81 FR 94440 - Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.9, Orders and Modifiers, and Rule 11.13, Order Execution and Routing, To Enhance the Exchange's Midpoint Routing Functionality

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 247 (December 23, 2016)

[Federal Register Volume 81, Number 247 (Friday, December 23, 2016)]
[Notices]
[Pages 94440-94442]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-30947]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79603; File No. SR-BatsBYX-2016-41]


Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.9, Orders and Modifiers, and Rule 11.13, Order Execution and 
Routing, To Enhance the Exchange's Midpoint Routing Functionality

December 19, 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 December 16, 2016, Bats BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission (the 
``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 Rule 11.9, Orders and 
Modifiers, and Rule 11.13, Order Execution and Routing, to enhance the 
Exchange's midpoint routing functionality.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.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

[[Page 94441]]

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 11.9, Orders and Modifiers, and 
Rule 11.13, Order Execution and Routing, to enhance the Exchange's 
midpoint routing functionality. Specifically, the Exchange proposes to 
amend Rule 11.13(b)(3)(Q) to adopt a new midpoint routing strategy 
known as RMPL. The Exchange also proposes to amend Rule 11.9(c)(9) to 
expand the routing strategies that Mid-Point Peg Orders may be coupled 
with to include the Destination Specific routing strategy described 
under Rule 11.13(b)(3)(E) and the proposed RMPL routing strategy 
described below.
RMPL Routing Strategy
    The Exchange proposes to amend Rule 11.13(b)(3)(Q) to adopt a new 
midpoint routing strategy known as RMPL. Currently, the Exchange offers 
the RMPT routing strategy, which is described under Rule 
11.13(b)(3)(Q). RMPT is a routing strategy under which a Mid-Point Peg 
Order \5\ checks the System \6\ for available shares and any remaining 
shares are then sent to destinations on the System routing table \7\ 
that support midpoint eligible orders. If any shares remain unexecuted 
after routing, they are posted on the BYX Book \8\ as a Mid-Point Peg 
Order, unless otherwise instructed by the User.\9\
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    \5\ In sum, a Mid-Point Peg Order is a limit order that after 
entry into the System, the price of the order is automatically 
adjusted by the System in response to changes in the NBBO to be 
pegged to the mid-point of the NBBO, or, alternatively, pegged to 
the less aggressive of the midpoint of the NBBO or one minimum price 
variation inside the same side of the NBBO as the order. See 
Exchange Rule 11.9(c)(9).
    \6\ The term ``System'' is defined as ``the electronic 
communications and trading facility designated by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing away.'' See Exchange Rule 
1.5(aa).
    \7\ The term ``System routing table'' refers to 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). While the process for determining the 
specific trading venues to which orders are routed is proprietary, 
the Exchange publicly discloses the trading venues associated with 
each routing strategy via its Web site at http://cdn.batstrading.com/resources/features/bats_exchange_routing-strategies.pdf.
    \8\ The term ``BYX Book'' is defined as the ``System's 
electronic file of orders.'' See Exchange Rule 1.5(e).
    \9\ The term ``User'' is defined as ``any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.'' See Exchange Rule 1.5(cc).
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    The Exchange now proposes RMPL as an alternative to the RMPT 
routing strategy for those seeking to route Mid-Point Peg Orders to 
destinations that support midpoint eligible executions that are not 
included under the current RMPT routing strategy. Like RMPT, RMPL would 
be a routing strategy under which a Mid-Point Peg Order checks the 
System for available shares and any remaining shares are then sent to 
destinations on the System routing table that support midpoint eligible 
orders. If any shares remain unexecuted after routing, they are posted 
on the BYX Book as a Mid-Point Peg Order, unless otherwise instructed 
by the User. As it does for RMPT, the Exchange would determine via the 
System routing table the specific trading venues that support midpoint 
eligible orders to which the System would route RMPL orders. While RMPL 
will operate in an identical manner as RMPT, the trading venues that 
each routing strategy would route to and the order in which it routes 
them will differ. As is the case for RMPT, the Exchange may alter the 
trading venues included under RMPL and the order in which they are 
routed to from time to time in accordance with its System routing 
table.\10\
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    \10\ The Exchange notes that the trading venues to which other 
of its routing strategies route orders to are also determined in 
accordance with the System routing table. See e.g., Exchange Rule 
11.13(b)(3)(G) (listing a series of routing options whose 
destinations are determined by the System routing table, like the 
proposed revisions to Exchange Rule 11.13(b)(3)(Q)). See also 
subparagraphs (A), (B), (C), (D) and (I) of Exchange Rule 11.9(b)(3) 
[sic] (describing routing strategies that route orders to 
destinations on the System routing table).
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    The Exchange proposes to revise Rule 11.13(b)(3)(Q) to describe 
both the RMPT and proposed RMPL routing strategies. As a result of 
these revision, the construct of paragraph (b)(3)(Q) of Rule 11.13 
would be similar to paragraph (b)(3)(G) of Rule 11.13, which also 
delineates routing strategies that include different sets of 
destinations as determined by the System routing table.
Mid-Point Peg Order Routing
    The Exchange also proposes to amend Rule 11.9(c)(9) to expand the 
routing strategies that Mid-Point Peg Orders may be coupled with. 
Currently, Exchange Rule 11.9(c)(9) states that Mid-Point Peg Orders 
are not eligible for routing pursuant to Rule 11.13 unless routed 
utilizing the RMPT routing strategy.\11\ The Exchange now proposes to 
amend Rule 11.9(c)(9) to expand the routing strategies that Mid-Point 
Peg Orders may be coupled with to include the Destination Specific 
routing strategy described under Rule 11.13(b)(3)(E) and the proposed 
RMPL routing strategy described above.
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    \11\ The Exchange also proposes to amend the second to last 
sentence of Rule 11.9(c)(9) to correct an erroneous reference to 
Rule 11.13(a)(3)(Q) by replacing it with ``Rule 11.13(b)(3)''.
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    Destination Specific is a routing option under which an order 
checks the System for available shares and then is sent to an away 
trading center or centers specified by the User.\12\ As proposed, a 
User entering a Mid-Point Peg Order may select the Destination Specific 
routing strategy to route such order to a specific trading center or 
center that supports midpoint executions after being exposed to the BYX 
Book. This differs from RMPT and the proposed RMPL routing strategies 
in that the destinations orders subject to the RMPT and RMPL routing 
strategies are selected by the Exchange via the System routing table 
and not the User itself.
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    \12\ See Rule 11.13(b)(3)(E).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \14\ in particular, in that it is designed 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 rule change 
also is designed to support the principles of Section 11A(a)(1) \15\ of 
the Act in that it seeks to assure fair competition among brokers and 
dealers and among exchange markets. The proposed rule change promotes 
just and equitable principles of trade because it would enhance the 
Exchange's midpoint routing functionality and provide Users with 
greater flexibility in routing Mid-Point Peg Orders to trading venues 
that support midpoint executions. This would save such Users from 
developing complicated order routing strategies on their own. The 
Exchange believes that the proposed rule change will also accomplish 
those ends by providing market participants with an additional 
voluntary routing strategies and options that will enable

