[Federal Register Volume 75, Number 37 (Thursday, February 25, 2010)]
[Notices]
[Pages 8760-8761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3772]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61534]
Order Granting Application for Exemption Pursuant to Section
36(a) of the Exchange Act by BATS Exchange, Inc. From the Rule Filing
Requirements of Section 19(b) of the Exchange Act With Respect to
Certain Rules Incorporated by Reference
February 18, 2010.
BATS Exchange, Inc. (``BATS Exchange'') has filed with the
Securities and Exchange Commission (``Commission'') an application for
an exemption under Section 36(a)(1) of the Securities Exchange Act of
1934 (``Exchange Act'') \1\ from the rule filing requirements of
Section 19(b) of the Exchange Act \2\ with respect to certain rules of
another self-regulatory organization (``SRO'') that BATS Exchange seeks
to incorporate by reference. Section 36 of the Exchange Act authorizes
the Commission to conditionally or unconditionally exempt any person,
security, or transaction, or any class thereof, from any provision of
the Exchange Act or
[[Page 8761]]
rule thereunder, if necessary or appropriate in the public interest and
consistent with the protection of investors.
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\1\ 15 U.S.C. 78mm(a)(1).
\2\ 15 U.S.C. 78s(b).
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On January 26, 2010, the Commission approved new rules governing
the trading of options on the BATS Exchange Options Market (``Options
Rules'').\3\ Certain of the Options Rules incorporate by reference
existing rules of the Chicago Board Options Exchange, Incorporated
(``CBOE''), Financial Industry Regulatory Authority, Inc. (``FINRA''),
formerly known as the National Association of Securities Dealers, Inc.
(``NASD''),\4\ and NYSE. Thus, for certain Options Rules, BATS Exchange
members will comply with a BATS Exchange rule by complying with the
CBOE, FINRA, or NYSE rule referenced therein.
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\3\ See Securities Exchange Act Release No. 61419 (January 26,
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031).
\4\ Although NASD is now known as FINRA, some rules in the FINRA
rule book are still referred to as ``NASD rules.'' FINRA is in the
process of consolidating the member rules of the New York Stock
Exchange, LLC (``NYSE'') and NASD rules into a single rule book. For
purposes of the FINRA rule book, harmonized rules are referred to as
FINRA rules, while rules that originally were NASD rules, but have
yet to be harmonized, are referred to as NASD rules.
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BATS Exchange has requested, pursuant to Rule 0-12 under the
Exchange Act,\5\ that the Commission grant it an exemption from the
rule filing requirements of Section 19(b) of the Exchange Act for
changes to the Options Rules that are effected solely by virtue of a
change to a cross-referenced CBOE, FINRA, or NYSE rule. Specifically,
BATS Exchange requests that it be permitted to incorporate by reference
changes made to each CBOE, FINRA, or NYSE rule (or series of rules)
that is cross-referenced in BATS Exchange Rules 2.12, 18.7, 18.9,
26.16, 28.3, 29.5, and 29.7 without the need for BATS Exchange to file
separately the same proposed rule changes pursuant to Section 19(b) of
the Exchange Act.\6\ BATS Exchange proposes to incorporate by reference
(1) CBOE rules governing position and exercise limits for equity and
index options; (2) the margin rules of CBOE and the NYSE; (3) FINRA's
rules governing communications with the public; and (4) FINRA's rule
governing fidelity bonds, for members for which BATS Exchange is the
Designated Examining Authority. BATS Exchange represents that the rules
it has incorporated by reference into the Options Rules are categories
of CBOE, FINRA, or NYSE rules (rather than individual rules within a
category) that are not trading rules. The Exchange has agreed to
provide written notice to its members whenever CBOE, FINRA, or NYSE
proposes a change to a cross-referenced CBOE, FINRA, or NYSE rule.\7\
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\5\ 17 CFR 240.0-12.
\6\ See Letter from Eric Swanson, SVP, General Counsel, BATS
Exchange, to Elizabeth M. Murphy, Secretary, Commission, dated
January 20, 2010 (``BATS Exemptive Request'').
