Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend Rule 11.23, “Auctions”, 20544-20548 [2015-08696]
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Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices
Dated: April 10, 2015.
Brent J. Fields,
Secretary.
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
[FR Doc. 2015–08694 Filed 4–15–15; 8:45 am]
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20549–2736.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74702; File No. SR–BATS–
2015–31]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Amend Rule 11.23,
‘‘Auctions’’
April 10, 2015.
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 April 1,
2015, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Exchange has designated this proposal
as a ‘‘non-controversial’’ proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 11.23, entitled ‘‘Auctions.’’
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
2 17
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Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to make
several changes to Rule 11.23 in order
to improve the Exchange auction
process. Specifically, the Exchange is
proposing to make several minor
changes to Rule 11.23, which include:
(i) To eliminate from each of the
Opening Auction, Closing Auction, IPO
and Halt Auction, and Volatility Closing
Auction the language stating that an
auction will occur at the price of the
Volume Based Tie Breaker (or
‘‘VBTB’’),5 Final Last Sale Eligible
Trade,6 or issuing price, as applicable,
where no limit orders from one or both
sides would participate in the auction;
(ii) to amend the definition of Volume
Based Tie Breaker; (iii) to amend the
definition of Reference Price Range; 7
(iv) to amend the definition of LateLimit-On-Close 8 (‘‘LLOC’’) and LateLimit-On-Open 9 (‘‘LLOO’’); and (v) to
make a non-substantive change to delete
the definitions of ZBB,10 ZBO,11 and
ZBBO.12
Limit Order Participation
Currently, each of Rules
11.23(b)(2)(B), (c)(2)(B), (d)(2)(C), and
(e)(2)(B) contain language that provides
an alternate price at which an auction
will occur where no limit orders from
one or both sides (the buy side, the sell
side, or both the buy and sell side)
would otherwise participate in an
auction (an ‘‘Alternate Price’’). For
Opening and Closing Auctions the
Alternate Price is the Volume Based Tie
Breaker; for Halt and Volatility Closing
Auctions the Alternate Price is the Final
Last Sale Eligible Trade; and for IPO
Auctions the Alternate Price is the
issuing price. While the Exchange
added the Alternate Price requirement
in order to ensure that, for auctions with
minimal liquidity, either limit orders
were participating in the auction and
would aid in price discovery or that the
auction would occur at a predetermined price, this protection has,
5 As
defined in BATS Rule 11.23(a)(23).
defined in BATS Rule 11.23(a)(9).
7 As defined in BATS Rule 11.23(a)(20).
8 As defined in BATS Rule 11.23(a)(11).
9 As defined in BATS Rule 11.23(a)(12).
10 As defined in BATS Rule 11.23(a)(24).
11 Id.
12 Id.
6 As
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based on analysis by the Exchange and
feedback from issuers and market
participants, resulted in orders not
receiving executions in auctions that
would have otherwise occurred at prices
that would have been acceptable to both
parties to the execution that did not
occur. To illustrate this point, the
Exchange presents the following
example: At the time that an Opening
Auction is occurring, there is no ZBBO
and the NBBO is $9.90 × $10.10. In this
situation, the Volume Based Tie Breaker
would be the midpoint of the NBBO,13
which would be $10.00.14 Based on a
Volume Based Tie Breaker of $10.00, the
Collar Price Range 15 would be $9.00 to
$11.00 (the range from 0.90*VBTB to
1.10*VBTB). In this example, there are
only two orders on the Auction Book 16
for the security: A Limit-On-Open17 buy
order for 100 shares with a limit price
of $9.99 and a Market-On-Open 18 sell
order for 100 shares. Without the
requirement that the auction occur at
the Alternate Price where a limit order
from both sides does not participate in
the auction, there would have been an
execution of 100 shares in the Opening
Auction at $9.99.19 However, because
13 See supra note 4 [sic]. By definition, where
there is no ZBBO, the Volume Based Tie Breaker
will be the midpoint of the NBBO.
14 The Exchange notes that it is proposing to
amend the definition of Volume Based Tie Breaker,
as further described below, but none of the
proposed changes would affect the outcome of this
example.
15 See BATS Rule 11.23(a)(6). By definition, for
Opening Auctions where the Volume Based Tie
Breaker is $25.00 or less, the Collar Price Range
shall be the range from 10% below the VBTB to
10% above the VBTB, which would be $9.00 to
$11.00 in the example above.
16 As defined in BATS Rule 11.23(a)(1).
17 As defined in BATS Rule 11.23(a)(14).
18 As defined in BATS Rule 11.23(a)(16).
19 Absent the existing Alternate Price language,
the price of the Opening Auction in the above
described example would be determined by the first
two sentences of BATS Rule 11.23(b)(2)(B), which
provide the following: ‘‘The Opening Auction price
will be established by determining the price level
within the Collar Price Range that maximizes the
number of shares executed between the Continuous
Book and Auction Book in the Opening Auction. In
the event of a volume based tie at multiple price
levels, the Opening Auction price will be the price
closest to the Volume Based Tie Breaker.’’ In the
example described above, there would be an equal
number of shares that could be executed at every
price level from $9.00 to $9.99, however the price
of the auction would be $9.99 because that is the
price level at which there is a volume based tie that
is closest to the Volume Based Tie Breaker. Such
language is currently the basis for determining the
price of every auction that occurs on the exchange
except in those instances that there is no limit
interest participating in one or both sides or no
auction occurs (noting that the Opening and Closing
Auctions both use VBTB, while Halt and Volatility
Closing Auctions use the Final Last Sale Eligible
Trade and IPO Auctions use the issue price for
resolving ties at multiple price levels). Further, in
the event that there is no limit interest that would
participate on either side of an auction (i.e. only
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there would be no limit orders on the
sell side that would participate in the
Opening Auction, under current
functionality the Opening Auction
would be forced to occur at the Volume
Based Tie Breaker, which is $10.00.
