
[Federal Register Volume 81, Number 31 (Wednesday, February 17, 2016)]
[Notices]
[Pages 8112-8118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03128]



[[Page 8112]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77105; File No. SR-BATS-2015-102]


Self-Regulatory Organizations: BATS Exchange Inc.; Notice of 
Filing of Partial Amendment No. 2 and Order Granting Accelerated 
Approval to a Proposed Rule Change, as Modified by Partial Amendment 
No. 2, To Adopt Rule 11.27 Regarding the Data Collection Requirements 
of the Tick Size Pilot

February 10, 2016.

I. Introduction

    On November 13, 2015, BATS Exchange, Inc. (``BATS'' or 
``Exchange'') filed with Securities and Exchange Commission (``SEC'' or 
``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed 
rule change to adopt rules related to the data collection requirements 
set forth in the Regulation NMS Plan (``Plan'') to Implement a Tick 
Size Pilot Program (``Tick Size Pilot'').\3\ The proposed rule change 
was published for comment in the Federal Register on December 1, 
2015.\4\ The Commission has received one comment letter in response to 
the Notice and a response letter from BATS.\5\ On January 13, 2016, the 
Commission designated a longer period for Commission action on the 
proposal.\6\ On February 4, 2016, BATS filed Partial Amendment No. 2 to 
the proposal.\7\ This order approves the proposed rule change, as 
modified by Partial Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (order approving the Tick Size Pilot) 
(``Approval Order'').
    \4\ See Securities Exchange Act Release No. 76524 (November 25, 
2015), 80 FR 75141 (``Notice'').
    \5\ See Letters from Mary Lou Von Kaenel, Managing Director, 
Financial Information Forum dated December 4, 2015, to Robert W. 
Errett, Deputy Secretary, Commission (``FIF Letter''), and Chris 
Solgan, Associate General Counsel, BATS Exchange, Inc. dated 
February 1, 2015 to Brent J. Fields, Secretary, Commission (``BATS 
Response Letter'').
    \6\ See Securities Exchange Act Release No. 76891, 81 FR 3218 
(January 20, 2016).
    \7\ In Partial Amendment No. 2, BATS amends (1) proposed Rule 
11.24(b)(4)(A) by deleting an erroneous cross-reference and 
replacing the phrase ``pipe-delineated'' with the phrase ``required 
by their DEA'' and (2) proposed Rule 11.27.03 by replacing the 
phrase ``dually listed securities'' with ``securities that trade in 
a foreign market.'' On February 1, 2016, BATS filed Partial 
Amendment No. 1 to the proposal and subsequently withdrew Partial 
Amendment No. 1.
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II. Background

    On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange, 
Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory 
Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq 
Stock Market LLC (``Nasdaq''), New York Stock Exchange LLC (``NYSE''), 
NYSE MKT LLC, and NYSE Arca, Inc. (collectively ``Participants''), 
filed with the Commission, pursuant to Section 11A of the Act \8\ and 
Rule 608 of Regulation NMS thereunder,\9\ the Plan to Implement the 
Tick Size Pilot.\10\ The Participants filed the Plan to comply with an 
order issued by the Commission on June 24, 2014.\11\ The Plan was 
published for comment in the Federal Register on November 7, 2014,\12\ 
and approved by the Commission, as modified, on May 6, 2015.\13\ On 
November 6, 2015, the Commission issued an exemption to the 
Participants from implementing the Plan until October 3, 2016.\14\
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    \8\ 15 U.S.C. 78k-1.
    \9\ 17 CFR 242.608.
    \10\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \11\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \12\ See Securities Exchange Act Release No. 73511 (November 3, 
2014), 79 FR 66423.
    \13\ See Approval Order, supra note 3.
    \14\ See Securities Exchange Act Release No. 76382, 80 FR 70284 
(November 13, 2015).
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    The Tick Size Pilot is designed to allow the Commission, market 
participants, and the public to study and assess the impact of 
increment conventions on the liquidity and trading of the common stocks 
of certain small-capitalization companies. Each Participant is required 
to comply, and to enforce compliance by its members, as applicable, 
with the provisions of the Plan.\15\ In addition to developing quoting 
and trading requirements for the Tick Size Pilot, the Plan requires 
Participants to collect and submit to the Commission a variety of data, 
including market quality statistics and market maker participation 
statistics and profitability data.\16\ BATS has filed the proposed rule 
change, as modified by Partial Amendment No. 2, to require its members 
to comply with the applicable data collection requirements of the Plan 
and to provide interpretive guidance and clarification of certain data 
collection provisions.\17\
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    \15\ Rule 608(c) of Regulation NMS. 17 CFR 242.608(c). See also 
Plan Sections II.B. and IV.
    \16\ The data collection requirements for the Plan are specified 
in Appendices B and C. See Approval Order, 80 FR at 27552--53, supra 
note 3.
    \17\ FINRA, on behalf of the Plan Participants submitted a 
letter to Commission requesting exemption from certain provisions of 
the Plan related to data collection. See letter from Marcia E. 
Asquith, Senior Vice President and Corporate Secretary, FINRA dated 
December 9, 2015 to Robert W. Errett, Deputy Secretary, Commission 
(``Exemption Request''). The Commission, pursuant to its authority 
under Rule 608(e) of Regulation NMS, has granted BATS a limited 
exemption from the requirement to comply with certain provisions of 
the Plan as specified in the letter and noted herein. See letter 
from David Shillman, Associate Director, Division of Trading and 
Markets, Commission to Eric Swanson, General Counsel, BATS, dated 
February 10, 2016 (``SEC Exemption Letter'').
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III. Description of the Proposed Rule Change, as Modified by Partial 
Amendment No. 2

    BATS proposes Rule 11.27(b) to establish the rules necessary for 
compliance with applicable data collection and transmission 
requirements of the Plan. In addition, proposed Rule 11.27(b) contains 
Interpretations and Policies designed to clarify certain aspects of the 
data collection requirements.

