
[Federal Register Volume 79, Number 143 (Friday, July 25, 2014)]
[Notices]
[Pages 43516-43522]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17513]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72646; File No. SR-BATS-2014-027]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rules 
11.9, 11.12, 11.18, 21.1 and 21.7 of BATS Exchange, Inc.

July 21, 2014.
    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 July 9, 2014, 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 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 11.9 to add certain 
functionality to the Exchange's cash equities trading platform (``BATS 
Equities''), to add additional detail regarding existing functionality 
in place on BATS Equities, and to correct certain typographical errors. 
The Exchange also proposes to make related changes to Rule 11.12 and to 
eliminate obsolete language and correct certain typographical errors in 
Rule 11.18, all such rules applicable to BATS Equities. Consistent with 
its practice of offering similar functionality for the Exchange's 
equity options trading platform (``BATS Options'') as it does for BATS 
Equities, the Exchange proposes to amend Rule 21.1 to add similar 
functionality to BATS Options, to add additional detail regarding 
existing functionality in place on BATS Options, and to conform 
descriptions where possible between BATS Equities and BATS Options. 
Finally, the Exchange proposes to make related changes to Rule 21.7.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Earlier this year, the Exchange and its affiliate BATS Y-Exchange, 
Inc. (``BYX'') received approval to affect a merger (the ``Merger'') of 
the Exchange's parent company, BATS Global Markets, Inc., with Direct 
Edge Holdings LLC, the indirect parent of EDGX Exchange, Inc. 
(``EDGX'') and EDGA Exchange, Inc. (``EDGA'', and together with BZX, 
BYX and EDGX, the ``BGM Affiliated Exchanges'').\5\ In the context of 
the Merger, the BGM Affiliated Exchanges are working to align certain 
system functionality, retaining only intended differences between the 
BGM Affiliated Exchanges. Thus, many of the proposals set forth below 
are intended to add certain system functionality currently offered by 
EDGA and/or EDGX in order to provide a consistent technology offering 
for users of the BGM Affiliated Exchanges. In the context of such 
alignment, the Exchange is also seeking to improve the transparency and 
understandability of its rules, and has therefore proposed various 
corrective and clarifying changes, as described below. Finally, as 
noted above, BATS Equities and BATS Options offer much of the same 
functionality, and thus, in adding functionality and modifying rule 
text related to BATS Equities, the Exchange also wishes to do the same 
for BATS Options.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
---------------------------------------------------------------------------

    The specific proposals set forth in more detail below include: (i) 
The addition of Fill-or-Kill functionality for both BATS Equities and 
BATS Options; (ii) the addition of a new replenishment option with 
respect to Reserve Orders as well as additional detail regarding the 
existing functionality of Reserve Orders for both BATS Equities and 
BATS Options; (iii) the addition of rule text regarding Minimum 
Quantity functionality for BATS Equities and additional detail in the 
BATS Options description of Minimum Quantity functionality; (iv) the 
addition of Stop Orders and Stop Limit Orders for both BATS Equities 
and BATS Options; and (v) various corrections to typographical errors 
in Exchange rules, elimination of obsolete language in Rule 11.18 as 
well as the addition of detail to the routing portion of Rule 11.18.
Fill-or-Kill (``FOK'') Functionality
BATS Equities
    The Exchange proposes to add a Time-in-Force (``TIF'') term of 
Fill-or-Kill (``FOK'') to BATS Equities. BATS Equities currently offers 
five other TIF terms pursuant to Rule 11.9(b), including Immediate-or-
Cancel (``IOC''). The Exchange proposes to add FOK as a sixth TIF 
option for BATS Equities, which would be numbered as 11.9(b)(6). As 
proposed, a FOK would be a limit order that is to be executed in its 
entirety as soon as it is received and, if not so executed, cancelled.
Example 1--FOK Executes
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 10.00 and a non-displayed order to buy 100 
shares at 10.00. Assume that a User \6\ submits a limit order to sell 
200 shares at 10.00 that is designated with a TIF of FOK.
---------------------------------------------------------------------------

    \6\ As defined in BATS Rule 1.5(cc), a User is ``any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.''

