Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order Granting Approval of a Proposed Rule Change To Establish an Opening Process, 65735-65738 [2014-26230]

Download as PDF Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices customer orders as compared to noncustomer orders.13 The Exchange’s proposal would allow the Exchange to continue to recoup its costs when routing Customer orders to PHLX or NOM as well as away markets that pay a rebate when such orders are designated as available for routing by the market participant. The Exchange continues to pass along savings realized by leveraging NASDAQ OMX’s infrastructure and scale to market participants when Customer orders are routed to PHLX and NOM and is providing those savings to all market participants. Today, other options exchanges also assess fixed routing fees to recoup costs incurred by the exchange to route orders to away markets.14 Market participants may submit orders to the Exchange as ineligible for routing or ‘‘DNR’’ to avoid Routing Fees.15 Also, orders are routed to an away market based on price first.16 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.17 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. mstockstill on DSK4VPTVN1PROD with NOTICES 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. 13 BATS assesses lower customer routing fees as compared to non-customer routing fees per the away market. For example BATS assesses ISE customer routing fees of $0.52 per contract and an ISE non-customer routing fee of $ 0.65 per contract. See BATS BZX Exchange Fee Schedule. 14 See CBOE’s Fees Schedule and ISE’s Fee Schedule. 15 See note 11. 16 See note 12. 17 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 17:42 Nov 04, 2014 Jkt 235001 65735 Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–73472; File No. SR–BYX– 2014–018] • 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– BX–2014–052 on the subject line. Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order Granting Approval of a Proposed Rule Change To Establish an Opening Process October 30, 2014. Paper Comments I. Introduction • 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–BX–2014–052. 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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX–2014–052 and should be submitted on or before November 26, 2014. On September 3, 2014, BATS YExchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) 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 add new BATS Rule (‘‘Rule’’) 11.23, entitled ‘‘Opening Process,’’ and to make several corresponding changes, in order to modify the manner in which the Exchange opens trading in individual securities at the beginning of the day and after trading halts. The proposed rule change was published for comment in the Federal Register on September 19, 2014.3 The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–26227 Filed 11–4–14; 8:45 am] BILLING CODE 8011–01–P 18 17 PO 00000 CFR 200.30–3(a)(12). Frm 00121 Fmt 4703 Sfmt 4703 II. Description of the Proposal The Exchange has proposed to implement a process for opening trading at the beginning of Regular Trading Hours 4 and re-opening trading in such securities following a trading halt. Currently, the Exchange accepts orders during the Pre-Opening Session,5 and any such orders are immediately eligible for execution. Orders that are on the BATS Book 6 at the beginning of Regular Trading Hours remain on the BATS Book, subject to the User’s instructions, and trading continues into Regular Trading Hours without any transition period. Upon a halt, the Exchange currently cancels all orders on the BATS Book and does not accept any orders until the halt is lifted. The Exchange does not currently have a Regular Hours Only (‘‘RHO’’) time-in-force. Under the proposal, the Exchange would amend its rules to allow orders to be designated RHO, and would accept and queue any such orders during the Pre-Opening Session for execution at 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 73094 (September 15, 2014), 79 FR 56411 (‘‘Notice’’). 4 Regular Trading Hours is defined in Rule 1.5(w). 5 Pre-Opening Session is defined in Rule 1.5(r). 6 BATS Book is defined in Rule 1.5(e). 2 17 E:\FR\FM\05NON1.SGM 05NON1 65736 Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices the midpoint of the NBBO 7 shortly after the beginning of Regular Trading Hours (the ‘‘Opening Process’’).8 The Exchange also has proposed to implement a similar process for re-opening trading after a halt, suspension, or pause (collectively, a ‘‘Halt’’), under which a User’s orders would remain on the BATS Book unless the User has designated that they be cancelled upon a Halt (the ‘‘Re-Opening Process’’). Specifically, the Exchange has proposed new Rule 11.9(b)(7), which would define RHO as a time-in-force modifier that applies to all securities.9 Prior to the beginning of Regular Trading Hours, Users 10 that wish to participate in the Opening Process may enter orders to buy or sell with a time in force of RHO.11 All orders that are marked as RHO may participate in the Opening Process except BATS Post Only Orders, Partial Post Only at Limit Orders, ISO orders not modified by Rule 11.23(a)(1) (as described below), and Minimum Quantity Orders.12 Limit orders with a Reserve Quantity could participate to the full extent of their displayed size and Reserve Quantity.13 Discretionary Orders could participate only up to their ranked price for buy orders or down to their ranked price for sell orders; the discretionary range of such orders would not be eligible for participation in the Opening Process.14 All Pegged Orders and Mid-Point Peg Orders would be eligible for execution in the Opening Process based on their pegged prices.15 Orders cancelled before the Opening Process and orders not designated RHO would not be eligible to participate in the Opening Process.16 Pursuant to proposed Rule 11.23(a)(1), during the period between 9:30 a.m. Eastern Time and the occurrence of the Opening Process, all non-RHO orders, subject to order instructions, and ISOs designated RHO may execute against eligible Pre-Opening Session contra-side interest resting in the BATS Book.17 The Exchange has proposed to convert any 7 NBBO is defined in Rule 1.5(o). orders designated RHO would be queued for Opening Process participation when submitted during the Pre-Opening Session; orders not so designated would continue to be executable immediately upon entry during the Pre-Opening Session. 