Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Proposed Rule Change To Describe Changes to System Functionality Necessary To Implement the Tick Size Pilot Program, 64552-64559 [2016-22534]
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64552
Federal Register / Vol. 81, No. 182 / Tuesday, September 20, 2016 / Notices
proposed rule change (File Number SR–
NYSEArca–2016–100).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78840; File No. SR–
NYSEArca–2016–100]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of a
Longer Period for Commission Action
on a Proposed Rule Change To List
and Trade Shares of the Direxion Daily
Municipal Bond Taxable Bear 1X Fund
Under NYSE Arca Equities Rule
5.2(j)(3)
sradovich on DSK3GMQ082PROD with NOTICES
September 14, 2016.
On July 13, 2016, NYSE Arca, Inc.
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares of the Direxion
Daily Municipal Bond Taxable Bear 1X
Fund. The proposed rule change was
published for comment in the Federal
Register on August 3, 2016.3 The
Commission received no comment
letters on the proposed rule change.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is September 17,
2016. The Commission is extending this
45-day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,5 designates
November 1, 2016, as the date by which
the Commission shall either approve or
disapprove or institute proceedings to
determine whether to disapprove the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 78433
(July 28, 2016), 81 FR 51241.
4 15 U.S.C. 78s(b)(2).
5 Id.
2 17
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17:13 Sep 19, 2016
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–22539 Filed 9–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78835; File No. SR–Phlx–
2016–92]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing of
Proposed Rule Change To Describe
Changes to System Functionality
Necessary To Implement the Tick Size
Pilot Program
September 14, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on
September 7, 2016, NASDAQ PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. 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 proposes to adopt
paragraph (d) and Commentary .12 to
Exchange Rule 3317 to describe changes
to System3 functionality necessary to
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The term ‘‘PSX,’’ or ‘‘System’’ is defined as the
automated system for order execution and trade
reporting owned and operated by the Exchange. The
Exchange will operate PSX as an automated trading
center for purposes of Rule 600(b)(4) of Regulation
NMS. PSX comprises: (1) A montage for Quotes and
Orders, referred to herein as the ‘‘PSX Book’’, that
collects and ranks all Quotes and Orders submitted
by Participants; (2) an Order execution service that
enables Participants to automatically execute
transactions in System Securities; and provides
Participants with sufficient monitoring and
updating capability to participate in an automated
execution environment; (3) a trade reporting service
that submits ‘‘locked-in’’ trades for clearing to a
registered clearing agency for clearance and
settlement; transmits last-sale reports of
transactions automatically to the National Trade
Reporting System, if required, for dissemination to
the public and industry; and provides participants
with monitoring and risk management capabilities
to facilitate participation in a ‘‘locked-in’’ trading
environment; and (4) data feeds that can be used to
1 15
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implement the Regulation NMS Plan to
Implement a Tick Size Pilot Program
(‘‘Plan’’).4 The Exchange is also
proposing amendments to Rule 3317(a)
and (c) to clarify how the Trade-at
exception may be satisfied.
The text of the proposed rule
change is available on the Exchange’s
Web site at https://
nasdaqphlx.cchwallstreet.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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Background
On August 25, 2014, NYSE Group,
Inc., on behalf of Bats BZX Exchange,
Inc. (f/k/a BATS Exchange, Inc.), Bats
BYX Exchange, Inc. (f/k/a BATS YExchange, Inc.), Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., the Exchange,
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), NASDAQ
BX, Inc., The NASDAQ Stock Market
LLC, New York Stock Exchange LLC,
NYSE Arca, Inc., and the NYSE MKT
LLC, (collectively ‘‘Participants’’), filed
the Plan with the Commission pursuant
to Section 11A of the Act 5 and Rule 608
of Regulation NMS thereunder.6 The
Participants filed the Plan to comply
with an order issued by the Commission
display with attribution to PSX Participants’ MPIDs
all Quotes and Displayed Orders on both the bid
and offer side of the market for all price levels then
within the PSX Market, and that disseminate such
additional information about Quotes, Orders, and
transactions within PSX as shall be reflected in the
PSX Rules. See Rule 3301(a).
4 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’).
5 15 U.S.C. 78k–1.
6 See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
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Federal Register / Vol. 81, No. 182 / Tuesday, September 20, 2016 / Notices
on June 24, 2014 (the ‘‘June 2014
Order’’).7 The Plan 8 was published for
comment in the Federal Register on
November 7, 2014,9 and approved by
the Commission, as modified, on May 6,
2015.10
The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
impact of increment conventions on the
liquidity and trading of the common
stocks of small capitalization
companies. The Commission plans to
use the Tick Size Pilot Program to assess
whether wider tick sizes enhance the
market quality of Pilot Securities for the
benefit of issuers and investors. Each
Participant is required to comply with,
and to enforce compliance by its
members, as applicable, with the
provisions of the Plan.
On October 9, 2015, the Operating
Committee approved the Exchange’s
proposed rules as model Participant
rules that would require compliance by
a Participant’s members with the
provisions of the Plan, as applicable,
and would establish written policies
and procedures reasonably designed to
comply with applicable quoting and
trading requirements specified in the
Plan.11 As described more fully below,
the proposed rules would require
members to comply with the Plan and
provide for the widening of quoting and
trading increments for Pilot Securities,
consistent with the Plan.
The Plan will include stocks of
companies with $3 billion or less in
market capitalization, an average daily
trading volume of one million shares or
less, and a volume weighted average
price of at least $2.00 for every trading
day. The Plan will consist of a control
group of approximately 1,400 Pilot
Securities and three test groups with
400 Pilot Securities in each selected by
sradovich on DSK3GMQ082PROD with NOTICES
7 See
Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
8 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
9 See Securities and Exchange Act Release No.
73511 (November 3, 2014), 79 FR 66423 (File No.
4–657) (Tick Plan Filing).
10 See Tick Plan Approval Order, supra note 4.
See also Securities Exchange Act Release No. 77277
(March 3, 2016), 81 FR 12162 (March 8, 2016) (File
No. 4–657), which amended the Plan to add
National Stock Exchange, Inc. as a Participant.
11 The Operating Committee is required under
Section III(C)(2) of the Plan to ‘‘monitor the
procedures established pursuant to the Plan and
advise Participants with respect to any deficiencies,
problems, or recommendations as the Operating
Committee may deem appropriate.’’ The Operating
Committee is also required to ‘‘establish
specifications and procedures for the
implementation and operation of the Plan that are
consistent with the provisions of the Plan.’’
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17:13 Sep 19, 2016
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a stratified sampling.12 During the pilot,
Pilot Securities in the control group will
be quoted at the current tick size
increment of $0.01 per share and will
trade at the currently permitted
increments. Pilot Securities in the first
test group (‘‘Test Group One’’) will be
quoted in $0.05 minimum increments
but will continue to trade at any price
increment that is currently permitted.13
Pilot Securities in the second test group
(‘‘Test Group Two’’) will be quoted in
$0.05 minimum increments and will
trade at $0.05 minimum increments
subject to a midpoint exception, a retail
investor exception, and a negotiated
trade exception.14 Pilot Securities in the
third test group (‘‘Test Group Three’’)
will be subject to the same terms as Test
Group Two and also will be subject to
the ‘‘Trade-at’’ requirement to prevent
price matching by a person not
displaying at a price of a Trading
Center’s ‘‘Best Protected Bid’’ or ‘‘Best
Protected Offer,’’ unless an enumerated
exception applies.15 In addition to the
exceptions provided under Test Group
Two, an exception for Block Size orders
and exceptions that closely resemble
those under Rule 611 of Regulation
NMS 16 will apply to the Trade-at
requirement.
The Plan also contains requirements
for the collection and transmission of
data to the Commission and the public.
A variety of data generated during the
Plan will be released publicly on an
aggregated basis to assist in analyzing
the impact of wider tick sizes on smaller
capitalization stocks.17
As noted above, the Plan requires the
Exchange to establish, maintain, and
enforce written policies and procedures
that are reasonably designed to comply
with the applicable quoting and trading
requirements specified in the Plan.
Accordingly, the Exchange adopted
paragraph (c) of Rule 3317 to require
members to comply with the quoting
and trading provisions of the Plan. The
Exchange also adopted paragraph (b) of
Rule 3317 to require members to comply
with the data collection provisions
under Appendix B and C of the Plan.18
The Exchange is proposing to adopt
paragraph (d) of Rule 3317 to describe
the changes to System functionality
12 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
13 See Section VI(B) of the Plan. Pilot Securities
in Test Group One will be subject to a midpoint
exception and a retail investor exception.
14 See Section VI(C) of the Plan.
15 See Section VI(D) of the Plan.
16 17 CFR 242.611.
17 See Section VII of the Plan.
18 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
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necessary to implement the Plan and to
amend certain rules under Rule 3317.
As discussed below, certain of these
proposed changes are intended to
reduce risk in the System by eliminating
unnecessary complexity or by
eliminating functionality that would
serve no purpose or meaningful benefit
to the market. The Exchange believes
that all of the proposed changes are
designed to directly comply with the
Plan and to assist the Exchange in
meeting its regulatory obligations
thereunder.
Proposed System Changes
Proposed paragraph (d) of Rule 3317
would set forth the Exchange’s specific
procedures for handling, executing,
repricing, and displaying of certain
Order Types 19 and Order Attributes 20
applicable to Pilot Securities. Unless
otherwise indicated, paragraph (d) of
Rule 3317 would apply to Order Types
and Order Attributes in Pilot Securities
in Test Groups One, Two, and Three
and not to Pilot Securities included in
the Control Group. The Exchange is
proposing to adopt new Rule 3317(d)(1)
to make it clear that it will not accept
an Order in a Test Group Pilot Security
that is not entered in the Pilot’s
minimum price increment of $0.05,
applied to all Order Types that require
a price and do not otherwise qualify for
an exemption to the $0.05 minimum
price increment required by the Plan.
The Exchange is also clarifying under
new Rule 3317(d)(1) that it will use the
$0.05 minimum price increment when
the System reprices an Order, including
when it rounds a derived price up or
down. Although not required by the
Plan nor prohibited, the Exchange has
determined to apply the Trade-at
restrictions during the Pre-Market Hours
and Post-Market Hours trading
sessions,21 in addition to the regular
19 An ‘‘Order Type’’ is a standardized set of
instructions associated with an Order that define
how it will behave with respect to pricing,
execution, and/or posting to the PSX Book when
submitted to PSX. See Rule 3301(e).
20 An ‘‘Order Attribute’’ is a further set of variable
instructions that may be associated with an Order
to further define how it will behave with respect to
pricing, execution, and/or posting to the PSX Book
when submitted to PSX. The available Order Types
and Order Attributes, and the Order Attributes that
may be associated with particular Order Types, are
described in Rules 3301A and 3301B. One or more
Order Attributes may be assigned to a single Order;
provided, however, that if the use of multiple Order
Attributes would provide contradictory instructions
to an Order, the System will reject the Order or
remove non-conforming Order Attributes. Id.
21 As used in this proposal, the term ‘‘Market
Hours’’ means the period of time beginning at 9:30
a.m. ET and ending at 4:00 p.m. ET (or such earlier
time as may be designated by the Exchange on a day
when PSX closes early). The term ‘‘System Hours’’
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sradovich on DSK3GMQ082PROD with NOTICES
Market Hours trading session.22 The
Exchange believes that applying the
same process and requirements in Test
Group Three Pilot Securities will
simplify processing of Orders by the
Exchange, avoiding market participant
confusion that may be caused by
applying only some of the Plan
requirements and not others during the
different market sessions.