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

[[Page 43517]]

     The order to sell 200 shares would execute against the 
resting displayed and non-displayed orders at 10.00.
Example 2--FOK Does Not Execute
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 10.00 and no other equal or better priced 
liquidity. Assume that a User submits a limit order to sell 200 shares 
at 10.00 that is designated with a TIF of FOK.
     The order to sell 200 shares would be cancelled back to 
the User because the order could not be executed in its entirety upon 
receipt by the Exchange.
    An order designated as FOK is similar to an IOC order and unique 
from other TIFs in that it is either executed immediately or cancelled 
back to a User, and thus, the Exchange also proposes to modify Rules 
11.9(e)(1) and 11.18(e)(5) to add reference to orders with a TIF of FOK 
alongside references to orders with a TIF of IOC, as described below. 
First, Rule 11.9(e)(1) states that an order may only be cancelled or 
replaced if the order has a TIF term other than IOC and if the order 
has not yet been executed. The Exchange proposes to modify Rule 
11.9(e)(1) to include the TIF of FOK as another TIF that, when attached 
to an order, would mean that the order cannot be cancelled or replaced. 
Second, Rule 11.18(e)(5) describes the operation of BATS market orders 
\7\ and IOC orders in the context of the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act 
(the ``Limit Up-Limit Down Plan'').\8\ The Exchange proposes to modify 
Rule 11.18(e)(5) to include orders with a TIF of FOK along with such 
description. Specifically, the Exchange proposes to make clear that, 
like IOC and BATS market orders, FOK orders will only be executed if 
such executions are possible at or within the price bands prescribed by 
the Limit Up-Limit Down Plan, and that if an order with a TIF of FOK 
cannot be so executed, the remainder of the order will be cancelled.
---------------------------------------------------------------------------

    \7\ See Rule 11.9(a)(2) for a description of BATS market orders.
    \8\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
---------------------------------------------------------------------------

BATS Options
    The Exchange also proposes to add a TIF term of Fill-or-Kill 
(``FOK'') to BATS Options. BATS Options currently offers four other TIF 
terms pursuant to Rule 21.1(f), including Immediate Or Cancel 
(``IOC''). The Exchange proposes to add FOK as a fifth TIF option for 
BATS Equities [sic], which would be numbered as 21.1(f)(5). As 
proposed, a FOK would be a limit order that is to be executed in its 
entirety as soon as it is received and, if not so executed, cancelled. 
Thus, the proposed definition is identical to the proposed definition 
for BATS Equities, as is the proposed operation of FOK functionality.
Example 1--FOK Executes
    Assume the NBBO is 10.00 x 10.05 and the Exchange has a displayed 
order to buy 10 contracts at 10.00 with reserve size of 10 contracts. 
Assume that a User submits a limit order to sell 20 contracts at 10.00 
that is designated with a TIF of FOK.
     The order to sell 20 contracts would execute against the 
displayed and reserve size of the resting reserve order at 10.00.
Example 2--FOK Does Not Execute
    Assume the NBBO is 10.00 x 10.05 and the Exchange has a displayed 
order to buy 10 contracts at 10.00 and no other equal or better priced 
liquidity. Assume that a User submits a limit order to sell 20 
contracts at 10.00 that is designated with a TIF of FOK.
     The order to sell 20 contracts would be cancelled back to 
the User because the order could not be executed in its entirety upon 
receipt by the Exchange.
    Consistent with BATS Equities, an order designated as FOK is 
similar to an IOC order, and thus, the Exchange proposes to modify Rule 
21.7(a), which describes the process by which BATS Options opens its 
market each trading day, and includes IOC amongst orders that are not 
accepted prior to the Exchange's opening process. The Exchange proposes 
to add orders designated as FOK to the list of orders not accepted 
prior to the opening process.
Reserve Orders and Replenishment
BATS Equities
    The Exchange currently offers Reserve Orders, which are defined in 
Rule 11.9(c)(1) as limit orders ``with a portion of the quantity 
displayed . . . and with a reserve portion of the quantity . . . that 
is not displayed.'' Pursuant to current Rule 11.12(a)(5), the displayed 
quantity of a Reserve Order has time priority as of the time of 
display. Further, as currently described, if the displayed quantity of 
the Reserve Order is decremented such that 99 shares or fewer would be 
displayed, the displayed portion of the Reserve Order shall be 
refreshed for (i) the original displayed quantity, or (ii) the entire 
reserve quantity, if the remaining reserve quantity is smaller than the 
original displayed quantity. Finally, as set forth in Rule 11.12(a)(5), 
a new timestamp is created both for the refreshed and reserved portion 
of the order each time it is refreshed from reserve.
    The Exchange proposes to add Random Replenishment functionality, as 
described below, and to [sic] additional detail to Rule 11.9(c)(1), 
which defines Reserve Orders. In making these changes, the Exchange 
proposes to remove details regarding replenishment from Rule 
11.12(a)(5), as such details are proposed to be included in Rule 
11.9(c)(1).
    The Exchange proposes to leave the current definition of Reserve 
Order as currently drafted, but to add the defined terms ``Display 
Quantity'' to refer to the displayed quantity of a Reserve Order and 
``Reserve Quantity'' to refer to the non-displayed quantity of a 
Reserve Order. The Exchange also proposes to explicitly state within 
Rule 11.9(c)(1) that both the Display Quantity and the Reserve Quantity 
of a Reserve Order are available for execution against incoming orders.
    As noted above, the Exchange currently sets forth the details 
regarding replenishment of a Reserve Order in Rule 11.12(a)(5). The 
Exchange proposes to move these details to Rule 11.9(c)(1) and to make 
certain changes necessary to support the proposed Random Replenishment 
functionality. Specifically, proposed Rule 11.9(c)(1) would state that 
if the Display Quantity of an order is reduced to less than a round 
lot, the System will, in accordance with the User's instruction, 
replenish the Display Quantity from the Reserve Quantity using one of 
the replenishment instructions set forth in the Rule. The Exchange also 
proposes to state in Rule 11.9(c)(1) that if the remainder of an order 
is less than the replenishment amount, the System \9\ will replenish 
and display the entire remainder of the order.
---------------------------------------------------------------------------

