Self-Regulatory Organizations; BATS Exchange, Inc.; Order Granting Approval of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS Exchange, Inc. To Add Price Adjust Functionality, 63003-63005 [2014-24949]

Download as PDF Federal Register / Vol. 79, No. 203 / Tuesday, October 21, 2014 / Notices competition not necessary or appropriate in furtherance of the purposes of the Act since it would apply equally to all dealers who engage in municipal securities activities. The proposed rule change does nothing more than specify that, in developing an annual training plan based on the firm’s need analysis, the dealer must include municipal securities training for those individuals who are regularly engaged in municipal securities activities and supervisors who regularly supervise municipal securities activities. The proposed rule change does not set forth any quantitative or qualitative requirements regarding the training that must be provided and grants dealers flexibility to develop Firm Element training based on the nature of their business activities. In addition, the Commission believes, that the proposed rule change addresses the need to ensure adequate training for municipal securities professionals and would likely improve the municipal securities market and its efficient operation. Furthermore, the Commission believes that the potential burdens created by the proposed rule change are to be likely outweighed by the benefits. For the reasons noted above, the Commission believes that the proposed rule change is consistent with the Act. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,40 that the proposed rule change (SR–MSRB–2014– 05) be, and hereby is, approved.41 For the Commission, pursuant to delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–24954 Filed 10–20–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION mstockstill on DSK4VPTVN1PROD with NOTICES Self-Regulatory Organizations; BATS Exchange, Inc.; Order Granting Approval of a Proposed Rule Change to Rules 11.9 and 21.1 of BATS Exchange, Inc. To Add Price Adjust Functionality October 15, 2014. I. Introduction On August 26, 2014, BATS Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange 41 17 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:05 Oct 20, 2014 Jkt 235001 II. Description of the Proposal The Exchange has proposed to amend BATS Rule (‘‘Rule’’) 11.9 to add a new, optional Price Adjust functionality to the Exchange’s cash equities trading platform (‘‘BATS Equities’’).4 Consistent with its practice of offering similar functionality for the Exchange’s equity options trading platform (‘‘BATS Options’’) as it does for BATS Equities, the Exchange also has proposed to amend Rule 21.1 to add Price Adjust functionality to BATS Options.5 On both BATS Equities and BATS Options, the Price Adjust functionality would have to be elected by a User 6 in order to be applied by the Exchange. BATS Equities Currently, the Exchange offers price sliding to ensure compliance with Regulation NMS and Regulation SHO for BATS Equities, as well as price sliding for BATS Options to ensure compliance with rules analogous to Regulation NMS adopted by the Exchange and other options exchanges. With respect to price sliding offered to ensure compliance with Regulation NMS (‘‘display-price sliding’’), under the Exchange’s current rules for BATS Equities, if, at the time of entry, a nonroutable order would lock or cross a Protected Quotation 7 displayed by 1 15 [Release No. 34–73363; File No. SR–BATS– 2014–038] 40 15 Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Exchange Rules 11.9 and 21.1 to add Price Adjust functionality to the Exchange’s equities and options trading platforms. The proposed rule change was published for comment in the Federal Register on September 4, 2014.3 The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 72945 (August 28, 2014), 79 FR 52790 (‘‘Notice’’). 4 See proposed Rule 11.9(g). 5 See proposed Rules 21.1(i) and (j). 6 As defined in Rule 1.5(cc), a User is ‘‘any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3.’’ 7 As defined in Rule 1.5(t), applicable to BATS Equities, a ‘‘Protected Quotation’’ is ‘‘a quotation that is a Protected Bid or Protected Offer.’’ In turn, the term ‘‘Protected Bid’’ or ‘‘Protected Offer’’ means ‘‘a bid or offer in a stock that is (i) displayed by an automated trading center; (ii) disseminated pursuant to an effective national market system plan; and (iii) an automated quotation that is the best bid or best offer of a national securities exchange or association.’’ As defined in BATS Rule 27.1, applicable to BATS Options, a ‘‘Protected Quotation’’ is ‘‘a Protected Bid or Protected Offer.’’ In turn, the term ‘‘Protected Bid’’ or ‘‘Protected 2 17 PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 63003 another trading center, the Exchange ranks (and in the case of a cross, reprices) such order at the locking price, and displays such order at one minimum price variation below the NBO for bids and above the NBB for offers.8 The Exchange currently offers display-price sliding functionality to avoid locking or crossing other markets’ Protected Quotations, but does not price slide to avoid executions on the Exchange’s order book (‘‘BATS Book’’). Specifically, when the Exchange receives an incoming order that could execute against resting displayed liquidity but an execution does not occur because such incoming order is designated as an order that will not remove liquidity (e.g., a BATS Post Only Order), then the Exchange will cancel the incoming order unless it is permitted to remove liquidity upon entry.9 Under the proposed Price Adjust process, by contrast, an order eligible for display by the Exchange that, at the time of entry, would create a violation of Rule 610(d) of Regulation NMS by locking or crossing a Protected Quotation of an external market or the Exchange will be ranked and displayed at one minimum price variation below the current NBO (for bids) or to one minimum price variation above the current NBB (for offers).10 Thus, the proposed Price Adjust process differs from the Exchange’s current displayprice sliding process in two main ways. First, the Price Adjust process would both rank and display such an order at one minimum price variation below the current NBO or above the current NBB Offer’’ means ‘‘a Bid or Offer in an options series, respectively, that: (A) Is disseminated pursuant to the OPRA Plan; and (B) Is the Best Bid or Best Offer, respectively, displayed by an Eligible Exchange.’’ An ‘‘Eligible Exchange’’ is defined in Rule 27.1 as means ‘‘a national securities exchange registered with the SEC in accordance with Section 6(a) of the Exchange Act that: (a) is a Participant Exchange in OCC (as that term is defined in Section VII of the OCC by-laws); (b) is a party to the OPRA Plan (as that term is described in Section I of the OPRA Plan); and (c) if the national securities exchange chooses not to become a party to this Plan, is a participant in another plan approved by the Commission providing for comparable TradeThrough and Locked and Crossed Market protection.’’ 8 See Rule 11.9(g)(1). 9 The Exchange notes that BATS Post Only Orders are permitted to remove liquidity from the BATS Book if the value of price improvement associated with such execution equals or exceeds the sum of fees charged for such execution and the value of any rebate that would be provided if the order posted to the BATS Book and subsequently provided liquidity. See Rule 11.9(c)(6). Similarly, Partial Post Only at Limit Orders are permitted to remove price improving liquidity as well as a Userselected percentage of the remaining order at the limit price if, following such removal, the order can post at its limit price. See Rule 11.9(c)(7). 10 See proposed Rule 11.9(g)(2)(A). E:\FR\FM\21OCN1.SGM 21OCN1 mstockstill on DSK4VPTVN1PROD with NOTICES 63004 Federal Register / Vol. 79, No. 203 / Tuesday, October 21, 2014 / Notices (rather than ranking the order at the locking price). Second, Price Adjust would be based on Protected Quotations at external markets and at the Exchange (rather than just Protected Quotations at external markets). Because the Exchange will route orders to external markets with locking or crossing quotations, the Exchange notes that the Price Adjust process would only be applicable to nonroutable orders, including BATS Only Orders, BATS Post Only Orders and Partial Post Only at Limit Orders. In turn, because BATS Only Orders will execute against locking or crossing interest on the Exchange (including both Protected Quotations as well as any non-displayed interest), the fact that Price Adjust would be based on Protected Quotations at the Exchange is only relevant for BATS Post Only Orders and Partial Post Only at Limit Orders. The Price Adjust process would adjust, as described above, the price of a display-eligible BATS Post Only Order or Partial Post Only at Limit Order that would lock or cross a Protected Quotation displayed by the Exchange unless such order is permitted to remove liquidity as described in Rules 11.9(c)(6) and (c)(7), respectively,11 whereas the display-price sliding process would cancel such order back to the User unless it is permitted to remove liquidity under Rules 11.9(c)(6) or (c)(7). In addition, the Exchange has proposed that, in the event the NBBO changes such that an order subject to Price Adjust would not lock or cross a Protected Quotation, the order will receive a new timestamp, and will be displayed at the price that originally locked the NBO (for bids) or NBB (for offers) on entry.12 All orders that are reranked and re-displayed pursuant to Price Adjust would retain their priority as compared to other orders subject to Price Adjust based upon the time such orders were initially received by the Exchange.13 Further, as proposed, following the initial ranking and display of an order subject to Price Adjust, an order will only be re-ranked and redisplayed to the extent it achieves a more aggressive price.14 In order to offer multiple-price sliding to Exchange Users that select Price Adjust, the Exchange also has proposed that the ranked and displayed prices of an order subject to Price Adjust may be adjusted once or multiple times depending upon the instructions of a User and changes 11 See proposed Rule 11.9(g)(2)(D). 