Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Rule 11.24 To Permit Members To Designate Their Retail Orders To Be Identified as Retail on the Exchange's Proprietary Data Feeds, 59537-59541 [2014-23480]

Download as PDF Federal Register / Vol. 79, No. 191 / Thursday, October 2, 2014 / Notices 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 filings will also be available for inspection and copying at the principal office of ICE Clear Credit and on ICE Clear Credit’s Web site at https:// www.theice.com/clear-credit/regulation. 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–ICC–2014–15 and should be submitted on or before October 23, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–23446 Filed 10–1–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73237; File No. SR–BATS– 2014–043] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Rule 11.24 To Permit Members To Designate Their Retail Orders To Be Identified as Retail on the Exchange’s Proprietary Data Feeds tkelley on DSK3SPTVN1PROD with NOTICES September 26, 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 18, 2014, BATS Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:04 Oct 01, 2014 Jkt 235001 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. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange filed a proposed rule change to adopt a retail attribution program under new Rule 11.24. Under the program, Members 5 will be able to designate that the orders they submit to the Exchange on behalf of retail customers be identified as Retail on the Exchange’s proprietary data feeds.6 The proposed rule change is substantially similar to the existing rules of the BATS Y-Exchange, Inc. (‘‘BYX’’) 7 and EDGX Exchange, Inc. (‘‘EDGX’’).8 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6)(iii). 5 A ‘‘Member’’ is defined ‘‘any registered broker or dealer that has been admitted to membership in the Exchange. A Member will have the status of a ‘‘member’’ of the Exchange as that term is defined in Section 3(a)(3) of the Act. Membership may be granted to a sole proprietor, partnership, corporation, limited liability company or other organization which is a registered broker or dealer pursuant to Section 15 of the Act, and which has been approved by the Exchange.’’ BYX Rule 1.5(n). 6 The Exchanges proprietary data feeds are set forth under Exchange Rule 11.22. 7 See BYX Rule 11.24. Securities Exchange Act Release Nos. 68303 (November 27, 2012), 77 FR 71652 (December 3, 2012) (‘‘RPI Approval Order’’) (SR–BYX–2012–019); 69643 (May 28, 2013), 78 FR 33136 (June 3, 2013) (Approval Order) (SR–BYX– 2013–008); 71249 (January 7, 2014), 79 FR 2229 (January 13, 2014) (SR–BYX–2014–001) (Notice of Filing and Immediate Effectiveness to Extend the Pilot Period for the Retail Price Improvement Program); and 72730 (July 31, 2014), 79 FR 45857 (SR–BYX–2014–013) (Notice of Filing and Immediate Effectiveness to Amend Rule 11.24(a)(2) to Include Riskless Principal Orders to the Types of Orders that May Qualify as Retail Orders under the Retail Price Improvement Program). 8 See Footnote 4 of the Exchange’s Fee Schedule available at https://www.directedge.com/Trading/ EDGXFeeSchedule.aspx; Securities Exchange Act Release Nos. 68310 (November 28, 2012), 77 FR 71860 (December 4, 2012) (SR–EDGX–2012–47) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend EDGX Rule 15.1(a) and (c)); Securities Exchange Act Release No. 69378 (April 15, 2013), 78 FR 23617 (April 19, 2013) (SR– EDGX–2013–13) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Footnote 4 of the Exchange’s Fee Schedule Regarding Retail Orders); 69852 (June 25, 2013), 78 FR 39420 (July 1, 2013) (SR–EDGX–2013–20) (Notice of Filing and Immediate Effectiveness to Amend Footnote 4 of the Exchange’s Fee Schedule Regarding Retail Orders); and 72292 (June 2, 2014), 79 FR 32798 (June 6, 2014) (SR–EDGX–2014–13) (Order Approving Proposed Rule Change to Amend Footnote 4 of the Exchange’s Fee Schedule to PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 59537 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 proposes to adopt a retail attribution program under new Rule 11.24. Under the program, Members will be able to designate that the orders they submit to the Exchange on behalf of retail customers be identified as Retail on the Exchange’s proprietary data feeds. The proposed rule change is substantially similar to the existing rules of BYX and EDGX.9 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 and EDGA Exchange, Inc. (‘‘EDGA,’’ and together with BATS, BYX and EDGX, the ‘‘BGM Affiliated Exchanges’’).10 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 proposal set forth below is intended to add certain system functionality currently offered by BYX and EDGX in order to provide a consistent technology offering for members of the BGM Affiliated Exchanges.11 Permit Members to Designate their Retail Orders to be Identified as Retail on the EDGX Book Feed). 9 See supra notes 7 and 8. 10 See Securities Exchange Act Release No. 71375 (January 23, 2014), 79 FR 4771 (January 29, 2014) (SR–BATS–2013–059; SR–BYX–2013–039). 11 The Exchange anticipates that EDGA will submit a similar proposed rule change in the future E:\FR\FM\02OCN1.SGM Continued 02OCN1 59538 Federal Register / Vol. 79, No. 191 / Thursday, October 2, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Both BYX and EDGX 12 have established programs in an attempt to attract retail order flow to the Exchange. Under BYX’s Retail Price Improvement (‘‘RPI’’) Program, all exchange members are permitted to submit Retail Price Improvement Orders (‘‘RPI Orders’’) 13 which are designed to provide potential price improvement for Retail Orders in the form of non-displayed interest that is better than the national best bid that is a Protected Quotation (‘‘Protected NBB’’) or the national best offer that is a Protected Quotation (‘‘Protected NBO,’’ and together with the Protected NBB, the ‘‘Protected NBBO’’).14 Under the EDGX program, eligible EDGX members may qualify for a rebate under the Retail Order Tier included in Footnote 4 of the EDGX fee schedule. Both the BYX and EDGX rules define a Retail Order 15 and provides [sic] attestation requirements 16 that Members must complete to send Retail Orders to the Exchange.17 Under the EDGX program, eligible members may to add a definition for ‘‘Retail Order’’ and to permit members to designate that their Retail Orders be identified as Retail on their respective proprietary data feeds. 12 See supra notes 7 and 8. 13 A ‘‘Retail Price Improvement Order’’ is defined in BYX Rule 11.24(a)(3) as an order that consists of non-displayed interest on the Exchange that is priced better than the Protected NBB or Protected NBO by at least $0.001 and that is identified as such. See Rule 11.24(a)(3). 14 The term Protected Quotation is defined in BYX Rule 1.5(t) and has the same meaning as is set forth in Regulation NMS Rule 600(b)(58). The terms Protected NBB and Protected NBO are defined in BYX Rule 1.5(s). The Protected NBB is the bestpriced protected bid and the Protected NBO is the best-priced protected offer. Generally, the Protected NBB and Protected NBO and the national best bid (‘‘NBB’’) and national best offer (‘‘NBO,’’ together with the NBB, the ‘‘NBBO’’) will be the same. However, a market center is not required to route to the NBB or NBO if that market center is subject to an exception under Regulation NMS Rule 611(b)(1) or if such NBB or NBO is otherwise not available for an automatic execution. In such case, the Protected NBB or Protected NBO would be the best-priced protected bid or offer to which a market center must route interest pursuant to Regulation NMS Rule 611. 