Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify the Use of Certain Data Feeds, 3674-3679 [2015-01065]
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Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Notices
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[FR Doc. 2015–01159 Filed 1–22–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74076; File No. SR–EDGA–
2015–02]
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Clarify the Use of
Certain Data Feeds
tkelley on DSK3SPTVN1PROD with NOTICES
January 15, 2015.
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 January
7, 2015, EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend certain rules to adopt or align
system functionality with that currently
offered by BATS Exchange, Inc. (‘‘BZX’’)
and BATS Y-Exchange, Inc. (‘‘BYX’’,
and collectively with BZX, ‘‘BATS’’) in
order to provide a consistent technology
offering amongst the Exchange and its
affiliates. These changes, which are
described in detail below, propose to
clarify for Members 3 and non-Members
the Exchange’s use of certain data feeds
for order handling and execution, order
routing, and regulatory compliance.
On July 15, 2014, the Exchange filed
a proposed rule change that described
its use of data feeds for order handling
and execution, order routing, and
regulatory compliance (the ‘‘Initial
Proposal’’) with the Commission.4 The
Exchange submits this supplemental
filing in order to specify for Members
and non-Members the Exchange’s use of
certain data feeds in connection with
the technology migration described in
further detail below.5
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.directedge.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
3 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer, or any person associated
with a registered broker or dealer, that has been
admitted to membership in the Exchange. A
Member will have the status of a ‘‘member’’ of the
Exchange as that term is defined in Section 3(a)(3)
of the Act.’’ See Exchange Rule 1.5(n).
4 See Securities Exchange Act Release No. 72682
(July 28, 2014), 79 FR 44938 (August 1, 2014) (SR–
EDGA–2014–17). Other national securities
exchange filed similar proposals. See e.g., Securities
Exchange Act Release Nos. 72710 (July 29, 2014),
79 FR 45511 (August 5, 2014) (SR–NYSE–2014–38),
and 72684 (July 28, 2014), 79 FR44956 (August 1,
2014) (SR–NASDAQ–2014–072).
5 The Exchange understands that other national
security exchanges will file similar proposed rule
changes with the Commission to further describe
their use of data feeds for order handling and
execution, order routing, and regulatory
compliance.
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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
Background
On June 5, 2014, Chair White
requested that all national securities
exchanges develop proposed rule
changes to disclose their use of data
feeds to execute and route orders and
comply with regulatory requirements.6
In addition, on June 20, 2014, the
Commission’s Division of Trading and
Markets requested that the Exchange file
proposed rule changes that disclose its
usage of particular market data feeds,
among other things.7 In response to
these requests, the Exchange filed the
Initial Proposal with the Commission on
July 15, 2014.8 The Exchange submits
this supplemental filing to describe the
Exchange’s use of certain data feeds for
order handling and execution, order
routing, and regulatory compliance in
connection with the technology
migration described in further detail
below.9
Technology Migration
Earlier this year, the Exchange and its
affiliate EDGX Exchange, Inc. (‘‘EDGX’’)
received approval to effect a merger (the
‘‘Merger’’) of the Exchange’s parent
company, Direct Edge Holdings LLC,
with BATS Global Markets, Inc., the
parent company of BATS (the Exchange,
together with BZX, BYX and EDGX, the
‘‘BGM Affiliated Exchanges’’).10 In the
context of the Merger, the BGM
Affiliated Exchanges are working to
migrate EDGA and EDGX onto the BATS
technology platform, and align certain
system functionality, retaining only
6 See Mary Jo White, Chair, Securities and
Exchange Commission, Speech at Sandler O’Neill &
Partners L.P. Global Exchange and Brokerage
Conference (June 5, 2014).
7 See letter from Stephen Luparello, Director,
Division of Trading and Markets, Securities and
Exchange Commission, to Joe Ratterman, Chief
Executive Officer, BATS Global Markets, Inc., dated
June 20, 2014.
8 See supra note 6.
9 See supra note 7.
10 See Securities Exchange Act Release No. 71449
(January 30, 2014), 79 FR 6961 (February 5, 2014)
(SR–EDGX–2013–43; SR–EDGA–2013–34).
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intended differences between the BGM
Affiliated Exchanges.
The proposed amendments are
intended to align certain system
functionality with that currently offered
by BATS in order to provide a
consistent technology offering for
Users 11 of the BGM Affiliated
Exchanges. The Exchange notes that the
proposed rule text is based on
corresponding proposals being
submitted by all of the BGM Affiliated
Exchanges. The proposed amendments
do not propose to implement new or
unique functionality that has not been
previously filed with the Commission or
is not available on BATS or BYX.
To ensure proper context and a
complete filing describing the
Exchange’s procedures in this area both
prior to and after the technology
migration, the Exchange has repeated
relevant information from the Initial
Proposal and supplemented such
information as necessary. In each
section below the Exchange first
describes its pre-integration
functionality, which will be in place
until the technology migration is
complete, followed by a description of
post-integration functionality. The
Exchange anticipates completing the
technology migration on or about
January 12, 2015.
tkelley on DSK3SPTVN1PROD with NOTICES
Order Handling and Execution
Pre-Integration Functionality. The
Exchange’s Matching Engine (the ‘‘ME’’)
determines whether an order should be
displayed, executed internally, or
routed to another market center. In
making this determination, the ME
continually receives and maintains
quote data that is delivered from an
internal processor (the ‘‘Feed Handler’’).
The market data processed by the Feed
Handler is sourced directly from the
Securities Information Processors
(‘‘SIP’’) feeds. Specifically, the
Exchange’s ME uses the Consolidated
Tape Association (CTA) market data
operated by the Securities Industry
Automation Corp. in Tapes A and B and
Unlisted Trading Privileges (UTP)
market data operated by NASDAQ OMX
Group, Inc. in Tape C securities.
These SIP feeds contain the best (topof-book) prices in round lot quotations
of each protected venue. The Exchange’s
ME consumes the SIP feeds to obtain the
top-of-book quotes from each protected
venue, including the Exchange’s
affiliates, EDGX, BZX, and BYX, and the
Financial Industry Regulatory
11 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(ee).
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Authority’s (‘‘FINRA’’) Alternative
Display Facility (‘‘ADF’’). The SIP feeds
do not display odd lot quotations;
therefore, the ME does not use odd lot
quotations to calculate the national best
bid and offer (‘‘NBBO’’). However, a
protected venue may aggregate odd lot
quotations to create round lot quotations
and publish those round lot quotations
to the SIPs feeds. Based on the SIP feeds
and the EDGA Book,12 the ME
constructs the NBBO.
The ME will also update the NBBO
upon receipt of an Intermarket Sweep
Order (‘‘ISO’’) with a time-in-force of
Day (‘‘Day ISO’’). When a Day ISO is
posted on the EDGA Book, the ME uses
the receipt of a Day ISO as evidence that
the protected quotes have been cleared,
and the ME does not check away
markets for equal or better-priced
protected quotes.13 The ME will then
display and execute non-ISO orders at
the same price as the Day ISO.
The NBBO is utilized for order
handling and execution. The Exchange
looks to its calculation of the NBBO,
based on the SIP feeds and the EDGA
Book, when determining the price at
which an order with a Pegged
instruction,14 MidPoint Peg Order,15
MidPoint Discretionary Order,16 Market
Maker Peg Order,17 or Supplemental
Peg Order 18 is to be pegged.
