81 FR 70198 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 22.3, Continuing Options Market Maker Registration, of Bats EDGX Exchange, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 196 (October 11, 2016)

[Federal Register Volume 81, Number 196 (Tuesday, October 11, 2016)]
[Notices]
[Pages 70198-70200]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-24426]



[[Page 70198]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79041; File No. SR-BatsEDGX-2016-53]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
22.3, Continuing Options Market Maker Registration, of Bats EDGX 
Exchange, Inc.

October 4, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 28, 2016, Bats EDGX Exchange, Inc. (``EDGX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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 make a modification to Exchange Rule 
22.3, Continuing Options Market Maker Registration, to remove the 
provision of the rule that requires termination of a Member's Options 
Market Maker registration in an option series if the Options Market 
Maker fails to enter quotations in the series within five business days 
after the Options Market Maker's registration in the series becomes 
effective.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Exchange Rule 22.3 to remove 
subparagraph (c), which currently requires the Exchange to terminate a 
firm's Options Market Maker registration if it does not enter 
quotations in an option series in which it is registered within five 
business days after the Options Market Maker's registration in the 
series becomes effective. Currently, the Exchange surveils whether a 
newly registered Options Market Maker enters quotations in the series 
within five business days of registration. If an Options Market Maker 
does not, the Exchange is required by Exchange Rule 22.3(c) to 
automatically deregister the Options Market Maker in that series. The 
Exchange views Exchange Rule 22.3(c) as largely duplicative of other 
Exchange Rules and excessively rigid in view of other Exchange Rules 
that allow the Exchange discretion and flexibility in determining an 
appropriate remedy.
    Exchange Rule 22.5(a)(6) provides that Options Market Makers are 
expected to ``maintain active markets'' in all series in which they are 
registered. Both Rule 22.3(c) and Rule 22.5(a)(6) impose an obligation 
upon registered Options Market Maker to maintain active markets. The 
main difference is that Exchange Rule 22.3(c) applies only to the first 
five days that an Options Market Maker is registered, whereas Exchange 
Rule 22.5(a)(6) applies during the first five days and continues for as 
long as the Options Market Maker is registered in a series. The 
Exchange believes that there is no benefit to imposing stricter quoting 
obligations on a newly registered Options Market Maker than those 
imposed on existing registered Options Market Makers. Instead, in the 
Exchange's view, the requirement to maintain active markets should be 
the same from when an Options Market Maker first registers as any time 
after registration.
    The Exchange notes that it will continue to be permitted to 
deregister a registered Options Market Maker under Exchange Rule 
22.2(b) if it is found that the Options Market Maker has failed in its 
obligation to maintain active markets under Exchange Rule 22.5(a)(6) or 
fails its obligation to provide continuous two-sided quotes under Rule 
22.6(d).\3\ Removing Exchange Rule 22.3(c) would simply remove the non-
discretionary requirement that the Exchange must deregister an Options 
Market Maker's registration in a series if it does not enter quotations 
in the series within five business days of registration.
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    \3\ See Exchange Rule 22.2(b) (``The registration of any Member 
as a Market Maker may be suspended or terminated by the Exchange 
upon a determination that such Member has failed to properly perform 
as a Market Maker.'').
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    The Exchange currently conducts surveillance to monitor and enforce 
compliance with the ``active markets'' provision of Exchange Rule 
22.5(a)(6) for all Options Market Makers. A registered Options Market 
Maker is subject to the Exchange Rule 22.5(a)(6) surveillance for the 
entire time the Options Market Maker is registered, including the first 
five days covered by Exchange Rule 22.3(c). If a registered Options 
Market Maker is found by surveillance not to be maintaining active 
markets in the option series in which it is registered, the Exchange 
will determine the appropriate course of action against such Options 
Market Maker. The Exchange may take actions of escalating severity 
against the offending Options Market Maker from an informal warning up 
to deregistering the Options Market Maker in the options in which it 
fails to maintain active markets or bringing formal action.\4\ The 
Exchange has found that this discretion has allowed for effective 
enforcement of Options Market Maker obligations while allowing the 
Exchange to consider the facts and circumstances of each case in 
determining the appropriate remedy.
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    \4\ See Exchange Rules 22.2(b) and 22.5(c).
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    On the other hand, current Exchange Rule 22.3(c) is non-
discretionary and its enforcement can lead to potentially arbitrary 
results, as it does not permit the Exchange to consider the facts and 
circumstances of each case in enforcing the rule. While as a general 
matter an Options Market Maker should enter quotations in a series in 
which it is registered as soon as practicable, experience has shown 
that many factors can affect when a newly registered Options Market 
Maker will be in a position to begin entering quotations. Further, as 
discussed above [sic], Exchange Rule 22.6(d) contemplates certain 
acceptable periods of inactivity. Just as the Exchange is provided 
discretion to enforce all Options Market Maker obligations under 
Exchange Rule 22.2(b), the Exchange believes that it should be afforded 
the same discretion to evaluate the facts and circumstances of each 
case in which an Options

