[Federal Register Volume 82, Number 207 (Friday, October 27, 2017)]
[Notices]
[Pages 49905-49908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23372]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81919; File No. SR-BatsBZX-2017-68]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
21.1, Definitions, To Modify Stop Orders and Stop Limit Orders 
Applicable to the Exchange's Equity Options Platform in Preparation for 
the C2 Options Exchange, Incorporated Technology Migration

October 23, 2017.
    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 October 10, 2017, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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)

[[Page 49906]]

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 update Rule 21.1 to make 
modifications to the Exchange's rules and functionality applicable to 
the Exchange's options platform (``BZX Options'') in preparation for 
the technology migration of the Exchange's affiliated options exchange, 
C2 Options Exchange, Incorporated (``C2''), onto the same technology as 
the Exchange.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.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
    In 2016, the Exchange and its affiliates Bats BYX Exchange, Inc. 
(``BYX''), Bats EDGA Exchange, Inc. (``EDGA''), and Bats EDGX Exchange, 
Inc. (``EDGX'') received approval to affect a merger (the ``Merger'') 
of the Exchange's indirect parent company, Bats Global Markets, Inc. 
(``BGM''), with CBOE Holdings, Inc. (``CBOE Holdings''), the direct 
parent of Chicago Board Options Exchange, Incorporated (``CBOE'') and 
C2 Options Exchange, Incorporated (``C2'', and together with the 
Exchange, BYX, EDGA, EDGX, and CBOE the ``CBOE Affiliated 
Exchanges'').\5\ The CBOE Affiliated Exchanges are working to align 
certain system functionality, retaining only intended differences 
between the CBOE Affiliated Exchanges, in the context of a technology 
migration. Thus, the proposals set forth below are intended to add 
certain system functionality that is more similar to functionality 
offered by CBOE and C2 in order to ultimately provide a consistent 
technology offering for market participants who interact with the CBOE 
Affiliated Exchanges. Although the Exchange intentionally offers 
certain features that differ from those offered by its affiliates and 
will continue to do so, the Exchange believes that offering similar 
functionality to the extent practicable will reduce potential confusion 
for Users.
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    \5\ See Securities Exchange Act Release No. 79585 (December 16, 
2016), 81 FR 93988 (December 22, 2016) (SR-BatsBZX-2016-68; SR-
BatsBYX-2016-29; SR-BatsEDGA-2016-24; SR-BatsEDGX-2016-60).
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    The Exchange proposes to modify its rules regarding Stop Orders and 
Stop Limit Orders, as defined in Rules 21.1(d)(11) and (d)(12), 
respectively.
    Stop Orders are currently defined in Rule 21.1(d)(11) as an order 
that becomes a Market Order \6\ when the stop price is elected. A Stop 
Order to buy is elected when the consolidated last sale in the option 
occurs at, or above, the specified stop price. A Stop Order to sell is 
elected when the consolidated last sale in the option occurs at, or 
below, the specified stop price. Stop Limit Orders are currently 
defined in Rule 21.1(d)(12) as an order that becomes a limit order \7\ 
when the stop price is elected. A Stop Limit Order to buy is elected 
when the consolidated last sale in the option occurs at, or above, the 
specified stop price. A Stop Limit Order to sell becomes a sell limit 
order when the consolidated last sale in the option occurs at, or 
below, the specified stop price.
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    \6\ ``Market Orders'' are orders to buy or sell at the best 