In determining the scope of the
proposed changes to implement the
Plan, the Exchange carefully weighed
the impact on the Plan, System
complexity, and the usage of such Order
Types and Order Attributes in Pilot
Securities. The Exchange found that it
can support nearly all Order Type and
Order Attribute functionality; however,
as described in detail below, it must
amend such functionality in a handful
of cases to address the requirements of
the Plan. Thus, in addition to the
changes of broad application discussed
above, the Exchange is proposing the
following select and discrete
amendments to the operation of the
following Order Types and Order
Attributes, as discussed in detail below:
(i) Price to Comply Orders 23; (ii) NonDisplayed Orders 24; (iii) Post-Only
Orders 25; (iv) Market Maker Peg
Orders 26; (v) Midpoint Peg Post-Only
Order 27; (vi) Midpoint Pegging 28; (vii)
Reserve Size 29; and (viii) Good-tillCancelled 30.
The Exchange is also proposing to
amend existing rules under Rule 3317 to
clarify the operation of the Plan on the
Exchange. Specifically, the Exchange is
proposing to amend Rule
3317(a)(1)(D)(ii), which defines the term
‘‘Trade-at Intermarket Sweep Order,’’
and Rule 3317(c)(3)(D)(iii)j, which
describes an exception to the Trade-at
prohibition of the Plan involving the use
of Trade-at Intermarket Sweep Orders,
as described in detail below.
Lastly, the Exchange is proposing to
adopt new Commentary .12 to Rule
means the period of time beginning at 8:00 a.m. ET
and ending at 5:00 p.m. ET (or such earlier time as
may be designated by the Exchange on a day when
PSX closes early). The term ‘‘Pre-Market Hours’’
means the period of time beginning at 8:00 a.m. ET
and ending immediately prior to the
commencement of Market Hours. The term ‘‘PostMarket Hours’’ means the period of time beginning
immediately after the end of Market Hours and
ending at 5:00 p.m. ET. See Rule 3301(g).
22 Regular Trading Hours is defined by the Plan
as having the same meaning as Rule 600(b)(64) of
Regulation NMS.
23 See Rule 3301A(b)(1).
24 See Rule 3301A(b)(3).
25 See Rule 3301A(b)(4).
26 See Rule 3301A(b)(5).
27 See Rule 3301A(b)(6).
28 See Rule 3302A(d).
29 See Rule 3302A(h).
30 See Rule 3302A(a)(3).
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3317 to describe what qualifies as a
Block Order for purposes of the Tradeat exception under Rule
3317(c)(3)(D)(iii).
Price To Comply Orders
The Price to Comply Order is an
Order Type designed to comply with
Rule 610(d) under Regulation NMS by
having its price and display
characteristics adjusted to avoid the
display of quotations that lock or cross
any Protected Quotation in a System
Security during Market Hours. The Price
to Comply Order is also designed to
provide potential price improvement.
The System does not have a ‘‘plain
vanilla’’ limit order that attempts to
execute at its limit price and is then
posted at its price or rejected if it cannot
be posted; rather, the Price to Comply
Order, with its price and display
adjustment features, is one of the
primary Order Types used by
Participants to access and display
liquidity in the System. The price and
display adjustment features of the Order
Type enhance efficiency and investor
protection by offering an Order Type
that first attempts to access available
liquidity and then to post the remainder
of the Order at prices that are designed
to maximize their opportunities for
execution.
When a Price to Comply Order is
entered by a market participant, the
Price to Comply Order will be executed
against previously posted Orders on the
Exchange Book that are priced equal to
or better than the price of the Price to
Comply Order, up to the full amount of
such previously posted Orders, unless
such executions would trade through a
Protected Quotation. Any portion of the
Order that cannot be executed in this
manner will be posted on the Exchange
Book (and/or routed if it has been
designated as Routable).31
During Market Hours, the price at
which a Price to Comply Order is posted
is determined in the following manner.
If the entered limit price of the Price to
Comply Order would lock or cross a
Protected Quotation and the Price to
Comply Order could not execute against
an Order on the Exchange Book at a
price equal to or better than the price of
the Protected Quotation, the Price to
Comply Order will be displayed on the
Exchange Book at a price one minimum
price increment below the current Best
Offer (for a Price to Comply Order to
buy) or above the current Best Bid (for
a Price to Comply Order to sell) but will
also be ranked on the Exchange Book
with a non-displayed price equal to the
current Best Offer (for a Price to Comply
31 See
PO 00000
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Order to buy) or to the current Best Bid
(for a Price to Comply Order to sell).
The posted Order will then be available
for execution at its non-displayed price,
thus providing opportunities for price
improvement to incoming Orders.
A Price to Comply Order in a Test
Group Pilot Security will operate as
described in Rule 3301A(b)(1) except
the Exchange is proposing to change
how it handles a Price to Comply Order
in a Test Group Three Pilot Security to
ensure that it conforms with the Tradeat prohibition of the Plan. First, the
Exchange is proposing that if the
Exchange received a Price to Comply
Order for a Test Group Three Pilot
Security that locks or crosses a
Protected Quotation of another market
center, is partially executed upon entry,
and the remainder of the Order would
lock a Protected Quotation of another
market center, the unexecuted portion
of the Order will be cancelled. Second,
if the limit price of a buy (sell) Price to
Comply Order in a Test Group Three
Pilot Security would lock or cross a
Protected Quotation of another market
center, and is not executable against any
previously posted Orders on the
Exchange Book, the Order will display
at one minimum price increment below
(above) the Protected Quotation, and the
order will be added to the Exchange
Book at the midpoint of the order’s
displayed price and the National Best
Offer (National Best Bid).32 Thus, the
Order would avoid possible execution at
a prohibited price, but potentially
receive price improvement and be
displayed at a permissible price away
from the Protected Quotation. Due to the
Trade-at requirement of Test Group
Three Pilot Securities, the Exchange is
also proposing to adjust such Orders
repeatedly towards the limit price of the
order in accordance with changes to the
NBBO until such time as the Price to
Comply Order is able to be ranked and
displayed at its original entered limit
price.33
Non-Displayed Orders
A Non-Displayed Order is an Order
Type that is not displayed to other
32 When the market is locked, the price and
display logic for Orders that would lock or cross an
away market is slightly different. Displayed Orders
at the locking price will post at the locking price
if there are other orders already posted on PSX at
that price (i.e., PSX is part of the locked market).
Otherwise, the order will post at one minimum
price increment away from the locking price. Nondisplayed Orders received when the market is
locked will always post one minimum price
increment away from the locking price.
33 The repricing of Price to Comply and Post-Only
Orders in Test Group Three Pilot Securities
described in this rule filing are not subject to the
limitations on Order updates, as described in Rule
3306(a)(4).
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Participants, but nevertheless remains
available for potential execution against
incoming Orders until executed in full
or cancelled. In addition to the NonDisplayed Order Type, there are other
Order Types that are not displayed on
the Exchange Book. Thus, ‘‘NonDisplay’’ is both a specific Order Type
and an Order Attribute of certain other
Order Types.
When a Non-Displayed Order is
entered, the Non-Displayed Order will
be executed against previously posted
Orders on the Exchange Book that are
priced equal to or better than the price
of the Non-Displayed Order, up to the
full amount of such previously posted
Orders, unless such executions would
trade through a Protected Quotation.
Any portion of the Non-Displayed Order
that cannot be executed in this manner
will be posted to the Exchange Book
(unless the Non-Displayed Order has a
Time-in-Force of IOC) and/or routed if
it has been designated as Routable.
During Market Hours, if the entered
limit price of the Non-Displayed Order
would lock a Protected Quotation, the
Non-Displayed Order will be placed on
the Exchange Book at the locking price.
If the Non-Displayed Order would cross
a Protected Quotation, the NonDisplayed Order will be repriced to a
price that would lock the Protected
Quotation and will be placed on the
Exchange Book at that price.
To avoid possible execution of a NonDisplayed Order at the Protected Quote
on the Exchange in a Test Group Three
Pilot Security, the Exchange is
proposing to not allow execution of a
Non-Displayed Order in a Test Group
Three Pilot Security at the price of a
Protected Quotation unless the
incoming Order otherwise qualifies for
an exception to the Trade-at prohibition.
If the limit price of a buy (sell) NonDisplayed Order in a Test Group Three
security would lock or cross a Protected
Quotation of another Market Center, the
Order will be added to the Exchange
Book at either one minimum price
increment ($0.05) below (above) the
National Best Offer (National Best Bid)
or at the midpoint of the NBBO,
whichever is higher (lower). Thus the
Order would avoid possible execution at
a prohibited price, but potentially
receive price improvement or post at a
permissible price away from the
Protected Quotation. After posting and
if conditions allow, such an Order will
be adjusted repeatedly in accordance
with changes to the NBBO up (down) to
the Order’s limit price.34
34 The repricing of Non-Displayed Orders in Test
Group Three Pilot Securities in accordance with
changes to the NBBO up (down) to the Order’s limit
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The Exchange is proposing a change
to how a Non-Displayed Order in a Test
Group Three Pilot Security would be
treated to comply with the Trade-at
requirement. Currently, for a NonDisplayed Order that is entered through
a RASH or FIX port, if, after being
posted to the Exchange Book, the NBBO
changes so that the Non-Displayed
Order would cross a Protected
Quotation, the Non-Displayed Order
will be repriced at a price that would
lock the new NBBO and receive a new
timestamp. For a Non-Displayed Order
entered through OUCH or FLITE, if,
after the Non-Displayed Order is posted
to the Exchange Book, the NBBO
changes so that the Non-Displayed
Order would cross a Protected
Quotation, the Non-Displayed Order
will be cancelled back to the
Participant. The Exchange is proposing
to trigger repricing of a Non-Displayed
Order in a Test Group Three Pilot
Security if the Order would lock or
cross a Protected Quotation by posting
the Order to the Exchange Book at either
one minimum price increment below
(above) the National Best Offer (National
Best Bid) or at the midpoint of the
NBBO, whichever is higher (lower).
Thus, the Order is repriced to avoid
execution at the Protected Quotation,
but may also receive price
improvement. If market conditions
allow, a Non-Displayed Order in a Test
Group Three Pilot Security will be
adjusted repeatedly in accordance with
changes to the NBBO up (down) to the
Order’s limit price. For a Non-Displayed
Order in a Test Group Three Pilot
Security entered through RASH or FIX,
if after being posted to the Exchange
Book, the NBBO changes so that the
Non-Displayed Order would no longer
be executable at its posted price due to
the requirements of Regulation NMS or
the Plan, the Non-Displayed Order will
be repriced to a price that is at either
one minimum increment below (above)
the National Best Offer (National Best
Bid) or at the midpoint of the NBBO,
whichever is higher (lower) and will
receive a new timestamp. For a NonDisplayed Order in a Test Group Three
Pilot Security entered through OUCH or
FLITE, if after such a Non-Displayed
Order is posted to the Exchange Book,
if the NBBO changes so that the NonDisplayed Order would no longer be
executable at its posted price due to the
requirements of Regulation NMS or the
Plan, the Non-Displayed Order will be
cancelled back to the Participant. A
posted order is no longer eligible to
execute at its posted price under three
price are not subject to the limitations on Order
updates, as described in Rule 3306(a)(4).
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distinct scenarios. First, in Test Group
Pilot Securities, if the NBBO moves
such that the posted Order’s price
crosses a protected quotation, it is no
longer executable due to the trade
through prohibition under Regulation
NMS (this is current functionality).