    \9\ As defined in BATS Rule 1.5(aa), the System is 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.
---------------------------------------------------------------------------

    The Exchange currently requires Users to designate the original 
display quantity of an order, which is also the amount to which an 
order is replenished (unless the remainder of an order is smaller than 
the original displayed quantity) under the current replenishment 
functionality. The Exchange refers to this quantity as ``max floor'' in 
its specifications. The Exchange proposes to add a defined term of 
``Max Floor'' to Rule 11.9(c)(1), which would be a mandatory value 
entered by a User that will determine the quantity of the order to be 
initially displayed by the System and will also

[[Page 43518]]

be used to determine the replenishment amount under both replenishment 
options described below.
    The Exchange currently offers one replenishment option, which uses 
the number of shares from reserve necessary to return the displayed 
quantity of an order to its original display amount. The Exchange 
proposes to retain this replenishment option and to define it as 
``Fixed Replenishment.'' As proposed, Fixed Replenishment will apply to 
any order for which Random Replenishment has not been selected. Under 
the Fixed Replenishment option, the System will replenish the Display 
Quantity of an order to the Max Floor designated by the User.
    The Exchange also proposes to add a new replenishment option, 
Random Replenishment. As proposed, Random Replenishment is an 
instruction that a User may attach to an order with Reserve Quantity 
where replenishment quantities for the order are randomly determined by 
the System within a replenishment range established by the User. 
Further, as proposed, the User entering an order into the System 
subject to the Random Replenishment instruction must select a 
replenishment value and a Max Floor. The initial Display Quantity will 
be the Max Floor. The Display Quantity of an order when replenished 
will be determined by the System randomly selecting a round lot number 
of shares within a replenishment range that is between: (i) The Max 
Floor minus the replenishment value; and (ii) the Max Floor plus the 
replenishment value. The Exchange believes that the Random 
Replenishment is an optimization of current System functionality as it 
will help to achieve the general goal of Reserve Orders, which is to 
display less than the full interest that one represents in order to 
avoid moving the market. Random Replenishment will help Users to 
further disguise reserve interest by replenishing the Display Quantity 
of a Reserve Order to a variable amount so that other participants are 
less likely to detect that such order is in fact a Reserve Order with 
additional non-displayed size.
    In addition to the changes set forth above, the Exchange proposes 
to modify Rule 11.9(e)(3) to state that the Max Floor set for an order 
can be modified through the use of a replace message rather than 
requiring a User to cancel and re-enter an order. The Exchange also 
proposes to modify Rule 11.12(a)(3) to make clear that a modification 
to the Max Floor of a Reserve Order will not cause such order to lose 
priority. The Exchange believes that this is appropriate because a 
modification to Max Floor of a resting Reserve Order will not change 
the handling or display of the order in any way until replenishment is 
caused due to the reduction of the Display Quantity to less than a 
round lot. When such replenishment occurs (based on the new Max Floor), 
the order will receive a new timestamp, and thus, will have a new 
priority.
Example 1(a)--Fixed Replenishment
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 9.99, a displayed order to sell 100 shares 
at 10.01, and no other equal or better priced liquidity.
     A User enters an order into the System to buy 10,000 
shares at 10.00 with a Display Quantity (i.e., Max Floor) of 1,000 
