Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.9 of BATS Exchange, Inc., 58004-58007 [2014-22995]
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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73180; File No. SR–
NASDAQ–2012–129]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting an Extension to Limited
Exemption From Rule 612(c) of
Regulation NMS in Connection With
the Exchange’s Retail Price
Improvement Program Until December
31, 2014
September 23, 2014.
On February 15, 2013, the
Commission issued an order pursuant to
its authority under Rule 612(c) of
Regulation NMS (‘‘Sub-Penny Rule’’) 1
that granted the NASDAQ Stock Market
LLC (‘‘NASDAQ’’) a limited exemption
from the Sub-Penny Rule in connection
with the operation of the Exchange’s
Retail Price Improvement Program
(‘‘Program’’).2 The limited exemptions
were granted concurrently with the
Commission’s approval of the
Exchange’s proposals to adopt the
Program for a one-year pilot term.3 The
exemption was granted coterminous
with the effectiveness of the pilot
Program; both the pilot Program and the
exemption are scheduled to expire on
September 30, 2014.
The Exchange now seeks to extend
the exemption until December 31,
2014.4 The Exchange’s request was
made in conjunction with an
immediately effective filing that extends
the operation of the Program until
December 31, 2014.5 In its request to
extend the exemption, the Exchange
notes that given the gradual
implementation of the Program and the
preliminary participation and results,
extending the exemption would provide
additional opportunities for greater
participation and assessment of the
results. Accordingly, the Exchange has
asked for additional time to allow it and
the Commission to analyze data
concerning the Program, which the
Exchange committed to provide to the
Commission.6 For this reason and the
reasons stated in the RPI Approval
Order originally granting the limited
exemption, the Commission finds that
1 17
CFR 242.612(c).
Securities Exchange Act Release No. 68937
(February 15, 2013), 78 FR 12397 (February 22,
2013) (SR–NASDAQ–2012–129) (‘‘RPI Approval
Order’’).
3 See id.
4 See Letter from Jeffrey S. Davis, Vice President
& Deputy General Counsel, NASDAQ to Elizabeth
M. Murphy, Secretary, Commission dated
September 11, 2014.
5 See SR–NASDAQ–2014–094.
6 See RPI Approval Order, supra note 2, 78 FR at
12399.
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2 See
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extending the exemption, pursuant to its
authority under Rule 612(c) of
Regulation NMS, is appropriate in the
public interest and consistent with the
protection of investors.
Therefore, it is hereby ordered that,
pursuant to Rule 612(c) of Regulation
NMS, the Exchange is granted an
extension of the limited exemption from
Rule 612 of Regulation NMS that allows
it to accept and rank orders priced equal
to or greater than $1.00 per share in
increments of $0.001, in connection
with the operation of its Retail Price
Improvement Program, until December
31, 2014.
The limited and temporary exemption
extended by this Order is subject to
modification or revocation if at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. Responsibility for
compliance with any applicable
provisions of the federal securities laws
must rest with the persons relying on
the exemption that are the subject of
this Order.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–22992 Filed 9–25–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73188; File No. SR–BATS–
2014–041]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Rule 11.9 of BATS
Exchange, Inc.
September 23, 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
September 12, 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 and II below, which Items have
been prepared by the Exchange. The
Exchange has designated this proposal
as a ‘‘non-controversial’’ proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)(iii)
7 17
CFR 200.30–3(a)(83).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
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I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange filed a proposal to
provide additional functionality with
respect to Primary Pegged Orders
offered by the Exchange pursuant to
Rule 11.9(c)(8).
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
Earlier this year, the Exchange and its
affiliate BATS Y-Exchange, Inc. (‘‘BYX’’)
received approval to effect a merger (the
‘‘Merger’’) of the Exchange’s parent
company, BATS Global Markets, Inc.,
with Direct Edge Holdings LLC, the
indirect parent of EDGX Exchange, Inc.