Second, in Test Group Three Pilot
Securities, if a Non-Displayed Order is
posted at the midpoint and the NBBO
moves such that its posted price is no
longer a valid increment, the Order will
be adjusted as described above. For
example, if the NBB is $10.00 and the
NBO is $10.05 in a Test Group Three
Pilot Security, and a Non-Displayed
Order to buy 100 shares of the security
with a limit price of $10.05 is received
by the System, the Order would be
repriced and posted at $10.025 (the
midpoint of the NBBO) to avoid locking
the market. If subsequently the NBB
changes to $9.95 and the NBO to $10.05,
then the Order would no longer be
eligible for the midpoint exception to
the Plan’s minimum price increment
requirement and therefore would be
adjusted and/or cancelled as described
above. Third, in Test Group Three Pilot
Securities, if the NBBO moves such that
the Order’s posted price locks a
protected quotation, it is no longer
executable due to the Trade-at
prohibition under the Plan and would
be adjusted and/or cancelled as
described above.
Post-Only Orders
A Post-Only Order is an Order Type
designed to have its price adjusted as
needed to post to the Exchange Book in
compliance with Rule 610(d) under
Regulation NMS 35 by avoiding the
display of quotations that lock or cross
any Protected Quotation in a System
Security during Market Hours, or to
execute against locking or crossing
quotations in circumstances where
economically beneficial to the
Participant entering the Post-Only
Order.
Post-Only Orders in Test Group Pilot
Securities will operate as described
under Rule 3301A(b)(4), however, the
Exchange is proposing changes to the
handling of a Post-Only Order in Test
Group Three Pilot Securities to ensure
that the Trade-at prohibition is
enforced. Specifically, the Exchange is
proposing to modify how a Post-Only
Order in a Test Group Three Pilot
Security is handled if it locks or crosses
the Protected Quotation of another
market center. If the limit price of a buy
(sell) Post-Only Order in a Test Group
Three Pilot Security would lock or cross
a Protected Quotation of another market
35 17
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center, the Order will display at one
minimum price increment below
(above) the Protected Quotation, and the
Order will be added to the Exchange
Book at the midpoint of the Order’s
displayed price and the National Best
Offer (National Best Bid). Thus the
Order would avoid possible execution at
a prohibited price, but potentially
receive price improvement or post at a
permissible price away from the
Protected Quotation. Thereafter and if
market conditions allow, the Post-Only
Order will be adjusted repeatedly
towards its limit price in accordance
with changes to the NBBO or the best
price on the Exchange Book, as
applicable, until such time as the PostOnly Order is able to be ranked and
displayed at its original entered limit
price.36
sradovich on DSK3GMQ082PROD with NOTICES
Market Maker Peg Orders
A ‘‘Market Maker Peg Order’’ is an
Order Type designed to allow a Market
Maker to maintain a continuous twosided quotation at a price that is
compliant with the quotation
requirements for Market Makers set
forth in Rule 3213(a)(2).37 The price of
the Market Maker Peg Order is set with
reference to a ‘‘Reference Price’’ in order
to keep the price of the Market Maker
Peg Order within a bounded price range.
A Market Maker Peg Order may be
entered through RASH or FIX only. A
Market Maker Peg Order must be
entered with a limit price beyond which
the Order may not be priced. The
Reference Price for a Market Maker Peg
Order to buy (sell) is the then-current
Best Bid (Best Offer) (including PSX), or
if no such Best Bid or Best Offer, the
most recent reported last-sale eligible
trade from the responsible single plan
processor for that day, or if none, the
previous closing price of the security as
adjusted to reflect any corporate actions
(e.g., dividends or stock splits) in the
security.
Upon entry, the price of a Market
Maker Peg Order to buy (sell) is
automatically set by the System at the
Designated Percentage (as defined in
Rule 3213) away from the Reference
Price in order to comply with the
quotation requirements for Market
Makers set forth in Rule 3213(a)(2). For
example, if the Best Bid is $10 and the
Designated Percentage for the security is
36 As discussed above, repricing of Price to
Comply and Post-Only Orders in Test Group Three
Pilot Securities described in this rule filing are not
subject to the limitations on Order updates, as
described in Rule 3306(a)(4). Supra note 33.
37 As with other Order Types, the Market Maker
Peg Order must be an Order either to buy or to sell;
thus, at least two Orders would be required to
maintain a two-sided quotation.
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8%, the price of a Market Marker Peg
Order to buy would be $9.20. If the limit
price of the Order is not within the
Designated Percentage, the Order will be
sent back to the Participant.
Once a Market Maker Peg Order has
posted to the Exchange Book, its price
is adjusted if needed as the Reference
Price changes. Specifically, if as a result
of a change to the Reference Price, the
difference between the price of the
Market Maker Peg Order and the
Reference Price reaches the Defined
Limit (as defined in Rule 3213), the
price of a Market Maker Peg Order to
buy (sell) will be adjusted to the
Designated Percentage away from the
Reference Price. In the foregoing
example, if the Defined Limit is 9.5%
and the Best Bid increased to $10.17,
such that the price of the Market Maker
Peg Order would be more than 9.5%
away, the Order will be repriced to
$9.35, or 8% away from the Best Bid.
Note that calculated prices of less than
the minimum increment will be
rounded in a manner that ensures that
the posted price will be set at a level
that complies with the percentages
stipulated by this rule. If the limit price
of the Order is outside the Defined
Limit, the Order will be sent back to the
Participant.
Similarly, if as a result of a change to
the Reference Price, the price of a
Market Maker Peg Order to buy (sell) is
within one minimum price variation
more than (less than) a price that is 4%
less than (more than) the Reference
Price, rounded up (down), then the
price of the Market Maker Peg Order to
buy (sell) will be adjusted to the
Designated Percentage away from the
Reference Price. For example, if the Best
Bid is $10 and the Designated
Percentage for the security is 8%, the
price of a Market Marker Peg Order to
buy would initially be $9.20. If the Best
Bid then moved to $9.57, such that the
price of the Market Maker Peg Order
would be a minimum of $0.01 more
than a price that is 4% less than the Best
Bid, rounded up (i.e. $9.57—($9.57 ×
0.04) = $9.1872, rounding up to $9.19),
the Order will be repriced to $8.81, or
8% away from the Best Bid.
A Market Maker may enter a Market
Maker Peg Order with a more aggressive
offset than the Designated Percentage,
but such an offset will be expressed as
a price difference from the Reference
Price. Such a Market Maker Peg Order
will be repriced in the same manner as
a Price to Display Order with
Attribution and Primary Pegging. As a
result, the price of the Order will be
adjusted whenever the price to which
the Order is pegged is changed.
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A new timestamp is created for a
Market Maker Peg Order each time that
its price is adjusted. In the absence of
a Reference Price, a Market Maker Peg
Order will be cancelled or rejected. If,
after entry, a Market Maker Peg Order is
priced based on a Reference Price other
than the NBBO and such Market Maker
Peg Order is established as the Best Bid
or Best Offer, the Market Maker Peg
Order will not be subsequently adjusted
in accordance with this rule until a new
Reference Price is established.
In light of the minimum price
increment requirement of the Plan, the
Exchange is proposing to require the
displayed price of a Market Maker Peg
Order in a Test Group One, Two or
Three Pilot Security to be rounded up
(down) to the nearest minimum price
increment for bids (offers), if it would
otherwise display at an increment
smaller than minimum price increment.
For example, if the NBB is $10.05 and
the NBO is $10.15, and the Designated
Percentage is 28%, the displayed price
of a Market Maker Peg Order to buy 100
shares of a Test Group Pilot Security
would be $7.25 (i.e. $10.05¥($10.05 ×
0.28) = $7.236, rounded up to $7.25).
Using the same market, but with a
Market Maker Peg Order to sell 100
shares, the Order would be displayed at
$12.95 (i.e. $10.15 + ($10.15 × 0.28) =
$12.992, rounded down to $12.95).
Thus, the rounding done to derive the
price of the Market Maker Peg Order in
a Test Group Pilot Security will conform
to the minimum price increment
requirement of the Plan.
As a consequence of conforming the
Market Maker Peg Order to the
minimum price increment of the Plan,
a Market Maker Peg Order may have a
higher likelihood of execution,
particularly in lower priced securities.
For example, if a member entered a
Market Maker Peg Order to buy 100
shares of a Test Group Pilot Security
with a limit price of $1.70 when the
NBB is $1.60 and the NBO is $1.65, if
the security is a Tier 2 security, the
Order would be pegged at 28% from the
NBB, which is $1.20 ($1.60 × .72 =
$1.152 which rounds up to $1.20). If the
market subsequently moves downward
to a NBB of $1.20 and NBO of $1.30, the
buy Market Maker Peg Order would not
reprice because it had not reached one
minimum price increment more than a
price that is 4% less than the NBB (i.e.,
$1.20 × .96 = $1.152, which rounds up
to $1.20 and which is not greater than
the NBB + $0.05). Thus, the Market
Maker Peg Order may receive an
execution prior to reaching a point at
which it would reprice. This increased
likelihood of execution of Market Maker
Peg Orders would occur in any Order in
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a Test Group Pilot Security with a price
less than $1.25.
Midpoint Peg Post-Only Orders
A ‘‘Midpoint Peg Post-Only Order’’ is
an Order Type with a Non-Display
Order Attribute that is priced at the
midpoint between the NBBO and that
will execute upon entry against locking
or crossing quotes only in circumstances
where economically beneficial to the
party entering the Order. Because the
Order is priced at the midpoint, it can
provide price improvement to incoming
Orders when it is executed after posting
to the Exchange Book. The Midpoint
Peg Post-Only Order is available during
Market Hours only.
The Plan allows Orders in Test Group
Pilot Securities priced to execute at the
midpoint of the NBBO to be ranked and
accepted in increments less than the
Plan’s minimum price increment of
$0.05. Thus, the Exchange is proposing
to make it clear that Midpoint Peg PostOnly Orders in any of the Test Group
Pilot Securities may execute in an
increment other than the minimum
price increment of the Plan.
sradovich on DSK3GMQ082PROD with NOTICES
Midpoint Pegging
Pegging is an Order Attribute that
allows an Order to have its price
automatically set with reference to the
NBBO. An Order with a Pegging Order
Attribute may be referred to as a
‘‘Pegged Order.’’ Midpoint Pegging
means Pegging with reference to the
midpoint between the Inside Bid and
the Inside Offer (the ‘‘Midpoint’’). Thus,
if the Inside Bid was $11 and the Inside
Offer was $11.06, an Order with
Midpoint Pegging would be priced at
$11.03. An Order with Midpoint
Pegging is not displayed. An Order with
Midpoint Pegging may be executed in
sub-pennies if necessary to obtain a
midpoint price.
As discussed above, the Plan allows
Orders in Test Group Pilot Securities
priced to execute at the midpoint of the
NBBO to be ranked and accepted in
increments less than the Plan’s
minimum price increment of $0.05.
Thus, the Exchange is proposing to
make it clear that an Order in a Test
Group Pilot Security with Midpoint
Pegging may execute in an increment
other than the minimum price
increment of the Plan.
Reserve Size
Reserve Size is an Order Attribute that
permits a Participant to stipulate that an
Order Type that is displayed may have
its displayed size replenished from
additional non-displayed size. An Order
with Reserve Size may be referred to as
a ‘‘Reserve Order.’’ At the time of entry,
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17:13 Sep 19, 2016
Jkt 238001
the displayed size of such an Order
selected by the Participant must be one
or more normal units of trading; an
Order with a displayed size of a mixed
lot will be rounded down to the nearest
round lot. A Reserve Order with
displayed size of an odd lot will be
accepted but with the full size of the
Order displayed. Reserve Size is not
available for Orders that are not
displayed; provided, however, that if a
Participant enters Reserve Size for a
Non-Displayed Order with a Time-inForce of IOC, the full size of the Order,
including Reserve Size, will be
processed as a Non-Displayed Order.
