
[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Notices]
[Pages 58019-58022]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22996]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73190; File No. SR-BYX-2014-022]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.9 of BATS Y-Exchange, Inc.

September 23, 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 September 12, 2014, BATS Y-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)(iii) 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.
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    \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)(iii).
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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 provide additional functionality 
with respect to Primary Pegged Orders offered by the Exchange pursuant 
to Rule 11.9(c)(8).
    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 Exchange, 
Inc. (``BZX'') received approval to effect 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

[[Page 58020]]

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 proposals set forth below are 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. The functionality is also similar to functionality offered 
by the Nasdaq Stock Market LLC and NYSE Arca, Inc.\6\ The purpose of 
the proposed rule change is to provide Users of the Exchange with 
additional options with respect to Primary Pegged Orders (as defined 
below) offered by the Exchange pursuant to Rule 11.9(c)(8). The 
Exchange notes that EDGA and EDGX offer additional functionality for 
Pegged Orders that the Exchange is not proposing to add at this 
time.\7\
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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).
    \6\ See Nasdaq Rule 4751(f)(4); NYSE Arca Equities Rule 
7.31(cc).
    \7\ For instance, EDGA and EDGX currently permit displayed 
Market Pegged Orders as well as aggressive offsets for displayed 
Primary Pegged Orders (as such terms are defined below). The 
Exchange is not proposing to add these features. The Exchange 
anticipates EDGA and EDGX will propose to eliminate these features 
in the future.
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    The Exchange currently allows Users to submit two types of limit 
orders to the Exchange that are pegged to and priced based on the 
national best bid or offer (``NBBO'') and automatically adjusted by the 
Exchange's System.\8\ First, a ``Primary Pegged Order,'' which is 
pegged to a price inferior to or equal to the inside quote on the same 
side of the market (i.e., for a bid, pegged to the NBB or for an offer, 
pegged to the NBO) by an amount set by the User. Second, a ``Market 
Pegged Order,'' which is pegged to a price that offsets the inside 
quote on the other side of the market (i.e., for a bid, pegged to the 
NBO or for an offer, pegged to the NBB) by an amount set by the User.
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    \8\ As defined in 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.
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    At the outset, the Exchange notes that it proposes to modify the 
definition of Primary Pegged Order to make it more understandable and 
consistent with the definition of Market Pegged Order by adding a 
definition of ``Primary Offset Amount'', which would mean the amount of 
the offset selected by the User for a Primary Pegged Order. The 
Exchange proposes to retain the definition of ``Offset Amount,'' which 
would mean the amount of the offset selected by the User for a Market 
Pegged Order. The Exchange also proposes two substantive changes to 
Primary Pegged Orders, as described below.
    First, pursuant to current Rule 11.9(c)(8), neither type of Pegged 
Order is eligible to be displayed on the Exchange. The Exchange 
proposes to maintain this restriction for Market Pegged Orders but to 
permit Primary Pegged Orders to be displayed on the Exchange provided 
that they cannot be more aggressive than the NBB or NBO to which they 
are pegged, as described below.
    Second, the Exchange proposes to modify the offset that a User can 
select for a Primary Pegged Order by specifying that such amount is an 
offset, rather than requiring that the order be inferior to or equal to 
the inside quote on the same side of the market. This change to Primary 
Pegged Orders, therefore, would allow Users to select a Primary Offset 
Amount that would make a Primary Pegged Order more aggressive than the 
NBB or NBO to which it is pegged (i.e., for a bid, willing to pay a 
higher price or for an offer, willing to sell for a lower price). 
However, as noted above, the Exchange proposes to restrict the 
designation of a Primary Offset Amount that would price a Primary 
Pegged Order higher than the NBB for a bid or lower than the NBO for an 
offer to non-displayed Primary Pegged Orders. Thus, as proposed, the 
Primary Offset Amount for a displayed Primary Pegged Order must result 
in the price of such order being inferior to or equal to the inside 
quote on the same side of the market. The Exchange is not proposing to 
accept displayed Primary Pegged Orders with an aggressive offset at 
this time because such orders would add functionality to the Exchange 
that would effectively set the NBBO through a Pegged Order and the 
Exchange believes that this could potentially add complexity to its 
System.
    As an example of an order with a Primary Pegged Order that a User 
has designated for display, assume the Exchange receives a display-
eligible Primary Pegged Order to buy 300 shares of a security with a 
Primary Pegged Offset to price the order at $0.01 below the NBB. Assume 
further that the NBBO is $10.09 by $10.10 when the order is received. 
The Exchange will post and display the order on the Exchange as a bid 
to buy 300 shares at $10.08. If the NBBO moves to $10.10 by $10.11, the 
Exchange will adjust to $10.09 the price of the Primary Pegged Order to 
buy. If the NBBO then moved to $10.08 by $10.11, the Exchange will 
adjust to $10.07 the price of the Primary Pegged Order to buy.
    A User could alternatively submit a display-eligible Primary Pegged 
Order to buy with no Primary Pegged Offset, in which case the initial 
display price of the order would be $10.09, upon the first adjustment 
to the NBBO the display price would be $10.10, and upon the final 
adjustment to the NBBO the display price would be $10.08.
    A User could not submit a display-eligible Primary Pegged Order to 
buy with a Primary Pegged Offset to price the order at $0.01 above the 
NBB, as this would make the order more aggressive than the NBB, and, as 
proposed, the Exchange will not accept Primary Pegged Orders that are 
both eligible for display and contain an aggressive Primary Pegged 
Offset amount. A User could, however, submit a non-display-eligible 
Primary Pegged Order to buy with a Primary Pegged Offset to price the 
order at $0.01 above the NBB. Thus, using the example above, the 
initial ranked price of the order would be $10.10 ($0.01 higher than 
the NBB of $10.09), upon the first adjustment to the NBBO the adjusted 
ranked price of the order would be $10.11 ($0.01 higher than the NBB of 
$10.10), and upon the final adjustment to the NBBO the adjusted ranked 
price of the order would be $10.09 ($0.01 higher than the NBB of 
$10.08).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposed changes are designed to provide Users 
with additional control over their orders that are pegged to the NBBO. 
The proposal to permit the display of Primary Pegged Orders is 
consistent with the Act as this proposal is intended to lead to 
additional displayed liquidity available on the Exchange, thus 
contributing to the price discovery process. The proposal to permit an 
aggressive offset on non-displayed Primary Pegged Orders is similarly 
consistent with the Act as this proposal is intended to allow Users 
adding liquidity to the Exchange to more aggressively price their 
orders,