12 See proposed Rule 11.9(g)(2)(B). 13 Id. 14 Id. VerDate Sep<11>2014 18:05 Oct 20, 2014 Jkt 235001 to the prevailing NBBO.15 Multipleprice sliding pursuant to Price Adjust would be optional and would have to be explicitly selected by a User before it will be applied (the same is true for display-price sliding). Orders subject to multiple price sliding for Price Adjust would be permitted to move all the way back to their most aggressive price, whereas orders subject to Price Adjust without an explicit selection of multiple price sliding may not be adjusted to their most aggressive price, depending upon market conditions and the limit price of the order upon entry. Further, the Exchange has proposed that in the event the NBBO changes such that display-eligible orders subject to display-price sliding and Price Adjust would not lock or cross a Protected Quotation and are eligible to be displayed at a more aggressive price, the System will first display all orders subject to display-price sliding at their ranked price followed by orders subject to Price Adjust, which will be re-ranked and re-displayed as set forth in proposed Rule 11.9(g)(2).16 The Exchange believes it is reasonable to unslide orders subject to display-price sliding before it un-slides orders subject to Price Adjust because Price Adjust is a less aggressive form of price sliding than display-price sliding, in that an order submitted by a User that elects Price Adjust will be displayed and ranked at the same price rather than ranked at the locking price and displayed at a less aggressive price. The Exchange currently applies display-price sliding to Non-Displayed Orders that cross Protected Quotations of external markets. The Exchange is not proposing to change its handling of Non-Displayed Orders other than by updating the language of its rule to reflect that it will handle Non-Displayed Orders for which a User has selected Price Adjust in the same way as it currently handles Non-Displayed Orders for which a User has selected displayprice sliding.17 As such, Non-Displayed Orders that are subject to Price Adjust (or display-price sliding) would be ranked at the locking price on entry.18 The proposed rule also would state that price sliding for Non-Displayed Orders is functionally equivalent to the handling of displayable orders except that such orders will not have a displayed price and will not be repriced again unless such orders cross a Protected Quotation of an external 15 See proposed Rule 11.9(g)(2)(C). 16 See proposed Rule 11.9(g)(3). 17 See proposed Rule 11.9(g)(4). 18 Id. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 market (i.e., such orders are not unslid).19 Lastly, the Exchange does not propose to modify its current short sale price sliding functionality, which is designed to ensure compliance with Regulation SHO, and proposes to apply that functionality to orders for which Price Adjust is chosen. As a result, orders for which a User selects either display-price sliding or Price Adjust will be subject to the Exchange’s existing short sale price sliding functionality.20 BATS Options—Price Adjust In order to maintain consistency between analogous processes offered by BATS Equities and BATS Options, the Exchange has proposed to amend Rule 21.1 to add Price Adjust functionality to BATS Options, largely in conformance with the changes described above related to the Price Adjust process on BATS Equities. BATS Options currently offers display-price sliding (including multiple display-price sliding) to ensure compliance with locked and crossed market rules relevant to participation on BATS Options. The proposed Price Adjust functionality for BATS Options, as described in proposed Rules 21.1(i) and (j), is similar to the proposed functionality for BATS Equities, with the exception that it omits language related to applying Price Adjust to nondisplayed orders because BATS Options does not have non-displayed orders. III. Discussion and Commission Findings After careful review of the proposal, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange.21 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,22 which requires, among other things, that the rules of an exchange be 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, and, in general, to protect investors and the public interest. The Exchange believes that its proposal to offer Price Adjust functionality is consistent with Section 19 Id. 20 See proposed Rule 11.9(g)(6). approving the proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 22 15 U.S.C. 78f(b)(5). 