Post-Integration Functionality. As
proposed, following the technology
migration in order to calculate the
NBBO in its Matching Engine (the
‘‘ME’’), the Exchange will use quotes
disseminated by market centers through
proprietary data feeds (generally
referred to as ‘‘Direct Feeds’’) as well as
by the SIP. The ME will use quotes
disseminated from SIP feeds for the
Chicago Stock Exchange, Inc., NYSE
MKT LLC and FINRA’s ADF. The ME
will consume the Direct Feeds from
every other protected venue, including
the Exchange’s affiliates, BZX, BYX and
EDGX.
The ME will include odd lot
quotations in its calculation of the
NBBO depending on the source of the
quotation. Where a protected market
center aggregates odd lot quotations at a
single price level into round lot
quotations and publishes such
aggregated quotations to the SIPs, then
the ME will include those odd lot
quotations in its calculation of the
NBBO. In addition, where a protected
market center aggregates odd lot
quotations across more than one price
level and publishes such aggregated
quotations to the SIPs, then the ME will
include those odd lot quotations in its
calculation of the NBBO.
In addition to receiving Direct Feeds
and SIP feeds, the ME’s calculation of
the NBBO may be adjusted based on
orders sent to other venues with
protected quotations, execution reports
received from those venues, and certain
orders received by the Exchange
(collectively ‘‘Feedback’’). The
Exchange does not include its quotes in
the calculation of the Exchange’s NBBO
because the system is designed such
that all incoming orders are separately
compared to the Exchange’s Best Bid or
Offer and the Exchange calculated
NBBO, which together create a complete
view of the NBBO, prior to display,
execution, or routing.
Feedback from the receipt of ISOs
with a time-in-force of Day (‘‘Day ISOs’’)
and feedback from the Exchange’s
routing broker/dealer, BATS Trading,
Inc., (‘‘BATS Trading’’),19 defined
respectively as ‘‘Day ISO Feedback and
‘‘Router Feedback,’’ will be used to
augment the market data received by
Direct Feeds and the SIP feeds as further
described below. The Exchange’s ME
will update the NBBO upon receipt of
a Day ISO. When a Day ISO is posted
on the EDGA Book, the ME uses the
receipt of a Day ISO as evidence that the
protected quotes have been cleared, and
the ME does not check away markets for
equal or better-priced protected
quotes.20 The ME will then display and
12 The term ‘‘EDGA Book’’ is defined as ‘‘the
System’s electronic file of orders.’’ See Exchange
Rule 1.5(d).
13 Pursuant to Regulation NMS, a broker-dealer
routing a Day ISO is required to simultaneously
route one or more additional ISOs, as necessary, to
execute against the full displayed size of any
protected quote priced equal to or better than the
Day ISO. See also Question 5.02 in the ‘‘Division
of Trading and Markets, Responses to Frequently
Asked Questions Concerning Rule 611 and Rule 610
of Regulation NMS’’ (last updated April 4, 2008)
available at https://www.sec.gov/divisions/
marketreg/nmsfaq610-11.htm.
14 See Exchange Rule 11.6(j).
15 See Exchange Rule 11.8(d).
16 See Exchange Rule 11.8(e).
17 See Exchange Rule 11.8(f).
18 See Exchange Rule 11.8(g).
19 The Exchange notes that it recently filed a
separate proposal reflecting a change from its
current routing broker-dealer, Direct Edge ECN LLC
(d/b/a DE Route), to the use of BATS Trading, Inc.
as the Exchange’s routing broker-dealer in
connection with the technology migration. See
Securities Exchange Act Release No. 73939
(December 24, 2014), 80 FR 91 (January 2, 2015)
(SR–EDGA–2014–34).
20 Pursuant to Regulation NMS, a broker-dealer
routing a Day ISO is required to simultaneously
route one or more additional ISOs, as necessary, to
execute against the full displayed size of any
protected quote priced equal to or better than the
Day ISO. See also Question 5.02 in the ‘‘Division
of Trading and Markets, Responses to Frequently
Asked Questions Concerning Rule 611 and Rule 610
of Regulation NMS’’ (last updated April 4, 2008)
available at https://www.sec.gov/divisions/
marketreg/nmsfaq610-11.htm.
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Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Notices
execute non-ISO orders at the same
price as the Day ISO.
All Feedback expires as soon as: (i)
One (1) second passes; (ii) the Exchange
receives new quote information; or (iii)
the Exchange receives updated
Feedback information. With the
exception of Day ISO Feedback, the
Exchange currently generates Feedback
where an order was routed using a
routing strategy offered by the Exchange
that accesses protected quotes of trading
venues on the System Routing Table
(‘‘Smart Order Routing’’).21
As described above, the NBBO is
utilized for order handling and
execution. In determining the price
where an order with a Pegged
instruction,22 MidPoint Peg Order,23
MidPoint Discretionary Order,24 Market
Maker Peg Order 25 or Supplemental Peg
Order 26 is to be pegged, the Exchange
uses the Pegged NBBO (‘‘PBBO’’). The
Exchange will calculate the PBBO using
information regarding orders displayed
on the EDGA Book in addition to the
quotes disseminated by market centers
through Direct Feeds, SIP feeds, and
Feedback used by the ME for its NBBO
calculation.
tkelley on DSK3SPTVN1PROD with NOTICES
Order Routing
Pre-Integration Functionality. When
the Exchange has a marketable order
with instructions from the sender that
the order is eligible to be routed, and the
ME identifies that there is no matching
price available on the Exchange, but
there is a matching price represented at
another venue that displays protected
quotes, then the ME will send the order
to the Routing Engine (‘‘RE’’) of Direct
Edge ECN LLC (d/b/a DE Route).27
In determining whether to route an
order and to which venue(s) it should be
routed, the RE uses quotes disseminated
from Direct Feeds, including EDGA,
EDGX, BZX and BYX, and the SIP feeds
from those venues where the Exchange
does not take the Direct Feeds,
including FINRA’s ADF.
The RE utilizes a third-party market
data processor that consumes the Direct
Feeds and the SIP feeds, aggregates the
quantities of symbols by price level, and
redistributes them to an internal quote
processor (the ‘‘Quote Server’’). The RE
will request from the Quote Server a
21 As set forth in Rule 11.11(g), 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.
22 See Exchange Rule 11.6(j).
23 See Exchange Rule 11.8(d).
24 See Exchange Rule 11.8(e).
25 See Exchange Rule 11.8(f).
26 See Exchange Rule 11.8(g).
27 See supra note 21.
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market data snapshot which includes
the top-of-book and/or depth-of-book of
each market center offering depth-ofbook feeds. Depending on the source of
the quotation, the Quote Server may
include odd lot quotations if the market
center publishes odd lot quotations in
its Direct Feed.
Based on this snapshot, the RE
determines where to route the order,
allocating the shares to the venues at
each price level up to the limit price of
the order, starting with the best quotes
subject to the Member’s instructions. If
there are any shares remaining after the
response to the initial route is received,
the RE will take another snapshot from
the Quote Server and send out orders
based on the same logic. If the full
quantity of the order is not executed
after multiple route attempts, the order
is returned to the ME.
In addition, the RE utilizes in-flight
order information in its routing
methodology. The RE tracks the details
of each in-flight order, including the
quantity routed and the corresponding
quote published by the routed venue.
After the RE requests a market data
snapshot from the Quote Server and the
RE has already targeted this quote
(identified by venue, symbol, price,
quantity and time stamp), then the RE
will subtract the routed quantity of inflight orders from the quote size
displayed in the market data snapshot.