price available at the time of execution. Market Orders to buy or 
sell an option traded on are rejected if they are received when the 
underlying security is subject to a ``Limit State'' or ``Straddle 
State'' as defined in the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the 
``Limit Up-Limit Down Plan''). Any portion of a Market Order that 
would execute at a price more than $0.50 or 5 percent worse than the 
NBBO at the time the order initially reaches BZX Options, whichever 
is greater, will be cancelled.
    \7\ ``Limit Orders'' orders to buy or sell an option at a 
specified price or better. A limit order is marketable when, for a 
limit order to buy, at the time it is entered into the System, the 
order is priced at the current inside offer or higher, or for a 
limit order to sell, at the time it is entered into the System, the 
order is priced at the inside bid or lower.
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    The Exchange proposes to modify Stop Orders and Stop Limit Orders 
to add that such orders will be elected based on quotations as well. 
Specifically, in addition to electing a Stop Order or Stop Limit Order 
to buy (sell) when the consolidated last sale in the option occurs at 
or above (below), the specified stop price, the Exchange proposes to 
elect such an order when the NBB (NBO) is equal to or higher (lower) 
than the stop price. The Exchange notes that CBOE and C2 also trigger 
stop orders based on quotations.\8\ The Exchange further notes that it 
has proposed to elect Stop Orders and Stop Limit Orders based on 
consolidated quotations (the NBB and NBO) rather than quotations only 
on the Exchange. The Exchange believes that this is more consistent 
with its current functionality for Stop Orders and Stop Limit Orders, 
which are elected based on the consolidated last sale in the option.
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    \8\ See CBOE Rules 6.53(c)(iii) and (c)(iv) and C2 Rules 
6.10(c)(3) and (c)(4).
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    The Exchange also proposes a minor change to the definition of Stop 
Limit Orders to ensure that there is consistent language between Stop 
Limit Orders to buy and Stop Limit Orders to sell. The current language 
related to Stop Limit Orders to buy focuses on the election of such 
orders whereas the current language related to Stop Limit Orders to 
sell focuses on the conversion of such orders to limit orders. The 
Exchange proposes to include language related both election and 
conversion to limit orders with respect to both Stop Limit Orders to 
buy and Stop Limit Orders to sell.
    In addition, the Exchange proposes to restrict Stop Orders, which, 
as described above are converted to Market Orders when elected, from 
being elected when the underlying security is in a Limit State, as 
defined in the Limit Up-Limit Down Plan. Such an order would be held 
until the end of the Limit State, at which point the order would again 
become eligible to be elected. This aspect of the proposal is also 
based on the rules of CBOE \9\ and C2 \10\ and is consistent with the 
Exchange's current handling of Market Orders, which are not accepted 
when the underlying security is in a Limit State.\11\ As Stop Orders 
become Market Orders when elected, the Exchange believes that this 
change is merely an extension of its existing functionality.
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    \9\ See CBOE Rule 6.53, Interpretation and Policy .01C.
    \10\ See C2 Rule 6.10, Interpretation and Policy .01C.
    \11\ See Exchange Rule 21.1(d)(5).
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    Below are examples of the current and proposed functionality for 
Stop Orders and Stop Limit Orders.
Example 1A--Stop Order is Triggered (Current Functionality)
    Assume the NBBO is 7.80 x 8.00. Assume that a User submits a Stop

