Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.15 of Bats BYX Exchange, Inc. To Authorize the Exchange To Share a User's Risk Settings With the Clearing Member That Clears Transactions on Behalf of the User, 22024-22027 [2017-09528]

Download as PDF 22024 Federal Register / Vol. 82, No. 90 / Thursday, May 11, 2017 / Notices 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–ISE–2017–37. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE– 2017–37 and should be submitted on or before June 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–09529 Filed 5–10–17; 8:45 am] asabaliauskas on DSK3SPTVN1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80612; File No. SR– BatsBYX–2017–07] Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.15 of Bats BYX Exchange, Inc. To Authorize the Exchange To Share a User’s Risk Settings With the Clearing Member That Clears Transactions on Behalf of the User May 5, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 24, 2017, Bats BYX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange has designated this proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend Rule 11.15 to authorize the Exchange to share a User’s 5 risk settings with the Clearing Member that clears transactions on behalf of the User. 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 A 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). 2 17 16 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:52 May 10, 2017 Jkt 241001 PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to update Rule 11.15, Clearance and Settlement; Anonymity, to authorize the Exchange to share any of the User’s risk settings with the Clearing Member that clears transactions on behalf of the User, and to capitalize the term ‘‘Clearing Member’’. Current Exchange Rule 11.15 requires that all transactions passing through the facilities of the Exchange shall be cleared and settled through a Qualified Clearing Agency 6 using a continuous net settlement system. This requirement may be satisfied by direct participation, use of direct clearing services, or by entry into a correspondent clearing arrangement with another Member that clears trades through a Qualified Clearing Agency (‘‘Clearing Member’’). Rule 11.15 provides that if a Member clears transactions through another Member that is a Clearing Member,7 such Clearing Member shall affirm to the Exchange in writing, through letter of authorization, letter of guarantee or other agreement acceptable to the Exchange, its agreement to assume responsibility for clearing and settling any and all trades executed by the Member designating it as its clearing firm. The rules of any such clearing agency shall govern with respect to the clearance and settlement of any transactions executed by the Member on the Exchange. Thus, while not all Members are Clearing Members, all Members are required to either clear their own transactions or to have in place a relationship with a Clearing Member’s that has agreed to clear transactions on their behalf (or on behalf of any Sponsored Participants 8 for which the 6 Qualified Clearing Agency is defined as ‘‘a clearing agency registered with the Commission pursuant to Section 17A of the Act that is deemed qualified by the Exchange.’’ See Exchange Rule 1.5(u). 7 The Exchange notes that it also proposes to amend Rule 11.15(a) to capitalize the term ‘‘Clearing Member’’ to ensure consistency within Exchange Rules. 8 A Sponsored Participant is defined as ‘‘a person which has entered into a sponsorship arrangement with a Sponsoring Member pursuant to Rule 11.3.’’ See Exchange Rule 1.5(x). E:\FR\FM\11MYN1.SGM 11MYN1 Federal Register / Vol. 82, No. 90 / Thursday, May 11, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Member is a Sponsoring Member 9) in order to conduct business on the Exchange. Each Member that transacts through a Clearing Member on the Exchange is required to execute a Letter of Guarantee which codifies the relationship between the Member and the Clearing Member as it relates to the Exchange, and provides the Exchange with notice of which Clearing Members have relationships with which Members. Because the Clearing Member that guarantees the Member’s transactions on the Exchange has a financial interest in understanding the risk settings utilized within the System 10 by the Member, the Exchange is proposing to amend Rule 11.15 to authorize the Exchange to share any of the User’s risk settings (as described below) with the Clearing Member that clears transactions on behalf of the User. The proposal would provide the Exchange with authority to directly provide Clearing Members with information that would otherwise be available to such Clearing Members by virtue of their relationship with the respective Users (i.e., such Clearing Members could instead require each User to provide such information as a condition to continuing to clear transactions for such Users). At this time, the Exchange offers a variety of risk settings related to the size of an order (e.g., maximum notional value per order and maximum shares per order), the order type (e.g., pre-market, postmarket, short sales and ISOs), restricted securities, easy to borrow securities, and order cut-off (e.g., block new orders and cancel all open orders).11 The Exchange proposes to codify these risk settings in proposed Interpretation and Policy .01 to Rule 11.13, as further described below, and to reference such Interpretation and Policy in proposed paragraph (f) of Rule 11.15. 9 A Sponsoring Member is defined as ‘‘a brokerdealer that has been issued a membership by the Exchange who has been designated by a Sponsored Participant to execute, clear and settle transactions resulting from the System. The Sponsoring Member shall be either (i) a clearing firm with membership in a clearing agency registered with the Commission that maintains facilities through which transactions may be cleared or (ii) a correspondent firm with a clearing arrangement with any such clearing firm.’’ See Exchange Rule 1.5(y). 10 System is defined as ‘‘the electronic communications and trading facility designated by the Board through which securities orders of Users are consolidated for ranking, execution and, when applicable, routing away.’’ See Exchange Rule 1.5(aa). 