[[Page 94442]]

them to easily access midpoint liquidity available on the Exchange and 
other trading venues. The Exchange notes that routing through the 
Exchange is voluntary and those seeking to access midpoint liquidity on 
other trading venues may do so directly and without the involvement of 
the Exchange. Therefore, the Exchange believes the proposal removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system, and, in general, protects investors and the 
public interest.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 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, as amended. The 
Exchange provides routing services in a highly competitive market in 
which participants may avail themselves of a wide variety of routing 
options offered by self-regulatory organizations, alternative trading 
systems, other broker-dealers, market participants' own proprietary 
routing systems, and service bureaus. System enhancements, such as the 
changes proposed in this rule filing, do not burden competition, but 
rather encourage competition because they are designed to attract 
additional order flow to the Exchange through enhanced midpoint routing 
functionality. Such changes are intended to offer investors higher 
quality and better value than services offered by others. Encouraging 
competitors to provide higher quality and better value is the essence 
of a well-functioning competitive marketplace. Therefore, the Exchange 
does not believe the proposed rule change will result in any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    No comments were solicited or received 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: (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 \16\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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-BatsBYX-2016-41 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-BatsBYX-2016-41. 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-BatsBYX-2016-41, and should 
be submitted on or before January 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30947 Filed 12-22-16; 8:45 am]
 BILLING CODE 8011-01-P