Whenever a Participant enters an
Order with Reserve Size, PSX will
process the Order as two Orders: A
Displayed Order (with the
characteristics of its selected Order
Type) and a Non-Displayed Order. Upon
entry, the full size of each such Order
will be processed for potential
execution in accordance with the
parameters applicable to the Order
Type. For example, a Participant might
enter a Price to Display Order with 200
shares displayed and an additional
3,000 shares non-displayed. Upon entry,
the Order would attempt to execute
against available liquidity on the
Exchange Book, up to 3,200 shares.
Thereafter, unexecuted portions of the
Order would post to the Exchange Book
as a Price to Display Order and a NonDisplayed Order; provided, however,
that if the remaining total size is less
than the display size stipulated by the
Participant, the Displayed Order will
post without Reserve Size. Thus, if
3,050 shares executed upon entry, the
Price to Display Order would post with
a size of 150 shares and no Reserve Size.
When an Order with Reserve Size is
posted, if there is an execution against
the Displayed Order that causes its size
to decrease below a normal unit of
trading, another Displayed Order will be
entered at the level stipulated by the
Participant while the size of the NonDisplayed Order will be reduced by the
same amount. Any remaining size of the
original Displayed Order will remain on
the Exchange Book. The new Displayed
Order will receive a new timestamp, but
the Non-Displayed Order (and the
original Displayed Order, if any) will
not; although the new Displayed Order
will be processed by the System as a
new Order in most respects at that time,
if it was designated as Routable, the
System will not automatically route it
upon reentry. For example, if a Price to
Comply Order with Reserve Size posted
with a Displayed Size of 200 shares,
along with a Non-Displayed Order of
3,000 and the 150 shares of the
Displayed Order was executed, the
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64557
remaining 50 shares of the original Price
to Comply Order would remain, a new
Price to Comply Order would post with
a size of 200 shares and a new
timestamp, and the Non-Displayed
Order would be decremented to 2,800
shares. Because a new Displayed Order
is entered and the Non-Displayed Order
is not reentered, there are circumstances
in which the Displayed Order may
receive a different price than the NonDisplayed Order. For example, if, upon
reentry, a Price to Display Order would
lock or cross a newly posted Protected
Quotation, the price of the Order will be
adjusted but its associated NonDisplayed Order would not be adjusted.
In that circumstance, it would be
possible for the better priced NonDisplayed Order to execute prior to the
Price to Display Order.
When the Displayed Order with
Reserve Size is executed and
replenished, applicable market data
disseminated by the Exchange will
show the execution and decrementation
of the Displayed Order, followed by
replenishment of the Displayed Order.
In all cases, if the remaining size of
the Non-Displayed Order is less than the
fixed or random amount stipulated by
the Participant, the full remaining size
of the Non-Displayed Order will be
displayed and the Non-Displayed Order
will be removed.
The Exchange is proposing to not
allow a resting order in a Test Group
Three Pilot Security with a Reserve Size
to execute the non-displayed Reserve
Size at the price of a Protected
Quotation of another market center
unless the incoming order otherwise
qualifies for an exception to the Tradeat prohibition provided under Rule
3317(c)(3)(D). If the Exchange received a
Reserve Order for a Test Group Three
Pilot Security that locks or crosses a
Protected Quotation of another market
center, is partially executed upon entry,
and the remainder of the Order would
lock a Protected Quotation of another
market center, the unexecuted portion
of the Order will be cancelled. If the
limit price of a buy (sell) Reserve Order
in a Test Group Three Pilot Security that
is not attributable would lock or cross
a Protected Quotation of another market
center, and is not executable against any
previously posted Orders on the
Exchange Book, the displayed portion of
the Order will display at one minimum
price increment below (above) the
Protected Quotation, and the Order will
be added to the Exchange Book at the
midpoint of the Order’s displayed price
and the National Best Offer (National
Best Bid). Thus, the Order would avoid
possible execution at a prohibited price,
but potentially receive price
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improvement and be displayed at a
permissible price away from the
Protected Quotation. If the limit price of
a buy (sell) Reserve Order in a Test
Group Three Pilot Security that is
attributable would lock or cross a
Protected Quotation of another market
center, and is not executable against any
previously posted Orders on the
Exchange Book, the displayed portion of
the Order will be adjusted and
displayed at one minimum price
increment below (above) the Protected
Quotation, and the non-displayed
Reserve Size will be added to the
Exchange Book at the midpoint of the
Order’s displayed price and the
National Best Offer (National Best Bid).
If after being posted to the Exchange
Book, the NBBO changes so that the
Reserve Order, if it is not attributable,
would lock or cross a Protected
Quotation, the displayed portion of the
Reserve Order will display one
minimum price increment below
(above) the Protected Quotation, and the
Order will be repriced to the midpoint
of the Order’s displayed price and the
National Best Offer (National Best
Bid).38 If after being posted to the
Exchange Book, the NBBO changes so
that the Reserve Order in a Test Group
Three Pilot Security, if it is attributable,
would no longer be executable at its
posted price due to the requirements of
Regulation NMS or the Plan, the
displayed portion of the Reserve Order
will be adjusted and display one
minimum price increment below
(above) the Protected Quotation, and the
non-displayed Reserve Size will be
repriced to the midpoint of the Order’s
displayed price and the National Best
Offer (National Best Bid). Thus, the
Order would continue to comply with
the Trade-at requirement by avoiding
potential execution at a prohibited
price.
sradovich on DSK3GMQ082PROD with NOTICES
Good-till-Cancelled
Good-till-Cancelled is a Time-in-Force
Order Attribute that is designated to
deactivate one year after entry. Under
certain circumstances at the election of
the member, an Order designated as
Good-till-Cancelled must be adjusted to
account for corporate actions related to
a dividend, payment or distribution.
Rule 3311(b) sets forth the
38 Both a Price to Comply Order and a Price to
Display Order with a Reserve Attribute would be
repriced pursuant to Reserve Order process
described in proposed Rule 3317(d)(9). A Price to
Display Order is an Order Type designed to comply
with Rule 610(d) under Regulation NMS by
avoiding the display of quotations that lock or cross
any Protected Quotation in a System Security
during Market Hours, and are available solely to
Participants that are Market Makers. See Rule
3301A(b)(2).
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17:13 Sep 19, 2016
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circumstances and method by which an
Order designated as Good-till-Cancelled
is adjusted. The Exchange is making it
clear that an order in a Test Group Pilot
Security with a Good-till-Cancelled
Time-in-Force that is adjusted pursuant
to Rule 3311(b) will be adjusted based
on a $0.05 increment.
Rule 3317(a) and (c) Changes
Rule 3317(a) provides definitions of
terms used under the Rule. Rule 3317(a)
defines the term ‘‘Trade-at Intermarket
Sweep Order’’ as ‘‘a limit order for a
Pilot Security that meets the following
requirements: (i) When routed to a
Trading Center, the limit order is
identified as a Trade-at Intermarket
Sweep Order; and (ii) Simultaneously
with the routing of the limit order
identified as a Trade-at Intermarket
Sweep Order, one or more additional
limit orders, as necessary, are routed to
execute against the full size of any
protected bid, in the case of a limit
order to sell, or the full displayed size
of any protected offer, in the case of a
limit order to buy, for the Pilot Security
with a price that is better than or equal
to the limit price of the limit order
identified as a Trade-at Intermarket
Sweep Order. These additional routed
orders also must be marked as Trade-at
Intermarket Sweep Orders.’’ Rule
3317(c)(3)(D)(iii)j. provides an exception
to the Trade-at prohibition, requiring
that, to satisfy the exception, the order
is executed by a Trading Center that
simultaneously routed Trade-at
Intermarket Sweep Orders or
Intermarket Sweep Orders to execute
against the full displayed size of the
Protected Quotation that was traded at.
The Exchange is proposing to amend
paragraph (ii) of Rule 3317(a) and Rule
3317(c)(3)(D)(iii)j. to allow the Exchange
to use Intermarket Sweep Orders in lieu
of Trade-at Intermarket Sweep Orders,
when it is in receipt of an Order from
a member that would trade through a
protected price on another market. An
Intermarket Sweep Order or ‘‘ISO’’ is an
Order Attribute that allows the Order to
be executed within PSX by Participants
at multiple price levels without respect
to Protected Quotations of other market
centers within the meaning of Rule
600(b) under Regulation NMS. ISOs are
immediately executable within PSX
against Orders against which they are
marketable.
For purposes of the Exchange’s
satisfaction of the Trade-at Intermarket
Sweep Order exception to the Trade-at
prohibition of Test Group Three Pilot
Securities, the ISO Order will operate
functionally identically to the use of a
Trade-at Intermarket Sweep Order.
Intermarket Sweep Orders are sent by
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the exchange to execute against
displayed size represented in away
market centers’ Protected Quotation and
thus provide the same function as a
Trade-at Intermarket Sweep Order
because either order type would execute
against the displayed portion of the
away market centers’ liquidity. The
Exchange’s routing broker is currently
programmed to accept and route ISO
Orders and adding an additional
functionality to support routing of
Trade-at Intermarket Sweep Orders
would add complexity to the process
with no functional benefit. Accordingly,
the Exchange is proposing to use ISOs
when routing Orders to satisfy the
exception to the Trade-at prohibition.
New Commentary .12
The Exchange is proposing to adopt a
new Commentary .12 to Rule 3317 to
clarify what qualifies as a Block Order
for purposes of the Block Size exception
to the Trade-at prohibition. Rule
3317(c)(3)(D)(iii)c. provides an
exception to the Trade-at prohibition for
an Order that is of Block Size at the time
of origin and is not an aggregation of
non-block Orders, broken into Orders
smaller than Block Size prior to
submitting the Order to a Trading
Center for execution, or is executed on
multiple Trading Centers. The Plan
defines Block Size as an Order of at least
5,000 shares or for a quantity of stock
having a market value of at least
$100,000. The Exchange has assessed
the technological complexity and effort
required to change the System to
identify the market value of a quantity
of stock and found that it would be
exceedingly burdensome and complex
without any clear benefit to the
Exchange, its members, and the
marketplace as a whole. As a
consequence, the Exchange is proposing
to only allow Orders that have a
minimum size of 5,000 shares to qualify
as Block Size for purposes of the
exception provided by Rule
3317(c)(3)(D)(iii)c. and will only execute
if the execution in aggregate is at least
5,000 shares.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,39 in general, and furthers the
objectives of Section 6(b)(5) of the Act,40
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
39 15
40 15
E:\FR\FM\20SEN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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sradovich on DSK3GMQ082PROD with NOTICES
and a national market system, and, in
general, to protect investors and the
public interest. The Exchange believes
that the proposed rule change is
consistent with the Act because it
allows the Exchange to make changes to
its handling of Order Types and Order
Attributes necessary to implement the
requirements of the Plan on its System.
The Plan, which was approved by the
Commission pursuant to an order issued
by the Commission in reliance on
Section 11A of the Act,41 provides the
Exchange authority to establish,
maintain, and enforce written policies
and procedures that are reasonably
designed to comply with applicable
quoting and trading requirements
specified in the Plan. The Exchange
believes that the proposed rule change
is consistent with the authority granted
to it by the Plan to establish
specifications and procedures for the
implementation and operation of the
Plan that are consistent with the
provisions of the Plan. Likewise, the
Exchange believes that the proposed
rule change provides interpretations of
the Plan that are consistent with the
Act, in general, and furthers the
objectives of the Act, in particular.
