[Federal Register Volume 75, Number 106 (Thursday, June 3, 2010)]
[Notices]
[Pages 31491-31494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13341]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62177; File No. SR-BATS-2010-013]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
BATS Rule 19.5, entitled ``Minimum Participation Requirement for
Opening Trading of Option Series''
May 26, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 13, 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)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend BATS Rule 19.5, entitled
``Minimum Participation Requirement for Opening Trading of Option
Series.'' 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 aspects of such
statements.
[[Page 31492]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing the elimination of a requirement that at
least one Options Market Maker be registered for trading a particular
series before it may be opened for trading on BATS Options.
An Options Market Maker is an Options Member \5\ registered with
the Exchange as a Market Maker.\6\ Options Market Makers on BATS
Options have certain obligations such as maintaining two-sided markets
and participating in transactions that are ``reasonably calculated to
contribute to the maintenance of a fair and orderly market.'' \7\ To
register as an Options Market Maker, an Options Member must file a
written application with the Exchange, which will consider an
applicant's market making ability and other factors it deems
appropriate in determining whether to approve an applicant's
registration.\8\ All Options Market Makers are designated as
specialists on BATS Options for all purposes under the Act or rules
thereunder.\9\ The BATS Options Rules place no limit on the number of
qualifying entities that may become Options Market Makers.\10\ The good
standing of an Options Market Maker may be suspended, terminated, or
withdrawn if the conditions for approval cease to be maintained or the
Options Market Maker violates any of its agreements with the Exchange
or any provisions of the BATS Options Rules.\11\ An Options Member that
has qualified as an Options Market Maker may register to make markets
in individual series of options.\12\
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\5\ The term ``Options Member'' means a firm, or organization
that is registered with the Exchange pursuant to Chapter XVII of the
Exchange's rules for purposes of participating in options trading on
BATS Options as an ``Options Order Entry Firm'' or ``Options Market
Maker.''
\6\ See Exchange Rule 22.2.
\7\ See Exchange Rule 22.5(a).
\8\ See Exchange Rule 22.2(a).
\9\ See Exchange Rule 22.2.
\10\ See Exchange Rule 22.2(c).
\11\ See Exchange Rule 22.4(b).
\12\ See Exchange Rule 22.3(a).
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Currently Exchange Rule 19.5 provides in relevant part that after a
particular class of options has been approved for listing on BATS
Options, the Exchange will allow trading in series of options in that
class only if there is at least one Options Market Maker registered for
trading that particular series. The Exchange is proposing to eliminate
this requirement in order to expand the number of series available to
investors for trading and for hedging risks associated with securities
underlying those options, as well as to enhance markets in products
which are likely to receive customer order flow. The Exchange believes
that eliminating the listing requirement to have an Options Market
Maker in every series would permit Options Market Makers, who currently
may choose to serve as Options Market Makers solely to permit an
options to trade on BATS Options, to focus their expertise on the
products that are more consistent with their business objectives or
more likely to receive customer order flow.
Eliminating the Options Market Maker listing requirement would
provide the Exchange the opportunity to trade options that may have
occasional interest but that do not necessarily require a two-sided
market at all times. The lack of a two-sided market would not cause
customer orders to receive prices inferior to the best prices available
across all exchanges. BATS Options is designed to systematically avoid
trading through protected quotations on other options exchanges, and as
such, orders accepted into BATS Options in options that do not have
Options Market Makers will not trade at inferior prices even if there
is not a two-sided market on BATS Options. As a result, incoming orders
are protected from receiving inferior execution prices simply by the
fact that there is robust quote competition in the exchange-listed
options business with eight competing options exchanges and a multitude
of competing Market Makers and liquidity providers. Additionally, the
Options Order Protection and Locked/Crossed Market Plan requires plan
participants to ``establish, maintain and enforce written policies and
procedures that are reasonably designed to prevent Trade-Throughs in
that participant's market in Eligible Options Classes.'' \13\ With the
implementation of this plan, a robust network of private routing has
been constructed that ensures routable customer orders can access the
best prevailing prices in the market.
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\13\ See Securities Exchange Act Release No. 60405 (July 30,
2009), 74 FR 39362 (August 6, 2009) (File No. 4-546) (approval order
for the Protection and Locked/Crossed Plan); see also Securities
Exchange Act Release No 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (File No. SR-BATS-2009-031) (approval order of
BATS Options rules, including rules governing participation in
Protection and Locked/Crossed Plan).