shares and a Reserve Quantity of 9,000 shares. Because Random 
Replenishment was not designated the order defaults to a Fixed 
Replenishment quantity of 1,000 shares.
     An inbound market order to sell 400 shares is entered into 
the System and executes against the Display Quantity of 1,000 shares, 
resulting in a remaining Display Quantity of 600 shares.
     Another market order to sell 600 shares is entered into 
the System and executes against the 600 displayed shares. The Display 
Quantity is then replenished by the System from the Reserve Quantity to 
the order's original displayed quantity of 1,000 shares, resulting in a 
remaining Reserve Quantity of 8,000 shares. Both the Display Quantity 
and the Reserve Quantity receive new timestamps upon replenishment.
Example 1(b)--Fixed Replenishment
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 9.99, a displayed order to sell 100 shares 
at 10.01, and no other equal or better priced liquidity.
     User A enters Order 1, a limit order to buy 6,000 shares 
at 10.00, the NBB, with a Display Quantity (i.e., Max Floor) of 1,000 
shares and a Reserve Quantity of 5,000 shares. Because Random 
Replenishment was not designated the order defaults to a Fixed 
Replenishment quantity of 1,000 shares.
     User B then enters Order 2, a display-eligible limit order 
to buy 600 shares at 10.00 with no Reserve Quantity.
     An inbound market order to sell 2,000 shares is entered 
into the System.
     The order to sell first executes against the Display 
Quantity of 1,000 shares of Order 1, then executes against the full 600 
shares of Order 2, and then executes against 400 shares of the Reserve 
Quantity of Order 1 (i.e., the displayed quantities of Orders 1 and 2 
execute in time priority, followed by the Reserve Quantity of Order 1).
     The Display Quantity of Order 1 is then replenished for 
1,000 shares, leaving a Reserve Quantity of 3,600 shares. Both the 
Display Quantity and the Reserve Quantity receive new timestamps upon 
replenishment.
Example 2(a)--Random Replenishment
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 9.99, a displayed order to sell 100 shares 
at 10.01, and no other equal or better priced liquidity.
     A User enters an order into the System to buy 10,000 
shares at 10.00 and designates such order for Random Replenishment with 
a Max Floor of 1,000 shares and a replenishment value of 400 shares.
     The initial Display Quantity of the order is 1,000 shares 
and the Reserve Quantity is 9,000 shares.
     An inbound market order to sell 950 shares is entered into 
the System and executes against the Display Quantity of the order 
(1,000 shares), leaving a 50 share Display Quantity. Because the 
remaining Display Quantity is less than a round lot, the System will 
replenish the Display Quantity.
     With a replenishment value of 400, subsequent 
replenishments will return the Display Quantity to a randomly selected 
round lot value between 600 shares (i.e., Max Floor minus the 
replenishment value) and 1,400 shares (i.e., Max Floor plus the 
replenishment value).
     Assume the System selects a Display Quantity of 1,200 
shares. The System will refresh the order with 1,150 shares from the 
Reserve Quantity, thus generating a new Display Quantity of 1,200 
shares to sell at 10.00, and a Reserve Quantity of 7,850 shares.
Example 2(b)--Random Replenishment
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 9.99, a displayed order to sell 100 shares 
at 10.01, and no other equal or better priced liquidity.
     A User enters an order into the System to buy 5,000 shares 
at 10.00 and designates such order for Random Replenishment with a Max 
Floor of 2,000 shares and a replenishment value of 1,000 shares.
     The initial Display Quantity of the order is 2,000 shares 
and the Reserve Quantity is 3,000 shares.
     An inbound market order to sell 1,800 shares is entered 
into the System and executes against the Display