15 Both BYX and EDGX define Retail Order (i) an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person; (ii) is submitted to EDGX by a Member, provided that no change is made to the terms of the order; and (iii) the order does not originate from a trading algorithm or any other computerized methodology. See supra notes 7 and 8. 16 Both BYX and EDGX require Members to submit a signed written attestation, in a form prescribed by the exchange, that they have implemented policies and procedures that are reasonably designed to ensure that substantially all orders designated by the Member as a ‘‘Retail Order’’ comply with the above requirements. See supra notes 7 and 8. 17 The attestation requirements and definition of Retail Order under Exchange Rule 11.24 are substantially similar to Footnote 4 of the EDGX fee schedule. See supra notes 7 and 8. VerDate Sep<11>2014 17:04 Oct 01, 2014 Jkt 235001 designate also that their Retail Orders be identified as Retail on the EDGX book feed.18 The Exchange proposes to adopt a retail attribution program under new Rule 11.24. Under the program, Members who satisfy the requirements under proposed Rule 11.24 will be able to designate that their orders they submit to the Exchange on behalf of retail customers be identified as Retail on the Exchange’s proprietary data feeds. Specifically, proposed Rule 11.24 would: (i) Define a Retail Order and Retail Member Organization (‘‘RMO’’); (ii) set forth an RMO’s qualification and application requirements; (iii) outline procedures for when an RMO fails to abide by the Retail Order requirements; and (iv) outline the procedures under which a Member may appeal the Exchange’s decision to disapprove it or disqualify it as an RMO. The proposed rule change is substantially similar to the existing functionality and requirements on the BYX 19 and EDGX.20 However, unlike the BYX and EDGX programs, the proposed rule change would not include any rebate provision or mechanics for price improvement, as described above. The proposed rule change would only allow an RMO to designate that their Retail Orders be identified as Retail on the Exchange’s proprietary data feeds,21 as is currently provided for by EDGX. Definitions The Exchange proposes to adopt the following definitions under proposed Rule 11.24(a). First, the term ‘‘Retail Member Organization’’ would be defined as a Member (or a division thereof) that has been approved by the Exchange to submit Retail Orders. The proposed definition of Retail Member Organization is identical to that contained in BYX Rule 11.24(a)(1).22 Second, the term ‘‘Retail Order’’ would be defined as an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person and is submitted to the Exchange by an RMO, 18 See Footnote 4 of the EDGX’s fee schedule available at https://www.directedge.com/Trading/ EDGXFeeSchedule.aspx. To align functionality with EDGX, BYX has also recently submitted a proposed rule change to the Commission to add paragraph (i) to Rule 11.24 to permit Members to designate that their Retail Orders submitted under the Exchange’s RPI Program be identified as Retail on BYX’s proprietary data feeds, rather than by their MPID. See SR–BYX–2014–024 (filed September 17, 2014). 19 See supra note 7. 20 See supra note 8. 21 The Exchange will submit a proposed rule change to the Commission should it decide in the future to expand the program to include a rebate or price improvement mechanism for Retail Orders. 22 See supra note 7. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. The proposed definition of Retail Order is identical to that contained in BYX Rule 11.24(a)(1) and in Footnote 4 of the EDGX fee schedule.23 Program Requirements and Procedures The proposed rule change would also include qualification standards and a review process identical to BYX Rule 11.24(b). The qualification and review standards under proposed Rule 11.24(b) are designed to ensure that Members are properly qualified as an RMO and only attribute as Retail those orders that meet the definition of Retail Orders under proposed Rule 11.24(a)(1) described above. Like on BYX, under proposed Rule 11.24(b), any Member could qualify as an RMO if it conducts a retail business or handles Retail Orders on behalf of another broker-dealer. Any Member that wishes to obtain RMO status would be required to submit: (1) An application form; (2) an attestation, in a form prescribed by the Exchange, that substantially all orders submitted by the Member as Retail Orders would meet the qualifications for such orders under proposed Rule 11.24(a)(1); and (3) supporting documentation sufficient to demonstrate the retail nature and characteristics of the applicant’s order flow.24 Like on BYX and EDGX, an RMO would be required to have written policies and procedures reasonably designed to assure that it will only designate orders as Retail Orders if all requirements of a Retail Order are met. Such written policies and procedures must require the Member to (i) exercise due diligence before entering a Retail Order to assure that entry as a Retail Order is in compliance with the requirements of this rule, and (ii) monitor whether orders entered as Retail Orders meet the applicable requirements. If the RMO represents Retail Orders from another broker-dealer customer, the RMO’s supervisory procedures must be reasonably designed to assure that the orders it receives from such broker-dealer customer that it designates as Retail Orders meet the definition of a Retail Order. The RMO 23 See supra notes 7 and 8. example, a prospective RMO could be required to provide sample marketing literature, Web site screenshots, other publicly disclosed materials describing the retail nature of their order flow, and such other documentation and information as the Exchange may require to obtain reasonable assurance that the applicant’s order flow would meet the requirements of the Retail Order definition. 24 For E:\FR\FM\02OCN1.SGM 02OCN1 Federal Register / Vol. 79, No. 191 / Thursday, October 2, 2014 / Notices must (i) obtain an annual written representation, in a form acceptable to the Exchange, from each broker-dealer customer that sends it orders to be designated as Retail Orders that entry of such orders as Retail Orders will be in compliance with the requirements of this rule, and (ii) monitor whether its broker-dealer customer’s Retail Order flow continues to meet the applicable requirements.25 If the Exchange disapproves the application, the Exchange would provide a written notice to the Member. The disapproved applicant could appeal the disapproval by the Exchange as provided in proposed Rule 11.24(d), and/or reapply for RMO status 90 days after the disapproval notice is issued by the Exchange. The disapproval process is identical to BYX Rule 11.24(b)(4). An RMO also could voluntarily withdraw from such status at any time by giving written notice to the Exchange. Failure of RMO To Abide by Retail Order Requirements Proposed Rule 11.24(c) addresses an RMO’s failure to abide by Retail Order requirements, which are identical to existing BYX Rule 11.24(c). If an RMO designates orders submitted to the Exchange as Retail Orders and the Exchange determines, in its sole discretion, that those orders fail to meet any of the requirements of Retail Orders, the Exchange may disqualify a Member from its status as an RMO. When disqualification determinations are made, the Exchange would provide a written disqualification notice to the Member. A disqualified RMO could appeal the disqualification as provided in proposed Rule 11.24(d) and/or reapply for RMO status 90 days after the disqualification notice is issued by the Exchange. tkelley on DSK3SPTVN1PROD with NOTICES Appeal of Disapproval or Disqualification Proposed Rule 11.24(d) provides appeal rights to Members, which are also identical to existing BYX Rule 11.24(d). If a Member disputes the Exchange’s decision to disapprove it as an RMO under Rule 11.24(b) or disqualify it under Rule 11.24(c), such Member (‘‘appellant’’) may request, within five business days after notice of the decision is issued by the Exchange, that the Retail Attribution Panel (the ‘‘Panel’’) review the decision to determine if it was correct. 