A. Rule Text for Proposed Rule 11.27(b)

    The Exchange proposes Rule 11.27(b) \18\ to facilitate compliance 
with the data collection and transmission requirements set forth by 
Appendices B and C of the Plan. Proposed Rule 11.27(b)(1) provides that 
a BATS member that operates a Trading Center \19\ shall establish, 
maintain and enforce written policies and procedures that are 
reasonably designed to comply with the data collection and transmission 
requirements of Items I and II to Appendix B of the Plan, and a BATS 
member that is a Market Maker shall establish, maintain and enforce 
written policies and procedures that are reasonably designed to comply 
with the data collection and transmission requirements of Item IV of 
Appendix B of the Plan and Item I of Appendix C of the Plan.
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    \18\ BATS has proposed Rule 11.27(a) to establish rules related 
to the quoting and trading requirements of the Plan. See Securities 
Exchange Act Release No. 76552 (December 3, 2015), 80 FR 76591 
(December 9, 2015). On January 21, 2016, the Commission extended the 
period for Commission action to March 8, 2016. See Securities 
Exchange Release Act No. 76945, 81 FR 4734 (January 27, 2016).
    \19\ Capitalized terms used in this Order are defined in the 
Plan, unless otherwise specified herein.
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    Proposed Rule 11.27(b)(2) provides that the Exchange shall collect 
and transmit to the SEC the data described in Items I and II of 
Appendix B of the Plan relating to trading activity in Pre-

[[Page 8113]]

Pilot Data Collection Securities \20\ and Pilot Securities on a Trading 
Center Operated by the Exchange. Proposed Rule 11.27(b)(2) also 
provides that the Exchange shall transmit such data to the SEC in a 
pipe-delimited format, on a disaggregated basis by Trading Center, 
within 30 calendar days following month end for: (i) Each Pre-Pilot 
Data Collection Security for the period beginning six months prior to 
the Pilot Period through the trading day immediately preceding the 
Pilot Period (``Pre-Pilot Period''); and (ii) each Pilot Security for 
the period beginning on the first day of the Pilot Period through six 
months after the end of the Pilot Period. Proposed Rule 11.27(b)(2) 
also provides that the Exchange shall make such data publicly available 
on the Exchange Web site on a monthly basis at no charge and will not 
identify the member that generated the data.\21\
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    \20\ As discussed herein, BATS proposes to establish data 
collection requirements for securities designated as Pre-Pilot Data 
Collection Securities for the period that begins six months prior to 
the Pilot Period.
    \21\ BATS has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
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    The Exchange proposes Rule 11.27(b)(3) related to daily Market 
Maker participation statistics to facilitate compliance with Appendix 
B.IV of the Plan. Proposed Rule 11.27(b)(3)(A) provides that a BATS 
member that is a Market Maker shall collect and transmit to their 
Designated Examining Authority (``DEA'') data relating to Item IV of 
Appendix B of the Plan, with respect to activity conducted on any 
Trading Center in Pre-Pilot Data Collection Securities and Pilot 
Securities in furtherance of its status as a registered Market Maker, 
including a Trading Center that executes trades otherwise than on a 
national securities exchange, for transactions that have settled or 
reached settlement dates. Proposed Rule 11.27(b)(3)(A)(i) would also 
require that Market Makers transmit such data in a format required by 
their DEA by 12:00 p.m. EST on T+4: (i) For transactions in each Pre-
Pilot Data Collection Security for the Pre-Pilot Period; and (ii) for 
transactions in each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period.
    Proposed Rule 11.27(b)(3)(B) provides that the Exchange shall 
transmit the data collected by the DEA pursuant to Rule 11.27(b)(3)(A) 
relating to Market Maker activity on a Trading Center operated by the 
Exchange to the SEC in a pipe-delimited format within 30 calendar days 
following month end.\22\ Proposed Rule 11.27(b)(3)(B) provides that the 
Exchange shall also make such data publicly available on the Exchange 
Web site on a monthly basis at no charge and shall not identify the 
Trading Center that generated the data.\23\
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    \22\ BATS has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
    \23\ BATS has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
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    The Exchange proposes Rule 11.27(b)(4) related to Market Maker 
profitability to facilitate the data collection and transmission 
requirements of Appendix C.I of the Plan. Proposed Rule 11.27(b)(4)(A) 
requires a BATS member that is a Market Maker shall collect and 
transmit to their DEA the data described in Item I of Appendix C of the 
Plan with respect to executions of Pilot Securities on any Trading 
Center that have settled or reached the settlement date.\24\ Proposed 
Rule 11.27(b)(4)(A) also requires BATS members that are Market Makers 
to provide such data in a format required by their DEA by 12:00 p.m. 
EST on T+4 for executions during and outside of Regular Trading Hours 
in each: (i) Pre-Pilot Data Collection Security for the Pre-Pilot 
Period; and (ii) Pilot Security for the period beginning on the first 
day of the Pilot Period through six months after the end of the Pilot 
Period.
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    \24\ See Partial Amendment No. 2, supra note 7.
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    The Exchange proposes Rule 11.27(b)(5) related to the daily Market 
Maker registration statistics to facilitate compliance with Appendix 
B.III of the Plan. Proposed Rule 11.27(b)(5) provides that the Exchange 
shall collect and transmit to the SEC the data described in Item III of 
Appendix B of the Plan relating to daily Market Maker registration 
statistics in pipe-delimited format within 30 calendar days following 
month end: (i) For transactions in each Pre-Pilot Data Collection 
Security for Pre-Pilot Period; and (ii) for transactions in each Pilot 
Security for the period beginning on the first day of the Pilot Period 
through six months after the end of the Pilot Period.

