
[Federal Register Volume 80, Number 128 (Monday, July 6, 2015)]
[Notices]
[Pages 38496-38498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16414]



[[Page 38496]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75324; File No. SR-BATS-2015-47]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.9 of BATS Exchange, Inc., To Modify its Price Adjust 
Functionality

June 29, 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 June 16, 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 11.9 to modify the 
Exchange's Price Adjust functionality, as described below.
    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 currently offers various forms of sliding, which, in 
all cases, result in the re-pricing of an order to, or ranking and/or 
display of an order at, a price other than an order's limit price in 
order to comply with applicable securities laws and/or Exchange rules. 
Specifically, the Exchange currently offers price sliding to ensure 
compliance with Regulation NMS and Regulation SHO. Price sliding 
currently offered by the Exchange re-prices and displays an order upon 
entry and in certain cases again re-prices and re-displays an order at 
a more aggressive price one time if and when permissible (``single 
display-price sliding''), and optionally continually re-prices an order 
(``multiple display-price sliding'') based on changes in the national 
best bid (``NBB'') or national best offer (``NBO'', and together with 
the NBB, the ``NBBO''). The Exchange proposes to modify one form of 
price sliding offered by the Exchange, the Price Adjust process, as 
described below, in order to align more closely with the Exchange's 
other form of price sliding, the display-price sliding process.
    The Exchange's display-price sliding functionality is designed to 
avoid locking or crossing other markets' Protected Quotations, but does 
not price slide to avoid executions on the Exchange's order book 
(``BATS Book''). Specifically, when the Exchange receives an incoming 
order designated with a display-price sliding instruction that could 
execute against resting displayed liquidity on the BATS Book, it will 
execute against such liquidity. However, when an execution against 
resting displayed liquidity does not occur because an incoming order is 
designated as an order that will not remove liquidity (i.e., a BATS 
Post Only Order), then the Exchange will cancel the incoming order. In 
contrast to display-price sliding, which is based solely on Protected 
Quotations \3\ at external markets other than the Exchange, Price 
Adjust is currently based on Protected Quotations at external markets 
and at the Exchange. Under the Price Adjust process, if the Exchange 
has a Protected Quotation that an incoming order to the Exchange locks 
or crosses then such order executes against the resting order, or, if 
the incoming order is a BATS Post Only Order or Partial Post Only at 
Limit Order, such order would be executed in accordance with Rules 
11.9(c)(6) and (c)(7), respectively,\4\ or would be adjusted pursuant 
to the Price Adjust process. The Exchange proposes to modify the Price 
Adjust process so that it is applicable only with respect to quotations 
of external markets, which, as noted above, is how the display-price 
sliding process currently operates on the Exchange.
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    \3\ As defined in BATS Rule 1.5(t), a ``Protected Quotation'' is 
``a quotation that is a Protected Bid or Protected Offer.'' In turn, 
the term ``Protected Bid'' or ``Protected Offer'' means ``a bid or 
offer in a stock that is (i) displayed by an automated trading 
center; (ii) disseminated pursuant to an effective national market 
system plan; and (iii) an automated quotation that is the best bid 
or best offer of a national securities exchange or association.''
    \4\ The Exchange notes that BATS Post Only Orders are permitted 
to remove liquidity from the BATS Book if the value of price 
improvement associated with such execution equals or exceeds the sum 
of fees charged for such execution and the value of any rebate that 
would be provided if the order posted to the BATS Book and 
subsequently provided liquidity. See Rule 11.9(c)(6). Similarly, 
Partial Post Only at Limit Orders are permitted to remove price 
improving liquidity as well as a User-selected percentage of the 
remaining order at the limit price if, following such removal, the 
order can post at its limit price. See Rule 11.9(c)(7).
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    As proposed, under the Price Adjust process, an order eligible for 
display by the Exchange that, at the time of entry, would create a 
violation of Rule 610(d) of Regulation NMS by locking or crossing a 
Protected Quotation of an external market will be ranked and displayed 
by the System at one minimum price variation below the current NBO (for 
bids) or to one minimum price variation above the current NBB (for 
offers). However, as is true for the current display-price sliding 
process, the Price Adjust process would not adjust the price of a BATS 
Post Only Order or Partial Post Only at Limit Order that would lock or 
cross an order displayed by the Exchange but rather, would either 
execute \5\ or cancel such order upon entry. Further, to the extent the 
NBBO changes such that a BATS Post Only Order subject to the Price 
Adjust process would be ranked at a price at which it could remove 
displayed liquidity from the BATS Book, the order will be executed as 
set forth in Rule 11.9(c)(6) or cancelled.
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    \5\ See id.
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    As an example of the Price Adjust process, assume the Exchange has 
a posted and displayed bid to buy 100 shares of a security priced at 
$10.10 per share and a posted and displayed offer to sell 100 shares at 
$10.11 per share. Assume the NBBO is $10.10 by $10.11, which includes 
an offer of $10.11 displayed by at least one other market.
     Under the current functionality, if the Exchange receives 
a Post Only bid to buy 100 shares at $10.11 per share with a Price 
Adjust instruction the Exchange will rank and display the order to buy 
at $10.10 because displaying the bid at $10.11 would lock the offer to 
sell for $10.11 displayed by the Exchange (as well as one or more 
external markets).