9 See proposed Rule 11.9(b)(7). The Exchange also has proposed to delete the word ‘‘limit’’ from Rule 11.9(b) because a RHO order can be either a limit order or a market order. See proposed Rule 11.9(b). 10 User is defined in Rule 1.5(cc). 11 See proposed Rule 11.23(a). 12 See proposed Rule 11.23(a)(2). For the definitions of BYX’s order types, see Rule 11.9. 13 See proposed Rule 11.23(a)(2). 14 Id. 15 Id. 16 See proposed Rule 11.23(a). 17 See proposed Rule 11.23(a)(1). mstockstill on DSK4VPTVN1PROD with NOTICES 8 Only VerDate Sep<11>2014 17:42 Nov 04, 2014 Jkt 235001 unexecuted portion of an ISO designated RHO entered during this period into a non-ISO and queue the order for participation in the Opening Process.18 The Exchange has proposed to implement the Opening Process shortly after the beginning of Regular Trading Hours, at which point the Exchange would attempt to execute all orders eligible for the Opening Process in a particular security at the midpoint of the NBBO.19 All such orders would be processed in time sequence beginning with the order with the oldest time stamp, and would be matched until there is no remaining volume or there is an order imbalance.20 All MTP modifiers would be ignored during the matching process.21 If no matches can be made, or if orders are not executed in whole or part due to an imbalance, the Opening Process would conclude with all orders that participated in the Opening Process being placed in the BATS Book, cancelled, executed, or routed to away Trading Centers 22 in accordance with Rule 11.13(a)(2).23 The Exchange notes that because an RHO order is not executable until the Opening Process (rather than upon entry), to the extent that any RHO order is not executed during the Opening Process and is placed on the BATS Book, such order will receive a time stamp that reflects the time that the order was placed on the BATS Book during the Opening Process and not the time that the order was entered for queuing.24 Under proposed Rule 11.23(c), the NBBO that the Exchange would use for purposes of setting the Opening Process price would be: (a) When the listing exchange is either the NYSE or NYSE MKT, the first NBBO subsequent to the first reported trade on the listing exchange after 9:30:00 a.m. Eastern Time, or the then-prevailing NBBO when the first two-sided quotation is published by the listing exchange after 9:30:00 a.m. Eastern Time, if no first trade is reported by the listing exchange within one second of publication of the 18 Id. 19 See proposed Rule 11.23(a)(3). According to the Exchange, time priority is more appropriate for the Opening Process than price-time priority because the price of the order is not particularly important to the Opening Process, so long as the order is priced at or more aggressively than the midpoint of the NBBO. As such, the Exchange believes that there is no reason to reward a more aggressive order with priority in the Opening Process. See Notice, supra note 3, 79 FR at 56412–13. 21 See proposed Rule 11.23(b). 22 Trading Center is defined in Rule 2.11(a). 23 See proposed Rule 11.23(b). 24 See Notice, supra note 3, 79 FR at 56413. 20 Id. PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 first two-sided quotation by the listing exchange; or (b) for any other listing market, the first NBBO disseminated after 9:30:00 a.m. Eastern Time.25 The Exchange has proposed to differentiate its calculation of the NBBO for NYSE and NYSE MKT-listed securities from its calculation of the NBBO for securities listed on other exchanges because NYSE and NYSE MKT do not offer continuous trading prior to 9:30:00 a.m. Eastern Time whereas the other listing exchanges do offer continuous trading prior to 9:30:00 a.m. Eastern Time. Thus, according to the Exchange, the market for trading in NYSE and NYSE MKT-listed securities may take a moment to develop after 9:30:00 a.m. Eastern Time whereas the market for securities listed on other exchanges is more fully developed immediately after 9:30:00 a.m. Eastern Time.26 If the conditions to establish the price of the Opening Process set forth under proposed Rule 11.23(c) do not occur by 9:45:00 a.m. Eastern Time, the Exchange has proposed to implement a contingent opening process (the ‘‘Contingent Open Process’’) under which, instead of being matched at the midpoint of the NBBO, orders would be handled in time sequence, beginning with the order with the oldest time stamp, and placed on the BATS Book, routed, cancelled, or executed in accordance with the terms of the order.27 The Exchange notes that, because an RHO order is not executable until the Opening Process (rather than upon entry), any order subject to the Contingent Open Process that is placed on the BATS Book would receive a time stamp that reflects the time that the order was placed on the BATS Book during the Opening Process and not the time that the order was entered for queuing.28 In addition, the Exchange has proposed that, in the event of a Halt, all outstanding orders in the System 29 will remain on the BATS Book except where a User has designated that its orders be cancelled.30 While a security is subject to a Halt, the Exchange would accept and queue orders, prior to the resumption of trading in the security, for participation in the Re-Opening Process.31 The Re-Opening Process would occur in the same manner as the Opening Process described above, with the following exceptions: (1) Non-RHO orders would be eligible for 25 See proposed Rule 11.23(c). Notice, supra note 3, 79 FR at 56413. 27 See proposed Rule 11.23(d). 28 See Notice, supra note 3, 79 FR at 56413. 29 System is defined in Rule 1.5(aa). 