Self-Regulatory Organizations; BATS Exchange, Inc.; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend BATS' Rules Regarding the Auction Process for Securities Subject to an Initial Public Offering, 19661-19664 [2016-07683]

Download as PDF Federal Register / Vol. 81, No. 65 / Tuesday, April 5, 2016 / Notices Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551–5400. Dated: March 31, 2016. Brent J. Fields, Secretary. [FR Doc. 2016–07829 Filed 4–1–16; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77476; File No. SR–BATS– 2016–17] Self-Regulatory Organizations; BATS Exchange, Inc.; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend BATS’ Rules Regarding the Auction Process for Securities Subject to an Initial Public Offering March 30, 2016. I. Introduction On February 10, 2016, BATS Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to amend BATS Rule 11.23, entitled ‘‘Auctions,’’ with regard to the handling of orders during an initial public offering (‘‘IPO’’) auction. On February 22, 2016, the Exchange filed Amendment No. 1 to the proposed rule change.3 The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on February 29, 2016.4 The Commission has received no comment letters regarding the proposal. This order approves the proposed rule change, as modified by Amendment No. 1. asabaliauskas on DSK3SPTVN1PROD with NOTICES 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 In Amendment No. 1, the Exchange corrected a technical error regarding incorrect terminology used in a footnote and clarified a sentence regarding an order with a time-in-force of ‘‘Regular Hours Only’’ (‘‘RHO’’) that would be converted to an order with a time-in-force of ‘‘Day’’ under the proposed rule change. 4 See Securities Exchange Act Release No. 77222 (February 24, 2016), 81 FR 10345 (SR–BATS–2016– 17) (‘‘Notice’’). 2 17 VerDate Sep<11>2014 17:18 Apr 04, 2016 Jkt 238001 II. Description of the Proposal The Exchange proposes to: (1) Amend BATS Rule 11.23(a)(8) to modify the term ‘‘Eligible Auction Order’’ to delineate the types of orders that may participate in an auction for a BATS listed corporate security 5 in an IPO on the Exchange (‘‘IPO Auction’’); 6 and (2) amend subparagraphs (d)(1)(A) and (d)(2) of BATS Rule 11.23 to modify the rules governing the Quote-Only Period 7 during an Auction. A. Changes to the Definition of Eligible Auction Order Currently, ‘‘Eligible Auction Order’’ is defined as any Market-On-Open (‘‘MOO’’),8 Limit-On-Open (‘‘LOO’’),9 Late-Limit-On-Open (‘‘LLOO’’),10 Market-On-Close (‘‘MOC’’),11 Limit-OnClose (‘‘LOC’’),12 or Late-Limit-On-Close (‘‘LLOC’’)13 order that is entered in compliance with its respective cutoff for an Opening or Closing Auction,14 any RHO 15 order prior to the Opening Auction, any Limit Order 16 or Market Order 17 not designated to exclusively participate in the Closing Auction entered during the Quote-Only Period of an IPO Auction,18 and any Limit or Market Order not designated to exclusively participate in the Opening or Closing Auction entered during the Quote-Only Period of a Halt Auction.19 The Exchange proposes to amend the 5 A BATS listed corporate security is a security listed on the Exchange pursuant to Chapter 14 of the Exchange’s Rules that is not an Exchange Traded Product (‘‘ETP’’) listed on the Exchange pursuant to Exchange Rule 14.11. 6 See Notice, supra note 4, at 10345–48. The Exchange also proposes a conforming change to BATS Rule 11.1, entitled ‘‘Hours of Trading and Trading Days.’’ See Notice, supra note 4, at 10346, n.19. 7 See BATS Rule 11.23(a)(17) (defining ‘‘QuoteOnly Period’’ as a designated period of time prior to a Halt Auction, a Volatility Closing Auction, or an IPO Auction during which Users may submit orders to the Exchange for participation in the auction). A ‘‘User’’ is means any Member or Sponsored Participant who is authorized to obtain access to the Exchange’s system pursuant to BATS Rule 11.3. See BATS Rule 1.5(cc). 8 See BATS Rule 11.23(a)(16). 9 See BATS Rule 11.23(a)(14). 10 See BATS Rule 11.23(a)(12). 11 See BATS Rule 11.23(a)(15). 12 See BATS Rule 11.23(a)(13). 13 See BATS Rule 11.23(a)(11). 14 The Opening and Closing Auction processes are described in BATS Rules 11.23(b) and (c). 15 See BATS Rule 11.9(b)(7). 16 See BATS Rule 11.9(a)(1). 17 See BATS Rule 11.9(a)(2). 18 See BATS Rule 11.23(d)(1)(A) (describing Quote-Only Period). 19 See BATS Rule 11.23(a)(8). The Exchange also proposes to amend BATS Rule 11.1(a) to make clear that it will not accept BATS Market Orders that are not Eligible Auction Orders prior to 8:00 a.m. Eastern Time, see Notice, supra note 4, at 10346, n.19, and to make conforming changes to BATS Rules 11.23(b) and 11.23(c). PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 19661 definition of Eligible Auction Orders to either reject, convert, or ignore certain types of orders.20 As proposed, Limit Orders and BATS Market Orders, the two main types of orders offered by the Exchange, that are entered during the Quote-Only Period would be allowed to participate in an IPO Auction for a BATS listed corporate security provided they do not also include one or more of the modifiers described below.21 Types of Orders to be Accepted or Rejected The Exchange proposes to exclude the following types of orders from participation in an IPO Auction and would reject such orders: (1) Stop Orders 22 and Stop Limit Orders; 23 (2) Pegged Orders,24 Mid-Point Peg Orders,25 Market Maker Peg Orders 26 and Supplemental Peg Orders; 27 (3) Minimum Quantity Orders 28 and Discretionary Orders; 29 (4) MOC, LOC and LLOC orders; and (5) orders with a time-in-force of Fill-or-Kill (‘‘FOK’’) 30 and orders with a time-in-force of Good‘til-Day (‘‘GTD’’) 31 with an expiration time earlier than 4:00 p.m. Eastern Time. Such orders entered to participate in an IPO Auction would be rejected.32 Types of Orders to be Converted The Exchange also proposes to specify the types of orders that would be converted by the Exchange for purposes of participating in the IPO Auction for a BATS listed corporate security.33 Specifically, under the proposal, the following types of orders would be converted: (1) Market Orders with a time-in-force of Immediate-or-Cancel (‘‘IOC’’) 34 would be converted to a MOO and a Limit Order with a time-inforce of IOC would be converted to a LOO; (2) orders with a time-in-force of RHO would be converted to orders with a time-in-force of Day; and (3) any orders eligible to be routed would be 20 See Notice, supra note 4, at 10345. Notice, supra note 4, at 10345–48. The Exchange does not propose to amend the types of Eligible Auction Orders that may participate in an auction for a newly listed ETP. See id. at 10345. An Exchange Traded Product is a security that is listed on the Exchange pursuant to BATS Rule 14.11. 22 See BATS Rule 11.9(c)(17). 23 See BATS Rule 11.9(c)(18). 24 See BATS Rule 11.9(c)(8). 25 See BATS Rule 11.9(c)(9). 26 See BATS Rule 11.9(c)(16). 