80 FR 9768 - Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 8.15 Entitled “Imposition of Fines for Minor Violation(s) of Rules”

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 36 (February 24, 2015)

[Federal Register Volume 80, Number 36 (Tuesday, February 24, 2015)]
[Notices]
[Pages 9768-9770]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-03669]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74294; File No. SR-BYX-2015-10]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 8.15 Entitled ``Imposition of Fines for Minor Violation(s) of 
Rules''

February 18, 2015.
    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 February 5, 2015, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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 filed a proposal to amend Rule 8.15 entitled 
``Imposition of Fines for Minor Violation(s) of Rules.'' The text of 
the proposed rule change is available at the Exchange's Web site at 
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 amend Rule 8.15 in order to make it 
substantively identical to the corresponding rules on EDGX Exchange, 
Inc. (``EDGX'') and EDGA Exchange, Inc. (``EDGA''), as further 
described below. Earlier this year, the Exchange and its affiliate, 
BATS Exchange, Inc. (``BZX''), received approval to effect a merger 
(the ``Merger'') of the Exchange's parent company, BATS Global Markets, 
Inc., with Direct Edge Holdings LLC, the indirect parent of EDGX and 
EDGA (together with BZX, BYX and EDGX, the ``BGM Affiliated 
Exchanges'').\5\ In the context of the Merger, the BGM Affiliated 
Exchanges are working to align certain system and regulatory 
functionality, retaining only intended differences between the BGM 
Affiliated Exchanges. Thus, the proposal set forth below is intended to 
amend Rule 8.15 in order to make the rule substantively identical to 
corresponding rules on EDGA and EDGX related to minor violations of 
exchange rules in order to provide a consistent regulatory approach 
across each of the BGM Affiliated Exchanges.
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    \5\ See Securities Exchange Act Release No. 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-
039).
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    Currently, Rule 8.15(a) provides that, in lieu of commencing a 
disciplinary

[[Page 9769]]

