
[Federal Register Volume 80, Number 59 (Friday, March 27, 2015)]
[Notices]
[Pages 16475-16477]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74565; File No. SR-BATS-2015-22]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
New Rule 21.17, Exchange Sharing of User Designated Risk Settings

March 23, 2015.
    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 March 13, 2015, 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)(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 Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to authorize the BATS Options Market 
(``BATS Options'') to share a User's \5\ risk settings with the 
Clearing Member \6\ that clears transactions on behalf of the User.
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    \5\ A User is defined as ``any Options member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3 (Access).'' See Exchange Rule 16.1(a)(63).
    \6\ A Clearing Member is defined as ``an Options Member that is 
self-clearing or an Options Member that clears BATS Options 
Transactions for other Members of BATS Options.'' See Exchange Rule 
16.1(a)(15).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to adopt new Rule 21.17, Exchange Sharing 
of User Designated Risk Settings, in order to authorize the Exchange to 
share any of a User's risk settings with the Clearing Member that 
clears transactions on behalf of the User.
    Under BATS Rule 17.2(b), Options Members \7\ must be Clearing 
Members or establish a clearing arrangement with a Clearing Member. 
Rule 21.13(a) provides that every Clearing Member is responsible for 
the clearance of BATS Options Transactions \8\ of such Clearing Member 
and of each User that gives up such Clearing Member's name pursuant to 
a letter of authorization, letter of guarantee, or other authorization 
given by such Clearing Member to such User, which authorization must be 
submitted to the Exchange. Further, no Options Member may make any 
transactions on the Exchange unless a letter of guarantee providing 
that the issuing Clearing Member accepts financial responsibilities for 
all BATS Options Transactions made by the Options Member (a ``Letter of 
Guarantee'') has been issued for such Options Member by a Clearing 
Member and filed with the Exchange.
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    \7\ An Options Member is defined as ``a firm, or organization 
that is registered with the Exchange pursuant to Chapter XVII of 
these Rules for purposes of participating in options trading on BATS 
Options as an `Options Order Entry Firm' or `Options Market Maker.' 
'' See Exchange Rule 16.1(a)(38).
    \8\ A BATS Options Transactions is defined as ``a transaction 
involving an options contract that is effected on or through BATS 
Options or its facilities or systems.'' See Exchange Rule 
16.1(a)(11).
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    Thus, while not all Options Members are Clearing Members, all 
Options

[[Page 16476]]

Members require a Clearing Member's consent to clear transactions on 
their behalf (or on behalf of any Sponsored Participants \9\ for which 
the Options Member is a Sponsoring Member \10\) in order to conduct 
business on the Exchange. Each Options Member that transacts through a 
Clearing Member on the Exchange executes a Letter of Guarantee which 
codifies the relationship between the Options Member and the Clearing 
Member and provides the Exchange with notice of which Clearing Members 
have relationships with which Options Members. The Clearing Member that 
guarantees the Options Member's transactions on the Exchange has a 
financial interest in understanding the risk tolerance of the Options 
Member. The proposal would provide the Exchange with authority to 
directly provide Clearing Members with information that may otherwise 
be available to such Clearing Members by virtue of their relationship 
with the respective Users.
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    \9\ A Sponsored Participant is defined as ``a person which has 
entered into a sponsorship arrangement with a Sponsoring Member 
pursuant to Rule 11.3. See Exchange Rule 1.5(x).
    \10\ A Sponsoring Member is defined as ``a broker-dealer that 
has been issued a membership by the Exchange who has been designated 
by a Sponsored Participant to execute, clear and settle transactions 
resulting from the System. The Sponsoring Member shall be either (i) 
a clearing firm with membership in a clearing agency registered with 
the Commission that maintains facilities through which transactions 
may be cleared or (ii) a correspondent firm with a clearing 
arrangement with any such clearing firm.'' See Exchange Rule 1.5(y).
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    At this time, the risk settings covered by this proposal are set 
forth in Rule 21.16, entitled Risk Monitor Mechanism.\11\ The Exchange 
may adopt additional rules providing for Options Member designated risk 
settings other than those provided in Rule 21.16 that could be shared 
with an Options Member's Clearing Member under the proposal and the 
Exchange would announce these additional risk settings by issuing a 
Trade Desk Notice.
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    \11\ See Exchange Rule 21.16.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of section 6(b) of the Act.\12\ In particular, 
the proposal is consistent with section 6(b)(5) of the Act \13\ because 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change will allow the Exchange to directly 
provide an Options Member's designated risk settings to the Clearing 
Member that clears trades on behalf of the Options Member. Because a 
Clearing Member that executes a clearing Letter of Guarantee on behalf 
of an Options Member guarantees all transactions of that Options 
Member, and therefore bears the risk associated with those 
transactions, it is appropriate for the Clearing Member to have 
knowledge of what risk settings the Options Member may utilize within 
the Trading System.\14\ The proposal will permit Clearing Members who 
have a financial interest in the risk settings of Options Members with 
whom the Clearing Participant has entered into a Letter of Guarantee to 
better monitor and manage the potential risks assumed by Clearing 
Members, thereby providing Clearing Members with greater control and 
flexibility over setting their own risk tolerance and exposure and 
aiding Clearing Members in complying with the Act. To the extent a 
Clearing Member might reasonably require an Options Member to provide 
access to its risk setting as a prerequisite to continuing to clear 
trades on the Options Member's behalf, the Exchange's proposal to share 
those risk settings directly reduces the administrative burden on 
Options Members and ensures that Clearing Members are receiving 
information that is up to date and conforms to the settings active in 
the Trading System.
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    \14\ Trading System is defined as ``the automated trading system 
used by BATS Options for the trading of options contracts.'' See 
Exchange Rule 16.1(a)(59).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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

    The foregoing rule change has been filed by the Exchange as a 
``non-controversial'' rule change pursuant to section 19(b)(3)(A)(i) of 
the Act \15\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\16\ 
Consequently, 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 was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(i).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 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) \19\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ 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 the Exchange may 
allow Clearing Members to immediately monitor and manage the potential 
risks assumed by Options Members. The

[[Page 16477]]

Exchange notes that this functionality is already available on other 
exchanges. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because it will allow the Exchange's Clearing Members to 
monitor and manage potential risks in a timely manner. Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change to be operative upon filing with the 
Commission.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the operative delay for this 
proposal, 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 may summarily temporarily suspend such rule 
change if it appears to the Commission that such action is: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) 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 proposal 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-2015-22 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-2015-22. 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 will also 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-2015-22 and should be 
submitted on or before April 17, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-06994 Filed 3-26-15; 8:45 am]
 BILLING CODE 8011-01-P


