Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt an Early Trading Session and Three New Time-in-Force Instructions, 10350-10356 [2016-04252]
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10350
Federal Register / Vol. 81, No. 39 / Monday, February 29, 2016 / Notices
All submissions should refer to File
Number SR–BATS–2016–17. 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–
2016–17, and should be submitted on or
before March 21, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–04358 Filed 2–26–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77214; File No. SR–BATS–
2016–14]
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Adopt an
Early Trading Session and Three New
Time-in-Force Instructions
February 23, 2016.
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 February
12, 2016, BATS Exchange, Inc. (the
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
19:23 Feb 26, 2016
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend its rules to: (i) Create a new
trading session to be known as the Early
Trading Session, which will run from
7:00 a.m. to 8:00 a.m. Eastern Time; and
(ii) adopt three new Time-in-Force
(‘‘TIF’’) instructions.
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 amend its
rules to: (i) Create a new trading session
to be known as the Early Trading
Session, which will run from 7:00 a.m.
to 8:00 a.m. Eastern Time; and (ii) adopt
three new TIF instructions.
Early Trading Session
The Exchange trading day is currently
divided into three sessions of which a
User 3 may select their order(s) be
eligible for execution: (i) The PreOpening Session which starts at 8:00
a.m. and ends at 9:30 a.m. Eastern Time;
(ii) Regular Trading Hours which runs
3 ‘‘User’’ is defined as ‘‘any Member or Sponsored
Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.’’ See Exchange Rule
1.5(cc).
46 17
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‘‘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 Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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from 9:30 a.m. to 4:00 p.m. Eastern
Time; and (iii) the After Hours Session,
which runs from 4:00 p.m. to 5:00 p.m.
Eastern Time. The Exchange proposes to
amend its rules to create a new trading
session to be known as the Early
Trading Session, which will run from
7:00 a.m. to 8:00 a.m. Eastern Time.4
Exchange Rule 1.5 would be amended to
add a new definition for the term ‘‘Early
Trading Session’’ under new paragraph
(ee). ‘‘Early Trading Session’’ would be
defined as ‘‘the time between 7:00 a.m.
and 8:00 a.m. Eastern Time.’’ 5
The Exchange also proposes to amend
Rule 11.1(a) to account for the Early
Trading Session starting at 7:00 a.m.
Eastern Time. Other than the proposal
to adopt an Early Trading Session
starting at 7:00 a.m. Eastern Time, the
Exchange does not propose to amend
the substance or operation of Rule
11.1(a).
Users currently designate when their
orders are eligible for execution by
selecting the desired TIF instruction
under Exchange Rule 11.9(b). Orders
entered between 6:00 a.m. and 8:00 a.m.
Eastern Time are not eligible for
execution until the start of the PreOpening Session, or Regular Trading
Hours,6 depending on the TIF selected
by the User. Users may enter orders in
advance of the trading session they
intend the order to be eligible for. For
example, Users may enter orders
starting at 6:00 a.m. Eastern Time with
a TIF of Regular Hours Only, which
designates that the order only be eligible
for execution during Regular Trading
Hours.7 As stated above, Users may
enter orders as early as 6:00 a.m. Eastern
Time, but those orders would not be
eligible for execution until the start of
the Pre-Opening Session at 8:00 a.m.
4 The Exchange notes that NYSE Arca, Inc.
(‘‘NYSE Arca’’) operates an Opening Session that
starts at 4:00 a.m. Eastern Time (1:00 a.m. Pacific
Time) and ends at 9:30 a.m. Eastern Time (6:30 a.m.
Pacific Time). See NYSE Arca Rule 7.34(a)(1). The
Nasdaq Stock Market LLC (‘‘Nasdaq’’) operates a
pre-market session that also opens at 4:00 a.m. and
ends at 9:30 a.m. Eastern Time. See Nasdaq Rule
4701(g). See also Securities Exchange Act Release
No. 69151 (March 15, 2013), 78 FR 17464 (March
21, 2013) (SR–Nasdaq–2013–033) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change to Extend the Pre-Market Hours of the
Exchange to 4:00 a.m. EST).
5 An Exchange having bifurcated after hours
trading sessions is not novel. For example, the
Chicago Stock Exchange, Inc. (‘‘CHX’’) maintains
two after hours trading sessions. See CHX Article
20, Rule 1(b). See also Securities Exchange Act
Release No. 60605 (September 1, 2009), 74 FR
46277 (September 8, 2009) (SR–CHX–2009–13)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Adding Additional Trading
Sessions).
6 ‘‘Regular Trading Hours’’ is defined as ‘‘the time
between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ See
Exchange Rule 1.5(w).
7 See Exchange Rule 11.9(b)(7).
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asabaliauskas on DSK5VPTVN1PROD with NOTICES
Some Users have requested the ability
for their orders to be eligible for
execution starting at 7:00 a.m. Eastern
Time. Therefore, the Exchange is
proposing to adopt the Early Trading
Session as discussed herein.
Order entry and execution during the
Early Trading Session would operate in
the same manner as it does during the
Pre-Opening Session. As amended,
Exchange Rule 11.1(a) would state that
orders entered between 6:00 a.m. and
7:00 a.m. Eastern Time, rather than 6:00
a.m. and 8:00 a.m. Eastern Time, would
not be eligible for execution until the
start of the Early Trading Session, PreOpening Session, or Regular Trading
Hours,8 depending on the TIF selected
by the User. Exchange Rule 11.1(a) will
also be amended to state that the
Exchange will not accept the following
orders prior to 7:00 a.m. Eastern Time,
rather than 8:00 a.m.: BATS Post Only
Orders,9 Partial Post Only at Limit
Orders,10 Intermarket Sweep Orders
(‘‘ISOs’’),11 BATS Market Orders 12 with
a TIF other than Regular Hours Only,13
Minimum Quantity Orders 14 that also
include a TIF of Regular Hours Only,
and all orders with a TIF instruction of
Immediate-or-Cancel (‘‘IOC’’) 15 or Fillor-Kill (‘‘FOK’’).16 At the
commencement of the Early Trading
Session, orders entered between 6:00
a.m. and 7:00 a.m. Eastern Time, rather
than 6:00 a.m. and 8:00 a.m. Eastern
Time, will be handled in time sequence,
beginning with the order with the oldest
time stamp, and will be placed on the
BATS Book,17 routed, cancelled, or
executed in accordance with the terms
of the order. As amended, Rule 11.1(a)
would state that orders may be executed
on the Exchange or routed away from
the Exchange during Regular Trading
Hours and during the Early Trading,
Pre-Opening and After Hours Trading
Sessions.
Operations. From the Members’
operational perspective, the Exchange’s
goal is to permit trading for those that
choose to trade, without imposing
burdens on those that do not. Thus, for
example, the Exchange will not require
any Member to participate in the Early
Trading Session, including not requiring
registered market makers to make two8 ‘‘Regular Trading Hours’’ is defined as ‘‘the time
between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ See
Exchange Rule 1.5(w).
9 See Exchange Rule 11.9(c)(6).
10 See Exchange Rule 11.9(c)(7).
11 See Exchange Rule 11.9(d).
12 See Exchange Rule 11.9(a)(2).
13 See Exchange Rule 11.9(b)(7).
14 See Exchange Rule 11.9(c)(5).
15 See Exchange Rule 11.9(b)(1).
16 See Exchange Rule 11.9(b)(6).
17 See Exchange Rule 1.5(e).
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sided markets between 7:00 a.m. and
8:00 a.m., just as it does not require
such participation between 8:00 a.m.
and 9:30 a.m.18 The Exchange will
minimize Members’ preparation efforts
to the greatest extent possible by
allowing Members to trade beginning at
7:00 a.m. with the same equipment,
connectivity, order types, and data feeds
they currently use from 8:00 a.m.
onwards.
Opening Process. The Exchange will
offer no opening process at 7:00 a.m.,
just as it offers no opening process at
8:00 a.m. today. Instead, at 7:00 a.m.,
the System will ‘‘wake up’’ by loading
in price/time priority all open trading
interest entered after 6:00 a.m.19 Also at
7:00 a.m., the Exchange will open the
execution system and accept new
eligible orders, just as it currently does
at 8:00 a.m. Members will be permitted
to enter orders beginning at 6:00 a.m.
Market Makers will be permitted but not
required to open their quotes beginning
at 7:00 a.m. in the same manner they
open their quotes today beginning at
8:00 a.m.
Order Types. Every order type that is
currently available beginning at 8:00
a.m. will be available beginning at 7:00
a.m.20 All other order types, and all
order type behaviors, will otherwise
remain unchanged. The Exchange will
not extend the expiration times of any
orders. For example, an order that is
currently available from 8:00 a.m. to
4:00 p.m. will be modified to be
available from 7:00 a.m. to 4:00 p.m. An
order that is available from 8:00 a.m. to
9:30 a.m. will be modified to be
available from 7:00 a.m. to 9:30 a.m.
Users must continue to enter a TIF
instruction along with their order to
indicate when the order is eligible for
execution.21
Routing Services. The Exchange will
route orders to away markets between
7:00 a.m. and 8:00 a.m., just as it does
today between 8:00 a.m. and 9:30 a.m.22
All routing strategies set forth in
Exchange Rule 11.13 will remain
otherwise unchanged, performing the
same instructions they perform between
7:00 a.m. and 8:00 a.m. today.23
Order Processing. Order processing
will operate beginning at 7:00 a.m. just
as it does today beginning at 8:00 a.m.
18 See Exchange Rule 11.8(d)(2) (stating that for
NMS stocks (as defined in Rule 600 under
Regulation NMS) a Market Maker shall adhere to
the pricing obligations established by this Rule
during Regular Trading Hours).
19 See Exchange Rule 11.1(a).
20 Id.
21 Id.
22 Id.
23 See Exchange Rule 11.13(b) (Routing to Away
Trading Centers).
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10351
There will be no changes to the ranking,
display, and execution processes or
rules.