11 See Securities Exchange Act Release No. 68329 (November 30, 2012), 77 FR 72902 (December 6, 2012) (SR–BYX–2012–022) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Expand the Availability of Risk Management Tools). VerDate Sep<11>2014 16:52 May 10, 2017 Jkt 241001 Proposed Interpretation and Policy .01 to Rule 11.13 would state that the risk settings currently offered by the Exchange include: D Controls related to the size of an order (including restrictions on the maximum notional value per order and maximum shares per order); D controls related to the price of an order (including percentage-based and dollar-based controls); D controls related to the order types or modifiers that can be utilized (including pre-market, post-market, short sales, ISOs and Directed ISOs); D controls to restrict the types of securities transacted (including restricted securities and easy to borrow securities as well as restricting activity to test symbols only); D controls to prohibit duplicative orders; D controls to restrict the overall rate of orders; and D controls related to the size of an order as compared to the average daily volume of the security (including the ability to specify the minimum average daily volume of the securities for which such controls will be activated); and D credit controls measuring both gross and net exposure that warn when approached and, when breached, prevent submission of either all new orders or BYX market orders only. In addition to these controls, the Exchange proposes to codify in proposed Interpretation and Policy .01 other risk functionality that: (i) Permits Users to block new orders submitted, to cancel all open orders, or to both block new orders and cancel all open orders; and (ii) that automatically cancels a User’s orders to the extent the User loses its connection to the Exchange. As set forth above, the proposal to authorize the Exchange to share any of the User’s risk settings with the Clearing Member that clears transactions on behalf of the User would be limited to the risk settings specified in Rule 11.13, Interpretation and Policy .01. The Exchange notes that the use by a User of the risk settings offered by the Exchange is optional.12 By using these optional risk settings, following this proposed rule change a User therefore also opts-in to the Exchange sharing its designated risk settings with its Clearing Member. The Exchange also notes that any Member that does not wish to share its designated risk settings with its Clearing Member could avoid sharing 12 The Exchange does set a maximum allowable order rate threshold in order to ensure the integrity of the System. A User may optionally set a more restrictive order rate threshold but cannot override the Exchange’s maximum threshold. PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 22025 such settings by becoming a Clearing Member. The Exchange believes that its proposal to share a User’s risk settings directly with Clearing Members reduces the administrative burden on participants on the Exchange, including both Clearing Members and Users, and ensures that Clearing Members are receiving information that is up to date and conforms to the settings active in the System. Further, the Exchange believes that the proposal will help such Clearing Members to better monitor and manage the potential risks that they assume when clearing for Users of the Exchange. 2. Statutory Basis The Exchange believes that its proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.13 In particular, the proposal is consistent with Section 6(b)(5) of the Act 14 because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster 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. As set forth above, the proposed change to Rule 11.15 will allow the Exchange to directly provide a Member’s designated risk settings to the Clearing Member that clears trades on behalf of the Member. Because a Clearing Member that executes a clearing Letter of Guarantee on behalf of a Member guarantees all transactions of that Member, and therefore bears the risk associated with those transactions, the Exchange believes that it is appropriate for the Clearing Member to have knowledge of what risk settings the Member may utilize within the System. The proposal will permit Clearing Members who have a financial interest in the risk settings of Members with whom the Clearing Participant has entered into a Letter of Guarantee to better monitor and manage the potential risks assumed by Clearing Members, thereby providing Clearing Members with greater control and flexibility over setting their own risk tolerance and exposure and aiding Clearing Members in complying with the Act. To the 13 15 14 15 E:\FR\FM\11MYN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 11MYN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 22026 Federal Register / Vol. 82, No. 90 / Thursday, May 11, 2017 / Notices extent a Clearing Member might reasonably require a Member to provide access to its risk setting as a prerequisite to continuing to clear trades on the Member’s behalf, the Exchange’s proposal to share those risk settings directly reduces the administrative burden on participants on the Exchange, including both Clearing Members and Users. The proposal also ensures that Clearing Members are receiving information that is up to date and conforms to the settings active in the System. The Exchange believes that the proposal is consistent with the Act, particularly Section 6(b)(5),15 because it will foster cooperation and coordination with persons engaged in facilitating transactions in securities and more generally, will protect investors and the public interest, by reducing administrative burden on both Clearing Members and other Users and by allowing Clearing Members to better monitor their risk exposure. The Exchange notes that the rule change to adopt paragraph (f) to Rule 11.15 is based on and substantively identical to Bats BZX Exchange Rule 21.17 (‘‘BZX’’) and Bats EDGX Exchange (‘‘EDGX’’) Rule 21.17, each of which is applicable to options participants of such exchanges. The Exchange also notes that other equities exchanges offer functionality that allows clearing firms to not only directly monitor but also to set certain risk settings in connection with the activities of the firms for which they clear.16 The Exchange further believes that codifying the risk settings described above in Interpretation and Policy .01 to Rule 11.13 is consistent with the Act as it will provide additional transparency to Exchange Users regarding the optional risk settings offered by the Exchange. As noted above, these settings have been described by the Exchange in prior filings 17 and further information regarding such settings is available in technical specifications made available by the Exchange. However, the Exchange believes it is appropriate to provide additional details regarding these risk settings in Exchange rules. As such, the Exchange believes that the proposal is consistent with the Act, particularly Section 6(b)(5),18 because it will foster cooperation and coordination with persons engaged in facilitating transactions in securities and more generally, will protect investors and the public interest, by providing 15 15 U.S.C. 78f(b)(5). e.g., Nasdaq Rules 6110 and 6120 relating to the Nasdaq Risk Management Service. 