30 See proposed Rule 11.18(f). 31 See proposed Rule 11.23(e). 26 See E:\FR\FM\05NON1.SGM 05NON1 Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices participation in the re-opening, but IOC, FOK, BATS Post Only Orders, Partial Post Only at Limit Orders, and Minimum Quantity Orders would be cancelled or rejected, as applicable, and any ISO that is not IOC or FOK would be converted into a non-ISO and be queued for participation in the reopening; and (2) the re-opening would occur at the midpoint of: (i) The first NBBO subsequent to the first reported trade on the listing exchange following the resumption of trading after a Halt; or (ii) the NBBO when the first two-sided quotation is published by the listing exchange following the resumption of trading after a Halt if no first trade is reported by the listing exchange within one second of publication of the first two-sided quotation by the listing exchange.32 The Exchange has proposed that, where neither of the above conditions required to establish the price of the re-opening have occurred, the security may be re-opened for trading at the discretion of the Exchange and orders will be handled in the same manner as they are in the Contingent Open Process.33 mstockstill on DSK4VPTVN1PROD with NOTICES III. Discussion and Commission Findings After careful review, 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.34 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,35 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 the proposal is consistent with the Act because it is designed to create a more orderly process for opening and reopening trading in securities, and to facilitate price formation. Specifically, 32 See proposed Rule 11.23(e)(1). The Exchange has proposed to wait until the sooner of the first execution on the listing market or one second following the publication of the first two-sided quotation by the listing exchange because no continuous trading occurs on any exchange during a Halt and, according to the Exchange, waiting will provide time for the market to become more fully established before determining the price at which the Re-Opening Process will occur. 33 See proposed Rule 11.23(e)(2). 34 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). 35 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:42 Nov 04, 2014 Jkt 235001 the Exchange believes that the proposed Opening Process will create a more orderly opening for securities and help facilitate the price formation process at the beginning of Regular Trading Hours because allowing Users to enter orders during the Pre-Opening Session for queuing and participation in the Opening Process should help prevent the submission of a flood of orders immediately following the beginning of Regular Trading Hours.36 For similar reasons, the Exchange believes that the proposed Re-Opening Process will create a more orderly re-opening in securities following a Halt and help facilitate price formation.37 In addition, the Exchange states that allowing certain RHO orders (ISOs designated RHO) and all non-RHO orders to interact (and, in the case of non-RHO orders, to be added to the BATS Book where there is no contra-side interest) during the period between 9:30 a.m. Eastern Time and the occurrence of the Opening Process will create a more orderly opening and facilitate the price formation process because Users will have the option to enter orders that will either participate in the Opening Process or immediately interact with liquidity from the Pre-Opening Session, allowing trading to continue while the Exchange is waiting for the conditions necessary to complete the Opening Process.38 The Exchange also believes that certain features of the Opening Process and Re-Opening Process are consistent with the Act. The Exchange states that the proposed exclusion of BATS Post Only Orders, Partial Post Only at Limit Orders, ISOs, and Minimum Quantity Orders from participation in the Opening Process is consistent with Section 6(b)(5) of the Act because such order types do not make sense in the context of queuing orders for the Opening Process.39 Moreover, according to the Exchange, its proposal to allow an ISO marked RHO to execute against eligible Pre-Opening Session interest during the period between 9:30 a.m. Eastern Time and the occurrence of the Opening Process, and then convert the unexecuted portion of the order into a non-ISO for queuing for participation in the Opening Process, is consistent with 36 See Notice, supra note 3, 79 FR at 564214. The Exchange further states that, because the Opening Process price will be the midpoint of the NBBO, the Opening Process will occur at a price that is based on the best available pricing under current market conditions, which also will help create a more orderly opening and facilitate the price formation process. Id. at 56414. 37 Id. at 56414. 38 Id. 39 Id. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 65737 the requirements of Regulation NMS.40 According to the Exchange, after 9:30 a.m. Eastern Time, there may be a protected bid or offer displayed by the Exchange that a User who has submitted an ISO designated RHO would like to execute against, and this aspect of the proposal would permit such an execution to occur prior to the ISO being converted into a non-ISO and queued for participation in the Opening Process.41 In addition, the Exchange states that the proposed Contingent Opening Process is designed 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 because it will help to ensure that the Exchange opens trading in a fair and orderly manner by providing a means for opening trading in a security when there is no two-sided NBBO in the security for fifteen minutes after the beginning of Regular Trading Hours.42 The Exchange believes that fifteen minutes is a reasonable amount of time to wait for the establishment of a two-sided NBBO because it marks a point at which the market in a security has had a sufficient amount of time to develop while simultaneously providing a reasonable cut-off point at which the