25 The Exchange or another self-regulatory organization on behalf of the Exchange will review an RMO’s compliance with these requirements through an exam-based review of the RMO’s internal controls. VerDate Sep<11>2014 17:04 Oct 01, 2014 Jkt 235001 The Panel would consist of the Exchange’s Chief Regulatory Officer (‘‘CRO’’), or a designee of the CRO, and two officers of the Exchange designated by the Chief Information Officer (‘‘CIO’’). The Panel would review the facts and render a decision within the time frame prescribed by the Exchange. The Panel could overturn or modify an action taken by the Exchange and all determinations by the Panel would constitute final action by the Exchange on the matter at issue. Attribution Currently, Members may elect that their display-eligible orders entered into the Exchange utilize Attributable Orders 26 to include their market participant identifier (‘‘MPID’’) with their published quotations on the Exchange’s proprietary data feeds. Under the EDGX program, eligible members may designate that their Retail Orders be identified as Retail on the EDGX book feed, rather than by their MPID.27 To align functionality with EDGX, the Exchange now proposes Rule 11.24(i) [sic] to permit Members to designate that their Retail Orders submitted under the Exchange’s RPI Program be identified as Retail on the Exchange’s proprietary data feeds.28 Members will still be permitted to designate their Retail Orders by their MPID if they do not choose this optional functionality. The Exchange proposes to allow Members to designate their orders as Retail on an order-by-order basis or by establishing a port setting such that all orders submitted through a specific order entry port are designated as Retail. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,29 in general, and furthers the objectives of Section 6(b)(5) of the Act,30 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that the proposed rule change is consistent with these principles because it would 26 An Attributable Order is defined as, ‘‘[a]n order that is designated for display (price and size) including the User’s market participant identifier (‘MPID’).’’ See Rule 11.9(c)(14). 27 See supra note 8. 28 A Member’s decision on whether to identify their Retail Order as Retail under the proposed rule change will not impact that Member’s eligibility to qualify as a Retail Member Organization under Rule 11.24. 29 15 U.S.C. 78f. 30 15 U.S.C. 78f(b)(5). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 59539 increase competition among execution venues, encourage additional liquidity, and offer the potential for increased execution opportunities to retail investors. The Exchange notes that a significant percentage of the orders of individual investors are executed overthe-counter.31 The Exchange believes that it is appropriate to create a [sic] such a retail attribution program to bring more retail order flow to a public market. The proposed rule change is substantially similar to the existing functionality and rules of the BYX 32 and EDGX.33 The Exchange also notes that the Commission approved a similar programs [sic] by NYSE and NYSE MKT.34 The proposed retail attribution program would contain identical definitions, standards and qualification procedures as the BYX, NYSE, and NYSE MKT programs. However, unlike these programs, the proposed rule change would not include any rebate provision or mechanics for price improvement, as described above. Like the Commission approved for EDGX,35 the proposed rule change would only allow an RMO to designate that their Retail Orders be identified as Retail on the Exchange’s proprietary data feeds. The Exchange believes that the proposal will benefit market participants and help to promote transparency by providing additional information regarding quotations displayed on the Exchange and 31 See Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 (January 21, 2010) (noting that dark pools and internalizing broker-dealers executed approximately 25.4% of share volume in September 2009). See also Mary L. Schapiro, Strengthening Our Equity Market Structure (Speech at the Economic Club of New York, Sept. 7, 2010) (available on the Commission’s Web site). In her speech, Chairman Schapiro noted that nearly 30 percent of volume in U.S.-listed equities was executed in venues that do not display their liquidity or make it generally available to the public and the percentage was increasing nearly every month. 32 See supra note 7. 33 See supra note 8. 34 See New York Stock Exchange, Inc.’s (‘‘NYSE’’) Rule 107C. See also NYSE MKT LLC (‘‘NYSE MKT’’) Rule 107C; NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule 7.44. Securities Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR–NYSE–2011–55; SR–NYSEAmex-2011–84) (the ‘‘RLP Approval Order’’). In conjunction with the approval of the NYSE Retail Liquidity Program, a nearly identical program was proposed and approved to operate on NYSE MKT LLC (formerly, the American Stock Exchange). For ease of reference, the comparisons made in this section only refer to NYSE Rule 107C, but apply equally to NYSE MKT Rule 107C. The Exchange notes that the NYSE and NYSE MKT programs do not allow members to elect that their retail orders be identified as Retail on the exchange’s proprietary data feeds. 35 See supra note 8. E:\FR\FM\02OCN1.SGM 02OCN1 59540 Federal Register / Vol. 79, No. 191 / Thursday, October 2, 2014 / Notices disseminated via the Exchange’s proprietary data feeds. Specifically, any Member who satisfies the requirement under Rule 11.24(b) that wishes to disclose via the Exchange’s proprietary data feeds that their order is a Retail Order will be permitted to do so, and such functionality is substantially similar to that currently offered by EDGX.36 The proposal also promotes transparency by disseminating additional order information from Members who may otherwise designate their order as non-attributable, and thereby not include their MPID with their published quote on the Exchange’s proprietary data feeds.37 As a result, the proposal will provide Members additional visibility into the types of orders they may interact with when an order is identified as a Retail Order. The Exchange also believes that the proposed rule change is reasonable, equitable and not unfairly discriminatory because it would encourage Members who wish to execute against Retail Orders to send additional orders to the Exchange. Therefore, the Exchange believes the increased liquidity would potentially stimulating further price competition for Retail Orders, deepening the Exchange’s liquidity pool, supporting the quality of price discovery, and promoting market transparency. The Exchange also believes its proposed qualification standards and review process under Rule 11.24 promote just and equitable principles and are not unfairly discriminatory