However, because the limit price of the
Limit-On-Open buy order is $9.99, no
execution will occur, both orders will be
cancelled, and trading will transition
into Regular Trading Hours.20 This
example is identical to how a Closing
Auction would occur and is nearly
identical to examples of how the
Alternate Price could affect other
auctions.
The Exchange is proposing to
eliminate the language that provides an
Alternate Price at which an auction will
occur where no limit orders from one or
both sides (the buy side, the sell side,
or both the buy and sell side) would
otherwise participate in an auction. As
proposed, the example constructed
above would result in an execution of
100 shares at $9.99, which would
represent a full execution for both
orders. It’s worth noting that the LimitOn-Open order could have been priced
as low as $9.00 (the low end of the
Collar Price Range) and the auction
would have occurred at the price of the
Limit-On-Open order. The Exchange
originally added the language that it is
proposing to delete as part of a proposal
to eliminate the possibility that a single,
non-marketable limit order could affect
the price at which an auction
occurred.21, 22 The resulting rule text,
market interest on both sides), such language would
create the same auction price (the Alternate Price)
as the language that the Exchange is proposing to
delete because there would be a tie at every price
level within the Collar Price Range, meaning that
the price would default to the Alternate Price.
20 As defined in BATS Rule 1.5(w).
21 See Securities Exchange Act Release No. 68788
(January 31, 2013), 78 FR 8640 (February 6, 2013)
(SR–BATS–2012–046) (the ‘‘Filing’’). On pages 7
and 8 of the Filing, the Exchange provides: ‘‘Where
no limit orders from either or both sides would
participate in the auction, the Exchange is
proposing that the auction will occur at the price
of the Default Price. By providing that the auction
price will be the Default Price where no limit orders
from one or both sides would participate in an
Exchange Auction, this proposed language [sic]
would aid in price discovery and help to prevent
erroneous executions by ensuring that a single limit
order on one side of an auction that might not even
participate in the Exchange Auction cannot on its
own determine the auction price.’’
22 Prior to the changes implemented upon
approval of the Filing, the language for Opening
and Closing Auctions that preceded the current
Alternate Price language read as follows: ‘‘In the
event that at the time of the [auction] there are no
limit orders on both the Continuous Book and the
Auction Book, the [auction] will occur at the price
of the Final Last Sale Eligible Trade.’’ For IPO and
Halt Auctions, the language read as follows: ‘‘In the
event that there are no limit orders among the
Eligible Auction Orders for a [auction], the [auction]
will occur at the [Alternate Price].
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20545
however, took the solution beyond
merely preventing a single limit order
from determining the price at which an
auction would occur and instead
provided that limit interest on both
sides must participate in an auction or
the auction would be forced to occur at
an Alternate Price. The Exchange now
believes, however, that the current rule
text adopted the wrong approach to
solving the problem described above,
which has resulted in the unnecessary
prevention of certain otherwise
marketable limit orders, such as the
$9.99 Limit On Open order from the
example above, from executing in
auctions on the Exchange. Further, the
Exchange also believes that the current
rule text creates an overly restrictive
collar on market orders entered to
participate in auctions under the
conditions described above: where no
limit orders participate on one or both
sides of the market, a market order can
never be priced more aggressively than
the Alternate Price. The Exchange
believes that the rule text results in the
treatment of market orders that differs
from the general understanding of how
market orders are priced and, as
mentioned above, the Exchange has
received feedback from market
participants and issuers indicating an
agreement with this belief. The
proposed amendments would result in
market orders being treated in a manner
similar to aggressively priced limit
orders, which is more in line with the
generally understood definition of a
market order. This feedback from
stakeholders along with an internal
review of auctions occurring on the
Exchange that arrived at similar
conclusions have led the Exchange to
believe that allowing market orders to
execute at any point within the Collar
Price Range regardless of whether any
limit interest would participate in the
auction will allow executions to occur
in the auctions at prices that are more
reflective of market conditions at the
time of the auction by allowing
marketable limit orders priced within
the Collar Price Range to interact with
contra-side market orders. The
Exchange notes that both market and
limit orders will still have several
protections in place as auctions can
only occur within the Collar Price Range
and the protections afforded under the
Exchange’s clearly erroneous rules in
BATS Rule 11.17 also apply to
executions that occur in an auction.
Volume Based Tie Breaker
Currently, the term ‘‘Volume Based
Tie Breaker’’ shall mean the midpoint of
the ZBBO for a particular security. In
the event that there is either no ZBB or
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ZBO for the security, the NBBO will be
used if there is at least one limit order
on either the Continuous Book 23 or the
Auction Book. In the event that there is
also no NBB or NBO for the security or
no limit orders on the Continuous Book
and the Auction Book, the price of the
Final Last Sale Eligible Trade will be
used.
The Exchange is proposing to
eliminate the concept of ZBBO from the
definition of Volume Based Tie Breaker.
Specifically, the Exchange is proposing
to amend the definition such that the
Volume Based Tie Breaker will either be
the midpoint of the NBBO or the price
of the Final Last Sale Eligible Trade.
The Exchange is also proposing to
validate a NBBO prior to using the
midpoint of that NBBO as the Volume
Based Tie Breaker. Specifically, the
Exchange is proposing to validate that a
NBBO is sufficiently tight to use the
NBBO as a basis for establishing the
Volume Based Tie Breaker as follows: A
NBBO is a valid NBBO where (i) there
is both a NBB and NBO for the security;
(ii) the NBBO is not crossed; and (iii)
the midpoint of the NBBO is less than
the Maximum Percentage away from
both the NBB and the NBO. The
Maximum Percentage will be
determined by the Exchange and will be
published in a circular distributed to
Members with reasonable advance
notice prior to initial implementation
and any change thereto. The Exchange
will retain discretion to set and adjust
the Maximum Percentage as it deems
appropriate, but notes that the
Maximum Percentage will never exceed
the clearly erroneous thresholds from
BATS Rule 11.17 based on the price of
the security and that it will
communicate any changes to the
Maximum Percentage via circular to
Members. The Exchange has monitored
its auction process historically and
believes that the initial levels that it sets
for the Maximum Percentage will be
appropriate. The Exchange does not
anticipate adjusting the Maximum
Percentage on a regular basis, however
it will continue to monitor its auction
process going forward and believes that
retaining the discretion to increase or
decrease the Maximum Percentage in
order to adjust the threshold for what it
believes to be a sufficiently narrow
NBBO to choose a reasonable Volume
Based Tie Breaker will allow it the
administrative flexibility to make
adjustments that will ensure sufficient
protections for all participants in
auctions on the Exchange. The
Exchange notes that it will not apply
separate standards for the Maximum
23 As
defined in BATS Rule 11.23(a)(7).
