
[Federal Register Volume 76, Number 230 (Wednesday, November 30, 2011)]
[Notices]
[Pages 74086-74088]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30811]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65816; File No. SR-BATS-2011-048]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
Exchange Rule 11.18 Relating to Trading Pauses Due to Extraordinary 
Market Volatility

November 23, 2011.
    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 November 22, 2011, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to amend Rule 
11.18, entitled ``Trading Halts Due to Extraordinary Market 
Volatility.''
    The text of the proposed rule change is available at the Exchange's 
Web site at http://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 proposes to amend Rule 11.18 to exclude all rights and 
warrants from the single stock circuit breaker under the rule. The 
Commission approved Rule 11.18(d) and Interpretation and Policy .05 to 
Rule 11.18 (the ``Trading Pause Rule'') on a pilot basis on June 10, 
2010 to provide for trading pauses in individual securities due to 
extraordinary market volatility (``Trading Pause'') in all securities 
included within the S&P 500[supreg] Index (``S&P 500'') (``Pause 
Pilot'').\3\ The Exchange noted in its filing to adopt the Trading 
Pause Rule that during the Pause Pilot period it would continue to 
assess whether additional securities need to be added and whether the 
parameters of Rule 11.18 would need to be modified to accommodate 
trading characteristics of different securities. The Exchange 
subsequently received approval to add to the Pause Pilot the securities 
included in the Russell 1000[supreg] Index (``Russell 1000'') and a 
specified list of Exchange Traded Products (``ETPs'').\4\
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    \3\ The Commission approved the Pause Pilot for all equities 
exchanges and FINRA. See Securities Exchange Act Release No. 62252 
(June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos. SR-BATS-
2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; SR-ISE-
2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-2010-41; 
SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-CBOE-
2010-047) and Securities Exchange Act Release No. 62251 (June 10, 
2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025).
    \4\ The Commission approved the addition to the Pause Pilot of 
the securities included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release No. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08 and Securities 
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 
(September 16, 2010) (SR-FINRA-2010-033). The Exchange submitted a 
proposed rule change shortly after the addition of the Russell 1000 
securities and ETPs to extend the operation of the Pause Pilot, 
which was set to expire on December 10, 2010, until April 11, 2011. 
Securities Exchange Act Release No. 63497 (December 9, 2010), 75 FR 
78315 (December 15, 2010) (SR-BATS-2010-037). On March 31, 2011, the 
Exchange submitted a proposed rule change to further extend the 
Pause Pilot until the earlier of August 11, 2011 or the date on 
which a limit up/limit down mechanism to address extraordinary 
market volatility, if adopted, applies. Securities Exchange Act 
Release No. 64207 (April 6, 2011), 76 FR 20424 (April 12, 2011) (SR-
BATS-2011-011).

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[[Page 74087]]

    On June 23, 2011, the Commission approved proposed rule changes of 
the Exchanges to amend certain of their respective rules to expand the 
Pause Pilot to include all remaining NMS stocks (``Phase III 
Securities''), which included rights and warrants.\5\ Unlike the 
original Pause Pilot securities, the amended Trading Pause Rule applies 
wider percentage price moves to the Phase III Securities before a 
trading pause is triggered.\6\ The changes to the Trading Pause Rule 
became effective on August 8, 2011.
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    \5\ See Securities Exchange Act Release No. 64735 (June 23, 
2011), 76 FR 38243 (June 29, 2011) (SR-BATS-2011-016, et al.).
    \6\ Under amended rules, a pause is triggered by a 30% or more 
price move in a Phase III Security priced at $1 or higher, and by a 
50% or more price move to such a security priced less than $1. The 
price of a security is based on the closing price on the previous 
trading day, or, if no closing price exists, the last sale reported 
to the Consolidated Tape on the previous trading day.
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    Over 25% of the trading pauses have occurred in rights and warrants 
since adoption of the Pause Pilot. Further, there has been a 
significant increase in trading pauses involving rights and warrants 
since the implementation of the Phase III Securities, with such pauses 
representing approximately 52% [sic] all trading pauses occurring 
through the end of August 2011. Rights and warrants trade on equity 
exchanges, but are closely related to call options. Rights and warrants 
entitle owners to purchase shares of stock at predetermined prices 
subject to various timing and other conditions. Like options, the 
prices of rights and warrants are affected by the price of the 
underlying stock as well as other factors, particularly the volatility 
of the stock. As a consequence, the prices of rights and warrants may 
move more dramatically than the prices of the underlying stocks even 
when the rights and warrants (and the underlying stock) are trading in 
an orderly manner. This difference in trading behavior may result in a 
scenario whereby the rights and warrants trigger the circuit breaker 
under the Trading Pause Rule and are subject to a trading pause, even 
while the underlying stock continues to trade. This can be particularly 
true of rights and warrants that have low prices. Accordingly, the 
Exchange is proposing to exclude rights and warrants from the trading 
pause under the Trading Pause Rule.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\7\ in general, and 
furthers the objectives of Section 6(b)(5),\8\ 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 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The proposed rule change also is designed to support the principles of 
Section 11A(a)(1) \9\ of the Act in that it seeks to ensure fair 
competition among brokers and dealers and among exchange markets. The 
Exchange believes that the proposed rule meets these requirements 
because it excludes certain securities from the rule's coverage that 
are prone to triggering pauses because of their unique characteristics. 
These securities are unique in that they may move more dramatically 
than the prices of the underlying stocks to which they are related even 
when both securities are trading in an orderly manner. As such, the 
securities that are subject to this proposal may trigger the circuit 
breaker under the Trading Pause Rule and be subject to a trading pause, 
even while the underlying security continues to trade. Although there 
is little benefit in pausing trading in these securities, such pauses 
sequester regulatory resources that are better applied to the review of 
trading pauses in other securities that have a greater impact on the 
national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Including rights and warrants in the pilot program which may trigger a 
circuit breaker and be subject to a trading pause, even while the 
underlying security continues to trade, provides little benefit and has 
the potential to create confusion among investors. Excluding rights and 
warrants from the pilot program should minimize investor confusion that 
could result from temporary trading pauses in these

[[Page 74088]]

securities. For this reason, the Commission designates the proposed 
rule change as operative upon the date of this Notice.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-BATS-2011-048 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-BATS-2011-048. 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 (http://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 
a.m. and 3 p.m. Copies of such 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-BATS-2011-048 and should be 
submitted on or before December 21, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30811 Filed 11-29-11; 8:45 am]
BILLING CODE 8011-01-P