Exchange may open the security for Regular Trading Hours trading.43 The Exchange also believes that handling all orders queued for participation in the Opening Process in time sequence after fifteen minutes will help to ensure that trading opens in as fair and orderly a manner as possible.44 Lastly, the Exchange states that the proposed Opening Process will provide Users with greater control and flexibility when entering orders in securities by allowing them to enter orders for participation in Regular Hours Trading during the Pre-Opening Session, rather than permitting them to enter such orders only after Regular Trading Hours have begun.45 According to the Exchange, allowing Users that do not want to participate in the Pre-Opening Session to enter RHO orders prior to Regular Trading Hours will simplify the order entry process for such Users and remove impediments to a free and open market.46 For the reasons noted above, the Commission finds that the proposed 40 Id.; 41 See see also 17 CFR 242.600. Notice, supra note 3, 79 FR at 56414. 42 Id. 43 Id. 44 Id. 45 Id. 46 Id. E:\FR\FM\05NON1.SGM 05NON1 65738 Federal Register / Vol. 79, No. 214 / Wednesday, November 5, 2014 / Notices rule change is consistent with the Act, including Section 6(b)(5) of the Act,47 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. herein are effective upon filing, the Exchange has designated that the amendments be operative on November 3, 2014. The text of the proposed rule change is also available on the Exchange’s Web site at https://nasdaqomxbx.cchwall street.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,48 that the proposed rule change, SR–BYX–2014– 018, be, and hereby is, approved. 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 aspects of such statements. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.49 Brent J. Fields, Secretary. [FR Doc. 2014–26230 Filed 11–4–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73470; File No. SR–BX– 2014–053] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule Under Exchange Rule 7018(a) With Respect to Transactions in Securities Priced at $1 per Share or More October 30, 2014. mstockstill on DSK4VPTVN1PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 23, 2014, NASDAQ OMX BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the fee schedule under Exchange Rule 7018(a) with respect to transactions in securities priced at $1 per share or more. While the changes proposed 47 15 U.S.C. 78f(b)(5). U.S.C. 78s(b)(2). 49 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 48 15 VerDate Sep<11>2014 17:42 Nov 04, 2014 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to increase a credit provided to member firms applicable to transactions in securities priced at $1 or more under BX Rule 7018(a). Specifically, the Exchange proposes to increase the credit provided to all members that enter an order that executes against a midpoint pegged order. Currently, the Exchange provides a credit of $0.0003 per share executed for such an order. The Exchange is proposing to increase the credit provided to $0.0005 per share executed. The Exchange believes that the proposed increase in the credit provided to member firms for removing midpoint liquidity will encourage firms to access more resting midpoint liquidity before routing to other destinations for price improvement opportunities. 2. Statutory Basis BX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,3 in general, and Sections 6(b)(4) and (b)(5) of the Act,4 in particular, because it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system that the Exchange operates or controls, and it does not unfairly discriminate between 3 15 4 15 Jkt 235001 PO 00000 U.S.C. 78f. U.S.C. 78f(b)(4), (5). Frm 00124 Fmt 4703 customers, issuers, brokers or dealers. The proposed rule change is reflective of the Exchange’s ongoing efforts to use rebates and discounted execution fees to attract orders that the Exchange believes will improve market quality. Generally, the Exchange seeks to provide members with discounts that they deem helpful, and to eliminate those that they do not. The Exchange believes that the proposed change is reasonable because it promotes these goals by providing an increased credit to member firms that remove liquidity at the midpoint. In this regard, the Exchange believes that this credit will incentivize member firms to execute against midpoint liquidity and this, in turn, will lead to an increase in price improvement and liquidity, which generally benefits the investing public. Moreover, the proposed change is reasonable as it is a pro-competitive price reduction designed to enhance the Exchange’s position in the marketplace and broaden the execution opportunities for BX members. The Exchange also believes that the proposed increase in the credit is reasonable because it reflects the availability of what is, in effect, a price reduction for all members that execute against a midpoint pegged order. The Exchange believes that the proposed credit increase is consistent with an equitable allocation of fees and is not unfairly discriminatory because the rebate applies uniformly across all members [sic] firms and is provided to those firms that elect to execute against midpoint pegged orders. BX notes that it operates in a highly competitive market in which market participants can easily and readily favor competing venues if they deem fee levels at a particular venue to be excessive or rebate opportunities to be insufficient. In such an environment, BX must continually adjust its fees or rebates to remain competitive with other exchanges. BX believes that the proposed rule change reflects this very competitive environment because it is designed to ensure that the credits for participation on BX attract order flow that improves the market for all participants. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.5 BX notes that it operates in a highly competitive market in which market participants can readily favor over 40 5 15 Sfmt 4703 U.S.C. 78f(b)(8). E:\FR\FM\05NON1.SGM 05NON1