(‘‘EDGX’’) and EDGA Exchange, Inc.
(‘‘EDGA’’, and together with BZX, BYX
and EDGX, the ‘‘BGM Affiliated
Exchanges’’).5 In the context of the
Merger, the BGM Affiliated Exchanges
are working to align certain system
functionality, retaining only intended
differences between the BGM Affiliated
Exchanges. Thus, the proposals set forth
below are intended to add certain
system functionality currently offered
by EDGA and EDGX in order to provide
a consistent technology offering for
users of the BGM Affiliated Exchanges.
4 17
CFR 240.19b–4(f)(6)(iii).
Securities Exchange Act Release No. 71375
(January 23, 2014), 79 FR 4771 (January 29, 2014)
(SR–BATS–2013–059; SR–BYX–2013–039).
1 15
PO 00000
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
5 See
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The functionality is also similar to
functionality offered by the Nasdaq
Stock Market LLC and NYSE Arca, Inc.6
The purpose of the proposed rule
change is to provide Users of the
Exchange with additional options with
respect to Primary Pegged Orders (as
defined below) offered by the Exchange
pursuant to Rule 11.9(c)(8). The
Exchange notes that EDGA and EDGX
offer additional functionality for Pegged
Orders that the Exchange is not
proposing to add at this time.7
The Exchange currently allows Users
to submit two types of limit orders to
the Exchange that are pegged to and
priced based on the national best bid or
offer (‘‘NBBO’’) and automatically
adjusted by the Exchange’s System.8
First, a ‘‘Primary Pegged Order,’’ which
is pegged to a price inferior to or equal
to the inside quote on the same side of
the market (i.e., for a bid, pegged to the
NBB or for an offer, pegged to the NBO)
by an amount set by the User. Second,
a ‘‘Market Pegged Order,’’ which is
pegged to a price that offsets the inside
quote on the other side of the market
(i.e., for a bid, pegged to the NBO or for
an offer, pegged to the NBB) by an
amount set by the User.
At the outset, the Exchange notes that
it proposes to modify the definition of
Primary Pegged Order to make it more
understandable and consistent with the
definition of Market Pegged Order by
adding a definition of ‘‘Primary Offset
Amount’’, which would mean the
amount of the offset selected by the User
for a Primary Pegged Order. The
Exchange proposes to retain the
definition of ‘‘Offset Amount’’, which
would mean the amount of the offset
selected by the User for a Market Pegged
Order. The Exchange also proposes two
substantive changes to Primary Pegged
Orders, as described below.
First, pursuant to current Rule
11.9(c)(8), neither type of Pegged Order
is eligible to be displayed on the
Exchange. The Exchange proposes to
maintain this restriction for Market
Pegged Orders but to permit Primary
Pegged Orders to be displayed on the
Exchange provided that they cannot be
more aggressive than the NBB or NBO
6 See Nasdaq Rule 4751(f)(4); NYSE Arca Equities
Rule 7.31(cc).
7 For instance, EDGA and EDGX currently permit
displayed Market Pegged Orders as well as
aggressive offsets for displayed Primary Pegged
Orders (as such terms are defined below). The
Exchange is not proposing to add these features.
The Exchange anticipates EDGA and EDGX will
propose to eliminate these features in the future.
8 As defined in Rule 1.5(aa), the System is the
electronic communications and trading facility
designated by the Board through which securities
orders of Users are consolidated for ranking,
execution and, when applicable, routing away.
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to which they are pegged, as described
below.
Second, the Exchange proposes to
modify the offset that a User can select
for a Primary Pegged Order by
specifying that such amount is an offset,
rather than requiring that the order be
inferior to or equal to the inside quote
on the same side of the market. This
change to Primary Pegged Orders,
therefore, would allow Users to select a
Primary Offset Amount that would
make a Primary Pegged Order more
aggressive than the NBB or NBO to
which it is pegged (i.e., for a bid, willing
to pay a higher price or for an offer,
willing to sell for a lower price).