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Moreover, the Commission recently approved the proposed rule change
filing of the NASDAQ Options Market (``NOM''), which has rules that are
substantially similar to the Exchange's, in which NOM eliminated the
requirements for having at least one Options Market Maker registered
for trading in a particular series before it may be opened for trading
on NOM.\14\ In its recent approval order for NOM's identical rule
change the Commission cited certain findings that it made in its
earlier approval of NOM, including that ``the Act does not mandate a
particular market model for national securities exchanges'' and that
``many different types of market models could satisfy the requirements
of the Act''.\15\ The Commission stated that it does not believe that
the Act requires an exchange to have Market Makers.\16\ The Commission
also noted that in the context of approving NOM, it had previously
stated that although Options Market Makers could be an important source
of liquidity on NOM, they likely would not be the only source.\17\ The
Exchange notes that the NOM System operates in a substantially similar
manner to the Exchange's System, and is designed to match buying and
selling interest of all participants on the Exchange. The Exchange is
proposing simply to remove the Options Market Maker participation
requirement as superfluous to the existence of a vibrant options
market, nevertheless acknowledging the value Options Market Makers
provide to the Exchange.
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\14\ See Securities Exchange Act Release No. 61735 (March 18,
2010), 75 FR 14227 (March 24, 2010) (File No. SR-NASDAQ-2010-007).
\15\ Id. (citing Securities Exchange Act Release No. 57478
(March 12, 2008), 73 FR 14521, 14527 (March 18, 2008) (File No. SR-
NASDAQ-2007-004) (``NOM Approval Order'')).
\16\ As the Commission noted in its approval order for the NOM
filing, in its release adopting Regulation ATS, the Commission
rejected the suggestion that a guaranteed source of liquidity was a
necessary component of an exchange. See Securities Exchange Act
Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22,
1998) (``Regulation ATS Release).
\17\ See NOM Approval Order, supra note 15, at 14527.
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With regard to the impact on system capacity, the Exchange has
analyzed its capacity and represents that it and the Options Price
Reporting Authority have the necessary systems capacity to handle the
additional traffic associated with the listing and trading of an
expanded number of series as proposed by this filing.
The Exchange also proposes to delete paragraph (b) of Rule 19.5,
which states that a class of options will be put into a non-regulatory
halt if at least one series for that class is not open for trading.
Originally, this provision was put in place so that the Exchange could
approve underlying securities for the listing of options but delay the
listing if
[[Page 31493]]
the Options Market Makers on the Exchange were not yet ready to
register in any series of options for that class. With the elimination
of the other paragraphs in Rule 19.5 requiring an Options Market Maker,
the Exchange will no longer need to delay the listings of particular
series and thus will no longer need this provision.
Finally, the Exchange proposes to delete paragraph (c) of Rule
19.5, which addresses the situation where a series of options only has
one Options Market Maker that then withdraws its registration. Based on
the proposed change described above, this provision is no longer
necessary.
2. Statutory Basis
Approval of 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.\18\ In particular, the proposed change is consistent with
Section 6(b)(5) of the Act,\19\ because it would promote just and
equitable principles of trade, remove impediments to, and perfect the
mechanism of, a free and open market and a national market system, and,
in general, protect investors and the public interest. Specifically,
the Exchange believes that the proposed amendment would expand the
ability of investors to trade options and hedge risks associated with
securities underlying options which are not currently listed due to the
lack of an Options Market Maker registration in such options series.
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\18\ 15 U.S.C. 78f(b).
\19\ 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 proposed rule change: (i) Does not significantly affect
the protection of investors or the public interest; (ii) does not
impose any significant burden on competition; and (iii) does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest, the proposed rule change has
become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and
Rule 19b-4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii)
under the Act, the Exchange is required to give 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \22\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ 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.
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\22\ 17 CFR 240.19b 4(f)(6).
\23\ 17 CFR 240.19b 4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest. In
making this determination, the Commission notes that BAT's proposed
rule change is substantially similar to Nasdaq's recently approved rule
change to eliminate its requirement that at least one options Market
Maker be registered for trading a particular series before it could be
opened for trading on NOM,\24\ and the Commission believes that BATS'
proposed rule change raises no new regulatory issues. The Commission
believes that waiving the operative delay will allow BATS to
immediately expand the number of series available for trading,
permitting BATS to compete with NOM in the trading of these series and
should foster intermarket price competition by providing an additional
market and source of liquidity for options series that would otherwise
have been prohibited from trading on BATS due to the lack of a Market
Maker registered in that series. For these reasons, the Commission
designates that the proposed rule change become operative
immediately.\25\
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\24\ See supra note 14.
\25\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate the 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 Number SR-BATS-2010-013 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 Number SR-BATS-2010-013. 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, 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, on official
business days between the hours of 10 a.m. and 3 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; 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-2010-013 and
[[Page 31494]]
should be submitted on or before June 24, 2010.
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\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13341 Filed 6-2-10; 8:45 am]
BILLING CODE 8010-01-P