Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BATS Rule 11.9, Entitled “Orders and Modifiers”

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Federal RegisterJul 31, 2009
74 Fed. Reg. 38241 (Jul. 31, 2009)
July 24, 2009.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that on July 20, 2009, BATS Exchange, Inc. (“BATS” or the “Exchange”) 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 and Rule 19b-4(f)(6)(iii) thereunder, 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.

17 CFR 240.19b-4.

17 CFR 240.19b-4(f)(6).

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange is proposing to amend BATS Rule 11.9, entitled “Orders and Modifiers,” to eliminate the ability of Exchange Users to execute market orders on the Exchange outside of Regular Trading Hours.

As set forth in BATS Rule 1.5(w), Regular Trading Hours last from 9:30 a.m. until 4:00 p.m. Eastern Time.

The text of the proposed rule change is available at the Exchange's Web site at http://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 purpose of the proposed rule change is to amend BATS Rule 11.9(a)(2) to eliminate the ability of Exchange Users to execute market orders on the Exchange during the Exchange's Pre-Opening or After Hours Trading Session. Although the Exchange imposes certain limitations on how far away from the prevailing market a market order can be executed at any time, the Exchange does currently permit the execution of market orders outside of Regular Trading Hours. The Exchange believes that completely preventing any execution of a BATS market order outside of Regular Trading Hours will help to avoid the execution of such an order at a price that is significantly worse than the price that the User expected to receive based on pricing for a security at the time such market order was initially submitted to the Exchange. Thus, the Exchange believes that the proposal will provide additional protection for those Users that submit market orders to the Exchange.

As set forth in BATS Rule 1.5(r), the Pre-Opening Session lasts from 8 a.m. until 9:30 a.m. Eastern Time. As set forth in BATS Rule 1.5(c), the After Hours Trading Session lasts from 4 until 5 p.m. Eastern Time.

See BATS Rule 11.9(a)(2).

2. Statutory Basis

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. Specifically, the proposed change is consistent with Section 6(b)(5) of the Act, because it would 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, and, in general, protect investors and the public interest, by helping to avoid executions of market orders on the Exchange at prices that are significantly worse than the price that a User expects to receive based on pricing for a security at the time an order is initially received by the Exchange. Also, this proposal is consistent with existing exchange rules that make clear that market orders are rejected outside of regular trading hours on such exchanges. Accordingly, the modifications to BATS Rule 11.9 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.

15 U.S.C. 78f(b)(5).

See, e.g., NYSE Arca Equities Rule 7.34(d)(1)(C) and (d)(3)(B); ISE Rule 2102, Supplementary Material .01.

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

The Exchange does not believe that the proposed rule change imposes any burden on 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 rule change does not: (1) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.

17 CFR 240.19b-4(f)(6).

A proposed rule change filed under Rule 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay. BATS believes that waiver of the 30-day operative delay will allow the Exchange to more promptly implement the changes to its system to reject market orders outside of Regular Trading Hours even if such orders would otherwise execute. BATS expects to have technological changes in place to support the proposed rule change on July 24, 2009, and believes that benefits to Exchange Users expected from the proposed rule change should not be delayed. In addition, the Commission notes that the proposed rule change is consistent with the rules of other exchanges that prohibit the execution of market orders outside of regular trading hours. Based on the foregoing, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest and hereby designates the proposal operative upon filing.

17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6)(iii) requires that a self-regulatory organization submit to 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. The Exchange has satisfied this requirement.

Id.

See SR-BATS-2009-025, Item 7.

See supra note 10.

For the purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

At any time within 60 days of the filing of such proposed rule change the Commission may summarily abrogate 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 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 e-mail to rule-comments@sec.gov. Please include File No. SR-BATS-2009-025 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-BATS-2009-025. This file number should be included on the subject line if e-mail 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 inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of BATS. 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-BATS-2009-025 and should be submitted on or before August 21, 2009.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18

Florence E. Harmon,

Deputy Secretary.

[FR Doc. E9-18228 Filed 7-30-09; 8:45 am]

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