However, as noted above, the Exchange
proposes to restrict the designation of a
Primary Offset Amount that would price
a Primary Pegged Order higher than the
NBB for a bid or lower than the NBO for
an offer to non-displayed Primary
Pegged Orders. Thus, as proposed, the
Primary Offset Amount for a displayed
Primary Pegged Order must result in the
price of such order being inferior to or
equal to the inside quote on the same
side of the market. The Exchange is not
proposing to accept displayed Primary
Pegged Orders with an aggressive offset
at this time because such orders would
add functionality to the Exchange that
would effectively set the NBBO through
a Pegged Order and the Exchange
believes that this could potentially add
complexity to its System.
As an example of an order with a
Primary Pegged Order that a User has
designated for display, assume the
Exchange receives a display-eligible
Primary Pegged Order to buy 300 shares
of a security with a Primary Pegged
Offset to price the order at $0.01 below
the NBB. Assume further that the NBBO
is $10.09 by $10.10 when the order is
received. The Exchange will post and
display the order on the Exchange as a
bid to buy 300 shares at $10.08. If the
NBBO moves to $10.10 by $10.11, the
Exchange will adjust to $10.09 the price
of the Primary Pegged Order to buy. If
the NBBO then moved to $10.08 by
$10.11, the Exchange will adjust to
$10.07 the price of the Primary Pegged
Order to buy.
A User could alternatively submit a
display-eligible Primary Pegged Order to
buy with no Primary Pegged Offset, in
which case the initial display price of
the order would be $10.09, upon the
first adjustment to the NBBO the display
price would be $10.10, and upon the
final adjustment to the NBBO the
display price would be $10.08.
A User could not submit a displayeligible Primary Pegged Order to buy
with a Primary Pegged Offset to price
the order at $0.01 above the NBB, as this
PO 00000
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58005
would make the order more aggressive
than the NBB, and, as proposed, the
Exchange will not accept Primary
Pegged Orders that are both eligible for
display and contain an aggressive
Primary Pegged Offset amount. A User
could, however, submit a non-displayeligible Primary Pegged Order to buy
with a Primary Pegged Offset to price
the order at $0.01 above the NBB. Thus,
using the example above, the initial
ranked price of the order would be
$10.10 ($0.01 higher than the NBB of
$10.09), upon the first adjustment to the
NBBO the adjusted ranked price of the
order would be $10.11 ($0.01 higher
than the NBB of $10.10), and upon the
final adjustment to the NBBO the
adjusted ranked price of the order
would be $10.09 ($0.01 higher than the
NBB of $10.08).
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 9 and furthers the
objectives of Section 6(b)(5) of the Act 10
because it is 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.
Specifically, the proposed changes are
designed to provide Users with
additional control over their orders that
are pegged to the NBBO. The proposal
to permit the display of Primary Pegged
Orders is consistent with the Act as this
proposal is intended to lead to
additional displayed liquidity available
on the Exchange, thus contributing to
the price discovery process. The
proposal to permit an aggressive offset
on non-displayed Primary Pegged
Orders is similarly consistent with the
Act as this proposal is intended to allow
Users adding liquidity to the Exchange
to more aggressively price their orders,
which, in turn, means an enhanced
likelihood of price improvement for
incoming orders that execute against
such orders. For instance, by permitting
a User to designate a Primary Pegged
Order to buy on the Exchange with an
aggressive Primary Pegged Offset, that
means that the Exchange has nondisplayed liquidity priced better than
the NBB, which amounts to significant
price improvement as compared to the
NBB. For the reasons described above,
the proposals are directly targeted at
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
10 15
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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Notices
removing impediments to and perfect
the mechanism of a free and open
market and national market system.
