81 FR 59016 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 21.8, Order Display and Book Processing

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 166 (August 26, 2016)

[Federal Register Volume 81, Number 166 (Friday, August 26, 2016)]
[Notices]
[Pages 59016-59018]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-20457]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78630; File No. SR-BatsEDGX-2016-46]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
21.8, Order Display and Book Processing

August 22, 2016.
    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 August 17, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 authorize the Exchange's equity 
options platform (``EDGX Options'') to amend Rule 21.8 (Order Display 
and Book Processing).
    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 is proposing to amend Rule 21.8 (Order Display and 
Book Processing), which sets forth the priority and order allocation 
rules applicable to EDGX Options. Rule 21.8 also describes the general 
priority rules for EDGX Options, including that quotes and orders are 
prioritized by price and then on a pro-rata basis according to size as 
well as various priority overlays applicable to the pro-rata allocation 
method. Specifically, Rule 21.8(g) (Primary Market Maker Participation 
Entitlements) allows for an exception to the pro-rata basis in cases of 
small size orders,\5\ where Primary Market Makers are allocated the 
full order amount if they have priority quotes at the NBBO. When the 
Exchange originally proposed rules for EDGX Options, the Exchange 
proposed to extend the small size order exception to Directed Market 
Makers as well. This aspect of the Exchange's Rules was eliminated 
prior to approval of rules for EDGX Options.\6\ However,

[[Page 59017]]

there is one remaining reference to Directed Market Makers in Rule 
21.8(g)(2), which describes the Exchange's monitoring of the small size 
order exception. Because the small size order exception is limited to 
Primary Makers, the Exchange proposes to eliminate reference to 
Directed Market Makers in Rule 21.8(g)(2). This amendment will align 
the Exchange with other option exchanges,\7\ and will ensure internal 
consistency of the Exchange's rulebook, which has been previously 
amended to delete the proposed rule granting Directed Market Makers 
participation entitlements to trade against small size orders.\8\
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    \5\ Small size orders are defined as five or fewer contracts. 
See Exchange Rule 21.8(g)(2).
    \6\ See Securities Exchange Act Release No. 75650 (August 7, 
2015), 80 FR 48600 (August 13, 2015) (SR-EDGX-2015-18) (Notice of 
Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 
2, and 3 Thereto, To Establish Rules Governing the Trading of 
Options on the EDGX Options Market).
    \7\ See, e.g., BX Options, chapter VI, section 10(1)(C)(2), 
``Orders for 5 contracts or fewer shall be allocated to the LMM. The 
Exchange will review this provision quarterly and will maintain the 
small order size at a level that will not allow orders of 5 
contracts or less executed by the LMM to account for more than 40% 
of the volume executed on the Exchange. This provision shall not 
apply if the order of 5 contracts or fewer is directed to a DMM who 
is quoting at or better than the NBBO.''
    \8\ See supra note 6.
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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.\9\ Specifically, the 
proposal is consistent with section 6(b)(5) of the Act \10\ because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The amended rule will remove reference to Directed Market Makers in 
the context of the small size order exception. Thus, this amendment 
will align the Exchange with other options exchanges,\11\ and will 
ensure internal consistency of the Exchange's rulebook, which has been 
previously amended to delete the proposed rule granting Directed Market 
Makers participation entitlements to trade against small size orders.
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    \11\ See supra note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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.\12\ Specifically, the 
proposal is consistent with section 6(b)(5) of the Act \13\ because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The amended rule will remove reference to Directed Market Makers in 
the context of the small size order exception. Thus, this amendment 
will align the Exchange with other options exchanges,\14\ and will 
ensure internal consistency of the Exchange's rulebook, which has been 
previously amended to delete the proposed rule granting Directed Market 
Makers participation entitlements to trade against small size orders.
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    \14\ See supra note 7.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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 \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(a).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay. The Exchange 
states that the rule change proposed herein is a minor change to ensure 
internal consistency of the Exchange's rulebook. Further, the Exchange 
states that the proposed change is based on an existing rule of another 
options exchange \19\ and does not raise any new policy issues.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ See supra note 7.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
the proposed rule change is a non-substantive change and will promote 
internal consistency of the Exchange's rulebook and avoid potential 
confusion as to the application of the Exchange's rules. Therefore, the 
Commission designates the proposed rule change to be operative as of 
the date of filing.\20\
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    \20\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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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-BatsEDGX-2016-46 on the subject line.

[[Page 59018]]

Paper Comments

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

All submissions should refer to File No. SR-BatsEDGX-2016-46. 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-BatsEDGX-2016-46 and should be 
submitted on or before September 16, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Robert W. Errett,
Deputy Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-20457 Filed 8-25-16; 8:45 am]
 BILLING CODE 8011-01-P