[[Page 38497]]

     As proposed, however, if the Exchange receives a Post Only 
bid to buy 100 shares at $10.11 per share with a Price Adjust 
instruction the Exchange will cancel the order back because displaying 
the bid at $10.11 would lock the offer to sell for $10.11 displayed by 
the Exchange (as well as one or more external markets) and the 
Exchange's Price Adjust functionality would no longer price slide past 
a displayed order resting on the Exchange.
     Assume however, that all facts are the same as the 
immediately preceding example except that the Exchange's best offer is 
displayed at $10.12. Because an incoming Post Only bid to buy 100 
shares at $10.11 could be displayed by the Exchange but would lock the 
Protected Quotation of one or more external markets at that price, the 
Exchange would re-price and display the order to buy at $10.10.
    In addition to the change proposed above, the Exchange proposes to 
correct two aspects of the Exchange's current rule regarding the 
display-price sliding process. First, the Exchange proposes to modify 
Rule 11.9(g)(1)(D), which states that ``any'' display-eligible BATS 
Post Only Order or Partial Post Only at Limit order that locks or 
crosses a Protected Quotation displayed by an external market upon 
entry will be subject to the display-price sliding process. Because an 
order can also be subject to the Price Adjust process or no price 
sliding option at all, the Exchange proposes to instead start this 
provision with ``depending on User instructions.'' The Exchange 
proposes to use this same language in the proposed revision to Rule 
11.9(g)(2)(D) with respect to Price Adjust. Second, the Exchange 
proposes to modify the cross-reference at the end of Rule 11.9(g)(2)(D) 
from 11.9(c)(7) to 11.9(c)(6) to accurately refer to the rule 
applicable to BATS Post Only Orders.
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'') 
\6\ and further the objectives of section 6(b)(5) of the Act \7\ 
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) \8\ of the Act in that it seeks to 
assure fair competition among brokers and dealers and among exchange 
markets.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78k-1(a)(1).
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    The Exchange believes that the proposed change to Price Adjust is 
consistent with section 6(b)(5) of the Act,\9\ as well as Rule 610 of 
Regulation NMS \10\ and Rule 201 of Regulation SHO.\11\ The Exchange is 
not modifying the overall functionality of Price Adjust, which is 
designed to avoid locking or crossing quotations of other market 
centers or to comply with applicable short sale restrictions. Instead, 
the Exchange is proposing changes to Price Adjust to more closely 
mirror the display-price sliding process, such that neither form of 
price sliding functionality adjusts the price of an order to avoid 
locking or crossing an order displayed by the Exchange, and instead, 
such an order will either be cancelled or executed by the Exchange. As 
noted above, in contrast to display-price sliding, which is based 
solely on Protected Quotations of external markets, the Price Adjust 
process is currently based on Protected Quotations at external markets 
and at the Exchange.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 17 CFR 242.610.
    \11\ 17 CFR 242.201.
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    Rule 610(d) requires exchanges to establish, maintain, and enforce 
rules that require members reasonably to avoid ``[d]isplaying 
quotations that lock or cross any protected quotation in an NMS 
stock.'' \12\ Such rules must be ``reasonably designed to assure the 
reconciliation of locked or crossed quotations in an NMS stock,'' and 
must ``prohibit . . . members from engaging in a pattern or practice of 
displaying quotations that lock or cross any protected quotation in an 
NMS stock.'' \13\ The Price Adjust process, as amended will continue to 
assist Users by displaying orders at permissible prices or rejecting 
them if the Exchange has displayed liquidity that would preclude their 
display. Similarly, Rule 201 of Regulation SHO \14\ requires trading 
centers to establish, maintain, and enforce written policies and 
procedures reasonably designed to prevent the execution or display of a 
short sale order at a price at or below the current NBB under certain 
circumstances. The Exchange's short sale price sliding will continue to 
operate the same for Users of Price Adjust as it does for Users that 
select the display-price sliding process offered by the Exchange.
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    \12\ 17 CFR 242.610(d).
    \13\ Id.
    \14\ 17 CFR 242.201.
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    Thus, if the Exchange has a Protected Quotation that an incoming 
order to the Exchange locks or crosses then such incoming order will 
execute against the resting order, or, if the incoming order is a BATS 
Post Only Order or Partial Post Only at Limit Order, such order would 
be executed in accordance with Rules 11.9(c)(6) and (c)(7), 
respectively, or cancelled. The Exchange believes that it is reasonable 
and consistent with the Act to cancel orders on entry that cannot 
executed or displayed at their limit price because this is consistent 
with display-price sliding functionality. Therefore, the Exchange 
believes the proposal to apply the Price Adjust process to orders that 
cannot be displayed because they would lock or cross displayed contra-
side interest on the Exchange will promote just and equitable 
principles of trade, remove impediments to, and perfect the mechanism 
of, a free and open market and a national market system. The Exchange 
also reiterates that the proposed change to the Price Adjust process 
will continue to enable the System to avoid displaying a locking or 
crossing quotation in order to ensure compliance with Rule 610(d) of 
Regulation NMS.