Agencies

[Federal Register Volume 79, Number 214 (Wednesday, November 5, 2014)]
[Notices]
[Pages 65735-65738]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26230]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73472; File No. SR-BYX-2014-018]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change To Establish an Opening 
Process

October 30, 2014.

I. Introduction

    On September 3, 2014, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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 add new BATS Rule (``Rule'') 11.23, entitled 
``Opening Process,'' and to make several corresponding changes, in 
order to modify the manner in which the Exchange opens trading in 
individual securities at the beginning of the day and after trading 
halts. The proposed rule change was published for comment in the 
Federal Register on September 19, 2014.\3\ The Commission did not 
receive any comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73094 (September 15, 
2014), 79 FR 56411 (``Notice'').
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II. Description of the Proposal

    The Exchange has proposed to implement a process for opening 
trading at the beginning of Regular Trading Hours \4\ and re-opening 
trading in such securities following a trading halt. Currently, the 
Exchange accepts orders during the Pre-Opening Session,\5\ and any such 
orders are immediately eligible for execution. Orders that are on the 
BATS Book \6\ at the beginning of Regular Trading Hours remain on the 
BATS Book, subject to the User's instructions, and trading continues 
into Regular Trading Hours without any transition period. Upon a halt, 
the Exchange currently cancels all orders on the BATS Book and does not 
accept any orders until the halt is lifted. The Exchange does not 
currently have a Regular Hours Only (``RHO'') time-in-force.
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    \4\ Regular Trading Hours is defined in Rule 1.5(w).
    \5\ Pre-Opening Session is defined in Rule 1.5(r).
    \6\ BATS Book is defined in Rule 1.5(e).
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    Under the proposal, the Exchange would amend its rules to allow 
orders to be designated RHO, and would accept and queue any such orders 
during the Pre-Opening Session for execution at

[[Page 65736]]