B. Interpretations and Policies Under Proposed Rule 11.27(b)

    The Exchange proposes Interpretations and Policies under proposed 
Rule 11.27(b) in order to clarify certain aspects related to the data 
collection and transmission requirements of the Plan.
    Proposed Interpretations and Policy .01 provides that, unless 
otherwise specified, the terms used in proposed Rule 11.27 shall have 
the same meaning as provided in the Plan.
    Proposed Interpretations and Policy .02 relates to the 
identification of Retail Investor Orders for purposes of Appendix 
B.II(n) reporting. The Plan provides that market and Marketable Limit 
Order Retail Investor Orders shall be identified in a separate field 
with a ``Y/N.'' The Exchange proposes in Interpretations and Policy .02 
to clarify that, for purposes of the reporting requirement in Appendix 
B.II(n), a Trading Center shall report ``Y'' to their DEA for those 
Retail Investor Orders that rely on the exceptions to Test Groups Two 
and Three, and ``N'' for all other instances.\25\
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    \25\ BATS has requested an exemption from the Plan related to 
the provision. See Exemption Request, supra note 17.
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    Proposed Interpretations and Policy .03 proposes to include a 
field, ``Affected by Limit-Up Limit-Down bands'' for purposes of 
Appendix B.I. Proposed Rule Interpretations and Policy 03 specifies 
that a Trading Center shall report ``Y'' to its DEA when the ability of 
an order to execute has been affected by the Limit-Up Limit-Down 
(``LULD'') band \26\ in effect at the time of order receipt, and shall 
report a value of ``N'' to its DEA when the ability of an order to 
execute has not been affected by the LULD bands in effect at the time 
of order receipt. In addition, proposed Rule Interpretations and Policy 
03 provides that the Participants shall classify all orders that may 
trade in a foreign market as: (1) Fully executed domestically; or (2) 
fully or partially executed on a foreign market.\27\ For the purposes 
of Appendix B.II, proposed Rule Interpetation and Policy 03 sets forth 
that the Participants shall classify all orders in Pilot and Pre-Pilot 
Data Collection Securities that may trade in a foreign market as: (1) 
Directed to a domestic venue for execution; (2) may only be directed to 
a foreign venue for execution; or (3) was fully or partially directed 
to a foreign venue at the discretion of the member.\28\
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    \26\ See National Market System Plan to Address Extraordinary 
Market Volatility, Securities Exchange Act Release No. 67091 (May 
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up 
Limit-Down Plan'').
    \27\ See Partial Amendment No. 2, supra note 7.
    \28\ See Partial Amendment No. 2, supra note 7.
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    In proposed Interpretation and Policy .04, BATS proposes to modify 
the reporting requirements under Appendix B.I.a(14), B.I.a(15), 
B.I.a(21) and B.I.a(22).\29\ Specifically, BATS proposes

[[Page 8114]]