17 See supra note 11. 18 15 U.S.C. 78f(b)(5). 16 See, VerDate Sep<11>2014 16:52 May 10, 2017 Jkt 241001 additional transparency regarding optional risk settings offered by the Exchange. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not designed to address any competitive issues and does not pose an undue burden on nonClearing Members because, unlike Clearing Members, non-Clearing Members do not guarantee the execution of a Member’s transactions on the Exchange. The proposal is structured to offer the same enhancement to all Clearing Members, regardless of size, and would not impose a competitive burden on any Member. Any Member that does not wish to share its designated risk settings with its Clearing Member could avoid sharing such settings by becoming a Clearing Member. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and Rule 19b– 4(f)(6) thereunder.20 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of 19 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 20 17 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SRBatsBYX-2017–07 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 No. SR-BatsBYX-2017–07. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-BatsBYX2017–07, and should be submitted on or before June 1, 2017. E:\FR\FM\11MYN1.SGM 11MYN1 Federal Register / Vol. 82, No. 90 / Thursday, May 11, 2017 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–09528 Filed 5–10–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. asabaliauskas on DSK3SPTVN1PROD with NOTICES Extension: ‘‘Investor Form’’, SEC File No. 270–485, OMB Control No. 3235–0547. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request to approve the collection of information discussed below. Each year the Commission receives several thousand contacts from investors who have complaints or questions on a wide range of investment-related issues. To make it easier for the public to contact the agency electronically, the Commission’s Office of Investor Education and Advocacy (‘‘OIEA’’) created an electronic form (the Investor Form) that provides drop down options to choose from in order to categorize the investor’s complaint or question, and may also provide the investor with automated information about their issue. The Investor Form asks investors to provide information concerning, among other things, their names, how they can be reached, the names of the individuals or entities involved, the nature of their complaint or tip, what documents they can provide, and what, if any, actions they have taken. Use of the Investor Form is voluntary. Absent the forms, the public still has several ways to contact the agency, including telephone, facsimile, letters, and email. Investors can access the Investor Form through the consolidated Investor Complaint and Question Web page. The dual purpose of the Investor Form is to make it easier for the public to contact the agency with complaints, questions, tips, or other feedback and to streamline the workflow of Commission staff that record, process, and respond to investor contacts. Investors who submit complaints, ask questions, or provide tips do so voluntarily. Although the Investor Form provides a structured format for incoming investor correspondence, the Commission does not require that investors use any particular form or format when contacting the agency. Investors who choose not to use the Investor Form will receive the same level of service as those who do. OIEA receives approximately 20,000 contacts each year through the Investor Form. Investors who choose not to use the Investor Form receive the same level of service as those who do. The Commission uses the information that investors supply on the Investor Form to review and process the contact (which may, in turn, involve responding to questions, processing complaints, or, as appropriate, initiating enforcement investigations), to maintain a record of contacts, to track the volume of investor complaints, and to analyze trends. The staff of the Commission estimates that the total reporting burden for using the Investor Form is 5,000 hours. The calculation of this estimate depends on the number of investors who use the forms each year and the estimated time it takes to complete the forms: 20,000 respondents × 15 minutes = 5,000 burden hours. Members of the public should be aware that an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless a currently valid OMB control number is displayed. Background documentation for this information collection may be viewed at the following link, https:// www.reginfo.gov. General comments regarding the above information should be directed to the following persons: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or send an email to: Shagufta_Ahmed@ omb.eop.gov; and (ii) Pamela C. Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F St NE., Washington DC, 20549; or send an email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: May 5, 2017. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–09582 Filed 5–10–17; 8:45 am] 21 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:52 May 10, 2017 BILLING CODE 8011–01–P Jkt 241001 PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 22027 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80607; File No. SR– BatsEDGX–2017–16] Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 11.13 of Bats EDGX Exchange, Inc. To Authorize the Exchange To Share a User’s Risk Settings With the Clearing Firm That Clears Transactions on Behalf of the User May 5, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 24, 2017, Bats EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange has designated this proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend Rule 11.13, Clearance and Settlement; Anonymity, to authorize the Exchange to share a User’s 5 risk settings with the clearing firm that clears transactions on behalf of the User. 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 A 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(ee). 2 17 E:\FR\FM\11MYN1.SGM 11MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 90 (Thursday, May 11, 2017)]
[Notices]
[Pages 22024-22027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09528]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80612; File No. SR-BatsBYX-2017-07]

Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
11.15 of Bats BYX Exchange, Inc. To Authorize the Exchange To Share a
User's Risk Settings With the Clearing Member That Clears Transactions
on Behalf of the User

May 5, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 24, 2017, Bats BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange filed a proposal to amend Rule 11.15 to authorize the
Exchange to share a User's \5\ risk settings with the Clearing Member
that clears transactions on behalf of the User.
---------------------------------------------------------------------------

\5\ A 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).
---------------------------------------------------------------------------

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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange is proposing to update Rule 11.15, Clearance and
Settlement; Anonymity, to authorize the Exchange to share any of the
User's risk settings with the Clearing Member that clears transactions
on behalf of the User, and to capitalize the term ``Clearing Member''.
Current Exchange Rule 11.15 requires that all transactions passing
through the facilities of the Exchange shall be cleared and settled
through a Qualified Clearing Agency \6\ using a continuous net
settlement system. This requirement may be satisfied by direct
participation, use of direct clearing services, or by entry into a
correspondent clearing arrangement with another Member that clears
trades through a Qualified Clearing Agency (``Clearing Member''). Rule
11.15 provides that if a Member clears transactions through another
Member that is a Clearing Member,\7\ such Clearing Member shall affirm
to the Exchange in writing, through letter of authorization, letter of
guarantee or other agreement acceptable to the Exchange, its agreement
to assume responsibility for clearing and settling any and all trades
executed by the Member designating it as its clearing firm. The rules
of any such clearing agency shall govern with respect to the clearance
and settlement of any transactions executed by the Member on the
Exchange.
---------------------------------------------------------------------------

\6\ Qualified Clearing Agency is defined as ``a clearing agency
registered with the Commission pursuant to Section 17A of the Act
that is deemed qualified by the Exchange.'' See Exchange Rule
1.5(u).
\7\ The Exchange notes that it also proposes to amend Rule
11.15(a) to capitalize the term ``Clearing Member'' to ensure
consistency within Exchange Rules.
---------------------------------------------------------------------------

Thus, while not all Members are Clearing Members, all Members are
required to either clear their own transactions or to have in place a
relationship with a Clearing Member's that has agreed to clear
transactions on their behalf (or on behalf of any Sponsored
Participants \8\ for which the

[[Page 22025]]