The RE will route an order for the
remaining quantity to the venue. If there
are no residual shares, the RE will
bypass the quote.
The RE also utilizes responses from
other venues displaying protected
quotes in its routing methodology.
When the RE receives a response from
a venue that does not completely fill the
order targeting a quote, and no
subsequent quote update has been
received from that venue at the same
price level, the RE will mark that
venue’s quote as stale at that price
level.28 Absent additional quote updates
from that venue, the RE will bypass the
quote for one (1) second. After one
second, if the quote is still included in
the market data snapshot, the RE will
target the quote again.
Post Integration Functionality. As
proposed, following the technology
migration, when the Exchange has a
marketable order with instructions from
the sender that the order is eligible to be
routed, and the ME identifies that there
is no matching price available on the
28 Question 11 of the ‘‘Division of Market
Regulation: Responses to Frequently Asked
Questions Concerning Rule 611 and Rule 610 of
Regulation NMS’’ describes routing practices in the
context of stale quotes, available at https://
www.sec.gov/divisions/marketreg/rule611faq.pdf.
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Exchange but there is a matching price
represented at another venue that
displays protected quotes, then the ME
will send the order to the RE of BATS
Trading.
In determining whether to route an
order and to which venue(s) it should be
routed, the RE will make its own
calculation of the NBBO using the
Direct Feeds, SIP feeds, and Router
Feedback, as described below.29 The RE
will include odd lot quotations in its
calculation of the NBBO depending on
the source of the quotation. Where a
protected market center aggregates odd
lot quotations at a single price level into
round lot quotations and publishes such
aggregated quotations to the SIPs, then
the RE will include those odd lot
quotations in its calculation of the
NBBO.
The RE will not utilize Day ISO
Feedback in constructing the NBBO;
however, because all orders initially
flow through the ME, to the extent Day
ISO Feedback has updated the ME’s
calculation of the NBBO, all orders
processed by the RE will take Day ISO
Feedback into account. The RE will
receive Feedback from all Smart Order
Routing strategies.
There are three types of Router
Feedback that contribute to the
Exchange’s calculation of the NBBO:
• Immediate Feedback. Where BATS
Trading routes an order to a venue with
a protected quotation using Smart Order
Routing (a ‘‘Feedback Order’’), the
number of shares available at that venue
will be immediately decreased by the
number of shares routed to the venue at
the applicable price level.
• Execution Feedback. Where BATS
Trading receives an execution report
associated with a Feedback Order that
indicates that the order has fully
executed with no remaining shares
associated with the order, all opposite
side quotes on the venue’s order book
that are priced more aggressively than
the price at which the order was
executed will be ignored.
• Cancellation Feedback. Where
BATS Trading receives an execution
report associated with a Feedback Order
that indicates that the order has not
fully executed (either a partial execution
or a cancellation), all opposite side
quotes on the venue’s order book that
are priced equal to or more aggressively
than the limit price for the order will be
ignored.
All Feedback expires as soon as: (i)
One (1) second passes; (ii) the Exchange
receives new quote information; or (iii)
29 The ME and RE consume the same Direct Feeds
and SIP feeds.
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the Exchange receives updated
Feedback information.
Regulatory Compliance
Locked or Crossed Markets
Pre-Integration Functionality. The ME
determines whether the display of an
order would lock or cross the market. At
the time an order is entered into the ME,
the ME will establish, based upon the
prevailing top-of-book quotes of other
exchanges displaying protected quotes
received from the SIP feeds, whether the
order will lock or cross the prevailing
NBBO for a security. In the event that
the order would produce a locking or
crossing condition, the ME will cancel
the order, re-price 30 the order or route
the order based on the Member’s
instructions. Two exceptions to this
logic are Day ISOs and declarations of
self-help.
Pursuant to Regulation NMS, when an
Exchange receives a Day ISO, the sender
of the ISO retains the responsibility to
comply with applicable rules relating to
locked and crossed markets.31 In such
case, the Exchange will display a Day
ISO order at the Member’s price, even
if such price would lock or cross the
market.32
Declarations of self-help occur when
the RE detects that an exchange
displaying protected quotes is slow, as
defined in Regulation NMS, or nonresponsive to the Exchange’s routed
orders. In this circumstance, according
to Rule 611(b) of Regulation NMS, the
Exchange may display a quotation that
may lock or cross quotations from the
market that the Exchange invoked selfhelp against.33 The ME and RE, when
they process market data, maintain logic
that ignores the quotes generated from
the self-helped market in their
calculations of the NBBO for execution
and routing determinations in
compliance with Regulation NMS. The
Exchange also disables all routing to the
self-helped market. The ME and Quote
Server continue to consume the selfhelped market center’s quotes, however,
in order to immediately include the
quote in the NBBO calculation and
enable routing once self-help is revoked.
The Exchange excludes quotes from the
self-helped market for re-pricing
purposes and to price orders such as
orders with a Pegged instruction and
MidPoint Peg Orders.
Post-Integration Functionality. The
Exchange’s post-integration
functionality is similar to the preintegration functionality. However, the
Exchange notes that at the time an order
is entered into the ME, the ME will
establish, based upon its calculation of
the NBBO from Direct Feeds, SIP feeds
and Feedback, whether the order will
lock or cross the prevailing NBBO for a
security.
Trade-Through Rule
Pre-Integration Functionality.
Pursuant to Rule 611 of Regulation
NMS, the Exchange shall establish,
maintain, and enforce written policies
and procedures that are reasonably
designed to prevent trade-throughs on
trading centers of protected quotations
in NMS stocks that do not fall within a
valid exception and, if relying on such
an exception, that are reasonably
designed to ensure compliance with the
terms of the exception. The ME does not
permit an execution on the Exchange if
there are better-priced protected
quotations displayed in the market
unless the order is an ISO. At the time
an order is entered into the ME, the ME
uses the view of the NBBO as described
above. If the NBBO is priced better than
what is resident on the Exchange, the
Exchange will not match such order on
the EDGA Book, and based on the
Member’s instructions, the ME will
cancel the order, re-price the order or
route the order.
Post-Integration Functionality. The
Exchange’s post-integration
functionality that describes compliance
with the trade-through rule is the same
as the Exchange’s pre-integration
functionality. The Exchange again notes
that following the technology migration,
it will calculation the NBBO using
Direct Feeds, SIP Feeds, and Feedback.
Regulation SHO
Pre-Integration Functionality. The
Exchange cannot execute a short sale
order 34 equal to or below the current
National Best Bid (‘‘NBB’’) when a short
sale price restriction is in effect
pursuant to Rule 201 of Regulation SHO
(‘‘Short Sale Circuit Breaker’’).35 When
Exchange Rule 11.6(l)(2).
CFR 242.200(g); 17 CFR 242.201. On
February 26, 2010, the Commission adopted
amendments to Regulation SHO under the Act in
the form of Rule 201, pursuant to which, among
other things, short sale orders in covered securities
generally cannot be executed or displayed by a
trading center, such as the Exchange, at a price that
is at or below the current NBB when a Short Sale
Circuit Breaker is in effect for the covered security.
See Securities Exchange Act Release No. 61595
(February 26, 2010), 75 FR 11232 (March 10, 2010).
tkelley on DSK3SPTVN1PROD with NOTICES
Exchange Rule 11.6(l).
