Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Delete Rule 22.10, Limitations on Dealings, 68884-68888 [2015-28268]
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Federal Register / Vol. 80, No. 215 / Friday, November 6, 2015 / Notices
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Dated at Rockville, Maryland, this 30th day
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For the Nuclear Regulatory Commission.
William M. Dean,
Director, Office of Nuclear Reactor
Regulation.
BILLING CODE 7590–01–P
NUCLEAR REGULATORY
COMMISSION
[NRC–2015–0001]
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[FR Doc. 2015–28361 Filed 11–5–15; 8:45 am]
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[FR Doc. 2015–28482 Filed 11–4–15; 4:15 pm]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76327; File No. SR–BATS–
2015–93
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Delete Rule 22.10,
Limitations on Dealings
November 2, 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 October
21, 2015, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal for the
BATS Options Market (‘‘BATS
Options’’) to adopt a principles-based
approach to prohibit the misuse of
material nonpublic information by
Market Makers by deleting Rule 22.10
(Limitations on Dealings).
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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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
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1. Purpose
The Exchange proposes to adopt a
principles-based approach to prohibit
the misuse of material non-public
information by Market Makers by
deleting Rule 22.10 (Limitations on
Dealings). In doing so, the Exchange,
with regard to BATS Options, would
harmonize its rules governing Market
Makers and Options Members that are
not Market Makers relating to the
protection against misuse of material,
non-public information. The Exchange
believes that Rule 22.10 is no longer
necessary because all Options Members,
including Market Makers, are subject to
the Exchange’s generally applicable
principles-based requirements
governing the protection against the
misuse of material, non-public
information, pursuant to Rule 5.5
(Prevention of the Misuse of Material,
Non-Public Information), which
obviates the need for separately
prescribed requirements for a subset of
Exchange participants. Additionally,
there is no separate regulatory purpose
served by having separate rules for
Market Makers. The Exchange notes that
this proposed rule change will not
decrease the protections against the
misuse of material, non-public
information; instead, it is designed to
provide more flexibility to Options
Members. This is a competitive filing
that is based on a proposal recently
submitted by NYSE MKT LLC (‘‘NYSE
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MKT’’) and approved by the
Commission.5
Background
The Exchange has two classes of
BATS Options participants.
Specifically, pursuant to Rule
16.1.(a)(38), the term ‘‘Options Member’’
means a firm or organization that is
registered with the Exchange pursuant
to Chapter XVII of the Rules for the
purposes of participating in options
trading on BATS Options either as an
‘‘Options Order Entry Firm’’ or as an
‘‘Options Market Maker.’’ Pursuant to
Rule 16.1(a)(36), the terms ‘‘Options
Order Entry Firm’’ or ‘‘Order Entry
Firm’’ or ‘‘OEF’’ mean those Options
Members representing as agent
Customer Orders on BATS Options and
those non-Market Maker Members
conducting proprietary trading.
Pursuant to Rule 16.1(a)(37), the term
‘‘Options Market Maker’’ or ‘‘Market
Maker’’ means an Options Member
registered with the Exchange for the
purpose of making markets in options
contracts traded on the Exchange and
that is vested with the rights and
responsibilities specified in Chapter
XXII of the Rules.
Rule 22.5 (Obligations of Market
Makers) describes the obligations of
Market Makers. Rule 22.6 (Market
Maker Quotations) sets forth quoting
obligations of Market Makers.6 Rule
22.10 (Limitations on Dealings) requires
Market Makers to maintain information
barriers that are reasonably designed to
prevent the misuse of material, nonpublic corporate or markets information
in the possession of persons on one side
of the information barrier by persons on
the other side of the information barrier.
Proposed Rule Change
The Exchange believes that the
particularized guidelines for Market
Makers in Rule 22.10 are no longer
necessary and proposes to delete Rule
22.10. The Exchange believes that Rule
5.5 (Prevention of the Misuse of
Material, Nonpublic Information),
which governs the misuse of material,
non-public information and applies to
all Members (including Options
Members), provides an appropriate,
principles-based approach to prevent
the market abuses that Rule 22.10 seeks
to address. Specifically, Rule 5.5
requires every Member (including
Options Members) to establish,
5 See Securities Exchange Act Release No. 75432
(July 13, 2015), 80 FR 42597 (July 17, 2015) (Order
Approving SR–NYSEMKT–2015–23).
6 Rule 22.6 generally requires that Market Makers
provide firm, two-sided, continuous quotations, in
minimum size, for the options series to which it is
registered.