The proposed rule change also is
designed to support the principles of
Section 11A(a)(1) 11 of the Act in that it
seeks to assure fair competition among
brokers and dealers and among
exchange markets. In particular, the
proposed rule changes to modify the
Primary Pegged Order is intended to
add system functionality currently
offered by EDGA and EDGX in order to
provide a consistent technology offering
for the BGM Affiliated Exchanges. A
consistent technology offering, in turn,
will simplify the technology
implementation, changes and
maintenance by Users of the Exchange
that are also participants on BYX, EDGA
and/or EDGX. The functionality is
similar to functionality offered by
Nasdaq and NYSE Arca as well. The
proposed rule changes would also
provide Users with access to
functionality that may result in the
efficient execution of such orders and
will provide additional flexibility as
well as increased functionality to the
Exchange’s System and its Users. The
Exchange also believes that the changes
to restructure the existing rule will
contribute to the protection of investors
and the public interest by making the
Exchange’s rules easier to understand.
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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
Exchange reiterates that the proposed
rule change is being proposed in the
context of the technology integration of
the BGM Affiliated Exchanges. Thus,
the Exchange believes this proposed
rule change is necessary to permit fair
competition among national securities
exchanges. In addition, the Exchange
believes the proposed rule change will
benefit Exchange participants in that it
is one of several changes necessary to
achieve a consistent technology offering
by the BGM Affiliated Exchanges. The
Exchange also believes that Pegged
Orders generally encourage competition
by allowing Users to submit orders that
automatically peg to the NBBO
consistent with their trading strategy.
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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 12 and Rule
19b–4(f)(6) thereunder.13 Because the
proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b-4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 14 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),15 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
Exchange believes that waiver will
allow the Exchange to align its re-route
functionality across the BGM Affiliated
Exchanges in a timely manner, thereby
simplifying the technology
implementation, changes and
maintenance by Users of the Exchange
that are also participants on BYX, EDGA
and/or EDGX. The Exchange further
believes that waiver will allow the
Exchange to continue to strive towards
a complete technology integration of the
BGM Affiliated Exchanges. The
Commission believes that waiver of the
operative delay is consistent with
investor protection and the public
interest. As a result, the Commission
hereby waives the 30-day operative
12 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
13 17
11 15
U.S.C. 78k–1(a)(1).
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delay and designates the proposal
operative upon filing.16
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–2014–041 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BATS–2014–041. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549 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–
2014–041, and should be submitted on
or before October 17, 2014.
16 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–22995 Filed 9–25–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73187; File No. SR–FICC–
2014–801]
Self-Regulatory Organizations; The
Fixed Income Clearing Corporation;
Notice of Filing Amendment No. 1 to
Advance Notice Relating to the
Government Securities Division’s
Inclusion of GCF Repo® Positions in
GSD’s Intraday Participant Clearing
Fund Requirement Calculation, and
GSD’s Hourly Internal Surveillance
Cycles
September 23, 2014.
On January 10, 2014, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–FICC–2014–801 (‘‘Advance
Notice’’) pursuant to Section
806(e)(1)(A) of the Payment, Clearing,
and Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) 2 of the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’). The Advance Notice was
published in the Federal Register on
February 10, 2014.3 On March 10, 2014,
pursuant to Section 806(e)(1)(D) of the
Clearing Supervision Act 4, additional
information regarding this advance
notice was requested. Pursuant to
Section 806(e)(1)‘‘ 5 of the Clearing
Supervision Act and Rule 19b–
4(n)(1)(i) 6 of the Exchange Act, notice is
hereby given that on August 11, 2014,
FICC filed with the Commission,
Amendment No. 1 to the Advance
Notice as described in Items I, II, and III
below, which Items have been prepared
primarily by FICC.7 The Commission is
publishing this notice to solicit
17 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
3 Securities Exchange Act Release No. 34–71469
(February 4, 2014), 79 FR 7722 (February 10, 2014)
(SR–FICC–2014–801).
4 12 U.S.C. 5465(e)(1)(D).
5 12 U.S.C. 5465(e)(1).
