Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS Exchange, Inc., 52790-52794 [2014-21002]
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borrowings or repurchase transactions
may be used in accordance with ICC’s
authority to use Guaranty Fund assets
under ICC’s current rules. Additionally,
ICC states that, in connection with a
Clearing Participant’s default, ICC will
be able to exchange cash in the
Guaranty Fund for the equivalent value
of securities or cash of a different
currency.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 4 directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if the Commission finds
that such proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to such selfregulatory organization. Section
17A(b)(3)(F) of the Act 5 requires, among
other things, that the rules of a clearing
agency are designed to promote the
prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible and, in general,
to protect investors and the public
interest.
The Commission finds that the
proposed rule change is consistent with
the requirements of Section 17A of the
Act 6 and the rules and regulations
thereunder applicable to ICC. The
proposed Liquidity Risk Management
Framework would formalize ICC’s
liquidity management program,
including the description of ICC’s
liquidity resources, the order of use of
such resources, and the methodology for
testing the sufficiency of these
resources. In addition, proposed Rules
402(j) and 802(f)(iv) would permit ICC
to use, and provide details as to how
ICC would use, margin and Guaranty
Fund assets to support ICC’s liquidity
obligations. The Commission believes
the proposed rule change is reasonably
designed to allow ICC to manage its
liquidity needs in the event of one or
more Clearing Participant defaults and,
therefore, promotes the prompt and
accurate clearance and settlement of
securities transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, and assures
the safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
4 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
6 15 U.S.C. 78q–1.
5 15
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responsible, consistent with Section
17A(b)(3)(F) of the Act.7
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the Act 8
and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,9 that the
proposed rule change (SR–ICC–2014–
08) be, and hereby is, approved.10
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
platform (‘‘BATS Options’’) as it does
for BATS Equities, the Exchange
proposes to amend Rule 21.1 to add
similar functionality to BATS Options.
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–72945; File No. SR–BATS–
2014–038]
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.
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change to Rules 11.9
and 21.1 of BATS Exchange, Inc.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
August 28, 2014
1. Purpose
[FR Doc. 2014–21001 Filed 9–3–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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 August
26, 2014, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 11.9 to add certain
functionality to the Exchange’s cash
equities trading platform (‘‘BATS
Equities’’). Consistent with its practice
of offering similar functionality for the
Exchange’s equity options trading
7 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1.
9 15 U.S.C. 78s(b)(2).
10 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
11 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
8 15
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The Exchange currently offers various
forms of sliding which, in all cases,
result in the re-pricing of an order to, or
ranking and/or display of an order at, a
price other than an order’s limit price in
order to comply with applicable
securities laws and/or Exchange rules.
Specifically, the Exchange currently
offers price sliding to ensure
compliance with Regulation NMS and
Regulation SHO for BATS Equities, as
well as price sliding for BATS Options
to ensure compliance rules analogous to
Regulation NMS adopted by the
Exchange and other options exchanges.
Price sliding currently offered by the
Exchange re-prices and displays an
order upon entry and in certain cases
again re-prices and re-displays an order
at a more aggressive price one time if
and when permissible (‘‘single displayprice sliding’’), and optionally
continually re-prices an order
(‘‘multiple display-price sliding’’) based
on changes in the national best bid
(‘‘NBB’’) or national best offer (‘‘NBO’’,
and together with the NBB, the
‘‘NBBO’’). The Exchange proposes to
add another optional process, the Price
Adjust process, as described below.
Price Adjust in all contexts for which it
is being proposed will have to be
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elected by a User 3 in order to be applied
by the Exchange.
In contrast to display-price sliding,
which is based solely on Protected
Quotations 4 at equities markets and
options exchanges other than the
Exchange, Price Adjust would be based
on Protected Quotations at external
markets and at the Exchange. If the
Exchange has a Protected Quotation that
an incoming order to the Exchange locks
or crosses then such order executes
against the resting order, or, if the
incoming order is a BATS Post Only
Order or Partial Post Only at Limit
Order, such order would be executed in
accordance with Rules 11.9(c)(6) and
(c)(7), respectively, or adjusted pursuant
to the Price Adjust process, as described
in further detail below. Because the
Exchange will route orders to external
markets with locking or crossing
quotations, the Exchange notes that the
Price Adjust process would only be
applicable to non-routable orders,
including BATS Only Orders, BATS
Post Only Orders and Partial Post Only
at Limit Orders. In turn, because BATS
Only Orders will execute against
locking or crossing interest on the
Exchange (including both Protected
Quotations as well as any non-displayed
interest), the fact that Price Adjust
would be based on Protected Quotations
at the Exchange is only relevant for
BATS Post Only Orders and Partial Post
Only at Limit Orders.
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BATS Equities—Price Adjust
With respect to price sliding offered
to ensure compliance with Regulation
3 As defined in BATS Rule 1.5(cc), a User is ‘‘any
Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to Rule 11.3.’’
4 As defined in BATS Rule 1.5(t), applicable to
BATS Equities, a ‘‘Protected Quotation’’ is ‘‘a
quotation that is a Protected Bid or Protected
Offer.’’ In turn, the term ‘‘Protected Bid’’ or
‘‘Protected Offer’’ means ‘‘a bid or offer in a stock
that is (i) displayed by an automated trading center;
(ii) disseminated pursuant to an effective national
market system plan; and (iii) an automated
quotation that is the best bid or best offer of a
national securities exchange or association.’’ As
defined in BATS Rule 27.1, applicable to BATS
Options, a ‘‘Protected Quotation’’ is ‘‘a Protected
Bid or Protected Offer.’’ In turn, the term ‘‘Protected
Bid’’ or ‘‘Protected Offer’’ means ‘‘a Bid or Offer in
an options series, respectively, that: (A) Is
disseminated pursuant to the OPRA Plan; and (B)
Is the Best Bid or Best Offer, respectively, displayed
by an Eligible Exchange.’’ An ‘‘Eligible Exchange’’
is defined in Rule 27.1 as means ‘‘a national
securities exchange registered with the SEC in
accordance with Section 6(a) of the Exchange Act
that: (a) Is a Participant Exchange in OCC (as that
term is defined in Section VII of the OCC by-laws);
(b) is a party to the OPRA Plan (as that term is
described in Section I of the OPRA Plan); and (c)
if the national securities exchange chooses not to
become a party to this Plan, is a participant in
another plan approved by the Commission
providing for comparable Trade-Through and
Locked and Crossed Market protection.’’