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Percentage on a security by security
basis. Further, this discretion applies to
only one of three factors in determining
whether a NBBO is a Valid NBBO and
where the NBBO is determined not to be
a Valid NBBO, the Volume Based Tie
Breaker will still be based on market
conditions: the Final Last Sale Eligible
Trade will be used instead of the
midpoint of the NBBO. As part of this
proposal, the Exchange would also
eliminate the rule text requiring that
there be a limit order on either the
Continuous Book or the Auction Book
for the midpoint of the NBBO to be used
as the Volume Based Tie Breaker.
Reference Price Range
Currently, the term Reference Price
Range means the range from the ZBB to
the ZBO for a particular security. In the
event that there is either no ZBB or ZBO
for the security, the NBBO will be used
if there is at least one limit order on
either the Continuous Book or the
Auction Book. In the event that there is
also either no NBB or NBO for the
security or no limit orders on the
Continuous Book and the Auction Book,
the price of the Final Last Sale Eligible
Trade will be used.
The Exchange is proposing to amend
the definition of Reference Price Range
in order to eliminate the concept of
ZBBO from the calculation of the
Reference Price Range. Specifically, the
Exchange is proposing to amend the
definition such that the Reference Price
Range will either be the range from the
NBB to the NBO for a particular security
or the price of the Final Last Sale
Eligible Trade. As part of this proposal,
the Exchange would also eliminate the
rule text requiring that there be a limit
order on either the Continuous Book or
the Auction Book for the Reference
Price Range to be the range from the
NBB to the NBO.
LLOC and LLOO
The Exchange is proposing to amend
the definition of LLOC and LLOO orders
to eliminate the use of ZBBO in pricing
the orders. Currently, the Exchange first
looks to the ZBBO to determine the
most aggressive price that LLOC and
LLOO orders can be priced and, where
there is no ZBB or ZBO, the Exchange
instead looks to the NBB or NBO,
respectively. Where there is no NBB or
NBO, the Exchange allows the LLOC or
LLOO bid or offer, respectively, to be
priced at its entered limit price. The
Exchange is proposing to eliminate the
ZBBO component of the process and
instead to either restrict an order’s price
based on the NBBO or, absent either a
NBB or NBO, to allow a bid or offer,
respectively, to be priced at its entered
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limit price. As part of these proposed
changes, the Exchange is also proposing
to add language to make clear that a
LLOC or LLOO bid will only be priced
as aggressively as the NBB, even if there
is no NBO and that an offer will only
be priced as aggressively as the NBO,
even if there is no NBB. Currently, the
rule states that if there is no NBBO, the
LLOC or LLOO will assume its entered
limit price. The Exchange is proposing
to make clear that where there is no
NBB, a LLOC or LLOO bid will assume
its entered limit price and where there
is no NBO, a LLOC or LLOO offer will
assume its entered limit price. A LLOC
or LLOO bid will not assume its entered
price only because there is no NBO and
a LLOC or LLOO offer will not assume
its entered price only because there is
no NBB. This is consistent with existing
behavior and is merely intended to
provide additional clarity about how
LLOC and LLOO orders are priced.
ZBBO
In conjunction with the changes
proposed above, the Exchange is also
proposing to delete Rule 11.23(a)(24)
which defines the terms ZBB, ZBO, and
ZBBO because the Exchange is also
proposing to delete each reference to
ZBB, ZBO, and ZBBO in its rules and
the definition is no longer necessary.
2. Statutory Basis
The Exchange believes that the rule
change proposed in this submission is
consistent with the requirements of the
Act and the rules and regulations
thereunder that are applicable to a
national securities exchange, and, in
particular, with the requirements of
Section 6(b) of the Act.24 Specifically,
the proposed change is consistent with
Section 6(b)(5) of the Act,25 because it
would 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
interest. Generally, the Exchange
believes that the proposed changes will
improve the price discovery process for
securities listed on the Exchange along
with those additional benefits
enumerated below.
Limit Order Participation
The Exchange believes that the
proposed amendments to each of the
Opening Auction, Closing Auction, IPO
and Halt Auction, and Volatility Closing
Auction would promote just and
equitable principles of trade, remove
24 15
25 15
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U.S.C. 78f(b)(5).
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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
interest in that it would eliminate a
protection from the auction process that,
as described above, was more restrictive
than anticipated. As stated above, the
current implementation that provides
that an auction must occur at an
Alternate Price where there would not
be limit order participation on both
sides of an auction was intended to
eliminate the possibility that a single,
non-marketable limit order could affect
the price at which an auction
occurred.26 However, as illustrated by
the examples above, the current rule
text went beyond merely preventing a
single limit order from determining the
price at which an auction would occur
and instead provided that limit interest
on both sides must participate in an
auction or the auction would be forced
to occur at an Alternative Price. The
Exchange now believes, however, that
the current rule text adopted the wrong
approach to solving the problem
described above, which has resulted in
the unnecessary prevention of certain
otherwise marketable limit orders, such
as the $9.99 Limit On Open order from
the example above, from executing in
auctions on the Exchange. Further, the
Exchange also believes that the current
rule text creates an overly restrictive
collar on market orders entered to
participate in auctions under the
conditions described above: where no
limit orders participate on one or both
sides of the market, a market order can
never be priced more aggressively than
the Alternate Price. The Exchange
believes that the rule text results in the
treatment of market orders that differs
from the general understanding of how
market orders are priced and, as
mentioned above, the Exchange has
received feedback from market
participants and issuers indicating an
agreement with this belief. As such, the
Exchange believes that the proposal
would 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
interest by allowing executions to occur
in auctions at prices that are more
reflective of market conditions at the
time of the auction by allowing
marketable limit orders priced within
the Collar Price Range to interact with
contra-side market orders. The
Exchange emphasizes that it is not
proposing to allow market orders to
26 See
supra notes 21 and 22.
