Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rules 1.5, 11.5, 11.8, 11.9 and 11.14 in Connection With the Implementation of the National Market System Plan To Address Extraordinary Market Volatility, 14380-14386 [2013-05004]
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14380
Federal Register / Vol. 78, No. 43 / Tuesday, March 5, 2013 / Notices
Electronic Comments
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 14 and Rule
19b–4(f)(6) thereunder.15 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6)16 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),17 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 18 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
emcdonald on DSK67QTVN1PROD with NOTICES
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:
14 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
16 17 CFR 240.19b–4(f)(6).
17 17 CFR 240.19b–4(f)(6)(iii).
18 15 U.S.C. 78s(b)(2)(B).
15:14 Mar 04, 2013
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSE–2013–13. 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 Section, 100 F Street NE.,
Washington, DC 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing will also be available for
inspection and copying at the NYSE’s
principal office and on its Internet Web
site at www.nyse.com. 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–NYSE–
2013–13 and should be submitted on or
before March 26, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05019 Filed 3–4–13; 8:45 am]
15 17
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• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSE–2013–13 on the
subject line.
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[Release No. 34–69003; File No. SR–EDGX–
2013–08]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend EDGX Rules
1.5, 11.5, 11.8, 11.9 and 11.14 in
Connection With the Implementation of
the National Market System Plan To
Address Extraordinary Market
Volatility
February 27, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
13, 2013, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rules 1.5, 11.5, 11.8, 11.9 and 11.14
regarding the implementation of the
National Market System Plan to Address
Extraordinary Market Volatility (as
amended, the ‘‘Plan’’) as approved by
the Securities and Exchange
Commission.3 All of the changes
described herein are applicable to EDGX
Members. The text of the proposed rule
change is available on the Exchange’s
Internet Web site at
www.directedge.com, at the Exchange’s
principal office, on the Commission’s
Internet Web site at www.sec.gov, 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
self-regulatory organization 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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Release No. 67091 (May
31, 2012), 77 FR 33498 (June 6, 2012) (approving
the Plan on a pilot basis).
2 17
BILLING CODE 8011–01–P
19 17
SECURITIES AND EXCHANGE
COMMISSION
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Federal Register / Vol. 78, No. 43 / Tuesday, March 5, 2013 / Notices
the places specified in Item IV below.
The self-regulatory organization 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
EDGX proposes to amend Rules 1.5,
11.5, 11.8, 11.9 and 11.14 in connection
with the implementation of the Plan.
emcdonald on DSK67QTVN1PROD with NOTICES
Background
On April 5, 2011, NYSE Euronext, on
behalf of the New York Stock Exchange
LLC (‘‘NYSE’’), NYSE Amex LLC, and
NYSE Arca, Inc. (‘‘Arca’’), and the
following parties to the Plan: BATS
Exchange, Inc., BATS Y-Exchange, Inc.
(together, ‘‘BATS’’), Chicago Board
Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., EDGX,
EDGA Exchange, Inc., Financial
Industry Regulatory Authority, Inc.,
NASDAQ OMX BX, Inc., NASDAQ
OMX PHLX LLC, the Nasdaq Stock
Market LLC, and National Stock
Exchange, Inc. (collectively with NYSE,
NYSE MKT, and Arca, the
‘‘Participants’’), filed with the
Commission pursuant to Section 11A of
the Securities Exchange Act of 1934
(‘‘Act’’),4 and Rule 608 thereunder,5 the
Plan to create a market-wide limit uplimit down (‘‘LULD’’) mechanism that is
intended to address extraordinary
market volatility in NMS Stocks.6 The
Plan sets forth procedures that provide
for market-wide LULD requirements
that would be designed to prevent
trades in individual NMS Stocks from
occurring outside of specified price
bands. These LULD requirements would
be coupled with trading pauses7 to
accommodate more fundamental price
moves (as opposed to erroneous trades
or momentary gaps in liquidity).
