
[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Notices]
[Pages 20711-20714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08043]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77508; File No. SR-BatsEDGX-2016-03]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Changes in 
Connection With the Operation of the Exchange's Equity Options Platform

April 4, 2016.
    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 24, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 make a modification to Rule 21.1 
(Definitions) in connection with the operation of the attribution 
feature of EDGX Options, as described below. In addition, the Exchange 
proposes to adopt definitions of ``Priority Customer'' and ``Priority 
Customer Order'' in Rule 16.1 and to use such definitions throughout 
Rules 21.8, 21.10 and 21.15. Finally, the Exchange also proposes 
related changes to Rules 20.6 and 21.8.
    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.

[[Page 20712]]

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
    As further described below, the Exchange is proposing to modify 
Rule 21.1(c) to remove the limitation related to Customer orders to 
allow such orders to be Attributable Orders (as such terms are defined 
below). In addition, the Exchange proposes to adopt definitions of 
``Priority Customer'' and ``Priority Customer Order'' in Rule 16.1 and 
to use such definitions throughout Rules 21.8, 21.10 and 21.15. 
Finally, the Exchange also proposes related changes to Rules 20.6 and 
21.8.
Attributable Orders
    The Exchange is proposing to modify Rule 21.1, Definitions, which 
sets forth the various definitions applicable to the operation of the 
EDGX Options platform, including order types and order type modifiers 
accepted by EDGX Options. As set forth in Rule 21.1, an order can be 
attributed on EDGX Options, meaning that such order is displayed with 
not only a price and size but also a User's \5\ market participant 
identifier, or MPID (such order an ``Attributable Order''). 
Alternatively, a User may also submit an order that is designated for 
display on an anonymous basis, a ``Non-Attributable Order.'' In 
addition to attribution, as discussed in Rule 21.1, Exchange Rule 
21.15(c) states that the Exchange will indicate on OPRA when there is 
``Customer'' (the definition of which is described below) interest on 
EDGX Options and will identify Customer orders and trades as such on 
the Exchange's proprietary data feeds.
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    \5\ The term User is defined in Rule 1.5(ee) as ``any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.''
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    Recently, the Exchange modified Rule 21.1(c) to limit the use of 
Attributable Orders to non-Customers, thereby eliminating the ability 
for a Customer Order to also be an Attributable Order.\6\ Thus, Rule 
21.1(c) states that all non-Customer Orders shall be treated as 
Attributable Orders unless a User has entered instructions to treat 
such orders as Non-Attributable Orders. Further, Rule 21.1(c) states 
that all Customer Orders are treated as Non-Attributable Orders. The 
Exchange did not make the change set forth above due to concerns with 
respect to Customer orders being entered as Attributable Orders but 
rather due to system limitations in supporting both the attribution 
feature and the identification of Customer orders as such. The Exchange 
is now able to accept a Customer order that is both identified as such 
and attributed to a specified MPID. The Exchange therefore proposes to 
modify Rule 21.1(c) to remove the limitation related to Customer orders 
to allow such orders to be Attributable Orders. The Exchange notes that 
this proposed change will return the Exchange's rules to their prior 
form, by accepting Attributable Orders regardless of the capacity 
designated on the order.
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    \6\ Securities Exchange Act Release No. 77036 (February 2, 
2016), 81 FR 6552 (February 8, 2016) (SR-EDGX-2016-01).