The Exchange is a Participant under
the Plan and is subject to the Plan’s
provisions. The proposed rule change
ensures that the Exchange’s systems
would not display or execute trading
interests outside the requirements
specified in such Plan, which otherwise
may occur given existing System
functionality. The proposal would also
help allow market participants to
continue to trade NMS Stocks, within
quoting and trading requirements that
are in compliance with the Plan, with
certainty on how certain orders and
trading interests would be treated. This,
in turn, will help encourage market
participants to continue to provide
liquidity in the marketplace.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes are being made to
establish, maintain, and enforce written
policies and procedures that are
reasonably designed to comply with the
trading and quoting requirements
specified in the Plan, of which other
equities exchanges are also Participants.
Other competing national securities
exchanges are subject to the same
trading and quoting requirements
41 15
U.S.C. 78k–1.
VerDate Sep<11>2014
17:13 Sep 19, 2016
Jkt 238001
specified in the Plan, and must take the
same steps that the Exchange has to
conform its existing rules to the
requirements of the Plan. Therefore, the
proposed changes would not impose
any burden on competition, while
providing certainty of treatment and
execution of trading interests on the
Exchange to market participants in NMS
Stocks that are acting in compliance
with the requirements specified in the
Plan.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be 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–
Phlx–2016–92 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2016–92. 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
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
64559
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–Phlx–
2016–92, and should be submitted on or
before October 4, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–22534 Filed 9–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension:
Notice of Exempt Preliminary Roll-Up
Communication, SEC File No. 270–396,
OMB Control No. 3235–0452.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget this
request for extension of the previously
approved collection of information
discussed below.
Rule 14a–6(n) [17 CFR 240.14a–6(n)]
under the Securities Exchange Act of
1934 (‘‘Exchange Act’’) (U.S.C. 78a et
seq.) requires any person that engages in
a proxy solicitation is subject to
42 17
E:\FR\FM\20SEN1.SGM
CFR 200.30–3(a)(12).
20SEN1
]]>Agencies
[Federal Register Volume 81, Number 182 (Tuesday, September 20, 2016)]
[Notices]
[Pages 64552-64559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22534]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78835; File No. SR-Phlx-2016-92]
Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
of Proposed Rule Change To Describe Changes to System Functionality
Necessary To Implement the Tick Size Pilot Program
September 14, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 7, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. 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 proposes to adopt paragraph (d) and Commentary .12 to
Exchange Rule 3317 to describe changes to System\3\ functionality
necessary to implement the Regulation NMS Plan to Implement a Tick Size
Pilot Program (``Plan'').\4\ The Exchange is also proposing amendments
to Rule 3317(a) and (c) to clarify how the Trade-at exception may be
satisfied.
---------------------------------------------------------------------------
\3\ The term ``PSX,'' or ``System'' is defined as the automated
system for order execution and trade reporting owned and operated by
the Exchange. The Exchange will operate PSX as an automated trading
center for purposes of Rule 600(b)(4) of Regulation NMS. PSX
comprises: (1) A montage for Quotes and Orders, referred to herein
as the ``PSX Book'', that collects and ranks all Quotes and Orders
submitted by Participants; (2) an Order execution service that
enables Participants to automatically execute transactions in System
Securities; and provides Participants with sufficient monitoring and
updating capability to participate in an automated execution
environment; (3) a trade reporting service that submits ``locked-
in'' trades for clearing to a registered clearing agency for
clearance and settlement; transmits last-sale reports of
transactions automatically to the National Trade Reporting System,
if required, for dissemination to the public and industry; and
provides participants with monitoring and risk management
capabilities to facilitate participation in a ``locked-in'' trading
environment; and (4) data feeds that can be used to display with
attribution to PSX Participants' MPIDs all Quotes and Displayed
Orders on both the bid and offer side of the market for all price
levels then within the PSX Market, and that disseminate such
additional information about Quotes, Orders, and transactions within
PSX as shall be reflected in the PSX Rules. See Rule 3301(a).
\4\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (``Approval Order'').
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The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqphlx.cchwallstreet.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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
On August 25, 2014, NYSE Group, Inc., on behalf of Bats BZX
Exchange, Inc. (f/k/a BATS Exchange, Inc.), Bats BYX Exchange, Inc. (f/
k/a BATS Y-Exchange, Inc.), Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc., the Exchange, Financial Industry
Regulatory Authority, Inc. (``FINRA''), NASDAQ BX, Inc., The NASDAQ
Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., and the
NYSE MKT LLC, (collectively ``Participants''), filed the Plan with the
Commission pursuant to Section 11A of the Act \5\ and Rule 608 of
Regulation NMS thereunder.\6\ The Participants filed the Plan to comply
with an order issued by the Commission
[[Page 64553]]
on June 24, 2014 (the ``June 2014 Order'').\7\ The Plan \8\ was
published for comment in the Federal Register on November 7, 2014,\9\
and approved by the Commission, as modified, on May 6, 2015.\10\
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\5\ 15 U.S.C. 78k-1.
\6\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\7\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\8\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\9\ See Securities and Exchange Act Release No. 73511 (November
3, 2014), 79 FR 66423 (File No. 4-657) (Tick Plan Filing).
\10\ See Tick Plan Approval Order, supra note 4. See also
Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR
12162 (March 8, 2016) (File No. 4-657), which amended the Plan to
add National Stock Exchange, Inc. as a Participant.
---------------------------------------------------------------------------
The Plan is designed to allow the Commission, market participants,
and the public to study and assess the impact of increment conventions
on the liquidity and trading of the common stocks of small
capitalization companies. The Commission plans to use the Tick Size
Pilot Program to assess whether wider tick sizes enhance the market
quality of Pilot Securities for the benefit of issuers and investors.
Each Participant is required to comply with, and to enforce compliance
by its members, as applicable, with the provisions of the Plan.
On October 9, 2015, the Operating Committee approved the Exchange's
proposed rules as model Participant rules that would require compliance
by a Participant's members with the provisions of the Plan, as
applicable, and would establish written policies and procedures
reasonably designed to comply with applicable quoting and trading
requirements specified in the Plan.\11\ As described more fully below,
the proposed rules would require members to comply with the Plan and
provide for the widening of quoting and trading increments for Pilot
Securities, consistent with the Plan.
---------------------------------------------------------------------------
\11\ The Operating Committee is required under Section III(C)(2)
of the Plan to ``monitor the procedures established pursuant to the
Plan and advise Participants with respect to any deficiencies,
problems, or recommendations as the Operating Committee may deem
appropriate.'' The Operating Committee is also required to
``establish specifications and procedures for the implementation and
operation of the Plan that are consistent with the provisions of the
Plan.''
---------------------------------------------------------------------------
The Plan will include stocks of companies with $3 billion or less
in market capitalization, an average daily trading volume of one
million shares or less, and a volume weighted average price of at least
$2.00 for every trading day. The Plan will consist of a control group
of approximately 1,400 Pilot Securities and three test groups with 400
Pilot Securities in each selected by a stratified sampling.\12\ During
the pilot, Pilot Securities in the control group will be quoted at the
current tick size increment of $0.01 per share and will trade at the
currently permitted increments. Pilot Securities in the first test
group (``Test Group One'') will be quoted in $0.05 minimum increments
but will continue to trade at any price increment that is currently
permitted.\13\ Pilot Securities in the second test group (``Test Group
Two'') will be quoted in $0.05 minimum increments and will trade at
$0.05 minimum increments subject to a midpoint exception, a retail
investor exception, and a negotiated trade exception.\14\ Pilot
Securities in the third test group (``Test Group Three'') will be
subject to the same terms as Test Group Two and also will be subject to
the ``Trade-at'' requirement to prevent price matching by a person not
displaying at a price of a Trading Center's ``Best Protected Bid'' or
``Best Protected Offer,'' unless an enumerated exception applies.\15\
In addition to the exceptions provided under Test Group Two, an
exception for Block Size orders and exceptions that closely resemble
those under Rule 611 of Regulation NMS \16\ will apply to the Trade-at
requirement.
---------------------------------------------------------------------------
\12\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\13\ See Section VI(B) of the Plan. Pilot Securities in Test
Group One will be subject to a midpoint exception and a retail
investor exception.
\14\ See Section VI(C) of the Plan.
\15\ See Section VI(D) of the Plan.
\16\ 17 CFR 242.611.
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The Plan also contains requirements for the collection and
transmission of data to the Commission and the public. A variety of
data generated during the Plan will be released publicly on an
aggregated basis to assist in analyzing the impact of wider tick sizes
on smaller capitalization stocks.\17\
---------------------------------------------------------------------------
\17\ See Section VII of the Plan.
---------------------------------------------------------------------------
As noted above, the Plan requires the Exchange to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with the applicable quoting and trading
requirements specified in the Plan. Accordingly, the Exchange adopted
paragraph (c) of Rule 3317 to require members to comply with the
quoting and trading provisions of the Plan. The Exchange also adopted
paragraph (b) of Rule 3317 to require members to comply with the data
collection provisions under Appendix B and C of the Plan.\18\ The
Exchange is proposing to adopt paragraph (d) of Rule 3317 to describe
the changes to System functionality necessary to implement the Plan and
to amend certain rules under Rule 3317. As discussed below, certain of
these proposed changes are intended to reduce risk in the System by
eliminating unnecessary complexity or by eliminating functionality that
would serve no purpose or meaningful benefit to the market. The
Exchange believes that all of the proposed changes are designed to
directly comply with the Plan and to assist the Exchange in meeting its
regulatory obligations thereunder.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
---------------------------------------------------------------------------
Proposed System Changes
Proposed paragraph (d) of Rule 3317 would set forth the Exchange's
specific procedures for handling, executing, repricing, and displaying
of certain Order Types \19\ and Order Attributes \20\ applicable to
Pilot Securities. Unless otherwise indicated, paragraph (d) of Rule
3317 would apply to Order Types and Order Attributes in Pilot
Securities in Test Groups One, Two, and Three and not to Pilot
Securities included in the Control Group. The Exchange is proposing to
adopt new Rule 3317(d)(1) to make it clear that it will not accept an
Order in a Test Group Pilot Security that is not entered in the Pilot's
minimum price increment of $0.05, applied to all Order Types that
require a price and do not otherwise qualify for an exemption to the
$0.05 minimum price increment required by the Plan. The Exchange is
also clarifying under new Rule 3317(d)(1) that it will use the $0.05
minimum price increment when the System reprices an Order, including
when it rounds a derived price up or down. Although not required by the
Plan nor prohibited, the Exchange has determined to apply the Trade-at
restrictions during the Pre-Market Hours and Post-Market Hours trading
sessions,\21\ in addition to the regular
[[Page 64554]]
Market Hours trading session.\22\ The Exchange believes that applying
the same process and requirements in Test Group Three Pilot Securities
will simplify processing of Orders by the Exchange, avoiding market
participant confusion that may be caused by applying only some of the
Plan requirements and not others during the different market sessions.
---------------------------------------------------------------------------
\19\ An ``Order Type'' is a standardized set of instructions
associated with an Order that define how it will behave with respect
to pricing, execution, and/or posting to the PSX Book when submitted
to PSX. See Rule 3301(e).
\20\ An ``Order Attribute'' is a further set of variable
instructions that may be associated with an Order to further define
how it will behave with respect to pricing, execution, and/or
posting to the PSX Book when submitted to PSX. The available Order
Types and Order Attributes, and the Order Attributes that may be
associated with particular Order Types, are described in Rules 3301A
and 3301B. One or more Order Attributes may be assigned to a single
Order; provided, however, that if the use of multiple Order
Attributes would provide contradictory instructions to an Order, the
System will reject the Order or remove non-conforming Order
Attributes. Id.
\21\ As used in this proposal, the term ``Market Hours'' means
the period of time beginning at 9:30 a.m. ET and ending at 4:00 p.m.
