[Federal Register Volume 75, Number 98 (Friday, May 21, 2010)]
[Notices]
[Pages 28670-28672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12226]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62102; File No. SR-BATS-2010-011]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
BATS Rule 11.9, Entitled ``Orders and Modifiers''
May 13, 2010.
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 May 4, 2010, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange has designated this
proposal as a ``non-controversial'' proposed rule change pursuant to
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii)
thereunder,\4\ which renders it effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to make a modification to the existing
technology that it provides to a User that wishes to avoid trading
against orders from that same User (currently referred to as ``Member
Match Trade Prevention'' or ``MMTP'').
The text of the proposed rule change is available at the Exchange's
Web site at http://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make a minor change to its Member Match
Trade Prevention, or MMTP, functionality, described in BATS Rules
11.9(f) and 21.1(g) and to rename the functionality as Match Trade
Prevention (``MTP'').
MMTP modifiers are designed to prevent two orders with the same
Unique Identifier (as defined below) from executing against each other.
The Exchange currently offers four MMTP modifiers that can be set at
the market participant identifier (``MPID''), the Exchange Member
identifier or the Exchange Sponsored Participant identifier level (any
such identifier, a ``Unique Identifier'').\5\ BATS is proposing a
change to the MMTP Decrement and Cancel identifier (``MDC''); none of
the other MMTP identifiers are affected by this proposal, other than to
change the references throughout the rule text to MTP.
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\5\ Any Exchange Member that has an MPID issued by FINRA is
identified in the Exchange's internal systems by that MPID. Each
Exchange Member that does not already have an MPID and each
Sponsored Participant is issued an identifier that is specific to
the Exchange and allows the Exchange to determine the User for each
order and trade.
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Under the existing rules, an incoming order marked with the MDC
modifier will not execute against opposite side resting interest marked
with any MMTP modifier originating from the same Unique Identifier. If
both orders are equivalent in size, both orders will be cancelled back
to the originating User. If the orders are not equivalent in size, the
equivalent size will be cancelled back to the originating User and the
larger order will be decremented by the size of the smaller order, with
the balance remaining on the BATS Book; provided, however, that if the
resting order is marked with any MMTP modifier other than MDC, and the
incoming order is smaller in size than the resting order, then both
orders will be cancelled back to the originating User (the ``MDC
Exception''). Thus, as shown in the example below, rather than
decrementing either order, pursuant to the MDC Exception both orders
are cancelled in their entirety when the resting order contains an MMTP
modifier other than MDC and is larger than the incoming order.
Current MDC Exception--Example: An order to buy 500 shares @ $22.00
is
[[Page 28671]]
marked with any MMTP modifier other than MDC and becomes a resting
order in the BATS Book. Subsequently, an order to sell 400 shares @
$22.00 is entered with the same Unique Identifier and marked with the
MDC modifier.
Current MDC Exception--Result: The resting buy order for 500 shares
at $22.00 marked with a MMTP modifier other than MDC is cancelled back
to the originating User. The incoming sell order for 400 shares @
$22.00 marked with the MDC modifier is cancelled back to the
originating User.
The Exchange proposes to allow Users to opt-out of the default
behavior of the MDC Exception to allow an incoming MDC order to result
in a decremented order even when it is smaller than the resting order
and the resting order contains an MMTP modifier other than MDC.
Proposed Opt-Out of MDC--Example: An order to buy 500 shares @
$22.00 is marked with any MMTP modifier and becomes a resting order in
the BATS Book. Subsequently, an order to sell 400 shares @ $22.00 is
entered with the same Unique Identifier and marked with the MDC
modifier.
Proposed Opt-Out of MDC--Result: 400 of the 500 shares on the
resting buy order at $22.00 marked with any MMTP modifier are cancelled
back to the originating User. The outstanding 100 shares remain on the
BATS Book. The incoming sell order for 400 shares @ $22.00 marked with
the MDC modifier is cancelled back to the originating User.
Although the Exchange intentionally created the MDC Exception based
on conversations with its Users regarding the best way to implement the
MDC modifier, other Users have requested that the Exchange allow them
to have the incoming order control the result in all situations, and
thus, have requested to be able to opt-out of the MDC Exception. The
Exchange notes that NYSE Arca Equities (``NYSE Arca'') has implemented
its version of match trade prevention without the MDC Exception, and
thus, allowing Users to opt-out of the exception is consistent with
NYSE Arca's STP Decrement and Cancel option.\6\ The Exchange will allow
a User to opt-out of the MDC Exception by changing the settings of its
order entry ports. The Exchange may also permit Users to opt-out of the
MDC Exception on an order-by-order basis through use of a specific tag
attached to each order.
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\6\ See NYSE Arca Rule 7.31(qq)(3).
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Additional Discussion
In addition to the modification to the MDC modifier described
above, the Exchange proposes to change the references throughout its
rules from ``Member Match Trade Prevention'' to ``Match Trade
Prevention'' and from ``MMTP'' to ``MTP''.
The Exchange believes that its Match Trade Prevention functionality
allows certain firms to better internalize their agency order flow,
which in turn may decrease costs to customers of such firms. The
Exchange notes that MTP modifiers do not alleviate, or otherwise
exempt, broker-dealers from their best execution obligations. As such,
broker-dealers using MTP modifiers are obligated to internally cross
agency orders at the same price, or a better price than they would have
received had the orders been executed on the Exchange. Additionally,
MTP modifiers assist market participants in complying with certain
rules and regulations of the Employee Retirement Income Security Act
(``ERISA'') that preclude and/or limit managing broker-dealers of such
accounts from trading as principal with orders generated for those
accounts. Finally, the Exchange notes that offering the MTP modifiers
may streamline certain regulatory functions by reducing false positive
results that may occur on Exchange generated wash trading surveillance
reports when orders are executed under the same Unique Identifier. For
these reasons, the Exchange believes the MTP modifiers offer users
enhanced order processing functionality that may prevent potentially
undesirable executions without negatively impacting broker-dealer best
execution obligations.
2. Statutory Basis
The rule change proposed in this submission 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.\7\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\8\
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, and to remove impediments to, and perfect
the mechanism of, a free and open market and a national market system.
Specifically, Match Trade Prevention functionality allows firms to
better manage order flow and prevent undesirable executions against
themselves, and the proposed change described herein enhances the
choices available to such firms in how they do so.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change does not: (1) Significantly
affect the protection of investors or the public interest; (2) impose
any significant burden on competition; and (3) become operative for 30
days after the date of this filing, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of filing.\11\
However, Rule 19b-4(f)(6)(iii)\12\ 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 requested that the
Commission waive the 30-day operative delay so that the Exchange may
immediately offer Exchange Users another choice with respect to MTP
modifiers. The Commission notes that the proposal is consistent with
the rules of another national securities exchange.\13\ 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 and hereby designates the proposal operative upon filing.\14\
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\11\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Exchange has satisfied this requirement.
\12\ Id.
\13\ See supra note 6.
\14\ For the purposes only of waiving the 30-day operative
delay, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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[[Page 28672]]
At any time within 60 days of the filing of such proposed rule
change the Commission may summarily abrogate 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.
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 e-mail to [email protected]. Please include
File No. SR-BATS-2010-011 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-BATS-2010-011. This file
number should be included on the subject line if e-mail 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,\15\ 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 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of BATS.
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 No. SR-BATS-2010-011 and
should be submitted on or before June 11, 2010.
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\15\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12226 Filed 5-20-10; 8:45 am]
BILLING CODE 8011-01-P