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NMS (‘‘display-price sliding’’), under
the Exchange’s current rules for BATS
Equities, if, at the time of entry, a nonroutable order would cross a Protected
Quotation displayed by another trading
center the Exchange re-prices and ranks
such order at the locking price, and
displays such order at one minimum
price variation below the NBO for bids
and above the NBB for offers. Similarly,
in the event a non-routable order that,
at the time of entry, would lock a
Protected Quotation displayed by
another trading center, the Exchange
ranks such order at the locking price
and displays the order at one minimum
price variation below the NBO for bids
and above the NBB for offers.
As proposed, under the Price Adjust
process, an order eligible for display by
the Exchange that, at the time of entry,
would create a violation of Rule 610(d)
of Regulation NMS by locking or
crossing a Protected Quotation of an
external market or the Exchange will be
ranked and displayed by the System at
one minimum price variation below the
current NBO (for bids) or to one
minimum price variation above the
current NBB (for offers). Thus, in
contrast to the display-price sliding
process, the Price Adjust process would
both rank and display an order at one
minimum price variation below the
current NBO or above the current NBB
(rather than ranking an order at the
locking price). Further, as noted above,
the Price Adjust process would adjust
the price of a BATS Post Only Order or
Partial Post Only at Limit Order that
would lock or cross an order displayed
by the Exchange unless such order is
permitted to remove liquidity as
described in Rules 11.9(c)(6) and (c)(7),
respectively, whereas the display-price
sliding process would cancel an order
back to the User unless it removed
liquidity on entry.
The Exchange also proposes to state
that in the event the NBBO changes 5
such that an order subject to Price
Adjust would not lock or cross a
Protected Quotation, the order will
receive a new timestamp, and will be
displayed at the price that originally
locked the NBO (for bids) or NBB (for
offers) on entry.
As an example of the Price Adjust
process, assume the Exchange has a
5 The Exchange notes that it recently filed a
proposal clarifying the methodology used by the
Exchange to calculate the NBBO, including the data
feeds used to calculate the NBBO as well as various
types of feedback that update the Exchange’s view
of the NBBO, such as feedback from receipt of
Intermarket Sweep Orders with a time-in-force of
Day and feedback from the Exchange’s routing
broker-dealer, BATS Trading, Inc. See Securities
Exchange Act Release No. 72685 (July 28, 2014), 79
FR 44889 (August 1, 2014) (SR–BATS–2014–029).
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posted and displayed bid to buy 100
shares of a security priced at $10.10 per
share and a posted and displayed offer
to sell 100 shares at $10.13 per share.
Assume the NBBO is $10.10 by $10.12.
If the Exchange receives a non-routable
bid to buy 100 shares at $10.12 per
share the Exchange will rank and
display the order to buy at $10.11
because displaying the bid at $10.12
would lock an external market’s
Protected Offer to sell for $10.12. If the
NBO then moved to $10.13, the
Exchange would un-slide the bid to buy
and rank and display it at its limit price
of $10.12.
As an example of an order executed
while subject to the Price Adjust process
before being un-slid by the Exchange,
assume the Exchange has a posted and
displayed bid to buy 100 shares of a
security priced at $10.10 per share and
a posted and displayed offer to sell 100
shares at $10.13 per share. Assume the
NBBO is $10.10 by $10.12. If the
Exchange receives a non-routable bid to
buy 100 shares at $10.12 per share the
Exchange will rank and display the
order to buy at $10.11 because
displaying the bid at $10.12 would lock
an external market’s Protected Offer to
sell for $10.12. Assume next that the
Exchange receives an offer to sell 100
shares at $10.11. The incoming order to
sell will execute at $10.11 against the
resting bid to buy 100 shares (originally
priced at $10.12) that has been slid
pursuant to the Price Adjust process.
Thus, the order executes at a full penny
per share better than if it were ranked
at the locking price of $10.12 (buying for
$10.11 rather than $10.12 per share).
Similarly, assume the Exchange has a
posted and displayed bid to buy 100
shares of a security priced at $10.10 per
share and a posted and displayed offer
to sell 100 shares at $10.12 per share.
Assume the NBBO is also $10.10 by
$10.12. If the Exchange receives a BATS
Post Only bid to buy 100 shares at
$10.12 per share the Exchange will rank
and display the order to buy at $10.11
because displaying the bid at $10.12
would lock the Exchange’s Protected
Offer to sell for $10.12 and the order
would not remove liquidity pursuant to
Rule 11.9(c)(6). If the NBO, including
the Exchange’s best offer, then moved to
$10.13, the Exchange would un-slide
the bid to buy and rank and display it
at its limit price of $10.12.
The Exchange also proposes to state
that all orders that are re-ranked and redisplayed pursuant to Price Adjust will
retain their priority as compared to
other orders subject to Price Adjust
based upon the time such orders were
initially received by the Exchange.
Further, as proposed, following the
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initial ranking and display of an order
subject to Price Adjust, an order will
only be re-ranked and re-displayed to
the extent it achieves a more aggressive
price.
In order to offer multiple price sliding
to Exchange Users that select Price
Adjust, the Exchange proposes to make
clear that the ranked and displayed
prices of an order subject to Price Adjust
may be adjusted once or multiple times
depending upon the instructions of a
User and changes to the prevailing
NBBO. As is true for display-price
sliding, multiple price sliding pursuant
to Price Adjust would be optional and
would have to be explicitly selected by
a User before it will be applied. Orders
subject to multiple price sliding for
Price Adjust will be permitted to move
all the way back to their most aggressive
price, whereas orders subject to Price
Adjust may not be adjusted to their most
aggressive price, depending upon
market conditions and the limit price of
the order upon entry.