[[Page 70199]]

Market Maker is not active in a series within the first five days of 
registration and determine the appropriate remedy.
    Finally, other national options exchanges do not require automatic 
deregistration of a registered Options Market Maker from an options 
series when the Options Market Maker fails to submit a quote within the 
first five days of registration. Other exchanges allow considerably 
more discretion in determining the appropriate remedy for a registered 
Options Market Maker that fails its quoting obligations. For example, 
neither the Chicago Board Options Exchange (``CBOE''), nor the Miami 
International Securities Exchange (``MIAX''), nor NYSE Arca, Inc. 
Options (``NYSE Arca''), has a requirement to automatically deregister 
an options market maker if it fails in its quoting or other obligations 
within five days of registration. Instead, each of the above exchanges 
appears to rely on a rule substantively identical to Exchange Rule 
22.2(b) that gives the respective exchange discretion as to the 
appropriate remedy for Options Market Makers that do not meet their 
obligations.\5\
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    \5\ See CBOE Rule 8.2(b) (``The registration of a Market-Maker 
may be suspended or terminated by the Exchange upon a determination 
that the Market-Maker has failed to properly perform as a Market-
Maker.''); MIAX Rule 600(c) (``The registration of any Member as a 
Lead Market Maker, Primary Lead Market Maker, or as a Registered 
Market Maker may be suspended or terminated by the Exchange upon a 
determination that such Member has failed to properly perform as a 
Market Maker''); NYSE Arca Options Rule 6.33 (``The registration of 
any person as a Market Maker may be suspended or terminated by the 
Exchange upon a determination of any substantial or continued 
failure by such Market Maker to engage in dealings in accordance 
with [Market Maker Obligations].'').
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    The Exchange, therefore, proposes to amend Exchange Rule 22.3 to 
remove subparagraph (c) and to enforce its Options Market Maker 
``active market'' obligations with the remedies permitted in Exchange 
Rule 22.2(b) and Exchange Rule 22.5(c).
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.\6\
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    \6\ 15 U.S.C. 78f(b).
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    In particular, the proposal is consistent with Section 6(b)(1) \7\ 
in that it enables the Exchange to be so organized as to have the 
capacity to be able to carry out the purposes of the Exchange Act and 
to comply, and to enforce compliance by its exchange members and 
persons associated with its exchange members, with the provisions of 
the Exchange Act, the rules and regulations thereunder, and the rules 
of the Exchange. The proposal allows the Exchange the discretion so 
that it may appropriately and equitably enforce compliance by its 
members with the rules of the Exchange--in particular, the Exchange's 
Options Market Maker obligations.
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    \7\ 15 U.S.C. 78f(b)(1).
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    Additionally, the proposal is consistent with Section 6(b)(5) of 
the Act \8\ 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. The proposed amendment to remove Exchange Rule 
22.3(c) will permit the Exchange to consider all facts and 
circumstances in instances where it appears that a registered Options 
Market Maker does not meet its obligations and to exercise discretion 
in applying the appropriate remedy for such failure.
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    \8\ 15 U.S.C. 78f(b)(5).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change 
does not introduce any burden on competition, but rather, removes the 
automatic deregistration requirement of Exchange Rule 22.3(c) to allow 
the Exchange to apply the obligation to maintain active markets to all 
registered Options Market Makers equally.

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: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, 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 \9\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\10\ the Exchange has 
designated this rule filing as non-controversial. The Exchange has 
given the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or 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 email to [email protected]. Please include 
File Number SR-BatsEDGX-2016-53 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 Number SR-BatsEDGX-2016-53. 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

[[Page 70200]]

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 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-BatsEDGX-2016-53, and should 
be submitted on or before November 1, 2016.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24426 Filed 10-7-16; 8:45 am]
 BILLING CODE 8011-01-P