Data Feeds. The Exchange will report
the best bid and offer on the Exchange
to the appropriate network processor, as
it currently does beginning 8:00 a.m.24
The Exchange’s proprietary data feeds
will be disseminated beginning at 7:00
a.m. using the same formats and
delivery mechanisms with which the
Exchange currently disseminates them
beginning at 8:00 a.m.
Trade Reporting. Trades executed
between 7:00 a.m. and 8:00 a.m. will be
reported to the appropriate network
processor with the ‘‘.T’’ modifier, just as
they are reported today between at 8:00
a.m. and 9:30 a.m.25
Market Surveillance. The Exchange’s
commitment to high-quality regulation
at all times will extend to 7:00 a.m. The
Exchange will offer all surveillance
coverage currently performed by the
Exchange’s surveillance systems, which
will launch by the time trading starts at
7:00 a.m.
Clearly Erroneous Trade Processing.
The Exchange will process trade breaks
beginning at 7:00 a.m. pursuant to
Exchange Rule 11.17, just as it does
today beginning at 8:00 a.m.
Related changes to Rules 3.21, 11.9,
11.13, 11.17, 11.23, 14.6, 14.11, and
14.12. The Exchange proposes to also
make the following changes to Rules
3.21, 11.9, 11.13, 11.17, 11.23, 14.6,
14.11, and 14.12 to reflect the adoption
of the Early Trading Session:
• Rule 3.21, Customer Disclosures. In
sum, Exchange Rule 3.21 prohibits
Members from accepting an order from
a customer for execution in the PreOpening or After Hours Trading Session
without disclosing to their customer
that extended hours trading involves
material trading risks, including the
possibility of lower liquidity, high
volatility, changing prices, unlinked
markets, an exaggerated effect from
news announcements, wider spreads
and any other relevant risk. The
Exchange proposes to amend Rule 3.21
to include the Early Trading Session as
part of the Member’s required
disclosures to their customers.
• Rule 11.9, Orders and Modifiers.
The Exchange proposes to amend the
description of BATS Market Orders
under Rule 11.9(a)(2), Market Maker Peg
Orders under Rule 11.9(c)(16), and
Supplemental Peg Orders under Rule
11.9(c)(19) to account for the Early
Trading Session. BATS Market Orders
are currently not eligible for execution
24 See Exchange Rule 11.14 (Trade Execution and
Reporting).
25 Id.
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asabaliauskas on DSK5VPTVN1PROD with NOTICES
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during the Pre-Opening Session or After
Hours Trading Session. Rule 11.9(a)(2)
would be amended to state that BATS
Market Orders would also not be
eligible for execution during the Early
Trading Session. Market Maker Peg
Orders may currently be submitted to
the Exchange starting at the beginning of
the Pre-Opening Session, but the order
will not be executable or automatically
priced until the beginning of Regular
Trading Hours. Rule 11.9(c)(16) would
be amended to state that Market Maker
Peg Orders may be submitted to the
Exchange starting at the beginning of the
Early Trading Session. Market Maker
Peg Orders would continue to not be
executable or automatically priced until
the beginning of Regular Trading Hours.
Rule 11.9(c)(19) states that
Supplemental Peg Orders are eligible for
execution during the Pre-Opening
Session, Regular Trading Hours, and the
After Hours Trading Session. Rule
11.9(c)(19) would be amended to state
that Supplemental Peg Orders are also
eligible for execution during the Early
Trading Session. As stated above, every
order type that is currently available
beginning at 8:00 a.m. will be available
beginning at 7:00 a.m. for inclusion in
the Early Trading Session.26 All other
order types, and all order type
behaviors, will otherwise remain
unchanged. The above rules describing
BATS Market Orders, Market Maker Peg
Orders, and Supplemental Peg Orders
specifically reference the trading
sessions during which the order type is
eligible for execution. Therefore, the
Exchange proposes to amend the
description of each order type to
account for the Early Trading Session.
• Rule 11.13, Order Execution and
Routing. Exchange Rule 11.13(a)(2)(B)
discusses compliance with Regulation
NMS and Trade Through Protections
and states that the price of any
execution occurring during the PreOpening Session or the After Hours
Trading Session must be equal to or
better than the highest Protected Bid or
lowest Protected Offer, unless the order
is marked ISO or a Protected Bid is
crossing a Protected Offer. The
Exchange proposes to amend Rule
11.13(a)(2)(B) to expand the rule’s
requirements to the Early Trading
Session.
• Rule 11.17, Clearly Erroneous
Executions. Exchange Rule 11.17
outlines under which conditions the
Exchange may determine that an
execution is clearly erroneous. The
Exchange proposes to amend Rule 11.17
to include executions that occur during
26 See
proposed amendments to Exchange Rule
11.1(a).
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the Early Trading Session.27 Exchange
Rule 11.17(c)(1) sets forth the numerical
guidelines the Exchange is to follow
when determining whether an execution
was clearly erroneous during Regular
Trading Hours or the Pre-Opening or
After Hours Trading Session. Exchange
Rule 11.17(c)(3) sets forth additional
factors the Exchange may consider in
determining whether a transaction is
clearly erroneous. These factors include
Pre-Opening and After Hours Trading
Session executions. The Exchange
proposes to amend Rule 11.17(c)(1) and
(3) to include executions occurring
during the Early Trading Session.
• Rule 11.23, Auctions. Exchange
Rules 11.23(b) and (c) describe the
Exchange’s Opening and Closing
Auction processes. The Exchange
proposes to amend Rules 11.23(b)(1)(A)
and (c)(1)(A) to reflect that Users may
submit orders at the start of the Early
Trading Session at 7:00 a.m., rather than
8:00 a.m., to participate in either the
Opening or Closing Auctions.
• Rule 14.6, Obligations for
Companies Listed on the Exchange. The
Exchange proposes to amend Rules
14.6(b)(1), (b)(2), and Interpretation and
Policies .01(a), (b), (c), and .02 to require
an Exchange-Listed Company that
publicly releases material information
outside of the Exchange market hours to
inform the Exchange’s Surveillance
Department of that material information
prior to 6:50 a.m. rather than 7:50 a.m.
Eastern Time. The Exchange proposes to
amend Rule 14.6, Interpretation and
Policies .01(a), (b), (c), and .02 to reflect
the start of the Early Trading Session at
7:00 a.m. Eastern Time. The amended
provisions of Rule 14.6, Interpretation
and Policies .01(a), (b), (c), and .02
require companies to notify the
Exchange’s Surveillance Department of
the release of certain material
information at least ten minutes prior to
the release of such information to the
public when the public release of the
information is made during Exchange
market hours.
• Rule 14.11, Other Securities. The
Exchange proposes to amend Rule
14.11(b)(7) and (c)(7) to reflect the
extension of the Pre-Opening Session to
7:00 a.m. Eastern Time. The Exchange
also proposes to amend the following
provisions of Rule 14.11 to include
references to the Early Trading Session
or to state that transaction in the
following products may occur during
the Early Trading Session, in addition to
during Regular Trading Hours and the
Pre-Opening and After Hours Trading
27 The Exchange notes that it also proposes to
delete the ‘‘s’’ from the word ‘‘tapes’’ in paragraph
(c)(3) of Rule 11.17.
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Sessions: Commodity-Based Trust
Shares; Currency Trust Shares;
Commodity Futures Trust Shares; Trust
Units; and Managed Trust Securities:
Æ Rule 14.11(d), Securities Linked to
the Performance of Indexes and
Commodities (Including Currencies).
The Exchange proposes to amend Rule
14.11(d)(2)(K)(i)(b)(3)(B) and
Interpretation and Policies .01(b) of Rule
14.11(e) to state, in sum, that where the
value of the index or composite value of
the indexes is no longer calculated or
widely disseminated on at least a 15second basis with respect to indexes
containing only securities listed on a
national securities exchange, or on at
least a 60-second basis with respect to
indexes containing foreign country
securities, provided, however, that, if
the official index value does not change
during some or all of the period when
trading is occurring on the Exchange
then the last calculated official index
value must remain available throughout
Regular Trading Hours and the Early
Trading, Pre-Opening and After Hours
Trading Sessions.
Æ Rule 14.11(e)(4), Commodity-Based
Trust Shares. The Exchange proposes to
amend Interpretation and Policies .03 to
Rule 14.11(e)(4) to state that
transactions in Commodity-Based Trust
Shares may occur during the Early
Trading Session, in addition to during
Regular Trading Hours and the PreOpening and After Hours Trading
Sessions.
Æ Rule 14.11(e)(5), Currency Trust
Shares. The Exchange proposes to
amend Interpretation and Policies .03 to
Rule 14.11(e)(5) to state that
transactions in Currency Trust Shares
may occur during the Early Trading
Session, in addition to during Regular
Trading Hours and the Pre-Opening and
After Hours Trading Sessions.
Æ Rule 14.11(e)(6), Commodity Index
Trust Shares. The Exchange proposes to
amend Interpretation and Policies .03 to
Rule 14.11(e)(6) to state that
transactions in Commodity-Based Trust
Shares may occur during the Early
Trading Session, in addition to during
Regular Trading Hours and the PreOpening and After Hours Trading
Sessions.
Æ Rule 14.11(e)(7), Commodity Future
Trust Shares. The Exchange proposes to
amend Interpretation and Policies .02 to
Rule 14.11(e)(7) to state that
transactions in Commodity Future Trust
Shares may occur during the Early
Trading Session, in addition to during
Regular Trading Hours and the PreOpening and After Hours Trading
Sessions.
Æ Rule 14.11(e)(9), Trust Units. The
Exchange proposes to amend
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Interpretation and Policies .02 to Rule
14.11(e)(9) to state that transactions in
Trust Units may occur during the Early
Trading Session, in addition to during
Regular Trading Hours and the PreOpening and After Hours Trading
Sessions.
Æ Rule 14.11(e)(10), Managed Trust
Securities. The Exchange proposes to
amend Interpretation and Policies .02 to
Rule 14.11(e)(10) to state that
transactions in Managed Trust
Securities may occur during the Early
Trading Session, in addition to during
Regular Trading Hours and the PreOpening and After Hours Trading
Sessions.
