[Federal Register Volume 75, Number 199 (Friday, October 15, 2010)]
[Notices]
[Pages 63528-63530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25952]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63068; File No. SR-BYX-2010-001]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend BYX Rule 11.8, Entitled
``Obligations of Market Makers''
October 8, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\
[[Page 63529]]
notice is hereby given that on September 27, 2010, BATS Y-Exchange,
Inc. (``BYX'' 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 BYX Rule 11.8, which relates to
the obligations of market makers registered with BYX (``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.'' 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[supreg] Index,\3\ the Russell 1000[supreg]
Index, as well as a pilot list of Exchange Traded Products.\4\
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\3\ See, e.g., Securities Exchange Act Release No. 62340 (June
21, 2010), 75 FR 36768 (June 28, 2010) (SR-BATS-2010-014). The
Exchange is separately working to amend its rules prior to
commencement of operations to make clear that it will pause trading
in Circuit Breaker Securities when an individual stock trading pause
is issued by a primary listing market.
\4\ See, e.g., Securities Exchange Act Release No. 62884
(September 10, 2010), 75 FR 56618 (September 16, 2010) (SR-BATS-
2010-018); see id.
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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 [sic] 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 [sic] 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. Specifically, at 9 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,\5\ and will be maintained on the Exchange
during Regular Trading Hours \6\ 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\ As defined in Rule 11.9(c)(4).
\6\ Defined in Rule 1.5(w) as 9:30 a.m. to 4:00 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
[[Page 63530]]
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 the [sic] 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.\7\ In particular, the
proposed change is consistent with Section 6(b)(5) of the Act,\8\
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) \9\ 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 and that the elimination
of ``stub quotes'' is important for the protection of investors and the
public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ 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-BYX-2010-001 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-BYX-2010-001. 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 website
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 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-BYX-
2010-001 and should be submitted on or before November 5, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25952 Filed 10-14-10; 8:45 am]
BILLING CODE 8011-01-P