The price bands would consist of a
Lower Price Band (the ‘‘Lower Price
Band’’) and an Upper Price Band (the
‘‘Upper Price Band’’—each a ‘‘Price
Band’’ and, together with the Lower
Price Band, the ‘‘Price Bands’’) for each
NMS Stock. The Price Bands would be
calculated by the Securities Information
Processors (the ‘‘SIP’’ or ‘‘Processors’’)
4 15
U.S.C. 78k–1.
CFR 242.608.
6 See Letter from Janet M. McGinness, Senior Vice
President, Legal and Corporate Secretary, NYSE
Euronext, to Elizabeth M. Murphy, Secretary,
Commission, dated April 5, 2011 (‘‘Transmittal
Letter’’). The term ‘‘NMS Stock’’ shall have the
meaning provided in Rule 600(b)(47) of Regulation
NMS under the Act.
7 As defined in Section I(X) of the Plan.
5 17
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15:14 Mar 04, 2013
Jkt 229001
responsible for consolidation of
information for an NMS Stock pursuant
to Rule 603(b) of Regulation NMS under
the Act.8 The Price Bands would be
based on a Reference Price 9 that equals
the arithmetic mean price of Eligible
Reported Transactions 10 for the NMS
Stock over the immediately preceding
five-minute period. The Price Bands for
an NMS Stock would be calculated by
applying the Percentage Parameter 11 for
such NMS Stock to the Reference Price,
with the Lower Price Band being a
Percentage Parameter below the
Reference Price, and the Upper Price
Band being a Percentage Parameter
above the Reference Price. Between 9:30
a.m. and 9:45 a.m. ET and 3:35 p.m. and
4:00 p.m. ET, the Price Bands would be
calculated by applying double the
Percentage Parameters.
Under the Plan, the Exchange is
required to establish, maintain, and
enforce written policies and procedures
reasonably designed to prevent the
display of offers below the Lower Price
Band and bids above the Upper Price
Band for an NMS Stock. The Processors
would disseminate an offer below the
Lower Price Band or bid above the
Upper Price Band that nevertheless
inadvertently may be submitted despite
such reasonable policies and
procedures, but with an appropriate flag
identifying it as non-executable; such
bid or offer would not be included in
National Best Bid (‘‘NBB’’) or National
Best Offer (‘‘NBO’’ and, together with
the NBB, the ‘‘NBBO’’) calculations. In
addition, the Exchange is required to
develop, maintain, and enforce policies
and procedures reasonably designed to
8 17
CFR 242.603(b).
9 As defined in Section I(T) of the Plan.
10 As defined in the proposed Plan, Eligible
Reported Transactions would have the meaning
prescribed by the Operating Committee for the
proposed Plan, and generally mean transactions
that are eligible to update the sale price of an NMS
Stock.
11 As initially proposed by the Participants, the
Percentage Parameters for Tier 1 NMS Stocks (i.e.,
stocks in the S&P 500 Index or Russell 1000 Index
and certain ETPs) with a Reference Price of $1.00
or more would be five percent and less than $1.00
would be the lesser of (a) $0.15 or (b) 75 percent.
The Percentage Parameters for Tier 2 NMS Stocks
(i.e., all NMS Stocks other than those in Tier 1) with
a Reference Price of $1.00 or more would be 10
percent and less than $1.00 would be the lesser of
(a) $0.15 or (b) 75 percent. The Percentage
Parameters for a Tier 2 NMS Stock that is a
leveraged ETP would be the applicable Percentage
Parameter set forth above multiplied by the leverage
ratio of such product. On May 24, 2012, the
Participants amended the Plan to create a 20% price
band for Tier 1 and Tier 2 stocks with a Reference
Price of $0.75 or more and up to and including
$3.00. The Percentage Parameter for stocks with a
Reference Price below $0.75 would be the lesser of
(a) $0.15 or (b) 75 percent. See Securities Exchange
Release No. 67091 (May 31, 2012), 77 FR 33498
(June 6, 2012).
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14381
prevent trades at prices outside the
Price Bands, with the exception of
single-priced opening, reopening, and
closing transactions on the primary
listing exchange.