ET (or such earlier time as may be designated by the Exchange on a
day when PSX closes early). The term ``System Hours'' means the
period of time beginning at 8:00 a.m. ET and ending at 5:00 p.m. ET
(or such earlier time as may be designated by the Exchange on a day
when PSX closes early). The term ``Pre-Market Hours'' means the
period of time beginning at 8:00 a.m. ET and ending immediately
prior to the commencement of Market Hours. The term ``Post-Market
Hours'' means the period of time beginning immediately after the end
of Market Hours and ending at 5:00 p.m. ET. See Rule 3301(g).
\22\ Regular Trading Hours is defined by the Plan as having the
same meaning as Rule 600(b)(64) of Regulation NMS.
---------------------------------------------------------------------------
In determining the scope of the proposed changes to implement the
Plan, the Exchange carefully weighed the impact on the Plan, System
complexity, and the usage of such Order Types and Order Attributes in
Pilot Securities. The Exchange found that it can support nearly all
Order Type and Order Attribute functionality; however, as described in
detail below, it must amend such functionality in a handful of cases to
address the requirements of the Plan. Thus, in addition to the changes
of broad application discussed above, the Exchange is proposing the
following select and discrete amendments to the operation of the
following Order Types and Order Attributes, as discussed in detail
below: (i) Price to Comply Orders \23\; (ii) Non-Displayed Orders \24\;
(iii) Post-Only Orders \25\; (iv) Market Maker Peg Orders \26\; (v)
Midpoint Peg Post-Only Order \27\; (vi) Midpoint Pegging \28\; (vii)
Reserve Size \29\; and (viii) Good-till-Cancelled \30\.
---------------------------------------------------------------------------
\23\ See Rule 3301A(b)(1).
\24\ See Rule 3301A(b)(3).
\25\ See Rule 3301A(b)(4).
\26\ See Rule 3301A(b)(5).
\27\ See Rule 3301A(b)(6).
\28\ See Rule 3302A(d).
\29\ See Rule 3302A(h).
\30\ See Rule 3302A(a)(3).
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The Exchange is also proposing to amend existing rules under Rule
3317 to clarify the operation of the Plan on the Exchange.
Specifically, the Exchange is proposing to amend Rule
3317(a)(1)(D)(ii), which defines the term ``Trade-at Intermarket Sweep
Order,'' and Rule 3317(c)(3)(D)(iii)j, which describes an exception to
the Trade-at prohibition of the Plan involving the use of Trade-at
Intermarket Sweep Orders, as described in detail below.
Lastly, the Exchange is proposing to adopt new Commentary .12 to
Rule 3317 to describe what qualifies as a Block Order for purposes of
the Trade-at exception under Rule 3317(c)(3)(D)(iii).
Price To Comply Orders
The Price to Comply Order is an Order Type designed to comply with
Rule 610(d) under Regulation NMS by having its price and display
characteristics adjusted to avoid the display of quotations that lock
or cross any Protected Quotation in a System Security during Market
Hours. The Price to Comply Order is also designed to provide potential
price improvement. The System does not have a ``plain vanilla'' limit
order that attempts to execute at its limit price and is then posted at
its price or rejected if it cannot be posted; rather, the Price to
Comply Order, with its price and display adjustment features, is one of
the primary Order Types used by Participants to access and display
liquidity in the System. The price and display adjustment features of
the Order Type enhance efficiency and investor protection by offering
an Order Type that first attempts to access available liquidity and
then to post the remainder of the Order at prices that are designed to
maximize their opportunities for execution.
When a Price to Comply Order is entered by a market participant,
the Price to Comply Order will be executed against previously posted
Orders on the Exchange Book that are priced equal to or better than the
price of the Price to Comply Order, up to the full amount of such
previously posted Orders, unless such executions would trade through a
Protected Quotation. Any portion of the Order that cannot be executed
in this manner will be posted on the Exchange Book (and/or routed if it
has been designated as Routable).\31\
---------------------------------------------------------------------------
\31\ See Rules 3301B(f) and 3315.
---------------------------------------------------------------------------
During Market Hours, the price at which a Price to Comply Order is
posted is determined in the following manner. If the entered limit
price of the Price to Comply Order would lock or cross a Protected
Quotation and the Price to Comply Order could not execute against an
Order on the Exchange Book at a price equal to or better than the price
of the Protected Quotation, the Price to Comply Order will be displayed
on the Exchange Book at a price one minimum price increment below the
current Best Offer (for a Price to Comply Order to buy) or above the
current Best Bid (for a Price to Comply Order to sell) but will also be
ranked on the Exchange Book with a non-displayed price equal to the
current Best Offer (for a Price to Comply Order to buy) or to the
current Best Bid (for a Price to Comply Order to sell). The posted
Order will then be available for execution at its non-displayed price,
thus providing opportunities for price improvement to incoming Orders.
A Price to Comply Order in a Test Group Pilot Security will operate
as described in Rule 3301A(b)(1) except the Exchange is proposing to
change how it handles a Price to Comply Order in a Test Group Three
Pilot Security to ensure that it conforms with the Trade-at prohibition
of the Plan. First, the Exchange is proposing that if the Exchange
received a Price to Comply Order for a Test Group Three Pilot Security
that locks or crosses a Protected Quotation of another market center,
is partially executed upon entry, and the remainder of the Order would
lock a Protected Quotation of another market center, the unexecuted
portion of the Order will be cancelled. Second, if the limit price of a
buy (sell) Price to Comply Order in a Test Group Three Pilot Security
would lock or cross a Protected Quotation of another market center, and
is not executable against any previously posted Orders on the Exchange
Book, the Order will display at one minimum price increment below
(above) the Protected Quotation, and the order will be added to the
Exchange Book at the midpoint of the order's displayed price and the
National Best Offer (National Best Bid).\32\ Thus, the Order would
avoid possible execution at a prohibited price, but potentially receive
price improvement and be displayed at a permissible price away from the
Protected Quotation. Due to the Trade-at requirement of Test Group
Three Pilot Securities, the Exchange is also proposing to adjust such
Orders repeatedly towards the limit price of the order in accordance
with changes to the NBBO until such time as the Price to Comply Order
is able to be ranked and displayed at its original entered limit
price.\33\
---------------------------------------------------------------------------
\32\ When the market is locked, the price and display logic for
Orders that would lock or cross an away market is slightly
different. Displayed Orders at the locking price will post at the
locking price if there are other orders already posted on PSX at
that price (i.e., PSX is part of the locked market). Otherwise, the
order will post at one minimum price increment away from the locking
price. Non-displayed Orders received when the market is locked will
always post one minimum price increment away from the locking price.
\33\ The repricing of Price to Comply and Post-Only Orders in
Test Group Three Pilot Securities described in this rule filing are
not subject to the limitations on Order updates, as described in
Rule 3306(a)(4).
---------------------------------------------------------------------------
Non-Displayed Orders
A Non-Displayed Order is an Order Type that is not displayed to
other
[[Page 64555]]
Participants, but nevertheless remains available for potential
execution against incoming Orders until executed in full or cancelled.
In addition to the Non-Displayed Order Type, there are other Order
Types that are not displayed on the Exchange Book. Thus, ``Non-
Display'' is both a specific Order Type and an Order Attribute of
certain other Order Types.
When a Non-Displayed Order is entered, the Non-Displayed Order will
be executed against previously posted Orders on the Exchange Book that
are priced equal to or better than the price of the Non-Displayed
Order, up to the full amount of such previously posted Orders, unless
such executions would trade through a Protected Quotation. Any portion
of the Non-Displayed Order that cannot be executed in this manner will
be posted to the Exchange Book (unless the Non-Displayed Order has a
Time-in-Force of IOC) and/or routed if it has been designated as
Routable. During Market Hours, if the entered limit price of the Non-
Displayed Order would lock a Protected Quotation, the Non-Displayed
Order will be placed on the Exchange Book at the locking price. If the
Non-Displayed Order would cross a Protected Quotation, the Non-
Displayed Order will be repriced to a price that would lock the
Protected Quotation and will be placed on the Exchange Book at that
price.
To avoid possible execution of a Non-Displayed Order at the
Protected Quote on the Exchange in a Test Group Three Pilot Security,
the Exchange is proposing to not allow execution of a Non-Displayed
Order in a Test Group Three Pilot Security at the price of a Protected
Quotation unless the incoming Order otherwise qualifies for an
exception to the Trade-at prohibition. If the limit price of a buy
(sell) Non-Displayed Order in a Test Group Three security would lock or
cross a Protected Quotation of another Market Center, the Order will be
added to the Exchange Book at either one minimum price increment
($0.05) below (above) the National Best Offer (National Best Bid) or at
the midpoint of the NBBO, whichever is higher (lower). Thus the Order
would avoid possible execution at a prohibited price, but potentially
receive price improvement or post at a permissible price away from the
Protected Quotation. After posting and if conditions allow, such an
Order will be adjusted repeatedly in accordance with changes to the
NBBO up (down) to the Order's limit price.\34\
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\34\ The repricing of Non-Displayed Orders in Test Group Three
Pilot Securities in accordance with changes to the NBBO up (down) to
the Order's limit price are not subject to the limitations on Order
updates, as described in Rule 3306(a)(4).
---------------------------------------------------------------------------
The Exchange is proposing a change to how a Non-Displayed Order in
a Test Group Three Pilot Security would be treated to comply with the
Trade-at requirement. Currently, for a Non-Displayed Order that is
entered through a RASH or FIX port, if, after being posted to the
Exchange Book, the NBBO changes so that the Non-Displayed Order would
cross a Protected Quotation, the Non-Displayed Order will be repriced
at a price that would lock the new NBBO and receive a new timestamp.
For a Non-Displayed Order entered through OUCH or FLITE, if, after the
Non-Displayed Order is posted to the Exchange Book, the NBBO changes so
that the Non-Displayed Order would cross a Protected Quotation, the
Non-Displayed Order will be cancelled back to the Participant. The
Exchange is proposing to trigger repricing of a Non-Displayed Order in
a Test Group Three Pilot Security if the Order would lock or cross a
Protected Quotation by posting the Order to the Exchange Book at either
one minimum price increment below (above) the National Best Offer
(National Best Bid) or at the midpoint of the NBBO, whichever is higher
(lower). Thus, the Order is repriced to avoid execution at the
Protected Quotation, but may also receive price improvement. If market
conditions allow, a Non-Displayed Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance with changes to the
NBBO up (down) to the Order's limit price. For a Non-Displayed Order in
a Test Group Three Pilot Security entered through RASH or FIX, if after
being posted to the Exchange Book, the NBBO changes so that the Non-
Displayed Order would no longer be executable at its posted price due
to the requirements of Regulation NMS or the Plan, the Non-Displayed
Order will be repriced to a price that is at either one minimum
increment below (above) the National Best Offer (National Best Bid) or
at the midpoint of the NBBO, whichever is higher (lower) and will
receive a new timestamp. For a Non-Displayed Order in a Test Group
Three Pilot Security entered through OUCH or FLITE, if after such a
Non-Displayed Order is posted to the Exchange Book, if the NBBO changes
so that the Non-Displayed Order would no longer be executable at its
posted price due to the requirements of Regulation NMS or the Plan, the
Non-Displayed Order will be cancelled back to the Participant. A posted
order is no longer eligible to execute at its posted price under three
distinct scenarios. First, in Test Group Pilot Securities, if the NBBO
moves such that the posted Order's price crosses a protected quotation,
it is no longer executable due to the trade through prohibition under
Regulation NMS (this is current functionality). Second, in Test Group
Three Pilot Securities, if a Non-Displayed Order is posted at the
midpoint and the NBBO moves such that its posted price is no longer a
valid increment, the Order will be adjusted as described above. For
example, if the NBB is $10.00 and the NBO is $10.05 in a Test Group
Three Pilot Security, and a Non-Displayed Order to buy 100 shares of
the security with a limit price of $10.05 is received by the System,
the Order would be repriced and posted at $10.025 (the midpoint of the
NBBO) to avoid locking the market. If subsequently the NBB changes to
$9.95 and the NBO to $10.05, then the Order would no longer be eligible
for the midpoint exception to the Plan's minimum price increment
requirement and therefore would be adjusted and/or cancelled as
described above. Third, in Test Group Three Pilot Securities, if the
NBBO moves such that the Order's posted price locks a protected
quotation, it is no longer executable due to the Trade-at prohibition
under the Plan and would be adjusted and/or cancelled as described
above.