27 See BATS Rule 11.9(c)(19). 28 See BATS Rule 11.9(c)(5). 29 See BATS Rule 11.9(c)(10). 30 See BATS Rule 11.9(b)(6). 31 See BATS Rule 11.9(b)(4). 32 See proposed BATS Rule 11.23(a)(8)(A). See also Notice, supra note 4, at 10346. 33 See proposed BATS Rule 11.23(a)(8)(B). See also Notice, supra note 4, at 10346–47. 34 See BATS Rule 11.9(b)(1). 21 See E:\FR\FM\05APN1.SGM 05APN1 19662 Federal Register / Vol. 81, No. 65 / Tuesday, April 5, 2016 / Notices converted to a BATS Only Order.35 Under the proposal, upon completion of the IPO Auction, any remainder not executed in the auction would be placed on the BATS Book, executed, cancelled or routed away in accordance with the converted terms of the order. Such orders would not revert back to the original type modifier the User included with the order.36 asabaliauskas on DSK3SPTVN1PROD with NOTICES Modifiers To Be Ignored The Exchange also proposes to ignore certain order modifiers for orders that have been entered to participate in an IPO Auction.37 Specifically, the following modifiers would be handled as follows during an IPO Auction: (1) A Match Trade Prevention (‘‘MTP’’) modifier,38 would not be applied until the IPO Auction is complete, but it would be applied in the event any unexecuted portion is placed on the BATS Book; 39 (2) an instruction to treat an order as an Attributable Order 40 would not be applied in an IPO Auction and would be permanently ignored with respect to the order, meaning that any such order’s execution would be displayed anonymously; 41 (3) an Intermarket Sweep Order (‘‘ISO’’) 42 Instruction or a Post Only instruction included with a Limit Order would not be applied in an IPO Auction and would be permanently ignored with respect to the order; 43 (4) the Maximum Remove Percentage of a Partial Post Only at Limit Order 44 would not be applied in an IPO Auction and would be permanently ignored with respect to the order; and (5) the replenishment range of a Reserve Order with a Random Replenishment instruction 45 would not be applied in an IPO Auction and would 35 See proposed BATS Rule 11.23(a)(8)(B). See also Notice, supra note 4, at 10346. 36 See Notice, supra note 4, at 10346. 37 See proposed BATS Rule 11.23(a)(8)(C). See also Notice, supra note 4, at 10347–48. 38 See BATS Rule 11.9(f). 39 Pursuant to BATS Rule 11.9(f), any incoming order designated with an MTP modifier is normally prevented from executing against a resting opposite side order also designated with an MTP modifier and originating from the same User. Under the proposal, the MTP Modifier would be ignored during an IPO Auction, and such opposite side orders originating from the same User would be eligible to be matched against each other. Upon completion of the IPO Auction, an MTP modifier would be recognized again, and any remainder not executed in the auction would be placed on the BATS Book and executed or cancelled in accordance with the original MTP modifier appended to the order. See Notice, supra note 4, at 10347. 40 See BATS Rule 11.9(c)(14). 41 See Notice, supra note 4, at 10347. 42 See BATS Rule 11.9(d). 43 See Notice, supra note 4, at 10347. 44 See BATS Rule 11.9(c)(7). 45 See Notice, supra note 4, at 10348, n.38 (citing BATS Rule 11.9(c)(1)(A)). VerDate Sep<11>2014 17:18 Apr 04, 2016 Jkt 238001 be permanently ignored with respect to the order.46 Thus, with the exception of MTP modifiers, all modifiers listed above would not be further considered with respect to an order upon completion of the IPO Auction, and any remainder not executed in the auction would be placed on the BATS Book, executed, cancelled, or routed away in accordance with the modified terms of the order.47 B. Changes to the Quote-Only Period The Quote-Only Period is the designated period of time prior to a Halt Auction, a Volatility Closing Auction, or an IPO Auction during which Users may submit orders to the Exchange for participation in the auction.48 Currently, the Quote-Only Period for an IPO Auction begins fifteen (15) minutes plus a short random period prior to such IPO Auction.49 The Exchange proposes to extend the Quote-Only Period with respect to an IPO Auction for an ETP such that it would commence at 8:00 a.m.,50 which is the beginning of the Exchange’s PreOpening Session.51 The Exchange also proposes to extend the Quote-Only Period with respect to an IPO Auction for a BATS listed corporate security to begin at a time announced in advance by the Exchange that would be between fifteen (15) and thirty (30) minutes plus a short random period prior to such IPO Auction.52 The Exchange would determine the length of time of the Quote-Only Period for a BATS listed corporate security (i.e., what time between fifteen (15) and thirty (30) minutes) in consultation with the issuer of the IPO Security and would announce the length of time for the Quote-Only Period in advance of the commencement of such period.53 The Exchange also proposes to make a technical amendment to paragraph 46 See Notice, supra note 4, at 10347–48. Notice, supra note 4, at 10348. 48 See BATS Rule 11.23(a)(17). See also Notice, supra note 4, at 10348. 49 See BATS Rule 11.23(d)(1)(A). 50 See proposed BATS Rule 11.23(d)(1)(A). 51 See BATS Rule 1.5(r). 52 See proposed BATS Rule 11.23(d)(1)(A). 53 See Notice, supra note 4, at 10348. According to the Exchange, the scope of market participants notified regarding the anticipated commencement of the Quote-Only Period (or extension of QuoteOnly Period) would include, but would not be limited to Members of the Exchange. Such notice would also include those market participants, individuals or entities that have subscribed to the Exchange’s notification system. The Exchange represents that it intends to send notifications regarding the Quote-Only Period via email, as it does with most public notifications today. The Exchange further notes that it does, in certain circumstances, post information on its public Web site in addition to email dissemination. See id., n.41. 47 See PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 (d)(2)(A) of BATS Rule 11.23 to replace the current term ‘‘quotation only period’’ with the defined term ‘‘Quote Only Period.’’ Finally, the Exchange proposes to extend the Quote-Only Period in the event of a technical or systems issue at the Exchange that may impair the ability of Users to participate in the IPO Auction or of the Exchange to complete the IPO Auction.54 As proposed, the Exchange would notify market participants in the event of any extension to the Quote-Only Period, including due to a technical or systems issue during an IPO Auction. Such notice would provide details regarding the circumstances and length of the extension.55 III. Discussion After careful review of the proposal, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.56 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,57 which requires, among other things, that the rules of a national securities exchange be 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. A. Changes to the Definition of Eligible Auction Order The Exchange believes that refining the types of orders processed in an IPO Auction and/or those that would be placed onto the BATS Book 58 following such IPO Auction would simplify and reduce the complexity of the IPO Auction for BATS listed corporate securities.59 The Exchange further 54 See proposed BATS Rule 11.23(d)(2)(B)(iv). See also Notice, supra note 4, at 10348. Currently, the Exchange may extend the Quote-Only Period under Rule 11.23(d)(2)(B) for an Auction beyond the stated timeframes where: (i) There are unmatched Market Orders on the Auction Book associated with the auction; (ii) in an IPO Auction, the underwriter requests an extension; or (iii) where the Indicative Price moves the greater of 10% or fifty (50) cents in the fifteen (15) seconds prior to the auction. See id. 55 See proposed BATS Rule 11.23(d)(2)(C). See also Notice, supra note 4, at 10348. 56 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 57 15 U.S.C. 78f(b)(5). 58 See BATS Rule 1.5(e) (defining BZX Book as the System’s electronic file of orders). 59 See Notice, supra note 4, at 10345. E:\FR\FM\05APN1.SGM 05APN1 Federal Register / Vol. 81, No. 65 / Tuesday, April 5, 2016 / Notices believes that doing so would aid in ensuring a robust, but streamlined, IPO Auction process for a newly listed corporate securities.60 Specifically, the Exchange believes it is reasonable to reject orders with the characteristics described above from participating in the IPO Auction because doing so would aid in reducing systems complexity and risk associated both with completing the IPO Auction and with transferring any unexecuted portion of such orders to the BATS Book once the auction is complete.61 Further, the Exchange states that the orders it proposes to reject are not commonly utilized and therefore the rejection of such orders should not have a significant impact on its Members.62 In addition, the Exchange believes these types of orders contain certain attributes that are not compatible with the IPO Auction process.63 In addition, in contrast to those orders that would be rejected, the Exchange notes that the types of orders the Exchange proposes to convert are more commonly used by Members than those order types the Exchange proposes to reject.64 The Exchange believes that it is reasonable to convert rather than reject the order types described above because such orders are more commonly used by Members and doing so would accommodate those Members that have automated their systems to send orders to the Exchange without significantly altering the operation of the order from what the Member originally instructed.65 According to the Exchange, such Members also may not be able to re-submit a rejected order with the correct modifier in time to participate in the IPO Auction.66 Therefore, the Exchange notes that it is concerned that rejecting, rather than converting those types of orders as proposed, would inappropriately burden those Members and deter their participation in an IPO Auction.67 The Exchange further believes it is reasonable to ignore certain modifiers on an order during the IPO Auction because doing so would simplify and reduce the complexity of the auction process or such modifiers are incompatible with the IPO Auction process.68 For instance, the Exchange asabaliauskas on DSK3SPTVN1PROD with NOTICES 60 See id. id. at 10346. 62 See id. See also BATS Rule 1.5(n)(defining ‘‘Member’’ as any registered broker or dealer that has been admitted to membership in the Exchange). 63 See Notice, supra note 4, at 10346. 64 See id. at 10346–47. 65 See id. at 10347. 66 See id. 67 See id. 68 See id. at 10347–49. 61 See VerDate Sep<11>2014 17:18 Apr 04, 2016 Jkt 238001 believes that it is reasonable to ignore instructions to treat an order as an Attributable Order because orders entered into an IPO Auction are not displayed individually, but rather, are displayed as aggregated interest in the Exchange’s data feeds.69 For the reasons stated above, the Commission believes that amending the definition of Eligible Auction Orders to reject, convert, or ignore certain types of orders in connection with the IPO Auction process for a BATS listed corporate security is consistent with Section 6(b)(5) of the Act. The Commission believes that it is reasonable for the Exchange to seek to simplify and reduce the complexity of the IPO Auction process and to clearly describe the treatment of those orders and modifiers submitted during an IPO Auction that would be rejected, converted, or ignored.70 B. Changes to the Quote-Only Period The Exchange states that it believes that a longer Quote-Only Period for ETPs is warranted because it will encourage the entry of orders prior to an IPO Auction for newly issued ETPs, which typically have lower participation rates especially as compared to IPO Auctions for corporate securities.71 The Exchange further states that while an IPO Auction for a corporate security is typically conducted at least thirty minutes after the commencement of Regular Trading Hours, an IPO Auction for a newly issued ETP is typically conducted at the beginning of Regular Trading Hours (i.e., 9:30 Eastern Time), and thus may not afford much time for participants to enter orders prior to such auction.72 In addition, the Exchange believes it is reasonable to extend the Quote-Only Period for a BATS listed corporate security to begin at a time announced in advance by the Exchange that shall be between fifteen and thirty minutes plus a short random period prior to such IPO Auction because it will allow market participants more time to enter orders to participate in the IPO Auction.73 Further, according to the Exchange, 69 See id. at 10347. Commission also believes that the Exchange’s proposal to amend BATS Rule 11.1(a) to make clear that it will not accept BATS Market Orders that are not Eligible Auction Orders prior to 8:00 a.m. Eastern Time and to make conforming changes to BATS Rules 11.23(b) and 11.23(c) is consistent with Act. The Commission believes that these proposed changes would help reduce confusion among Members regarding the operation of BATS Market Orders that are entered prior to the start of the Exchange’s Pre-Opening Session and the operation of the Exchange’s rules. 71 See Notice, supra note 4, at 10348. 72 See id. 73 See id. at 10348–49. 