In connection with the upcoming
implementation of the Plan on April 8,
2013, the Exchange proposes to amend
the following rules:
Order Execution (Rule 11.9)
The Exchange proposes to re-organize
Rule 11.9 so that matters relevant to
order execution would be covered in
Rule 11.9(a), while matters relevant to
order routing would be covered in Rule
11.9(b). Rules 11.9(a) and (b) would be
structured so that each would contain
subsections that would describe the
manner by which execution and routing
would be affected by the Plan, among
other regulations. The Exchange
proposes to add Rule 11.9(a)(3) that
would provide particular details with
regard to how the Plan would modify
order behavior on the Exchange.
Proposed Rule 11.9(a)(3) and its
subparagraphs are described below.
Compliance With the Plan
The Exchange proposes to add Rule
11.9(a)(3), which would state that,
except as provided in Section VI of the
Plan,12 for any executions to occur
during Regular Trading Hours, such
executions must occur at a price that is
greater than or equal to the Lower Price
Band and less than or equal to the
Upper Price Band, when such Price
Bands are disseminated.
Default Behavior for Non-Routable
Orders Not Crossing the Price Bands
The Exchange proposes to add Rule
11.9(a)(3)(A), which would state that,
when a non-routable buy (sell) order is
entered into the System 13 at a price less
(greater) than or equal to the Upper
(Lower) Price Band, such order will be
posted to the EDGX Book 14 or executed,
unless (i) the order is an Immediate-orCancel (‘‘IOC’’) Order,15 in which case
it will be cancelled if not executed, or
(ii) the User 16 has entered instructions
to cancel the order.
12 Section VI(A)(1) of the Plan provides that
‘‘single-priced opening, reopening, and closing
transactions on the Primary Listing Exchange,
however, shall be excluded from this limitation. In
addition, any transaction that both (i) does not
update the last sale price (except if solely because
the transaction was reported late), and (ii) is
excepted or exempt from Rule 611 under Regulation
NMS shall be excluded from this limitation.’’
13 As defined in Rule 1.5(cc).
14 As defined in Rule 1.5(d).
15 As defined in Rule 11.5(b)(1).
16 As defined in Rule 1.5(ee).
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Federal Register / Vol. 78, No. 43 / Tuesday, March 5, 2013 / Notices
Default Behavior when a Non-Routable
Buy (Sell) Order Arrives at a Price
Higher (Lower) than the Upper (Lower)
Price Band
The Exchange proposes to add Rule
11.9(a)(3)(B), which would state that,
when a non-routable buy (sell) order
arrives at a price greater (less) than the
Upper (Lower) Price Band, the Exchange
will re-price and display such buy (sell)
order at the price of the Upper (Lower)
Price Band.
Default Behavior When the Upper
(Lower) Price Band Moves to a Price
Higher (Lower) Than a Resting Buy
(Sell) Order’s Displayed Posting Price
If the price of the Upper (Lower) Price
Band moves above (below) a nonroutable buy (sell) order’s displayed
posting price, such buy (sell) order will
not be adjusted further and will remain
posted at the original price at which it
was posted to the EDGX Book.
Default Behavior When the Upper
(Lower) Price Band Crosses a Resting
Buy (Sell) Order’s Displayed Posting
Price
Proposed Rule 11.9(a)(3)(B) would
also state that, when the Upper (Lower)
Price Band crosses a non-routable buy
(sell) order resting on the EDGX Book,
such buy (sell) order will be re-priced to
the price of the Upper (Lower) Price
Band.
emcdonald on DSK67QTVN1PROD with NOTICES
Routable Market and Limit Orders
The Exchange proposes to add Rule
11.9(a)(3)(C), which would cross
reference how routable market and limit
orders would behave under the Plan.17
The proposed order handling under the
Plan would be set forth in proposed
Rule 11.9(b)(1)(B) and described in the
section entitled ‘‘Changes in Routing
Behavior to Comply with the Plan,’’
below.
Short Sale Behavior
The Exchange proposes to add Rule
11.9(a)(3)(D), which would describe
how short sale orders would be repriced in accordance with both
Regulation SHO and the Plan. In
particular, the proposed rule would
state that, where a short sale order is
entered into the System with a limit
price below the Lower Price Band and
a short sale price test restriction under
Rule 201 of Regulation SHO (‘‘short sale
price test restriction’’) is in effect for the
17 The Exchange notes that the behavior of stop
orders and stop limit orders, as defined in Exchange
Rule 1.5, are not specifically addressed in this filing
as they are converted to market and limit orders
when the stop price is elected and will then behave
like market or limit orders, respectively, as
described above.