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68885
maintain, and enforce written policies
and procedures reasonably designed to
prevent the misuse of material, nonpublic information by such Member or
persons associated with such Member.
For purposes of Rule 5.5, the misuse of
material, non-public information
includes, but is not limited to, the
following:
(1) Trading in any securities issued by
a corporation, or in any related
securities or related options or other
derivative securities, while in
possession of material, non-public
information concerning that issuer;
(2) Trading in a security or related
options or other derivative securities,
while in possession of material, nonpublic information concerning
imminent transactions in the security or
related securities; and
(3) Disclosing to another person or
entity any material nonpublic
information involving a corporation
whose shares are publicly traded or an
imminent transaction in an underlying
security or related securities for the
purpose of facilitating the possible
misuse of such material nonpublic
information.
Because Options Members are already
subject to the requirements of Rule 5.5,
the Exchange does not believe that it is
necessary to separately require
particularized limitations on Market
Makers. Deleting Rule 22.10, with its
particularized limitations would
provide Market Makers with the
flexibility to adapt their policies and
procedures as appropriate to reflect
changes to their business model,
business activities, or the securities
market in a manner similar to how
Options Members on the Exchange
currently operate in conformity with
Rule 5.5.
As noted above, Market Makers are
distinguished under Exchange rules
from other Options Members only to the
extent that Market Makers have
heightened quoting obligations.
However, such heightened quoting
obligations do not afford different or
greater access to nonpublic information
than any other Options Member of the
Exchange.7 Therefore, because Market
Makers do not have any trading
advantages over Order Entry Firms on
BATS Options, the Exchange believes
7 The Exchange notes that by deleting Rule 22.10,
the Exchange would no longer require specific
information barriers for Market Makers; however, as
is the case currently with Options Members,
information barriers of new participants would be
subject to review as part of a new firm application.
Moreover, the policies and procedures of Market
Makers, including those relating to any information
barriers, would be subject to review by FINRA, on
behalf of the Exchange, pursuant to a Regulatory
Services Agreement.
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that they should be subject to the same
rules regarding the protection against
the misuse of material non-public
information, which in this case, is
existing Rule 5.5.
The Exchange notes that its proposed
approach to use a principles-based
approach to protecting against the
misuse of material non-public
information for all of its registered
Options Members is consistent with
recently approved rule changes for
NYSE MKT and recently filed changes
for the International Securities
Exchange LLC (‘‘ISE’’) and the Boston
Options Exchange LLC (‘‘BOX’’).8 Each
of these exchanges has moved to a
principles-based approach to protecting
against the misuse of material nonpublic information. In connection with
approving those rule changes, the
Commission found that, with adequate
oversight by the exchanges of their
members, eliminating prescriptive
information barrier requirements should
not reduce the effectiveness of exchange
rules requiring its members to establish
and maintain systems to supervise the
activities of its members, including
written procedures reasonably designed
to ensure compliance with applicable
federal securities law and regulations,
and with the rules of the applicable
exchange.9
The Exchange believes that a
principles-based rule applicable to
members of options markets would be
effective in protecting against the
misuse of material non-public
information. Indeed, Exchange Rule 5.5
is currently applicable to Options
Members and already requires policies
and procedures reasonably designed to
prevent the misuse of material
nonpublic information. The Exchange
believes that Rule 5.5 provides
appropriate protection against the
misuse of material nonpublic
information by Options Members and
that there is no longer a need for
prescriptive information barrier
requirements set forth in Rule 22.10.
8 See Securities Exchange Act Release No. 75432
(July 13, 2015), 80 FR 42597 (July 17, 2015) (Order
Approving Adopting a Principles-Based Approach
to Prohibit the Misuse of Material Nonpublic
Information by Specialists and e-Specialists by
Deleting Rule 927.3NY and Section (f) of Rule
927.5NY). See also Securities Exchange Act Release
Nos. 75792 (August 31, 2015), 80 FR 53601
(September 4, 2015) (SR–ISE–2015–26) (Notice of
Filing and Immediate Effectiveness of Proposed
Rule Change Adopting a Principles-Based Approach
To Prohibit the Misuse of Material, Non-Public
Information by Market Makers by Deleting Rule
810); 75916 (September 14, 2015), 80 FR 56503
(September 18, 2015) (SR–BOX–2015–31) (Notice of
Filing and Immediate Effectiveness of Proposed
Rule Change To Adopt a Principles-Based
Approach To Prohibit the Misuse of Material
Nonpublic Information by Market Makers).