Post-Only Orders
A Post-Only Order is an Order Type designed to have its price
adjusted as needed to post to the Exchange Book in compliance with Rule
610(d) under Regulation NMS \35\ by avoiding the display of quotations
that lock or cross any Protected Quotation in a System Security during
Market Hours, or to execute against locking or crossing quotations in
circumstances where economically beneficial to the Participant entering
the Post-Only Order.
---------------------------------------------------------------------------
\35\ 17 CFR 242.610(d).
---------------------------------------------------------------------------
Post-Only Orders in Test Group Pilot Securities will operate as
described under Rule 3301A(b)(4), however, the Exchange is proposing
changes to the handling of a Post-Only Order in Test Group Three Pilot
Securities to ensure that the Trade-at prohibition is enforced.
Specifically, the Exchange is proposing to modify how a Post-Only Order
in a Test Group Three Pilot Security is handled if it locks or crosses
the Protected Quotation of another market center. If the limit price of
a buy (sell) Post-Only Order in a Test Group Three Pilot Security would
lock or cross a Protected Quotation of another market
[[Page 64556]]
center, the Order will display at one minimum price increment below
(above) the Protected Quotation, and the Order will be added to the
Exchange Book at the midpoint of the Order's displayed price and the
National Best Offer (National Best Bid). Thus the Order would avoid
possible execution at a prohibited price, but potentially receive price
improvement or post at a permissible price away from the Protected
Quotation. Thereafter and if market conditions allow, the Post-Only
Order will be adjusted repeatedly towards its limit price in accordance
with changes to the NBBO or the best price on the Exchange Book, as
applicable, until such time as the Post-Only Order is able to be ranked
and displayed at its original entered limit price.\36\
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\36\ As discussed above, repricing of Price to Comply and Post-
Only Orders in Test Group Three Pilot Securities described in this
rule filing are not subject to the limitations on Order updates, as
described in Rule 3306(a)(4). Supra note 33.
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Market Maker Peg Orders
A ``Market Maker Peg Order'' is an Order Type designed to allow a
Market Maker to maintain a continuous two-sided quotation at a price
that is compliant with the quotation requirements for Market Makers set
forth in Rule 3213(a)(2).\37\ The price of the Market Maker Peg Order
is set with reference to a ``Reference Price'' in order to keep the
price of the Market Maker Peg Order within a bounded price range. A
Market Maker Peg Order may be entered through RASH or FIX only. A
Market Maker Peg Order must be entered with a limit price beyond which
the Order may not be priced. The Reference Price for a Market Maker Peg
Order to buy (sell) is the then-current Best Bid (Best Offer)
(including PSX), or if no such Best Bid or Best Offer, the most recent
reported last-sale eligible trade from the responsible single plan
processor for that day, or if none, the previous closing price of the
security as adjusted to reflect any corporate actions (e.g., dividends
or stock splits) in the security.
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\37\ As with other Order Types, the Market Maker Peg Order must
be an Order either to buy or to sell; thus, at least two Orders
would be required to maintain a two-sided quotation.
---------------------------------------------------------------------------
Upon entry, the price of a Market Maker Peg Order to buy (sell) is
automatically set by the System at the Designated Percentage (as
defined in Rule 3213) away from the Reference Price in order to comply
with the quotation requirements for Market Makers set forth in Rule
3213(a)(2). For example, if the Best Bid is $10 and the Designated
Percentage for the security is 8%, the price of a Market Marker Peg
Order to buy would be $9.20. If the limit price of the Order is not
within the Designated Percentage, the Order will be sent back to the
Participant.
Once a Market Maker Peg Order has posted to the Exchange Book, its
price is adjusted if needed as the Reference Price changes.
Specifically, if as a result of a change to the Reference Price, the
difference between the price of the Market Maker Peg Order and the
Reference Price reaches the Defined Limit (as defined in Rule 3213),
the price of a Market Maker Peg Order to buy (sell) will be adjusted to
the Designated Percentage away from the Reference Price. In the
foregoing example, if the Defined Limit is 9.5% and the Best Bid
increased to $10.17, such that the price of the Market Maker Peg Order
would be more than 9.5% away, the Order will be repriced to $9.35, or
8% away from the Best Bid. Note that calculated prices of less than the
minimum increment will be rounded in a manner that ensures that the
posted price will be set at a level that complies with the percentages
stipulated by this rule. If the limit price of the Order is outside the
Defined Limit, the Order will be sent back to the Participant.
Similarly, if as a result of a change to the Reference Price, the
price of a Market Maker Peg Order to buy (sell) is within one minimum
price variation more than (less than) a price that is 4% less than
(more than) the Reference Price, rounded up (down), then the price of
the Market Maker Peg Order to buy (sell) will be adjusted to the
Designated Percentage away from the Reference Price. For example, if
the Best Bid is $10 and the Designated Percentage for the security is
8%, the price of a Market Marker Peg Order to buy would initially be
$9.20. If the Best Bid then moved to $9.57, such that the price of the
Market Maker Peg Order would be a minimum of $0.01 more than a price
that is 4% less than the Best Bid, rounded up (i.e. $9.57--($9.57 x
0.04) = $9.1872, rounding up to $9.19), the Order will be repriced to
$8.81, or 8% away from the Best Bid.
A Market Maker may enter a Market Maker Peg Order with a more
aggressive offset than the Designated Percentage, but such an offset
will be expressed as a price difference from the Reference Price. Such
a Market Maker Peg Order will be repriced in the same manner as a Price
to Display Order with Attribution and Primary Pegging. As a result, the
price of the Order will be adjusted whenever the price to which the
Order is pegged is changed. x
A new timestamp is created for a Market Maker Peg Order each time
that its price is adjusted. In the absence of a Reference Price, a
Market Maker Peg Order will be cancelled or rejected. If, after entry,
a Market Maker Peg Order is priced based on a Reference Price other
than the NBBO and such Market Maker Peg Order is established as the
Best Bid or Best Offer, the Market Maker Peg Order will not be
subsequently adjusted in accordance with this rule until a new
Reference Price is established.
In light of the minimum price increment requirement of the Plan,
the Exchange is proposing to require the displayed price of a Market
Maker Peg Order in a Test Group One, Two or Three Pilot Security to be
rounded up (down) to the nearest minimum price increment for bids
(offers), if it would otherwise display at an increment smaller than
minimum price increment. For example, if the NBB is $10.05 and the NBO
is $10.15, and the Designated Percentage is 28%, the displayed price of
a Market Maker Peg Order to buy 100 shares of a Test Group Pilot
Security would be $7.25 (i.e. $10.05-($10.05 x 0.28) = $7.236, rounded
up to $7.25). Using the same market, but with a Market Maker Peg Order
to sell 100 shares, the Order would be displayed at $12.95 (i.e. $10.15
+ ($10.15 x 0.28) = $12.992, rounded down to $12.95). Thus, the
rounding done to derive the price of the Market Maker Peg Order in a
Test Group Pilot Security will conform to the minimum price increment
requirement of the Plan.
As a consequence of conforming the Market Maker Peg Order to the
minimum price increment of the Plan, a Market Maker Peg Order may have
a higher likelihood of execution, particularly in lower priced
securities. For example, if a member entered a Market Maker Peg Order
to buy 100 shares of a Test Group Pilot Security with a limit price of
$1.70 when the NBB is $1.60 and the NBO is $1.65, if the security is a
Tier 2 security, the Order would be pegged at 28% from the NBB, which
is $1.20 ($1.60 x .72 = $1.152 which rounds up to $1.20). If the market
subsequently moves downward to a NBB of $1.20 and NBO of $1.30, the buy
Market Maker Peg Order would not reprice because it had not reached one
minimum price increment more than a price that is 4% less than the NBB
(i.e., $1.20 x .96 = $1.152, which rounds up to $1.20 and which is not
greater than the NBB + $0.05). Thus, the Market Maker Peg Order may
receive an execution prior to reaching a point at which it would
reprice. This increased likelihood of execution of Market Maker Peg
Orders would occur in any Order in
[[Page 64557]]
a Test Group Pilot Security with a price less than $1.25.
Midpoint Peg Post-Only Orders
A ``Midpoint Peg Post-Only Order'' is an Order Type with a Non-
Display Order Attribute that is priced at the midpoint between the NBBO
and that will execute upon entry against locking or crossing quotes
only in circumstances where economically beneficial to the party
entering the Order. Because the Order is priced at the midpoint, it can
provide price improvement to incoming Orders when it is executed after
posting to the Exchange Book. The Midpoint Peg Post-Only Order is
available during Market Hours only.
The Plan allows Orders in Test Group Pilot Securities priced to
execute at the midpoint of the NBBO to be ranked and accepted in
increments less than the Plan's minimum price increment of $0.05. Thus,
the Exchange is proposing to make it clear that Midpoint Peg Post-Only
Orders in any of the Test Group Pilot Securities may execute in an
increment other than the minimum price increment of the Plan.
Midpoint Pegging
Pegging is an Order Attribute that allows an Order to have its
price automatically set with reference to the NBBO. An Order with a
Pegging Order Attribute may be referred to as a ``Pegged Order.''
Midpoint Pegging means Pegging with reference to the midpoint between
the Inside Bid and the Inside Offer (the ``Midpoint''). Thus, if the
Inside Bid was $11 and the Inside Offer was $11.06, an Order with
Midpoint Pegging would be priced at $11.03. An Order with Midpoint
Pegging is not displayed. An Order with Midpoint Pegging may be
executed in sub-pennies if necessary to obtain a midpoint price.
As discussed above, the Plan allows Orders in Test Group Pilot
Securities priced to execute at the midpoint of the NBBO to be ranked
and accepted in increments less than the Plan's minimum price increment
of $0.05. Thus, the Exchange is proposing to make it clear that an
Order in a Test Group Pilot Security with Midpoint Pegging may execute
in an increment other than the minimum price increment of the Plan.
Reserve Size
Reserve Size is an Order Attribute that permits a Participant to
stipulate that an Order Type that is displayed may have its displayed
size replenished from additional non-displayed size. An Order with
Reserve Size may be referred to as a ``Reserve Order.'' At the time of
entry, the displayed size of such an Order selected by the Participant
must be one or more normal units of trading; an Order with a displayed
size of a mixed lot will be rounded down to the nearest round lot. A
Reserve Order with displayed size of an odd lot will be accepted but
with the full size of the Order displayed. Reserve Size is not
available for Orders that are not displayed; provided, however, that if
a Participant enters Reserve Size for a Non-Displayed Order with a
Time-in-Force of IOC, the full size of the Order, including Reserve
Size, will be processed as a Non-Displayed Order.
Whenever a Participant enters an Order with Reserve Size, PSX will
process the Order as two Orders: A Displayed Order (with the
characteristics of its selected Order Type) and a Non-Displayed Order.
Upon entry, the full size of each such Order will be processed for
potential execution in accordance with the parameters applicable to the
Order Type. For example, a Participant might enter a Price to Display
Order with 200 shares displayed and an additional 3,000 shares non-
displayed. Upon entry, the Order would attempt to execute against
available liquidity on the Exchange Book, up to 3,200 shares.