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participate in its auctions without any
price protections. Rather, the Exchange
is proposing to treat market orders in its
auctions in a manner broadly consistent
with the rules of other exchanges.27 The
Exchange believes that the Collar Price
Range, which is based on the clearly
erroneous standards in BATS Rule
11.17, and the clearly erroneous process
in BATS Rule 11.17, which applies to
executions in the auctions and could be
used to cancel any executions to which
it applies, provide sufficient protections
against executions in the auctions
occurring at extreme prices. As such,
the Exchange believes that a better
characterization is that the Exchange is
proposing to treat market orders in a
manner more similar to aggressively
priced limit orders, which is more in
line with the generally understood
meaning of a market order. With this in
mind, the Exchange believes that the
proposed amendments to eliminate the
Alternate Price where there would not
be limit order participation on both
sides of an auction would 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
interest.
Volume Based Tie Breaker
The Exchange believes that the
proposed amendments to the Volume
Based Tie Breaker would 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
interest in that it would ensure that the
Volume Based Tie Breaker would be
calculated using a full picture of the
market in a particular security by
looking to the NBBO instead of the
ZBBO, regardless of whether there are
any limit orders on the Continuous
Book or Auction Book. Because the
NBBO by definition accounts for the
ZBBO, the NBBO will always be equal
to or tighter than the ZBBO, which the
Exchange believes creates a Volume
Based Tie Breaker that better reflects
current market conditions. Further to
this point, the Exchange believes that
creating a process to validate the NBBO
27 See NYSE Arca, Inc. (‘‘Arca’’) Rule 7.35 and
NASDAQ Stock Market LLC (‘‘Nasdaq’’) Rules 4752,
4753, and 4754. While each of the exchanges have
very diverse rules governing auctions/crosses on
their respective venues, neither Arca nor Nasdaq
have a comparable requirement that unless limit
interest from both sides would participate in the
auction, the auction will occur at a default price.
As such, the Exchange believes that elimination of
the requirement is broadly consistent with the rules
of other exchanges.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
20547
or, where the NBBO is not valid, to use
the Final Last Sale Eligible Trade 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 and, in general, protect investors
and the public interest in that it will
ensure that the NBBO is sufficiently
tight to guarantee that the midpoint of
the NBBO would be a meaningful and
accurate Volume Based Tie Breaker.
Reference Price Range
The Exchange believes that the
proposed amendments to the definition
of Reference Price Range would 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
interest in that it would ensure that the
Reference Price Range would be
calculated using a full picture of the
market in a particular security by
looking to the NBBO instead of the
ZBBO, regardless of whether there are
any limit orders on the Continuous
Book or Auction Book. Because the
NBBO by definition accounts for the
ZBBO, the NBBO will always be equal
to or tighter than the ZBBO, which the
Exchange believes creates a Reference
Price Range that better reflects current
market conditions.
LLOC and LLOO
The Exchange believes that the
proposed amendments to the definition
of LLOC and LLOO would 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
interest in that it would ensure that the
LLOC and LLOO orders would be priced
using a full picture of the market in a
particular security by looking to the
NBBO instead of the ZBBO. Because the
NBBO by definition accounts for the
ZBBO, the NBBO will always be equal
to or tighter than the ZBBO, which the
Exchange believes provides a better
basis by which to price a LLOC or LLOO
order because it better reflects current
market conditions. The Exchange also
believes that the clarifying changes to
the definitions of LLOC and LLOO
explained above will contribute to the
protection of investors and the public
interest by making the functionality of
LLOC and LLOO orders as clear as
possible.
ZBBO
The Exchange believes that the nonsubstantive proposal to delete the
E:\FR\FM\16APN1.SGM
16APN1
20548
Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Notices
definitions of ZBB, ZBO, and ZBBO, as
discussed above, will contribute to the
protection of investors and the public
interest by eliminating the definition of
a term that is no longer used in the
Exchange’s Rules which will make the
Exchange’s Rules easier to understand
and help to avoid confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the act. To the
contrary, allowing the Exchange to make
the above proposed modifications to
Rule 11.23 in order to allow an auction
to occur at a price that is not the
Alternate Price where there isn’t limit
interest on both sides (Limit Order
Participation), to eliminate the use of
ZBB, ZBO, and ZBBO from the auction
process (Volume Based Tie Breaker,
Reference Price Range, LLOC and
LLOO, and ZBBO), to validate the
NBBO before using it to establish the
Volume Based Tie Breaker (Volume
Based Tie Breaker), and to eliminate the
requirement that there be at least one
limit order on either the Continuous
Book or the Auction Book in order to
use the NBBO for the Volume Based Tie
Breaker or the Reference Price (Volume
Based Tie Breaker and Reference Price)
will, in the aggregate, allow the
Exchange to better compete with other
exchanges as a listing venue by
improving the Exchange’s auction
process by allowing more executions to
occur at more reasonable prices that are
based on market-wide pricing. As
mentioned above, the Exchange has
received feedback from market
participants and issuers alike regarding
these issues and the proposed
amendments will both address this
feedback and improve the Exchange’s
auction process, allowing it to better
compete as both a listing and execution
venue.
tkelley on DSK3SPTVN1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
the proposed rule change. The Exchange
has, however, as described above,
received unsolicited comments from
both Members and issuers that helped
lead to the changes proposed herein.