Æ Rule 14.11(j), Derivative Securities
Traded under Unlisted Trading
Privileges. The Exchange proposes to
amend Rule 14.11(j)(2) to state that the
Exchange will distribute an information
circular prior to the commencement of
trading in each UTP Derivative Security
that generally includes the same
information as contained in the listing
circular provided by the listing
exchange, including, the risk of trading
during the Early Trading Session (7:00
a.m.–8:00 a.m.) in addition, to the PreOpening Session (8:00 a.m.–9:30 a.m.
Eastern Time) and the After Hours
Trading Session (4:00 p.m.–5:00 p.m.
Eastern Time), due to the lack of
calculation or dissemination of the
underlying index value, the Intraday
Indicative Value (as defined in Rule
14.11(b)(3)(C)) or a similar value. The
Exchange also proposes to amend Rule
14.11(j)(2) to correct an inaccurate
description of the Pre-Opening Session,
which currently reads as 9:00 a.m. to
9:30 a.m. rather than 8:00 a.m. to 9:30
a.m. as is set forth throughout Exchange
Rules.
• Rule 14.12, Failure to Meet Listing
Standards. The Exchange proposes to
amend Rule 14.12(e) and (m)(11) to
require that companies that publicly
announce the receipt of a notification of
deficiency, Staff Delisting
Determination, Public Reprimand
Letter, or Adjudicatory Body Decision
that serves as a Public Reprimand
outside of Exchange market hours
inform the Exchange’s Surveillance
Department of the material information
prior to 6:50 a.m. rather than 7:50 a.m.
Eastern Time. If the public
announcement is made during Exchange
market hours, both Rules would
continue to require that the company
inform the Exchange’s Surveillance
Department at least 10 minutes prior to
the announcement.
TIF Instructions
The Exchange proposes to adopt three
new TIF instructions under Rule
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11.9(b). Under Rule 11.1(a), a User may
designate when their order is eligible for
execution by selecting the desired TIF
instruction under Exchange Rule
11.9(b). Currently, orders entered
between 6:00 a.m. and 8:00 a.m. Eastern
Time are not eligible for execution until
the start of the Pre-Opening Session, or
Regular Trading Hours, depending on
the TIF selected by the User. Users may
enter orders in advance of the trading
session they intend the order to be
eligible for. For example, Users may
enter orders starting at 6:00 a.m. Eastern
Time with a TIF of Regular Hours Only,
which designates that the order only be
eligible for execution during Regular
Trading Hours.28 As stated above, Users
may enter orders as early as 6:00 a.m.
Eastern Time, but those orders would
not be eligible for execution until the
start of the Pre-Opening Session at 8:00
a.m.
As discussed above, the Exchange
proposed the Early Trading Session in
response to User requests for their
orders to be eligible for execution
starting at 7:00 a.m. Eastern Time. Some
Users, however, do not wish for their
orders to be executed during the Early
Trading Session and have requested
their orders continue to not be eligible
for execution until the start of the PreOpening Session at 8:00 a.m. Therefore,
the Exchange proposes to adopt the
following three new TIF instructions
under Rule 11.9(b):
• Pre-Opening Session Plus (‘‘PRE’’).
A limit order that is designated for
execution during the Pre-Opening
Session and Regular Trading Hours.
Like the current Good-‘til Cancel
(‘‘GTC’’) TIF instruction,29 any portion
not executed expires at the end of
Regular Trading Hours.
• Pre-Opening Session ‘til Extended
Day (‘‘PTX’’). A limit order that is
designated for execution during the PreOpening Session, Regular Trading
Hours, and the After Hours Session.
Like the current Good-‘til Extended Day
(‘‘GTX’’) TIF instruction,30 any portion
not executed expires at the end of the
After Hours Session.
• Pre-Opening Session ‘til Day
(‘‘PTD’’). A limit order that is designated
for execution during the Pre-Opening
Session, Regular Trading Hours, and the
After Hours Session. Like the current
Good-‘til Day (‘‘GTD’’) TIF instruction,31
any portion not executed will be
cancelled at the expiration time
assigned to the order, which can be no
28 See
Exchange Rule 11.9(b)(7).
Exchange Rule 11.9(b)(3).
30 See Exchange Rule 11.9(b)(5).
31 See Exchange Rule 11.9(b)(4).
29 See
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10353
later than the close of the After Hours
Trading Session.
Under each proposed TIF instruction,
Users may designate that their orders
only be eligible for execution starting
with the Pre-Opening Session. This is
similar to the existing TIF of Regular
Hours Only, which designates that the
order only be eligible for execution
during Regular Trading Hours, which
starts at 9:30 a.m. Eastern Time. In such
case, a User may enter orders starting at
6:00 a.m. Eastern Time, but such order
would not be eligible for execution until
9:30 a.m. Eastern Time. Likewise, under
each of the proposed TIF instructions, a
User may continue to enter orders as
early as 6:00 a.m., but such orders
would not be eligible for execution until
8:00 a.m. Eastern Time, the start of the
Pre-Opening Session.32 At the
commencement of the Pre-Opening
Session, orders entered between 6:00
a.m. and 8:00 a.m. Eastern Time with
one of the proposed TIF instructions
will be handled in time sequence,
beginning with the order with the oldest
time stamp, and will be placed on the
BATS Book, routed, cancelled, or
executed in accordance with the terms
of the order.33
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,34 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,35 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and in general, to protect
investors and the public interest. The
Exchange also believes that the
proposed rule change is nondiscriminatory as it would apply to all
Members uniformly. The proposed rule
change in whole is designed to attract
more order flow to the Exchange
between 7:00 a.m. and 9:30 a.m. Eastern
Time. Increased liquidity during this
time will lead to improved price
discovery and increased execution
opportunities on the Exchange,
therefore, promoting just and equitable
principles of trade, and removing
impediments to and perfecting the
mechanism of a free and open market
and a national market system.
32 Orders utilizing one of the proposed TIF
instructions would not be eligible for execution
during the proposed Early Trading Session.
33 See Exchange Rule 11.1(a).
34 15 U.S.C. 78f.
35 15 U.S.C. 78f(b)(5).
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asabaliauskas on DSK5VPTVN1PROD with NOTICES
Early Trading Session
The Exchange believes its proposal to
adopt the Early Trading Session
promotes just and equitable principles
of trade, removes impediments to and
perfects the mechanism of a free and
open market and a national market
system, prevents fraudulent and
manipulative acts and practices, and, in
general, protects investors and the
public interest. The Exchange believes
that the Early Trading Session will
benefit investors, the national market
system, Members, and the Exchange
market by increasing competition for
order flow and executions, and thereby
spur product enhancements and lower
prices. The Early Trading Session will
benefit Members and the Exchange
market by increasing trading
opportunities between 7:00 a.m. and
8:00 a.m. without increasing ancillary
trading costs (telecommunications, data,
connectivity, etc.) and, thereby,
decreasing average trading costs per
share. The Exchange notes that trading
during the proposed Early Trading
Session has been available on NYSE
Arca and Nasdaq.36 The Exchange
believes that the availability of trading
between 7:00 a.m. and 8:00 a.m. has
been beneficial to market participants
including investors and issuers on other
markets. Introduction of the Early
Trading Session on the Exchange will
further expand these benefits.
Additionally, the Exchange Act’s goal
of creating an efficient market system
includes multiple policies such as price
discovery, order interaction, and
competition among markets. The
Exchange believes that offering a
competing trading session will promote
all of these policies and will enhance
quote competition, improve liquidity in
the market, support the quality of price
discovery, promote market
transparency, and increase competition
for trade executions while reducing
spreads and transaction costs.
Additionally, increasing liquidity
during the Early Trading Session will
raise investors’ confidence in the
fairness of the markets and their
transactions, particularly due to the
lower volume of trading occurring prior
to opening.
Although the Exchange will be
operating with bifurcated pre-opening
trading sessions, the Exchange notes
that having bifurcated after hours
trading sessions is not novel. For
example, the CHX maintains two after
hours trading sessions,37 the Late
Trading Session, which runs from 4:00
36 See
37 See
supra note 4.
supra note 5.
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p.m. to 4:15 p.m. Eastern Time, and the
Late Crossing Session, which runs from
4:15 p.m. to 5:00 Eastern Time. As such,
the Exchange does not believe that the
proposed rule change will
disproportionately increase the
complexity of the market.
The expansion of trading hours
through the creation of the Early
Trading Session promotes just and
equitable principles of trade by
providing market participants with
additional options in seeking execution
on the Exchange. Order entry and
execution during the Early Trading
Session would operate in the same
manner as it does today during the PreOpening Session. In addition, the
Exchange will report the best bid and
offer on the Exchange to the appropriate
network processor, and the Exchange’s
proprietary data feeds will be
disseminated, beginning at 7:00 a.m.
The proposal will, therefore, facilitate a
well-regulated, orderly, and efficient
market during a period of time that is
currently underserved.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices because all
surveillance coverage currently
performed by the Exchange’s
surveillance systems will launch by the
time trading starts at 7:00 a.m. Eastern
Time. Further, the Exchange believes
that the proposed rule change will
protect investors and the public interest
because the Exchange is updating its
customer disclosure requirements to
prohibit Members from accepting an
order from a customer for execution in
the Early Trading Session without
disclosing to their customer that
extended hours trading involves
material trading risks, including the
possibility of lower liquidity, high
volatility, changing prices, unlinked
markets, an exaggerated effect from
news announcements, wider spreads
and any other relevant risk.
TIF Instructions
The Exchange believes its proposed
TIF instructions promote just and
equitable principles of trade, and
remove impediments to and perfect the
mechanism of a free and open market
and a national market system. The
Exchange believes that the proposed TIF
instructions will benefit investors by
providing them with greater control
over their orders. The proposed TIF
instructions simply provide investors
with additional optionality for when
their orders may be eligible for
execution.