21 In E:\FR\FM\21OCN1.SGM 21OCN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 203 / Tuesday, October 21, 2014 / Notices 6(b)(5) of the Act,23 as well as Rule 610 of Regulation NMS 24 and Rule 201 of Regulation SHO.25 The Exchange notes that it is not modifying the overall functionality of price sliding, which, to avoid locking or crossing quotations of other market centers or to comply with applicable short sale restrictions, displays orders at permissible prices while retaining a price at which the User is willing to buy or sell, in the event display at such price or an execution at such price becomes possible.26 Instead, the Exchange is making changes to adopt an optional form of price sliding, Price Adjust, which will rank orders at their displayed price rather than, as with the current display-price sliding process, at the locking price. The exchange notes that, as a result, while subject to Price Adjust sliding, an order is ranked at a less aggressive price than it would be under the display-price sliding process, which may be preferable to certain Users that wish to provide liquidity but do not wish to cross the spread (i.e., if buying, do not wish to trade at the NBO or if selling, do not wish to trade at the NBB).27 In addition, as noted above, in contrast to display-price sliding, which is based solely on Protected Quotations at equities markets and options exchanges other than the Exchange, the proposed Price Adjust process would be based on Protected Quotations at external markets and at the Exchange. According to the Exchange, applying the Price Adjust process to orders that, upon entry, cannot be executed or displayed at their limit price should contribute to more displayed liquidity on the Exchange than if such orders were cancelled back to the User.28 Therefore, the Exchange believes the proposal to apply the Price Adjust process to orders that cannot be displayed because they would lock or cross displayed contra-side interest on the Exchange (and not just external markets) will promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system.29 The Exchange also states that the proposed Price Adjust process will enable the System to avoid displaying a locking or crossing quotation in order to ensure compliance with Rule 610(d) of Regulation NMS.30 Further, the Exchange believes it is reasonable to un-slide display-price sliding orders before it un-slides Price Adjust orders because Price Adjust is a less aggressive form of price sliding than display-price sliding, in that an order submitted by a User would be displayed and ranked at the same price rather than ranked at the locking price and displayed at a less aggressive price.31 Because orders subject to display-price sliding are ranked at and subject to execution at higher prices when buying and lower prices when selling, the Exchange believes that such orders should be re-displayed before orders subject to Price Adjust orders in response to changes to the NBBO.32 Rule 610(d) requires exchanges to establish, maintain, and enforce rules that require members reasonably to avoid ‘‘[d]isplaying quotations that lock or cross any protected quotation in an NMS stock.’’ 33 Such rules must be ‘‘reasonably designed to assure the reconciliation of locked or crossed quotations in an NMS stock,’’ and must ‘‘prohibit . . . members from engaging in a pattern or practice of displaying quotations that lock or cross any quotation in an NMS stock.’’ 34 The Exchange believes that the proposed Price Adjust functionality for BATS Equities as well as BATS Options will assist Users by displaying orders at permissible prices.35 Similarly, Rule 201 of Regulation SHO 36 requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution or display of a short sale order at a price at or below the current NBB under certain circumstances. The Exchange represents that its short sale price sliding will continue to operate the same for Users that select Price Adjust as it does for Users that select the display-price sliding process currently offered by the Exchange.37 For the reasons noted above, the Commission finds that the proposed rule change is consistent with the Act, including Section 6(b)(5) of the Act,38 which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, remove impediments to, and 30 Id. 31 Id. 23 Id. 32 Id. 24 17 33 17 CFR 242.610. 25 17 CFR 242.201. 26 See Notice, supra, note 3 at 52793. 27 Id. 28 Id. 29 Id. VerDate Sep<11>2014 18:05 Oct 20, 2014 Jkt 235001 perfect the mechanism of, a free and open market and a national market system, and, in general, protect investors and the public. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,39 that the proposed rule change, SR–BATS–2014– 038, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–24949 Filed 10–20–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73352; File No. SR–NYSE– 2014–50] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 15 To Specify That Exchange Systems Can Publish Pre-Opening Indications and To Extend the Time Order Imbalance Information Is Disseminated When an Opening is Delayed October 15, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on October 6, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 15 to specify that Exchange systems can publish pre-opening indications and to extend the time order imbalance information is disseminated when an opening is delayed. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of CFR 242.610(d). 34 Id. 39 15 35 See 40 17 Notice, supra, note 3 at 52793. 36 17 CFR 242.201. 37 See Notice, supra, note 3 at 52793. 38 15 U.S.C. 78f(b)(5). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 63005 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. E:\FR\FM\21OCN1.SGM 21OCN1

