
[Federal Register Volume 79, Number 165 (Tuesday, August 26, 2014)]
[Notices]
[Pages 50960-50962]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20205]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72879; File No. SR-BATS-2014-034]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Changes to Rules 
11.9(f) and 21.1(g) of BATS Exchange, Inc.

August 20, 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 August 11, 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 
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 the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 11.9(f) to adopt a new 
Match Trade Prevention Modifier (``MTP'') called Cancel Smallest with 
respect to the Exchange's cash equities trading platform (``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 also 
proposes to amend Rule 21.1(g) to add similar functionality to BATS 
Options. The Exchange has designated this proposal as non-controversial 
and provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) under the Act.\3\ The Exchange requests that the 
Commission waive the 30-day pre-operative waiting period contained in 
Rule 19b-4(f)(6)(iii)

[[Page 50961]]

under the Act.\4\ If such waiver is granted by the Commission, the 
Exchange shall implement this rule proposal on or about August 22, 
2014.
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
    \4\ Id.
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    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, the proposal set forth below is 
intended to add certain system functionality currently offered by EDGA 
and EDGX in order to provide a consistent technology offering for users 
of the BGM Affiliated Exchanges. Finally, as noted above, BATS Equities 
and BATS Options offer much of the same functionality, and thus, in 
adding functionality to BATS Equities, the Exchange also wishes to do 
the same for BATS Options.
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    \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).
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    Like EDGA and EDGX,\6\ the Exchange currently offers various MTP 
modifiers under BATS Equities Rule 11.9(f) and BATS Options Rule 
21.1(g) which are designed to prevent two orders with the same Unique 
Identifier (as defined below) from executing against each other. The 
MTP modifiers can be set at the market participant identifier 
(``MPID''), the Exchange Member identifier or the Exchange Sponsored 
Participant identifier level (any such identifier, a ``Unique 
Identifier'').\7\ To align its MTP functionality with EDGA and EDGX, 
the Exchange now proposes add a new MTP modifier called Cancel Smallest 
(``MCS'') under BATS Equities Rule 11.9(f) and BATS Options Rule 
21.1(g). An incoming order marked with the proposed MCS modifier will 
not execute against opposite side resting interest marked with any MTP 
modifier originating from the same Unique Identifier. If both orders 
are equivalent in size, both orders will be cancelled back to the 
originating User.\8\ If the orders are not equivalent in size, the 
smaller of the two orders will be cancelled back to the originating 
User and the larger order will remain on the Book. The Exchange notes 
that the proposed rule text is substantively identical to the rules of 
EDGA and EDGX.\9\
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    \6\ See EDGA Rule 11.9(f); EDGX Rule 11.9(f).
    \7\ Any Exchange Member that has an MPID issued by FINRA is 
identified in the Exchange's internal systems by that MPID. Each 
Exchange Member that does not already have an MPID and each 
Sponsored Participant is issued an identifier that is specific to 
the Exchange and allows the Exchange to determine the User for each 
order and trade.
    \8\ The term ``User'' is defined under Exchange Rule 11.5(cc) as 
``any Member or Sponsored Participant who is authorized to obtain 
access to the System pursuant to Rule 11.3.''
    \9\ See EDGA Rule 11.9(f)(5); EDGX Rule 11.9(f)(5).
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    The Exchange believes its MTP functionality allows certain firms to 
better internalize their agency order flow, which in turn may decrease 
costs to customers of such firms. The Exchange notes that MTP modifiers 
do not alleviate, or otherwise exempt, broker-dealers from their best 
execution obligations. As such, broker-dealers using MTP modifiers are 
obligated to internally cross agency orders at the same price, or a 
better price than they would have received had the orders been executed 
on the Exchange. Additionally, MTP modifiers assist market participants 
in complying with certain rules and regulations of the Employee 
Retirement Income Security Act (``ERISA'') that preclude and/or limit 
managing broker-dealers of such accounts from trading as principal with 
orders generated for those accounts. Finally, the Exchange notes that 
offering the MTP modifiers may streamline certain regulatory functions 
by reducing false positive results that may occur on Exchange generated 
wash trading surveillance reports when orders are executed under the 
same Unique Identifier. For these reasons, the Exchange believes the 
MTP modifiers offer users enhanced order processing functionality that 
may prevent potentially undesirable executions without negatively 
impacting broker-dealer best execution obligations.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
\10\ and further the objectives of Section 6(b)(5) of the Act \11\ 
because it is 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. Specifically, the proposed MCS functionality would allow 
firms to better manage order flow and prevent undesirable executions 
against themselves, and the proposed change described herein enhances 
the choices available to such firms in how they do so. The proposed 
rule change also is designed to support the principles of Section 
11A(a)(1)\12\ of the Act in that it seeks to assure fair competition 
among brokers and dealers and among exchange markets.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78k-1(a)(1).
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    The proposed rule change is generally intended to add certain 
system functionality currently offered by EDGA and 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 change would also provide Users with access to 
functionality that 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.

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

[[Page 50962]]

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the foregoing 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 is filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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 so that 
the proposal may become operative immediately upon filing, noting that 
a waiver of the operative delay will allow the Exchange to align its 
MTP functionality across the BGM Affiliated Exchanges in a timely 
manner, thereby simplifying the technology implementation, changes and 
maintenance by Users of the Exchange that are also participants on 
other BGM Affiliated Exchanges. The Exchange also states that waiver of 
the operative delay is consistent with the protection of investors and 
the public interest because it 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 
operative delay and designates the proposed rule change operative upon 
filing.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ 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).
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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 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2014-034 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-2014-034. 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 at 100 F Street NE., 
Washington, DC 20549-1090 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 Number SR-BATS-2014-034, and should be 
submitted on or before September 16, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20205 Filed 8-25-14; 8:45 am]
BILLING CODE 8011-01-P