VerDate Sep<11>2014
16:48 Apr 15, 2015
Jkt 235001
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 28 and Rule
19b–4(f)(6) thereunder.29 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 30 and Rule 19b–4(f)(6)
thereunder.31
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BATS–2015–31 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
28 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
30 15 U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
29 17
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
All submissions should refer to File
Number SR–BATS–2015–31. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BATS–
2015–31, and should be submitted on or
before May 7, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Brent J. Fields,
Secretary.
[FR Doc. 2015–08696 Filed 4–15–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74708; File No. SR–EDGX–
2015–16]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Fees for Use
of EDGX Exchange, Inc.
April 10, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 1,
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 80, Number 73 (Thursday, April 16, 2015)]
[Notices]
[Pages 20544-20548]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08696]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74702; File No. SR-BATS-2015-31]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Amend
Rule 11.23, ``Auctions''
April 10, 2015.
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 April 1, 2015, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange has
designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 11.23, entitled
``Auctions.''
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make several changes to Rule 11.23 in
order to improve the Exchange auction process. Specifically, the
Exchange is proposing to make several minor changes to Rule 11.23,
which include: (i) To eliminate from each of the Opening Auction,
Closing Auction, IPO and Halt Auction, and Volatility Closing Auction
the language stating that an auction will occur at the price of the
Volume Based Tie Breaker (or ``VBTB''),\5\ Final Last Sale Eligible
Trade,\6\ or issuing price, as applicable, where no limit orders from
one or both sides would participate in the auction; (ii) to amend the
definition of Volume Based Tie Breaker; (iii) to amend the definition
of Reference Price Range; \7\ (iv) to amend the definition of Late-
Limit-On-Close \8\ (``LLOC'') and Late-Limit-On-Open \9\ (``LLOO'');
and (v) to make a non-substantive change to delete the definitions of
ZBB,\10\ ZBO,\11\ and ZBBO.\12\
---------------------------------------------------------------------------
\5\ As defined in BATS Rule 11.23(a)(23).
\6\ As defined in BATS Rule 11.23(a)(9).
\7\ As defined in BATS Rule 11.23(a)(20).
\8\ As defined in BATS Rule 11.23(a)(11).
\9\ As defined in BATS Rule 11.23(a)(12).
\10\ As defined in BATS Rule 11.23(a)(24).
\11\ Id.
\12\ Id.
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Limit Order Participation
Currently, each of Rules 11.23(b)(2)(B), (c)(2)(B), (d)(2)(C), and
(e)(2)(B) contain language that provides an alternate price at which an
auction will occur where no limit orders from one or both sides (the
buy side, the sell side, or both the buy and sell side) would otherwise
participate in an auction (an ``Alternate Price''). For Opening and
Closing Auctions the Alternate Price is the Volume Based Tie Breaker;
for Halt and Volatility Closing Auctions the Alternate Price is the
Final Last Sale Eligible Trade; and for IPO Auctions the Alternate
Price is the issuing price. While the Exchange added the Alternate
Price requirement in order to ensure that, for auctions with minimal
liquidity, either limit orders were participating in the auction and
would aid in price discovery or that the auction would occur at a pre-
determined price, this protection has,
[[Page 20545]]
based on analysis by the Exchange and feedback from issuers and market
participants, resulted in orders not receiving executions in auctions
that would have otherwise occurred at prices that would have been
acceptable to both parties to the execution that did not occur. To
illustrate this point, the Exchange presents the following example: At
the time that an Opening Auction is occurring, there is no ZBBO and the
NBBO is $9.90 x $10.10. In this situation, the Volume Based Tie Breaker
would be the midpoint of the NBBO,\13\ which would be $10.00.\14\ Based
on a Volume Based Tie Breaker of $10.00, the Collar Price Range \15\
would be $9.00 to $11.00 (the range from 0.90*VBTB to 1.10*VBTB). In
this example, there are only two orders on the Auction Book \16\ for
the security: A Limit-On-Open\17\ buy order for 100 shares with a limit
price of $9.99 and a Market-On-Open \18\ sell order for 100 shares.
Without the requirement that the auction occur at the Alternate Price
where a limit order from both sides does not participate in the
auction, there would have been an execution of 100 shares in the
Opening Auction at $9.99.\19\ However, because there would be no limit
orders on the sell side that would participate in the Opening Auction,
under current functionality the Opening Auction would be forced to
occur at the Volume Based Tie Breaker, which is $10.00. However,
because the limit price of the Limit-On-Open buy order is $9.99, no
execution will occur, both orders will be cancelled, and trading will
transition into Regular Trading Hours.\20\ This example is identical to
how a Closing Auction would occur and is nearly identical to examples
of how the Alternate Price could affect other auctions.
---------------------------------------------------------------------------
\13\ See supra note 4 [sic]. By definition, where there is no
ZBBO, the Volume Based Tie Breaker will be the midpoint of the NBBO.
\14\ The Exchange notes that it is proposing to amend the
definition of Volume Based Tie Breaker, as further described below,
but none of the proposed changes would affect the outcome of this
example.
\15\ See BATS Rule 11.23(a)(6). By definition, for Opening
Auctions where the Volume Based Tie Breaker is $25.00 or less, the
Collar Price Range shall be the range from 10% below the VBTB to 10%
above the VBTB, which would be $9.00 to $11.00 in the example above.
\16\ As defined in BATS Rule 11.23(a)(1).
\17\ As defined in BATS Rule 11.23(a)(14).
\18\ As defined in BATS Rule 11.23(a)(16).
\19\ Absent the existing Alternate Price language, the price of
the Opening Auction in the above described example would be
determined by the first two sentences of BATS Rule 11.23(b)(2)(B),
which provide the following: ``The Opening Auction price will be
established by determining the price level within the Collar Price
Range that maximizes the number of shares executed between the
Continuous Book and Auction Book in the Opening Auction. In the
event of a volume based tie at multiple price levels, the Opening
Auction price will be the price closest to the Volume Based Tie
Breaker.'' In the example described above, there would be an equal
number of shares that could be executed at every price level from
$9.00 to $9.99, however the price of the auction would be $9.99
because that is the price level at which there is a volume based tie
that is closest to the Volume Based Tie Breaker. Such language is
currently the basis for determining the price of every auction that
occurs on the exchange except in those instances that there is no
limit interest participating in one or both sides or no auction
occurs (noting that the Opening and Closing Auctions both use VBTB,
while Halt and Volatility Closing Auctions use the Final Last Sale
Eligible Trade and IPO Auctions use the issue price for resolving
ties at multiple price levels). Further, in the event that there is
no limit interest that would participate on either side of an
auction (i.e. only market interest on both sides), such language
would create the same auction price (the Alternate Price) as the
language that the Exchange is proposing to delete because there
would be a tie at every price level within the Collar Price Range,
meaning that the price would default to the Alternate Price.