9 See supra note 8.
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The Exchange notes that even with
this proposed rule change and the
elimination of the requirement that the
Exchange pre-approve a Member’s
policies and procedures, pursuant to
Rule 5.5, an Options Member would
still be obligated to ensure that its
policies and procedures reflect the
current state of its business and
continue to be reasonably designed to
achieve compliance with applicable
federal securities law and regulations,
including Section 15(g) of the Act,10 and
with applicable Exchange rules,
including being reasonably designed to
protect against the misuse of material,
non-public information. Thus, the
Exchange does not believe there will be
any material change to Member’s
information barriers as a result of the
Exchange’s pre-approval no longer being
required. In fact, the Exchange
anticipates that the lack of such preapproval would facilitate Market
Maker’s ability to more quickly
implement changes to their information
barrier as necessary to protect against
the misuse of material, non-public
information.
The Exchange is not proposing to
change what is considered to be
material, non-public information and,
thus, would not expect there to be any
changes to the types of information that
an affiliated brokerage business of a
Market Maker could share with such
Market Maker. In addition, the
Exchange notes that the proposed rule
change would not permit the affiliates of
a Market Maker to have access to any
non-public order or quote information
of the Market Maker, including the nondisplayed size of Reserve Orders.11
Affiliates of Market Makers would only
be permitted to have access to orders
and quotes that are publicly available to
all market participants.
While information barriers would not
specifically be required under the
proposal, Rule 5.5 already requires that
an Options Member consider its
business model or business activities in
structuring its policies and procedures,
which may dictate that an information
barrier or a functional separation be part
of the appropriate set of policies and
procedures that would be reasonably
designed to achieve compliance with
applicable securities law and
regulations, and with applicable
Exchange rules.
The Exchange believes that the
proposed reliance on the principlesbased Rule 5.5 would ensure that an
U.S.C 78o(g).
Orders are described in Rule 21.1(d)
and include both a quantity that is displayed and
a reserve portion that is not displayed.
Options Member would be required to
protect against the misuse of any
material non-public information. As
noted above, Rule 5.5 already requires
that Members refrain from trading while
in possession of material non-public
information concerning imminent
transactions in the security or related
product. The Exchange believes that
moving to a principles-based approach
rather than prescribing particularized
information barriers applicable to
Market Makers would provide Market
Makers with flexibility when managing
risk across a firm, including integrating
options positions with other positions of
the firm or, as applicable, by the
respective independent trading unit.
2. Statutory Basis
The Exchange believes that its
proposal 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.12 In particular, the proposal is
consistent with Section 6(b)(5) of the
Act 13 because it is designed to prevent
fraudulent and manipulative acts and
practices, 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.
The Exchange believes that the
proposed rule change would remove
impediments to and perfect the
mechanism of a free and open market by
adopting a principles-based approach to
permit an Options Member to maintain
and enforce policies and procedures to,
among other things, prohibit the misuse
of material non-public information and
provide flexibility on how a Market
Maker structures its operations. The
Exchange notes that the proposed rule
change is based upon an approved rule
of the Exchange to which Options
Members are subject—Rule 5.5—and the
proposed change harmonizes the rules
governing Options Members. Moreover,
Market Makers would continue to be
subject to federal and Exchange
requirements for protecting material
non- public order information.14 The
Exchange believes that the proposed
rule change would remove impediments
to and perfect the mechanism of a free
and open market because it would
harmonize the Exchange’s approach to
protecting against the misuse of material
10 15
11 Reserve
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12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
14 See 15 U.S.C. 78o(g) and Rule 5.5.
13 15
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nonpublic information and no longer
subject Market Makers to particularized
prescriptive requirements. The
Exchange does not believe that the
existing prescriptive requirements
applicable to Options Market Makers are
narrowly tailored to their respective role
because Market Makers do not have
access to Exchange trading information
in a manner different from any other
Options Member that is not a Market
Maker.
The Exchange further believes the
proposal is designed to prevent
fraudulent and manipulative acts and
practices and to promote just and
equitable principles of trade because
existing rules make clear to Options
Members the type of conduct that is
prohibited by the Exchange. While the
proposal eliminates certain prescriptive
requirements relating to the misuse of
material non-public information, Market
Makers would remain subject to existing
Exchange rules requiring them to
establish and maintain systems to
supervise their activities, and to create,
implement, and maintain written
procedures that are reasonably designed
to comply with applicable securities
laws and Exchange rules, including the
prohibition on the misuse of material,
nonpublic information. Additionally,
the policies and procedures of Market
Makers, including those relating to
information barriers, would be subject
to review by FINRA, on behalf of the
Exchange.15
The Exchange notes that the proposed
rule change would still require that
Market Makers maintain and enforce
policies and procedures reasonably
designed to ensure compliance with
applicable federal securities laws and
regulations and with Exchange rules.