31 See supra note 22.
32 See supra note 22.
33 See also Question 5.03 in the ‘‘Division of
Trading and Markets, Responses to Frequently
Asked Questions Concerning Rule 611 and Rule 610
of Regulation NMS’’ (last updated April 4, 2008)
available at https://www.sec.gov/divisions/
marketreg/nmsfaq610-11.htm.
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a Short Sale Circuit Breaker is in effect,
the Exchange utilizes information
received from the SIP feeds and a view
of the EDGA Book to assess its
compliance with Rule 201 of Regulation
SHO. The NBBO used for compliance
with Rule 201 of Regulation SHO
includes quotes from market centers
against which the Exchange has
declared self-help.
Post-Integration Functionality. The
Exchange’s post-integration
functionality is similar to the preintegration functionality, including that
the NBBO used for compliance with
Rule 201 of Regulation SHO will
include quotes from market centers
against which the Exchange has
declared self-help. However, the
Exchange notes that when a Short Sale
Circuit Breaker is in effect, the Exchange
will utilize information received from
Direct Feeds, SIP feeds, Feedback and a
view of the EDGA Book to assess its
compliance with Rule 201 of Regulation
SHO.
Latent or Inaccurate Direct Feeds
Pre-Integration Functionality. Where
the Exchange’s systems detect problems
with one or more Direct Feeds, the
Quote Server can manually fail over to
the SIP feed to calculate the NBBO for
the market center(s) where the
applicable Direct Feed is experiencing
issues. In order to make this
determination, the Quote Server
continuously polls every Direct Feed
line and generates an email alert if the
difference between a quote’s sent time
(as stamped by the sending market) and
the time of receipt by the Exchange
exceeds one (1) second.
Post-Integration Functionality. As
proposed, where the Exchange’s systems
detect problems with one or more Direct
Feeds, the Exchange will immediately
fail over to the SIP feed to calculate the
NBBO for the market center(s) where the
applicable Direct Feed is experiencing
issues. The Exchange can also manually
fail over to the SIP feed in lieu of Direct
Feed data upon identification by a
market center of an issue with its Direct
Feed(s).
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
34 See
35 17
30 See
3677
PO 00000
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Sfmt 4703
In connection with the adoption of Rule 201, Rule
200(g) of Regulation SHO was also amended to
include a ‘‘short exempt’’ marking requirement. See
also Securities Exchange Act Release No. 63247
(November 4, 2010), 75 FR 68702 (November 9,
2010) (extending the compliance date for Rules 201
and 200(g) to February 28, 2011). See also Division
of Trading & Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of
Regulation SHO, www.sec.gov/divisions/marketreg/
rule201faq.htm.
E:\FR\FM\23JAN1.SGM
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3678
Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Notices
of the Act 36 in general, and furthers the
objectives of Section 6(b)(5) of the Act 37
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 Exchange does not
believe that this proposal will permit
unfair discrimination among customers,
brokers, or dealers because it will be
available to all Users.
The Exchange believes that its
proposal to describe the Exchange’s use
of data feeds removes impediments to
and perfects the mechanism of a free
and open market and protects investors
and the public interest because it
provides additional specificity and
transparency regarding both the current
operation of the System and the
operation of the System following the
migration to BATS technology. The
Exchange’s proposal will enable
investors to better assess the quality of
the Exchange’s execution and routing
services. The Exchange believes the
additional transparency into the
operation of the Exchange as described
in the proposal will 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.
tkelley on DSK3SPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposal will impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. On the contrary,
the Exchange believes the proposal
would enhance competition because
describing the Exchange’s use of data
feeds enhances transparency and
enables investors to better assess the
quality of the Exchange’s execution and
routing services. In addition, the
Exchange believes the proposed rule
change will benefit Exchange
participants in that it is one of several
changes necessary to achieve a
consistent technology offering by the
BGM Affiliated Exchanges.
36 15
37 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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18:05 Jan 22, 2015
Jkt 235001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange filed the Initial
Proposal with the Commission on July
15, 2014, and it was published for
comment in the Federal Register on
August 1, 2014. The Commission
received four (4) letters commenting on
companion filings: Two (2) letters
commented on SR–BATS–2014–029,38
one (1) letter commented on SR–BATS–
2014–029 and SR–BYX–2014–012,39
and one (1) letter commented on SR–
EDGX–2014–20.40 The Exchange
believes that the comments raised in
these letters are either not directly
related to the Exchange’s proposal but
instead raise larger market structure
issues or are adequately addressed in
this proposal, particularly as it relates to
the Commission’s request to describe
the Exchange’s use of data feeds for
order handling and execution, order
routing, and regulatory compliance.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 41 and Rule 19b–4(f)(6)
thereunder.42
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 43 normally does not become
operative for 30 days after the date of its
38 See Letter from R.T. Leuchtkafer to the
Commission, dated August 22, 2014 (SR–BATS–
2014–029) (discussing the Exchange’s market data
feed practices). See Letter from Eric Scott Hunsader,
Nanex, LLC, to the Commission, dated August 22,
2014 (SR–BATS–2014–029) (discussing the
Exchange’s use of NBBO as a defined term).
39 See Letter from Donald Bollerman, Head of
Market Operations, IEX ATS, to the Commission,
dated September 25, 2014 (SR–BATS–2014–029)
(SR–BYX–2014–012) (discussing the Exchange’s
calculation of the PBBO).
40 See Letter from Suzanne Hamlet Shatto to the
Commission, dated August 19, 2014 (SR–EDGX–
2014–20) (discussing Dodd Frank principles).
41 15 U.S.C. 78s(b)(3)(A).
42 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the 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.
43 17 CFR 240.19b–4(f)(6).
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
filing. However, Rule 19b–4(f)(6)(iii) 44
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 asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange stated that waiver
of the operative delay will allow the
Exchange to immediately adopt rule text
consistent with the Initial Proposal and
operate in the same manner as BATS
with respect to the use of data feeds. In
addition, the Exchange stated that
waiver of the operative delay will allow
it to continue to move towards a
complete technology integration of the
BGM Affiliated Exchanges to ensure
stability of the System. For these
reasons, the Commission believes that
waiver of the operative delay is
consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.45
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 necessary or appropriate in the
public interest, for the protection of
investors, or 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EDGA–2015–02 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
44 17
CFR 240.19b–4(f)(6)(iii).
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
45 For
E:\FR\FM\23JAN1.SGM
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Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Notices
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–EDGA–2015–02. 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 (https://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 the
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–EDGA–
2015–02 and should be submitted on or
before February 13, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Brent J. Fields,
Secretary.
[FR Doc. 2015–01065 Filed 1–22–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74074; File No. SR–BATS–
2015–04]
tkelley on DSK3SPTVN1PROD with NOTICES
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Clarify the Use of
Certain Data Feeds
January 15, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
46 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
18:05 Jan 22, 2015
Jkt 235001
notice is hereby given that, on January
7, 2015, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) 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 self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
clarify for Members 3 and non-Members
the Exchange’s use of certain data feeds
for order handling and execution, order
routing, and regulatory compliance. On
July 15, 2014, the Exchange filed a
proposed rule change that described its
use of data feeds for order handling and
execution, order routing, and regulatory
compliance (the ‘‘Initial Proposal’’) with
the Securities and Exchange
Commission (the ‘‘Commission’’).4 The
Exchange submits this supplemental
filing in order to further clarify for
Members and non-Members the
Exchange’s use of certain data feeds and
to make one modification with respect
to the usage of such data feeds as
previously described.5
The text of the proposed rule change
is available at the Exchange’s Web site
at https://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
3 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange. A Member will
have the status of a ‘‘member’’ of the Exchange as
that term is defined in Section 3(a)(3) of the Act.’’