The ability to select the trading
sessions or time upon which an order is
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Fmt 4703
Sfmt 4703
to be eligible for execution is not novel
and is currently available on the
Exchange and other market centers. For
example, on the Exchange, a User may
enter an order starting at 6:00 a.m.
Eastern Time and select that such order
not be eligible for execution until 9:30
a.m., the start of Regular Trading Hours
using TIF instructions of Regular Hours
Only.38 In addition, like each of the
proposed TIF instructions, Nasdaq
utilizes a TIF, referred to as ESCN,
under which an order using its SCAN
routing strategy entered prior to 8:00
a.m. Eastern Time is not eligible for
execution until 8:00 a.m. Eastern
Time.39
The Exchange proposed the Early
Trading Session discussed above in
response to User requests for their
orders to be eligible for execution
starting at 7:00 a.m. Eastern Time.
However, some Users have requested
their orders continue to not be eligible
for execution until the start of the PreOpening Session at 8:00 a.m. Therefore,
the Exchange proposed the three new
TIF instructions in order for Users to
designate their orders as eligible for
execution as of the start of the PreOpening Session.
Members will maintain the ability to
cancel or modify the terms of their order
at any time, including during the time
from when the order is routed to the
Exchange until the start of the PreOpening Session. As a result, a Member
who utilizes the proposed TIF
instructions, but later determines that
market conditions favor execution
during Early Trading Session, can
cancel the order residing at the
Exchange and enter a separate order to
execute during the Early Trading
Session. While a User must make every
effort to execute a marketable customer
order it receives fully and promptly,40
doing so might not result in the best
execution possible for the customer.
Such Users may wish to delay the
execution of their orders until the start
of the Pre-Opening Session for various
reasons, including the characteristics of
the market for the security as well as the
amount of liquidity available in the
market as part of their best execution
obligations.41
38 See Exchange Rule 11.9(b)(7). See also Nasdaq
Rule 4703(a) (outlining TIF instructions that do not
activate orders until 9:30 a.m. Eastern Time).
39 See Nasdaq Rule 4703(a). See also Nasdaq Rule
4703(a)(7).
40 See Supplemental Material .01 to Financial
Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule
5310.
41 A Member’s best execution obligation may also
include cancelling an order when market
conditions deteriorate and could result in an
inferior execution or informing customers where
the execution of their order may be delayed
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Specifically, FINRA Rule 5310(a)(1)
provides that a Member must use
reasonable diligence to ascertain the
best market for a security and buy or sell
in such market so that the resultant
price to the customer is as favorable as
possible under prevailing market
conditions. And importantly, FINRA
Rule 5310(a)(1)(A) states that one of the
factors that will be considered in
determining whether a member has
used ‘‘reasonable diligence’’ is ‘‘the
character of the market for the security
(e.g., price, volatility, relative liquidity,
and pressure on available
communication).42 As such, a Member
conducting ‘‘reasonable diligence’’ may
determine that due to the character of
the Early Trading Session, along with
considering other relevant factors, the
Member wants to utilize the proposed
TIF instructions.
Members will be accustomed to this
additional analysis in determining
whether to participate in the Early
Trading Session, Pre-Opening Session,
or Regular Trading Hours. The
regulatory guidance with respect to best
execution anticipates the continued
evolution of execution venues:
[B]est execution is a facts and circumstances
determination. A broker-dealer must consider
several factors affecting the quality of
execution, including, for example, the
opportunity for price improvement, the
likelihood of execution . . . , the speed of
execution and the trading characteristics of
the security, together with other non-price
factors such as reliability and service.43
asabaliauskas on DSK5VPTVN1PROD with NOTICES
To the extent there may be best
execution obligations at issue, they are
no different than the best execution
obligations faced by brokers in the
current market structure,44 including
intentionally as the Member utilizes reasonable
diligence to ascertain the best market for the
security. See FINRA Rule 5130. See also FINRA
Regulatory Notice 15–46, Best Execution. Guidance
on Best Execution Obligations in Equity, Options,
and Fixed Income Markets, (November 2015).
42 Tellingly, these characteristics are reflected in
the disclosure requirements mandated by Exchange
Rule 3.21 before a Member may accept an order
from a customer for execution in the Pre-Opening,
After Hours, and proposed Early Trading Sessions.
43 See Securities Exchange Act Release No. 43950
(November 17, 2000), 65 FR 75414 (December 1,
2000) (‘‘Disclosure of Order Execution and Routing
Practices release’’).
44 The Commission has also indicated a User’s
best execution obligation may not be satisfied
simply by obtaining the best bid or offer (‘‘BBO’’).
See Securities Exchange Act Release No. 37619A
(September 6, 1996), 61 FR 48290 (September 12,
1996) (‘‘Order Executions Obligations release’’).
While a User may seek the most favorable terms
reasonably available under the circumstances of the
transaction, such terms may not necessarily in
every case be the best price available. Id. See also
FINRA Regulatory Notice 15–46, Best Execution.
Guidance on Best Execution Obligations in Equity,
Options, and Fixed Income Markets, (November
2015).
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Jkt 238001
the use of the currently available
Regular Trading Hours TIF instruction
or SCAN/ESCN routing strategy
available on Nasdaq discussed above.45
However, similar to why a Member may
utilize the Regular Trading Hours TIF
instruction, a User may wish to forgo a
possible execution during the Early
Trading Session and/or Pre-Opening
Session if they believe doing so is
consistent with their best execution
obligations as they anticipate that the
market for the security may improve
upon the start of the Pre-Opening
Session and/or Regular Trading
Hours.46 Applicable best execution
guidance contains no formulaic
mandate as to whether or how brokers
should direct orders. The optionality
created by the proposed rule change
simply represents one tool available to
Members in order to meet their best
execution obligations.
The Exchange notes that it would
subject orders that are eligible for
execution as of the start of the PreOpening Session to all of the Exchange’s
standard regulatory checks, as it
currently does with all orders upon
entry. These checks include compliance
with Regulation NMS,47 Regulation
SHO,48 as well as relevant Exchange
rules.49
Lastly, the Exchange reminds
Members of their regulatory obligations
when submitting an order one of the
proposed TIF instructions. The Market
Access Rule under Rule 15c3–5 of the
Act requires broker-dealers to, among
other things, implement regulatory risk
management controls and procedures
that are reasonably designed to prevent
the entry of orders that fail to comply
with regulatory requirements that apply
on a pre-order entry basis.50 These pretrade controls must, for example, be
reasonably designed to assure
compliance with Exchange trading rules
and Commission rules under Regulation
SHO 51 and Regulation NMS.52 In
45 See
supra note 39.
Rule 3.21 requires Member make
certain disclosures to their customers prior to
accepting an order for execution outside of Regular
Trading Hours. These disclosures include, among
other things, the risk of lower liquidity, higher
volatility, wider spreads, and changing prices in
extended hours trading as compared to regular
market hours. See Exchange Rule 3.21(a)–(g).
47 17 CFR 242.610–611.
48 17 CFR 242.200–204.
49 See, e.g., Exchange Rule 11.13(a).
50 See Securities Exchange Act Release No. 63241
(November 3, 2010), 75 FR 69792 (November 15,
2010) (File no. S7–03–10).
51 See e.g., Question 2.6 of the Division of Trading
and Markets: Response to Frequently Asked
Questions Concerning Regulations SHO, available
at https://www.sec.gov/divisions/marketreg/
mrfaqregsho1204.htm.
52 17 CFR 240.610–611.
46 Exchange
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Sfmt 4703
10355
accordance with the Market Access
Rule, a Member’s procedures must be
reasonably designed to ensure
compliance with their applicable
regulatory requirements, not just at the
time the order is routed to the Exchange,
but also at the time the order becomes
eligible for execution.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that its
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will benefit investors, the
national market system, Members, and
the Exchange market by increasing
competition for order flow and
executions during the pre-market
sessions, thereby spurring product
enhancements and lowering prices. The
Exchange believes the proposed Early
Trading Session would enhance
competition by enabling the Exchange
to directly compete with NYSE Arca
and Nasdaq for order flow and
executions starting at 7:00 a.m., rather
than 8:00 a.m. Eastern Time. In
addition, the proposed TIF instructions
will enhance competition by enabling
the Exchange to offer functionality
similar to Nasdaq.53 The fact that the
extending of the proposed Early Trading
Session and TIF instructions are
themselves a response to the
competition provided by other markets
is evidence of its pro-competitive
nature.
(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
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
53 See
E:\FR\FM\29FEN1.SGM
supra note 39.
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to determine whether the proposed rule
change should be 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–2016–14 on the subject line.
Paper Comments
asabaliauskas on DSK5VPTVN1PROD with NOTICES
• 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–2016–14. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing 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 No. SR–BATS–
2016–14 and should be submitted on or
before March 21, 2016.
54 17
CFR 200.30–3(a)(12).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–04252 Filed 2–26–16; 8:45 am]
BILLING CODE 8011–01–P
OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
2015/2016 Generalized System of
Preferences (GSP) Annual Product
Review: Inviting Public Comments on
Possible Actions Related to
Competitive Need Limitations
Office of the United States
Trade Representative.
ACTION: Notice and solicitation of
comments.
AGENCY:
This notice announces the
availability of full 2015 calendar year
import statistics relating to competitive
need limitations (CNLs) under the
Generalized System of Preferences
(GSP) program. The Office of the United
States Trade Representative (USTR) will
accept public comments submitted by
April 1, 2016, regarding: (1) Possible de
minimis CNL waivers; and (2) possible
redesignations of articles currently not
eligible for GSP benefits because they
previously exceeded the CNL
thresholds. This notice also announces
the withdrawal by the petitioners of
certain previously accepted CNL waiver
petitions.
FOR FURTHER INFORMATION CONTACT:
Aimee Larsen, Director for GSP, Office
of the United States Trade
Representative, 600 17th Street NW.,
Washington DC 20508. The telephone
number is (202) 395–2974 and the email
address is Aimee_B_Larsen@
ustr.eop.gov.
SUMMARY:
Public comments are due by 5:00
p.m., Friday, April 1, 2016.