[[Page 49907]]

Order to buy 500 shares with a stop price of 8.05.
     Assume the NBBO updates to 8.00 by 8.05. An execution 
reported by another exchange at 8.05 will trigger the stop price of the 
Stop Order, which will convert into a Market Order to buy.
     Note: this example would still be accurate under the 
proposed functionality, however, there is an additional way that a Stop 
Order could be elected, a change to the NBBO, as set forth in Example 
1B below.
Example 1B--Stop Order is Triggered (Proposed Functionality)
    Assume the NBBO is 7.80 x 8.00. Assume that a User submits a Stop 
Order to buy 500 shares with a stop price of 8.05.
     Assume the NBBO updates to 8.05 by 8.10. The NBB equal to 
the stop price of the order will trigger the stop price of the Stop 
Order, which will convert into a Market Order to buy. The result would 
be the same if the NBB were instead higher than the stop price, such as 
with an NBBO of 8.10 by 8.15.
Example 2A--Stop Limit Order is Triggered (Current Functionality)
    Assume the NBBO is 7.80 x 8.00. Assume that a User submits a Stop 
Limit Order to buy 500 shares at 8.04 with stop limit price of 8.05.
     Assume the NBBO updates to 8.03 by 8.05. An execution 
reported by another exchange at 8.05 will trigger the stop price of the 
Stop Limit Order, which will convert into a limit order to buy at 8.04.
     Note: this example would still be accurate under the 
proposed functionality, however, there is an additional way that a Stop 
Limit Order could be elected, a change to the NBBO, as set forth in 
Example 2B.
Example 2B--Stop Limit Order is Triggered (Proposed Functionality)
    Assume the NBBO is 7.80 x 8.00. Assume that a User submits a Stop 
Limit Order to buy 500 shares at 8.04 with stop limit price of 8.05.
    Assume the NBBO updates to 8.05 by 8.10. The NBB equal to the stop 
price of the order will trigger the stop price of the Stop Limit Order, 
which will convert into a limit order to buy at 8.04. The result would 
be the same if the NBB were instead higher than the stop price, such as 
with an NBBO of 8.10 by 8.15.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. In particular, consistent rules and functionality between the 
Exchange and its affiliated exchanges will reduce complexity and help 
avoid potential confusion by the Users of the Exchange that are also 
participants on other CBOE Affiliated Exchanges.\14\
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ The Exchange notes that its affiliate, EDGX, also intends 
to adopt Stop Orders and Stop Limit Orders that would function 
identical to Stop Orders and Stop Limit Orders on the Exchange, as 
amended by this proposal. In addition, as CBOE and C2 migrate to the 
same technology platform as the Exchange, CBOE and C2 intend to 
modify rules and functionality to be consistent with the Exchange 
and EDGX, unless the retention of differences is intended.
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    The Exchange believes the proposed amendment will reduce complexity 
and increase the understanding of the Exchange's operations for all 
Users of the Exchange. In particular, by triggering Stop Orders and 
Stop Limit Orders based on quotations, in addition to trades, the 
Exchange's functionality will be more similar to that of CBOE and C2. 
In turn, when CBOE and C2 are migrated to the same technology as that 
of the Exchange, Users of the Exchange and other CBOE Affiliated 
Exchanges will have access to similar functionality on all CBOE 
Affiliated Exchanges. As such, the proposed rule change would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
    With respect to Stop Orders not being elected when the underlying 
security is in a Limit State, this proposal is based on the rules of 
CBOE and C2 and is also consistent with the Exchange's current handling 
of Market Orders, which are not accepted when the underlying security 
is in a Limit State.\15\ As Stop Orders become Market Orders when 
elected, the Exchange believes that this change is merely an extension 
of its existing functionality.
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    \15\ See supra, notes 8-10.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that the 
proposal will further promote consistency between the Exchange and its 
affiliated exchanges, and is part of a larger technology integration 
that will ultimately reduce complexity for Users of the Exchange that 
are also participants on other CBOE Affiliated Exchanges. The Exchange 
does not believe that the proposed changes will have any direct impact 
on competition. Thus, the Exchange does not believe that the proposal 
creates any significant impact on competition.

(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 foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \16\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\17\ the Exchange has 
designated this rule filing as non-controversial.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4 (f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \19\ 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 proposed 
rule change may become operative immediately upon filing. The Exchange 
notes that the proposed rule change will promote consistency between 
the Exchange and CBOE Affiliated Exchanges, and is part of a larger

[[Page 49908]]

technology integration that will ultimately reduce complexity for Users 
of the Exchange that are also participants on other CBOE Affiliated 
Exchanges.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the 30-day operative delay 
is consistent with the protection of investor and the public interest. 
The Commission notes that the proposed rule change is based on rules of 
its affiliated exchanges, CBOE and C2, and thus does not raise any new 
or novel issues. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change as operative 
upon filing.\20\
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    \20\ 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: (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 [email protected]. Please include 
File Number SR-BatsBZX-2017-68 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-BatsBZX-2017-68. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsBZX-2017-68 and should 
be submitted on or before November 17, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-23372 Filed 10-26-17; 8:45 am]
 BILLING CODE 8011-01-P