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Definition and Use of Term ``Priority Customer'' and ``Priority 
Customer Order''
    In addition to the change described above, the Exchange proposes 
changes to Rules 16.1 to adopt definitions of ``Priority Customer'' and 
``Priority Customer Order'' in Rule 16.1 and to use such definitions 
throughout Rules 21.8, 21.10 and 21.15. Specifically, in such Rules, 
the Exchange proposes to use the terms ``Priority Customer'' and 
``Priority Customer Order'', respectively, in place of the terms 
``Customer'' and ``Customer Order''. As proposed, a Priority Customer 
would mean any person or entity that is not: (A) A broker or dealer in 
securities; or (B) a Professional (as defined below). In turn, a 
Priority Customer Order would means an order for the account of a 
Priority Customer. The proposed definitions are similar to and based on 
the definitions of the same terms set forth in MIAX Rule 100. The 
Exchange proposes to adopt these new definitions in new paragraph 
(a)(45) and to re-number existing paragraphs (a)(45) through (a)(47) as 
paragraphs (a)(46) through (a)(48). In addition, because the defined 
term ``Public Customer Order'' is not currently utilized in Exchange 
Rules, the Exchange proposes to delete this definition, which is 
currently contained in paragraph (a)(48).
    Pursuant to Rule 16.1(a)(19) a ``Customer'' is defined as a Public 
Customer or a broker-dealer. Under Rule 16.1(a)(47), a ``Public 
Customer'' is defined as a person that is not a broker or dealer in 
securities (``broker-dealer''). The Exchange separately defines a 
``Professional'' as any person or entity that (A) is not a broker or 
dealer in securities, and (B) places more than 390 orders in listed 
options per day on average during a calendar month for its own 
beneficial account(s). The Exchange proposes to adopt the definition of 
Priority Customer to exclude both broker-dealers and Professionals. 
This change is consistent with the Exchange's fee schedule, which 
already excludes Professionals from the definition of the term Customer 
for purposes of pricing on the Exchange.\7\ This change is also 
consistent Exchange Rule 20.6(a)(1) \8\ and with the rules of other 
options exchanges.\9\
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    \7\ See the EDGX Options fee schedule available at: http://www.batsoptions.com/support/fee_schedule/edgx. As defined on the fee 
schedule, a ``Customer'' is synonymous with the proposed term 
Priority Customer in the Exchange's Rules as the definition excludes 
both broker dealers and Professionals as defined in EDGX Rule 16.1.
    \8\ Rule 20.6(a)(1) similarly defines a Customer as a party 
other than a broker-dealer or Professional Customer. The Exchange 
also proposes to amend Rule 20.6(a)(1) to instead refer to a 
``Professional'' as discussed below.
    \9\ See, e.g., MIAX Rule 100, Definitions, which defines a 
``Priority Customer,'' by excluding both broker dealers and 
customers who do not meet the criteria generally established by 
options exchanges to qualify as a Professional (i.e., 390 orders in 
listed options per day); see also ISE Rule 100(37A).
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    In addition, the Exchange proposes to modify Rules 21.8, 21.10, and 
21.15 to refer to ``Priority Customer'' rather than ``Customer'' and 
``Priority Customer Order'' rather than ``Customer Order'', to more 
closely reflect the Exchange's current implementation of the Rules, 
which follows the definition of Customer on the Exchange's fee schedule 
and in Rule 20.6(a)(1) by excluding broker-dealers and Professionals. 
As noted above, the Exchange is also proposing to replace the phrase 
``Customer Order'', or in some instances ``Customer order,'' with the 
phrase ``Priority Customer Order''.
    The Exchange believes that each of these changes will more closely 
align the Exchange's rules with the Exchange's implementation of the 
Rules and the rules of other options exchanges.\10\ The Exchange 
believes that the original discrepancy was based in