Even though there would no longer be
particularized Market Maker
information barriers, any Market Maker
written policies and procedures would
continue to be subject to oversight by
the Exchange and therefore the
elimination of prescribed requirements
should not reduce the effectiveness of
the Exchange rules to protect against the
misuse of material non-public
information. Rather, all Options
Members will be able to utilize a
flexible, principles-based approach to
modify their policies and procedures as
appropriate to reflect changes to their
business model, business activities, or
to the securities market itself. Moreover,
while particularized information
barriers may no longer be required, an
Options Member’s business model or
business activities may dictate that an
information barrier or functional
separation be part of the appropriate set
of policies and procedures that would
be reasonably designed to achieve
compliance with applicable securities
laws and regulations, and with
applicable Exchange rules. The
Exchange therefore believes that the
proposed rule change will maintain the
existing protection of investors and the
public interest that is currently
applicable to Market Makers, while at
the same time removing impediments to
and perfecting a free and open market
by moving to a principles-based
approach to protect against the misuse
of material non-public information.
(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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. In this regard
and as indicated above, the Exchange
notes that the rule change is being
proposed as a competitive response to a
filing submitted by NYSE MKT that was
recently approved by the Commission.16
The Exchange believes this proposed
rule change is necessary to permit fair
competition among the options
exchanges.
The Exchange believes that the
proposal will enhance competition by
allowing Market Makers to comply with
applicable Exchange rules in a manner
best suited to their business models,
business activities, and the securities
markets, thus reducing regulatory
burdens while still ensuring compliance
with applicable securities laws and
regulations and Exchange rules. The
Exchange believes that the proposal will
foster a fair and orderly marketplace
without being overly burdensome upon
Market Makers.
(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
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (A) Significantly affect
the protection of investors or the public
interest; (B) impose any significant
burden on competition; and (C) by its
terms, become operative for 30 days
from the date on which it was filed or
such shorter time as the Commission
may designate it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 17 and paragraph (f)(6) of Rule 19b–
4 thereunder,18 the Exchange has
designated this rule filing as noncontroversial. The Exchange has given
the Commission written notice of its
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.
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: (1) Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) 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–2015–93 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BATS–2015–93. 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
17 15
15 See
supra, note 7.
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16 See
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supra, note 5.
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
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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 will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BATS–
2015–93 and should be submitted on or
before November 27, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Jill M. Peterson,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76326; File No. SR–CHX–
2015–08]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Modify Its
Smart Versus Direct Routing Protocol
mstockstill on DSK4VPTVN1PROD with NOTICES
November 2, 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 October
26, 2015, the Chicago Stock Exchange,
Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:21 Nov 05, 2015
Jkt 238001
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
CHX included statements concerning
the purpose of and basis for the
proposed rule changes 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
CHX has prepared summaries, set forth
in sections A, B and C below, of the
most significant aspects of such
statements.
A. Self-Regulatory Organization's
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2015–28268 Filed 11–5–15; 8:45 am]
19 17
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CHX proposes to modify its smart
versus direct order routing protocol.
CHX has designated this proposed rule
change as non-controversial pursuant to
Section 19(b)(3)(A) 3 of the Act and Rule
19b–4(f)(6) 4 thereunder and has
provided the Commission with the
notice required by Rule 19b–4(f)(6)(iii).5
The text of this proposed rule change is
available on the Exchange’s Web site at
(www.chx.com) and in the
Commission’s Public Reference Room.
1. Purpose
The Exchange proposes to modify its
smart versus direct order routing
protocol, which was recently clarified
and modified under SR–CHX–2015–02.6
Specifically, the Exchange proposes to
(1) eliminate the Exchange’s special
routing handling for Protected
Quotations 7 displayed on the
Alternative Display Facility (‘‘ADF’’)
operated by the Financial Industry
Regulatory Authority (‘‘FINRA’’) 8
(‘‘ADF special handling’’) 9 and (2) to
always direct a non-affiliate third-party
routing broker (‘‘third-party routing
broker’’) to route orders to specific
routing destinations, when required by
CHX Rules,10 including situations
where orders would be routed pursuant
to a routing table maintained by the
Exchange, as described in detail below.
3 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
5 17 CFR 240.19b–4(f)(6)(iii).