\20\ As defined in BATS Rule 1.5(w).
---------------------------------------------------------------------------
The Exchange is proposing to eliminate the language that provides
an Alternate Price at which an auction will occur where no limit orders
from one or both sides (the buy side, the sell side, or both the buy
and sell side) would otherwise participate in an auction. As proposed,
the example constructed above would result in an execution of 100
shares at $9.99, which would represent a full execution for both
orders. It's worth noting that the Limit-On-Open order could have been
priced as low as $9.00 (the low end of the Collar Price Range) and the
auction would have occurred at the price of the Limit-On-Open order.
The Exchange originally added the language that it is proposing to
delete as part of a proposal to eliminate the possibility that a
single, non-marketable limit order could affect the price at which an
auction occurred.\21,\ \22\ The resulting rule text, however, took the
solution beyond merely preventing a single limit order from determining
the price at which an auction would occur and instead provided that
limit interest on both sides must participate in an auction or the
auction would be forced to occur at an Alternate Price. The Exchange
now believes, however, that the current rule text adopted the wrong
approach to solving the problem described above, which has resulted in
the unnecessary prevention of certain otherwise marketable limit
orders, such as the $9.99 Limit On Open order from the example above,
from executing in auctions on the Exchange. Further, the Exchange also
believes that the current rule text creates an overly restrictive
collar on market orders entered to participate in auctions under the
conditions described above: where no limit orders participate on one or
both sides of the market, a market order can never be priced more
aggressively than the Alternate Price. The Exchange believes that the
rule text results in the treatment of market orders that differs from
the general understanding of how market orders are priced and, as
mentioned above, the Exchange has received feedback from market
participants and issuers indicating an agreement with this belief. The
proposed amendments would result in market orders being treated in a
manner similar to aggressively priced limit orders, which is more in
line with the generally understood definition of a market order. This
feedback from stakeholders along with an internal review of auctions
occurring on the Exchange that arrived at similar conclusions have led
the Exchange to believe that allowing market orders to execute at any
point within the Collar Price Range regardless of whether any limit
interest would participate in the auction will allow executions to
occur in the auctions at prices that are more reflective of market
conditions at the time of the auction by allowing marketable limit
orders priced within the Collar Price Range to interact with contra-
side market orders. The Exchange notes that both market and limit
orders will still have several protections in place as auctions can
only occur within the Collar Price Range and the protections afforded
under the Exchange's clearly erroneous rules in BATS Rule 11.17 also
apply to executions that occur in an auction.
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 68788 (January 31,
2013), 78 FR 8640 (February 6, 2013) (SR-BATS-2012-046) (the
``Filing''). On pages 7 and 8 of the Filing, the Exchange provides:
``Where no limit orders from either or both sides would participate
in the auction, the Exchange is proposing that the auction will
occur at the price of the Default Price. By providing that the
auction price will be the Default Price where no limit orders from
one or both sides would participate in an Exchange Auction, this
proposed language [sic] would aid in price discovery and help to
prevent erroneous executions by ensuring that a single limit order
on one side of an auction that might not even participate in the
Exchange Auction cannot on its own determine the auction price.''
\22\ Prior to the changes implemented upon approval of the
Filing, the language for Opening and Closing Auctions that preceded
the current Alternate Price language read as follows: ``In the event
that at the time of the [auction] there are no limit orders on both
the Continuous Book and the Auction Book, the [auction] will occur
at the price of the Final Last Sale Eligible Trade.'' For IPO and
Halt Auctions, the language read as follows: ``In the event that
there are no limit orders among the Eligible Auction Orders for a
[auction], the [auction] will occur at the [Alternate Price].
---------------------------------------------------------------------------
Volume Based Tie Breaker
Currently, the term ``Volume Based Tie Breaker'' shall mean the
midpoint of the ZBBO for a particular security. In the event that there
is either no ZBB or
[[Page 20546]]
ZBO for the security, the NBBO will be used if there is at least one
limit order on either the Continuous Book \23\ or the Auction Book. In
the event that there is also no NBB or NBO for the security or no limit
orders on the Continuous Book and the Auction Book, the price of the
Final Last Sale Eligible Trade will be used.
---------------------------------------------------------------------------
\23\ As defined in BATS Rule 11.23(a)(7).
---------------------------------------------------------------------------
The Exchange is proposing to eliminate the concept of ZBBO from the
definition of Volume Based Tie Breaker. Specifically, the Exchange is
proposing to amend the definition such that the Volume Based Tie
Breaker will either be the midpoint of the NBBO or the price of the
Final Last Sale Eligible Trade.
The Exchange is also proposing to validate a NBBO prior to using
the midpoint of that NBBO as the Volume Based Tie Breaker.