because they are designed to ensure that Members are properly qualified as an RMO and only attribute as Retail those orders that meet the definition of Retail Orders under proposed Rule 11.24(a)(1) described above. The qualification process proposed herein by the Exchange is not designed to permit unfair discrimination, but rather ensure that order that are designated to be attributed are Retail are, in fact, order submitted by a retail customer that satisfy the proposed definition of Retail Order. Lastly, the Exchange notes that these qualification and review provisions are identical to those includes in the rules of the BYX, NYSE, and NYSE MKT that have been tkelley on DSK3SPTVN1PROD with NOTICES 36 Id. 37 The Exchange understands that, to date, EDGX has not experienced members who attribute orders by their MPID electing to instead attribute their Retail Orders as Retail on the EDGX book feed. On the contrary, the Exchange understands that EDGX members who previously did not attribute their order have chosen to do so as Retail under the EDGX program. Therefore, the Exchange does not anticipate its Members who currently utilize Attributable Orders to now elect that their Retail Orders be attributed as Retail. VerDate Sep<11>2014 17:04 Oct 01, 2014 Jkt 235001 previously approved by the Commission.38 The Exchange believes that allowing a Member to designate orders as Retail on either an order-by-order or on a port-byport basis is consistent with the Act for the same reasons as the proposal as a whole is consistent with the Act. The Exchange believes that either method of designation results in the same message being received and processed by the Exchange’s systems, and thus, merely reflects a detail in connection with the implementation of the optional designation. Lastly, the proposed rule change is also generally intended to add certain system functionality currently offered by EDGX in order to provide a consistent technology offering for the Exchange and EDGX. A consistent technology offering, in turn, will simplify the technology implementation, changes and maintenance by Members of the Exchange that are also participants on EDGX. The proposed rule change would also provide Members 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 Members. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes its proposed rule change would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed amendment will not burden intramarket competition because the ability to designate Retail Orders to be identified as Retail on the Exchange’s proprietary data feeds, rather than by their MPID, would be open to all Members that wish to send Retail Orders to the Exchange. The Exchange believes the proposed rule change would increase intermarket competition by identifying orders as Retail via the Exchange’s proprietary data feeds would [sic] enable the Exchange to better compete with other exchanges that offer similar retail order programs.39 The Exchange believes that the amendment, by increasing the amount of disseminated information regarding Retail Orders, will increase the level of competition around retail executions resulting in better prices for retail investors. 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 offering consistent functionality by the BGM Affiliated 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 The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 40 and Rule 19b–4(f)(6) thereunder.41 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) 42 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),43 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 provide market participants with additional transparency by disseminating additional order information regarding the types of orders they may interact with when an order is identified as a Retail Order in 40 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 42 17 CFR 240.19b–4(f)(6). 43 17 CFR 240.19b–4(f)(6)(iii). 41 17 38 See 39 See PO 00000 supra notes 7 and 34. supra note 34. Frm 00068 Fmt 4703 Sfmt 4703 E:\FR\FM\02OCN1.SGM 02OCN1 Federal Register / Vol. 79, No. 191 / Thursday, October 2, 2014 / Notices a timelier manner. The Exchange further believes that waiver will immediately encourage market participants to send additional orders to the Exchange, thereby potentially stimulating further price competition for Retail Orders, deepening the Exchange’s liquidity pool, supporting the quality of price discovery, and promoting market transparency. 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.44 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BATS–2014–043 on the subject line. tkelley on DSK3SPTVN1PROD with NOTICES 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–2014–043. 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 44 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). VerDate Sep<11>2014 17:04 Oct 01, 2014 Jkt 235001 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– 2014–043, and should be submitted on or before October 23, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.45 Kevin M. O’Neill, Deputy Secretary. 59541 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. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposed to amend Rule 11.24 to permit Users to designate that their Retail Orders 5 submitted under the Exchange’s Retail Price Improvement (‘‘RPI Program’’) be identified as Retail on the Exchange’s proprietary data feeds.6 The proposed rule change is substantially similar to the existing functionality on EDGX Exchange, Inc. (‘‘EDGX’’).7 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 [FR Doc. 2014–23480 Filed 10–1–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73236; File No. SR–BYX– 2014–024] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.24 To Permit Members To Designate Their Retail Orders To Be Identified as Retail on the Exchange’s Proprietary Data Feeds 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 17, 2014, BATS Y-Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) 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 45 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00069 Fmt 4703 3 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6)(iii). 5 A Retail Order is defined as (i) an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person; (ii) is submitted to EDGX by a Member, provided that no change is made to the terms of the order; and (iii) the order does not originate from a trading algorithm or any other computerized methodology. See Exchange Rule 11.24(a)(2). 6 The Exchanges proprietary data feeds are set forth under Exchange Rule 11.22. 7 See Footnote 4 of the EDGX fee schedule available at https://www.directedge.com/Trading/ EDGXFeeSchedule.aspx. See also Securities Exchange Act Release No. 72292 (June 2, 2014), 79 FR 32798 (June 6, 2014) (SR–EDGX–2014–13) (Order Approving Proposed Rule Change to Amend Footnote 4 of the Exchange’s Fee Schedule to Permit Members to Designate their Retail Orders to be Identified as Retail on the EDGX Book Feed). 4 17 September 26, 2014. PO 00000 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. Sfmt 4703 E:\FR\FM\02OCN1.SGM 02OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 191 (Thursday, October 2, 2014)]
[Notices]
[Pages 59537-59541]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23480]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73237; File No. SR-BATS-2014-043]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt
Rule 11.24 To Permit Members To Designate Their Retail Orders To Be
Identified as Retail on the Exchange's Proprietary Data Feeds