the midpoint of the NBBO \7\ shortly after the beginning of Regular 
Trading Hours (the ``Opening Process'').\8\ The Exchange also has 
proposed to implement a similar process for re-opening trading after a 
halt, suspension, or pause (collectively, a ``Halt''), under which a 
User's orders would remain on the BATS Book unless the User has 
designated that they be cancelled upon a Halt (the ``Re-Opening 
Process'').
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    \7\ NBBO is defined in Rule 1.5(o).
    \8\ Only orders designated RHO would be queued for Opening 
Process participation when submitted during the Pre-Opening Session; 
orders not so designated would continue to be executable immediately 
upon entry during the Pre-Opening Session.
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    Specifically, the Exchange has proposed new Rule 11.9(b)(7), which 
would define RHO as a time-in-force modifier that applies to all 
securities.\9\ Prior to the beginning of Regular Trading Hours, Users 
\10\ that wish to participate in the Opening Process may enter orders 
to buy or sell with a time in force of RHO.\11\ All orders that are 
marked as RHO may participate in the Opening Process except BATS Post 
Only Orders, Partial Post Only at Limit Orders, ISO orders not modified 
by Rule 11.23(a)(1) (as described below), and Minimum Quantity 
Orders.\12\ Limit orders with a Reserve Quantity could participate to 
the full extent of their displayed size and Reserve Quantity.\13\ 
Discretionary Orders could participate only up to their ranked price 
for buy orders or down to their ranked price for sell orders; the 
discretionary range of such orders would not be eligible for 
participation in the Opening Process.\14\ All Pegged Orders and Mid-
Point Peg Orders would be eligible for execution in the Opening Process 
based on their pegged prices.\15\ Orders cancelled before the Opening 
Process and orders not designated RHO would not be eligible to 
participate in the Opening Process.\16\
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    \9\ See proposed Rule 11.9(b)(7). The Exchange also has proposed 
to delete the word ``limit'' from Rule 11.9(b) because a RHO order 
can be either a limit order or a market order. See proposed Rule 
11.9(b).
    \10\ User is defined in Rule 1.5(cc).
    \11\ See proposed Rule 11.23(a).
    \12\ See proposed Rule 11.23(a)(2). For the definitions of BYX's 
order types, see Rule 11.9.
    \13\ See proposed Rule 11.23(a)(2).
    \14\ Id.
    \15\ Id.
    \16\ See proposed Rule 11.23(a).
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    Pursuant to proposed Rule 11.23(a)(1), during the period between 
9:30 a.m. Eastern Time and the occurrence of the Opening Process, all 
non-RHO orders, subject to order instructions, and ISOs designated RHO 
may execute against eligible Pre-Opening Session contra-side interest 
resting in the BATS Book.\17\ The Exchange has proposed to convert any 
unexecuted portion of an ISO designated RHO entered during this period 
into a non-ISO and queue the order for participation in the Opening 
Process.\18\
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    \17\ See proposed Rule 11.23(a)(1).
    \18\ Id.
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    The Exchange has proposed to implement the Opening Process shortly 
after the beginning of Regular Trading Hours, at which point the 
Exchange would attempt to execute all orders eligible for the Opening 
Process in a particular security at the midpoint of the NBBO.\19\ All 
such orders would be processed in time sequence beginning with the 
order with the oldest time stamp, and would be matched until there is 
no remaining volume or there is an order imbalance.\20\ All MTP 
modifiers would be ignored during the matching process.\21\ If no 
matches can be made, or if orders are not executed in whole or part due 
to an imbalance, the Opening Process would conclude with all orders 
that participated in the Opening Process being placed in the BATS Book, 
cancelled, executed, or routed to away Trading Centers \22\ in 
accordance with Rule 11.13(a)(2).\23\ The Exchange notes that because 
an RHO order is not executable until the Opening Process (rather than 
upon entry), to the extent that any RHO order is not executed during 
the Opening Process and is placed on the BATS Book, such order will 
receive a time stamp that reflects the time that the order was placed 
on the BATS Book during the Opening Process and not the time that the 
order was entered for queuing.\24\
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    \19\ See proposed Rule 11.23(a)(3).
    \20\ Id. According to the Exchange, time priority is more 
appropriate for the Opening Process than price-time priority because 
the price of the order is not particularly important to the Opening 
Process, so long as the order is priced at or more aggressively than 
the midpoint of the NBBO. As such, the Exchange believes that there 
is no reason to reward a more aggressive order with priority in the 
Opening Process. See Notice, supra note 3, 79 FR at 56412-13.
    \21\ See proposed Rule 11.23(b).
    \22\ Trading Center is defined in Rule 2.11(a).
    \23\ See proposed Rule 11.23(b).
    \24\ See Notice, supra note 3, 79 FR at 56413.
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    Under proposed Rule 11.23(c), the NBBO that the Exchange would use 
for purposes of setting the Opening Process price would be: (a) When 
the listing exchange is either the NYSE or NYSE MKT, the first NBBO 
subsequent to the first reported trade on the listing exchange after 
9:30:00 a.m. Eastern Time, or the then-prevailing NBBO when the first 
two-sided quotation is published by the listing exchange after 9:30:00 
a.m. Eastern Time, if no first trade is reported by the listing 
exchange within one second of publication of the first two-sided 
quotation by the listing exchange; or (b) for any other listing market, 
the first NBBO disseminated after 9:30:00 a.m. Eastern Time.\25\ The 
Exchange has proposed to differentiate its calculation of the NBBO for 
NYSE and NYSE MKT-listed securities from its calculation of the NBBO 
for securities listed on other exchanges because NYSE and NYSE MKT do 
not offer continuous trading prior to 9:30:00 a.m. Eastern Time whereas 
the other listing exchanges do offer continuous trading prior to 
9:30:00 a.m. Eastern Time. Thus, according to the Exchange, the market 
for trading in NYSE and NYSE MKT-listed securities may take a moment to 
develop after 9:30:00 a.m. Eastern Time whereas the market for 
securities listed on other exchanges is more fully developed 
immediately after 9:30:00 a.m. Eastern Time.\26\
---------------------------------------------------------------------------