70 The PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 19663 such an extension would afford underwriters more time to evaluate the scope of demand for, and supply of, the security subject to the IPO Auction (‘‘IPO Security’’), which in turn, would allow the underwriter to make a more informed decision about the appropriate time to initiate the opening of the IPO Security through the IPO Auction.74 The Exchange also believes it is reasonable to extend the Quote-Only Period in the event of a technical or systems issue at the Exchange that may impair the ability of market participants to participate in an IPO Auction as such an event may prevent market participants from entering orders during the Quote-Only Period, which in turn could result in less liquidity that may prevent the underwriters from adequately accessing the trading interest of the IPO Security.75 Thus, the Exchange believes it is reasonable to extend the Quote-Only Period in the event of a technical or systems issue to provide market participants adequate time to enter orders to participate in the IPO auction.76 Finally, the Exchange states that its proposal to make a technical amendment to paragraph (d)(2)(A) of BATS Rule 11.23 to replace the current term ‘‘quotation only period’’ with the defined term ‘‘Quote Only Period’’ is intended to make the rule easier to understand and avoid potential investor confusion.77 For the foregoing reasons, the Commission believes that the proposed changes to the Quote-Only Period are consistent with the Act because these changes are designed to allow market participants additional time in advance of an IPO Auction, and the proposed technical amendment to BATS Rule 11.23(d)(2)(A) conforms the terminology used in that section of BATS Rule 11.23(d) with the current terminology used in the BATS rule book. IV. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No.1, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange. IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act 78 that the proposed rule change (SR– BATS–2016–17) is approved. 74 See id. id. at 10348–49. 76 See id. 77 See id. at 10349. 78 15 U.S.C. 78s(b)(2). 79 17 CFR 200.30–3(a)(12). 75 See E:\FR\FM\05APN1.SGM 05APN1 19664 Federal Register / Vol. 81, No. 65 / Tuesday, April 5, 2016 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.79 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–07683 Filed 4–4–16; 8:45 am] the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77475; File No. SR–Phlx– 2016–36] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Partnerships March 30, 2016. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder, 2 notice is hereby given that on March 17, 2016, NASDAQ PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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. asabaliauskas on DSK3SPTVN1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to delete these Rules: 902 entitled, ‘‘Admission to Partnership-Partnership Arrangements’’; and 907 entitled, ‘‘Partners and Officers.’’ The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, 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 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:18 Apr 04, 2016 1. Purpose The Exchange proposes to delete certain Phlx membership rules in order to harmonize and modernize the Exchange’s Rulebook. Specifically, Exchange proposes to delete Rules: 902 entitled, ‘‘Admission to PartnershipPartnership Arrangements’’; and 907, entitled ‘‘Partners and Officers.’’ Rule 902 was retained through the demutualization process in 2004 and is no longer applicable to the business today. Although Rule 907 was established following the demutualization the requirements are no longer necessary. The proposed changes related to the former need for the Exchange to more acutely understand the ownership structure of partnerships as discussed in greater detail below. Rule 902 was applicable when Phlx offered seats to its members, prior to demutualization. Before demutualization, Phlx seats conveyed ownership of the Exchange, which created a greater obligation on Phlx to gather information on the members’ corporate structure. Specifically, Phlx was obligated to maintain a heighted vigilance on the structure, ownership, and change of control in a partnership in order to ensure the financial integrity of its ownership structure. Today, permits are issued to Exchange members and member organizations. The Exchange no longer needs to differentiate ownership structure as required under Rule 902 and 907 because the permit structure conveys no ownership of the Exchange to the membership. These membership rules related to partnerships are no longer applicable today. The distinctions regarding the admission of member as a partnership, as compared to a corporation, are no longer relevant. The Exchange proposes to remove these outdated Rules. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act,3 in general, and furthers the objectives of section 6(b)(5) of the Act,4 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster 3 15 4 15 Jkt 238001 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00116 Fmt 4703 Sfmt 4703 cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that Rules 902 and 907(a) are burdensome and unnecessary. These rules regarding admission of partnerships and changes to the partnership serve no modern purpose to the Exchange. The former ownership structure required the Exchange to be vigilant of the ownership structure of its members in case of financial distress or bankruptcy as the seat structure was vital to the financial condition of the Exchange. Before demutualization, members had an ownership interest in the Exchange. Today, permits convey no ownership and therefore such vigilance as to the ownership structure of members is not warranted. The only changes to the rules since demutualization were in 2009 in order to replace the term ‘‘Membership Committee’’ with ‘‘Membership Department,’’ which was done in conjunction with other changes to the Exchange’s standing committees and corporate governance processes in order to make the Exchange more similar to the other Nasdaq SROs. Rule 907(b) is burdensome and unnecessary as well. The obligations on the firm, its employees, and officers are not predicated on the requirement that one of the officers be a member of the exchange, therefore this rule has become obsolete. These rules have remained on the books of the exchange for several years, despite their obsolescence because they were not inconsistent with the membership process and the overall regulatory goals of the Exchange. The removal of Rules 902 and 907 will promote just and equitable principles of trade, and foster cooperation and coordination with persons engaged in facilitating transactions in securities by removing burdensome requirements so that members and member organizations may properly focus on other relevant requirements which benefit the marketplace. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange’s proposed amendments seek to delete certain unnecessary rules E:\FR\FM\05APN1.SGM 05APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 65 (Tuesday, April 5, 2016)]
[Notices]
[Pages 19661-19664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07683]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77476; File No. SR-BATS-2016-17]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
To Amend BATS' Rules Regarding the Auction Process for Securities 
Subject to an Initial Public Offering