September 26, 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 18, 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 proposed rule change to adopt a retail
attribution program under new Rule 11.24. Under the program, Members
\5\ will be able to designate that the orders they submit to the
Exchange on behalf of retail customers be identified as Retail on the
Exchange's proprietary data feeds.\6\ The proposed rule change is
substantially similar to the existing rules of the BATS Y-Exchange,
Inc. (``BYX'') \7\ and EDGX Exchange, Inc. (``EDGX'').\8\
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\5\ A ``Member'' is defined ``any registered broker or dealer
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act. Membership may be granted to
a sole proprietor, partnership, corporation, limited liability
company or other organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has been approved by
the Exchange.'' BYX Rule 1.5(n).
\6\ The Exchanges proprietary data feeds are set forth under
Exchange Rule 11.22.
\7\ See BYX Rule 11.24. Securities Exchange Act Release Nos.
68303 (November 27, 2012), 77 FR 71652 (December 3, 2012) (``RPI
Approval Order'') (SR-BYX-2012-019); 69643 (May 28, 2013), 78 FR
33136 (June 3, 2013) (Approval Order) (SR-BYX-2013-008); 71249
(January 7, 2014), 79 FR 2229 (January 13, 2014) (SR-BYX-2014-001)
(Notice of Filing and Immediate Effectiveness to Extend the Pilot
Period for the Retail Price Improvement Program); and 72730 (July
31, 2014), 79 FR 45857 (SR-BYX-2014-013) (Notice of Filing and
Immediate Effectiveness to Amend Rule 11.24(a)(2) to Include
Riskless Principal Orders to the Types of Orders that May Qualify as
Retail Orders under the Retail Price Improvement Program).
\8\ See Footnote 4 of the Exchange's Fee Schedule available at
https://www.directedge.com/Trading/EDGXFeeSchedule.aspx; Securities
Exchange Act Release Nos. 68310 (November 28, 2012), 77 FR 71860
(December 4, 2012) (SR-EDGX-2012-47) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Amend EDGX Rule 15.1(a) and
(c)); Securities Exchange Act Release No. 69378 (April 15, 2013), 78
FR 23617 (April 19, 2013) (SR-EDGX-2013-13) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Amend Footnote 4
of the Exchange's Fee Schedule Regarding Retail Orders); 69852 (June
25, 2013), 78 FR 39420 (July 1, 2013) (SR-EDGX-2013-20) (Notice of
Filing and Immediate Effectiveness to Amend Footnote 4 of the
Exchange's Fee Schedule Regarding Retail Orders); and 72292 (June 2,
2014), 79 FR 32798 (June 6, 2014) (SR-EDGX-2014-13) (Order Approving
Proposed Rule Change to Amend Footnote 4 of the Exchange's Fee
Schedule to Permit Members to Designate their Retail Orders to be
Identified as Retail on the EDGX Book Feed).
---------------------------------------------------------------------------