Member is a Sponsoring Member \9\) in order to conduct business on the
Exchange. Each Member that transacts through a Clearing Member on the
Exchange is required to execute a Letter of Guarantee which codifies
the relationship between the Member and the Clearing Member as it
relates to the Exchange, and provides the Exchange with notice of which
Clearing Members have relationships with which Members. Because the
Clearing Member that guarantees the Member's transactions on the
Exchange has a financial interest in understanding the risk settings
utilized within the System \10\ by the Member, the Exchange is
proposing to amend Rule 11.15 to authorize the Exchange to share any of
the User's risk settings (as described below) with the Clearing Member
that clears transactions on behalf of the User. The proposal would
provide the Exchange with authority to directly provide Clearing
Members with information that would otherwise be available to such
Clearing Members by virtue of their relationship with the respective
Users (i.e., such Clearing Members could instead require each User to
provide such information as a condition to continuing to clear
transactions for such Users). At this time, the Exchange offers a
variety of risk settings related to the size of an order (e.g., maximum
notional value per order and maximum shares per order), the order type
(e.g., pre-market, post-market, short sales and ISOs), restricted
securities, easy to borrow securities, and order cut-off (e.g., block
new orders and cancel all open orders).\11\ The Exchange proposes to
codify these risk settings in proposed Interpretation and Policy .01 to
Rule 11.13, as further described below, and to reference such
Interpretation and Policy in proposed paragraph (f) of Rule 11.15.
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\8\ A Sponsored Participant is defined as ``a person which has
entered into a sponsorship arrangement with a Sponsoring Member
pursuant to Rule 11.3.'' See Exchange Rule 1.5(x).
\9\ A Sponsoring Member is defined as ``a broker-dealer that has
been issued a membership by the Exchange who has been designated by
a Sponsored Participant to execute, clear and settle transactions
resulting from the System. The Sponsoring Member shall be either (i)
a clearing firm with membership in a clearing agency registered with
the Commission that maintains facilities through which transactions
may be cleared or (ii) a correspondent firm with a clearing
arrangement with any such clearing firm.'' See Exchange Rule 1.5(y).
\10\ System is defined as ``the electronic communications and
trading facility designated by the Board through which securities
orders of Users are consolidated for ranking, execution and, when
applicable, routing away.'' See Exchange Rule 1.5(aa).
\11\ See Securities Exchange Act Release No. 68329 (November 30,
2012), 77 FR 72902 (December 6, 2012) (SR-BYX-2012-022) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Expand
the Availability of Risk Management Tools).
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Proposed Interpretation and Policy .01 to Rule 11.13 would state
that the risk settings currently offered by the Exchange include:
[ssquf] Controls related to the size of an order (including
restrictions on the maximum notional value per order and maximum shares
per order);
[ssquf] controls related to the price of an order (including
percentage-based and dollar-based controls);
[ssquf] controls related to the order types or modifiers that can
be utilized (including pre-market, post-market, short sales, ISOs and
Directed ISOs);
[ssquf] controls to restrict the types of securities transacted
(including restricted securities and easy to borrow securities as well
as restricting activity to test symbols only);
[ssquf] controls to prohibit duplicative orders;
[ssquf] controls to restrict the overall rate of orders; and
[ssquf] controls related to the size of an order as compared to the
average daily volume of the security (including the ability to specify
the minimum average daily volume of the securities for which such
controls will be activated); and
[ssquf] credit controls measuring both gross and net exposure that
warn when approached and, when breached, prevent submission of either
all new orders or BYX market orders only.
In addition to these controls, the Exchange proposes to codify in
proposed Interpretation and Policy .01 other risk functionality that:
(i) Permits Users to block new orders submitted, to cancel all open
orders, or to both block new orders and cancel all open orders; and
(ii) that automatically cancels a User's orders to the extent the User
loses its connection to the Exchange. As set forth above, the proposal
to authorize the Exchange to share any of the User's risk settings with
the Clearing Member that clears transactions on behalf of the User
would be limited to the risk settings specified in Rule 11.13,
Interpretation and Policy .01. The Exchange notes that the use by a
User of the risk settings offered by the Exchange is optional.\12\ By
using these optional risk settings, following this proposed rule change
a User therefore also opts-in to the Exchange sharing its designated
risk settings with its Clearing Member. The Exchange also notes that
any Member that does not wish to share its designated risk settings
with its Clearing Member could avoid sharing such settings by becoming
a Clearing Member.
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\12\ The Exchange does set a maximum allowable order rate
threshold in order to ensure the integrity of the System. A User may
optionally set a more restrictive order rate threshold but cannot
override the Exchange's maximum threshold.
---------------------------------------------------------------------------

