05.10.2016
By John D'Antona

Bats’ ‘Client Suspension Rule’ Approved

Bats Global Markets is now going to be able to police its own marketplace faster and with less supervision as it deems fit.

Sounds too good to be true? Manipulative traders had better watch out.

The exchange just cleared the 60-day publication period in which it can now act to protect its marketplace using a so-called “Client Suspension Rule” that is designed to assist the bourse in protecting investors by allowing for swifter disciplinary actions to taken against predatory or manipulative traders looking to ‘spoof’ or layer trades.
The U.S. Securities and Exchange Commission decided to allow Bats to alter Rule 11.13(b)(3)(H), Order Execution and Routing, which Amends the Operation of Non-Displayed Orders and Reserve Orders Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4.

Bats filed for the initial rule change in February, asking the SEC to consider such as rule change and that the exchange had designated this proposal as a “noncontroversial” alteration pursuant to Section 19(b)(3)(A) of the Act3 and Rule 19b- 4(f)(6)(iii) thereunder,4 which renders it effective upon filing with the Commission.

Before being mandated by the equities markets regulators to conducts such investigations into nefarious traders and take actions against such, Bats Global filed back on Jan 22 that it wanted to handle these types of “bad” traders internally on its own.

So what used to take years of legal wrangling and debate – policing and disciplining a trader – now can take as little as a few weeks.

The SEC said that the Bats 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) 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 Act14 and paragraph (f)(6) of Rule 19b-4 thereunder,” the SEC wrote in its approval filing.

Furthermore, the SEC said in its approval of the rule that the BATS proposal promotes just and equitable principles of trade by enabling its members to continue to identify their order as a Non-Displayed Order or Reserve Order when they are re-routed to an away trading center.

“The proposal also removes impediments to and perfects the mechanism of a free and open market and a national market system by providing Users the flexibility with regard to the handling of their orders by ensuring that the order is not altered and retains its original instructions from order entry when it is routed to an away Trading Center. Doing so ensures that such orders that are routed pursuant to the Post to Away routing option may be posted to the away Trading Center’s order book consistent with the order’s original instructions.”

Andrew Upward, head of market structure at Weeden & Co., told Markets Media in an interview that Bats’ move to define certain types of disruptive quoting and trading behavior, and to give itself the power to quickly stamp out such behavior under certain circumstances, is sensible.

“Allowing traders to police themselves through the enforcement of social norms (e.g. floor traders refusing to trade with a known bad actor) or through other types of counter-manipulative tactics has undeniable philosophical appeal,” Upward said. “But in an automated, fragmented and largely anonymous marketplace that investors seem to have a hard time trusting, giving regulators more leeway to suspend activity that looks manipulative seems like the right course of action.

Featured image by Rawpixel/Photodune

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