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 proposes to adopt a retail attribution program under
new Rule 11.24. Under the program, Members will be able to designate
that the orders they submit to the Exchange on behalf of retail
customers be identified as Retail on the Exchange's proprietary data
feeds. The proposed rule change is substantially similar to the
existing rules of BYX and EDGX.\9\
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\9\ See supra notes 7 and 8.
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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 and EDGA Exchange, Inc.
(``EDGA,'' and together with BATS, BYX and EDGX, the ``BGM Affiliated
Exchanges'').\10\ 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 proposal set forth below is intended to add certain system
functionality currently offered by BYX and EDGX in order to provide a
consistent technology offering for members of the BGM Affiliated
Exchanges.\11\
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\10\ See Securities Exchange Act Release No. 71375 (January 23,
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
\11\ The Exchange anticipates that EDGA will submit a similar
proposed rule change in the future to add a definition for ``Retail
Order'' and to permit members to designate that their Retail Orders
be identified as Retail on their respective proprietary data feeds.

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[[Page 59538]]

Both BYX and EDGX \12\ have established programs in an attempt to
attract retail order flow to the Exchange. Under BYX's Retail Price
Improvement (``RPI'') Program, all exchange members are permitted to
submit Retail Price Improvement Orders (``RPI Orders'') \13\ which are
designed to provide potential price improvement for Retail Orders in
the form of non-displayed interest that is better than the national
best bid that is a Protected Quotation (``Protected NBB'') or the
national best offer that is a Protected Quotation (``Protected NBO,''
and together with the Protected NBB, the ``Protected NBBO'').\14\ Under
the EDGX program, eligible EDGX members may qualify for a rebate under
the Retail Order Tier included in Footnote 4 of the EDGX fee schedule.
Both the BYX and EDGX rules define a Retail Order \15\ and provides
[sic] attestation requirements \16\ that Members must complete to send
Retail Orders to the Exchange.\17\ Under the EDGX program, eligible
members may designate also that their Retail Orders be identified as
Retail on the EDGX book feed.\18\
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\12\ See supra notes 7 and 8.
\13\ A ``Retail Price Improvement Order'' is defined in BYX Rule
11.24(a)(3) as an order that consists of non-displayed interest on
the Exchange that is priced better than the Protected NBB or
Protected NBO by at least $0.001 and that is identified as such. See
Rule 11.24(a)(3).
\14\ The term Protected Quotation is defined in BYX Rule 1.5(t)
and has the same meaning as is set forth in Regulation NMS Rule
600(b)(58). The terms Protected NBB and Protected NBO are defined in
BYX Rule 1.5(s). The Protected NBB is the best-priced protected bid
and the Protected NBO is the best-priced protected offer. Generally,
the Protected NBB and Protected NBO and the national best bid
(``NBB'') and national best offer (``NBO,'' together with the NBB,
the ``NBBO'') will be the same. However, a market center is not
required to route to the NBB or NBO if that market center is subject
to an exception under Regulation NMS Rule 611(b)(1) or if such NBB
or NBO is otherwise not available for an automatic execution. In
such case, the Protected NBB or Protected NBO would be the best-
priced protected bid or offer to which a market center must route
interest pursuant to Regulation NMS Rule 611.
\15\ Both BYX and EDGX define Retail Order (i) an agency or
riskless principal order that meets the criteria of FINRA Rule
5320.03 that originates from a natural person; (ii) is submitted to
EDGX by a Member, provided that no change is made to the terms of
the order; and (iii) the order does not originate from a trading
algorithm or any other computerized methodology. See supra notes 7
and 8.
\16\ Both BYX and EDGX require Members to submit a signed
written attestation, in a form prescribed by the exchange, that they
have implemented policies and procedures that are reasonably
designed to ensure that substantially all orders designated by the
Member as a ``Retail Order'' comply with the above requirements. See
supra notes 7 and 8.
\17\ The attestation requirements and definition of Retail Order
under Exchange Rule 11.24 are substantially similar to Footnote 4 of
the EDGX fee schedule. See supra notes 7 and 8.
\18\ See Footnote 4 of the EDGX's fee schedule available at
https://www.directedge.com/Trading/EDGXFeeSchedule.aspx. To align
functionality with EDGX, BYX has also recently submitted a proposed
rule change to the Commission to add paragraph (i) to Rule 11.24 to
permit Members to designate that their Retail Orders submitted under
the Exchange's RPI Program be identified as Retail on BYX's
proprietary data feeds, rather than by their MPID. See SR-BYX-2014-
024 (filed September 17, 2014).
---------------------------------------------------------------------------

The Exchange proposes to adopt a retail attribution program under
new Rule 11.24. Under the program, Members who satisfy the requirements
under proposed Rule 11.24 will be able to designate that their orders
they submit to the Exchange on behalf of retail customers be identified
as Retail on the Exchange's proprietary data feeds. Specifically,
proposed Rule 11.24 would: (i) Define a Retail Order and Retail Member
Organization (``RMO''); (ii) set forth an RMO's qualification and
application requirements; (iii) outline procedures for when an RMO
fails to abide by the Retail Order requirements; and (iv) outline the
procedures under which a Member may appeal the Exchange's decision to
disapprove it or disqualify it as an RMO. The proposed rule change is
substantially similar to the existing functionality and requirements on
the BYX \19\ and EDGX.\20\ However, unlike the BYX and EDGX programs,
the proposed rule change would not include any rebate provision or
mechanics for price improvement, as described above. The proposed rule
change would only allow an RMO to designate that their Retail Orders be
identified as Retail on the Exchange's proprietary data feeds,\21\ as
is currently provided for by EDGX.
---------------------------------------------------------------------------

\19\ See supra note 7.
\20\ See supra note 8.
\21\ The Exchange will submit a proposed rule change to the
Commission should it decide in the future to expand the program to
include a rebate or price improvement mechanism for Retail Orders.
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Definitions
The Exchange proposes to adopt the following definitions under
proposed Rule 11.24(a). First, the term ``Retail Member Organization''
would be defined as a Member (or a division thereof) that has been
approved by the Exchange to submit Retail Orders. The proposed
definition of Retail Member Organization is identical to that contained
in BYX Rule 11.24(a)(1).\22\
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\22\ See supra note 7.
---------------------------------------------------------------------------

Second, the term ``Retail Order'' would be defined as an agency or
riskless principal order that meets the criteria of FINRA Rule 5320.03
that originates from a natural person and is submitted to the Exchange
by an RMO, provided that no change is made to the terms of the order
with respect to price or side of market and the order does not
originate from a trading algorithm or any other computerized
methodology. The proposed definition of Retail Order is identical to
that contained in BYX Rule 11.24(a)(1) and in Footnote 4 of the EDGX
fee schedule.\23\
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\23\ See supra notes 7 and 8.
---------------------------------------------------------------------------

Program Requirements and Procedures
The proposed rule change would also include qualification standards
and a review process identical to BYX Rule 11.24(b). The qualification
and review standards under proposed Rule 11.24(b) are designed to
ensure that Members are properly qualified as an RMO and only attribute
as Retail those orders that meet the definition of Retail Orders under
proposed Rule 11.24(a)(1) described above. Like on BYX, under proposed
Rule 11.24(b), any Member could qualify as an RMO if it conducts a
retail business or handles Retail Orders on behalf of another broker-
dealer. Any Member that wishes to obtain RMO status would be required
to submit: (1) An application form; (2) an attestation, in a form
prescribed by the Exchange, that substantially all orders submitted by
the Member as Retail Orders would meet the qualifications for such
orders under proposed Rule 11.24(a)(1); and (3) supporting
documentation sufficient to demonstrate the retail nature and
characteristics of the applicant's order flow.\24\
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\24\ For example, a prospective RMO could be required to provide
sample marketing literature, Web site screenshots, other publicly
disclosed materials describing the retail nature of their order
flow, and such other documentation and information as the Exchange
may require to obtain reasonable assurance that the applicant's
order flow would meet the requirements of the Retail Order
definition.
---------------------------------------------------------------------------