the following: Appendix B.I.a(14A): The cumulative number of shares of 
orders executed from 100 microseconds to less than 1 millisecond after 
the time of order receipt; Appendix B.I.a(15): The cumulative number of 
shares of orders executed from 1 millisecond to less than 100 
milliseconds after the time of order receipt; Appendix B.I.a(21A): The 
cumulative number of shares of orders canceled from 100 microseconds to 
less than 1 millisecond after the time of order receipt; and Appendix 
B.I.a(22): The cumulative number of shares of orders canceled from 1 
millisecond to less than 100 milliseconds after the time of order 
receipt.\30\
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    \29\ Appendix B.I.a(14) requires reporting of the cumulative 
number of shares of orders executed from 0 to less than 100 
microseconds after the time of order receipt; Appendix B.Ia(15) 
requires reporting of the cumulative number of shares or orders 
executed from 100 microseconds to less than 100 milliseconds after 
the time of order receipt; Appendix B.I.a(21) requires reporting of 
the cumulative number of shares of orders cancelled from 0 to less 
than 100 microseconds after the time of order receipt; and Appendix 
B.I.a(22) requires reporting of the cumulative number of shares or 
orders cancelled from 100 microseconds to less than 100 milliseconds 
after the time of order receipt.
    \30\ BATS has requested an exemption from the Plan related to 
these provisions. See Exemption Request, supra note 17.
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    Proposed Interpretation and Policy .05 changes the time of 
calculating certain data to the time of order receipt, instead of the 
time of order execution, as currently set forth by Appendix B.I.a(31)-
(33).\31\
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    \31\ BATS has requested an exemption from the Plan related to 
these provisions. See Exemption Request, supra note 17.
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    Proposed Interpretation and Policy .06 specifically identifies 
certain order types for purposes of reporting under Appendix B of the 
Plan (with numbers for reporting). In particular, not held orders, 
assigned the number (18); clean cross orders, assigned the number (19); 
auction orders, assigned the number (20); and orders that cannot 
otherwise be classified, including orders received when the NBBO is 
crossed, assigned the number (21) shall be identified in the data 
reports.
    Proposed Interpretation and Policy .07 sets forth that, for 
purposes of Appendix B of the Plan, the Exchange would not deem a 
member to be a Trading Center where that member only executes orders 
otherwise on a national securities exchange for the purpose of: (i) 
Correcting a bona fide error related to the execution of a customer 
order; (ii) purchasing a security from a customer at a nominal price 
solely for the purposes of liquidating the customer's position; or 
(iii) completing the fractional share portion of an order.\32\
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    \32\ The Exchange noted that where a member purchases a 
fractional share from a customer, the Trading Center that executes 
the remaining whole shares of that customer order would be subject 
to proposed Rule 11.27 and need to report pursuant to Appendix B of 
the Plan.
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    Proposed Interpretation and Policy .08 sets forth that April 4, 
2016 is the date a Trading Center must begin the data collection 
pursuant to the Plan; and that the Exchange or a Trading Center's DEA 
must provide information to the SEC within 30 days following month end 
and make certain data publicly available pursuant to Appendix B and C 
of the Plan shall commence at the beginning of the Pilot Period.\33\
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    \33\ BATS has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
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    Proposed Interpretation and Policy .09 specifies that for purposes 
of Appendix C.I., Participants shall calculate daily Market Maker 
realized profitability statistics for each trading day on a daily last 
in first out (LIFO) basis using reported trade price and shall include 
only trades executed on the subject trading day.\34\ Further, the daily 
LIFO calculation shall not include any positions carried over from 
previous trading days. In addition, proposed Interpretation and Policy 
.09 provides that for purposes of Item I.c of Appendix C, the 
Participants shall calculate daily Market Maker unrealized 
profitability statistics for each trading day on an average price 
basis. Specifically, Participants will calculate the volume-weighted 
average price of the excess (deficit) of buy volume over sell volume 
for the current trading day using reported trade price. The gain (loss) 
of the excess (deficit) of buy volume over sell volume will be 
determined by using the volume weighted average price compared to the 
closing price of the security as reported by the primary listing 
exchange. Proposed Interpretation and Policy .09 also provides that in 
calculating unrealized trading profits, the Participant shall also 
report the number of excess (deficit) shares held by the Market Maker, 
the volume weighted average price of that excess (deficit) and the 
closing price of the security as reported by the primary listing 
exchange used in reporting unrealized profit.
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    \34\ BATS has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
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    Proposed Interpretation and Policy .10 defines ``Pre-Pilot Data 
Collection Securities'' as the securities designated by the 
Participants for purposes of the data collection requirements described 
in Items I, II, III and IV of Appendix B and Item I of Appendix C of 
the Plan for the Pre-Pilot Period. Proposed Interpretation and Policy 
.10 provides that the Participants shall compile the list of Pre-Pilot 
Data Collection Securities by selecting all NMS stocks with (1) a 
market capitalization of $5 billion or less, (2) a Consolidated Average 
Daily Volume (CADV) of 2 million shares or less and (3) a closing price 
of $1 per share or more. The market capitalization and the closing 
price thresholds shall be applied to the last day of the Pre-Pilot 
measurement period, and the CADV threshold shall be applied to the 
duration of the Pre-Pilot measurement period. Further, the Pre-Pilot 
measurement period shall be the three calendar months ending on the day 
when the Pre-Pilot Data Collection Securities are selected. Finally, 
the Pre-Pilot Data Collection Securities shall be selected thirty days 
prior to the commencement of the six-month Pre-Pilot Period.
    Proposed Interpretation and Policy .11 specifies that the 
effectiveness of proposed Rule 11.27 would coincide with the pilot 
period for the Plan, including any extensions.

IV. Discussion and Commission Findings

    After careful review of the proposal and the comment letter, the 
Commission finds that the proposed rule change, as modified by Partial 
Amendment No. 2, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\35\ Specifically, the Commission finds that the proposed rule 
change is consistent with the requirements of section 6(b)(5) of the 
Act,\36\ which requires, among other things, that the Exchange's rules 
be designed to prevent fraudulent and manipulative acts and practices, 
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, and, in general, to protect investors and the 
public interest; and are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers. In addition, the 
Commission finds that the proposed rule change is consistent with the 
requirements of section 6(b)(8) of the Act,\37\ which requires that the 
Exchange's rules not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \35\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78f(b)(8).
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    The Commission has previously stated that the Tick Size Pilot set 
forth in the Plan should provide a data-driven