6 See Exchange Act Release No. 74487 (March 12,
2015), 80 FR 14193 (March 18, 2015) (SR–CHX–
2015–02).
7 See 17 CFR 242.600(a)(58).
8 See FINRA Rule 6210.
9 See supra note 6.
10 See CHX Article 19, Rule 3(a).
The Exchange does not propose to
substantively modify the smart versus
direct order routing protocol or the CHX
Routing Services in any other way.
Currently, upon the triggering of a
Routing Event,11 the Exchange will
route away Routable Orders,12 or
portions thereof, through CHXBD, LLC,
which is an affiliated routing broker that
operates as a facility of the Exchange,
which would then forward orders to a
third-party routing broker for routing to
the ultimate routing destination.13 All
orders routed to the third-party routing
broker will include instructions for the
third-party routing broker to either
direct route the order to a specific
destination or to smart route the order
utilizing the third-party routing broker’s
routing technology, pursuant to a
routing table provided and maintained
by the Exchange. The decision to smart
or direct route orders is made by the
Exchange pursuant to the following
smart versus direct order routing
protocol: 14
• Smart route. Subject to ADF special
handling, if the portion of a Routable
Order that is to be routed away at a
certain price point is smaller than the
aggregate size of two or more contra-side
Protected Quotations that could be
satisfied at that price point, the
Exchange will rely on a third-party
routing broker to utilize its smart
routing technology to route away the
corresponding orders pursuant to a
routing table provided by the Exchange.
When orders are smart routed, the
relevant snapshot of Protected
Quotations of external markets for
Regulation NMS purposes will be taken
by the third-party routing broker and the
third-party routing broker would route
orders marked Immediate Or Cancel 15
and Intermarket Sweep Order 16 (‘‘IOC/
ISO’’).
• Direct route. Subject to ADF special
handling, if the portion of a Routable
Order that is to be routed away at a
certain price point is smaller than the
size of one contra-side Protected
Quotation that could be satisfied or is
the same size as the aggregate size of
one or more contra-side Protected
Quotations that could be satisfied at that
price point, the Exchange will direct the
third-party routing broker to route
corresponding orders to specific routing
destinations. Thus, the relevant
snapshot of the Protected Quotations of
4 17
PO 00000
Frm 00055
Fmt 4703
Sfmt 4703
11 Id.
12 See
CHX Article 1, Rule 1(oo).
Exchange Act Release No. 73150
(September 19, 2014), 79 FR 57603 (September 25,
2014) (SR–CHX–2014–15).
14 See supra notes 6 and 13.
15 See CHX Article 1, Rule 2(d)(4).
16 See CHX Article 1, Rule 2(b)(3)(B).
13 See
E:\FR\FM\06NON1.SGM
06NON1
]]>Agencies
[Federal Register Volume 80, Number 215 (Friday, November 6, 2015)]
[Notices]
[Pages 68884-68888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28268]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76327; File No. SR-BATS-2015-93
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Delete
Rule 22.10, Limitations on Dealings
November 2, 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 October 21, 2015, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Exchange has designated this proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 for the BATS Options Market (``BATS
Options'') to adopt a principles-based approach to prohibit the misuse
of material nonpublic information by Market Makers by deleting Rule
22.10 (Limitations on Dealings).
[[Page 68885]]
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 adopt a principles-based approach to
prohibit the misuse of material non-public information by Market Makers
by deleting Rule 22.10 (Limitations on Dealings). In doing so, the
Exchange, with regard to BATS Options, would harmonize its rules
governing Market Makers and Options Members that are not Market Makers
relating to the protection against misuse of material, non-public
information. The Exchange believes that Rule 22.10 is no longer
necessary because all Options Members, including Market Makers, are
subject to the Exchange's generally applicable principles-based
requirements governing the protection against the misuse of material,
non-public information, pursuant to Rule 5.5 (Prevention of the Misuse
of Material, Non-Public Information), which obviates the need for
separately prescribed requirements for a subset of Exchange
participants. Additionally, there is no separate regulatory purpose
served by having separate rules for Market Makers. The Exchange notes
that this proposed rule change will not decrease the protections
against the misuse of material, non-public information; instead, it is
designed to provide more flexibility to Options Members. This is a
competitive filing that is based on a proposal recently submitted by
NYSE MKT LLC (``NYSE MKT'') and approved by the Commission.\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 75432 (July 13,
2015), 80 FR 42597 (July 17, 2015) (Order Approving SR-NYSEMKT-2015-
23).