Like on BYX and EDGX, an RMO would be required to have written
policies and procedures reasonably designed to assure that it will only
designate orders as Retail Orders if all requirements of a Retail Order
are met. Such written policies and procedures must require the Member
to (i) exercise due diligence before entering a Retail Order to assure
that entry as a Retail Order is in compliance with the requirements of
this rule, and (ii) monitor whether orders entered as Retail Orders
meet the applicable requirements. If the RMO represents Retail Orders
from another broker-dealer customer, the RMO's supervisory procedures
must be reasonably designed to assure that the orders it receives from
such broker-dealer customer that it designates as Retail Orders meet
the definition of a Retail Order. The RMO

[[Page 59539]]

must (i) obtain an annual written representation, in a form acceptable
to the Exchange, from each broker-dealer customer that sends it orders
to be designated as Retail Orders that entry of such orders as Retail
Orders will be in compliance with the requirements of this rule, and
(ii) monitor whether its broker-dealer customer's Retail Order flow
continues to meet the applicable requirements.\25\
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\25\ The Exchange or another self-regulatory organization on
behalf of the Exchange will review an RMO's compliance with these
requirements through an exam-based review of the RMO's internal
controls.
---------------------------------------------------------------------------

If the Exchange disapproves the application, the Exchange would
provide a written notice to the Member. The disapproved applicant could
appeal the disapproval by the Exchange as provided in proposed Rule
11.24(d), and/or reapply for RMO status 90 days after the disapproval
notice is issued by the Exchange. The disapproval process is identical
to BYX Rule 11.24(b)(4). An RMO also could voluntarily withdraw from
such status at any time by giving written notice to the Exchange.
Failure of RMO To Abide by Retail Order Requirements
Proposed Rule 11.24(c) addresses an RMO's failure to abide by
Retail Order requirements, which are identical to existing BYX Rule
11.24(c). If an RMO designates orders submitted to the Exchange as
Retail Orders and the Exchange determines, in its sole discretion, that
those orders fail to meet any of the requirements of Retail Orders, the
Exchange may disqualify a Member from its status as an RMO. When
disqualification determinations are made, the Exchange would provide a
written disqualification notice to the Member. A disqualified RMO could
appeal the disqualification as provided in proposed Rule 11.24(d) and/
or reapply for RMO status 90 days after the disqualification notice is
issued by the Exchange.
Appeal of Disapproval or Disqualification
Proposed Rule 11.24(d) provides appeal rights to Members, which are
also identical to existing BYX Rule 11.24(d). If a Member disputes the
Exchange's decision to disapprove it as an RMO under Rule 11.24(b) or
disqualify it under Rule 11.24(c), such Member (``appellant'') may
request, within five business days after notice of the decision is
issued by the Exchange, that the Retail Attribution Panel (the
``Panel'') review the decision to determine if it was correct.
The Panel would consist of the Exchange's Chief Regulatory Officer
(``CRO''), or a designee of the CRO, and two officers of the Exchange
designated by the Chief Information Officer (``CIO''). The Panel would
review the facts and render a decision within the time frame prescribed
by the Exchange. The Panel could overturn or modify an action taken by
the Exchange and all determinations by the Panel would constitute final
action by the Exchange on the matter at issue.
Attribution
Currently, Members may elect that their display-eligible orders
entered into the Exchange utilize Attributable Orders \26\ to include
their market participant identifier (``MPID'') with their published
quotations on the Exchange's proprietary data feeds. Under the EDGX
program, eligible members may designate that their Retail Orders be
identified as Retail on the EDGX book feed, rather than by their
MPID.\27\ To align functionality with EDGX, the Exchange now proposes
Rule 11.24(i) [sic] to permit Members to designate that their Retail
Orders submitted under the Exchange's RPI Program be identified as
Retail on the Exchange's proprietary data feeds.\28\ Members will still
be permitted to designate their Retail Orders by their MPID if they do
not choose this optional functionality. The Exchange proposes to allow
Members to designate their orders as Retail on an order-by-order basis
or by establishing a port setting such that all orders submitted
through a specific order entry port are designated as Retail.
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\26\ An Attributable Order is defined as, ``[a]n order that is
designated for display (price and size) including the User's market
participant identifier (`MPID').'' See Rule 11.9(c)(14).
\27\ See supra note 8.
\28\ A Member's decision on whether to identify their Retail
Order as Retail under the proposed rule change will not impact that
Member's eligibility to qualify as a Retail Member Organization
under Rule 11.24.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\29\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\30\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, and to remove
impediments to and perfect the mechanism of a free and open market and
a national market system. The Exchange believes that the proposed rule
change is consistent with these principles because it would increase
competition among execution venues, encourage additional liquidity, and
offer the potential for increased execution opportunities to retail
investors. The Exchange notes that a significant percentage of the
orders of individual investors are executed over-the-counter.\31\ The
Exchange believes that it is appropriate to create a [sic] such a
retail attribution program to bring more retail order flow to a public
market.
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\29\ 15 U.S.C. 78f.
\30\ 15 U.S.C. 78f(b)(5).
\31\ See Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594
(January 21, 2010) (noting that dark pools and internalizing broker-
dealers executed approximately 25.4% of share volume in September
2009). See also Mary L. Schapiro, Strengthening Our Equity Market
Structure (Speech at the Economic Club of New York, Sept. 7, 2010)
(available on the Commission's Web site). In her speech, Chairman
Schapiro noted that nearly 30 percent of volume in U.S.-listed
equities was executed in venues that do not display their liquidity
or make it generally available to the public and the percentage was
increasing nearly every month.
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The proposed rule change is substantially similar to the existing
functionality and rules of the BYX \32\ and EDGX.\33\ The Exchange also
notes that the Commission approved a similar programs [sic] by NYSE and
NYSE MKT.\34\ The proposed retail attribution program would contain
identical definitions, standards and qualification procedures as the
BYX, NYSE, and NYSE MKT programs. However, unlike these programs, the
proposed rule change would not include any rebate provision or
mechanics for price improvement, as described above. Like the
Commission approved for EDGX,\35\ the proposed rule change would only
allow an RMO to designate that their Retail Orders be identified as
Retail on the Exchange's proprietary data feeds.
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\32\ See supra note 7.
\33\ See supra note 8.
\34\ See New York Stock Exchange, Inc.'s (``NYSE'') Rule 107C.
See also NYSE MKT LLC (``NYSE MKT'') Rule 107C; NYSE Arca, Inc.
(``NYSE Arca'') Rule 7.44. Securities Exchange Act Release No. 67347
(July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55; SR-
NYSEAmex-2011-84) (the ``RLP Approval Order''). In conjunction with
the approval of the NYSE Retail Liquidity Program, a nearly
identical program was proposed and approved to operate on NYSE MKT
LLC (formerly, the American Stock Exchange). For ease of reference,
the comparisons made in this section only refer to NYSE Rule 107C,
but apply equally to NYSE MKT Rule 107C. The Exchange notes that the
NYSE and NYSE MKT programs do not allow members to elect that their
retail orders be identified as Retail on the exchange's proprietary
data feeds.
\35\ See supra note 8.
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The Exchange believes that the proposal will benefit market
participants and help to promote transparency by providing additional
information regarding quotations displayed on the Exchange and