SUPPLEMENTARY INFORMATION:
DATES:
I. Statutory Provisions Related to CNLs
The GSP program provides for the
duty-free importation of designated
articles when imported from designated
beneficiary developing countries
(BDCs). The GSP program is authorized
by Title V of the Trade Act of 1974 (19
U.S.C. 2461, et seq.), as amended (the
‘‘1974 Act’’).
Section 503(c)(2)(A) of the 1974 Act
sets out the two CNLs. When the
President determines that a BDC
exported to the United States during a
calendar year either: (1) A quantity of a
GSP-eligible article having a value in
excess of the applicable amount for that
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Fmt 4703
Sfmt 4703
year ($170 million for 2015), or (2) a
quantity of a GSP-eligible article having
a value equal to or greater than 50
percent of the value of total U.S. imports
of the article from all countries (the ‘‘50
percent’’ CNL), the President must
terminate GSP duty-free treatment for
that article from that BDC by no later
than July 1 of the next calendar year,
unless a waiver is granted. (Note—as
announced in a November 17, 2015,
Federal Register notice (FRN), petitions
for CNL waivers are being considered
under a separate timeline than that of
the actions on CNLs set forth in this
FRN).
De minimis waivers: Under section
503(c)(2)(F) of the 1974 Act, the
President may waive the 50 percent
CNL with respect to an eligible article
imported from a BDC if the value of
total imports of that article from all
countries during the calendar year did
not exceed the applicable de minimis
amount for that year ($22.5 million for
2015).
Redesignations: Under section
503(c)(2)(C) of the 1974 Act, if imports
of an eligible article from a BDC ceased
to receive duty-free treatment due to
exceeding a CNL in a prior year, the
President may, subject to the
considerations in sections 501 and 502
of the 1974 Act, redesignate such an
article for duty-free treatment if imports
in the most recently completed calendar
year did not exceed the CNLs.
CNL waiver revocation: Under Section
503(d)(5) of the 1974 Act, a CNL waiver
remains in effect until the President
determines that it is no longer
warranted due to changed
circumstances. Section 503(d)(4)(B)(ii)
of the 1974 Act, as amended by Public
Law 109–432, also provides that, ‘‘[n]ot
later than July 1 of each year, the
President should revoke any waiver that
has then been in effect with respect to
an article for five years or more if the
beneficiary developing country has
exported to the United States (directly
or indirectly) during the preceding
calendar year a quantity of the article—
(I) having an appraised value in excess
of 1.5 times the applicable amount set
forth in subsection (c)(2)(A)(ii) for that
calendar year ($255 million in 2015); or
(II) exceeding 75 percent of the
appraised value of the total imports of
that article into the United States during
that calendar year.’’
Exclusions from GSP duty-free
treatment where CNLs have been
exceeded will be effective July 1, 2016,
unless granted a waiver by the
President. Any CNL-based exclusions,
CNL waiver revocations, and decisions
with respect to de minimis waivers and
E:\FR\FM\29FEN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 39 (Monday, February 29, 2016)]
[Notices]
[Pages 10350-10356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04252]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77214; File No. SR-BATS-2016-14]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Adopt an Early Trading Session and
Three New Time-in-Force Instructions
February 23, 2016.
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 February 12, 2016, 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
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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend its rules to: (i) Create a
new trading session to be known as the Early Trading Session, which
will run from 7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three
new Time-in-Force (``TIF'') instructions.
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 amend its rules to: (i) Create a new
trading session to be known as the Early Trading Session, which will
run from 7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three new
TIF instructions.
Early Trading Session
The Exchange trading day is currently divided into three sessions
of which a User \3\ may select their order(s) be eligible for
execution: (i) The Pre-Opening Session which starts at 8:00 a.m. and
ends at 9:30 a.m. Eastern Time; (ii) Regular Trading Hours which runs
from 9:30 a.m. to 4:00 p.m. Eastern Time; and (iii) the After Hours
Session, which runs from 4:00 p.m. to 5:00 p.m. Eastern Time. The
Exchange proposes to amend its rules to create a new trading session to
be known as the Early Trading Session, which will run from 7:00 a.m. to
8:00 a.m. Eastern Time.\4\ Exchange Rule 1.5 would be amended to add a
new definition for the term ``Early Trading Session'' under new
paragraph (ee). ``Early Trading Session'' would be defined as ``the
time between 7:00 a.m. and 8:00 a.m. Eastern Time.'' \5\
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\3\ ``User'' is defined as ``any Member or Sponsored Participant
who is authorized to obtain access to the System pursuant to Rule
11.3.'' See Exchange Rule 1.5(cc).
\4\ The Exchange notes that NYSE Arca, Inc. (``NYSE Arca'')
operates an Opening Session that starts at 4:00 a.m. Eastern Time
(1:00 a.m. Pacific Time) and ends at 9:30 a.m. Eastern Time (6:30
a.m. Pacific Time). See NYSE Arca Rule 7.34(a)(1). The Nasdaq Stock
Market LLC (``Nasdaq'') operates a pre-market session that also
opens at 4:00 a.m. and ends at 9:30 a.m. Eastern Time. See Nasdaq
Rule 4701(g). See also Securities Exchange Act Release No. 69151
(March 15, 2013), 78 FR 17464 (March 21, 2013) (SR-Nasdaq-2013-033)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to Extend the Pre-Market Hours of the Exchange to 4:00 a.m.
EST).
\5\ An Exchange having bifurcated after hours trading sessions
is not novel. For example, the Chicago Stock Exchange, Inc.
(``CHX'') maintains two after hours trading sessions. See CHX
Article 20, Rule 1(b). See also Securities Exchange Act Release No.
60605 (September 1, 2009), 74 FR 46277 (September 8, 2009) (SR-CHX-
2009-13) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Adding Additional Trading Sessions).
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The Exchange also proposes to amend Rule 11.1(a) to account for the
Early Trading Session starting at 7:00 a.m. Eastern Time. Other than
the proposal to adopt an Early Trading Session starting at 7:00 a.m.
Eastern Time, the Exchange does not propose to amend the substance or
operation of Rule 11.1(a).
Users currently designate when their orders are eligible for
execution by selecting the desired TIF instruction under Exchange Rule
11.9(b). Orders entered between 6:00 a.m. and 8:00 a.m. Eastern Time
are not eligible for execution until the start of the Pre-Opening
Session, or Regular Trading Hours,\6\ depending on the TIF selected by
the User. Users may enter orders in advance of the trading session they
intend the order to be eligible for. For example, Users may enter
orders starting at 6:00 a.m. Eastern Time with a TIF of Regular Hours
Only, which designates that the order only be eligible for execution
during Regular Trading Hours.\7\ As stated above, Users may enter
orders as early as 6:00 a.m. Eastern Time, but those orders would not
be eligible for execution until the start of the Pre-Opening Session at
8:00 a.m.
[[Page 10351]]
Some Users have requested the ability for their orders to be eligible
for execution starting at 7:00 a.m. Eastern Time. Therefore, the
Exchange is proposing to adopt the Early Trading Session as discussed
herein.
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\6\ ``Regular Trading Hours'' is defined as ``the time between
9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(w).
\7\ See Exchange Rule 11.9(b)(7).
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Order entry and execution during the Early Trading Session would
operate in the same manner as it does during the Pre-Opening Session.
As amended, Exchange Rule 11.1(a) would state that orders entered
between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and
8:00 a.m. Eastern Time, would not be eligible for execution until the
start of the Early Trading Session, Pre-Opening Session, or Regular
Trading Hours,\8\ depending on the TIF selected by the User. Exchange
Rule 11.1(a) will also be amended to state that the Exchange will not
accept the following orders prior to 7:00 a.m. Eastern Time, rather
than 8:00 a.m.: BATS Post Only Orders,\9\ Partial Post Only at Limit
Orders,\10\ Intermarket Sweep Orders (``ISOs''),\11\ BATS Market Orders
\12\ with a TIF other than Regular Hours Only,\13\ Minimum Quantity
Orders \14\ that also include a TIF of Regular Hours Only, and all
orders with a TIF instruction of Immediate-or-Cancel (``IOC'') \15\ or
Fill-or-Kill (``FOK'').\16\ At the commencement of the Early Trading
Session, orders entered between 6:00 a.m. and 7:00 a.m. Eastern Time,
rather than 6:00 a.m. and 8:00 a.m. Eastern Time, will be handled in
time sequence, beginning with the order with the oldest time stamp, and
will be placed on the BATS Book,\17\ routed, cancelled, or executed in
accordance with the terms of the order. As amended, Rule 11.1(a) would
state that orders may be executed on the Exchange or routed away from
the Exchange during Regular Trading Hours and during the Early Trading,
Pre-Opening and After Hours Trading Sessions.
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\8\ ``Regular Trading Hours'' is defined as ``the time between
9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(w).
\9\ See Exchange Rule 11.9(c)(6).
\10\ See Exchange Rule 11.9(c)(7).
\11\ See Exchange Rule 11.9(d).
\12\ See Exchange Rule 11.9(a)(2).
\13\ See Exchange Rule 11.9(b)(7).
\14\ See Exchange Rule 11.9(c)(5).
\15\ See Exchange Rule 11.9(b)(1).
\16\ See Exchange Rule 11.9(b)(6).
\17\ See Exchange Rule 1.5(e).
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Operations. From the Members' operational perspective, the
Exchange's goal is to permit trading for those that choose to trade,
without imposing burdens on those that do not. Thus, for example, the
Exchange will not require any Member to participate in the Early
Trading Session, including not requiring registered market makers to
make two-sided markets between 7:00 a.m. and 8:00 a.m., just as it does
not require such participation between 8:00 a.m. and 9:30 a.m.\18\ The
Exchange will minimize Members' preparation efforts to the greatest
extent possible by allowing Members to trade beginning at 7:00 a.m.
with the same equipment, connectivity, order types, and data feeds they
currently use from 8:00 a.m. onwards.