[[Page 43519]]

Quantity of the order (2,000 shares), leaving a 200 share Display 
Quantity.
     A second inbound market order to sell 700 shares is 
entered into the System and executes against the Display Quantity of 
the order (200 shares) and 500 shares of the Reserve Quantity of the 
order, leaving no Display Quantity and a Reserve Quantity of 2,500 
shares.
     With a replenishment value of 1,000, subsequent 
replenishments would otherwise return the Display Quantity to a 
randomly selected round lot value between 1,000 shares (i.e., Max Floor 
minus the replenishment value) and 3,000 shares (i.e., Max Floor plus 
the replenishment value). However, in this example, because the Reserve 
Quantity is now 2,500 shares, the System would instead replenish the 
Display Quantity to a round lot value between 1,000 and 2,500 shares.
     Assume the System selects a Display Quantity of 2,000 
shares, leaving a Reserve Quantity of 500 shares.
     An inbound market order to sell 2,050 shares is entered 
into the System and executes against the Display Quantity of the order 
(2,000 shares) and 50 shares of the Reserve Quantity of the order, 
leaving no Display Quantity and a Reserve Quantity of 450 shares. 
Because the remaining Reserve Quantity is less than the lower end of 
the replenishment range (i.e., 1,000 shares), the System will Display 
the entire remainder of the order, or 450 shares.
BATS Options
    The Exchange also offers Reserve Order functionality for BATS 
Options, with the only notable difference being that Reserve Orders do 
not replenish until the displayed quantity of the order is fully 
executed on BATS Options, whereas on BATS Equities, Reserve Orders 
replenish once the Display Quantity is less than a round lot. 
Accordingly, in order to keep both the rule text and the functionality 
offered by BATS Equities and BATS Options the same, the Exchange is 
proposing changes to Rule 21.1(d)(1) that are similar to those 
described for BATS Equities above. In addition, the Exchange is 
proposing to correct an error in its current rule text. Specifically, 
the Exchange's current rules state that the reserve portion of an order 
retains the timestamp of its original entry when replenishment occurs. 
However, the BATS Options functionality is indeed the same as that on 
BATS Equities in that a new timestamp is created for both the 
replenished and reserved amount each time the order is replenished from 
the reserve quantity. Accordingly, the Exchange proposes to modify the 
language to conform to that of BATS Equities.
    The Exchange notes that the examples of Fixed Replenishment and 
Random Replenishment would operate the same on BATS Options as set 
forth for BATS Equities, with the exception that replenishment does not 
occur until the Display Quantity is completely exhausted.
Minimum Quantity Functionality
BATS Equities
    The Exchange proposes to codify existing functionality already 
offered by BATS Equities by introducing a definition of Minimum 
Quantity Order in Rule 11.9(c)(5). The Exchange notes that the main 
difference between a Minimum Quantity Order and an order with a TIF of 
FOK is that an order with a specified minimum quantity may be partially 
executed so long as the execution size is equal to or exceeds the 
quantity provided by the User whereas a FOK Order must be executed in 
full.
    A Minimum Quantity Order, as proposed, is a limit order to buy or 
sell that will only execute if a specified minimum quantity of shares 
can be obtained. The Exchange proposes to state in Rule 11.9(c)(5) that 
orders with a specified minimum quantity will only execute against 
multiple, aggregated orders if such executions would occur 
simultaneously (rather than only executing against a single order that 
satisfies the applicable minimum quantity). Finally, the Exchange will 
only honor a specified minimum quantity on BATS Only Orders that are 
non-displayed or IOCs. The Exchange will disregard a minimum quantity 
on any other order.
    The Exchange notes that a specified minimum quantity is only 
applicable to BATS Only Orders, which are not routed to other market 
centers, because of the practical difficulty the Exchange would face in 
trying to achieve a minimum quantity through its routing process. For 
instance, although most market centers have a feature similar to or 
identical to the Exchange's minimum quantity functionality, the 
Exchange cannot guarantee that all away market centers would always 
have such functionality. Minimum quantity is also inconsistent with 
routed orders because under most of the Exchange's routing options an 
order is split into multiple smaller orders that are routed 
simultaneously to away market centers. Similarly, the Exchange notes 
that a specified minimum quantity is only possible to apply to non-
displayed orders or IOCs due to the Exchange's obligations to honor 
displayed quotations by executing such quotations against incoming 
orders.\10\ By limiting the minimum quantity instruction to non-
displayed orders or IOCs the Exchange avoids the display of a quotation 
that is not executable unless a specific condition is met.
---------------------------------------------------------------------------

    \10\ See, e.g., Rule 602 of Regulation NMS (the ``Firm Quote 
Rule''). 17 CFR 240.602.
---------------------------------------------------------------------------

Example 1--Minimum Quantity Order Executes
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 10.00 and a non-displayed order to buy 100 
shares at 10.00. Assume that a User submits an IOC limit order to sell 
500 shares at 10.00 with a minimum quantity of 200 shares.
     The order to sell 500 shares would receive a partial 
execution of 200 shares against the resting displayed and non-displayed 
orders at 10.00. The remaining 300 shares would be cancelled back to 
the User.
Example 2--Minimum Quantity Order Does Not Execute
    Assume the NBBO is 10.00 x 10.01 and the Exchange has a displayed 
order to buy 100 shares at 10.00 and a non-displayed order to buy 100 
shares at 10.00. Assume that a User submits an IOC limit order to sell 
500 shares at 10.00 with a minimum quantity of 300 shares.
     The order to sell would be cancelled back to the User 
because the required execution of at least 300 shares could not be 
satisfied upon receipt by the Exchange.
BATS Options
    Minimum Quantity Orders available on BATS Options are defined in 
Rule 21.1(d)(3). The main substantive difference between the 
functionality offered by BATS Equities and that offered by BATS Options 
is that a specified minimum quantity will only be honored on BATS 
Options with respect to an IOC order because non-displayed orders are 
not accepted by BATS Options. Thus, Minimum Quantity Orders cannot rest 
on the BATS Options order book. The Exchange proposes to modify the 
definition of Minimum Quantity Order for BATS Options to make clear 
that while a Minimum Quantity Order can execute against multiple, 
aggregated orders (rather than only executing against a single order 
that satisfies the applicable minimum quantity), such execution will 
only occur if it would occur simultaneously. The Exchange