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15:14 Mar 04, 2013
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covered security, the System will reprice such order to the Lower Price
Band as long as the Lower Price Band
is at a Permitted Price.18 When a short
sale order is entered into the System
with a limit price above the Lower Price
Band and a short sale price test
restriction is in effect for the covered
security, the System will re-price such
order, if necessary, at a Permitted Price
pursuant to Rule 11.5(c)(4).
Example: Sell Short Order is priced at the
Lower Price Band where the Lower Price
Band is above the NBB
Assume the NBBO is $10.00 by $10.10, the
Price Bands 19 are $10.01 by $10.15, and the
short sale price test restriction is in effect. A
sell short order arrives to sell 100 shares at
$10.00 and is displayed at $10.01. The sell
short order will be allowed to be priced at
the Lower Price Band so long as the Lower
Price Band is above the NBB during the short
sale price test restriction.
Policies and Procedures
The Exchange proposes to add Rule
11.9(a)(3)(E) to specify that pursuant to
Section IV of the Plan, all Trading
Centers 20 in NMS Stocks, including
those operated by Members of the
Exchange, shall establish maintain, and
enforce written policies and procedures
that are reasonably designed to comply
with the requirements specified in
Section VI of the Plan, and to comply
with the Trading Pauses specified in
Section VII of the Plan.
Applicability of the Plan to Specific
Order Types
The following examples and
descriptions demonstrate how Rules
11.9(a)(3)(A)–(C), as described above,
will affect specific order functionality
under the Plan.
Immediate-or-Cancel (‘‘IOC’’) Orders
As described in proposed Rule
11.9(a)(3)(A), IOC Orders will be
executed to the extent allowed within
the Price Bands, and the portion not so
executed will be cancelled.
In general, IOC and IOC Intermarket
Sweep Orders 21 (‘‘IOC ISO’’) will be
handled the same way when the Price
Bands are inside of the NBBO. Buy IOC/
IOC ISOs will be executed up to the
Upper Price Band and the remainder
will be canceled back to the User. Sell
IOC/IOC ISOs will be executed down to
18 As
defined in Rule 11.5(c)(4)(B).
that Price Band prices used in all
examples in this filing are for illustrative purposes
only and do not reflect the method by which the
actual Price Bands will be calculated in accordance
with the Plan.
20 As defined in Rule 2.11(a).
21 ISO Orders are described in Exchange Rule
11.5(d) and defined under Regulation NMS. See
Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
19 Note
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the Lower Price Band and the remainder
will be canceled back to the User. IOC
ISOs will be prevented from executing
at prices that cross the Price Bands
when the limit price of the ISO crosses
a Price Band that is outside of the
NBBO.
Example 1: Sell IOC Order Executes Down
to the Lower Price Band
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $10.04 by $10.15. Three
orders are placed: Order1 to buy 100 shares
at $10.02; Order2 to buy 100 shares at $10.04;
and an IOC Order to sell 200 shares at $10.02.
The IOC Order will execute 100 shares at
$10.04 against Order2 and the remaining 100
shares will be cancelled back to the User. The
IOC Order cannot execute against Order1
because Order1 is priced below the Lower
Price Band.
Example 2: Sell IOC ISO Executes through
NBBO Down to the Lower Price Band
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.99 by $10.15. Three
orders are placed: Order1 to buy 100 shares
at $9.99; Order2 to buy 100 shares at $9.98;
and an IOC ISO to sell 200 shares at $9.98.
The IOC ISO will execute 100 shares at $9.99
against Order1 and the remaining 100 shares
will be canceled back to the User. The IOC
ISO cannot execute against Order2 because
Order2 is priced below the Lower Price Band.