[[Page 59540]]

disseminated via the Exchange's proprietary data feeds. Specifically,
any Member who satisfies the requirement under Rule 11.24(b) that
wishes to disclose via the Exchange's proprietary data feeds that their
order is a Retail Order will be permitted to do so, and such
functionality is substantially similar to that currently offered by
EDGX.\36\ The proposal also promotes transparency by disseminating
additional order information from Members who may otherwise designate
their order as non-attributable, and thereby not include their MPID
with their published quote on the Exchange's proprietary data
feeds.\37\ As a result, the proposal will provide Members additional
visibility into the types of orders they may interact with when an
order is identified as a Retail Order. The Exchange also believes that
the proposed rule change is reasonable, equitable and not unfairly
discriminatory because it would encourage Members who wish to execute
against Retail Orders to send additional orders to the Exchange.
Therefore, the Exchange believes the increased liquidity would
potentially stimulating further price competition for Retail Orders,
deepening the Exchange's liquidity pool, supporting the quality of
price discovery, and promoting market transparency.
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\36\ Id.
\37\ The Exchange understands that, to date, EDGX has not
experienced members who attribute orders by their MPID electing to
instead attribute their Retail Orders as Retail on the EDGX book
feed. On the contrary, the Exchange understands that EDGX members
who previously did not attribute their order have chosen to do so as
Retail under the EDGX program. Therefore, the Exchange does not
anticipate its Members who currently utilize Attributable Orders to
now elect that their Retail Orders be attributed as Retail.
---------------------------------------------------------------------------

The Exchange also believes its proposed qualification standards and
review process under Rule 11.24 promote just and equitable principles
and are not unfairly discriminatory because they are designed to ensure
that Members are properly qualified as an RMO and only attribute as
Retail those orders that meet the definition of Retail Orders under
proposed Rule 11.24(a)(1) described above. The qualification process
proposed herein by the Exchange is not designed to permit unfair
discrimination, but rather ensure that order that are designated to be
attributed are Retail are, in fact, order submitted by a retail
customer that satisfy the proposed definition of Retail Order. Lastly,
the Exchange notes that these qualification and review provisions are
identical to those includes in the rules of the BYX, NYSE, and NYSE MKT
that have been previously approved by the Commission.\38\
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\38\ See supra notes 7 and 34.
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The Exchange believes that allowing a Member to designate orders as
Retail on either an order-by-order or on a port-by-port basis is
consistent with the Act for the same reasons as the proposal as a whole
is consistent with the Act. The Exchange believes that either method of
designation results in the same message being received and processed by
the Exchange's systems, and thus, merely reflects a detail in
connection with the implementation of the optional designation.
Lastly, the proposed rule change is also generally intended to add
certain system functionality currently offered by EDGX in order to
provide a consistent technology offering for the Exchange and EDGX. A
consistent technology offering, in turn, will simplify the technology
implementation, changes and maintenance by Members of the Exchange that
are also participants on EDGX. The proposed rule change would also
provide Members 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 Members.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange believes its proposed rule change would not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed amendment will not burden intramarket competition because the
ability to designate Retail Orders to be identified as Retail on the
Exchange's proprietary data feeds, rather than by their MPID, would be
open to all Members that wish to send Retail Orders to the Exchange.
The Exchange believes the proposed rule change would increase
intermarket competition by identifying orders as Retail via the
Exchange's proprietary data feeds would [sic] enable the Exchange to
better compete with other exchanges that offer similar retail order
programs.\39\ The Exchange believes that the amendment, by increasing
the amount of disseminated information regarding Retail Orders, will
increase the level of competition around retail executions resulting in
better prices for retail investors.
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\39\ See supra note 34.
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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 offering consistent functionality
by the BGM Affiliated 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

The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \40\ and Rule 19b-4(f)(6) thereunder.\41\
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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\40\ 15 U.S.C. 78s(b)(3)(A)(iii).
\41\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \42\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\43\ 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 provide market participants with additional
transparency by disseminating additional order information regarding
the types of orders they may interact with when an order is identified
as a Retail Order in

[[Page 59541]]

a timelier manner. The Exchange further believes that waiver will
immediately encourage market participants to send additional orders to
the Exchange, thereby potentially stimulating further price competition
for Retail Orders, deepening the Exchange's liquidity pool, supporting
the quality of price discovery, and promoting market transparency. 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.\44\
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\42\ 17 CFR 240.19b-4(f)(6).
\43\ 17 CFR 240.19b-4(f)(6)(iii).
\44\ 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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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2014-043 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-2014-043. 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-2014-043, and should be
submitted on or before October 23, 2014.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23480 Filed 10-1-14; 8:45 am]
BILLING CODE 8011-01-P

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