
securities exchange.\40\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\41\
which requires, among other things, that the rules of an exchange be
designed to promote just and equitable principles of trade, remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system, and, in general, protect investors and
the public.
---------------------------------------------------------------------------
\39\ See Kohen Letter. The Commission believes that the Exchange
may refer to this new auction as the Volatility Closing Auction as
it directly relates to the policies and procedures necessary to
implement the Limit Up-Limit Down Plan. The Commission believes that
the commenter's more general comments regarding the domain address
where an Exchange's rules are posted are not germane to this
proposed rule change.
\40\ In approving the proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\41\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
The Exchange notes that all aspects of the proposed Volatility
Closing Auction are based upon existing processes built into both the
Exchanges' Halt Auction and the Exchange's Closing Auction. Consistent
with existing auctions, the Exchange will accept all orders eligible to
participate in both a Halt Auction and a Closing Auction and market
orders, including MOCs, will have higher priority than other Volatility
Closing Auction Eligible Orders. Such market orders, including MOCs,
will be executed at the BATS Official Closing Price according to time
priority to the extent there is executable contra side interest, after
which remaining orders priced at or more aggressively than the BATS
Official Closing Price will be executed on the basis of price/time
priority.\42\ Additionally, the Exchange will continue to disseminate
the same market data information for Volatility Closing Auctions as it
does with existing auctions.
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\42\ See Proposed Rule 11.23(e)(2)(C).
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Without the proposal, the Exchange notes that it could potentially
have a Halt Auction within minutes of the Closing Auction, which could
cause unnecessary confusion. The Exchanges believes that this proposal
is consistent with the Act and that the operation of a Volatility
Closing Auction for securities listed on the Exchange will assist in
the price discovery process and help to ensure a fair and orderly
market for securities listed on the Exchange that are halted at the end
of the trading day. The Exchange believes this proposal will ensure
that market participants have a single closing price at the end of the
trading day.
The Exchange's proposed Volatility Closing Auctions differs from
its Halt Auctions and Closing Auctions in certain ways that it believes
are appropriate and consistent with the Act. As discussed above, the
Exchange's Volatility Closing Auction differs from its Halt Auction in
that the Quote-Only Period for the Volatility Closing Auction will not,
as a general matter, be extended. While the Exchange acknowledges that
some of the same issues for which the ability to extend the Quote-Only
Period of a Halt Auction may exist where there are unmatched market
orders or dramatic price movements near the end of the Quote-Only
Period of the Volatility Closing Auction, the Exchange believes that
these concerns are outweighed by the importance of providing members
and the investing public with a definitive market close and an official
closing price at 4:00 p.m. E.T. The Exchange believes the clarity that
comes from requiring a Volatility Closing Auction to occur at 4:00 p.m.
E.T. will help reduce uncertainty for Members participating in the
Volatility Closing Auction.\43\
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\43\ See Notice, supra note 3 at 79031-2.
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Despite its determination to have Volatility Closing Auctions
conclude at 4:00 p.m. E.T., the Exchange highlights certain elements of
its closing process that it believes promote a fair and orderly market
and closing prices that are based on rational and current market
conditions. As explained above, the Exchange has proposed certain price
and execution constraints for the Volatility Closing Auction to ensure
that the auction occurs at a price that is based on rational and
current market conditions.\44\ Additionally, the Exchange reiterates
that it retains discretion under Rule 11.23(f) to adjust the timing of
or suspend an auction with prior notice to Users where the interests of
a fair and orderly market so require.
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\44\ See supra notes 21-26, 30, and accompanying text.
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The proposed Volatility Closing Auction also differs from Closing
Auctions. Specifically, orders specifically designated for the Closing
Auction are not permitted to be canceled after a certain time for
Closing Auctions. In contrast, the Exchange proposes to allow
participants to cancel orders specifically designated for a Closing
Auction up to the time of the Volatility Closing Auction. The Exchange
states that this is appropriate because the halt of trading of a
security or extension of the Quote-Only Period of a Halt Auction in the
last 10 minutes of the trading day necessitating a Volatility Closing
Auction may be indicative of price dislocation in a security and
because such orders may have been entered well before such halt
occurred.\45\ The Exchange believes it is appropriate and in the best
interests of investors and the public interest to allow orders to be
cancelled in such an event.
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\45\ The Exchange notes that its existing Halt Auction process
allows orders to be cancelled prior to such auction.
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For the various reasons noted above, the Commission finds that the
proposed rule change as modified by Amendment No. 1 is consistent with
the Act, including Section 6(b)(5) of the Act,\46\ which requires,
among other things, that the rules of an exchange be designed to
promote just and equitable principles of trade, remove impediments to,
and perfect the mechanism of, a free and open market and a national
market system, and, in general, protect investors and the public.
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\46\ 15 U.S.C. 78f(b)(1).
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The Commission finds good cause to approve the filing, as modified
by Amendment No. 1 to the proposed rule change, prior to the thirtieth
day after the date of the publication of notice of the filing thereof
in the Federal Register. The proposed revisions should further enhance
the Exchange's policies and procedures with respect to the operation of
the Limit Up-Limit Down Plan. Accelerated approval would allow the
Exchange to update its rule text immediately, thus providing users with
greater clarity and certainty with respect to the use of the new
Volatility Closing Auction functionality offered by the Exchange in
anticipation of the application of the Limit Up-Limit Down
[[Page 8524]]
plan through the end of Regular Trading Hours. Accordingly, the
Commission finds that good cause exists, consistent with Section
6(b)(5) of the Act, to approve the filing, as modified by Amendment No.
1, on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2013-066 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2013-066. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room on official business days
between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing
also will be available for inspection and copying at the principal
offices of the Exchange. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-BATS-2013-066, and should be submitted on or before March 5, 2014.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\47\ that the proposed rule change, SR-BATS-2013-066, as modified
by amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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\47\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03005 Filed 2-11-14; 8:45 am]
BILLING CODE 8011-01-P