\7\ Id. BATS Exchange states that it will provide this notice on
its Web site where it posts its own proposed rule change filings
within the same time frame required of its own filings pursuant to
Rule 19b-4(l), 17 CFR 240.19b-4(l). Id. at note 8. In addition, BATS
Exchange states that the posting will include a link to the location
on CBOE, FINRA, or NYSE's Web site where the proposed rule change is
posted. Id.
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The Commission has issued exemptions to other exchanges similar to
BATS Exchange's request.\8\ The Commission stated in 2004, when
granting one such exemption, that it would consider similar future
exemption requests from other SROs, provided that:
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\8\ For example, NYSE Amex LLC (formerly NYSE Alternext U.S.,
LLC), the International Securities Exchange, LLC (``ISE''), the
Municipal Securities Rulemaking Board, and NASDAQ OMX PHLX, Inc.
(formerly the Philadelphia Stock Exchange, Inc.) incorporate the
FINRA Code of Arbitration Procedure, while the ISE, NYSE Arca, Inc.,
and the Boston Options Exchange, a facility of NASDAQ OMX BX, Inc.
(formerly Boston Stock Exchange, Inc.), incorporate by reference the
margin rules of NYSE and CBOE. See Securities Exchange Act Release
No. 49260 (February 17, 2004), 69 FR 8500 (February 24, 2004). See
also Securities Exchange Act Release Nos. 57478 (March 12, 2008), 73
FR 14521, 14539-40 (March 18, 2008) (order approving SR-NASDAQ-2007-
004 and SR-NASDAQ-2007-080) and 53128 (January 13, 2006), 71 FR
3550, 3565-66 (January 23, 2006) (File No. 10-131) (approving The
NASDAQ Stock Market LLC's exchange application).
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An SRO wishing to incorporate rules of another SRO by
reference has submitted a written request for an order exempting it
from the requirement in Section 19(b) of the Exchange Act to file
proposed rule changes relating to the rules incorporated by reference,
has identified the applicable originating SRO(s), together with the
rules it wants to incorporate by reference, and otherwise has complied
with the procedural requirements set forth in the Commission's release
governing procedures for requesting exemptive orders pursuant to Rule
0-12 under the Exchange Act; \9\
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\9\ See 17 CFR 240.0-12 and Securities Exchange Act Release No.
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission
Procedures for Filing Applications for Orders for Exemptive Relief
Pursuant to Section 36 of the Exchange Act; Final Rule).
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An incorporating SRO has requested incorporation of
categories of rules (rather than individual rules within a category)
that are not trading rules (e.g., the SRO has requested incorporation
of rules such as margin, suitability, or arbitration); and
The incorporating SRO has reasonable procedures in place
to provide written notice to its members each time a change is proposed
to the incorporated rules of another SRO.\10\
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\10\ See Securities Exchange Act Release No. 49260, supra note
8.
The Commission believes that BATS Exchange has satisfied each of these
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conditions.
The Commission also believes that granting BATS Exchange an exemption
from the rule filing requirements under Section 19(b) of the Exchange
Act will promote efficient use of Commission and BATS Exchange
resources by avoiding duplicative rule filings based on simultaneous
changes to identical rule text sought by more than one SRO.\11\ The
Commission therefore finds that it is necessary and appropriate in the
public interest and consistent with the protection of investors to
exempt BATS Exchange from the rule filing requirements under Section
19(b) of the Exchange Act with respect to the rules it has incorporated
by reference. This exemption is conditioned upon BATS Exchange
providing written notice to its members whenever CBOE, FINRA, or NYSE
proposes to change a rule that BATS Exchange has incorporated by
reference.
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\11\ See id., 69 FR at 8502.
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Accordingly, it is ordered, pursuant to Section 36 of the Exchange
Act,\12\ that BATS Exchange is exempt from the rule filing requirements
of Section 19(b) of the Exchange Act solely with respect to changes to
the rules identified in its request that incorporate by reference
certain rules of CBOE, FINRA, and NYSE,\13\ provided that BATS Exchange
provides written notice to its members whenever CBOE, FINRA, or NYSE
proposes to change a rule that BATS Exchange has incorporated by
reference.
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\12\ 15 U.S.C. 78mm.
\13\ See BATS Exemptive Request, supra note 6.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(76).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3772 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P