As an example of multiple price
sliding for Price Adjust assume the
Exchange has a posted and displayed
bid to buy 100 shares of a security
priced at $10.10 per share and a posted
and displayed offer to sell 100 shares at
$10.14 per share. Assume the NBBO is
$10.10 by $10.12. If the Exchange
receives a non-routable bid to buy 100
shares at $10.13 per share, the Exchange
would rank and display the order to buy
at $10.11 because displaying the bid at
$10.13 would cross an external market’s
Protected Offer to sell for $10.12. If the
NBO then moved to $10.13, the
Exchange would un-slide the bid to buy
and rank and display it at $10.12. Under
the proposed single Price Adjust
functionality, the Exchange would not
further adjust the ranked or displayed
price following this un-slide. However,
under multiple price sliding for Price
Adjust if the NBO then moved to
$10.14, the Exchange would un-slide
the bid to buy and rank and display it
at its full limit price of $10.13.
The Exchange currently offers
display-price sliding functionality to
avoid locking or crossing other markets’
Protected Quotations, but does not price
slide to avoid executions on the
Exchange’s order book (‘‘BATS Book’’).
Specifically, when the Exchange
receives an incoming order that could
execute against resting displayed
liquidity but an execution does not
occur because such incoming order is
designated as an order that will not
remove liquidity (i.e., a BATS Post Only
Order),6 then the Exchange will cancel
6 The Exchange again notes that BATS Post Only
Orders are permitted to remove liquidity from the
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the incoming order. As noted above, the
Exchange proposes to make clear in the
description of Price Adjust that any
display-eligible BATS Post Only Order
that locks or crosses a Protected
Quotation displayed by the Exchange
upon entry will be executed as set forth
in Rule 11.9(c)(6) or adjusted pursuant
to the Price Adjust process. Similarly,
the Exchange proposes to make clear
that any display-eligible Partial Post
Only at Limit Order that locks or crosses
a Protected Quotation displayed by the
Exchange upon entry will be executed
as set forth in Rule 11.9(c)(7) or adjusted
pursuant to the Price Adjust process.
The Exchange reiterates that in contrast
to the proposed operation of Price
Adjust, the existing display-price
sliding process would instead cancel
BATS Post Only orders and BATS
Partial Post Only at Limit orders that
would lock or cross a Protected
Quotation displayed by the Exchange to
the extent such orders are not executed
on entry.
The Exchange currently applies
display-price sliding to Non-Displayed
Orders that cross Protected Quotations
of external markets. The Exchange
proposes language that makes clear that
this functionality will apply to all
orders for which a User has selected
either display-price sliding or Price
Adjust. The proposed rule states that
Non-Displayed Orders that are subject to
display-price sliding or Price Adjust are
ranked at the locking price on entry.
The proposed description also makes
clear that price sliding for NonDisplayed Orders is functionally
equivalent to the handling of
displayable orders except that such
orders will not have a displayed price
and will not be re-priced again unless
such orders cross a Protected Quotation
of an external market (i.e., such orders
are not un-slid). Other than updating the
language of the rule to reflect that NonDisplayed Orders for which a User has
selected Price Adjust will be handled in
the same way as orders subject to
display-price sliding, the Exchange is
not proposing to change its handling of
Non-Displayed Orders.
As an example of the Exchange’s
handling of Non-Displayed Orders in
the context of Price Adjust, assume the
Exchange has a posted and displayed
BATS Book if the value of price improvement
associated with such execution equals or exceeds
the sum of fees charged for such execution and the
value of any rebate that would be provided if the
order posted to the BATS Book and subsequently
provided liquidity. See Rule 11.9(c)(6). Similarly,
Partial Post Only at Limit Orders are permitted to
remove price improving liquidity as well as a Userselected percentage of the remaining order at the
limit price if, following such removal, the order can
post at its limit price. See Rule 11.9(c)(7).
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bid to buy 100 shares of a security
priced at $10.10 per share and a posted
and displayed offer to sell 100 shares at
$10.13 per share. Assume the NBBO is
$10.10 by $10.11. If the Exchange
receives a Non-Displayed Order bid to
buy 100 shares at $10.12 per share, the
Exchange would re-price the order to a
$10.11 bid to buy to avoid potentially
trading through the $10.11 offer
displayed as the NBO (i.e., to ensure the
Exchange will not allow the bid to trade
at $10.12 per share). In the event the
NBBO moved to $10.09 by $10.10, the
Exchange would re-price the NonDisplayed bid to buy 100 shares to
$10.10 per share. If the NBBO then
moved to $10.10 by $10.11, the NonDisplayed bid would not be re-priced to
$10.11, but would remain on the
Exchange’s order book at $10.10. This
proposed handling is identical to
handling of a Non-Displayed Order for
which a User has selected display-price
sliding.
The Exchange also proposes that in
the event the NBBO changes such that
display eligible orders subject to
display-price sliding and Price Adjust
would not lock or cross a Protected
Quotation and are eligible to be
displayed at a more aggressive price, the
System will first display all orders
subject to display-price sliding at their
ranked price followed by orders subject
to Price Adjust, which will be re-ranked
and re-displayed as set forth above. The
Exchange believes it is reasonable to unslide orders subject to display-price
sliding before it un-slides orders subject
to Price Adjust because Price Adjust is
a less aggressive form of price sliding
than display-price sliding, in that an
order submitted by a User that elects
Price Adjust will be displayed and
ranked at the same price rather than
ranked at the locking price and
displayed at a less aggressive price.
The Exchange also proposes to make
clear that if a User elects to apply Price
Adjust to an order submitted to BATS
Equities, price sliding will apply short
sale price sliding in connection with the
handling of the order by the Exchange.
The Exchange does not propose to
modify its short sale price sliding
functionality.
BATS Options—Price Adjust
In order to maintain consistency
between analogous processes offered by
BATS Equities and BATS Options, the
Exchange proposes to modify the rules
of BATS Options to conform to the
changes described above related to Price
Adjust.
BATS Options currently offers
display-price sliding (including
multiple display-price sliding) offered
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to ensure compliance with locked and
crossed market rules relevant to
participation on BATS Options. The
proposed Price Adjust functionality for
BATS Options is similar to the proposed
functionality for BATS Equities, with
the exception of language related to
non-displayed orders. BATS Options
does not have non-displayed orders, and
thus, has omitted language regarding
Price Adjust functionality applicable to
non-displayed orders.