---------------------------------------------------------------------------
Background
The Exchange has two classes of BATS Options participants.
Specifically, pursuant to Rule 16.1.(a)(38), the term ``Options
Member'' means a firm or organization that is registered with the
Exchange pursuant to Chapter XVII of the Rules for the purposes of
participating in options trading on BATS Options either as an ``Options
Order Entry Firm'' or as an ``Options Market Maker.'' Pursuant to Rule
16.1(a)(36), the terms ``Options Order Entry Firm'' or ``Order Entry
Firm'' or ``OEF'' mean those Options Members representing as agent
Customer Orders on BATS Options and those non-Market Maker Members
conducting proprietary trading. Pursuant to Rule 16.1(a)(37), the term
``Options Market Maker'' or ``Market Maker'' means an Options Member
registered with the Exchange for the purpose of making markets in
options contracts traded on the Exchange and that is vested with the
rights and responsibilities specified in Chapter XXII of the Rules.
Rule 22.5 (Obligations of Market Makers) describes the obligations
of Market Makers. Rule 22.6 (Market Maker Quotations) sets forth
quoting obligations of Market Makers.\6\ Rule 22.10 (Limitations on
Dealings) requires Market Makers to maintain information barriers that
are reasonably designed to prevent the misuse of material, non-public
corporate or markets information in the possession of persons on one
side of the information barrier by persons on the other side of the
information barrier.
---------------------------------------------------------------------------
\6\ Rule 22.6 generally requires that Market Makers provide
firm, two-sided, continuous quotations, in minimum size, for the
options series to which it is registered.
---------------------------------------------------------------------------
Proposed Rule Change
The Exchange believes that the particularized guidelines for Market
Makers in Rule 22.10 are no longer necessary and proposes to delete
Rule 22.10. The Exchange believes that Rule 5.5 (Prevention of the
Misuse of Material, Nonpublic Information), which governs the misuse of
material, non-public information and applies to all Members (including
Options Members), provides an appropriate, principles-based approach to
prevent the market abuses that Rule 22.10 seeks to address.
Specifically, Rule 5.5 requires every Member (including Options
Members) to establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the misuse of material, non-
public information by such Member or persons associated with such
Member. For purposes of Rule 5.5, the misuse of material, non-public
information includes, but is not limited to, the following:
(1) Trading in any securities issued by a corporation, or in any
related securities or related options or other derivative securities,
while in possession of material, non-public information concerning that
issuer;
(2) Trading in a security or related options or other derivative
securities, while in possession of material, non-public information
concerning imminent transactions in the security or related securities;
and
(3) Disclosing to another person or entity any material nonpublic
information involving a corporation whose shares are publicly traded or
an imminent transaction in an underlying security or related securities
for the purpose of facilitating the possible misuse of such material
nonpublic information.
Because Options Members are already subject to the requirements of
Rule 5.5, the Exchange does not believe that it is necessary to
separately require particularized limitations on Market Makers.
Deleting Rule 22.10, with its particularized limitations would provide
Market Makers with the flexibility to adapt their policies and
procedures as appropriate to reflect changes to their business model,
business activities, or the securities market in a manner similar to
how Options Members on the Exchange currently operate in conformity
with Rule 5.5.
As noted above, Market Makers are distinguished under Exchange
rules from other Options Members only to the extent that Market Makers
have heightened quoting obligations. However, such heightened quoting
obligations do not afford different or greater access to nonpublic
information than any other Options Member of the Exchange.\7\
Therefore, because Market Makers do not have any trading advantages
over Order Entry Firms on BATS Options, the Exchange believes
[[Page 68886]]
that they should be subject to the same rules regarding the protection
against the misuse of material non-public information, which in this
case, is existing Rule 5.5.
---------------------------------------------------------------------------
\7\ The Exchange notes that by deleting Rule 22.10, the Exchange
would no longer require specific information barriers for Market
Makers; however, as is the case currently with Options Members,
information barriers of new participants would be subject to review
as part of a new firm application. Moreover, the policies and
procedures of Market Makers, including those relating to any
information barriers, would be subject to review by FINRA, on behalf
of the Exchange, pursuant to a Regulatory Services Agreement.