See Exchange Rule 1.5(n).
4 See Securities Exchange Act Release No. 72685
(July 28, 2014), 79 FR 44889 (August 1, 2014) (SR–
BATS–2014–029). Other national securities
exchange filed similar proposals. See, e.g.,
Securities Exchange Act Release Nos. 72710 (July
29, 2014), 79 FR 45511 (August 5, 2014) (SR–
NYSE–2014–38), and 72684 (July 28, 2014), 79
FR44956 (August 1, 2014) (SR–NASDAQ–2014–
072).
5 The Exchange understands that other national
security exchanges will file similar proposed rule
changes with the Commission to further describe
their use of data feeds for order handling and
execution, order routing, and regulatory
compliance.
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
3679
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
Background
On June 5, 2014, Chair White
requested that all national securities
exchanges develop proposed rule
changes to disclose their use of data
feeds to execute and route orders and
comply with regulatory requirements.6
In addition, on June 20, 2014, the
Commission’s Division of Trading and
Markets requested that the Exchange file
proposed rule changes that disclose its
usage of particular market data feeds,
among other things.7 In response to
these requests, the Exchange filed the
Initial Proposal with the Commission on
July 15, 2014.8 The Exchange submits
this supplemental filing to further
clarify for Members and non-Members
the Exchange’s use of certain data feeds
for order handling and execution, order
routing, and regulatory compliance.9 In
addition, the Exchange proposes to
modify the way that it constructs the
Pegged NBBO, as further described
below. To ensure proper context and a
complete filing describing the
Exchange’s procedures in this area, the
Exchange has repeated all relevant
information from the Initial Proposal
and supplemented such information as
necessary.
Order Handling and Execution
In order to calculate the national best
bid and offer (‘‘NBBO’’) in its Matching
Engine (the ‘‘ME’’), the Exchange uses
quotes disseminated by market centers
through proprietary data feeds
(generally referred to as ‘‘Direct Feeds’’)
as well as by the Securities Information
Processors (‘‘SIP’’). The ME uses quotes
disseminated from SIP feeds for the
Chicago Stock Exchange, Inc., NYSE
MKT LLC and the Financial Industry
Regulatory Authority’s Alternative
Display Facility. The ME consumes the
6 See Mary Jo White, Chair, Securities and
Exchange Commission, Speech at Sandler O’Neill &
Partners L.P. Global Exchange and Brokerage
Conference (June 5, 2014).
7 See letter from Stephen Luparello, Director,
Division of Trading and Markets, Securities and
Exchange Commission, to Joe Ratterman, Chief
Executive Officer, BATS Global Markets, Inc., dated
June 20, 2014.
8 See supra note 6.
9 See supra note 7.
E:\FR\FM\23JAN1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Notices]
[Pages 3674-3679]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01065]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74076; File No. SR-EDGA-2015-02]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify
the Use of Certain Data Feeds
January 15, 2015.
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 January 7, 2015, EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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 self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend certain rules to adopt or
align system functionality with that currently offered by BATS
Exchange, Inc. (``BZX'') and BATS Y-Exchange, Inc. (``BYX'', and
collectively with BZX, ``BATS'') in order to provide a consistent
technology offering amongst the Exchange and its affiliates. These
changes, which are described in detail below, propose to clarify for
Members \3\ and non-Members the Exchange's use of certain data feeds
for order handling and execution, order routing, and regulatory
compliance.
---------------------------------------------------------------------------
\3\ The term ``Member'' is defined as ``any registered broker or
dealer, or any person associated with a registered broker or dealer,
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
---------------------------------------------------------------------------
On July 15, 2014, the Exchange filed a proposed rule change that
described its use of data feeds for order handling and execution, order
routing, and regulatory compliance (the ``Initial Proposal'') with the
Commission.\4\ The Exchange submits this supplemental filing in order
to specify for Members and non-Members the Exchange's use of certain
data feeds in connection with the technology migration described in
further detail below.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 72682 (July 28,
2014), 79 FR 44938 (August 1, 2014) (SR-EDGA-2014-17). Other
national securities exchange filed similar proposals. See e.g.,
Securities Exchange Act Release Nos. 72710 (July 29, 2014), 79 FR
45511 (August 5, 2014) (SR-NYSE-2014-38), and 72684 (July 28, 2014),
79 FR44956 (August 1, 2014) (SR-NASDAQ-2014-072).
\5\ The Exchange understands that other national security
exchanges will file similar proposed rule changes with the
Commission to further describe their use of data feeds for order
handling and execution, order routing, and regulatory compliance.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
Web site at https://www.directedge.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
Background
On June 5, 2014, Chair White requested that all national securities
exchanges develop proposed rule changes to disclose their use of data
feeds to execute and route orders and comply with regulatory
requirements.\6\ In addition, on June 20, 2014, the Commission's
Division of Trading and Markets requested that the Exchange file
proposed rule changes that disclose its usage of particular market data
feeds, among other things.\7\ In response to these requests, the
Exchange filed the Initial Proposal with the Commission on July 15,
2014.\8\ The Exchange submits this supplemental filing to describe the
Exchange's use of certain data feeds for order handling and execution,
order routing, and regulatory compliance in connection with the
technology migration described in further detail below.\9\
---------------------------------------------------------------------------
\6\ See Mary Jo White, Chair, Securities and Exchange
Commission, Speech at Sandler O'Neill & Partners L.P. Global
Exchange and Brokerage Conference (June 5, 2014).
\7\ See letter from Stephen Luparello, Director, Division of
Trading and Markets, Securities and Exchange Commission, to Joe
Ratterman, Chief Executive Officer, BATS Global Markets, Inc., dated
June 20, 2014.
\8\ See supra note 6.
\9\ See supra note 7.
---------------------------------------------------------------------------
Technology Migration
Earlier this year, the Exchange and its affiliate EDGX Exchange,
Inc. (``EDGX'') received approval to effect a merger (the ``Merger'')
of the Exchange's parent company, Direct Edge Holdings LLC, with BATS
Global Markets, Inc., the parent company of BATS (the Exchange,
together with BZX, BYX and EDGX, the ``BGM Affiliated Exchanges'').\10\
In the context of the Merger, the BGM Affiliated Exchanges are working
to migrate EDGA and EDGX onto the BATS technology platform, and align
certain system functionality, retaining only
[[Page 3675]]
intended differences between the BGM Affiliated Exchanges.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 71449 (January 30,
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43; SR-EDGA-2013-
34).
---------------------------------------------------------------------------
The proposed amendments are intended to align certain system
functionality with that currently offered by BATS in order to provide a
consistent technology offering for Users \11\ of the BGM Affiliated
Exchanges. The Exchange notes that the proposed rule text is based on
corresponding proposals being submitted by all of the BGM Affiliated
Exchanges. The proposed amendments do not propose to implement new or
unique functionality that has not been previously filed with the
Commission or is not available on BATS or BYX.
---------------------------------------------------------------------------
\11\ 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(ee).
---------------------------------------------------------------------------
To ensure proper context and a complete filing describing the
Exchange's procedures in this area both prior to and after the
technology migration, the Exchange has repeated relevant information
from the Initial Proposal and supplemented such information as
necessary. In each section below the Exchange first describes its pre-
integration functionality, which will be in place until the technology
migration is complete, followed by a description of post-integration
functionality. The Exchange anticipates completing the technology
migration on or about January 12, 2015.