6 17 CFR 240.19b–4(n)(1)(i).
7 FICC also filed the proposal contained in this
amendment to the advance notice as a proposed
rule change under Section 19(b)(1) of the Exchange
Act and Rule 19b–4 thereunder. 15 U.S.C. 78s(b)(1);
17 CFR 240.19b–4. See Securities Exchange Act
Release No. 72908 (August 25, 2014), 79 FR 51630
(August 29, 2014).
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1 12
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comments on the advance notice from
interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Advance Notice
This filing constitutes Amendment
No. 1 (‘‘Amendment No. 1’’) to the
Advance Notice previously filed by
FICC in connection with the
Government Securities Division’s
(‘‘GSD’’) inclusion of the underlying
collateral pertaining to the GCF Repo® 8
positions in GSD’s noon intraday 9
participant Clearing Fund requirement
(‘‘CFR’’) calculation, and GSD’s hourly
internal surveillance cycles.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Advance Notice
In its filing with the Commission,
FICC included statements concerning
the purpose of and basis for the
Advance Notice, as modified by
Amendment No. 1, and discussed any
comments it received on the Advance
Notice. The text of these statements may
be examined at the places specified in
Item IV below. FICC has prepared
summaries, set forth in sections A and
B below, of the most significant aspects
of such statements.
(A) Clearing Agency’s Statements on
Comments on the Advance Notice
Received From Members, Participants,
or Others
Written comments relating to the
change have not yet been solicited or
received. FICC will notify the
Commission of any written comments
received by FICC.
(B) Advance Notice Filed Pursuant to
Section 806(e) of the Payment, Clearing
and Settlement Supervision Act.
1. Description of the Change
(i) Overview
On January 10, 2014, FICC filed an
Advance Notice with the Commission.
The Advance Notice related to FICC’s
proposal to incorporate the underlying
collateral pertaining to the GCF Repo®
positions in its noon intraday
participant CFR calculation, and its
hourly internal surveillance cycles. This
8 The GCF Repo® service enables dealers to trade
general collateral repos, based on rate, term, and
underlying product, throughout the day without
requiring intra-day, trade-for-trade settlement on a
Deliver-versus-Payment (‘‘DVP’’) basis. The service
fosters a highly liquid market for securities
financing. GCF Repo® is a registered trademark of
The Depository Trust & Clearing Corporation.
9 Noon intraday refers to the routine intraday
margining cycle which is based on a 12:00 p.m. (ET)
position snap shot. Pursuant to Rule 4, FICC may
request additional margin outside of the formal
intraday margin calls.
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58007
enhancement is intended to align GSD’s
risk management calculations and
monitoring with the changes that have
been implemented to the tri-party
infrastructure by the Tri-Party Reform
Task Force 10 (the ‘‘Task Force’’),
specifically, with respect to locking up
of GCF Repo® collateral until 3:30 p.m.
(ET) rather than 7:30 a.m. (ET).
Subsequent to the initial Advance
Notice filing, FICC discovered that a
potential exposure may result from a
GCF Repo® participant’s cash
substitutions and early unwinds of
interbank allocations.11 As a result,
FICC is amending the initial Advance
Notice to discuss the manner in which
GSD intends to protect itself and its
members from the potential exposure.
(ii) Historical Background
Prior to the changes implemented by
the Task Force, the underlying collateral
pertaining to the GCF Repo® positions
was locked up each afternoon
(approximately 4:30 p.m. (ET)) and
unwound at the beginning of the next
business day (approximately 7:30 a.m.