As drafted, Rules 21.1(i) and 21.1(j)
are identical to the description of
display-price sliding set forth in
proposed Rule 11.9 and described above
with the exception of minor references
necessary due to the difference between
rules applicable to BATS Equities and
BATS Options and the omission of
certain rule text specific to nondisplayed orders, which are applicable
to BATS Equities only. Further, the
examples set forth above are equally
applicable to the operation of Price
Adjust on BATS Options as they are to
the operation of Price Adjust on BATS
Equities.
2. Statutory Basis
The Exchange believes that the
proposed rule changes are consistent
with Section 6(b) of the Securities
Exchange Act of 1934 (the ‘‘Act’’) 7 and
further the objectives of Section 6(b)(5)
of the Act 8 because they are designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and, in general, to protect investors and
the public interest. The proposed rule
change also is designed to support the
principles of Section 11A(a)(1) 9 of the
Act in that it seeks to assure fair
competition among brokers and dealers
and among exchange markets. The
Exchange believes that the proposed
changes to offer Price Adjust are
consistent with Section 6(b)(5) of the
Act,10 as well as Rule 610 of Regulation
NMS 11 and Rule 201 of Regulation
SHO.12 The Exchange is not modifying
the overall functionality of price sliding,
which, to avoid locking or crossing
quotations of other market centers or to
comply with applicable short sale
restrictions, displays orders at
permissible prices while retaining a
7 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
9 15 U.S.C. 78k–1(a)(1).
10 Id.
11 17 CFR 242.610.
12 17 CFR 242.201.
8 15
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price at which the User is willing to buy
or sell, in the event display at such price
or an execution at such price becomes
possible. Instead, the Exchange is
making changes to adopt an optional
form of price sliding, Price Adjust,
which will rank orders at their
displayed price rather than the locking
price, as described above. Thus, while
subject to Price Adjust sliding, an order
is ranked at a less aggressive price,
which may be preferable to certain
Users that wish to provide liquidity but
do not wish to cross the spread (i.e., if
buying, do not wish to trade at the NBO
or if selling, do not wish to trade at the
NBB). The Exchange believes it is
reasonable to un-slide display-price
sliding orders before it un-slides Price
Adjust orders because Price Adjust is a
less aggressive form of price sliding than
display-price sliding, in that an order
submitted by a User would be displayed
and ranked at the same price rather than
ranked at the locking price and
displayed at a less aggressive price.
Thus, because orders subject to displayprice sliding are ranked at and subject
to execution at higher prices when
buying and lower prices when selling,
the Exchange believes that such orders
should be re-displayed before orders
subject to Price Adjust orders in
response to changes to the NBBO.
Rule 610(d) requires exchanges to
establish, maintain, and enforce rules
that require members reasonably to
avoid ‘‘[d]isplaying quotations that lock
or cross any protected quotation in an
NMS stock.’’ 13 Such rules must be
‘‘reasonably designed to assure the
reconciliation of locked or crossed
quotations in an NMS stock,’’ and must
‘‘prohibit . . . members from engaging
in a pattern or practice of displaying
quotations that lock or cross any
quotation in an NMS stock.’’ 14 Thus,
the Price Adjust process proposed by
the Exchange, including the
functionality proposed for BATS
Options, will assist Users by displaying
orders at permissible prices. Similarly,
Rule 201 of Regulation SHO 15 requires
trading centers to establish, maintain,
and enforce written policies and
procedures reasonably designed to
prevent the execution or display of a
short sale order at a price at or below
the current NBB under certain
circumstances. The Exchange’s short
sale price sliding will continue to
operate the same for Users of Price
Adjust as it does for Users that select the
13 17
CFR 242.610(d).
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CFR 242.201.
Frm 00169
Fmt 4703
display-price sliding process offered by
the Exchange.
As noted above, in contrast to displayprice sliding, which is based solely on
Protected Quotations at equities markets
and options exchanges other than the
Exchange, the proposed Price Adjust
process would be based on Protected
Quotations at external markets and at
the Exchange. Thus, if the Exchange has
a Protected Quotation that an incoming
order to the Exchange locks or crosses
then such order executes against the
resting order, or, if the incoming order
is a BATS Post Only Order or Partial
Post Only at Limit Order, such order
would be executed in accordance with
Rules 11.9(c)(6) and (c)(7), respectively,
or adjusted pursuant to the Price Adjust
process. The Exchange believes that it is
reasonable and consistent with the Act
to apply the Price Adjust process to
orders on entry that cannot executed or
displayed at their limit price because
this will contribute to additional
displayed liquidity on the Exchange
than if such orders were cancelled back
to the User. Therefore, the Exchange
believes the proposal to apply the Price
Adjust process to orders that cannot be
displayed because they would lock or
cross displayed contra-side interest on
the Exchange (and not just external
markets) will 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. The
Exchange also reiterates that the
proposed Price Adjust process will
enable the System to avoid displaying a
locking or crossing quotation in order to
ensure compliance with Rule 610(d) of
Regulation NMS.
The Exchange notes that similar
functionality was recently proposed by
the Exchange’s affiliate, EDGX
Exchange, Inc. and that the proposed
rules are based on the Price Adjust
functionality set forth in such
proposal.16
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is being proposed
as an additional option for Users that
wish to utilize Exchange price sliding
functionality and that the functionality
is consistent with that offered by the
Exchange today as well as affiliates and
16 See Securities Exchange Act Release No. 72676
(July 25, 2014), 79 FR 44520 (July 31, 2014) (SR–
EDGX–2014–18).