March 30, 2016.

I. Introduction

    On February 10, 2016, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend BATS Rule 11.23, entitled ``Auctions,'' 
with regard to the handling of orders during an initial public offering 
(``IPO'') auction. On February 22, 2016, the Exchange filed Amendment 
No. 1 to the proposed rule change.\3\ The proposed rule change, as 
modified by Amendment No. 1, was published for comment in the Federal 
Register on February 29, 2016.\4\ The Commission has received no 
comment letters regarding the proposal. This order approves the 
proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange corrected a technical error 
regarding incorrect terminology used in a footnote and clarified a 
sentence regarding an order with a time-in-force of ``Regular Hours 
Only'' (``RHO'') that would be converted to an order with a time-in-
force of ``Day'' under the proposed rule change.
    \4\ See Securities Exchange Act Release No. 77222 (February 24, 
2016), 81 FR 10345 (SR-BATS-2016-17) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to: (1) Amend BATS Rule 11.23(a)(8) to modify 
the term ``Eligible Auction Order'' to delineate the types of orders 
that may participate in an auction for a BATS listed corporate security 
\5\ in an IPO on the Exchange (``IPO Auction''); \6\ and (2) amend 
subparagraphs (d)(1)(A) and (d)(2) of BATS Rule 11.23 to modify the 
rules governing the Quote-Only Period \7\ during an Auction.
---------------------------------------------------------------------------

    \5\ A BATS listed corporate security is a security listed on the 
Exchange pursuant to Chapter 14 of the Exchange's Rules that is not 
an Exchange Traded Product (``ETP'') listed on the Exchange pursuant 
to Exchange Rule 14.11.
    \6\ See Notice, supra note 4, at 10345-48. The Exchange also 
proposes a conforming change to BATS Rule 11.1, entitled ``Hours of 
Trading and Trading Days.'' See Notice, supra note 4, at 10346, 
n.19.
    \7\ See BATS Rule 11.23(a)(17) (defining ``Quote-Only Period'' 
as a designated period of time prior to a Halt Auction, a Volatility 
Closing Auction, or an IPO Auction during which Users may submit 
orders to the Exchange for participation in the auction). A ``User'' 
is means any Member or Sponsored Participant who is authorized to 
obtain access to the Exchange's system pursuant to BATS Rule 11.3. 
See BATS Rule 1.5(cc).
---------------------------------------------------------------------------

A. Changes to the Definition of Eligible Auction Order

    Currently, ``Eligible Auction Order'' is defined as any Market-On-
Open (``MOO''),\8\ Limit-On-Open (``LOO''),\9\ Late-Limit-On-Open 
(``LLOO''),\10\ Market-On-Close (``MOC''),\11\ Limit-On-Close 
(``LOC''),\12\ or Late-Limit-On-Close (``LLOC'')\13\ order that is 
entered in compliance with its respective cutoff for an Opening or 
Closing Auction,\14\ any RHO \15\ order prior to the Opening Auction, 
any Limit Order \16\ or Market Order \17\ not designated to exclusively 
participate in the Closing Auction entered during the Quote-Only Period 
of an IPO Auction,\18\ and any Limit or Market Order not designated to 
exclusively participate in the Opening or Closing Auction entered 
during the Quote-Only Period of a Halt Auction.\19\ The Exchange 
proposes to amend the definition of Eligible Auction Orders to either 
reject, convert, or ignore certain types of orders.\20\ As proposed, 
Limit Orders and BATS Market Orders, the two main types of orders 
offered by the Exchange, that are entered during the Quote-Only Period 
would be allowed to participate in an IPO Auction for a BATS listed 
corporate security provided they do not also include one or more of the 
modifiers described below.\21\
---------------------------------------------------------------------------

    \8\ See BATS Rule 11.23(a)(16).
    \9\ See BATS Rule 11.23(a)(14).
    \10\ See BATS Rule 11.23(a)(12).
    \11\ See BATS Rule 11.23(a)(15).
    \12\ See BATS Rule 11.23(a)(13).
    \13\ See BATS Rule 11.23(a)(11).
    \14\ The Opening and Closing Auction processes are described in 
BATS Rules 11.23(b) and (c).
    \15\ See BATS Rule 11.9(b)(7).
    \16\ See BATS Rule 11.9(a)(1).
    \17\ See BATS Rule 11.9(a)(2).
    \18\ See BATS Rule 11.23(d)(1)(A) (describing Quote-Only 
Period).
    \19\ See BATS Rule 11.23(a)(8). The Exchange also proposes to 
amend BATS Rule 11.1(a) to make clear that it will not accept BATS 
Market Orders that are not Eligible Auction Orders prior to 8:00 
a.m. Eastern Time, see Notice, supra note 4, at 10346, n.19, and to 
make conforming changes to BATS Rules 11.23(b) and 11.23(c).
    \20\ See Notice, supra note 4, at 10345.
    \21\ See Notice, supra note 4, at 10345-48. The Exchange does 
not propose to amend the types of Eligible Auction Orders that may 
participate in an auction for a newly listed ETP. See id. at 10345. 
An Exchange Traded Product is a security that is listed on the 
Exchange pursuant to BATS Rule 14.11.
---------------------------------------------------------------------------

