81 FR 75464 - Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to BZX Rule 11.13, Order Execution and Routing

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 210 (October 31, 2016)

[Federal Register Volume 81, Number 210 (Monday, October 31, 2016)]
[Notices]
[Pages 75464-75466]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-26132]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79149; File No. SR-BatsBZX-2016-65]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to BZX 
Rule 11.13, Order Execution and Routing

October 25, 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 October 12, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 
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 the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend Exchange Rule 11.13(b)(1) to 
describe when an order marked as ``short'' may be eligible for routing 
when a short sale price test restriction is in effect.
    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 Exchange Rule 11.13(b)(1) to 
describe when an order to sell marked \5\ as ``short'' \6\ may be 
eligible for routing when a short sale price test restriction is in 
effect. Under Rule 201 of Regulation SHO,\7\ a short sale order in a 
covered security \8\ generally cannot be executed or displayed by a 
Trading Center,\9\ such as the Exchange, at a price that is at or below 
the current national best bid (``NBB'') \10\ when a short sale circuit 
breaker is in effect for the covered security (the ``short sale price 
test restriction'').\11\
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    \5\ 17 CFR 242.200(g).
    \6\ The term ``short sale'' is defined as ``any sale of a 
security which the seller does not own or any sale which is 
consummated by the delivery of a security borrowed by, or for the 
account of, the seller.'' 17 CFR 242.200(a).
    \7\ See 17 CFR 242.201; Securities Exchange Act Release No. 
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010).
    \8\ Rule 201(a)(1) of Regulation SHO defines the term ``covered 
security'' to mean any ``NMS stock'' as defined under Rule 
600(b)(47) of Regulation NMS. Rule 600(b)(47) of Regulation NMS 
defines an ``NMS stock'' as ``any NMS security other than an 
option.'' Rule 600(b)(46) of Regulation NMS defines an ``NMS 
security'' as ``any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.'' 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(46); and 17 CFR 
242.600(b)(47).
    \9\ Rule 201(a)(9) of Regulation SHO states that the term 
``Trading Center'' shall have the same meaning as in Rule 600(b)(78) 
of Regulation NMS. Rule 600(b)(78) of Regulation NMS defines a 
``Trading Center'' as ``a national securities exchange or national 
securities association that operates an SRO trading facility, an 
alternative trading system, an exchange market maker, an OTC market 
maker, or any other broker or dealer that executes orders internally 
by trading as principal or crossing orders as agent.'' 17 CFR 
242.200(a)(9); 17 CFR 242.600(b)(78).
    \10\ 17 CFR 242.201(a)(4); 17 CFR 242.600(b)(42).
    \11\ 17 CFR 242.201(b)(1).
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    Under Rule 11.13(b)(1), an order marked ``short'' when a short sale 
price test restriction is in effect is not eligible for routing by the 
Exchange. If an order is ineligible for routing due to a short sale 
price test restriction and such order is an Immediate or Cancel 
(``IOC'') Order \12\ or a BZX Market Order,\13\ then

[[Page 75465]]