14 Id.
15 17
52793
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Federal Register / Vol. 79, No. 171 / Thursday, September 4, 2014 / Notices
competitors of the Exchange. Thus, the
Exchange believes this proposed rule
change is necessary to permit fair
competition among national securities
exchanges.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be 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:
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–2014–038 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BATS–2014–038. 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
VerDate Mar<15>2010
18:14 Sep 03, 2014
Jkt 232001
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 at 100 F Street NE.,
Washington, DC 20549–1090 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
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BATS–
2014–038, and should be submitted on
or before September 25, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–21002 Filed 9–3–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72941; File No. SR–ICC–
2014–14]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing of
Proposed Rule Change to Add Rules
Related to the Clearing of Standard
Western European Sovereign CDS
Contracts
August 28, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
25, 2014, ICE Clear Credit LLC (‘‘ICC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared primarily by ICC.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the proposed rule
change is to adopt new rules that will
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00170
Fmt 4703
Sfmt 4703
provide the basis for ICC to clear
additional credit default swap contracts.
Specifically, ICC is proposing to amend
Chapter 26 of its rules to add
Subchapter 26I and to amend the ICC
Risk Management Framework to provide
for the clearance of Standard Western
European Sovereign CDS contracts,
specifically the Republic of Ireland, the
Italian Republic, the Portuguese
Republic, and the Kingdom of Spain
(collectively, the ‘‘SWES Contracts’’).
The proposed change is dependent on
the approval and implementation of the
proposed rule change contained in ICC–
2014–11 and therefore, the text of the
proposed rule change in Exhibit 5
should be read in conjunction with the
text of the proposed rule change in
Exhibit 5 to ICC–2014–11.3
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, ICC
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. ICC has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of these statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
ICC has identified SWES Contracts as
products that have become increasingly
important for market participants to
utilize for risk management. ICC
believes that clearance of SWES
Contracts will facilitate the prompt and
accurate clearance and settlement of
securities transactions and derivative
agreements, contracts, and transactions
for which it is responsible.
SWES Contracts have similar terms to
the Standard North American Corporate
Single Name CDS contracts (‘‘SNAC
Contracts’’) currently cleared by ICC and
governed by Subchapter 26B of the ICC
Rules, the Standard Emerging Sovereign
CDS contracts (‘‘SES Contracts’’)
currently cleared by ICC and governed
by Subchapter 26D of the ICC Rules, and
the Standard European Corporate Single
3 See Securities Exchange Act Release No. 34–
72701 (Jul. 29, 2014), 79 FR 45565 (Aug. 5, 2014)
(SR–ICC–2014–11). The text of the proposed rule
change for rule filing SR–ICC–2014–11 can also be
found on ICC’s Web site at https://www.theice.com/
clear-credit/regulation.
E:\FR\FM\04SEN1.SGM
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]]>Agencies
[Federal Register Volume 79, Number 171 (Thursday, September 4, 2014)]
[Notices]
[Pages 52790-52794]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21002]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72945; File No. SR-BATS-2014-038]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS
Exchange, Inc.
August 28, 2014
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 August 26, 2014, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 11.9 to add certain
functionality to the Exchange's cash equities trading platform (``BATS
Equities''). Consistent with its practice of offering similar
functionality for the Exchange's equity options trading platform
(``BATS Options'') as it does for BATS Equities, the Exchange proposes
to amend Rule 21.1 to add similar functionality to BATS Options.
The text of the proposed rule change is available at the Exchange's
Web site at https://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange currently offers various forms of sliding which, in
all cases, result in the re-pricing of an order to, or ranking and/or
display of an order at, a price other than an order's limit price in
order to comply with applicable securities laws and/or Exchange rules.
Specifically, the Exchange currently offers price sliding to ensure
compliance with Regulation NMS and Regulation SHO for BATS Equities, as
well as price sliding for BATS Options to ensure compliance rules
analogous to Regulation NMS adopted by the Exchange and other options
exchanges. Price sliding currently offered by the Exchange re-prices
and displays an order upon entry and in certain cases again re-prices
and re-displays an order at a more aggressive price one time if and
when permissible (``single display-price sliding''), and optionally
continually re-prices an order (``multiple display-price sliding'')
based on changes in the national best bid (``NBB'') or national best
offer (``NBO'', and together with the NBB, the ``NBBO''). The Exchange
proposes to add another optional process, the Price Adjust process, as
described below. Price Adjust in all contexts for which it is being
proposed will have to be
[[Page 52791]]
elected by a User \3\ in order to be applied by the Exchange.
---------------------------------------------------------------------------
\3\ As defined in BATS Rule 1.5(cc), a User is ``any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.''
---------------------------------------------------------------------------
In contrast to display-price sliding, which is based solely on
Protected Quotations \4\ at equities markets and options exchanges
other than the Exchange, Price Adjust would be based on Protected
Quotations at external markets and at the Exchange. If the Exchange has
a Protected Quotation that an incoming order to the Exchange locks or
crosses then such order executes against the resting order, or, if the
incoming order is a BATS Post Only Order or Partial Post Only at Limit
Order, such order would be executed in accordance with Rules 11.9(c)(6)
and (c)(7), respectively, or adjusted pursuant to the Price Adjust
process, as described in further detail below. Because the Exchange
will route orders to external markets with locking or crossing
quotations, the Exchange notes that the Price Adjust process would only
be applicable to non-routable orders, including BATS Only Orders, BATS
Post Only Orders and Partial Post Only at Limit Orders. In turn,
because BATS Only Orders will execute against locking or crossing
interest on the Exchange (including both Protected Quotations as well
as any non-displayed interest), the fact that Price Adjust would be
based on Protected Quotations at the Exchange is only relevant for BATS
Post Only Orders and Partial Post Only at Limit Orders.
---------------------------------------------------------------------------
\4\ As defined in BATS Rule 1.5(t), applicable to BATS Equities,
a ``Protected Quotation'' is ``a quotation that is a Protected Bid
or Protected Offer.'' In turn, the term ``Protected Bid'' or
``Protected Offer'' means ``a bid or offer in a stock that is (i)
displayed by an automated trading center; (ii) disseminated pursuant
to an effective national market system plan; and (iii) an automated
quotation that is the best bid or best offer of a national
securities exchange or association.'' As defined in BATS Rule 27.1,
applicable to BATS Options, a ``Protected Quotation'' is ``a
Protected Bid or Protected Offer.'' In turn, the term ``Protected
Bid'' or ``Protected Offer'' means ``a Bid or Offer in an options
series, respectively, that: (A) Is disseminated pursuant to the OPRA
Plan; and (B) Is the Best Bid or Best Offer, respectively, displayed
by an Eligible Exchange.'' An ``Eligible Exchange'' is defined in
Rule 27.1 as means ``a national securities exchange registered with
the SEC in accordance with Section 6(a) of the Exchange Act that:
(a) Is a Participant Exchange in OCC (as that term is defined in
Section VII of the OCC by-laws); (b) is a party to the OPRA Plan (as
that term is described in Section I of the OPRA Plan); and (c) if
the national securities exchange chooses not to become a party to
this Plan, is a participant in another plan approved by the
Commission providing for comparable Trade-Through and Locked and
Crossed Market protection.''