Thereafter, unexecuted portions of the Order would post to the Exchange
Book as a Price to Display Order and a Non-Displayed Order; provided,
however, that if the remaining total size is less than the display size
stipulated by the Participant, the Displayed Order will post without
Reserve Size. Thus, if 3,050 shares executed upon entry, the Price to
Display Order would post with a size of 150 shares and no Reserve Size.
When an Order with Reserve Size is posted, if there is an execution
against the Displayed Order that causes its size to decrease below a
normal unit of trading, another Displayed Order will be entered at the
level stipulated by the Participant while the size of the Non-Displayed
Order will be reduced by the same amount. Any remaining size of the
original Displayed Order will remain on the Exchange Book. The new
Displayed Order will receive a new timestamp, but the Non-Displayed
Order (and the original Displayed Order, if any) will not; although the
new Displayed Order will be processed by the System as a new Order in
most respects at that time, if it was designated as Routable, the
System will not automatically route it upon reentry. For example, if a
Price to Comply Order with Reserve Size posted with a Displayed Size of
200 shares, along with a Non-Displayed Order of 3,000 and the 150
shares of the Displayed Order was executed, the remaining 50 shares of
the original Price to Comply Order would remain, a new Price to Comply
Order would post with a size of 200 shares and a new timestamp, and the
Non-Displayed Order would be decremented to 2,800 shares. Because a new
Displayed Order is entered and the Non-Displayed Order is not
reentered, there are circumstances in which the Displayed Order may
receive a different price than the Non-Displayed Order. For example,
if, upon reentry, a Price to Display Order would lock or cross a newly
posted Protected Quotation, the price of the Order will be adjusted but
its associated Non- Displayed Order would not be adjusted. In that
circumstance, it would be possible for the better priced Non-Displayed
Order to execute prior to the Price to Display Order.
When the Displayed Order with Reserve Size is executed and
replenished, applicable market data disseminated by the Exchange will
show the execution and decrementation of the Displayed Order, followed
by replenishment of the Displayed Order.
In all cases, if the remaining size of the Non-Displayed Order is
less than the fixed or random amount stipulated by the Participant, the
full remaining size of the Non-Displayed Order will be displayed and
the Non-Displayed Order will be removed.
The Exchange is proposing to not allow a resting order in a Test
Group Three Pilot Security with a Reserve Size to execute the non-
displayed Reserve Size at the price of a Protected Quotation of another
market center unless the incoming order otherwise qualifies for an
exception to the Trade-at prohibition provided under Rule
3317(c)(3)(D). If the Exchange received a Reserve Order for a Test
Group Three Pilot Security that locks or crosses a Protected Quotation
of another market center, is partially executed upon entry, and the
remainder of the Order would lock a Protected Quotation of another
market center, the unexecuted portion of the Order will be cancelled.
If the limit price of a buy (sell) Reserve Order in a Test Group Three
Pilot Security that is not attributable would lock or cross a Protected
Quotation of another market center, and is not executable against any
previously posted Orders on the Exchange Book, the displayed portion of
the Order will display at one minimum price increment below (above) the
Protected Quotation, and the Order will be added to the Exchange Book
at the midpoint of the Order's displayed price and the National Best
Offer (National Best Bid). Thus, the Order would avoid possible
execution at a prohibited price, but potentially receive price
[[Page 64558]]
improvement and be displayed at a permissible price away from the
Protected Quotation. If the limit price of a buy (sell) Reserve Order
in a Test Group Three Pilot Security that is attributable would lock or
cross a Protected Quotation of another market center, and is not
executable against any previously posted Orders on the Exchange Book,
the displayed portion of the Order will be adjusted and displayed at
one minimum price increment below (above) the Protected Quotation, and
the non-displayed Reserve Size will be added to the Exchange Book at
the midpoint of the Order's displayed price and the National Best Offer
(National Best Bid). If after being posted to the Exchange Book, the
NBBO changes so that the Reserve Order, if it is not attributable,
would lock or cross a Protected Quotation, the displayed portion of the
Reserve Order will display one minimum price increment below (above)
the Protected Quotation, and the Order will be repriced to the midpoint
of the Order's displayed price and the National Best Offer (National
Best Bid).\38\ If after being posted to the Exchange Book, the NBBO
changes so that the Reserve Order in a Test Group Three Pilot Security,
if it is attributable, would no longer be executable at its posted
price due to the requirements of Regulation NMS or the Plan, the
displayed portion of the Reserve Order will be adjusted and display one
minimum price increment below (above) the Protected Quotation, and the
non-displayed Reserve Size will be repriced to the midpoint of the
Order's displayed price and the National Best Offer (National Best
Bid). Thus, the Order would continue to comply with the Trade-at
requirement by avoiding potential execution at a prohibited price.
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\38\ Both a Price to Comply Order and a Price to Display Order
with a Reserve Attribute would be repriced pursuant to Reserve Order
process described in proposed Rule 3317(d)(9). A Price to Display
Order is an Order Type designed to comply with Rule 610(d) under
Regulation NMS by avoiding the display of quotations that lock or
cross any Protected Quotation in a System Security during Market
Hours, and are available solely to Participants that are Market
Makers. See Rule 3301A(b)(2).
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Good-till-Cancelled
Good-till-Cancelled is a Time-in-Force Order Attribute that is
designated to deactivate one year after entry. Under certain
circumstances at the election of the member, an Order designated as
Good-till-Cancelled must be adjusted to account for corporate actions
related to a dividend, payment or distribution. Rule 3311(b) sets forth
the circumstances and method by which an Order designated as Good-till-
Cancelled is adjusted. The Exchange is making it clear that an order in
a Test Group Pilot Security with a Good-till-Cancelled Time-in-Force
that is adjusted pursuant to Rule 3311(b) will be adjusted based on a
$0.05 increment.
Rule 3317(a) and (c) Changes
Rule 3317(a) provides definitions of terms used under the Rule.
Rule 3317(a) defines the term ``Trade-at Intermarket Sweep Order'' as
``a limit order for a Pilot Security that meets the following
requirements: (i) When routed to a Trading Center, the limit order is
identified as a Trade-at Intermarket Sweep Order; and (ii)
Simultaneously with the routing of the limit order identified as a
Trade-at Intermarket Sweep Order, one or more additional limit orders,
as necessary, are routed to execute against the full size of any
protected bid, in the case of a limit order to sell, or the full
displayed size of any protected offer, in the case of a limit order to
buy, for the Pilot Security with a price that is better than or equal
to the limit price of the limit order identified as a Trade-at
Intermarket Sweep Order. These additional routed orders also must be
marked as Trade-at Intermarket Sweep Orders.'' Rule
3317(c)(3)(D)(iii)j. provides an exception to the Trade-at prohibition,
requiring that, to satisfy the exception, the order is executed by a
Trading Center that simultaneously routed Trade-at Intermarket Sweep
Orders or Intermarket Sweep Orders to execute against the full
displayed size of the Protected Quotation that was traded at.
The Exchange is proposing to amend paragraph (ii) of Rule 3317(a)
and Rule 3317(c)(3)(D)(iii)j. to allow the Exchange to use Intermarket
Sweep Orders in lieu of Trade-at Intermarket Sweep Orders, when it is
in receipt of an Order from a member that would trade through a
protected price on another market. An Intermarket Sweep Order or
``ISO'' is an Order Attribute that allows the Order to be executed
within PSX by Participants at multiple price levels without respect to
Protected Quotations of other market centers within the meaning of Rule
600(b) under Regulation NMS. ISOs are immediately executable within PSX
against Orders against which they are marketable.
For purposes of the Exchange's satisfaction of the Trade-at
Intermarket Sweep Order exception to the Trade-at prohibition of Test
Group Three Pilot Securities, the ISO Order will operate functionally
identically to the use of a Trade-at Intermarket Sweep Order.
Intermarket Sweep Orders are sent by the exchange to execute against
displayed size represented in away market centers' Protected Quotation
and thus provide the same function as a Trade-at Intermarket Sweep
Order because either order type would execute against the displayed
portion of the away market centers' liquidity. The Exchange's routing
broker is currently programmed to accept and route ISO Orders and
adding an additional functionality to support routing of Trade-at
Intermarket Sweep Orders would add complexity to the process with no
functional benefit. Accordingly, the Exchange is proposing to use ISOs
when routing Orders to satisfy the exception to the Trade-at
prohibition.
New Commentary .12
The Exchange is proposing to adopt a new Commentary .12 to Rule
3317 to clarify what qualifies as a Block Order for purposes of the
Block Size exception to the Trade-at prohibition. Rule
3317(c)(3)(D)(iii)c. provides an exception to the Trade-at prohibition
for an Order that is of Block Size at the time of origin and is not an
aggregation of non-block Orders, broken into Orders smaller than Block
Size prior to submitting the Order to a Trading Center for execution,
or is executed on multiple Trading Centers. The Plan defines Block Size
as an Order of at least 5,000 shares or for a quantity of stock having
a market value of at least $100,000. The Exchange has assessed the
technological complexity and effort required to change the System to
identify the market value of a quantity of stock and found that it
would be exceedingly burdensome and complex without any clear benefit
to the Exchange, its members, and the marketplace as a whole. As a
consequence, the Exchange is proposing to only allow Orders that have a
minimum size of 5,000 shares to qualify as Block Size for purposes of
the exception provided by Rule 3317(c)(3)(D)(iii)c. and will only
execute if the execution in aggregate is at least 5,000 shares.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\39\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\40\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market
[[Page 64559]]
and a national market system, and, in general, to protect investors and
the public interest. The Exchange believes that the proposed rule
change is consistent with the Act because it allows the Exchange to
make changes to its handling of Order Types and Order Attributes
necessary to implement the requirements of the Plan on its System. The
Plan, which was approved by the Commission pursuant to an order issued
by the Commission in reliance on Section 11A of the Act,\41\ provides
the Exchange authority to establish, maintain, and enforce written
policies and procedures that are reasonably designed to comply with
applicable quoting and trading requirements specified in the Plan. The
Exchange believes that the proposed rule change is consistent with the
authority granted to it by the Plan to establish specifications and
procedures for the implementation and operation of the Plan that are
consistent with the provisions of the Plan. Likewise, the Exchange
believes that the proposed rule change provides interpretations of the
Plan that are consistent with the Act, in general, and furthers the
objectives of the Act, in particular.
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\39\ 15 U.S.C. 78f(b).
\40\ 15 U.S.C. 78f(b)(5).
\41\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------
The Exchange is a Participant under the Plan and is subject to the
Plan's provisions. The proposed rule change ensures that the Exchange's
systems would not display or execute trading interests outside the
requirements specified in such Plan, which otherwise may occur given
existing System functionality. The proposal would also help allow
market participants to continue to trade NMS Stocks, within quoting and
trading requirements that are in compliance with the Plan, with
certainty on how certain orders and trading interests would be treated.
This, in turn, will help encourage market participants to continue to
provide liquidity in the marketplace.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes are
being made to establish, maintain, and enforce written policies and
procedures that are reasonably designed to comply with the trading and
quoting requirements specified in the Plan, of which other equities
exchanges are also Participants. Other competing national securities
exchanges are subject to the same trading and quoting requirements
specified in the Plan, and must take the same steps that the Exchange
has to conform its existing rules to the requirements of the Plan.
Therefore, the proposed changes would not impose any burden on
competition, while providing certainty of treatment and execution of
trading interests on the Exchange to market participants in NMS Stocks
that are acting in compliance with the requirements specified in the
Plan.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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-Phlx-2016-92 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2016-92. 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-Phlx-2016-92, and should be
submitted on or before October 4, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22534 Filed 9-19-16; 8:45 am]
BILLING CODE 8011-01-P
