Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.

Federal Register: July 14, 2009 (Volume 74, Number 133)

Notices

Page 34068-34070

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr14jy09-122

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-60236; File No. SR-BATS-2009-019

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of

Filing and Immediate Effectiveness of Proposed Rule Change To Establish

Its New Sponsored Access Risk Management Tool Service

July 2, 2009.

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 June 26, 2009, BATS Exchange, Inc. (``BATS'' or the

``Exchange'') filed with the Securities and Exchange Commission (the

``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Exchange filed the proposed rule change pursuant to

Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 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.

\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).

Page 34069

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The Exchange proposes to establish its new Sponsored Access Risk

   Management Tool (the ``Tool'') service.

2. 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 those 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.

   1. Self-Regulatory Organization's Statement of the Purpose of, and

      Statutory Basis for, the Proposed Rule Change 1. Purpose

      The Exchange proposes to offer the Tool service to BATS Members and

      Member organizations.

      Background

      The Exchange defines a ``Sponsored Participant'' as a person who has entered into a sponsorship arrangement with a Sponsoring Member.\5\

      A ``Sponsoring Member'' is defined as a broker-dealer that is a Member of the Exchange and has been designated by a Sponsored Participant to execute, clear and settle transactions occurring on the Exchange.\6\

      Under BATS Rule 11.3(b), a Sponsoring Member may allow its customers to enter orders directly into the trading systems of the Exchange as

      Sponsored Participants, without the Sponsoring Member acting as an intermediary.

      \5\ See BATS Rule 1.5(w).

      \6\ See BATS Rule 1.5(x).

      Sponsored Access Risk Management Tool

      To facilitate the ability of a Sponsoring Member to monitor and oversee the sponsored access activity of its Sponsored Participants, the Exchange will offer the Sponsored Access Risk Management Tool. This optional service will act as a risk filter by causing the orders of

      Sponsored Participants to be evaluated by the Tool prior to entering the Exchange's trading systems for execution. When a Sponsored

      Participant's order is evaluated by the Tool, it determines whether the order complies with the order criteria established by the Sponsoring

      Member for that Sponsored Participant. The order criteria pertain to such matters as the size of the order (e.g., maximum notional value per order and maximum shares per order), the order type (e.g., pre-market, post-market, short sales and ISOs), restricted securities, easy to borrow securities, and order cut-off (e.g., block new orders and cancel all open orders).

      The Tool also offers Sponsoring Members the capability to receive

      FIX Drop Order Copy sessions, which include the complete FIX conversation, as well as web based management tools to configure the

      Sponsored Access controls.

      The Sponsoring Member, and not the Exchange, will have full responsibility for ensuring that Sponsored Participants' sponsored access to the Exchange complies with the Exchange's sponsored access rules. The use of the Tool by a Sponsoring Member does not automatically constitute compliance with Exchange Rules.

      The Sponsored Participant's orders are validated in the FIX handler prior to entering the matching engine. Based on parameters provided to the Tool by the Sponsoring Member, the order is immediately passed on to the matching engine or rejected back to the Sponsored Participant.

      The Exchange does not require Sponsoring Members to use the Tool.

      Sponsoring Members are free to use any appropriate risk-management tool or service. The Exchange will not provide preferential treatment to

      Sponsoring Members using the Tool.

      The Exchange proposes to make the Tool available to its Members upon request. The Exchange believes the Tool will offer the Exchange's

      Members another option in the efficient risk management of its

      Sponsored Participants' access to BATS Exchange. 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 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 also is designed to support the principles of Section 11A(a)(1) \9\ in that it seeks to assure economically efficient execution of securities transactions, make it practicable for brokers to execute investors' orders in the best market, and provide an opportunity for investors' orders to be executed without the participation of a dealer. Specifically, the

      Exchange believes that the proposed rule change is consistent with all of the aforementioned principles because it fosters competition by providing another option in the efficient risk management of trading on the Exchange. BATS notes that a similar functionality has already been found to be consistent with the Act by the Commission.\10\

      \7\ 15 U.S.C. 78f(b).

      \8\ 15 U.S.C. 78f(b)(5).

      \9\ 15 U.S.C. 78k-1(a)(1).

      \10\ Securities Exchange Act Release No. 59354 (February 3, 2009), 74 FR 6683 (February 10, 2009) (SR-NYSE-2008-101) (Approval of NYSE Risk Management Gateway).

   2. Self-Regulatory Organization's Statement on Burden on Competition

      The Exchange does not believe that the proposed rule change imposes any burden on competition.

   3. 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.

3. Date of Effectiveness of the Proposed Rule Change and Timing for

   Commission Action

   Because the foregoing 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) by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\

   \11\ 15 U.S.C. 78s(b)(3)(A).

   \12\ 17 CFR 240.19b-4(f)(6).

   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.\13\

   However, Rule 19b-

   Page 34070

   4(f)(6)(iii) \14\ 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 and designate the proposed rule change operative upon filing so that the expected benefits to Exchange Users from use of the Tool would not be delayed. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes that other self-regulatory organizations have similar functionality \15\ and that this filing raises no new regulatory issues. Therefore, the Commission designates the proposal operative upon filing.\16\

   \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file 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 complied with this requirement.

   \14\ Id.

   \15\ See Securities Exchange Act Release No. 59354 (February 3, 2009), 74 FR 6683 (February 10, 2009) (SR-NYSE-2008-101) (Approval of NYSE Risk Management Gateway).

   \16\ For purposes only of waiving the 30-day operative delay of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

   At any time within 60 days of the filing of the 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.

4. 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 rule-comments@sec.gov. Please include

   File Number SR-BATS-2009-019 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-2009-019. 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 inspection and copying in the Commission's Public Reference Room 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 available publicly. All submissions should refer to File Number SR-

   BATS-2009-019 and should be submitted on or before August 4, 2009.

   \17\ 17 CFR 200.30-3(a)(12).

   For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\

   Elizabeth M. Murphy,

   Secretary.

   FR Doc. E9-16576 Filed 7-13-09; 8:45 am

   BILLING CODE 8010-01-P