[[Page 8115]]

approach to evaluate whether certain changes to the market structure 
for Pilot Securities would be consistent with the Commission's mission 
to protect investors, maintain fair, orderly, and efficient markets, 
and facilitate capital formation.\38\ As discussed below, the 
Commission believes that BATS's proposal is consistent with the 
requirements of the Act, and would further the purpose of the Plan to 
provide measurable data.
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    \38\ See Approval Order, 80 FR at 27515-16, supra note 3.
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    BATS, as a Participant in the Plan, has an obligation to comply, 
and enforce compliance by its members, with the terms of the Plan. Rule 
608(c) of Regulation NMS provides that ``[e]ach self-regulatory 
organization shall comply with the terms of any effective national 
market system plan of which it is a sponsor or participant. Each self-
regulatory organization also shall, absent reasonable justification or 
excuse, enforce compliance with any such plan by its members and 
persons associated with its members.'' \39\ BATS proposed Rule 11.27(b) 
would impose compliance obligations on its members with the data 
collection requirements set forth in Appendices B and C to the Plan. 
The Commission also believes the proposal is consistent with the Act 
because it is designed to assist BATS in meeting its regulatory 
obligations pursuant to and Rule 608(c) of Regulation NMS \40\ and the 
Plan.\41\
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    \39\ 17 CFR 242.608(c).
    \40\ 17 CFR 242.608(c).
    \41\ Sections II.B and IV of the Plan each require Participants 
to comply with, and enforce compliance by its members, with the 
Plan. See Approval Order, 80 FR at 27548, supra note 3.
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A. Proposed Rule 11.27(b) \42\
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    \42\ In its comment letter, FIF expressed its assumption that 
this proposed rule change would be a template for other Participants 
that will also have to establish rules for member compliance with 
the data collection and reporting provisions of the Plan. The FIF 
emphasized that it was important that the rules of the Participants 
work together to avoid conflict and noted that the FINRA Data 
Collection Proposal appeared to be in alignment with the instant 
proposal. FIF noted that its comment letter sought to raise points 
specific to this filing, and reinforce other relevant points 
relevant to this proposal that were previously raised in its comment 
letter related to File No. SR-FINRA-2015-048 (``FINRA Data 
Collection Proposal''). See FIF Letter at 1, supra note 5.
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    BATS proposes Rule 11.27(b)(1) that provides that a BATS member 
that operates as a Trading Center must establish, maintain and enforce 
written policies and procedures that are reasonably designed to meet 
the requirements under Appendix B.I and B.II of the Plan, and that a 
BATS member that is a Market Maker must establish, maintain and enforce 
written policies and procedures that are that are reasonably designed 
to meet the requirements under Appendix B.IV and C.I of the Plan.\43\ 
The Commission finds that these provisions are consistent with the Act 
because they implement provisions of the Plan.
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    \43\ In its comment letter, FIF requested verification that 
there would be no additional requirements for data submission to 
BATS beyond that which will be reported through FINRA (or another 
DEA) to cover Appendices B and C. See FIF Letter at 2, supra note 5. 
BATS noted that its members would not be required to provide 
additional information to BATS other than that required to be 
reported to its DEA related to Appendices B and C. See BATS Response 
Letter at 5, supra note 5.
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    BATS proposes Rule 11.27(b)(2), related to trading activity in Pre-
Pilot Data Collection Securities and Pilot Securities on a Trading 
Center operated by the Exchange, to meet the data collection and 
transmission requirements of Appendix B.I and B.II of the Plan. In its 
comment letter, FIF expressed confidentiality concerns with respect to 
the possibility that data made publicly available by BATS could 
potentially be reverse engineered such that the counterparties of a 
trade could be identified. FIF stated that because some Pilot 