Specifically, the Exchange is proposing to validate that a NBBO is
sufficiently tight to use the NBBO as a basis for establishing the
Volume Based Tie Breaker as follows: A NBBO is a valid NBBO where (i)
there is both a NBB and NBO for the security; (ii) the NBBO is not
crossed; and (iii) the midpoint of the NBBO is less than the Maximum
Percentage away from both the NBB and the NBO. The Maximum Percentage
will be determined by the Exchange and will be published in a circular
distributed to Members with reasonable advance notice prior to initial
implementation and any change thereto. The Exchange will retain
discretion to set and adjust the Maximum Percentage as it deems
appropriate, but notes that the Maximum Percentage will never exceed
the clearly erroneous thresholds from BATS Rule 11.17 based on the
price of the security and that it will communicate any changes to the
Maximum Percentage via circular to Members. The Exchange has monitored
its auction process historically and believes that the initial levels
that it sets for the Maximum Percentage will be appropriate. The
Exchange does not anticipate adjusting the Maximum Percentage on a
regular basis, however it will continue to monitor its auction process
going forward and believes that retaining the discretion to increase or
decrease the Maximum Percentage in order to adjust the threshold for
what it believes to be a sufficiently narrow NBBO to choose a
reasonable Volume Based Tie Breaker will allow it the administrative
flexibility to make adjustments that will ensure sufficient protections
for all participants in auctions on the Exchange. The Exchange notes
that it will not apply separate standards for the Maximum Percentage on
a security by security basis. Further, this discretion applies to only
one of three factors in determining whether a NBBO is a Valid NBBO and
where the NBBO is determined not to be a Valid NBBO, the Volume Based
Tie Breaker will still be based on market conditions: the Final Last
Sale Eligible Trade will be used instead of the midpoint of the NBBO.
As part of this proposal, the Exchange would also eliminate the rule
text requiring that there be a limit order on either the Continuous
Book or the Auction Book for the midpoint of the NBBO to be used as the
Volume Based Tie Breaker.
Reference Price Range
Currently, the term Reference Price Range means the range from the
ZBB to the ZBO for a particular security. In the event that there is
either no ZBB or ZBO for the security, the NBBO will be used if there
is at least one limit order on either the Continuous Book or the
Auction Book. In the event that there is also either no NBB or NBO for
the security or no limit orders on the Continuous Book and the Auction
Book, the price of the Final Last Sale Eligible Trade will be used.
The Exchange is proposing to amend the definition of Reference
Price Range in order to eliminate the concept of ZBBO from the
calculation of the Reference Price Range. Specifically, the Exchange is
proposing to amend the definition such that the Reference Price Range
will either be the range from the NBB to the NBO for a particular
security or the price of the Final Last Sale Eligible Trade. As part of
this proposal, the Exchange would also eliminate the rule text
requiring that there be a limit order on either the Continuous Book or
the Auction Book for the Reference Price Range to be the range from the
NBB to the NBO.
LLOC and LLOO
The Exchange is proposing to amend the definition of LLOC and LLOO
orders to eliminate the use of ZBBO in pricing the orders. Currently,
the Exchange first looks to the ZBBO to determine the most aggressive
price that LLOC and LLOO orders can be priced and, where there is no
ZBB or ZBO, the Exchange instead looks to the NBB or NBO, respectively.
Where there is no NBB or NBO, the Exchange allows the LLOC or LLOO bid
or offer, respectively, to be priced at its entered limit price. The
Exchange is proposing to eliminate the ZBBO component of the process
and instead to either restrict an order's price based on the NBBO or,
absent either a NBB or NBO, to allow a bid or offer, respectively, to
be priced at its entered limit price. As part of these proposed
changes, the Exchange is also proposing to add language to make clear
that a LLOC or LLOO bid will only be priced as aggressively as the NBB,
even if there is no NBO and that an offer will only be priced as
aggressively as the NBO, even if there is no NBB. Currently, the rule
states that if there is no NBBO, the LLOC or LLOO will assume its
entered limit price. The Exchange is proposing to make clear that where
there is no NBB, a LLOC or LLOO bid will assume its entered limit price
and where there is no NBO, a LLOC or LLOO offer will assume its entered
limit price. A LLOC or LLOO bid will not assume its entered price only
because there is no NBO and a LLOC or LLOO offer will not assume its
entered price only because there is no NBB. This is consistent with
existing behavior and is merely intended to provide additional clarity
about how LLOC and LLOO orders are priced.
ZBBO
In conjunction with the changes proposed above, the Exchange is
also proposing to delete Rule 11.23(a)(24) which defines the terms ZBB,
ZBO, and ZBBO because the Exchange is also proposing to delete each
reference to ZBB, ZBO, and ZBBO in its rules and the definition is no
longer necessary.
2. Statutory Basis
The Exchange believes that the rule change proposed in this
submission is consistent with the requirements of the Act and the rules
and regulations thereunder that are applicable to a national securities
exchange, and, in particular, with the requirements of Section 6(b) of
the Act.\24\ Specifically, the proposed change is consistent with
Section 6(b)(5) of the Act,\25\ because it would 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 interest. Generally, the
Exchange believes that the proposed changes will improve the price
discovery process for securities listed on the Exchange along with
those additional benefits enumerated below.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
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Limit Order Participation
The Exchange believes that the proposed amendments to each of the
Opening Auction, Closing Auction, IPO and Halt Auction, and Volatility
Closing Auction would promote just and equitable principles of trade,
remove
[[Page 20547]]
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 interest in that it would eliminate a protection from the
auction process that, as described above, was more restrictive than
anticipated. As stated above, the current implementation that provides
that an auction must occur at an Alternate Price where there would not
be limit order participation on both sides of an auction was intended
to eliminate the possibility that a single, non-marketable limit order
could affect the price at which an auction occurred.\26\ However, as
illustrated by the examples above, the current rule text went beyond
merely preventing a single limit order from determining the price at
which an auction would occur and instead provided that limit interest
on both sides must participate in an auction or the auction would be
forced to occur at an Alternative Price. The Exchange now believes,
however, that the current rule text adopted the wrong approach to
solving the problem described above, which has resulted in the
unnecessary prevention of certain otherwise marketable limit orders,
such as the $9.99 Limit On Open order from the example above, from
executing in auctions on the Exchange. Further, the Exchange also
believes that the current rule text creates an overly restrictive
collar on market orders entered to participate in auctions under the
conditions described above: where no limit orders participate on one or
both sides of the market, a market order can never be priced more
aggressively than the Alternate Price. The Exchange believes that the
rule text results in the treatment of market orders that differs from
the general understanding of how market orders are priced and, as
mentioned above, the Exchange has received feedback from market
participants and issuers indicating an agreement with this belief. As
such, the Exchange believes that the proposal would 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 interest by allowing
executions to occur in auctions at prices that are more reflective of
market conditions at the time of the auction by allowing marketable
limit orders priced within the Collar Price Range to interact with
contra-side market orders. The Exchange emphasizes that it is not
proposing to allow market orders to participate in its auctions without
any price protections. Rather, the Exchange is proposing to treat
market orders in its auctions in a manner broadly consistent with the
rules of other exchanges.\27\ The Exchange believes that the Collar
Price Range, which is based on the clearly erroneous standards in BATS
Rule 11.17, and the clearly erroneous process in BATS Rule 11.17, which
applies to executions in the auctions and could be used to cancel any
executions to which it applies, provide sufficient protections against
executions in the auctions occurring at extreme prices. As such, the
Exchange believes that a better characterization is that the Exchange
is proposing to treat market orders in a manner more similar to
aggressively priced limit orders, which is more in line with the
generally understood meaning of a market order. With this in mind, the
Exchange believes that the proposed amendments to eliminate the
Alternate Price where there would not be limit order participation on
both sides of an auction would 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 interest.