Types of Orders to be Accepted or Rejected
    The Exchange proposes to exclude the following types of orders from 
participation in an IPO Auction and would reject such orders: (1) Stop 
Orders \22\ and Stop Limit Orders; \23\ (2) Pegged Orders,\24\ Mid-
Point Peg Orders,\25\ Market Maker Peg Orders \26\ and Supplemental Peg 
Orders; \27\ (3) Minimum Quantity Orders \28\ and Discretionary Orders; 
\29\ (4) MOC, LOC and LLOC orders; and (5) orders with a time-in-force 
of Fill-or-Kill (``FOK'') \30\ and orders with a time-in-force of Good-
`til-Day (``GTD'') \31\ with an expiration time earlier than 4:00 p.m. 
Eastern Time. Such orders entered to participate in an IPO Auction 
would be rejected.\32\
---------------------------------------------------------------------------

    \22\ See BATS Rule 11.9(c)(17).
    \23\ See BATS Rule 11.9(c)(18).
    \24\ See BATS Rule 11.9(c)(8).
    \25\ See BATS Rule 11.9(c)(9).
    \26\ See BATS Rule 11.9(c)(16).
    \27\ See BATS Rule 11.9(c)(19).
    \28\ See BATS Rule 11.9(c)(5).
    \29\ See BATS Rule 11.9(c)(10).
    \30\ See BATS Rule 11.9(b)(6).
    \31\ See BATS Rule 11.9(b)(4).
    \32\ See proposed BATS Rule 11.23(a)(8)(A). See also Notice, 
supra note 4, at 10346.
---------------------------------------------------------------------------

Types of Orders to be Converted
    The Exchange also proposes to specify the types of orders that 
would be converted by the Exchange for purposes of participating in the 
IPO Auction for a BATS listed corporate security.\33\ Specifically, 
under the proposal, the following types of orders would be converted: 
(1) Market Orders with a time-in-force of Immediate-or-Cancel (``IOC'') 
\34\ would be converted to a MOO and a Limit Order with a time-in-force 
of IOC would be converted to a LOO; (2) orders with a time-in-force of 
RHO would be converted to orders with a time-in-force of Day; and (3) 
any orders eligible to be routed would be

[[Page 19662]]

converted to a BATS Only Order.\35\ Under the proposal, upon completion 
of the IPO Auction, any remainder not executed in the auction would be 
placed on the BATS Book, executed, cancelled or routed away in 
accordance with the converted terms of the order. Such orders would not 
revert back to the original type modifier the User included with the 
order.\36\
---------------------------------------------------------------------------

    \33\ See proposed BATS Rule 11.23(a)(8)(B). See also Notice, 
supra note 4, at 10346-47.
    \34\ See BATS Rule 11.9(b)(1).
    \35\ See proposed BATS Rule 11.23(a)(8)(B). See also Notice, 
supra note 4, at 10346.
    \36\ See Notice, supra note 4, at 10346.
---------------------------------------------------------------------------

Modifiers To Be Ignored
    The Exchange also proposes to ignore certain order modifiers for 
orders that have been entered to participate in an IPO Auction.\37\ 
Specifically, the following modifiers would be handled as follows 
during an IPO Auction: (1) A Match Trade Prevention (``MTP'') 
modifier,\38\ would not be applied until the IPO Auction is complete, 
but it would be applied in the event any unexecuted portion is placed 
on the BATS Book; \39\ (2) an instruction to treat an order as an 
Attributable Order \40\ would not be applied in an IPO Auction and 
would be permanently ignored with respect to the order, meaning that 
any such order's execution would be displayed anonymously; \41\ (3) an 
Intermarket Sweep Order (``ISO'') \42\ Instruction or a Post Only 
instruction included with a Limit Order would not be applied in an IPO 
Auction and would be permanently ignored with respect to the order; 
\43\ (4) the Maximum Remove Percentage of a Partial Post Only at Limit 
Order \44\ would not be applied in an IPO Auction and would be 
permanently ignored with respect to the order; and (5) the 
replenishment range of a Reserve Order with a Random Replenishment 
instruction \45\ would not be applied in an IPO Auction and would be 
permanently ignored with respect to the order.\46\ Thus, with the 
exception of MTP modifiers, all modifiers listed above would not be 
further considered with respect to an order upon completion of the IPO 
Auction, and any remainder not executed in the auction would be placed 
on the BATS Book, executed, cancelled, or routed away in accordance 
with the modified terms of the order.\47\
---------------------------------------------------------------------------

    \37\ See proposed BATS Rule 11.23(a)(8)(C). See also Notice, 
supra note 4, at 10347-48.
    \38\ See BATS Rule 11.9(f).
    \39\ Pursuant to BATS Rule 11.9(f), any incoming order 
designated with an MTP modifier is normally prevented from executing 
against a resting opposite side order also designated with an MTP 
modifier and originating from the same User. Under the proposal, the 
MTP Modifier would be ignored during an IPO Auction, and such 
opposite side orders originating from the same User would be 
eligible to be matched against each other. Upon completion of the 
IPO Auction, an MTP modifier would be recognized again, and any 
remainder not executed in the auction would be placed on the BATS 
Book and executed or cancelled in accordance with the original MTP 
modifier appended to the order. See Notice, supra note 4, at 10347.
    \40\ See BATS Rule 11.9(c)(14).
    \41\ See Notice, supra note 4, at 10347.
    \42\ See BATS Rule 11.9(d).
    \43\ See Notice, supra note 4, at 10347.
    \44\ See BATS Rule 11.9(c)(7).
    \45\ See Notice, supra note 4, at 10348, n.38 (citing BATS Rule 
11.9(c)(1)(A)).
    \46\ See Notice, supra note 4, at 10347-48.
    \47\ See Notice, supra note 4, at 10348.
---------------------------------------------------------------------------