Securities are thinly traded by a limited number of market participants 
the identifying characteristics related to the data, even if 
unattributed, could be discerned.\44\ FIF stated that great care to 
ensure confidentiality of detailed information must be taken and 
requested that the industry be enlisted in the defining the form and 
content of the data made publicly available on the Participants' Web 
sites.\45\ BATS, in its response, noted that the Plan, as approved by 
the Commission, sets forth the requirements for the data that is to be 
made publicly available by the Participants and the format in which 
such data shall be made available.\46\ BATS, however, also acknowledged 
member concerns about data confidentiality and stated its intent to 
work diligently to ensure that the data is made available consistent 
with the requirements of the Plan.
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    \44\ FIF Letter at 3, supra note 5.
    \45\ FIF Letter at 3, supra note 5.
    \46\ BATS Response Letter at 7, supra note 5.
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    The Commission notes that the Plan provides for the public 
dissemination of Tick Size Pilot data but states that ``[t]he data made 
publicly available shall not identify the trading center that generated 
the data.'' \47\ The Commission also notes that Participants are 
scheduled to start collecting data on April 4, 2016, but the 
Participants have requested not to make the data publicly available 
until August 30, 2016.\48\ The Commission notes that this could give 
Participants the opportunity to evaluate the data to determine whether 
the FIF's concerns related to the disclosure of the identity of Trading 
Centers exist, and if so whether additional measures are necessary to 
prevent the disclosure of attributed Trading Center data. The 
Commission finds that proposed Rule 11.27(b)(2) is consistent with the 
Act because it implements provisions of the Plan.
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    \47\ This requirement is contained in Section VII.A of the Plan. 
See Approval Order, 80 FR at 27551, supra note 3.
    \48\ See Exemption Request, supra note 17. The Commission notes 
that it has granted BATS a limited exemption from Rule 608(c) of 
Regulation NMS related to this provision. See SEC Exemption Letter, 
supra note 17.
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    BATS proposed Rule 11.27(b)(3) and (b)(4) related, respectively to 
(i) daily Market Maker participation statistics to meet the data 
collection and transmission requirements of Appendix B.IV of the Plan 
and (ii) Market Maker profitability to meet the data collection and 
transmission requirements for Appendix C.I and C.II of the Plan.\49\ In 
its comment letter, FIF relayed the concerns related to Exchange access 
to the disaggregated Market Maker data and the form of its receipt from 
FINRA before publication under these provisions.\50\ Further, FIF 
requested clear assurances that such data would not be used for 
commercial or competitive purposes.\51\ BATS confirmed that it did not 
intend to use the data collected pursuant to the Plan for commercial or 
competitive purposes.\52\
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    \49\ In its comment letter, FIF requested confirmation that a 
firm that becomes a Trading Center or Market Maker during the Pre-
Pilot Period or Pilot Period would not have to retroactively provide 
data. See FIF Letter at 6, supra note 5. BATS, in response, 
clarified that there would be no retroactive reporting requirement 
for Trading Centers that become Market Makers during the Pre-Pilot 
or Pilot Period, and that Market Makers would only need to report 
data on those days for which they trade as a Registered Market 
Maker. See BATS Response Letter at 6, supra note 5.
    \50\ FIF Letter at 3, supra note 5.
    \51\ FIF Letter at 3, supra note 5.
    \52\ See BATS Response Letter at 7, supra note 5.
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    The Commission finds that proposed Rules 11.27(b)(3) and (b)(4) are 
consistent with the Act because they will implement provisions of the 
Plan.
    Rule 11.27(b)(5) provides that the Exchange will collect and 
transmit to the SEC daily Market Maker registration statistics under 
Appendix B.III of the Plan. The Commission finds that this proposal is 
consistent with the Act because it implements provisions of the Plan 
and enhances the utility of the Tick Size Pilot data.