---------------------------------------------------------------------------
BATS Equities--Price Adjust
With respect to price sliding offered to ensure compliance with
Regulation NMS (``display-price sliding''), under the Exchange's
current rules for BATS Equities, if, at the time of entry, a non-
routable order would cross a Protected Quotation displayed by another
trading center the Exchange re-prices and ranks such order at the
locking price, and displays such order at one minimum price variation
below the NBO for bids and above the NBB for offers. Similarly, in the
event a non-routable order that, at the time of entry, would lock a
Protected Quotation displayed by another trading center, the Exchange
ranks such order at the locking price and displays the order at one
minimum price variation below the NBO for bids and above the NBB for
offers.
As proposed, under the Price Adjust process, an order eligible for
display by the Exchange that, at the time of entry, would create a
violation of Rule 610(d) of Regulation NMS by locking or crossing a
Protected Quotation of an external market or the Exchange will be
ranked and displayed by the System at one minimum price variation below
the current NBO (for bids) or to one minimum price variation above the
current NBB (for offers). Thus, in contrast to the display-price
sliding process, the Price Adjust process would both rank and display
an order at one minimum price variation below the current NBO or above
the current NBB (rather than ranking an order at the locking price).
Further, as noted above, the Price Adjust process would adjust the
price of a BATS Post Only Order or Partial Post Only at Limit Order
that would lock or cross an order displayed by the Exchange unless such
order is permitted to remove liquidity as described in Rules 11.9(c)(6)
and (c)(7), respectively, whereas the display-price sliding process
would cancel an order back to the User unless it removed liquidity on
entry.
The Exchange also proposes to state that in the event the NBBO
changes \5\ such that an order subject to Price Adjust would not lock
or cross a Protected Quotation, the order will receive a new timestamp,
and will be displayed at the price that originally locked the NBO (for
bids) or NBB (for offers) on entry.
---------------------------------------------------------------------------
\5\ The Exchange notes that it recently filed a proposal
clarifying the methodology used by the Exchange to calculate the
NBBO, including the data feeds used to calculate the NBBO as well as
various types of feedback that update the Exchange's view of the
NBBO, such as feedback from receipt of Intermarket Sweep Orders with
a time-in-force of Day and feedback from the Exchange's routing
broker-dealer, BATS Trading, Inc. See Securities Exchange Act
Release No. 72685 (July 28, 2014), 79 FR 44889 (August 1, 2014) (SR-
BATS-2014-029).
---------------------------------------------------------------------------
As an example of the Price Adjust process, assume the Exchange has
a posted and displayed bid to buy 100 shares of a security priced at
$10.10 per share and a posted and displayed offer to sell 100 shares at
$10.13 per share. Assume the NBBO is $10.10 by $10.12. If the Exchange
receives a non-routable bid to buy 100 shares at $10.12 per share the
Exchange will rank and display the order to buy at $10.11 because
displaying the bid at $10.12 would lock an external market's Protected
Offer to sell for $10.12. If the NBO then moved to $10.13, the Exchange
would un-slide the bid to buy and rank and display it at its limit
price of $10.12.
As an example of an order executed while subject to the Price
Adjust process before being un-slid by the Exchange, assume the
Exchange has a posted and displayed bid to buy 100 shares of a security
priced at $10.10 per share and a posted and displayed offer to sell 100
shares at $10.13 per share. Assume the NBBO is $10.10 by $10.12. If the
Exchange receives a non-routable bid to buy 100 shares at $10.12 per
share the Exchange will rank and display the order to buy at $10.11
because displaying the bid at $10.12 would lock an external market's
Protected Offer to sell for $10.12. Assume next that the Exchange
receives an offer to sell 100 shares at $10.11. The incoming order to
sell will execute at $10.11 against the resting bid to buy 100 shares
(originally priced at $10.12) that has been slid pursuant to the Price
Adjust process. Thus, the order executes at a full penny per share
better than if it were ranked at the locking price of $10.12 (buying
for $10.11 rather than $10.12 per share).
Similarly, assume the Exchange has a posted and displayed bid to
buy 100 shares of a security priced at $10.10 per share and a posted
and displayed offer to sell 100 shares at $10.12 per share. Assume the
NBBO is also $10.10 by $10.12. If the Exchange receives a BATS Post
Only bid to buy 100 shares at $10.12 per share the Exchange will rank
and display the order to buy at $10.11 because displaying the bid at
$10.12 would lock the Exchange's Protected Offer to sell for $10.12 and
the order would not remove liquidity pursuant to Rule 11.9(c)(6). If
the NBO, including the Exchange's best offer, then moved to $10.13, the
Exchange would un-slide the bid to buy and rank and display it at its
limit price of $10.12.
The Exchange also proposes to state that all orders that are re-
ranked and re-displayed pursuant to Price Adjust will retain their
priority as compared to other orders subject to Price Adjust based upon
the time such orders were initially received by the Exchange. Further,
as proposed, following the
[[Page 52792]]
initial ranking and display of an order subject to Price Adjust, an
order will only be re-ranked and re-displayed to the extent it achieves
a more aggressive price.
In order to offer multiple price sliding to Exchange Users that
select Price Adjust, the Exchange proposes to make clear that the
ranked and displayed prices of an order subject to Price Adjust may be
adjusted once or multiple times depending upon the instructions of a
User and changes to the prevailing NBBO. As is true for display-price
sliding, multiple price sliding pursuant to Price Adjust would be
optional and would have to be explicitly selected by a User before it
will be applied. Orders subject to multiple price sliding for Price
Adjust will be permitted to move all the way back to their most
aggressive price, whereas orders subject to Price Adjust may not be
adjusted to their most aggressive price, depending upon market
conditions and the limit price of the order upon entry.