[[Page 43520]]

also proposes to delete reference to the rejection of Minimum Quantity 
Orders received prior to the market open or after the market close. 
Because a Minimum Quantity Order must be an IOC to be entered into BATS 
Options, it is true that such orders are not accepted prior to the open 
as IOCs are rejected pursuant to Rule 21.7, as described above. 
However, because this is described in Rule 21.7 and does not appear in 
other rules describing BATS Options order types or order type 
modifiers, the Exchange believes that the reference is redundant and 
potentially confusing. Because the Exchange rejects all orders received 
by BATS Options after the close the Exchange believes that the 
reference to post-close orders in the Minimum Quantity Order 
description is unnecessary and potentially confusing.
    The Exchange notes that the first two examples of Minimum Quantity 
Orders set forth above would operate the same on BATS Options as set 
forth for BATS Equities. The third example [sic] is inapplicable 
because, as described above, Minimum Quantity Orders cannot post to the 
BATS Options order book.
Stop and Stop Limit Order Functionality
BATS Equities
    The Exchange proposes to adopt new orders that trigger based on 
trades occurring on the Exchange or reported on other marketplaces. 
Specifically, the Exchange proposes to adopt Stop Orders and Stop Limit 
Orders. Stop Orders and Stop Limit Orders are not executable unless and 
until their stop price is triggered. As proposed, a Stop Order is an 
order that becomes a BATS market order \11\ when the stop price is 
elected. In contrast, a Stop Limit Order is an order that becomes a 
limit order when the stop price is elected. The triggering events for 
Stop Orders and Stop Limit Orders will be the same. A Stop Order or 
Stop Limit Order to buy will be elected when the consolidated last sale 
in the security occurs at, or above, the specified stop price. A Stop 
Order or Stop Limit Order to sell will be elected when the consolidated 
last sale in the security occurs at, or below, the specified stop 
price.
---------------------------------------------------------------------------

    \11\ See Rule 11.9(a)(2).
---------------------------------------------------------------------------

Example 1--Stop Order Is Triggered
    Assume the NBBO is 7.80 x 8.00. Assume that a User submits a Stop 
Order to buy 500 shares with a stop price of 8.05.
     Assume the NBBO shifts gradually upwards to 8.00 by 8.05. 
An execution reported by another exchange at 8.05 will trigger the stop 
price of the Stop Order, which will convert into a BATS market order to 
buy.
Example 2--Stop Limit Order Is Triggered
    Assume the NBBO is 7.84 x 7.85. Assume that a User submits a Stop 
Limit Order to buy 500 shares at 8.04 with stop limit price of 8.05.
     Assume the NBBO shifts gradually upwards to 8.03 by 8.05. 
An execution reported by another exchange at 8.05 will trigger the stop 
price of the Stop Limit Order, which will convert into a limit order to 
buy at 8.04.
    In addition to the changes set forth above, the Exchange proposes 
to modify Rule 11.9(e)(3) to state that the stop price of an order can 
be modified through the use of a replace message rather than requiring 
a User to cancel and re-enter an order. The Exchange also proposes to 
modify Rule 11.12(a)(3) to make clear that a modification to the stop 
price of a Stop Order or Stop Limit Order will not cause such an order 
to lose priority. The Exchange believes that this is appropriate 
because a modification to the stop price of a resting order will not 
change the handling of the order in any way other than to trigger the 
order based on a different subsequent trade than the order otherwise 
would have.
BATS Options
    The Exchange proposes to adopt for BATS Options the same 
description of Stop Orders and Stop Limit Orders as it is proposing for 
BATS Equities. There are no substantive differences between the way 
that Stop Orders and Stop Limit Orders will operate as between BATS 
Equities and BATS Options.
    Stop and stop limit order functionality is also offered by several 
other Exchange competitors of BATS Options, including NYSE MKT LLC 
(``NYSE MKT'') (pursuant to Rule 900.3NY) and the International 
Securities Exchange (``ISE'') (pursuant to Rule 715). The Exchange 
notes that there are substantive differences with respect to the event 
that triggers a stop order or stop limit order between the market 
centers that offer such functionality. For instance, pursuant to NYSE 
MKT Rule 900.3NY, a stop order or stop limit order is triggered based 
on consolidated trades or quotes on the exchange. The ISE, in contrast, 
triggers stop orders and stop limit orders on trades only but looks to 
trades on the ISE rather than consolidated trades. The Exchange has 
proposed triggering Stop Orders and Stop Limit Orders on consolidated 
trades, including the Exchange, which is consistent with the NYSE MKT 
implementation. However, the Exchange does not propose to trigger Stop 
Orders or Stop Limit Orders based on quotes, which is consistent with 
the ISE implementation. As noted above, the Exchange prefers to retain 
consistency when possible between functionality offered by BATS 
Equities and BATS Options.
    The Exchange notes that the examples of Stop Orders and Stop Limit 
Orders set forth above would operate the same on BATS Options as they 
would on BATS Equities.
Additional Changes
    The Exchange proposes to correct three incorrect internal cross-
references in Rule 11.9(c)(7)(B), each of which points to paragraph 
(c)(6)(A) but is intended to refer to paragraph (c)(7)(A). The Exchange 
proposes to instead simply reference paragraph (A) above, which the 
Exchange believes is sufficient detail when read in context.
    The Exchange also proposes to eliminate all references in Rule 
11.18 to individual stock trading pauses issued by a primary listing 
market and related definitions, which are contained in Rule 11.18(d), 
11.18(e)(6) and 11.18(f). The stock trading pauses described in such 
provisions have been fully phased out as securities have become subject 
to the Limit Up-Limit Down Plan. The Plan is already operational with 
respect to all securities, and thus, the Exchange believes that all 
references to individual stock trading pauses should be removed. This 
change will also serve to eliminate certain duplicative references that 
have occurred through amendments to Rule 11.18, including amendments 
related to the operation of the Limit Up-Limit Down Plan as well as 
other amendments. The Exchange also proposes various other corrections 
to the numbering of Rule 11.18 for consistency with other portions of 
its rules. The Exchange also proposes to eliminate a reference to the 
operational date of the Limit Up-Limit Down Plan now that it is, in 
fact, already operational.
    In reviewing Rule 11.18 in connection with the above-described 
corrections, the Exchange determined to also add additional detail to 
the routing description of Rule 11.18 to reflect the existing 
functionality of the System. In particular, the Exchange proposes to 
affirmatively state in Rule 11.18 that the System will not route buy 
(sell) interest at a price above (below) the Upper (Lower) Price 
Band.\12\ Because