Order Handling and Execution
Pre-Integration Functionality. The Exchange's Matching Engine (the
``ME'') determines whether an order should be displayed, executed
internally, or routed to another market center. In making this
determination, the ME continually receives and maintains quote data
that is delivered from an internal processor (the ``Feed Handler'').
The market data processed by the Feed Handler is sourced directly from
the Securities Information Processors (``SIP'') feeds. Specifically,
the Exchange's ME uses the Consolidated Tape Association (CTA) market
data operated by the Securities Industry Automation Corp. in Tapes A
and B and Unlisted Trading Privileges (UTP) market data operated by
NASDAQ OMX Group, Inc. in Tape C securities.
These SIP feeds contain the best (top-of-book) prices in round lot
quotations of each protected venue. The Exchange's ME consumes the SIP
feeds to obtain the top-of-book quotes from each protected venue,
including the Exchange's affiliates, EDGX, BZX, and BYX, and the
Financial Industry Regulatory Authority's (``FINRA'') Alternative
Display Facility (``ADF''). The SIP feeds do not display odd lot
quotations; therefore, the ME does not use odd lot quotations to
calculate the national best bid and offer (``NBBO''). However, a
protected venue may aggregate odd lot quotations to create round lot
quotations and publish those round lot quotations to the SIPs feeds.
Based on the SIP feeds and the EDGA Book,\12\ the ME constructs the
NBBO.
---------------------------------------------------------------------------
\12\ The term ``EDGA Book'' is defined as ``the System's
electronic file of orders.'' See Exchange Rule 1.5(d).
---------------------------------------------------------------------------
The ME will also update the NBBO upon receipt of an Intermarket
Sweep Order (``ISO'') with a time-in-force of Day (``Day ISO''). When a
Day ISO is posted on the EDGA Book, the ME uses the receipt of a Day
ISO as evidence that the protected quotes have been cleared, and the ME
does not check away markets for equal or better-priced protected
quotes.\13\ The ME will then display and execute non-ISO orders at the
same price as the Day ISO.
---------------------------------------------------------------------------
\13\ Pursuant to Regulation NMS, a broker-dealer routing a Day
ISO is required to simultaneously route one or more additional ISOs,
as necessary, to execute against the full displayed size of any
protected quote priced equal to or better than the Day ISO. See also
Question 5.02 in the ``Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Rule 611 and Rule 610 of
Regulation NMS'' (last updated April 4, 2008) available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------
The NBBO is utilized for order handling and execution. The Exchange
looks to its calculation of the NBBO, based on the SIP feeds and the
EDGA Book, when determining the price at which an order with a Pegged
instruction,\14\ MidPoint Peg Order,\15\ MidPoint Discretionary
Order,\16\ Market Maker Peg Order,\17\ or Supplemental Peg Order \18\
is to be pegged.
Post-Integration Functionality. As proposed, following the
technology migration in order to calculate the NBBO in its Matching
Engine (the ``ME''), the Exchange will use quotes disseminated by
market centers through proprietary data feeds (generally referred to as
``Direct Feeds'') as well as by the SIP. The ME will use quotes
disseminated from SIP feeds for the Chicago Stock Exchange, Inc., NYSE
MKT LLC and FINRA's ADF. The ME will consume the Direct Feeds from
every other protected venue, including the Exchange's affiliates, BZX,
BYX and EDGX.
---------------------------------------------------------------------------
\14\ See Exchange Rule 11.6(j).
\15\ See Exchange Rule 11.8(d).
\16\ See Exchange Rule 11.8(e).
\17\ See Exchange Rule 11.8(f).
\18\ See Exchange Rule 11.8(g).
---------------------------------------------------------------------------
The ME will include odd lot quotations in its calculation of the
NBBO depending on the source of the quotation. Where a protected market
center aggregates odd lot quotations at a single price level into round
lot quotations and publishes such aggregated quotations to the SIPs,
then the ME will include those odd lot quotations in its calculation of
the NBBO. In addition, where a protected market center aggregates odd
lot quotations across more than one price level and publishes such
aggregated quotations to the SIPs, then the ME will include those odd
lot quotations in its calculation of the NBBO.
In addition to receiving Direct Feeds and SIP feeds, the ME's
calculation of the NBBO may be adjusted based on orders sent to other
venues with protected quotations, execution reports received from those
venues, and certain orders received by the Exchange (collectively
``Feedback''). The Exchange does not include its quotes in the
calculation of the Exchange's NBBO because the system is designed such
that all incoming orders are separately compared to the Exchange's Best
Bid or Offer and the Exchange calculated NBBO, which together create a
complete view of the NBBO, prior to display, execution, or routing.
Feedback from the receipt of ISOs with a time-in-force of Day
(``Day ISOs'') and feedback from the Exchange's routing broker/dealer,
BATS Trading, Inc., (``BATS Trading''),\19\ defined respectively as
``Day ISO Feedback and ``Router Feedback,'' will be used to augment the
market data received by Direct Feeds and the SIP feeds as further
described below. The Exchange's ME will update the NBBO upon receipt of
a Day ISO. When a Day ISO is posted on the EDGA Book, the ME uses the
receipt of a Day ISO as evidence that the protected quotes have been
cleared, and the ME does not check away markets for equal or better-
priced protected quotes.\20\ The ME will then display and
[[Page 3676]]
execute non-ISO orders at the same price as the Day ISO.
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\19\ The Exchange notes that it recently filed a separate
proposal reflecting a change from its current routing broker-dealer,
Direct Edge ECN LLC (d/b/a DE Route), to the use of BATS Trading,
Inc. as the Exchange's routing broker-dealer in connection with the
technology migration. See Securities Exchange Act Release No. 73939
(December 24, 2014), 80 FR 91 (January 2, 2015) (SR-EDGA-2014-34).
\20\ Pursuant to Regulation NMS, a broker-dealer routing a Day
ISO is required to simultaneously route one or more additional ISOs,
as necessary, to execute against the full displayed size of any
protected quote priced equal to or better than the Day ISO. See also
Question 5.02 in the ``Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Rule 611 and Rule 610 of
Regulation NMS'' (last updated April 4, 2008) available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
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All Feedback expires as soon as: (i) One (1) second passes; (ii)
the Exchange receives new quote information; or (iii) the Exchange
receives updated Feedback information. With the exception of Day ISO
Feedback, the Exchange currently generates Feedback where an order was
routed using a routing strategy offered by the Exchange that accesses
protected quotes of trading venues on the System Routing Table (``Smart
Order Routing'').\21\
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\21\ As set forth in Rule 11.11(g), 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.
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As described above, the NBBO is utilized for order handling and
execution. In determining the price where an order with a Pegged
instruction,\22\ MidPoint Peg Order,\23\ MidPoint Discretionary
Order,\24\ Market Maker Peg Order \25\ or Supplemental Peg Order \26\
is to be pegged, the Exchange uses the Pegged NBBO (``PBBO''). The
Exchange will calculate the PBBO using information regarding orders
displayed on the EDGA Book in addition to the quotes disseminated by
market centers through Direct Feeds, SIP feeds, and Feedback used by
the ME for its NBBO calculation.
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\22\ See Exchange Rule 11.6(j).
\23\ See Exchange Rule 11.8(d).