[[Page 8116]]

B. Interpretations and Policies Under Proposed Rule 11.27(b)

    The Exchange also proposes Interpretations and Policies under 
proposed Rule 11.27(b) to clarify certain aspects of the data 
collection requirements in the Plan. The Commission believes that the 
proposed Interpretations and Policies are consistent with the 
requirements of the Act, and should further the purpose of the Plan to 
provide robust, meaningful data that will allow the Commission and the 
public to evaluate the potential impact of the Tick Size Pilot of the 
trading and liquidity of Pilot Securities. Further, the proposed 
Interpretation and Policies should clarify certain aspects of the data 
collection requirement in the Plan, which in turn could serve to 
enhance the quality and utility of the Tick Size Pilot data to be 
collected and analyzed.
    Proposed Interpretation and Policy .01 clarifies that terms used in 
the rule shall have the same meaning as provided in the Plan, unless 
otherwise specified. The Commission believes that this proposed Rule is 
consistent with the Act as it clarifies the language of the BATS rule.
    Proposed Interpretation and Policy .02 clarifies reporting 
obligations with respect to the Retail Investor Orders under Appendix 
B.II.(n).\53\ As proposed, Trading Centers will only be required to 
identify those Retail Investor Orders that rely on the exceptions 
provided in Test Groups Two and Three rather than all orders that may 
satisfy the Retail Investor Order definition. The Commission finds that 
this provision is consistent with the Act because it clarifies existing 
Plan language in a way that maintains the usefulness of the data while 
also reducing implementation costs.\54\
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    \53\ The Commission notes that FIF reiterated its comment to the 
FINRA Data Collection Proposal related to the Retail Investor Order 
flag. See FIF Letter at 4, supra note 5. The Commission believes 
comments related to OATS are specific to the FINRA Data Collection 
Proposal.
    \54\ The Commission notes that it has granted BATS an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
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    Proposed Interpretation and Policy .03 proposes to add a reporting 
field to signify whether the ability of an order to be executed has 
been affected by LULD bands.\55\ In addition, BATS proposes that 
Participants will classify all orders Pilot and Pre-Pilot Data 
Collection Securities that may trade in a foreign market for purposes 
of Appendix B.II.\56\ The Commission finds that these additional 
discrete data reporting elements are consistent with the Act. In 
particular, these provisions should enhance certain Tick Size Pilot 
data elements and provide guidance to reporting Trading Centers.
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    \55\ FIF requested confirmation as to whether FINRA would 
determine whether the Limit-Up Limit-Down flag is applicable. See 
FIF Letter at 4, supra note 5. BATS stated that it does not propose 
to require additional reporting by its members that operate a 
Trading Center beyond what has already been set forth in OATS 
Reporting Technical Specifications published by FINRA.
    \56\ FIF sought confirmation that proposed Interpretation and 
Policy .03 only applied to Participants, and Trading Centers were 
not be responsible for providing such information to the Exchange. 
See FIF Letter at 4, supra note 5. In response, BATS confirmed that 
was the case. However, BATS noted that Trading Centers would be 
required to include information regarding orders routed to foreign 
venues to OATS. See BATS Response Letter at 8, supra note 5.
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    Proposed Interpretation and Policy .04 provides that certain data 
elements should be reported based upon modified time ranges. The 
proposed rules would add finer increments to the Plan reporting 
requirements and isolate microsecond and millisecond reporting 
requirements into separate data elements.\57\ According to the 
Participants, not all Participants or non-Participant Trading Centers 
currently capture or report all orders and trades in either 
microseconds or milliseconds.\58\
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    \57\ In its comment letter, FIF raised concerns about OATS 
reporting capabilities. See FIF Letter at 5, supra note 5. In 
response, BATS stated that it understood that a member would not be 
required to report in an increment of time that is not accepted or 
permitted by FINRA systems. See BATS Response Letter at 8-9, supra 
note 5. The Commission believes comments related to OATS are 
specific to the FINRA Data Collection Filing.
    \58\ See Exemption Request supra note 17.
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    The Commission notes that the proposal merely shifts the time 
reporting elements into separate reporting lines to accommodate 
different reporting capabilities.\59\ The data reported under BATS' 
rule are consistent with the intent of the Plan. Accordingly, the 
Commission finds that the proposal is consistent with the Act.
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    \59\ The Commission notes that it has granted BATS an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
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    Proposed Interpretation and Policy .05 sets forth that certain data 
should be calculated at the time of order receipt instead of the time 
of order execution as currently set forth by Appendix B.I.a(31)-(33). 
In the Exemption Request, the Participants suggested that the time of 
order receipt is more consistent with the goal of observing the effect 
to the Tick Size Pilot on liquidity.\60\ The Commission finds that the 
proposal is consistent with the Act because it should make the data 
more useful for measuring the impact of the Tick Size Pilot.\61\ In 
addition, the Commission notes that the time of order receipt is used 
in other rules for which data is calculated, which should lessen the 
implementation burden for gathering these data elements.\62\
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    \60\ See Exemption Request, supra note 17.
    \61\ The Commission notes that it has granted BATS an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
    \62\ See e.g. 17 CFR 242.605.
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    Proposed Interpretation and Policy .06 clarifies certain reporting 
obligations under Appendix B by requiring that certain additional order 
types (i.e., not held orders, auction orders, and clean cross orders) 
be reported separately in discrete data lines. The Commission believes 
that this proposed rule is consistent with the Act as it clarifies 
existing Plan language. The Commission notes that these orders are 
currently included under Appendix B to the Plan. The Commission 
believes this provision merely clarifies for reporting purposes how 
these orders would be identified, which should facilitate reporting and 
provide for better analysis.\63\
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    \63\ In its comment letter, FIF inquired about the introduction 
of additional new order types that might result in additional data 
collection and reporting requirements under the Plan. See FIF Letter 
at 5, supra note 5. In response, BATS stated that it did not intend 
to propose any new order types for purposes of the Plan, but that it 
did anticipate submitting a proposed rule change to amend the 
operation of certain order types within each Test Group. See BATS 
Response Letter at 10, supra note 5.
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    Proposed Interpretation and Policy .07 sets forth circumstances 
where the Exchange would not deem a member to be a Trading Center for 
purposes of Appendix B of the Plan. Specifically, this provision sets 
forth that members that execute orders over-the-counter for the purpose 
of correcting bona fide errors of customer orders, purchase securities 
from customers at a nominal price solely for the purposes of 
liquidating customers' positions or completing a fractional share 
portion of an order, would not be considered a Trading Center for 
purposes of Appendix B of the Plan. The Commission finds that this 
proposal is consistent with the Act as it further clarifies what is 
required under the Plan. As noted in the Approval Order, the data 
requirements are reasonably designed to provide measurable data that 
should facilitate the ability of the Commission, the public, and market 
participants to review and analyze the effect of tick size on the 
trading, liquidity, and market quality of Pilot Securities.\64\ The 
Commission believes that excluding the discrete trading activity 
identified above is appropriate

[[Page 8117]]