As an example of multiple price sliding for Price Adjust assume the
Exchange has a posted and displayed bid to buy 100 shares of a security
priced at $10.10 per share and a posted and displayed offer to sell 100
shares at $10.14 per share. Assume the NBBO is $10.10 by $10.12. If the
Exchange receives a non-routable bid to buy 100 shares at $10.13 per
share, the Exchange would rank and display the order to buy at $10.11
because displaying the bid at $10.13 would cross an external market's
Protected Offer to sell for $10.12. If the NBO then moved to $10.13,
the Exchange would un-slide the bid to buy and rank and display it at
$10.12. Under the proposed single Price Adjust functionality, the
Exchange would not further adjust the ranked or displayed price
following this un-slide. However, under multiple price sliding for
Price Adjust if the NBO then moved to $10.14, the Exchange would un-
slide the bid to buy and rank and display it at its full limit price of
$10.13.
The Exchange currently offers display-price sliding functionality
to avoid locking or crossing other markets' Protected Quotations, but
does not price slide to avoid executions on the Exchange's order book
(``BATS Book''). Specifically, when the Exchange receives an incoming
order that could execute against resting displayed liquidity but an
execution does not occur because such incoming order is designated as
an order that will not remove liquidity (i.e., a BATS Post Only
Order),\6\ then the Exchange will cancel the incoming order. As noted
above, the Exchange proposes to make clear in the description of Price
Adjust that any display-eligible BATS Post Only Order that locks or
crosses a Protected Quotation displayed by the Exchange upon entry will
be executed as set forth in Rule 11.9(c)(6) or adjusted pursuant to the
Price Adjust process. Similarly, the Exchange proposes to make clear
that any display-eligible Partial Post Only at Limit Order that locks
or crosses a Protected Quotation displayed by the Exchange upon entry
will be executed as set forth in Rule 11.9(c)(7) or adjusted pursuant
to the Price Adjust process. The Exchange reiterates that in contrast
to the proposed operation of Price Adjust, the existing display-price
sliding process would instead cancel BATS Post Only orders and BATS
Partial Post Only at Limit orders that would lock or cross a Protected
Quotation displayed by the Exchange to the extent such orders are not
executed on entry.
---------------------------------------------------------------------------
\6\ The Exchange again notes that BATS Post Only Orders are
permitted to remove liquidity from the BATS Book if the value of
price improvement associated with such execution equals or exceeds
the sum of fees charged for such execution and the value of any
rebate that would be provided if the order posted to the BATS Book
and subsequently provided liquidity. See Rule 11.9(c)(6). Similarly,
Partial Post Only at Limit Orders are permitted to remove price
improving liquidity as well as a User-selected percentage of the
remaining order at the limit price if, following such removal, the
order can post at its limit price. See Rule 11.9(c)(7).
---------------------------------------------------------------------------
The Exchange currently applies display-price sliding to Non-
Displayed Orders that cross Protected Quotations of external markets.
The Exchange proposes language that makes clear that this functionality
will apply to all orders for which a User has selected either display-
price sliding or Price Adjust. The proposed rule states that Non-
Displayed Orders that are subject to display-price sliding or Price
Adjust are ranked at the locking price on entry. The proposed
description also makes clear that price sliding for Non-Displayed
Orders is functionally equivalent to the handling of displayable orders
except that such orders will not have a displayed price and will not be
re-priced again unless such orders cross a Protected Quotation of an
external market (i.e., such orders are not un-slid). Other than
updating the language of the rule to reflect that Non-Displayed Orders
for which a User has selected Price Adjust will be handled in the same
way as orders subject to display-price sliding, the Exchange is not
proposing to change its handling of Non-Displayed Orders.
As an example of the Exchange's handling of Non-Displayed Orders in
the context of Price Adjust, assume the Exchange has a posted and
displayed bid to buy 100 shares of a security priced at $10.10 per
share and a posted and displayed offer to sell 100 shares at $10.13 per
share. Assume the NBBO is $10.10 by $10.11. If the Exchange receives a
Non-Displayed Order bid to buy 100 shares at $10.12 per share, the
Exchange would re-price the order to a $10.11 bid to buy to avoid
potentially trading through the $10.11 offer displayed as the NBO
(i.e., to ensure the Exchange will not allow the bid to trade at $10.12
per share). In the event the NBBO moved to $10.09 by $10.10, the
Exchange would re-price the Non-Displayed bid to buy 100 shares to
$10.10 per share. If the NBBO then moved to $10.10 by $10.11, the Non-
Displayed bid would not be re-priced to $10.11, but would remain on the
Exchange's order book at $10.10. This proposed handling is identical to
handling of a Non-Displayed Order for which a User has selected
display-price sliding.
The Exchange also proposes that in the event the NBBO changes such
that display eligible orders subject to display-price sliding and Price
Adjust would not lock or cross a Protected Quotation and are eligible
to be displayed at a more aggressive price, the System will first
display all orders subject to display-price sliding at their ranked
price followed by orders subject to Price Adjust, which will be re-
ranked and re-displayed as set forth above. The Exchange believes it is
reasonable to un-slide orders subject to display-price sliding before
it un-slides orders subject to Price Adjust because Price Adjust is a
less aggressive form of price sliding than display-price sliding, in
that an order submitted by a User that elects Price Adjust will be
displayed and ranked at the same price rather than ranked at the
locking price and displayed at a less aggressive price.
The Exchange also proposes to make clear that if a User elects to
apply Price Adjust to an order submitted to BATS Equities, price
sliding will apply short sale price sliding in connection with the
handling of the order by the Exchange. The Exchange does not propose to
modify its short sale price sliding functionality.
BATS Options--Price Adjust
In order to maintain consistency between analogous processes
offered by BATS Equities and BATS Options, the Exchange proposes to
modify the rules of BATS Options to conform to the changes described
above related to Price Adjust.