[[Page 43521]]

executions cannot occur outside of applicable price bands anyway, the 
Exchange believes it is inefficient to route orders outside of price 
bands. For example, assume that the Lower Price Band is $9.50 and the 
Upper Price Band is $10.50. Further assume the NBBO is $10.00 by 
$11.00, and thus, that the national best offer of $11.00 is not 
executable.\13\ If the Exchange received a routable limit order to buy 
at $11.00 such order would not be routed to the available quotation(s) 
at $11.00 because such quotation could not be executed. The Exchange 
notes that the proposed rule text reflecting that the Exchange will not 
route if there are not executable quotations available is consistent 
with the rules of several other market centers, including EDGA and 
EDGX.\14\
---------------------------------------------------------------------------

    \12\ The Upper Price Band and Lower Price Band are defined terms 
in the Limit Up-Limit Down Plan.
    \13\ The Exchange notes that this condition, with the national 
best bid and/or national best offer outside of applicable price 
bands, is defined in the Plan as Straddle State (as long as the 
security is not in a Limit State). The Exchange also notes that 
pursuant to the Plan if a security is in a Straddle State and 
trading in that stock deviates from normal trading characteristics, 
the applicable listing exchange may, but is not required to, declare 
a trading pause for that security.
    \14\ See, e.g., EDGA Rule 11.9(b)(1)(B)(i); EDGX Rule 
11.9(b)(1)(B)(i); NASDAQ Rule 4120(a)(12)(E)(4); NYSE Arca Rule 
7.11(a)(7).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
\15\ and further the objectives of Section 6(b)(5) of the Act \16\ 
because they are designed 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, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest. The proposed rule change also is designed to support the 
principles of Section 11A(a)(1) \17\ of the Act in that it seeks to 
assure fair competition among brokers and dealers and among exchange 
markets.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    The proposed rule changes to add functionality are generally 
intended to add certain system functionality currently offered by EDGA 
and/or EDGX in order to provide a consistent technology offering for 
the BGM Affiliated Exchanges. A consistent technology offering, in 
turn, will simplify the technology implementation, changes and 
maintenance by Users of the Exchange that are also participants on BYX, 
EDGA and/or EDGX. The proposed rule changes would also provide Users 
with access to functionality that is generally available on markets 
other than the BGM Affiliated Exchanges and may result in the efficient 
execution of such orders and will provide additional flexibility as 
well as increased functionality to the Exchange's System and its Users. 
The Exchange also believes that the changes to correct or provide 
additional specificity regarding the functionality of the System would 
promote just and equitable principles of trade and remove impediments 
to a free and open market by providing greater transparency concerning 
the operation of the System. The Exchange also believes that the 
proposed amendments will contribute to the protection of investors and 
the public interest by making the Exchange's rules easier to 
understand.
    As explained elsewhere in this proposal, the proposed FOK 
functionality is similar to existing IOC and Minimum Quantity 
functionality and is available on numerous other market centers, 
including EDGA and EDGX. Similarly, the proposed Minimum Quantity 
functionality for BATS Equities is intended to codify functionality 
that has been available on the Exchange since its inception and is 
available on numerous other market centers, including BATS Options. 
Finally, the Stop Orders and Stop Limit Orders that the Exchange 
proposes to add are available on numerous other market centers, 
including EDGA and EDGX. Thus, the Exchange believes that each of these 
proposed functionality additions have already been accepted as 
consistent with the Act and offered by various market centers for many 
years. Also, to the extent any of the proposals differ from 
functionality available on other market centers as described elsewhere 
in this proposal, the Exchange does not believe that any such 
differences present any additional policy issues to be considered under 
the Act. The Exchange's addition of such functionality is consistent 
with the Act for the reasons set forth above.
    The Exchange believes that the additional detail with respect to 
the operation of Reserve Orders and restructuring to move certain 
descriptions related to Reserve Order handling from Rule 11.12 to Rule 
11.9 are consistent with the Act for the reasons set forth above 
related to transparency of the operation of the System. The Exchange 
believes that the addition of the Random Replenishment option is 
consistent with the Act as it will help to achieve the general goal of 
Reserve Orders, which is to display less than the full interest that 
one represents in order to avoid moving the market. Random 