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 proposed 
rule change is being proposed as minor modification to functionality 
offered by the Exchange that will ensure that the Exchange's Price 
Adjust process is consistent with the display-price sliding process 
offered by the Exchange today.

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 designated this rule filing as non-controversial 
under section 19(b)(3)(A) of the Act \15\ and paragraph (f)(6) of Rule 
19b-4 thereunder.\16\ The

[[Page 38498]]

proposed rule change effects a change that (A) does not significantly 
affect the protection of investors or the public interest; (B) does not 
impose any significant burden on competition; and (C) by its terms, 
does not become operative for 30 days after the date of the filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
self-regulatory organization has given 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 
provided the Commission with 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 
this filing.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii), 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 BATS may 
implement the proposed rule change immediately. The Exchange has 
represented that it has alerted its Members of the proposed change \18\ 
and that those currently utilizing Price Adjust functionality would not 
need to make any system changes in connection with the proposed change. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will align the display-price sliding functionality and Price Adjust 
functionality and help harmonize the Exchange's rulebook. Therefore, 
the Commission hereby waives the 30-day operative delay and designates 
the proposed rule change to be operative upon filing with the 
Commission.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ See BATS Trade Desk Notice dated May 19, 2015, ``BATS 
Update to Post Only Price Adjust Logic Effective Friday, June 19, 
2015 on BZX,'' available at www.batstrading.com/alerts under Release 
Notes.
    \19\ 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 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-2015-47 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-BATS-2015-47. 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 offices 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-2015-47, 
and should be submitted on or before July 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16414 Filed 7-2-15; 8:45 am]
 BILLING CODE 8011-01-P