B. Changes to the Quote-Only Period

    The Quote-Only Period is the designated period of time prior to a 
Halt Auction, a Volatility Closing Auction, or an IPO Auction during 
which Users may submit orders to the Exchange for participation in the 
auction.\48\ Currently, the Quote-Only Period for an IPO Auction begins 
fifteen (15) minutes plus a short random period prior to such IPO 
Auction.\49\
---------------------------------------------------------------------------

    \48\ See BATS Rule 11.23(a)(17). See also Notice, supra note 4, 
at 10348.
    \49\ See BATS Rule 11.23(d)(1)(A).
---------------------------------------------------------------------------

    The Exchange proposes to extend the Quote-Only Period with respect 
to an IPO Auction for an ETP such that it would commence at 8:00 
a.m.,\50\ which is the beginning of the Exchange's Pre-Opening 
Session.\51\ The Exchange also proposes to extend the Quote-Only Period 
with respect to an IPO Auction for a BATS listed corporate security to 
begin at a time announced in advance by the Exchange that would be 
between fifteen (15) and thirty (30) minutes plus a short random period 
prior to such IPO Auction.\52\ The Exchange would determine the length 
of time of the Quote-Only Period for a BATS listed corporate security 
(i.e., what time between fifteen (15) and thirty (30) minutes) in 
consultation with the issuer of the IPO Security and would announce the 
length of time for the Quote-Only Period in advance of the commencement 
of such period.\53\ The Exchange also proposes to make a technical 
amendment to paragraph (d)(2)(A) of BATS Rule 11.23 to replace the 
current term ``quotation only period'' with the defined term ``Quote 
Only Period.''
---------------------------------------------------------------------------

    \50\ See proposed BATS Rule 11.23(d)(1)(A).
    \51\ See BATS Rule 1.5(r).
    \52\ See proposed BATS Rule 11.23(d)(1)(A).
    \53\ See Notice, supra note 4, at 10348. According to the 
Exchange, the scope of market participants notified regarding the 
anticipated commencement of the Quote-Only Period (or extension of 
Quote-Only Period) would include, but would not be limited to 
Members of the Exchange. Such notice would also include those market 
participants, individuals or entities that have subscribed to the 
Exchange's notification system. The Exchange represents that it 
intends to send notifications regarding the Quote-Only Period via 
email, as it does with most public notifications today. The Exchange 
further notes that it does, in certain circumstances, post 
information on its public Web site in addition to email 
dissemination. See id., n.41.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to extend the Quote-Only Period in 
the event of a technical or systems issue at the Exchange that may 
impair the ability of Users to participate in the IPO Auction or of the 
Exchange to complete the IPO Auction.\54\ As proposed, the Exchange 
would notify market participants in the event of any extension to the 
Quote-Only Period, including due to a technical or systems issue during 
an IPO Auction. Such notice would provide details regarding the 
circumstances and length of the extension.\55\
---------------------------------------------------------------------------

    \54\ See proposed BATS Rule 11.23(d)(2)(B)(iv). See also Notice, 
supra note 4, at 10348. Currently, the Exchange may extend the 
Quote-Only Period under Rule 11.23(d)(2)(B) for an Auction beyond 
the stated timeframes where: (i) There are unmatched Market Orders 
on the Auction Book associated with the auction; (ii) in an IPO 
Auction, the underwriter requests an extension; or (iii) where the 
Indicative Price moves the greater of 10% or fifty (50) cents in the 
fifteen (15) seconds prior to the auction. See id.
    \55\ See proposed BATS Rule 11.23(d)(2)(C). See also Notice, 
supra note 4, at 10348.
---------------------------------------------------------------------------

III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\56\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\57\ which 
requires, among other things, that the rules of a national securities 
exchange be 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.
---------------------------------------------------------------------------

    \56\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Changes to the Definition of Eligible Auction Order

    The Exchange believes that refining the types of orders processed 
in an IPO Auction and/or those that would be placed onto the BATS Book 
\58\ following such IPO Auction would simplify and reduce the 
complexity of the IPO Auction for BATS listed corporate securities.\59\ 
The Exchange further

[[Page 19663]]

believes that doing so would aid in ensuring a robust, but streamlined, 
IPO Auction process for a newly listed corporate securities.\60\
---------------------------------------------------------------------------

    \58\ See BATS Rule 1.5(e) (defining BZX Book as the System's 
electronic file of orders).
    \59\ See Notice, supra note 4, at 10345.
    \60\ See id.
---------------------------------------------------------------------------

    Specifically, the Exchange believes it is reasonable to reject 
orders with the characteristics described above from participating in 
the IPO Auction because doing so would aid in reducing systems 
complexity and risk associated both with completing the IPO Auction and 
with transferring any unexecuted portion of such orders to the BATS 
Book once the auction is complete.\61\ Further, the Exchange states 
that the orders it proposes to reject are not commonly utilized and 
therefore the rejection of such orders should not have a significant 
impact on its Members.\62\ In addition, the Exchange believes these 
types of orders contain certain attributes that are not compatible with 
the IPO Auction process.\63\
---------------------------------------------------------------------------

    \61\ See id. at 10346.
    \62\ See id. See also BATS Rule 1.5(n)(defining ``Member'' as 
any registered broker or dealer that has been admitted to membership 
in the Exchange).
    \63\ See Notice, supra note 4, at 10346.
---------------------------------------------------------------------------