The Exchange believes that its proposal to share a User's risk
settings directly with Clearing Members reduces the administrative
burden on participants on the Exchange, including both Clearing Members
and Users, and ensures that Clearing Members are receiving information
that is up to date and conforms to the settings active in the System.
Further, the Exchange believes that the proposal will help such
Clearing Members to better monitor and manage the potential risks that
they assume when clearing for Users of the Exchange.
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\13\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act \14\ because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
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.
---------------------------------------------------------------------------

\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

As set forth above, the proposed change to Rule 11.15 will allow
the Exchange to directly provide a Member's designated risk settings to
the Clearing Member that clears trades on behalf of the Member. Because
a Clearing Member that executes a clearing Letter of Guarantee on
behalf of a Member guarantees all transactions of that Member, and
therefore bears the risk associated with those transactions, the
Exchange believes that it is appropriate for the Clearing Member to
have knowledge of what risk settings the Member may utilize within the
System. The proposal will permit Clearing Members who have a financial
interest in the risk settings of Members with whom the Clearing
Participant has entered into a Letter of Guarantee to better monitor
and manage the potential risks assumed by Clearing Members, thereby
providing Clearing Members with greater control and flexibility over
setting their own risk tolerance and exposure and aiding Clearing
Members in complying with the Act. To the

[[Page 22026]]

extent a Clearing Member might reasonably require a Member to provide
access to its risk setting as a prerequisite to continuing to clear
trades on the Member's behalf, the Exchange's proposal to share those
risk settings directly reduces the administrative burden on
participants on the Exchange, including both Clearing Members and
Users. The proposal also ensures that Clearing Members are receiving
information that is up to date and conforms to the settings active in
the System. The Exchange believes that the proposal is consistent with
the Act, particularly Section 6(b)(5),\15\ because it will foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and more generally, will protect investors
and the public interest, by reducing administrative burden on both
Clearing Members and other Users and by allowing Clearing Members to
better monitor their risk exposure.
---------------------------------------------------------------------------

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

The Exchange notes that the rule change to adopt paragraph (f) to
Rule 11.15 is based on and substantively identical to Bats BZX Exchange
Rule 21.17 (``BZX'') and Bats EDGX Exchange (``EDGX'') Rule 21.17, each
of which is applicable to options participants of such exchanges. The
Exchange also notes that other equities exchanges offer functionality
that allows clearing firms to not only directly monitor but also to set
certain risk settings in connection with the activities of the firms
for which they clear.\16\
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\16\ See, e.g., Nasdaq Rules 6110 and 6120 relating to the
Nasdaq Risk Management Service.
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The Exchange further believes that codifying the risk settings
described above in Interpretation and Policy .01 to Rule 11.13 is
consistent with the Act as it will provide additional transparency to
Exchange Users regarding the optional risk settings offered by the
Exchange. As noted above, these settings have been described by the
Exchange in prior filings \17\ and further information regarding such
settings is available in technical specifications made available by the
Exchange. However, the Exchange believes it is appropriate to provide
additional details regarding these risk settings in Exchange rules. As
such, the Exchange believes that the proposal is consistent with the
Act, particularly Section 6(b)(5),\18\ because it will foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and more generally, will protect investors
and the public interest, by providing additional transparency regarding
optional risk settings offered by the Exchange.
---------------------------------------------------------------------------

\17\ See supra note 11.
\18\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not designed to address any competitive issues and does not pose an
undue burden on non-Clearing Members because, unlike Clearing Members,
non-Clearing Members do not guarantee the execution of a Member's
transactions on the Exchange. The proposal is structured to offer the
same enhancement to all Clearing Members, regardless of size, and would
not impose a competitive burden on any Member. Any Member that does not
wish to share its designated risk settings with its Clearing Member
could avoid sharing such settings by becoming a Clearing Member.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-BatsBYX-2017-07 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 No. SR-BatsBYX-2017-07. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-BatsBYX-2017-07, and should be
submitted on or before June 1, 2017.

[[Page 22027]]

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09528 Filed 5-10-17; 8:45 am]
BILLING CODE 8011-01-P

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