Agencies

[Federal Register Volume 79, Number 203 (Tuesday, October 21, 2014)]
[Notices]
[Pages 63003-63005]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24949]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73363; File No. SR-BATS-2014-038]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change to Rules 11.9 and 21.1 of 
BATS Exchange, Inc. To Add Price Adjust Functionality

October 15, 2014.

I. Introduction

    On August 26, 2014, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Exchange Rules 11.9 and 21.1 to add Price 
Adjust functionality to the Exchange's equities and options trading 
platforms. The proposed rule change was published for comment in the 
Federal Register on September 4, 2014.\3\ The Commission did not 
receive any comments on the proposed rule change. This order approves 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72945 (August 28, 
2014), 79 FR 52790 (``Notice'').
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II. Description of the Proposal

    The Exchange has proposed to amend BATS Rule (``Rule'') 11.9 to add 
a new, optional Price Adjust functionality to the Exchange's cash 
equities trading platform (``BATS Equities'').\4\ Consistent with its 
practice of offering similar functionality for the Exchange's equity 
options trading platform (``BATS Options'') as it does for BATS 
Equities, the Exchange also has proposed to amend Rule 21.1 to add 
Price Adjust functionality to BATS Options.\5\ On both BATS Equities 
and BATS Options, the Price Adjust functionality would have to be 
elected by a User \6\ in order to be applied by the Exchange.
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    \4\ See proposed Rule 11.9(g).
    \5\ See proposed Rules 21.1(i) and (j).
    \6\ As defined in Rule 1.5(cc), a User is ``any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.''
---------------------------------------------------------------------------

BATS Equities

    Currently, the Exchange offers price sliding to ensure compliance 
with Regulation NMS and Regulation SHO for BATS Equities, as well as 
price sliding for BATS Options to ensure compliance with rules 
analogous to Regulation NMS adopted by the Exchange and other options 
exchanges. With respect to price sliding offered to ensure compliance 
with Regulation NMS (``display-price sliding''), under the Exchange's 
current rules for BATS Equities, if, at the time of entry, a non-
routable order would lock or cross a Protected Quotation \7\ displayed 
by another trading center, the Exchange ranks (and in the case of a 
cross, re-prices) such order at the locking price, and displays such 
order at one minimum price variation below the NBO for bids and above 
the NBB for offers.\8\ The Exchange currently offers display-price 
sliding functionality to avoid locking or crossing other markets' 
Protected Quotations, but does not price slide to avoid executions on 
the Exchange's order book (``BATS Book''). Specifically, when the 
Exchange receives an incoming order that could execute against resting 
displayed liquidity but an execution does not occur because such 
incoming order is designated as an order that will not remove liquidity 
(e.g., a BATS Post Only Order), then the Exchange will cancel the 
incoming order unless it is permitted to remove liquidity upon 
entry.\9\
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    \7\ As defined in Rule 1.5(t), applicable to BATS Equities, a 
``Protected Quotation'' is ``a quotation that is a Protected Bid or 
Protected Offer.'' In turn, the term ``Protected Bid'' or 
``Protected Offer'' means ``a bid or offer in a stock that is (i) 
displayed by an automated trading center; (ii) disseminated pursuant 
to an effective national market system plan; and (iii) an automated 
quotation that is the best bid or best offer of a national 
securities exchange or association.'' As defined in BATS Rule 27.1, 
applicable to BATS Options, a ``Protected Quotation'' is ``a 
Protected Bid or Protected Offer.'' In turn, the term ``Protected 
Bid'' or ``Protected Offer'' means ``a Bid or Offer in an options 
series, respectively, that: (A) Is disseminated pursuant to the OPRA 
Plan; and (B) Is the Best Bid or Best Offer, respectively, displayed 
by an Eligible Exchange.'' An ``Eligible Exchange'' is defined in 
Rule 27.1 as means ``a national securities exchange registered with 
the SEC in accordance with Section 6(a) of the Exchange Act that: 
(a) is a Participant Exchange in OCC (as that term is defined in 
Section VII of the OCC by-laws); (b) is a party to the OPRA Plan (as 
that term is described in Section I of the OPRA Plan); and (c) if 
the national securities exchange chooses not to become a party to 
this Plan, is a participant in another plan approved by the 
Commission providing for comparable Trade-Through and Locked and 
Crossed Market protection.''
    \8\ See Rule 11.9(g)(1).
    \9\ The Exchange notes that BATS Post Only Orders are permitted 
to remove liquidity from the BATS Book if the value of price 
improvement associated with such execution equals or exceeds the sum 
of fees charged for such execution and the value of any rebate that 
would be provided if the order posted to the BATS Book and 
subsequently provided liquidity. See Rule 11.9(c)(6). Similarly, 
Partial Post Only at Limit Orders are permitted to remove price 
improving liquidity as well as a User-selected percentage of the 
remaining order at the limit price if, following such removal, the 
order can post at its limit price. See Rule 11.9(c)(7).
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    Under the proposed Price Adjust process, by contrast, an order 
eligible for display by the Exchange that, at the time of entry, would 
create a violation of Rule 610(d) of Regulation NMS by locking or 
crossing a Protected Quotation of an external market or the Exchange 
will be ranked and displayed at one minimum price variation below the 
current NBO (for bids) or to one minimum price variation above the 
current NBB (for offers).\10\ Thus, the proposed Price Adjust process 
differs from the Exchange's current display-price sliding process in 
two main ways. First, the Price Adjust process would both rank and 
display such an order at one minimum price variation below the current 
NBO or above the current NBB