(ET)). Thus, the GCF Repo® positions
were included in the end of day
(‘‘EOD’’) CFR calculations but not
included in GSD’s noon intraday CFR
calculations. Because the GCF Repo®
positions were not included in GSD’s
noon intraday CFR calculation, the noon
calculation could result in an undermargined condition relative to the same
EOD 12 CFR. Thus, GSD imposed a
‘‘higher-of’’ standard on GCF Repo®
participants, whereby their noon
intraday CFR was the higher of the
actual noon intraday CFR calculation or
its prior EOD CFR calculation.13
10 The Task Force was formed in September 2009
under the auspices of the Payments Risk
Committee, a private-sector body sponsored by the
Federal Reserve Bank of New York. The Task
Force’s goal is to enhance the repo market’s ability
to navigate stressed market conditions by
implementing changes that help better safeguard
the market. DTCC has worked in close collaboration
with the Task Force on their reform initiatives.
11 The ‘‘early unwind of interbank allocations’’
refers to the automatic return of the collateral from
the reverse repo side (cash lender) to FICC’s
account at the repo side’s (cash borrower’s)
settlement bank and the return of cash to the
reverse repo side, which typically occurs before the
opening of Fedwire.
12 As used herein ‘‘prior EOD’’ refers to the end
of day cycle immediately preceding the current
noon intraday cycle and ‘‘same EOD’’ refers to the
cycle immediately subsequent to the current noon
intraday cycle.
13 For example, in the extreme case where a
participant’s portfolio was comprised entirely of
GCF Repo® positions, at each EOD margining cycle
GSD could calculate a substantial margin
requirement which had to be met by 9:30 a.m. (ET)
the next morning. But at each intraday margining
cycle, GSD would calculate a negligible margin
requirement (because GCF Repo® positions were
E:\FR\FM\26SEN1.SGM
Continued
26SEN1
]]>Agencies
[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Notices]
[Pages 58004-58007]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22995]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73188; File No. SR-BATS-2014-041]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
11.9 of BATS Exchange, Inc.
September 23, 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 September 12, 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 and
II below, which Items have been prepared by the Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange filed a proposal to provide additional functionality
with respect to Primary Pegged Orders offered by the Exchange pursuant
to Rule 11.9(c)(8).
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
Earlier this year, the Exchange and its affiliate BATS Y-Exchange,
Inc. (``BYX'') received approval to effect a merger (the ``Merger'') of
the Exchange's parent company, BATS Global Markets, Inc., with Direct
Edge Holdings LLC, the indirect parent of EDGX Exchange, Inc.
(``EDGX'') and EDGA Exchange, Inc. (``EDGA'', and together with BZX,
BYX and EDGX, the ``BGM Affiliated Exchanges'').\5\ In the context of
the Merger, the BGM Affiliated Exchanges are working to align certain
system functionality, retaining only intended differences between the
BGM Affiliated Exchanges. Thus, the proposals set forth below are
intended to add certain system functionality currently offered by EDGA
and EDGX in order to provide a consistent technology offering for users
of the BGM Affiliated Exchanges.
[[Page 58005]]
The functionality is also similar to functionality offered by the
Nasdaq Stock Market LLC and NYSE Arca, Inc.\6\ The purpose of the
proposed rule change is to provide Users of the Exchange with
additional options with respect to Primary Pegged Orders (as defined
below) offered by the Exchange pursuant to Rule 11.9(c)(8). The
Exchange notes that EDGA and EDGX offer additional functionality for
Pegged Orders that the Exchange is not proposing to add at this
time.\7\
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\5\ See Securities Exchange Act Release No. 71375 (January 23,
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
\6\ See Nasdaq Rule 4751(f)(4); NYSE Arca Equities Rule
7.31(cc).
\7\ For instance, EDGA and EDGX currently permit displayed
Market Pegged Orders as well as aggressive offsets for displayed
Primary Pegged Orders (as such terms are defined below). The
Exchange is not proposing to add these features. The Exchange
anticipates EDGA and EDGX will propose to eliminate these features
in the future.