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\18\ See Exchange Rule 11.8(d)(2) (stating that for NMS stocks
(as defined in Rule 600 under Regulation NMS) a Market Maker shall
adhere to the pricing obligations established by this Rule during
Regular Trading Hours).
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Opening Process. The Exchange will offer no opening process at 7:00
a.m., just as it offers no opening process at 8:00 a.m. today. Instead,
at 7:00 a.m., the System will ``wake up'' by loading in price/time
priority all open trading interest entered after 6:00 a.m.\19\ Also at
7:00 a.m., the Exchange will open the execution system and accept new
eligible orders, just as it currently does at 8:00 a.m. Members will be
permitted to enter orders beginning at 6:00 a.m. Market Makers will be
permitted but not required to open their quotes beginning at 7:00 a.m.
in the same manner they open their quotes today beginning at 8:00 a.m.
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\19\ See Exchange Rule 11.1(a).
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Order Types. Every order type that is currently available beginning
at 8:00 a.m. will be available beginning at 7:00 a.m.\20\ All other
order types, and all order type behaviors, will otherwise remain
unchanged. The Exchange will not extend the expiration times of any
orders. For example, an order that is currently available from 8:00
a.m. to 4:00 p.m. will be modified to be available from 7:00 a.m. to
4:00 p.m. An order that is available from 8:00 a.m. to 9:30 a.m. will
be modified to be available from 7:00 a.m. to 9:30 a.m. Users must
continue to enter a TIF instruction along with their order to indicate
when the order is eligible for execution.\21\
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\20\ Id.
\21\ Id.
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Routing Services. The Exchange will route orders to away markets
between 7:00 a.m. and 8:00 a.m., just as it does today between 8:00
a.m. and 9:30 a.m.\22\ All routing strategies set forth in Exchange
Rule 11.13 will remain otherwise unchanged, performing the same
instructions they perform between 7:00 a.m. and 8:00 a.m. today.\23\
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\22\ Id.
\23\ See Exchange Rule 11.13(b) (Routing to Away Trading
Centers).
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Order Processing. Order processing will operate beginning at 7:00
a.m. just as it does today beginning at 8:00 a.m. There will be no
changes to the ranking, display, and execution processes or rules.
Data Feeds. The Exchange will report the best bid and offer on the
Exchange to the appropriate network processor, as it currently does
beginning 8:00 a.m.\24\ The Exchange's proprietary data feeds will be
disseminated beginning at 7:00 a.m. using the same formats and delivery
mechanisms with which the Exchange currently disseminates them
beginning at 8:00 a.m.
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\24\ See Exchange Rule 11.14 (Trade Execution and Reporting).
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Trade Reporting. Trades executed between 7:00 a.m. and 8:00 a.m.
will be reported to the appropriate network processor with the ``.T''
modifier, just as they are reported today between at 8:00 a.m. and 9:30
a.m.\25\
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\25\ Id.
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Market Surveillance. The Exchange's commitment to high-quality
regulation at all times will extend to 7:00 a.m. The Exchange will
offer all surveillance coverage currently performed by the Exchange's
surveillance systems, which will launch by the time trading starts at
7:00 a.m.
Clearly Erroneous Trade Processing. The Exchange will process trade
breaks beginning at 7:00 a.m. pursuant to Exchange Rule 11.17, just as
it does today beginning at 8:00 a.m.
Related changes to Rules 3.21, 11.9, 11.13, 11.17, 11.23, 14.6,
14.11, and 14.12. The Exchange proposes to also make the following
changes to Rules 3.21, 11.9, 11.13, 11.17, 11.23, 14.6, 14.11, and
14.12 to reflect the adoption of the Early Trading Session:
Rule 3.21, Customer Disclosures. In sum, Exchange Rule
3.21 prohibits Members from accepting an order from a customer for
execution in the Pre-Opening or After Hours Trading Session without
disclosing to their customer that extended hours trading involves
material trading risks, including the possibility of lower liquidity,
high volatility, changing prices, unlinked markets, an exaggerated
effect from news announcements, wider spreads and any other relevant
risk. The Exchange proposes to amend Rule 3.21 to include the Early
Trading Session as part of the Member's required disclosures to their
customers.
Rule 11.9, Orders and Modifiers. The Exchange proposes to
amend the description of BATS Market Orders under Rule 11.9(a)(2),
Market Maker Peg Orders under Rule 11.9(c)(16), and Supplemental Peg
Orders under Rule 11.9(c)(19) to account for the Early Trading Session.
BATS Market Orders are currently not eligible for execution
[[Page 10352]]
during the Pre-Opening Session or After Hours Trading Session. Rule
11.9(a)(2) would be amended to state that BATS Market Orders would also
not be eligible for execution during the Early Trading Session. Market
Maker Peg Orders may currently be submitted to the Exchange starting at
the beginning of the Pre-Opening Session, but the order will not be
executable or automatically priced until the beginning of Regular
Trading Hours. Rule 11.9(c)(16) would be amended to state that Market
Maker Peg Orders may be submitted to the Exchange starting at the
beginning of the Early Trading Session. Market Maker Peg Orders would
continue to not be executable or automatically priced until the
beginning of Regular Trading Hours. Rule 11.9(c)(19) states that
Supplemental Peg Orders are eligible for execution during the Pre-
Opening Session, Regular Trading Hours, and the After Hours Trading
Session. Rule 11.9(c)(19) would be amended to state that Supplemental
Peg Orders are also eligible for execution during the Early Trading
Session. As stated above, every order type that is currently available
beginning at 8:00 a.m. will be available beginning at 7:00 a.m. for
inclusion in the Early Trading Session.\26\ All other order types, and
all order type behaviors, will otherwise remain unchanged. The above
rules describing BATS Market Orders, Market Maker Peg Orders, and
Supplemental Peg Orders specifically reference the trading sessions
during which the order type is eligible for execution. Therefore, the
Exchange proposes to amend the description of each order type to
account for the Early Trading Session.
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\26\ See proposed amendments to Exchange Rule 11.1(a).
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Rule 11.13, Order Execution and Routing. Exchange Rule
11.13(a)(2)(B) discusses compliance with Regulation NMS and Trade
Through Protections and states that the price of any execution
occurring during the Pre-Opening Session or the After Hours Trading
Session must be equal to or better than the highest Protected Bid or
lowest Protected Offer, unless the order is marked ISO or a Protected
Bid is crossing a Protected Offer. The Exchange proposes to amend Rule
11.13(a)(2)(B) to expand the rule's requirements to the Early Trading
Session.
Rule 11.17, Clearly Erroneous Executions. Exchange Rule
11.17 outlines under which conditions the Exchange may determine that
an execution is clearly erroneous. The Exchange proposes to amend Rule
11.17 to include executions that occur during the Early Trading
Session.\27\ Exchange Rule 11.17(c)(1) sets forth the numerical
guidelines the Exchange is to follow when determining whether an
execution was clearly erroneous during Regular Trading Hours or the
Pre-Opening or After Hours Trading Session. Exchange Rule 11.17(c)(3)
sets forth additional factors the Exchange may consider in determining
whether a transaction is clearly erroneous. These factors include Pre-
Opening and After Hours Trading Session executions. The Exchange
proposes to amend Rule 11.17(c)(1) and (3) to include executions
occurring during the Early Trading Session.
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\27\ The Exchange notes that it also proposes to delete the
``s'' from the word ``tapes'' in paragraph (c)(3) of Rule 11.17.
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Rule 11.23, Auctions. Exchange Rules 11.23(b) and (c)
describe the Exchange's Opening and Closing Auction processes. The
Exchange proposes to amend Rules 11.23(b)(1)(A) and (c)(1)(A) to
reflect that Users may submit orders at the start of the Early Trading
Session at 7:00 a.m., rather than 8:00 a.m., to participate in either
the Opening or Closing Auctions.
Rule 14.6, Obligations for Companies Listed on the
Exchange. The Exchange proposes to amend Rules 14.6(b)(1), (b)(2), and
Interpretation and Policies .01(a), (b), (c), and .02 to require an
Exchange-Listed Company that publicly releases material information
outside of the Exchange market hours to inform the Exchange's
Surveillance Department of that material information prior to 6:50 a.m.
rather than 7:50 a.m. Eastern Time. The Exchange proposes to amend Rule
14.6, Interpretation and Policies .01(a), (b), (c), and .02 to reflect
the start of the Early Trading Session at 7:00 a.m. Eastern Time. The
amended provisions of Rule 14.6, Interpretation and Policies .01(a),
(b), (c), and .02 require companies to notify the Exchange's
Surveillance Department of the release of certain material information
at least ten minutes prior to the release of such information to the
public when the public release of the information is made during
Exchange market hours.
Rule 14.11, Other Securities. The Exchange proposes to
amend Rule 14.11(b)(7) and (c)(7) to reflect the extension of the Pre-
Opening Session to 7:00 a.m. Eastern Time. The Exchange also proposes
to amend the following provisions of Rule 14.11 to include references
to the Early Trading Session or to state that transaction in the
following products may occur during the Early Trading Session, in
addition to during Regular Trading Hours and the Pre-Opening and After
Hours Trading Sessions: Commodity-Based Trust Shares; Currency Trust
Shares; Commodity Futures Trust Shares; Trust Units; and Managed Trust
Securities:
[cir] Rule 14.11(d), Securities Linked to the Performance of
Indexes and Commodities (Including Currencies). The Exchange proposes
to amend Rule 14.11(d)(2)(K)(i)(b)(3)(B) and Interpretation and
Policies .01(b) of Rule 14.11(e) to state, in sum, that where the value
of the index or composite value of the indexes is no longer calculated
or widely disseminated on at least a 15-second basis with respect to
indexes containing only securities listed on a national securities
exchange, or on at least a 60-second basis with respect to indexes
containing foreign country securities, provided, however, that, if the
official index value does not change during some or all of the period
when trading is occurring on the Exchange then the last calculated
official index value must remain available throughout Regular Trading
Hours and the Early Trading, Pre-Opening and After Hours Trading
Sessions.