    \25\ See proposed Rule 11.23(c).
    \26\ See Notice, supra note 3, 79 FR at 56413.
---------------------------------------------------------------------------

    If the conditions to establish the price of the Opening Process set 
forth under proposed Rule 11.23(c) do not occur by 9:45:00 a.m. Eastern 
Time, the Exchange has proposed to implement a contingent opening 
process (the ``Contingent Open Process'') under which, instead of being 
matched at the midpoint of the NBBO, orders would be handled in time 
sequence, beginning with the order with the oldest time stamp, and 
placed on the BATS Book, routed, cancelled, or executed in accordance 
with the terms of the order.\27\ The Exchange notes that, because an 
RHO order is not executable until the Opening Process (rather than upon 
entry), any order subject to the Contingent Open Process that is placed 
on the BATS Book would receive a time stamp that reflects the time that 
the order was placed on the BATS Book during the Opening Process and 
not the time that the order was entered for queuing.\28\
---------------------------------------------------------------------------

    \27\ See proposed Rule 11.23(d).
    \28\ See Notice, supra note 3, 79 FR at 56413.
---------------------------------------------------------------------------

    In addition, the Exchange has proposed that, in the event of a 
Halt, all outstanding orders in the System \29\ will remain on the BATS 
Book except where a User has designated that its orders be 
cancelled.\30\ While a security is subject to a Halt, the Exchange 
would accept and queue orders, prior to the resumption of trading in 
the security, for participation in the Re-Opening Process.\31\ The Re-
Opening Process would occur in the same manner as the Opening Process 
described above, with the following exceptions: (1) Non-RHO orders 
would be eligible for

[[Page 65737]]

participation in the re-opening, but IOC, FOK, BATS Post Only Orders, 
Partial Post Only at Limit Orders, and Minimum Quantity Orders would be 
cancelled or rejected, as applicable, and any ISO that is not IOC or 
FOK would be converted into a non-ISO and be queued for participation 
in the re-opening; and (2) the re-opening would occur at the midpoint 
of: (i) The first NBBO subsequent to the first reported trade on the 
listing exchange following the resumption of trading after a Halt; or 
(ii) the NBBO when the first two-sided quotation is published by the 
listing exchange following the resumption of trading after a Halt if no 
first trade is reported by the listing exchange within one second of 
publication of the first two-sided quotation by the listing 
exchange.\32\ The Exchange has proposed that, where neither of the 
above conditions required to establish the price of the re-opening have 
occurred, the security may be re-opened for trading at the discretion 
of the Exchange and orders will be handled in the same manner as they 
are in the Contingent Open Process.\33\
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    \29\ System is defined in Rule 1.5(aa).
    \30\ See proposed Rule 11.18(f).
    \31\ See proposed Rule 11.23(e).
    \32\ See proposed Rule 11.23(e)(1). The Exchange has proposed to 
wait until the sooner of the first execution on the listing market 
or one second following the publication of the first two-sided 
quotation by the listing exchange because no continuous trading 
occurs on any exchange during a Halt and, according to the Exchange, 
waiting will provide time for the market to become more fully 
established before determining the price at which the Re-Opening 
Process will occur.
    \33\ See proposed Rule 11.23(e)(2).
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III. Discussion and Commission Findings

    After careful review, 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.\34\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\35\ 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.
---------------------------------------------------------------------------

