[Federal Register Volume 75, Number 185 (Friday, September 24, 2010)]
[Notices]
[Pages 58460-58462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23955]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62945; File No. SR-BATS-2010-025]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend BATS Rule 11.8, Entitled
``Obligations of Market Makers''
September 20, 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 September 17, 2010, BATS Exchange, Inc. (``BATS'' or the
``Exchange'') 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
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.
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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 11.8, which relates to
the obligations of market makers registered with BATS (``Market
Makers'').
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 adopt rules to enhance minimum quotation
requirements for market makers. Under the proposal, the Exchange will
require market makers for each stock in which they are registered to
continuously maintain a two-sided quotation within a designated
percentage of the National Best Bid (``NBB'') and National Best Offer
(``NBO'') (or, if there is no NBB or NBO, the last reported sale).
These enhanced market maker quotation requirements are intended to
eliminate trade executions against market maker placeholder quotations
traditionally priced far away from the inside market, commonly known as
``stub quotes.''
[[Page 58461]]
They are also intended to augment and work in relation to the single
stock pause standards already in place on a pilot basis for stocks in
the S&P 500\[reg]\ Index,\3\ the Russell 1000[reg] Index, as well as a
pilot list of Exchange Traded Products.\4\
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\3\ See Exchange Act Release No. 62340 (June 21, 2010), 75 FR
36768 (June 28, 2010) (SR-BATS-2010-014).
\4\ See Securities Exchange Act Release No. 62884 (September 10,
2010), 75 FR 56618 (September 16, 2010) (SR-BATS-2010-018).
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Under the proposal, the Exchange will require registered market
makers to enter and maintain quotes priced at no more than a certain
percentage away from the national inside bid and offer. Permissible
quotes are determined by the individual character of the security, the
time of day in which the quote is entered, and other factors which are
summarized below.
For issues subject to an individual stock trading pause, a
permissible quote is determined by first looking at the applicable
individual stock pause trigger percentage of the security and then
reducing that number by 2%. Since currently the individual stock pause
trigger percentage utilized by the primary listing markets is 10%, a
market maker's quote in a such a security may not be more than 8% away
from the NBBO as appropriate. Once a compliant quote is entered, it may
rest without adjustment until such time as it moves to within \1/2\ of
1% of the applicable stock pause trigger percentage (i.e., currently
9.5%) whereupon the market maker must immediately move its quote back
to at least the permissible default level of 8% away from the NBBO.
During times in which a stock pause trigger percentage is not
applicable (e.g., before 9:45 a.m. and after 3:35 p.m.), a market maker
must maintain a quote no further than 20% away from the inside (i.e.,
it may rest without adjustment until it reaches 21.5%). In the absence
of a NBB or NBO, the above calculations will remain the same, but will
use the national last sale instead of the absent bid or offer.
For securities not subject to any individual stock trading pause,
the proposal will a assume a hypothetical 32% stock pause trigger
percentage, apply a 2% reduction, and require market makers in those
issues to maintain quotes no more than 30% away from the NBBO. Like
securities subject to stock trading pauses, once a compliant quote is
entered, it may rest without adjustment until such time as it moves to
within \1/2\ of 1% of its applicable pause trigger percentage (31.5%)
whereupon the market maker must immediately move its quote back to at
least the permissible default level of 30%. These requirements shall
apply to Regulation NMS securities during normal market hours.
Nothing in the above precludes a market maker from voluntarily
quoting at price levels that are closer to the NBBO than required under
the proposal.
The Exchange proposes to offer optional functionality to Exchange
Market Makers to assist such Market Makers with the quotation
obligations proposed by this filing.\5\ Specifically, at 9:00 a.m.
Eastern Time, the Exchange will extract information submitted by the
Market Maker that provides specific quote instructions for the Exchange
to enter a quote on the Market Maker's behalf consistent with proposed
paragraph (d). The Exchange proposes to enter the initial bid and offer
at the Designated Percentage and to cancel and replace the bid or offer
if it drifts away from the NBBO to the Defined Limit or away from the
Designated Percentage towards the NBBO by a number of percentage points
determined by the Exchange. The Exchange will determine and publish
this percentage in a circular distributed to Members from time to time;
the Exchange wishes to retain this flexibility in the event it wishes
to modify the number periodically in the future, for instance, to
mitigate the amount of quotation information resulting from Exchange
generated Market Maker quotes. If a bid or offer entered pursuant to
proposed paragraph (e) is executed, the Exchange will re-enter a new
bid or offer on behalf of a Market Maker. Bids and offers entered by
the Exchange consistent with proposed paragraph (e) to replace a
cancelled or executed quotation will be entered at the Designated
Percentage away from the NBBO. Such orders will be posted by the
Exchange as BATS Only Orders,\6\ and will be maintained on the Exchange
during Regular Trading Hours\7\ unless cancelled by the Market Maker
pursuant to the Exchange's Rules. In the event a Market Maker cancels
the quotations entered by the Exchange in accordance with proposed
paragraph (e), such Market Maker remains responsible for compliance
with the requirements of paragraph (d).
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\5\ See e-mail from Anders Franzon, Associate General Counsel,
BATS, to David Liu, Senior Special Counsel, and Andrew Madar,
Special Counsel, Commission, dated September 17, 2010.
\6\ As defined in Rule 11.9(c)(4).
\7\ Defined in Rule 1.5(w) as 9:30 a.m. to 4 p.m. Eastern Time.
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In order to adopt the above-described market maker quotation
obligations, the Exchange proposes to modify Rule 11.18(a)(1), which
currently contains a two-sided quotation obligation, to cross-reference
the above-described market maker quotation obligations in new paragraph
(d). In addition, because proposed paragraph (d) makes clear that the
obligations of that paragraph apply during Regular Trading Hours, the
Exchange proposes to delete paragraph (b) of current Rule 11.8 related
to when the current quoting obligations apply. Finally, the Exchange
proposes deletion of current Rule 11.8(e), related to temporary
withdrawal, because Exchange Rule 11.5(d) already provides a Market
Maker with the ability to withdraw his or her status as a Market Maker
and Rule 11.7(b) already provides a Market Maker with the ability to
terminate his or her registration in a security. The Exchange believes
that these mechanisms are sufficient for a Market Maker to withdraw or
terminate its registration in a security or as a Market Maker without
the need for an additional provision related to withdrawal.
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.\8\ In particular, the
proposed change is consistent with Section 6(b)(5) of the Act,\9\
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. The proposed rule change is also designed to
support the principles of Section 11A(a)(1)\10\ of the Act in that it
seeks to assure fair competition among brokers and dealers and among
exchange markets. The Exchange believes that the proposed rule meets
these requirements in that it promotes uniformity across markets
concerning minimum market maker quotation requirements. The Exchange
believes that the proposed optional functionality to assist Exchange
Market Makers in maintaining continuous, two-sided limit orders in the
securities in which they are registered will encourage Market Makers to
remain registered with and trade on the Exchange, thus providing
valuable liquidity to the Exchange; at the same time, the Exchange
believes that the proposed functionality will keep Exchange generated
quotations within reasonable reach of the NBBO
[[Page 58462]]
and that the elimination of ``stub quotes'' is important for the
protection of investors and the public interest.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78k-1(a)(1).
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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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be 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 e-mail to [email protected]. Please include
File Number SR-BATS-2010-025 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2010-025. 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 website (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 inspection and copying 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 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 publicly available. All submissions
should refer to File Number SR-BATS-2010-025 and should be submitted on
or before October 15, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23955 Filed 9-23-10; 8:45 am]
BILLING CODE 8010-01-P