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The Exchange currently allows Users to submit two types of limit
orders to the Exchange that are pegged to and priced based on the
national best bid or offer (``NBBO'') and automatically adjusted by the
Exchange's System.\8\ First, a ``Primary Pegged Order,'' which is
pegged to a price inferior to or equal to the inside quote on the same
side of the market (i.e., for a bid, pegged to the NBB or for an offer,
pegged to the NBO) by an amount set by the User. Second, a ``Market
Pegged Order,'' which is pegged to a price that offsets the inside
quote on the other side of the market (i.e., for a bid, pegged to the
NBO or for an offer, pegged to the NBB) by an amount set by the User.
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\8\ As defined in Rule 1.5(aa), the System is the electronic
communications and trading facility designated by the Board through
which securities orders of Users are consolidated for ranking,
execution and, when applicable, routing away.
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At the outset, the Exchange notes that it proposes to modify the
definition of Primary Pegged Order to make it more understandable and
consistent with the definition of Market Pegged Order by adding a
definition of ``Primary Offset Amount'', which would mean the amount of
the offset selected by the User for a Primary Pegged Order. The
Exchange proposes to retain the definition of ``Offset Amount'', which
would mean the amount of the offset selected by the User for a Market
Pegged Order. The Exchange also proposes two substantive changes to
Primary Pegged Orders, as described below.
First, pursuant to current Rule 11.9(c)(8), neither type of Pegged
Order is eligible to be displayed on the Exchange. The Exchange
proposes to maintain this restriction for Market Pegged Orders but to
permit Primary Pegged Orders to be displayed on the Exchange provided
that they cannot be more aggressive than the NBB or NBO to which they
are pegged, as described below.
Second, the Exchange proposes to modify the offset that a User can
select for a Primary Pegged Order by specifying that such amount is an
offset, rather than requiring that the order be inferior to or equal to
the inside quote on the same side of the market. This change to Primary
Pegged Orders, therefore, would allow Users to select a Primary Offset
Amount that would make a Primary Pegged Order more aggressive than the
NBB or NBO to which it is pegged (i.e., for a bid, willing to pay a
higher price or for an offer, willing to sell for a lower price).
However, as noted above, the Exchange proposes to restrict the
designation of a Primary Offset Amount that would price a Primary
Pegged Order higher than the NBB for a bid or lower than the NBO for an
offer to non-displayed Primary Pegged Orders. Thus, as proposed, the
Primary Offset Amount for a displayed Primary Pegged Order must result
in the price of such order being inferior to or equal to the inside
quote on the same side of the market. The Exchange is not proposing to
accept displayed Primary Pegged Orders with an aggressive offset at
this time because such orders would add functionality to the Exchange
that would effectively set the NBBO through a Pegged Order and the
Exchange believes that this could potentially add complexity to its
System.
As an example of an order with a Primary Pegged Order that a User
has designated for display, assume the Exchange receives a display-
eligible Primary Pegged Order to buy 300 shares of a security with a
Primary Pegged Offset to price the order at $0.01 below the NBB. Assume
further that the NBBO is $10.09 by $10.10 when the order is received.
The Exchange will post and display the order on the Exchange as a bid
to buy 300 shares at $10.08. If the NBBO moves to $10.10 by $10.11, the
Exchange will adjust to $10.09 the price of the Primary Pegged Order to
buy. If the NBBO then moved to $10.08 by $10.11, the Exchange will
adjust to $10.07 the price of the Primary Pegged Order to buy.
A User could alternatively submit a display-eligible Primary Pegged
Order to buy with no Primary Pegged Offset, in which case the initial
display price of the order would be $10.09, upon the first adjustment
to the NBBO the display price would be $10.10, and upon the final
adjustment to the NBBO the display price would be $10.08.