[[Page 58021]]

which, in turn, means an enhanced likelihood of price improvement for 
incoming orders that execute against such orders. For instance, by 
permitting a User to designate a Primary Pegged Order to buy on the 
Exchange with an aggressive Primary Pegged Offset, that means that the 
Exchange has non-displayed liquidity priced better than the NBB, which 
amounts to significant price improvement as compared to the NBB. For 
the reasons described above, the proposals are directly targeted at 
removing impediments to and perfect the mechanism of a free and open 
market and national market system.
    The proposed rule change also is designed to support the principles 
of Section 11A (a)(1)\11\ of the Act in that it seeks to assure fair 
competition among brokers and dealers and among exchange markets. In 
particular, the proposed rule changes to modify the Primary Pegged 
Order is intended to add 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 BZX, EDGA and/or 
EDGX. The functionality is similar to functionality offered by Nasdaq 
and NYSE Arca as well. The proposed rule changes 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. 
The Exchange also believes that the changes to restructure the existing 
rule will contribute to the protection of investors and the public 
interest by making the Exchange's rules easier to understand.
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    \11\ 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 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. The Exchange also believes that Pegged Orders generally 
encourage competition by allowing Users to submit orders that 
automatically peg to the NBBO consistent with their trading strategy.

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 \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
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 and Rule 19b-
4(f)(6)(iii) thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
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. The Exchange believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Exchange believes 
that waiver will allow the Exchange to align its re-route 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 BZX, EDGA and/or 
EDGX. The Exchange further believes that waiver will allow the Exchange 
to continue to strive towards a complete technology integration of the 
BGM Affiliated Exchanges. The Commission believes that waiver of the 
operative delay is consistent with investor protection and the public 
interest. As a result, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ 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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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-BYX-2014-022 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BYX-2014-022. 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 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;

[[Page 58022]]

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-BYX-
2014-022, and should be submitted on or before October 17, 2014.
    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).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22996 Filed 9-25-14; 8:45 am]
BILLING CODE 8011-01-P