and will not harm the usefulness of the data.
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    \64\ See Approval Order, supra note 3.
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    Proposed Interpretation and Policy .08 sets April 4, 2016 as the 
date a Trading Center must begin the data collection pursuant to the 
Plan and sets forth that the Exchange or a Trading Center's DEA must 
provide information to the SEC within 30 days following month end and 
make certain data publicly available. In its comment letter, the FIF 
pointed out a discrepancy as the Notice has language stating that 
Appendix B and Appendix C data would be published and reported to the 
SEC by the Exchange or the member's DEA commencing six months prior to 
the beginning of the Pilot Period but the text of proposed 
Interpretation and Policy .08 states that such data would be published 
and reported to the SEC commencing at the beginning of the Pilot 
Period.\65\ In response, BATS explained that the Participants had 
submitted the Exemption Request which included a request to delay the 
initial reporting of data to the Commission to August 30, 2016.\66\ 
BATS also explained that if the Commission did not grant the request, 
the Exchange would publish and report the data collected pursuant to 
Appendix B and C consistent with provisions of the Plan (i.e., six 
months prior to the beginning of the Pilot Period).\67\ As noted above, 
pursuant to Rule 608(e) of Regulation NMS,\68\ the Commission has 
granted BATS a limited exemption from the Plan requirements related to 
proposed Interpretation and Policy .08.\69\ Accordingly, the Commission 
believes that this provision is consistent with the Act and reinforces 
and clarifies important dates and obligations under the Plan.
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    \65\ See FIF Letter at 5-6, supra note 5.
    \66\ See BATS Letter at 5, supra note 5, see also Exemption 
Request, supra note 17.
    \67\ See BATS Letter at 5, supra note 5.
    \68\ 17 CFR 242.608(e).
    \69\ See SEC Exemption Letter, supra note 17.
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    Proposed Interpretation and Policy .09 specifies the method by 
which Participants may calculate daily Market Maker realized 
profitability statistics. Specifically, the provision would allow an 
alternative methodology that yields a LIFO-like result as opposed to a 
LIFO-like methodology required under Appendix C.I.(b) under the Plan. 
The Commission believes that proposed Interpretation and Policy .09 is 
consistent with the Act because the proposed calculation result will 
provide measurable data that is consistent with what was originally 
sought to be captured under the Plan. Therefore, the proposal will 
continue to allow analysis of the impact of the Tick Size Pilot on 
Market Maker Profitability.\70\
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    \70\ The Commission notes that it has granted BATS an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
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    Proposed Interpretation and Policy .10 defines the term ``Pre-Pilot 
Data Collection Securities'' for purposes of the data collection 
requirements under the Plan that are required to begin six months 
before the Pilot Period. Specifically, BATS proposes to expand the 
number of securities for which data will be collected during the Pre-
Pilot Period to help to ensure there is a complete data set for Pilot 
Securities when the Pilot Period begins on October 3, 2016. In its 
comment letter, FIF requested information related to how listing 
exchanges would disclose Pre-Pilot Data Collection Securities and Pilot 
Securities.\71\ In response, BATS stated that it understood that the 
primary listing markets, the NYSE and Nasdaq, would publish the lists 
of Pre-Pilot Data Collection Securities and Pilot Securities listed on 
their respective exchanges on their Web site. BATS also stated that it 
understood that FINRA would consolidate and publish all Pre-Pilot Data 
Collection Securities and Pilot Securities on its Web site.\72\ BATS 
noted that it does not currently list any securities that are eligible 
to participate in the Plan, but would promptly publish any such 
security that became eligible to be a Pre-Pilot Data Collection 
Securities or Pilot Security on its Web site.
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    \71\ See FIF Letter at 2-3, supra note 5.
    \72\ See BATS Response Letter at 4, supra note 5.
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    The Commission finds that the proposal to identify Pre-Pilot Data 
Collection Securities for which Tick Size Pilot data will be collected 
during the Pre-Pilot Period is consistent with the Act. The Commission 
understands that it could be costly for Trading Centers to backfill the 
data requirements to collect the Pre-Pilot Period data if Trading 
Centers were forced to wait until the list of Pilot Securities is 
determined as specified under the Plan. Therefore, BATS proposal to 
establish a slightly broader universe of securities that likely will be 
subject to the Tick Size Pilot is reasonable for purposes of collecting 
data during the Pre-Pilot Period. The Commission believes the proposal 
should help to ensure that there is a complete data set for Pilot 
Securities when the Pilot Period commences and should help to reduce 
the cost and complexity of implementing the data collection 
requirements.
    Proposed Interpretation and Policy .11 specifies that the rule's 
effectiveness shall be contemporaneous with the pilot period. 
Accordingly, the rule will become effective once the Pre-Pilot Period 
begins.\73\ The Commission believes that this proposed rule is 
consistent with the Act and reinforces and clarifies important dates 
and obligations under the Plan.
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    \73\ See also BATS Rule 11.29.08.
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    The Commission finds that BATS proposed rules to implement the Tick 
Size Pilot data collection requirements, including the Interpretations 
and Policies, are consistent with the Act. The proposal clarifies and 
implements the data collection requirements set forth in the Plan.

V. Solicitation of Comments of Partial Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning Partial Amendment No. 2, including whether the 
proposed rule change, as modified by Partial Amendment No. 2, 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-2015-102 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-2015-102. 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

[[Page 8118]]

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; 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-2015-102 and should be 
submitted on or before March 9, 2016.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Partial Amendment No. 2

    The Commission finds good cause, pursuant to section 19(b)(2) of 
the Act, to approve the proposed rule change, as modified by Partial 
Amendment No. 2, prior to the 30th day after the date of publication of 
Partial Amendment No. 2 in the Federal Register. Partial Amendment No. 
2 amends (1) proposed Rule 11.24(b)(4)(A) by deleting an erroneous 
cross-reference and replacing the phrase ``pipe-delineated'' with the 
phrase ``required by their DEA'' and (2) proposed Rule 11.27.03 by 
replacing the phrase ``dually listed securities'' to ``securities that 
trade in a foreign market''.
    The change to proposed Rule 11.24(b)(4)(A) is of a clarifying, 
technical nature. The change to proposed Interpretation and Policy .03 
clarifies that foreign routing information will only be required for 
securities that trade in a foreign market. The Commission believes that 
these changes provide greater clarity on the application of the 
proposal. Accordingly, the Commission finds good cause for approving 
the proposed rule change, as modified by Partial Amendment No. 2, on an 
accelerated basis, pursuant to section 19(b)(2) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\74\ that the proposed rule change, as modified by Partial Amendment 
No. 2 (SR-BATS-2015-102) be, and hereby is, approved on an accelerated 
basis.
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    \74\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\75\
Brent J. Fields,
Secretary.
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    \75\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-03128 Filed 2-16-16; 8:45 am]
 BILLING CODE 8011-01-P