the order will be cancelled. If an order is ineligible for routing due 
to a short sale price test restriction and such order is a Limit 
Order,\14\ the Exchange will post the unfilled balance of the order to 
the BZX Book,\15\ subject to the price sliding process as defined in 
paragraph (g) of Exchange Rule 11.9.\16\
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    \12\ See Exchange Rule 11.9(b)(1).
    \13\ See Exchange Rule 11.9(a)(2). The Exchange also proposes to 
remove the reference to BZX Market Orders in Rule 11.13(b)(1) as BZX 
Market Orders with a time-in-force of Day that are ineligible for 
routing due to a short sale price test restriction pursuant to Rule 
201 of Regulation SHO are not cancelled, but rather posted to the 
BZX Book pursuant to Exchange Rule 11.9(a)(2). All other BZX Market 
Orders are handled in accordance with Exchange Rule 11.13(a).
    \14\ See Exchange Rule 11.9(a)(1).
    \15\ See Exchange Rule 1.5(e).
    \16\ In sum, under Exchange Rule 11.9(g), a short sale order 
that, at the time of entry, could not be executed or displayed in 
compliance with Rule 201 of Regulation SHO will be re-priced by the 
System at one minimum price variation above the current NBB 
(``Permitted Price''). See Exchange Rule 11.9(g) for a full 
description of the Exchange's Short Sale Price Sliding Process.
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    The Exchange proposes to specify in Rule 11.13 that orders marked 
``short'' may be eligible for routing by the Exchange when a short sale 
price test restriction is in effect where the User \17\ selects either 
the Post to Away \18\ or ROOC \19\ routing options.\20\ In contrast to 
all other routing strategies, which are routed to other Trading Centers 
for immediate execution, the Post to Away and ROOC routing options are 
orders that are sent to other Trading Centers for posting and/or later 
execution as further described below. Under the Post to Away routing 
option, the remainder of a routed order is routed to and posted to the 
order book of a destination on the System routing table,\21\ as 
specified by the User. ROOC is a routing option for orders that the 
User wishes to designate for participation in the opening, re-opening 
(following a halt, suspension, or pause), or closing process of a 
primary listing market other than the Exchange (e.g., the New York 
Stock Exchange, Inc. (``NYSE''), Nasdaq Stock Market LLC (``Nasdaq''), 
NYSE MKT LLC, or NYSE Arca, Inc. (``NYSE Arca'')) if received before 
the opening/re-opening/closing time of such market. If shares remain 
unexecuted after attempting to execute in the opening, re-opening, or 
closing process, they are either posted to the BZX Book, executed, or 
routed to destinations on the System routing table.\22\ Orders routed 
pursuant to the Post to Away and ROOC routing options that are 
identified as ``short'' are subject to the receiving Trading Center's 
processes for handling short sale orders in compliance with Rule 201 of 
Regulation SHO.\23\
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    \17\ See Exchange Rule 1.5(cc).
    \18\ See 11.13(b)(3)(H).
    \19\ See 11.13(b)(3)(N).
    \20\ The Exchange also proposes to specify within Rule 
11.13(b)(1) that the short sale price test restriction is declared 
pursuant to Rule 201 of Regulation SHO.
    \21\ The term ``System routing table'' is defined as the ``the 
proprietary process for determining the specific trading venues to 
which the System routes orders and the order in which it routes 
them.'' See Exchange Rule 11.13(b)(3).
    \22\ Shares returned to the Exchange after routing are handled 
in accordance with Exchange Rules, including Rule 11.13(a).
    \23\ See, e.g., Nasdaq Rule 4763; NYSE Rule 440B; and Nasdaq's 
Regulation SHO Frequently Asked Questions (updated March 10, 2011), 
available at https://nasdaqtrader.com/content/marketregulation/regsho/regshoFAQs.pdf.
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    Under Exchange Rule 11.13(b)(1), IOC Orders marked ``short'' that 
are not eligible for routing during a short sale price test restriction 
will continue to be cancelled.\24\ The unfilled portions of Limit 
Orders marked ``short'' that are ineligible for routing due to a short 
sale price test restriction Exchange will continue to be posted to the 
BZX Book subject to the price sliding process as defined in paragraph 
(g) of Exchange Rule 11.9.
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    \24\ See supra note 13.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \25\ and furthers the objectives of 
Section 6(b)(5) of the Act \26\ because it is designed to 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, 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and, in general, protect 
investors and the public interest. Specifically, the proposed changes 
are designed to ensure clarity in the Exchange's rulebook with respect 
to the routing of orders in compliance with Rule 201 of Regulation SHO. 
In addition, providing Users the ability to send short sale orders that 
are routable pursuant to the Post to Away and ROOC routing options 
provides them additional flexibility with regard to the handling of 
their orders. The Exchange notes that short sale orders routed pursuant 
to the Post to Away or ROOC routing options are identified as ``short'' 
and, therefore, subject to the receiving Trading Center's processes for 
handling short sale orders in compliance with Regulation SHO.\27\ The 
Exchange also notes that other national securities exchanges do not 
expressly prohibit the routing of short sale orders. For example, 
Nasdaq and NYSE Arca allow for the routing of short sale orders 
generally, and do not limit a short sale order's ability to route to 
certain routing options.\28\ Thus, the proposal is directly targeted at 
removing impediments to and perfecting the mechanism of a free and open 
market and national market system. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \29\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ See supra note 22.
    \28\ See e.g., Nasdaq Rules 4702(a) (stating generally that an 
``[o]rder may . . . may be routed to other market centers for 
potential execution if designated as `Routable' '') and 4763 (not 
prohibiting the routing of a short sale order during a short sale 
price test). See also e.g., NYSE Arca Rule 7.6P (not prohibiting the 
routing of a short sale order during a short sale price test).
    \29\ 15 U.S.C. 78k-1(a)(1).
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange is 
simply proposing to reflect in its rules that orders marked ``short'' 
may be routed to an away market for execution under two specific 
routing strategies offered by the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Not applicable.

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 \30\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\31\ 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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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 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

[[Page 75466]]

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-BatsBZX-2016-65 on the subject line.

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 Number SR-BatsBZX-2016-65. 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 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-BatsBZX-2016-65, and should 
be submitted on or before November 21, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26132 Filed 10-28-16; 8:45 am]
 BILLING CODE 8011-01-P