[cir] Rule 14.11(e)(4), Commodity-Based Trust Shares. The Exchange
proposes to amend Interpretation and Policies .03 to Rule 14.11(e)(4)
to state that transactions in Commodity-Based Trust Shares may occur
during the Early Trading Session, in addition to during Regular Trading
Hours and the Pre-Opening and After Hours Trading Sessions.
[cir] Rule 14.11(e)(5), Currency Trust Shares. The Exchange
proposes to amend Interpretation and Policies .03 to Rule 14.11(e)(5)
to state that transactions in Currency Trust Shares may occur during
the Early Trading Session, in addition to during Regular Trading Hours
and the Pre-Opening and After Hours Trading Sessions.
[cir] Rule 14.11(e)(6), Commodity Index Trust Shares. The Exchange
proposes to amend Interpretation and Policies .03 to Rule 14.11(e)(6)
to state that transactions in Commodity-Based Trust Shares may occur
during the Early Trading Session, in addition to during Regular Trading
Hours and the Pre-Opening and After Hours Trading Sessions.
[cir] Rule 14.11(e)(7), Commodity Future Trust Shares. The Exchange
proposes to amend Interpretation and Policies .02 to Rule 14.11(e)(7)
to state that transactions in Commodity Future Trust Shares may occur
during the Early Trading Session, in addition to during Regular Trading
Hours and the Pre-Opening and After Hours Trading Sessions.
[cir] Rule 14.11(e)(9), Trust Units. The Exchange proposes to amend
[[Page 10353]]
Interpretation and Policies .02 to Rule 14.11(e)(9) to state that
transactions in Trust Units may occur during the Early Trading Session,
in addition to during Regular Trading Hours and the Pre-Opening and
After Hours Trading Sessions.
[cir] Rule 14.11(e)(10), Managed Trust Securities. The Exchange
proposes to amend Interpretation and Policies .02 to Rule 14.11(e)(10)
to state that transactions in Managed Trust Securities may occur during
the Early Trading Session, in addition to during Regular Trading Hours
and the Pre-Opening and After Hours Trading Sessions.
[cir] Rule 14.11(j), Derivative Securities Traded under Unlisted
Trading Privileges. The Exchange proposes to amend Rule 14.11(j)(2) to
state that the Exchange will distribute an information circular prior
to the commencement of trading in each UTP Derivative Security that
generally includes the same information as contained in the listing
circular provided by the listing exchange, including, the risk of
trading during the Early Trading Session (7:00 a.m.-8:00 a.m.) in
addition, to the Pre-Opening Session (8:00 a.m.-9:30 a.m. Eastern Time)
and the After Hours Trading Session (4:00 p.m.-5:00 p.m. Eastern Time),
due to the lack of calculation or dissemination of the underlying index
value, the Intraday Indicative Value (as defined in Rule
14.11(b)(3)(C)) or a similar value. The Exchange also proposes to amend
Rule 14.11(j)(2) to correct an inaccurate description of the Pre-
Opening Session, which currently reads as 9:00 a.m. to 9:30 a.m. rather
than 8:00 a.m. to 9:30 a.m. as is set forth throughout Exchange Rules.
Rule 14.12, Failure to Meet Listing Standards. The
Exchange proposes to amend Rule 14.12(e) and (m)(11) to require that
companies that publicly announce the receipt of a notification of
deficiency, Staff Delisting Determination, Public Reprimand Letter, or
Adjudicatory Body Decision that serves as a Public Reprimand outside of
Exchange market hours inform the Exchange's Surveillance Department of
the material information prior to 6:50 a.m. rather than 7:50 a.m.
Eastern Time. If the public announcement is made during Exchange market
hours, both Rules would continue to require that the company inform the
Exchange's Surveillance Department at least 10 minutes prior to the
announcement.
TIF Instructions
The Exchange proposes to adopt three new TIF instructions under
Rule 11.9(b). Under Rule 11.1(a), a User may designate when their order
is eligible for execution by selecting the desired TIF instruction
under Exchange Rule 11.9(b). Currently, orders entered between 6:00
a.m. and 8:00 a.m. Eastern Time are not eligible for execution until
the start of the Pre-Opening Session, or Regular Trading Hours,
depending on the TIF selected by the User. Users may enter orders in
advance of the trading session they intend the order to be eligible
for. For example, Users may enter orders starting at 6:00 a.m. Eastern
Time with a TIF of Regular Hours Only, which designates that the order
only be eligible for execution during Regular Trading Hours.\28\ As
stated above, Users may enter orders as early as 6:00 a.m. Eastern
Time, but those orders would not be eligible for execution until the
start of the Pre-Opening Session at 8:00 a.m.
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\28\ See Exchange Rule 11.9(b)(7).
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As discussed above, the Exchange proposed the Early Trading Session
in response to User requests for their orders to be eligible for
execution starting at 7:00 a.m. Eastern Time. Some Users, however, do
not wish for their orders to be executed during the Early Trading
Session and have requested their orders continue to not be eligible for
execution until the start of the Pre-Opening Session at 8:00 a.m.
Therefore, the Exchange proposes to adopt the following three new TIF
instructions under Rule 11.9(b):
Pre-Opening Session Plus (``PRE''). A limit order that is
designated for execution during the Pre-Opening Session and Regular
Trading Hours. Like the current Good-`til Cancel (``GTC'') TIF
instruction,\29\ any portion not executed expires at the end of Regular
Trading Hours.
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\29\ See Exchange Rule 11.9(b)(3).
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Pre-Opening Session `til Extended Day (``PTX''). A limit
order that is designated for execution during the Pre-Opening Session,
Regular Trading Hours, and the After Hours Session. Like the current
Good-`til Extended Day (``GTX'') TIF instruction,\30\ any portion not
executed expires at the end of the After Hours Session.
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\30\ See Exchange Rule 11.9(b)(5).
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Pre-Opening Session `til Day (``PTD''). A limit order that
is designated for execution during the Pre-Opening Session, Regular
Trading Hours, and the After Hours Session. Like the current Good-`til
Day (``GTD'') TIF instruction,\31\ any portion not executed will be
cancelled at the expiration time assigned to the order, which can be no
later than the close of the After Hours Trading Session.
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\31\ See Exchange Rule 11.9(b)(4).
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Under each proposed TIF instruction, Users may designate that their
orders only be eligible for execution starting with the Pre-Opening
Session. This is similar to the existing TIF of Regular Hours Only,
which designates that the order only be eligible for execution during
Regular Trading Hours, which starts at 9:30 a.m. Eastern Time. In such
case, a User may enter orders starting at 6:00 a.m. Eastern Time, but
such order would not be eligible for execution until 9:30 a.m. Eastern
Time. Likewise, under each of the proposed TIF instructions, a User may
continue to enter orders as early as 6:00 a.m., but such orders would
not be eligible for execution until 8:00 a.m. Eastern Time, the start
of the Pre-Opening Session.\32\ At the commencement of the Pre-Opening
Session, orders entered between 6:00 a.m. and 8:00 a.m. Eastern Time
with one of the proposed TIF instructions will be handled in time
sequence, beginning with the order with the oldest time stamp, and will
be placed on the BATS Book, routed, cancelled, or executed in
accordance with the terms of the order.\33\
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\32\ Orders utilizing one of the proposed TIF instructions would
not be eligible for execution during the proposed Early Trading
Session.
\33\ See Exchange Rule 11.1(a).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\34\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\35\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and in general, to protect investors and the
public interest. The Exchange also believes that the proposed rule
change is non-discriminatory as it would apply to all Members
uniformly. The proposed rule change in whole is designed to attract
more order flow to the Exchange between 7:00 a.m. and 9:30 a.m. Eastern
Time. Increased liquidity during this time will lead to improved price
discovery and increased execution opportunities on the Exchange,
therefore, promoting just and equitable principles of trade, and
removing impediments to and perfecting the mechanism of a free and open
market and a national market system.
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\34\ 15 U.S.C. 78f.
\35\ 15 U.S.C. 78f(b)(5).
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[[Page 10354]]
Early Trading Session
The Exchange believes its proposal to adopt the Early Trading
Session promotes just and equitable principles of trade, removes
impediments to and perfects the mechanism of a free and open market and
a national market system, prevents fraudulent and manipulative acts and
practices, and, in general, protects investors and the public interest.
The Exchange believes that the Early Trading Session will benefit
investors, the national market system, Members, and the Exchange market
by increasing competition for order flow and executions, and thereby
spur product enhancements and lower prices. The Early Trading Session
will benefit Members and the Exchange market by increasing trading
opportunities between 7:00 a.m. and 8:00 a.m. without increasing
ancillary trading costs (telecommunications, data, connectivity, etc.)
and, thereby, decreasing average trading costs per share. The Exchange
notes that trading during the proposed Early Trading Session has been
available on NYSE Arca and Nasdaq.\36\ The Exchange believes that the
availability of trading between 7:00 a.m. and 8:00 a.m. has been
beneficial to market participants including investors and issuers on
other markets. Introduction of the Early Trading Session on the
Exchange will further expand these benefits.
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\36\ See supra note 4.
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Additionally, the Exchange Act's goal of creating an efficient
market system includes multiple policies such as price discovery, order
interaction, and competition among markets. The Exchange believes that
offering a competing trading session will promote all of these policies
and will enhance quote competition, improve liquidity in the market,
support the quality of price discovery, promote market transparency,
and increase competition for trade executions while reducing spreads
and transaction costs. Additionally, increasing liquidity during the
Early Trading Session will raise investors' confidence in the fairness
of the markets and their transactions, particularly due to the lower
volume of trading occurring prior to opening.
Although the Exchange will be operating with bifurcated pre-opening
trading sessions, the Exchange notes that having bifurcated after hours
trading sessions is not novel. For example, the CHX maintains two after
hours trading sessions,\37\ the Late Trading Session, which runs from
4:00 p.m. to 4:15 p.m. Eastern Time, and the Late Crossing Session,
which runs from 4:15 p.m. to 5:00 Eastern Time. As such, the Exchange
does not believe that the proposed rule change will disproportionately
increase the complexity of the market.