---------------------------------------------------------------------------
The Exchange notes that its proposed approach to use a principles-
based approach to protecting against the misuse of material non-public
information for all of its registered Options Members is consistent
with recently approved rule changes for NYSE MKT and recently filed
changes for the International Securities Exchange LLC (``ISE'') and the
Boston Options Exchange LLC (``BOX'').\8\ Each of these exchanges has
moved to a principles-based approach to protecting against the misuse
of material non- public information. In connection with approving those
rule changes, the Commission found that, with adequate oversight by the
exchanges of their members, eliminating prescriptive information
barrier requirements should not reduce the effectiveness of exchange
rules requiring its members to establish and maintain systems to
supervise the activities of its members, including written procedures
reasonably designed to ensure compliance with applicable federal
securities law and regulations, and with the rules of the applicable
exchange.\9\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 75432 (July 13,
2015), 80 FR 42597 (July 17, 2015) (Order Approving Adopting a
Principles-Based Approach to Prohibit the Misuse of Material
Nonpublic Information by Specialists and e-Specialists by Deleting
Rule 927.3NY and Section (f) of Rule 927.5NY). See also Securities
Exchange Act Release Nos. 75792 (August 31, 2015), 80 FR 53601
(September 4, 2015) (SR-ISE-2015-26) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Adopting a Principles-Based
Approach To Prohibit the Misuse of Material, Non-Public Information
by Market Makers by Deleting Rule 810); 75916 (September 14, 2015),
80 FR 56503 (September 18, 2015) (SR-BOX-2015-31) (Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt a
Principles-Based Approach To Prohibit the Misuse of Material
Nonpublic Information by Market Makers).
\9\ See supra note 8.
---------------------------------------------------------------------------
The Exchange believes that a principles-based rule applicable to
members of options markets would be effective in protecting against the
misuse of material non-public information. Indeed, Exchange Rule 5.5 is
currently applicable to Options Members and already requires policies
and procedures reasonably designed to prevent the misuse of material
nonpublic information. The Exchange believes that Rule 5.5 provides
appropriate protection against the misuse of material nonpublic
information by Options Members and that there is no longer a need for
prescriptive information barrier requirements set forth in Rule 22.10.
The Exchange notes that even with this proposed rule change and the
elimination of the requirement that the Exchange pre-approve a Member's
policies and procedures, pursuant to Rule 5.5, an Options Member would
still be obligated to ensure that its policies and procedures reflect
the current state of its business and continue to be reasonably
designed to achieve compliance with applicable federal securities law
and regulations, including Section 15(g) of the Act,\10\ and with
applicable Exchange rules, including being reasonably designed to
protect against the misuse of material, non-public information. Thus,
the Exchange does not believe there will be any material change to
Member's information barriers as a result of the Exchange's pre-
approval no longer being required. In fact, the Exchange anticipates
that the lack of such pre-approval would facilitate Market Maker's
ability to more quickly implement changes to their information barrier
as necessary to protect against the misuse of material, non-public
information.
---------------------------------------------------------------------------
\10\ 15 U.S.C 78o(g).
---------------------------------------------------------------------------
The Exchange is not proposing to change what is considered to be
material, non-public information and, thus, would not expect there to
be any changes to the types of information that an affiliated brokerage
business of a Market Maker could share with such Market Maker. In
addition, the Exchange notes that the proposed rule change would not
permit the affiliates of a Market Maker to have access to any non-
public order or quote information of the Market Maker, including the
non-displayed size of Reserve Orders.\11\ Affiliates of Market Makers
would only be permitted to have access to orders and quotes that are
publicly available to all market participants.
---------------------------------------------------------------------------
\11\ Reserve Orders are described in Rule 21.1(d) and include
both a quantity that is displayed and a reserve portion that is not
displayed.
---------------------------------------------------------------------------
While information barriers would not specifically be required under
the proposal, Rule 5.5 already requires that an Options Member consider
its business model or business activities in structuring its policies
and procedures, which may dictate that an information barrier or a
functional separation be part of the appropriate set of policies and
procedures that would be reasonably designed to achieve compliance with
applicable securities law and regulations, and with applicable Exchange
rules.
The Exchange believes that the proposed reliance on the principles-
based Rule 5.5 would ensure that an Options Member would be required to
protect against the misuse of any material non-public information. As
noted above, Rule 5.5 already requires that Members refrain from
trading while in possession of material non-public information
concerning imminent transactions in the security or related product.
The Exchange believes that moving to a principles-based approach rather
than prescribing particularized information barriers applicable to
Market Makers would provide Market Makers with flexibility when
managing risk across a firm, including integrating options positions
with other positions of the firm or, as applicable, by the respective
independent trading unit.