[[Page 20713]]

part on the use of the general term ``Customer'' in other Exchange 
Rules and on the Exchange's fee schedule as noted above, which in such 
other contexts mirrors the definition of Priority Customer, as 
proposed.\11\ The Exchange also believes that the intended application 
of the term Customer in Chapter 21 of the Exchange's rules is also 
clear. In particular, the Exchange's priority rule, Rule 21.8(e), 
explicitly refers to ``non-Customers'' as ``including Professional 
Customers'' when it discusses the priority algorithm that applies after 
execution of Customer (to be re-designated as ``Priority Customer'') 
orders. Thus, the change from Customer to Priority Customer in Rule 
21.8, 21.10 and 21.15 will conform the Exchange's Rules to the current 
implementation by using a defined term that excludes broker-dealers and 
Professionals.
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    \10\ See, e.g., MIAX Rules 514, which closely resembles Exchange 
Rules 21.8 and uses the term Priority Customer, a term equivalent to 
the Exchange's proposed definition of Priority Customer.
    \11\ See supra, notes 6 and 7.
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Additional Changes
    To ensure clarity, the Exchange proposes related changes to Rule 
21.8(d)(1) and Rule 21.8(e). Specifically, the Exchange proposes to 
restate the priority of Priority Customers as priority ``over orders on 
behalf of all other types of participants'' and to define all such 
other participants as non-Customers. As above, this change conforms the 
Rule to the Exchange's implementation of the Rule as well as the way 
that the Exchange believes the Rule was proposed and approved when read 
in light of Rule 21.8(e). The Exchange believes that the amended Rule, 
however, sets forth in a more clear fashion the fact that all other 
participants other than Priority Customers, including Professionals and 
broker-dealers, are considered as non-Customers for purposes of the 
Rule. Based on this proposed change, the Exchange also proposes to 
remove the reference to ``non-Customers, including Professional 
Customers'' in Rule 21.8(e) and to instead refer to the definition of 
non-Customer that is proposed to be added to Rule 21.8(d)(1).
    In addition to the proposed changes to utilize the term Priority 
Customer instead of Customer and the term Priority Customer Order 
instead of Customer Order in the Rules listed above, the Exchange also 
proposes to modify Rule 20.6(a)(1) to use the defined term of 
``Professional'' rather than the term ``Professional Customer,'' which 
is not defined in Rule 16.1.
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 accept 
Attributable Orders from all market participants, including Priority 
Customers, while also designating Priority Customer orders as such on 
applicable data feeds. As set forth above, the Exchange recently 
limited the use of Attributable Orders to non-Customers due to systems 
limitations but is now proposing to remove this limitation. The 
Exchange is therefore seeking to re-introduce the feature that was 
originally intended in connection with the launch of EDGX Options. The 
proposed rule change will also achieve consistency with respect to the 
use of the term ``Priority Customer'' and ``Priority Customer Order'' 
both internally in aligning with the implementation of such Rules as 
well as with the rules of other options exchanges. As set forth above, 
each of the changes proposed above will align the Exchange's Rules with 
the current implementation of the Rules but will do so in a way that 
will avoid confusion regarding the application of the definitions used 
in such Rules. The Exchange believes that the proposed change is 
consistent with the Act for the reasons set forth above.

(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 
intended to make a modification to the Exchange's attribution offering 
to again permit Attributable Orders on behalf of all market 
participants, including Priority Customers. As noted above, this was 
the original intent when the Exchange's rules for EDGX Options were 
originally approved. The Exchange does not believe that such proposal, 
or the proposal to adopt the definitions of Priority Customer and 
Priority Customer Order as described above, will result in rules that 
are different than the rules of other options exchanges but rather that 
such rules will be better aligned with the implementation of the 
Exchange's Rules as well as the rules of other options exchanges.

(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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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 has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\16\ normally does not become operative for 30 days after the date of 
filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiver of the 30-day operative delay is appropriate because it 
will allow the Exchange to immediately offer the originally intended 
attribution feature by permitting orders from all types of market 
participants to be attributable orders. Further, the Commission 
believes that the adoption of the terms ``Priority Customer'' and 
``Priority

[[Page 20714]]

Customer Order'' and the use of such terms as proposed will help to 
avoid confusion by participants on EDGX Options by aligning the 
Exchange's rules with the rules of other options exchanges. Thus, the 
proposed definitions are similar to existing rules of other options 
exchanges and do not raise any new policy issues. Based on the 
foregoing, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest.\18\ The Commission hereby grants the Exchange's request and 
designates the proposal operative upon filing.
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BatsEDGX-2016-03 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-BatsEDGX-2016-03. 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-BatsEDGX-2016-03 and should 
be submitted on or before April 29, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08043 Filed 4-7-16; 8:45 am]
BILLING CODE 8011-01-P