proceeding as described in Rules 8.1 through 8.13, the Exchange may, 
subject to the requirements set forth in this Rule, impose a fine, not 
to exceed $2,500, on any Member, associated person of a Member, or 
registered or non-registered employee of a Member, for any violation of 
a Rule of the Exchange, which violation the Exchange shall have 
determined is minor in nature. The Exchange is proposing to add 
language in order to make Rule 8.15(a) and Interpretation and Policy 
.01 to Rule 8.15 identical to the corresponding EDGA and EDGX rules.\6\ 
Specifically, the Exchange is proposing that the Exchange may, if no 
exceptional circumstances are present, impose a fine based upon a 
determination that there exists a pattern or practice of violative 
conduct. As proposed, the Exchange also may aggregate similar 
violations generally if the conduct was unintentional, there was no 
injury to public investors, or the violations resulted from a single 
systemic problem or cause that has been corrected.
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    \6\ See EDGX Rule 8.15(a) and Interpretation and Policy .01 to 
Rule 8.15 and EDGA Rule 8.15(a) and Interpretation and Policy .01 to 
Rule 8.15.
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    Currently, under Interpretation and Policy .01 to Rule 8.15, the 
Exchange fines individuals $100, $300, and $500 and Member firms $500, 
$1,000, and $2,500 for their first, second, and third time fined under 
Rule 8.15 within a rolling 12-month period, respectively, for the 
following violations of Exchange rules: (a) Rule 4.2 and Interpretation 
and Policy thereunder requiring the submission of responses to Exchange 
requests for trading data within a specified time period; (b) Rule 
11.19 requirement to identify short sale orders as such; and (c) Rule 
11.20 requirement to comply with locked and crossed market rules. The 
Exchange is proposing to add two additional instances to the fine 
structure described above. These additional instances include: (1) Rule 
3.5 Advertising Practices; and (2) Rule 12.11 Interpretation and Policy 
.01 and Exchange Act Rule 604--Failure to properly display limit 
orders.\7\
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    \7\ The Exchange notes that these proposed changes would make 
the Exchange's Rule 8.15 substantively identical to the 
corresponding EDGA and EDGX rules based on filings SR-EDGA-2015-11 
and SR-EDGX-2015-10. Such filings propose to remove paragraph (d) of 
Interpretation and Policy .01 to both EDGA and EDGX rules 8.15. The 
Exchange also notes that BZX intends to file a proposal very similar 
to this proposal that will align the rules related to fines for 
minor violation of exchange rules across each of the BGM Affiliated 
Exchanges.
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    The Exchange is also proposing to make several non-substantive 
changes to Interpretation and Policy .01 to Rule 8.15. First, the 
Exchange is proposing to change the numbering within the rule to 
reflect the additions described above. Second, the Exchange is 
proposing to change the phrase ``limit orders'' in paragraph (e) of 
Interpretation and Policy .01 to Rule 8.15 to ``quotations.'' The 
Exchange believes that this change is non-substantive because, in this 
instance, the terms limit orders and quotations are interchangeable. 
Paragraph (e) is referring to the obligation of a Market Maker under 
Rule 11.8 to maintain continuous liquidity of both buy and sell orders, 
which are referred to as quotes or quotations in Rule 11.8, at certain 
prices. Based on Exchange functionality, the only way to enter priced 
orders that could meet such quotation obligations would be through use 
of limit orders. As such, the Exchange believes that the proposed 
change is non-substantive, makes the rule more clear, and more 
accurately reflects the language used in Exchange Rule 11.8. Further, 
the change would make the rule text identical to that of EDGA and EDGX.
2. Statutory Basis
    The Exchange believes that 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.\8\ Specifically, the proposed change is consistent with 
Section 6(b)(5) of the Act,\9\ because it is designed to promote just 
and equitable principles of trade, to remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
As mentioned above, the proposed rule changes, combined with the 
planned filing for BZX,\10\ would allow the BGM Affiliated Exchanges to 
provide a consistent set of rules as it relates to the imposition of 
fines for minor violations of rules across each of the exchanges. 
Consistent rules, in turn, will simplify the regulatory requirements 
for Members of the Exchange that are also participants on BZX, EDGA, 
and/or EDGX. The proposed rule change would provide greater 
harmonization between rules of similar purpose on the BGM Affiliated 
Exchanges, resulting in greater uniformity and less burdensome and more 
efficient regulatory compliance. As such, the proposed rule change 
would foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ See supra note 7.
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    Specifically, the changes to Rule 8.15(a) and the addition of new 
paragraphs (d) and (e) to Interpretation and Policy .01 of Rule 8.15 
will provide the Exchange with additional ways to handle related minor 
violations as well as providing the Exchange with the ability to handle 
other rule violations which it believes to be minor under Rule 8.15. 
The Exchange believes that, in addition to the benefits to Members 
described above, the proposal will enhance the Exchange's ability to 
efficiently regulate its Members, meaning that the proposed rule change 
is equitable and will promote fairness in the market place.
    Further, the Exchange believes that the proposal is consistent with 
Sections 6(b)(1) and 6(b)(6) of the Act \11\ which require that the 
rules of an exchange enforce compliance with, and provide appropriate 
discipline for, violations of the Commission and Exchange rules. The 
Exchange also believes that the proposal is consistent with the public 
interest, the protection of investors, or otherwise in furtherance of 
the purposes of the Act because the proposal helps to strengthen the 
Exchange's ability to carry out its oversight and enforcement 
responsibilities as a self-regulatory organization in cases where full 
disciplinary proceedings are unsuitable in view of the minor nature of 
a particular violation.
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    \11\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
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    Finally, the Exchange believes that the non-substantive changes 
discussed above will contribute to the protection of investors and the 
public interest by helping to avoid confusion with respect to Exchange 
rules.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the act. To the contrary, allowing the 
Exchange to implement substantively identical rules related to the 
imposition of fines for minor violations of rules across each of the 
BGM Affiliated Exchanges does not present any competitive issues, but 
rather is designed to provide greater harmonization among Exchange, 
BZX, EDGA, and EDGX rules of similar purpose, resulting in less 
burdensome and more efficient regulatory compliance for common members 
of the

[[Page 9770]]

BGM Affiliated Exchanges and an enhanced ability of the BGM Affiliated 
Exchanges to fairly and efficiently regulate members, which will 
further enhance 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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and paragraph 
of Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 email to [email protected]. Please include 
File No. SR-BYX-2015-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-BYX-2015-10. This file 
number should be included on the subject line if email 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, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also 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 No. SR-BYX-2015-10 and should be 
submitted on or before March 17, 2015.

    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)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03669 Filed 2-23-15; 8:45 am]
BILLING CODE 8011-01-P