2. Statutory Basis
The Exchange believes that its proposal 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.\12\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act \13\ because
it is designed to prevent fraudulent and manipulative acts and
practices, 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market by
adopting a principles-based approach to permit an Options Member to
maintain and enforce policies and procedures to, among other things,
prohibit the misuse of material non-public information and provide
flexibility on how a Market Maker structures its operations. The
Exchange notes that the proposed rule change is based upon an approved
rule of the Exchange to which Options Members are subject--Rule 5.5--
and the proposed change harmonizes the rules governing Options Members.
Moreover, Market Makers would continue to be subject to federal and
Exchange requirements for protecting material non- public order
information.\14\ The Exchange believes that the proposed rule change
would remove impediments to and perfect the mechanism of a free and
open market because it would harmonize the Exchange's approach to
protecting against the misuse of material
[[Page 68887]]
nonpublic information and no longer subject Market Makers to
particularized prescriptive requirements. The Exchange does not believe
that the existing prescriptive requirements applicable to Options
Market Makers are narrowly tailored to their respective role because
Market Makers do not have access to Exchange trading information in a
manner different from any other Options Member that is not a Market
Maker.
---------------------------------------------------------------------------
\14\ See 15 U.S.C. 78o(g) and Rule 5.5.
---------------------------------------------------------------------------
The Exchange further believes the proposal is designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade because existing rules make clear to
Options Members the type of conduct that is prohibited by the Exchange.
While the proposal eliminates certain prescriptive requirements
relating to the misuse of material non-public information, Market
Makers would remain subject to existing Exchange rules requiring them
to establish and maintain systems to supervise their activities, and to
create, implement, and maintain written procedures that are reasonably
designed to comply with applicable securities laws and Exchange rules,
including the prohibition on the misuse of material, nonpublic
information. Additionally, the policies and procedures of Market
Makers, including those relating to information barriers, would be
subject to review by FINRA, on behalf of the Exchange.\15\
---------------------------------------------------------------------------
\15\ See supra, note 7.
---------------------------------------------------------------------------
The Exchange notes that the proposed rule change would still
require that Market Makers maintain and enforce policies and procedures
reasonably designed to ensure compliance with applicable federal
securities laws and regulations and with Exchange rules. Even though
there would no longer be particularized Market Maker information
barriers, any Market Maker written policies and procedures would
continue to be subject to oversight by the Exchange and therefore the
elimination of prescribed requirements should not reduce the
effectiveness of the Exchange rules to protect against the misuse of
material non-public information. Rather, all Options Members will be
able to utilize a flexible, principles-based approach to modify their
policies and procedures as appropriate to reflect changes to their
business model, business activities, or to the securities market
itself. Moreover, while particularized information barriers may no
longer be required, an Options Member's business model or business
activities may dictate that an information barrier or functional
separation be part of the appropriate set of policies and procedures
that would be reasonably designed to achieve compliance with applicable
securities laws and regulations, and with applicable Exchange rules.
The Exchange therefore believes that the proposed rule change will
maintain the existing protection of investors and the public interest
that is currently applicable to Market Makers, while at the same time
removing impediments to and perfecting a free and open market by moving
to a principles-based approach to protect against the misuse of
material non-public information.
(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 that is not necessary or appropriate
in furtherance of the purposes of the Act. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to a filing submitted by NYSE MKT
that was recently approved by the Commission.\16\ The Exchange believes
this proposed rule change is necessary to permit fair competition among
the options exchanges.
---------------------------------------------------------------------------
\16\ See supra, note 5.
---------------------------------------------------------------------------
The Exchange believes that the proposal will enhance competition by
allowing Market Makers to comply with applicable Exchange rules in a
manner best suited to their business models, business activities, and
the securities markets, thus reducing regulatory burdens while still
ensuring compliance with applicable securities laws and regulations and
Exchange rules. The Exchange believes that the proposal will foster a
fair and orderly marketplace without being overly burdensome upon
Market Makers.
(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 this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (A)
Significantly affect the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C) by
its terms, become operative for 30 days from the date on which it was
filed or such shorter time as the Commission may designate it has
become effective pursuant to Section 19(b)(3)(A) of the Act \17\ and
paragraph (f)(6) of Rule 19b-4 thereunder,\18\ the Exchange has
designated this rule filing as non-controversial. The Exchange has
given the Commission written notice of its 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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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: (1)
Necessary or appropriate in the public interest; (2) for the protection
of investors; or (3) 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-2015-93 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2015-93. 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
[[Page 68888]]
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 will also be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-BATS-2015-93 and should be submitted on or before
November 27, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28268 Filed 11-5-15; 8:45 am]
BILLING CODE 8011-01-P