[[Page 63004]]

(rather than ranking the order at the locking price). Second, Price 
Adjust would be based on Protected Quotations at external markets and 
at the Exchange (rather than just Protected Quotations at external 
markets).
---------------------------------------------------------------------------

    \10\ See proposed Rule 11.9(g)(2)(A).
---------------------------------------------------------------------------

    Because the Exchange will route orders to external markets with 
locking or crossing quotations, the Exchange notes that the Price 
Adjust process would only be applicable to non-routable orders, 
including BATS Only Orders, BATS Post Only Orders and Partial Post Only 
at Limit Orders. In turn, because BATS Only Orders will execute against 
locking or crossing interest on the Exchange (including both Protected 
Quotations as well as any non-displayed interest), the fact that Price 
Adjust would be based on Protected Quotations at the Exchange is only 
relevant for BATS Post Only Orders and Partial Post Only at Limit 
Orders. The Price Adjust process would adjust, as described above, the 
price of a display-eligible BATS Post Only Order or Partial Post Only 
at Limit Order that would lock or cross a Protected Quotation displayed 
by the Exchange unless such order is permitted to remove liquidity as 
described in Rules 11.9(c)(6) and (c)(7), respectively,\11\ whereas the 
display-price sliding process would cancel such order back to the User 
unless it is permitted to remove liquidity under Rules 11.9(c)(6) or 
(c)(7).
---------------------------------------------------------------------------

    \11\ See proposed Rule 11.9(g)(2)(D).
---------------------------------------------------------------------------

    In addition, the Exchange has proposed that, in the event the NBBO 
changes such that an order subject to Price Adjust would not lock or 
cross a Protected Quotation, the order will receive a new timestamp, 
and will be displayed at the price that originally locked the NBO (for 
bids) or NBB (for offers) on entry.\12\ All orders that are re-ranked 
and re-displayed pursuant to Price Adjust would retain their priority 
as compared to other orders subject to Price Adjust based upon the time 
such orders were initially received by the Exchange.\13\ Further, as 
proposed, following the initial ranking and display of an order subject 
to Price Adjust, an order will only be re-ranked and re-displayed to 
the extent it achieves a more aggressive price.\14\ In order to offer 
multiple-price sliding to Exchange Users that select Price Adjust, the 
Exchange also has proposed that the ranked and displayed prices of an 
order subject to Price Adjust may be adjusted once or multiple times 
depending upon the instructions of a User and changes to the prevailing 
NBBO.\15\ Multiple-price sliding pursuant to Price Adjust would be 
optional and would have to be explicitly selected by a User before it 
will be applied (the same is true for display-price sliding). Orders 
subject to multiple price sliding for Price Adjust would be permitted 
to move all the way back to their most aggressive price, whereas orders 
subject to Price Adjust without an explicit selection of multiple price 
sliding may not be adjusted to their most aggressive price, depending 
upon market conditions and the limit price of the order upon entry.
---------------------------------------------------------------------------