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\26\ See supra notes 21 and 22.
\27\ See NYSE Arca, Inc. (``Arca'') Rule 7.35 and NASDAQ Stock
Market LLC (``Nasdaq'') Rules 4752, 4753, and 4754. While each of
the exchanges have very diverse rules governing auctions/crosses on
their respective venues, neither Arca nor Nasdaq have a comparable
requirement that unless limit interest from both sides would
participate in the auction, the auction will occur at a default
price. As such, the Exchange believes that elimination of the
requirement is broadly consistent with the rules of other exchanges.
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Volume Based Tie Breaker
The Exchange believes that the proposed amendments to the Volume
Based Tie Breaker would 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 interest in that it would ensure that the Volume Based
Tie Breaker would be calculated using a full picture of the market in a
particular security by looking to the NBBO instead of the ZBBO,
regardless of whether there are any limit orders on the Continuous Book
or Auction Book. Because the NBBO by definition accounts for the ZBBO,
the NBBO will always be equal to or tighter than the ZBBO, which the
Exchange believes creates a Volume Based Tie Breaker that better
reflects current market conditions. Further to this point, the Exchange
believes that creating a process to validate the NBBO or, where the
NBBO is not valid, to use the Final Last Sale Eligible Trade 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 and, in general, protect investors and the public
interest in that it will ensure that the NBBO is sufficiently tight to
guarantee that the midpoint of the NBBO would be a meaningful and
accurate Volume Based Tie Breaker.
Reference Price Range
The Exchange believes that the proposed amendments to the
definition of Reference Price Range would 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 interest in that it would ensure that
the Reference Price Range would be calculated using a full picture of
the market in a particular security by looking to the NBBO instead of
the ZBBO, regardless of whether there are any limit orders on the
Continuous Book or Auction Book. Because the NBBO by definition
accounts for the ZBBO, the NBBO will always be equal to or tighter than
the ZBBO, which the Exchange believes creates a Reference Price Range
that better reflects current market conditions.
LLOC and LLOO
The Exchange believes that the proposed amendments to the
definition of LLOC and LLOO would 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 interest in that it would ensure that the LLOC
and LLOO orders would be priced using a full picture of the market in a
particular security by looking to the NBBO instead of the ZBBO. Because
the NBBO by definition accounts for the ZBBO, the NBBO will always be
equal to or tighter than the ZBBO, which the Exchange believes provides
a better basis by which to price a LLOC or LLOO order because it better
reflects current market conditions. The Exchange also believes that the
clarifying changes to the definitions of LLOC and LLOO explained above
will contribute to the protection of investors and the public interest
by making the functionality of LLOC and LLOO orders as clear as
possible.
ZBBO
The Exchange believes that the non-substantive proposal to delete
the
[[Page 20548]]
definitions of ZBB, ZBO, and ZBBO, as discussed above, will contribute
to the protection of investors and the public interest by eliminating
the definition of a term that is no longer used in the Exchange's Rules
which will make the Exchange's Rules easier to understand and help to
avoid confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the act. To the contrary, allowing the
Exchange to make the above proposed modifications to Rule 11.23 in
order to allow an auction to occur at a price that is not the Alternate
Price where there isn't limit interest on both sides (Limit Order
Participation), to eliminate the use of ZBB, ZBO, and ZBBO from the
auction process (Volume Based Tie Breaker, Reference Price Range, LLOC
and LLOO, and ZBBO), to validate the NBBO before using it to establish
the Volume Based Tie Breaker (Volume Based Tie Breaker), and to
eliminate the requirement that there be at least one limit order on
either the Continuous Book or the Auction Book in order to use the NBBO
for the Volume Based Tie Breaker or the Reference Price (Volume Based
Tie Breaker and Reference Price) will, in the aggregate, allow the
Exchange to better compete with other exchanges as a listing venue by
improving the Exchange's auction process by allowing more executions to
occur at more reasonable prices that are based on market-wide pricing.
As mentioned above, the Exchange has received feedback from market
participants and issuers alike regarding these issues and the proposed
amendments will both address this feedback and improve the Exchange's
auction process, allowing it to better compete as both a listing and
execution venue.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on the proposed rule change. The Exchange has, however, as
described above, received unsolicited comments from both Members and
issuers that helped lead to the changes proposed herein.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \28\ and Rule 19b-4(f)(6) thereunder.\29\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \30\ and Rule 19b-
4(f)(6) thereunder.\31\
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\28\ 15 U.S.C. 78s(b)(3)(A)(iii).
\29\ 17 CFR 240.19b-4(f)(6).
\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BATS-2015-31 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2015-31. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-BATS-2015-31,
and should be submitted on or before May 7, 2015.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Brent J. Fields,
Secretary.
[FR Doc. 2015-08696 Filed 4-15-15; 8:45 am]
BILLING CODE 8011-01-P