    \34\ 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).
    \35\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal is consistent with the Act 
because it is designed to create a more orderly process for opening and 
re-opening trading in securities, and to facilitate price formation. 
Specifically, the Exchange believes that the proposed Opening Process 
will create a more orderly opening for securities and help facilitate 
the price formation process at the beginning of Regular Trading Hours 
because allowing Users to enter orders during the Pre-Opening Session 
for queuing and participation in the Opening Process should help 
prevent the submission of a flood of orders immediately following the 
beginning of Regular Trading Hours.\36\ For similar reasons, the 
Exchange believes that the proposed Re-Opening Process will create a 
more orderly re-opening in securities following a Halt and help 
facilitate price formation.\37\ In addition, the Exchange states that 
allowing certain RHO orders (ISOs designated RHO) and all non-RHO 
orders to interact (and, in the case of non-RHO orders, to be added to 
the BATS Book where there is no contra-side interest) during the period 
between 9:30 a.m. Eastern Time and the occurrence of the Opening 
Process will create a more orderly opening and facilitate the price 
formation process because Users will have the option to enter orders 
that will either participate in the Opening Process or immediately 
interact with liquidity from the Pre-Opening Session, allowing trading 
to continue while the Exchange is waiting for the conditions necessary 
to complete the Opening Process.\38\
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    \36\ See Notice, supra note 3, 79 FR at 564214. The Exchange 
further states that, because the Opening Process price will be the 
midpoint of the NBBO, the Opening Process will occur at a price that 
is based on the best available pricing under current market 
conditions, which also will help create a more orderly opening and 
facilitate the price formation process. Id. at 56414.
    \37\ Id. at 56414.
    \38\ Id.
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    The Exchange also believes that certain features of the Opening 
Process and Re-Opening Process are consistent with the Act. The 
Exchange states that the proposed exclusion of BATS Post Only Orders, 
Partial Post Only at Limit Orders, ISOs, and Minimum Quantity Orders 
from participation in the Opening Process is consistent with Section 
6(b)(5) of the Act because such order types do not make sense in the 
context of queuing orders for the Opening Process.\39\ Moreover, 
according to the Exchange, its proposal to allow an ISO marked RHO to 
execute against eligible Pre-Opening Session interest during the period 
between 9:30 a.m. Eastern Time and the occurrence of the Opening 
Process, and then convert the unexecuted portion of the order into a 
non-ISO for queuing for participation in the Opening Process, is 
consistent with the requirements of Regulation NMS.\40\ According to 
the Exchange, after 9:30 a.m. Eastern Time, there may be a protected 
bid or offer displayed by the Exchange that a User who has submitted an 
ISO designated RHO would like to execute against, and this aspect of 
the proposal would permit such an execution to occur prior to the ISO 
being converted into a non-ISO and queued for participation in the 
Opening Process.\41\
---------------------------------------------------------------------------

    \39\ Id.
    \40\ Id.; see also 17 CFR 242.600.
    \41\ See Notice, supra note 3, 79 FR at 56414.
---------------------------------------------------------------------------

    In addition, the Exchange states that the proposed Contingent 
Opening Process is designed 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 because it will 
help to ensure that the Exchange opens trading in a fair and orderly 
manner by providing a means for opening trading in a security when 
there is no two-sided NBBO in the security for fifteen minutes after 
the beginning of Regular Trading Hours.\42\ The Exchange believes that 
fifteen minutes is a reasonable amount of time to wait for the 
establishment of a two-sided NBBO because it marks a point at which the 
market in a security has had a sufficient amount of time to develop 
while simultaneously providing a reasonable cut-off point at which the 
Exchange may open the security for Regular Trading Hours trading.\43\ 
The Exchange also believes that handling all orders queued for 
participation in the Opening Process in time sequence after fifteen 
minutes will help to ensure that trading opens in as fair and orderly a 
manner as possible.\44\
---------------------------------------------------------------------------

    \42\ Id.
    \43\ Id.
    \44\ Id.
---------------------------------------------------------------------------

    Lastly, the Exchange states that the proposed Opening Process will 
provide Users with greater control and flexibility when entering orders 
in securities by allowing them to enter orders for participation in 
Regular Hours Trading during the Pre-Opening Session, rather than 
permitting them to enter such orders only after Regular Trading Hours 
have begun.\45\ According to the Exchange, allowing Users that do not 
want to participate in the Pre-Opening Session to enter RHO orders 
prior to Regular Trading Hours will simplify the order entry process 
for such Users and remove impediments to a free and open market.\46\
---------------------------------------------------------------------------

    \45\ Id.
    \46\ Id.
---------------------------------------------------------------------------

    For the reasons noted above, the Commission finds that the proposed

[[Page 65738]]

rule change is consistent with the Act, including Section 6(b)(5) of 
the Act,\47\ 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.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\48\ that the proposed rule change, SR-BYX-2014-018, be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2014-26230 Filed 11-4-14; 8:45 am]
BILLING CODE 8011-01-P
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