\24\ See Exchange Rule 11.8(e).
\25\ See Exchange Rule 11.8(f).
\26\ See Exchange Rule 11.8(g).
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Order Routing
Pre-Integration Functionality. When the Exchange has a marketable
order with instructions from the sender that the order is eligible to
be routed, and the ME identifies that there is no matching price
available on the Exchange, but there is a matching price represented at
another venue that displays protected quotes, then the ME will send the
order to the Routing Engine (``RE'') of Direct Edge ECN LLC (d/b/a DE
Route).\27\
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\27\ See supra note 21.
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In determining whether to route an order and to which venue(s) it
should be routed, the RE uses quotes disseminated from Direct Feeds,
including EDGA, EDGX, BZX and BYX, and the SIP feeds from those venues
where the Exchange does not take the Direct Feeds, including FINRA's
ADF.
The RE utilizes a third-party market data processor that consumes
the Direct Feeds and the SIP feeds, aggregates the quantities of
symbols by price level, and redistributes them to an internal quote
processor (the ``Quote Server''). The RE will request from the Quote
Server a market data snapshot which includes the top-of-book and/or
depth-of-book of each market center offering depth-of-book feeds.
Depending on the source of the quotation, the Quote Server may include
odd lot quotations if the market center publishes odd lot quotations in
its Direct Feed.
Based on this snapshot, the RE determines where to route the order,
allocating the shares to the venues at each price level up to the limit
price of the order, starting with the best quotes subject to the
Member's instructions. If there are any shares remaining after the
response to the initial route is received, the RE will take another
snapshot from the Quote Server and send out orders based on the same
logic. If the full quantity of the order is not executed after multiple
route attempts, the order is returned to the ME.
In addition, the RE utilizes in-flight order information in its
routing methodology. The RE tracks the details of each in-flight order,
including the quantity routed and the corresponding quote published by
the routed venue. After the RE requests a market data snapshot from the
Quote Server and the RE has already targeted this quote (identified by
venue, symbol, price, quantity and time stamp), then the RE will
subtract the routed quantity of in-flight orders from the quote size
displayed in the market data snapshot. The RE will route an order for
the remaining quantity to the venue. If there are no residual shares,
the RE will bypass the quote.
The RE also utilizes responses from other venues displaying
protected quotes in its routing methodology. When the RE receives a
response from a venue that does not completely fill the order targeting
a quote, and no subsequent quote update has been received from that
venue at the same price level, the RE will mark that venue's quote as
stale at that price level.\28\ Absent additional quote updates from
that venue, the RE will bypass the quote for one (1) second. After one
second, if the quote is still included in the market data snapshot, the
RE will target the quote again.
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\28\ Question 11 of the ``Division of Market Regulation:
Responses to Frequently Asked Questions Concerning Rule 611 and Rule
610 of Regulation NMS'' describes routing practices in the context
of stale quotes, available at https://www.sec.gov/divisions/marketreg/rule611faq.pdf.
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Post Integration Functionality. As proposed, following the
technology migration, when the Exchange has a marketable order with
instructions from the sender that the order is eligible to be routed,
and the ME identifies that there is no matching price available on the
Exchange but there is a matching price represented at another venue
that displays protected quotes, then the ME will send the order to the
RE of BATS Trading.
In determining whether to route an order and to which venue(s) it
should be routed, the RE will make its own calculation of the NBBO
using the Direct Feeds, SIP feeds, and Router Feedback, as described
below.\29\ The RE will include odd lot quotations in its calculation of
the NBBO depending on the source of the quotation. Where a protected
market center aggregates odd lot quotations at a single price level
into round lot quotations and publishes such aggregated quotations to
the SIPs, then the RE will include those odd lot quotations in its
calculation of the NBBO.
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\29\ The ME and RE consume the same Direct Feeds and SIP feeds.
---------------------------------------------------------------------------
The RE will not utilize Day ISO Feedback in constructing the NBBO;
however, because all orders initially flow through the ME, to the
extent Day ISO Feedback has updated the ME's calculation of the NBBO,
all orders processed by the RE will take Day ISO Feedback into account.
The RE will receive Feedback from all Smart Order Routing strategies.
There are three types of Router Feedback that contribute to the
Exchange's calculation of the NBBO:
Immediate Feedback. Where BATS Trading routes an order to
a venue with a protected quotation using Smart Order Routing (a
``Feedback Order''), the number of shares available at that venue will
be immediately decreased by the number of shares routed to the venue at
the applicable price level.
Execution Feedback. Where BATS Trading receives an
execution report associated with a Feedback Order that indicates that
the order has fully executed with no remaining shares associated with
the order, all opposite side quotes on the venue's order book that are
priced more aggressively than the price at which the order was executed
will be ignored.
Cancellation Feedback. Where BATS Trading receives an
execution report associated with a Feedback Order that indicates that
the order has not fully executed (either a partial execution or a
cancellation), all opposite side quotes on the venue's order book that
are priced equal to or more aggressively than the limit price for the
order will be ignored.
All Feedback expires as soon as: (i) One (1) second passes; (ii)
the Exchange receives new quote information; or (iii)
[[Page 3677]]
the Exchange receives updated Feedback information.
Regulatory Compliance
Locked or Crossed Markets
Pre-Integration Functionality. The ME determines whether the
display of an order would lock or cross the market. At the time an
order is entered into the ME, the ME will establish, based upon the
prevailing top-of-book quotes of other exchanges displaying protected
quotes received from the SIP feeds, whether the order will lock or
cross the prevailing NBBO for a security. In the event that the order
would produce a locking or crossing condition, the ME will cancel the
order, re-price \30\ the order or route the order based on the Member's
instructions. Two exceptions to this logic are Day ISOs and
declarations of self-help.
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\30\ See Exchange Rule 11.6(l).
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Pursuant to Regulation NMS, when an Exchange receives a Day ISO,
the sender of the ISO retains the responsibility to comply with
applicable rules relating to locked and crossed markets.\31\ In such
case, the Exchange will display a Day ISO order at the Member's price,
even if such price would lock or cross the market.\32\
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\31\ See supra note 22.
\32\ See supra note 22.
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Declarations of self-help occur when the RE detects that an
exchange displaying protected quotes is slow, as defined in Regulation
NMS, or non-responsive to the Exchange's routed orders. In this
circumstance, according to Rule 611(b) of Regulation NMS, the Exchange
may display a quotation that may lock or cross quotations from the
market that the Exchange invoked self-help against.\33\ The ME and RE,
when they process market data, maintain logic that ignores the quotes
generated from the self-helped market in their calculations of the NBBO
for execution and routing determinations in compliance with Regulation
NMS. The Exchange also disables all routing to the self-helped market.
The ME and Quote Server continue to consume the self-helped market
center's quotes, however, in order to immediately include the quote in
the NBBO calculation and enable routing once self-help is revoked. The
Exchange excludes quotes from the self-helped market for re-pricing
purposes and to price orders such as orders with a Pegged instruction
and MidPoint Peg Orders.
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\33\ See also Question 5.03 in the ``Division of Trading and
Markets, Responses to Frequently Asked Questions Concerning Rule 611
and Rule 610 of Regulation NMS'' (last updated April 4, 2008)
available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------
Post-Integration Functionality. The Exchange's post-integration
functionality is similar to the pre-integration functionality. However,
the Exchange notes that at the time an order is entered into the ME,
the ME will establish, based upon its calculation of the NBBO from
Direct Feeds, SIP feeds and Feedback, whether the order will lock or
cross the prevailing NBBO for a security.