    \12\ See proposed Rule 11.9(g)(2)(B).
    \13\ Id.
    \14\ Id.
    \15\ See proposed Rule 11.9(g)(2)(C).
---------------------------------------------------------------------------

    Further, the Exchange has proposed that in the event the NBBO 
changes such that display-eligible orders subject to display-price 
sliding and Price Adjust would not lock or cross a Protected Quotation 
and are eligible to be displayed at a more aggressive price, the System 
will first display all orders subject to display-price sliding at their 
ranked price followed by orders subject to Price Adjust, which will be 
re-ranked and re-displayed as set forth in proposed Rule 
11.9(g)(2).\16\ The Exchange believes it is reasonable to un-slide 
orders subject to display-price sliding before it un-slides orders 
subject to Price Adjust because Price Adjust is a less aggressive form 
of price sliding than display-price sliding, in that an order submitted 
by a User that elects Price Adjust will be displayed and ranked at the 
same price rather than ranked at the locking price and displayed at a 
less aggressive price.
---------------------------------------------------------------------------

    \16\ See proposed Rule 11.9(g)(3).
---------------------------------------------------------------------------

    The Exchange currently applies display-price sliding to Non-
Displayed Orders that cross Protected Quotations of external markets. 
The Exchange is not proposing to change its handling of Non-Displayed 
Orders other than by updating the language of its rule to reflect that 
it will handle Non-Displayed Orders for which a User has selected Price 
Adjust in the same way as it currently handles Non-Displayed Orders for 
which a User has selected display-price sliding.\17\ As such, Non-
Displayed Orders that are subject to Price Adjust (or display-price 
sliding) would be ranked at the locking price on entry.\18\ The 
proposed rule also would state that price sliding for Non-Displayed 
Orders is functionally equivalent to the handling of displayable orders 
except that such orders will not have a displayed price and will not be 
re-priced again unless such orders cross a Protected Quotation of an 
external market (i.e., such orders are not un-slid).\19\
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    \17\ See proposed Rule 11.9(g)(4).
    \18\ Id.
    \19\ Id.
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    Lastly, the Exchange does not propose to modify its current short 
sale price sliding functionality, which is designed to ensure 
compliance with Regulation SHO, and proposes to apply that 
functionality to orders for which Price Adjust is chosen. As a result, 
orders for which a User selects either display-price sliding or Price 
Adjust will be subject to the Exchange's existing short sale price 
sliding functionality.\20\
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    \20\ See proposed Rule 11.9(g)(6).
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BATS Options--Price Adjust

    In order to maintain consistency between analogous processes 
offered by BATS Equities and BATS Options, the Exchange has proposed to 
amend Rule 21.1 to add Price Adjust functionality to BATS Options, 
largely in conformance with the changes described above related to the 
Price Adjust process on BATS Equities. BATS Options currently offers 
display-price sliding (including multiple display-price sliding) to 
ensure compliance with locked and crossed market rules relevant to 
participation on BATS Options. The proposed Price Adjust functionality 
for BATS Options, as described in proposed Rules 21.1(i) and (j), is 
similar to the proposed functionality for BATS Equities, with the 
exception that it omits language related to applying Price Adjust to 
non-displayed orders because BATS Options does not have non-displayed 
orders.

III. Discussion and Commission Findings

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder that are applicable to a national 
securities exchange.\21\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\22\ 
which requires, among other things, that the rules of an exchange be 
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, and, in general, to protect investors and 
the public interest.
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    \21\ In approving the proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal to offer Price Adjust 
functionality is consistent with Section

[[Page 63005]]