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\37\ See supra note 5.
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The expansion of trading hours through the creation of the Early
Trading Session promotes just and equitable principles of trade by
providing market participants with additional options in seeking
execution on the Exchange. Order entry and execution during the Early
Trading Session would operate in the same manner as it does today
during the Pre-Opening Session. In addition, the Exchange will report
the best bid and offer on the Exchange to the appropriate network
processor, and the Exchange's proprietary data feeds will be
disseminated, beginning at 7:00 a.m. The proposal will, therefore,
facilitate a well-regulated, orderly, and efficient market during a
period of time that is currently underserved.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because all
surveillance coverage currently performed by the Exchange's
surveillance systems will launch by the time trading starts at 7:00
a.m. Eastern Time. Further, the Exchange believes that the proposed
rule change will protect investors and the public interest because the
Exchange is updating its customer disclosure requirements to prohibit
Members from accepting an order from a customer for execution in the
Early Trading Session without disclosing to their customer that
extended hours trading involves material trading risks, including the
possibility of lower liquidity, high volatility, changing prices,
unlinked markets, an exaggerated effect from news announcements, wider
spreads and any other relevant risk.
TIF Instructions
The Exchange believes its proposed TIF instructions promote just
and equitable principles of trade, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system. The Exchange believes that the proposed TIF instructions will
benefit investors by providing them with greater control over their
orders. The proposed TIF instructions simply provide investors with
additional optionality for when their orders may be eligible for
execution.
The ability to select the trading sessions or time upon which an
order is to be eligible for execution is not novel and is currently
available on the Exchange and other market centers. For example, on the
Exchange, a User may enter an order starting at 6:00 a.m. Eastern Time
and select that such order not be eligible for execution until 9:30
a.m., the start of Regular Trading Hours using TIF instructions of
Regular Hours Only.\38\ In addition, like each of the proposed TIF
instructions, Nasdaq utilizes a TIF, referred to as ESCN, under which
an order using its SCAN routing strategy entered prior to 8:00 a.m.
Eastern Time is not eligible for execution until 8:00 a.m. Eastern
Time.\39\
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\38\ See Exchange Rule 11.9(b)(7). See also Nasdaq Rule 4703(a)
(outlining TIF instructions that do not activate orders until 9:30
a.m. Eastern Time).
\39\ See Nasdaq Rule 4703(a). See also Nasdaq Rule 4703(a)(7).
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The Exchange proposed the Early Trading Session discussed above in
response to User requests for their orders to be eligible for execution
starting at 7:00 a.m. Eastern Time. However, some Users have requested
their orders continue to not be eligible for execution until the start
of the Pre-Opening Session at 8:00 a.m. Therefore, the Exchange
proposed the three new TIF instructions in order for Users to designate
their orders as eligible for execution as of the start of the Pre-
Opening Session.
Members will maintain the ability to cancel or modify the terms of
their order at any time, including during the time from when the order
is routed to the Exchange until the start of the Pre-Opening Session.
As a result, a Member who utilizes the proposed TIF instructions, but
later determines that market conditions favor execution during Early
Trading Session, can cancel the order residing at the Exchange and
enter a separate order to execute during the Early Trading Session.
While a User must make every effort to execute a marketable customer
order it receives fully and promptly,\40\ doing so might not result in
the best execution possible for the customer. Such Users may wish to
delay the execution of their orders until the start of the Pre-Opening
Session for various reasons, including the characteristics of the
market for the security as well as the amount of liquidity available in
the market as part of their best execution obligations.\41\
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\40\ See Supplemental Material .01 to Financial Industry
Regulatory Authority, Inc. (``FINRA'') Rule 5310.
\41\ A Member's best execution obligation may also include
cancelling an order when market conditions deteriorate and could
result in an inferior execution or informing customers where the
execution of their order may be delayed intentionally as the Member
utilizes reasonable diligence to ascertain the best market for the
security. See FINRA Rule 5130. See also FINRA Regulatory Notice 15-
46, Best Execution. Guidance on Best Execution Obligations in
Equity, Options, and Fixed Income Markets, (November 2015).
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[[Page 10355]]
Specifically, FINRA Rule 5310(a)(1) provides that a Member must use
reasonable diligence to ascertain the best market for a security and
buy or sell in such market so that the resultant price to the customer
is as favorable as possible under prevailing market conditions. And
importantly, FINRA Rule 5310(a)(1)(A) states that one of the factors
that will be considered in determining whether a member has used
``reasonable diligence'' is ``the character of the market for the
security (e.g., price, volatility, relative liquidity, and pressure on
available communication).\42\ As such, a Member conducting ``reasonable
diligence'' may determine that due to the character of the Early
Trading Session, along with considering other relevant factors, the
Member wants to utilize the proposed TIF instructions.
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\42\ Tellingly, these characteristics are reflected in the
disclosure requirements mandated by Exchange Rule 3.21 before a
Member may accept an order from a customer for execution in the Pre-
Opening, After Hours, and proposed Early Trading Sessions.
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Members will be accustomed to this additional analysis in
determining whether to participate in the Early Trading Session, Pre-
Opening Session, or Regular Trading Hours. The regulatory guidance with
respect to best execution anticipates the continued evolution of
execution venues:
[B]est execution is a facts and circumstances determination. A
broker-dealer must consider several factors affecting the quality of
execution, including, for example, the opportunity for price
improvement, the likelihood of execution . . . , the speed of
execution and the trading characteristics of the security, together
with other non-price factors such as reliability and service.\43\
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\43\ See Securities Exchange Act Release No. 43950 (November 17,
2000), 65 FR 75414 (December 1, 2000) (``Disclosure of Order
Execution and Routing Practices release'').
To the extent there may be best execution obligations at issue,
they are no different than the best execution obligations faced by
brokers in the current market structure,\44\ including the use of the
currently available Regular Trading Hours TIF instruction or SCAN/ESCN
routing strategy available on Nasdaq discussed above.\45\ However,
similar to why a Member may utilize the Regular Trading Hours TIF
instruction, a User may wish to forgo a possible execution during the
Early Trading Session and/or Pre-Opening Session if they believe doing
so is consistent with their best execution obligations as they
anticipate that the market for the security may improve upon the start
of the Pre-Opening Session and/or Regular Trading Hours.\46\ Applicable
best execution guidance contains no formulaic mandate as to whether or
how brokers should direct orders. The optionality created by the
proposed rule change simply represents one tool available to Members in
order to meet their best execution obligations.
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\44\ The Commission has also indicated a User's best execution
obligation may not be satisfied simply by obtaining the best bid or
offer (``BBO''). See Securities Exchange Act Release No. 37619A
(September 6, 1996), 61 FR 48290 (September 12, 1996) (``Order
Executions Obligations release''). While a User may seek the most
favorable terms reasonably available under the circumstances of the
transaction, such terms may not necessarily in every case be the
best price available. Id. See also FINRA Regulatory Notice 15-46,
Best Execution. Guidance on Best Execution Obligations in Equity,
Options, and Fixed Income Markets, (November 2015).
\45\ See supra note 39.
\46\ Exchange Rule 3.21 requires Member make certain disclosures
to their customers prior to accepting an order for execution outside
of Regular Trading Hours. These disclosures include, among other
things, the risk of lower liquidity, higher volatility, wider
spreads, and changing prices in extended hours trading as compared
to regular market hours. See Exchange Rule 3.21(a)-(g).
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The Exchange notes that it would subject orders that are eligible
for execution as of the start of the Pre-Opening Session to all of the
Exchange's standard regulatory checks, as it currently does with all
orders upon entry. These checks include compliance with Regulation
NMS,\47\ Regulation SHO,\48\ as well as relevant Exchange rules.\49\
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\47\ 17 CFR 242.610-611.
\48\ 17 CFR 242.200-204.
\49\ See, e.g., Exchange Rule 11.13(a).
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Lastly, the Exchange reminds Members of their regulatory
obligations when submitting an order one of the proposed TIF
instructions. The Market Access Rule under Rule 15c3-5 of the Act
requires broker-dealers to, among other things, implement regulatory
risk management controls and procedures that are reasonably designed to
prevent the entry of orders that fail to comply with regulatory
requirements that apply on a pre-order entry basis.\50\ These pre-trade
controls must, for example, be reasonably designed to assure compliance
with Exchange trading rules and Commission rules under Regulation SHO
\51\ and Regulation NMS.\52\ In accordance with the Market Access Rule,
a Member's procedures must be reasonably designed to ensure compliance
with their applicable regulatory requirements, not just at the time the
order is routed to the Exchange, but also at the time the order becomes
eligible for execution.
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\50\ See Securities Exchange Act Release No. 63241 (November 3,
2010), 75 FR 69792 (November 15, 2010) (File no. S7-03-10).
\51\ See e.g., Question 2.6 of the Division of Trading and
Markets: Response to Frequently Asked Questions Concerning
Regulations SHO, available at https://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm.
\52\ 17 CFR 240.610-611.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that its proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will benefit investors, the national market
system, Members, and the Exchange market by increasing competition for
order flow and executions during the pre-market sessions, thereby
spurring product enhancements and lowering prices. The Exchange
believes the proposed Early Trading Session would enhance competition
by enabling the Exchange to directly compete with NYSE Arca and Nasdaq
for order flow and executions starting at 7:00 a.m., rather than 8:00
a.m. Eastern Time. In addition, the proposed TIF instructions will
enhance competition by enabling the Exchange to offer functionality
similar to Nasdaq.\53\ The fact that the extending of the proposed
Early Trading Session and TIF instructions are themselves a response to
the competition provided by other markets is evidence of its pro-
competitive nature.
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\53\ See supra note 39.
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(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 unsolicited written comments from Members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
[[Page 10356]]
to determine whether the proposed rule change should be 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-2016-14 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-2016-14. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing 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 No. SR-BATS-2016-14 and should be
submitted on or before March 21, 2016.
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\54\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\54\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04252 Filed 2-26-16; 8:45 am]
BILLING CODE 8011-01-P