BATS Options currently offers display-price sliding (including
multiple display-price sliding) offered
[[Page 52793]]
to ensure compliance with locked and crossed market rules relevant to
participation on BATS Options. The proposed Price Adjust functionality
for BATS Options is similar to the proposed functionality for BATS
Equities, with the exception of language related to non-displayed
orders. BATS Options does not have non-displayed orders, and thus, has
omitted language regarding Price Adjust functionality applicable to
non-displayed orders.
As drafted, Rules 21.1(i) and 21.1(j) are identical to the
description of display-price sliding set forth in proposed Rule 11.9
and described above with the exception of minor references necessary
due to the difference between rules applicable to BATS Equities and
BATS Options and the omission of certain rule text specific to non-
displayed orders, which are applicable to BATS Equities only. Further,
the examples set forth above are equally applicable to the operation of
Price Adjust on BATS Options as they are to the operation of Price
Adjust on BATS Equities.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'')
\7\ and further the objectives of Section 6(b)(5) of the Act \8\
because they are designed to promote just and equitable principles of
trade, to remove impediments to and perfect the mechanism of a free and
open market and a national market system, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and, in general, to protect investors and the public
interest. The proposed rule change also is designed to support the
principles of Section 11A(a)(1) \9\ of the Act in that it seeks to
assure fair competition among brokers and dealers and among exchange
markets. The Exchange believes that the proposed changes to offer Price
Adjust are consistent with Section 6(b)(5) of the Act,\10\ as well as
Rule 610 of Regulation NMS \11\ and Rule 201 of Regulation SHO.\12\ The
Exchange is not modifying the overall functionality of price sliding,
which, to avoid locking or crossing quotations of other market centers
or to comply with applicable short sale restrictions, displays orders
at permissible prices while retaining a price at which the User is
willing to buy or sell, in the event display at such price or an
execution at such price becomes possible. Instead, the Exchange is
making changes to adopt an optional form of price sliding, Price
Adjust, which will rank orders at their displayed price rather than the
locking price, as described above. Thus, while subject to Price Adjust
sliding, an order is ranked at a less aggressive price, which may be
preferable to certain Users that wish to provide liquidity but do not
wish to cross the spread (i.e., if buying, do not wish to trade at the
NBO or if selling, do not wish to trade at the NBB). The Exchange
believes it is reasonable to un-slide display-price sliding orders
before it un-slides Price Adjust orders because Price Adjust is a less
aggressive form of price sliding than display-price sliding, in that an
order submitted by a User would be displayed and ranked at the same
price rather than ranked at the locking price and displayed at a less
aggressive price. Thus, because orders subject to display-price sliding
are ranked at and subject to execution at higher prices when buying and
lower prices when selling, the Exchange believes that such orders
should be re-displayed before orders subject to Price Adjust orders in
response to changes to the NBBO.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ 15 U.S.C. 78k-1(a)(1).
\10\ Id.
\11\ 17 CFR 242.610.
\12\ 17 CFR 242.201.
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Rule 610(d) requires exchanges to establish, maintain, and enforce
rules that require members reasonably to avoid ``[d]isplaying
quotations that lock or cross any protected quotation in an NMS
stock.'' \13\ Such rules must be ``reasonably designed to assure the
reconciliation of locked or crossed quotations in an NMS stock,'' and
must ``prohibit . . . members from engaging in a pattern or practice of
displaying quotations that lock or cross any quotation in an NMS
stock.'' \14\ Thus, the Price Adjust process proposed by the Exchange,
including the functionality proposed for BATS Options, will assist
Users by displaying orders at permissible prices. Similarly, Rule 201
of Regulation SHO \15\ requires trading centers to establish, maintain,
and enforce written policies and procedures reasonably designed to
prevent the execution or display of a short sale order at a price at or
below the current NBB under certain circumstances. The Exchange's short
sale price sliding will continue to operate the same for Users of Price
Adjust as it does for Users that select the display-price sliding
process offered by the Exchange.
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\13\ 17 CFR 242.610(d).
\14\ Id.
\15\ 17 CFR 242.201.
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As noted above, in contrast to display-price sliding, which is
based solely on Protected Quotations at equities markets and options
exchanges other than the Exchange, the proposed Price Adjust process
would be based on Protected Quotations at external markets and at the
Exchange. Thus, if the Exchange has a Protected Quotation that an
incoming order to the Exchange locks or crosses then such order
executes against the resting order, or, if the incoming order is a BATS
Post Only Order or Partial Post Only at Limit Order, such order would
be executed in accordance with Rules 11.9(c)(6) and (c)(7),
respectively, or adjusted pursuant to the Price Adjust process. The
Exchange believes that it is reasonable and consistent with the Act to
apply the Price Adjust process to orders on entry that cannot executed
or displayed at their limit price because this will contribute to
additional displayed liquidity on the Exchange than if such orders were
cancelled back to the User. Therefore, the Exchange believes the
proposal to apply the Price Adjust process to orders that cannot be
displayed because they would lock or cross displayed contra-side
interest on the Exchange (and not just external markets) will 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. The Exchange also reiterates that the proposed Price Adjust
process will enable the System to avoid displaying a locking or
crossing quotation in order to ensure compliance with Rule 610(d) of
Regulation NMS.
The Exchange notes that similar functionality was recently proposed
by the Exchange's affiliate, EDGX Exchange, Inc. and that the proposed
rules are based on the Price Adjust functionality set forth in such
proposal.\16\
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\16\ See Securities Exchange Act Release No. 72676 (July 25,
2014), 79 FR 44520 (July 31, 2014) (SR-EDGX-2014-18).
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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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
rule change is being proposed as an additional option for Users that
wish to utilize Exchange price sliding functionality and that the
functionality is consistent with that offered by the Exchange today as
well as affiliates and
[[Page 52794]]
competitors of the Exchange. Thus, the Exchange believes this proposed
rule change is necessary to permit fair competition among national
securities exchanges.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2014-038 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2014-038. 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 at 100 F Street NE.,
Washington, DC 20549-1090 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 office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
BATS-2014-038, and should be submitted on or before September 25, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21002 Filed 9-3-14; 8:45 am]
BILLING CODE 8011-01-P