Trade-Through Rule
Pre-Integration Functionality. Pursuant to Rule 611 of Regulation
NMS, the Exchange shall establish, maintain, and enforce written
policies and procedures that are reasonably designed to prevent trade-
throughs on trading centers of protected quotations in NMS stocks that
do not fall within a valid exception and, if relying on such an
exception, that are reasonably designed to ensure compliance with the
terms of the exception. The ME does not permit an execution on the
Exchange if there are better-priced protected quotations displayed in
the market unless the order is an ISO. At the time an order is entered
into the ME, the ME uses the view of the NBBO as described above. If
the NBBO is priced better than what is resident on the Exchange, the
Exchange will not match such order on the EDGA Book, and based on the
Member's instructions, the ME will cancel the order, re-price the order
or route the order.
Post-Integration Functionality. The Exchange's post-integration
functionality that describes compliance with the trade-through rule is
the same as the Exchange's pre-integration functionality. The Exchange
again notes that following the technology migration, it will
calculation the NBBO using Direct Feeds, SIP Feeds, and Feedback.
Regulation SHO
Pre-Integration Functionality. The Exchange cannot execute a short
sale order \34\ equal to or below the current National Best Bid
(``NBB'') when a short sale price restriction is in effect pursuant to
Rule 201 of Regulation SHO (``Short Sale Circuit Breaker'').\35\ When a
Short Sale Circuit Breaker is in effect, the Exchange utilizes
information received from the SIP feeds and a view of the EDGA Book to
assess its compliance with Rule 201 of Regulation SHO. The NBBO used
for compliance with Rule 201 of Regulation SHO includes quotes from
market centers against which the Exchange has declared self-help.
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\34\ See Exchange Rule 11.6(l)(2).
\35\ 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010,
the Commission adopted amendments to Regulation SHO under the Act in
the form of Rule 201, pursuant to which, among other things, short
sale orders in covered securities generally cannot be executed or
displayed by a trading center, such as the Exchange, at a price that
is at or below the current NBB when a Short Sale Circuit Breaker is
in effect for the covered security. See Securities Exchange Act
Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010).
In connection with the adoption of Rule 201, Rule 200(g) of
Regulation SHO was also amended to include a ``short exempt''
marking requirement. See also Securities Exchange Act Release No.
63247 (November 4, 2010), 75 FR 68702 (November 9, 2010) (extending
the compliance date for Rules 201 and 200(g) to February 28, 2011).
See also Division of Trading & Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/rule201faq.htm.
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Post-Integration Functionality. The Exchange's post-integration
functionality is similar to the pre-integration functionality,
including that the NBBO used for compliance with Rule 201 of Regulation
SHO will include quotes from market centers against which the Exchange
has declared self-help. However, the Exchange notes that when a Short
Sale Circuit Breaker is in effect, the Exchange will utilize
information received from Direct Feeds, SIP feeds, Feedback and a view
of the EDGA Book to assess its compliance with Rule 201 of Regulation
SHO.
Latent or Inaccurate Direct Feeds
Pre-Integration Functionality. Where the Exchange's systems detect
problems with one or more Direct Feeds, the Quote Server can manually
fail over to the SIP feed to calculate the NBBO for the market
center(s) where the applicable Direct Feed is experiencing issues. In
order to make this determination, the Quote Server continuously polls
every Direct Feed line and generates an email alert if the difference
between a quote's sent time (as stamped by the sending market) and the
time of receipt by the Exchange exceeds one (1) second.
Post-Integration Functionality. As proposed, where the Exchange's
systems detect problems with one or more Direct Feeds, the Exchange
will immediately fail over to the SIP feed to calculate the NBBO for
the market center(s) where the applicable Direct Feed is experiencing
issues. The Exchange can also manually fail over to the SIP feed in
lieu of Direct Feed data upon identification by a market center of an
issue with its Direct Feed(s).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b)
[[Page 3678]]
of the Act \36\ in general, and furthers the objectives of Section
6(b)(5) of the Act \37\ 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 Exchange does not
believe that this proposal will permit unfair discrimination among
customers, brokers, or dealers because it will be available to all
Users.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that its proposal to describe the Exchange's
use of data feeds removes impediments to and perfects the mechanism of
a free and open market and protects investors and the public interest
because it provides additional specificity and transparency regarding
both the current operation of the System and the operation of the
System following the migration to BATS technology. The Exchange's
proposal will enable investors to better assess the quality of the
Exchange's execution and routing services. The Exchange believes the
additional transparency into the operation of the Exchange as described
in the proposal will 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. On the contrary, the Exchange believes the
proposal would enhance competition because describing the Exchange's
use of data feeds enhances transparency and enables investors to better
assess the quality of the Exchange's execution and routing services. In
addition, the Exchange believes the proposed rule change will benefit
Exchange participants in that it is one of several changes necessary to
achieve a consistent technology offering by the BGM Affiliated
Exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange filed the Initial Proposal with the Commission on July
15, 2014, and it was published for comment in the Federal Register on
August 1, 2014. The Commission received four (4) letters commenting on
companion filings: Two (2) letters commented on SR-BATS-2014-029,\38\
one (1) letter commented on SR-BATS-2014-029 and SR-BYX-2014-012,\39\
and one (1) letter commented on SR-EDGX-2014-20.\40\ The Exchange
believes that the comments raised in these letters are either not
directly related to the Exchange's proposal but instead raise larger
market structure issues or are adequately addressed in this proposal,
particularly as it relates to the Commission's request to describe the
Exchange's use of data feeds for order handling and execution, order
routing, and regulatory compliance.
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\38\ See Letter from R.T. Leuchtkafer to the Commission, dated
August 22, 2014 (SR-BATS-2014-029) (discussing the Exchange's market
data feed practices). See Letter from Eric Scott Hunsader, Nanex,
LLC, to the Commission, dated August 22, 2014 (SR-BATS-2014-029)
(discussing the Exchange's use of NBBO as a defined term).
\39\ See Letter from Donald Bollerman, Head of Market
Operations, IEX ATS, to the Commission, dated September 25, 2014
(SR-BATS-2014-029) (SR-BYX-2014-012) (discussing the Exchange's
calculation of the PBBO).
\40\ See Letter from Suzanne Hamlet Shatto to the Commission,
dated August 19, 2014 (SR-EDGX-2014-20) (discussing Dodd Frank
principles).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \41\ and Rule 19b-4(f)(6)
thereunder.\42\
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\41\ 15 U.S.C. 78s(b)(3)(A).
\42\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \43\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \44\ 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 asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
stated that waiver of the operative delay will allow the Exchange to
immediately adopt rule text consistent with the Initial Proposal and
operate in the same manner as BATS with respect to the use of data
feeds. In addition, the Exchange stated that waiver of the operative
delay will allow it to continue to move towards a complete technology
integration of the BGM Affiliated Exchanges to ensure stability of the
System. For these reasons, the Commission believes that waiver of the
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposal operative upon filing.\45\
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\43\ 17 CFR 240.19b-4(f)(6).
\44\ 17 CFR 240.19b-4(f)(6)(iii).
\45\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-EDGA-2015-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 3679]]
Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGA-2015-02. 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 (https://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 the 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-EDGA-2015-02 and should be
submitted on or before February 13, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01065 Filed 1-22-15; 8:45 am]
BILLING CODE 8011-01-P