    In addition, in contrast to those orders that would be rejected, 
the Exchange notes that the types of orders the Exchange proposes to 
convert are more commonly used by Members than those order types the 
Exchange proposes to reject.\64\ The Exchange believes that it is 
reasonable to convert rather than reject the order types described 
above because such orders are more commonly used by Members and doing 
so would accommodate those Members that have automated their systems to 
send orders to the Exchange without significantly altering the 
operation of the order from what the Member originally instructed.\65\ 
According to the Exchange, such Members also may not be able to re-
submit a rejected order with the correct modifier in time to 
participate in the IPO Auction.\66\ Therefore, the Exchange notes that 
it is concerned that rejecting, rather than converting those types of 
orders as proposed, would inappropriately burden those Members and 
deter their participation in an IPO Auction.\67\
---------------------------------------------------------------------------

    \64\ See id. at 10346-47.
    \65\ See id. at 10347.
    \66\ See id.
    \67\ See id.
---------------------------------------------------------------------------

    The Exchange further believes it is reasonable to ignore certain 
modifiers on an order during the IPO Auction because doing so would 
simplify and reduce the complexity of the auction process or such 
modifiers are incompatible with the IPO Auction process.\68\ For 
instance, the Exchange believes that it is reasonable to ignore 
instructions to treat an order as an Attributable Order because orders 
entered into an IPO Auction are not displayed individually, but rather, 
are displayed as aggregated interest in the Exchange's data feeds.\69\
---------------------------------------------------------------------------

    \68\ See id. at 10347-49.
    \69\ See id. at 10347.
---------------------------------------------------------------------------

    For the reasons stated above, the Commission believes that amending 
the definition of Eligible Auction Orders to reject, convert, or ignore 
certain types of orders in connection with the IPO Auction process for 
a BATS listed corporate security is consistent with Section 6(b)(5) of 
the Act. The Commission believes that it is reasonable for the Exchange 
to seek to simplify and reduce the complexity of the IPO Auction 
process and to clearly describe the treatment of those orders and 
modifiers submitted during an IPO Auction that would be rejected, 
converted, or ignored.\70\
---------------------------------------------------------------------------

    \70\ The Commission also believes that the Exchange's proposal 
to amend BATS Rule 11.1(a) to make clear that it will not accept 
BATS Market Orders that are not Eligible Auction Orders prior to 
8:00 a.m. Eastern Time and to make conforming changes to BATS Rules 
11.23(b) and 11.23(c) is consistent with Act. The Commission 
believes that these proposed changes would help reduce confusion 
among Members regarding the operation of BATS Market Orders that are 
entered prior to the start of the Exchange's Pre-Opening Session and 
the operation of the Exchange's rules.
---------------------------------------------------------------------------

B. Changes to the Quote-Only Period

    The Exchange states that it believes that a longer Quote-Only 
Period for ETPs is warranted because it will encourage the entry of 
orders prior to an IPO Auction for newly issued ETPs, which typically 
have lower participation rates especially as compared to IPO Auctions 
for corporate securities.\71\ The Exchange further states that while an 
IPO Auction for a corporate security is typically conducted at least 
thirty minutes after the commencement of Regular Trading Hours, an IPO 
Auction for a newly issued ETP is typically conducted at the beginning 
of Regular Trading Hours (i.e., 9:30 Eastern Time), and thus may not 
afford much time for participants to enter orders prior to such 
auction.\72\
---------------------------------------------------------------------------

    \71\ See Notice, supra note 4, at 10348.
    \72\ See id.
---------------------------------------------------------------------------

    In addition, the Exchange believes it is reasonable to extend the 
Quote-Only Period for a BATS listed corporate security to begin at a 
time announced in advance by the Exchange that shall be between fifteen 
and thirty minutes plus a short random period prior to such IPO Auction 
because it will allow market participants more time to enter orders to 
participate in the IPO Auction.\73\ Further, according to the Exchange, 
such an extension would afford underwriters more time to evaluate the 
scope of demand for, and supply of, the security subject to the IPO 
Auction (``IPO Security''), which in turn, would allow the underwriter 
to make a more informed decision about the appropriate time to initiate 
the opening of the IPO Security through the IPO Auction.\74\
---------------------------------------------------------------------------

    \73\ See id. at 10348-49.
    \74\ See id.
---------------------------------------------------------------------------

    The Exchange also believes it is reasonable to extend the Quote-
Only Period in the event of a technical or systems issue at the 
Exchange that may impair the ability of market participants to 
participate in an IPO Auction as such an event may prevent market 
participants from entering orders during the Quote-Only Period, which 
in turn could result in less liquidity that may prevent the 
underwriters from adequately accessing the trading interest of the IPO 
Security.\75\ Thus, the Exchange believes it is reasonable to extend 
the Quote-Only Period in the event of a technical or systems issue to 
provide market participants adequate time to enter orders to 
participate in the IPO auction.\76\ Finally, the Exchange states that 
its proposal to make a technical amendment to paragraph (d)(2)(A) of 
BATS Rule 11.23 to replace the current term ``quotation only period'' 
with the defined term ``Quote Only Period'' is intended to make the 
rule easier to understand and avoid potential investor confusion.\77\
---------------------------------------------------------------------------

    \75\ See id. at 10348-49.
    \76\ See id.
    \77\ See id. at 10349.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission believes that the 
proposed changes to the Quote-Only Period are consistent with the Act 
because these changes are designed to allow market participants 
additional time in advance of an IPO Auction, and the proposed 
technical amendment to BATS Rule 11.23(d)(2)(A) conforms the 
terminology used in that section of BATS Rule 11.23(d) with the current 
terminology used in the BATS rule book.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No.1, is consistent with the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.
    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act 
\78\ that the proposed rule change (SR-BATS-2016-17) is approved.
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 78s(b)(2).
    \79\ 17 CFR 200.30-3(a)(12).


[[Page 19664]]


---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\79\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07683 Filed 4-4-16; 8:45 am]
 BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.