Replenishment will help Users to further disguise reserve interest by 
replenishing the Display Quantity of a Reserve Order to a variable 
amount so that other participants are less likely to detect that such 
order is in fact a Reserve Order with additional non-displayed size. 
Given the consistency of this functionality with the overall intent of 
Reserve Orders, and the widespread and longstanding offering of Reserve 
Orders by most market centers, the Exchange believes that the Random 
Replenishment option is consistent with the Act.
    As explained above, the Exchange is proposing to correct the error 
in its current rule text with respect to the creation of a new 
timestamp for both the replenished and reserved amount of a Reserve 
Order each time the order is replenished from the reserve quantity on 
BATS Options. The Exchange believes that this change is consistent with 
the Act in that it provides clarity with respect to the functionality 
of the System and operates the same as Reserve Orders on BATS Equities, 
which have applied a new timestamp to both the replenished and reserved 
amount in accordance with BATS Equities rules since the inception of 
the Exchange. The Exchange does not believe that providing a new 
timestamp to the replenished and reserved amounts of a Reserve Order is 
in any way less consistent with the Act than allowing the reserve 
portion of an order to retain its original timestamp. Rather, the 
Exchange simply believes that this is an implementation detail and that 
the functionality could operate either way consistently with the Act. 
The Exchange also believes that its implementation in which Reserve 
Orders are assigned a new timestamp each time that the displayed 
portion is replenished from reserve is consistent with the Act in that 
it keeps the timestamp for the entire order the same (for both the 
displayed and reserve portions of the order) each time the order is 
modified with respect to its displayed and reserved size.
    The Exchange believes that the proposed change with respect to the 
fact that the Exchange does not route orders outside of price bands 
established by the Limit Up-Limit Down Plan is consistent with the Act 
in that it reflects the current operation of the System, is consistent 
with the rules of other Exchanges that have adopted such functionality 
consistent with the Act, and because routing such orders would be 
inefficient, even if they would return to the Exchange unexecuted. As 
described above, the Exchange believes

[[Page 43522]]

that the other proposed changes to its rulebook to correct 
typographical changes and add additional detail to the way that certain 
functionality currently operates provides further clarification to 
Members, Users, and the investing public regarding the operation of the 
Exchange's System.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
reiterates that the proposed rule change is being proposed in the 
context of the technology integration of the BGM Affiliated Exchanges. 
Thus, the Exchange believes this proposed rule change is necessary to 
permit fair competition among national securities exchanges. In 
addition, the Exchange believes the proposed rule change will benefit 
Exchange participants in that it is one of several changes necessary to 
achieve a consistent technology offering by the BGM Affiliated 
Exchanges.

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

    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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) 
thereunder.\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ permits the 
Commission to 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, noting 
that doing so will allow the Exchange to immediately clarify its rules 
with respect to existing functionality already offered by the Exchange; 
correct typographical errors in the Exchange's rules; and offer certain 
functionality that is already available on other market centers, which 
will allow the Exchange to remain competitive with such other market 
centers. In addition, the Exchange states that, to the extent a 
proposed change optimizes existing functionality, the Exchange does not 
believe that there is a reason to delay the availability of such 
optimization. Furthermore, the Exchange states that waiver of the 
operative delay will allow the Exchange to continue to strive towards a 
complete technology integration of the BGM Affiliated Exchanges, with 
gradual roll-outs of new functionality to ensure stability of the 
System. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposal operative upon filing.\22\
---------------------------------------------------------------------------

    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 Number SR-BATS-2014-027 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BATS-2014-027. 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 
10:00 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-BATS-2014-027 and should be 
submitted on or before August 15, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17513 Filed 7-24-14; 8:45 am]
BILLING CODE 8011-01-P