A User could not submit a display-eligible Primary Pegged Order to
buy with a Primary Pegged Offset to price the order at $0.01 above the
NBB, as this would make the order more aggressive than the NBB, and, as
proposed, the Exchange will not accept Primary Pegged Orders that are
both eligible for display and contain an aggressive Primary Pegged
Offset amount. A User could, however, submit a non-display-eligible
Primary Pegged Order to buy with a Primary Pegged Offset to price the
order at $0.01 above the NBB. Thus, using the example above, the
initial ranked price of the order would be $10.10 ($0.01 higher than
the NBB of $10.09), upon the first adjustment to the NBBO the adjusted
ranked price of the order would be $10.11 ($0.01 higher than the NBB of
$10.10), and upon the final adjustment to the NBBO the adjusted ranked
price of the order would be $10.09 ($0.01 higher than the NBB of
$10.08).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \9\ and furthers the objectives of Section
6(b)(5) of the Act \10\ because it is 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.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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Specifically, the proposed changes are designed to provide Users
with additional control over their orders that are pegged to the NBBO.
The proposal to permit the display of Primary Pegged Orders is
consistent with the Act as this proposal is intended to lead to
additional displayed liquidity available on the Exchange, thus
contributing to the price discovery process. The proposal to permit an
aggressive offset on non-displayed Primary Pegged Orders is similarly
consistent with the Act as this proposal is intended to allow Users
adding liquidity to the Exchange to more aggressively price their
orders, which, in turn, means an enhanced likelihood of price
improvement for incoming orders that execute against such orders. For
instance, by permitting a User to designate a Primary Pegged Order to
buy on the Exchange with an aggressive Primary Pegged Offset, that
means that the Exchange has non-displayed liquidity priced better than
the NBB, which amounts to significant price improvement as compared to
the NBB. For the reasons described above, the proposals are directly
targeted at
[[Page 58006]]
removing impediments to and perfect the mechanism of a free and open
market and national market system.
The proposed rule change also is designed to support the principles
of Section 11A(a)(1) \11\ of the Act in that it seeks to assure fair
competition among brokers and dealers and among exchange markets. In
particular, the proposed rule changes to modify the Primary Pegged
Order is intended to add system functionality currently offered by EDGA
and EDGX in order to provide a consistent technology offering for the
BGM Affiliated Exchanges. A consistent technology offering, in turn,
will simplify the technology implementation, changes and maintenance by
Users of the Exchange that are also participants on BYX, EDGA and/or
EDGX. The functionality is similar to functionality offered by Nasdaq
and NYSE Arca as well. The proposed rule changes would also provide
Users with access to functionality that may result in the efficient
execution of such orders and will provide additional flexibility as
well as increased functionality to the Exchange's System and its Users.
The Exchange also believes that the changes to restructure the existing
rule will contribute to the protection of investors and the public
interest by making the Exchange's rules easier to understand.
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\11\ 15 U.S.C. 78k-1(a)(1).
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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 Exchange
reiterates that the proposed rule change is being proposed in the
context of the technology integration of the BGM Affiliated Exchanges.
Thus, the Exchange believes this proposed rule change is necessary to
permit fair competition among national securities exchanges. In
addition, the Exchange believes the proposed rule change will benefit
Exchange participants in that it is one of several changes necessary to
achieve a consistent technology offering by the BGM Affiliated
Exchanges. The Exchange also believes that Pegged Orders generally
encourage competition by allowing Users to submit orders that
automatically peg to the NBBO consistent with their trading strategy.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest. The Exchange believes
that waiver will allow the Exchange to align its re-route functionality
across the BGM Affiliated Exchanges in a timely manner, thereby
simplifying the technology implementation, changes and maintenance by
Users of the Exchange that are also participants on BYX, EDGA and/or
EDGX. The Exchange further believes that waiver will allow the Exchange
to continue to strive towards a complete technology integration of the
BGM Affiliated Exchanges. The Commission believes that waiver of the
operative delay is consistent with investor protection and the public
interest. As a result, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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-2014-041 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2014-041. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549 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-2014-041, and should be
submitted on or before October 17, 2014.
[[Page 58007]]
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. 2014-22995 Filed 9-25-14; 8:45 am]
BILLING CODE 8011-01-P