6(b)(5) of the Act,\23\ as well as Rule 610 of Regulation NMS \24\ and 
Rule 201 of Regulation SHO.\25\ The Exchange notes that it is not 
modifying the overall functionality of price sliding, which, to avoid 
locking or crossing quotations of other market centers or to comply 
with applicable short sale restrictions, displays orders at permissible 
prices while retaining a price at which the User is willing to buy or 
sell, in the event display at such price or an execution at such price 
becomes possible.\26\ Instead, the Exchange is making changes to adopt 
an optional form of price sliding, Price Adjust, which will rank orders 
at their displayed price rather than, as with the current display-price 
sliding process, at the locking price. The exchange notes that, as a 
result, while subject to Price Adjust sliding, an order is ranked at a 
less aggressive price than it would be under the display-price sliding 
process, which may be preferable to certain Users that wish to provide 
liquidity but do not wish to cross the spread (i.e., if buying, do not 
wish to trade at the NBO or if selling, do not wish to trade at the 
NBB).\27\
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    \23\ Id.
    \24\ 17 CFR 242.610.
    \25\ 17 CFR 242.201.
    \26\ See Notice, supra, note 3 at 52793.
    \27\ Id.
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    In addition, as noted above, in contrast to display-price sliding, 
which is based solely on Protected Quotations at equities markets and 
options exchanges other than the Exchange, the proposed Price Adjust 
process would be based on Protected Quotations at external markets and 
at the Exchange. According to the Exchange, applying the Price Adjust 
process to orders that, upon entry, cannot be executed or displayed at 
their limit price should contribute to more displayed liquidity on the 
Exchange than if such orders were cancelled back to the User.\28\ 
Therefore, the Exchange believes the proposal to apply the Price Adjust 
process to orders that cannot be displayed because they would lock or 
cross displayed contra-side interest on the Exchange (and not just 
external markets) will promote just and equitable principles of trade, 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system.\29\ The Exchange also states that 
the proposed Price Adjust process will enable the System to avoid 
displaying a locking or crossing quotation in order to ensure 
compliance with Rule 610(d) of Regulation NMS.\30\
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    \28\ Id.
    \29\ Id.
    \30\ Id.
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    Further, the Exchange believes it is reasonable to un-slide 
display-price sliding orders before it un-slides Price Adjust orders 
because Price Adjust is a less aggressive form of price sliding than 
display-price sliding, in that an order submitted by a User would be 
displayed and ranked at the same price rather than ranked at the 
locking price and displayed at a less aggressive price.\31\ Because 
orders subject to display-price sliding are ranked at and subject to 
execution at higher prices when buying and lower prices when selling, 
the Exchange believes that such orders should be re-displayed before 
orders subject to Price Adjust orders in response to changes to the 
NBBO.\32\
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    \31\ Id.
    \32\ Id.
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    Rule 610(d) requires exchanges to establish, maintain, and enforce 
rules that require members reasonably to avoid ``[d]isplaying 
quotations that lock or cross any protected quotation in an NMS 
stock.'' \33\ Such rules must be ``reasonably designed to assure the 
reconciliation of locked or crossed quotations in an NMS stock,'' and 
must ``prohibit . . . members from engaging in a pattern or practice of 
displaying quotations that lock or cross any quotation in an NMS 
stock.'' \34\ The Exchange believes that the proposed Price Adjust 
functionality for BATS Equities as well as BATS Options will assist 
Users by displaying orders at permissible prices.\35\ Similarly, Rule 
201 of Regulation SHO \36\ requires trading centers to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent the execution or display of a short sale order at a 
price at or below the current NBB under certain circumstances. The 
Exchange represents that its short sale price sliding will continue to 
operate the same for Users that select Price Adjust as it does for 
Users that select the display-price sliding process currently offered 
by the Exchange.\37\
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    \33\ 17 CFR 242.610(d).
    \34\ Id.
    \35\ See Notice, supra, note 3 at 52793.
    \36\ 17 CFR 242.201.
    \37\ See Notice, supra, note 3 at 52793.
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    For the reasons noted above, the Commission finds that the proposed 
rule change is consistent with the Act, including Section 6(b)(5) of 
the Act,\38\ which requires, among other things, that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
remove impediments to, and perfect the mechanism of, a free and open 
market and a national market system, and, in general, protect investors 
and the public.
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    \38\ 15 U.S.C. 78f(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\39\ that the proposed rule change, SR-BATS-2014-038, be, and 
hereby is, approved.
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    \39\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24949 Filed 10-20-14; 8:45 am]
BILLING CODE 8011-01-P
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