EDGX Only/Post Only Orders 22
As described in proposed Rule
11.9(a)(3)(B), where a non-routable
order such as a EDGX Only/Post Only
buy (sell) Order is entered into the
System at a price above (below) the
Upper (Lower) Price Band, such buy
(sell) order will be re-priced and
displayed at the price of the Upper
(Lower) Price Band. If the Upper
(Lower) Price Band moves higher
(lower) than the EDGX Only/Post Only
buy (sell) Order’s posting price, such
buy (sell) order will not be adjusted
further and will remain at the original
price at which it was posted to the
EDGX Book.
Example 1: EDGX Only/Post Only Order
is entered into the System at a Price That
Crosses the Price Bands
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.08. An
EDGX Only/Post Only buy Order arrives at
$10.09. The buy order will be re-priced,
displayed and posted to the EDGX Book at
$10.08, the price of the Upper Price Band.
Example 2: Price Band Moves Higher
Than EDGX Only/Post Only Buy Order on
the EDGX Book
Assume the same facts as in Example 1, but
now the Price Bands adjust to $9.95 by
$10.10. The buy order will not be adjusted
further and will instead remain on the EDGX
Book at $10.08, the original price at which
it was posted to the EDGX Book.
22 As
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defined in Rules 11.5(c)(4) and (5).
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Federal Register / Vol. 78, No. 43 / Tuesday, March 5, 2013 / Notices
Changes in Routing Behavior to Comply
With the Plan
The Exchange proposes to add Rule
11.9(b)(1)(B), which would describe
how routing will function under the
Plan and would be divided into three
major subsections, detailed under the
subheadings listed below.
emcdonald on DSK67QTVN1PROD with NOTICES
Default Routing Behavior
The first major subsection, proposed
Rule 11.9(b)(1)(B)(i), would describe
how default routing behavior would
function in accordance with the Plan
and would state that, in order to comply
with the Plan, a routable buy (sell)
market or routable marketable limit
order will be routed by the Exchange
only when the NBO (NBB) is or becomes
executable according to the Plan, which
would be when the NBO is less than or
equal to the Upper Price Band (NBB is
greater than or equal to the Lower Price
Band). According to the Plan, the NBO
(NBB) is or becomes non-executable
when the NBO is greater than the Upper
Price Band (the NBB is less than the
Lower Price Band) (‘‘Non-Executable’’).
Proposed Rule 11.9(b)(1)(B)(i) would
also state that, excluding routing
strategies SWPA, SWPB and SWPC, for
purposes of Rules 11.9(b)(1)(B)(i)(I) and
(II), routing strategies that access all
Protected Quotations include the
following routing strategies as described
in current Rule 11.9(b)(3) (proposed to
be re-numbered Rule 11.9(b)(2)): ROUT,
ROUX, ROUC, ROUE and ROOC.
Routing strategies that do not access all
Protected Quotations include all other
routing strategies listed in current Rule
11.9(b)(3).
Routing strategies that access all
Protected Quotations (other than SWPA,
SWPB and SWPC) are designed to
maximize liquidity with the intention to
fully execute a marketable order.
Routing strategies that do not access all
Protected Quotations are designed with
other objectives in mind and are not as
likely to fully execute a marketable
order because of the smaller number of
liquidity sources accessed. For example,
routing strategy ROUZ, which does not
access all Protected Quotations, will
only access dark pools after interacting
with the EDGX Book and then post any
remainder to the EDGX Book unless
otherwise instructed by the User.
If a marketable order utilizing a
routing strategy that accesses all
Protected Quotations cannot be
executed because the Upper (Lower)
Price Band crosses the NBO (NBB) (i.e.,
the NBO/NBB is non-executable), the
Exchange believes that, in order to
fulfill the routing strategy’s objective of
maximizing liquidity and fully
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15:14 Mar 04, 2013
Jkt 229001
executing a marketable order, it is
appropriate to re-price such order up to
the order’s limit price and re-route such
order once the Upper (Lower) Price
Band no longer crosses the NBO (NBB)
(i.e., the NBO/NBB becomes
executable).
Below are examples illustrating how
default routing behavior will function in
accordance with the Plan.23
Example: Buy Order Example where NBO
is Above the Upper Price Band
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.05. Order1
arrives to buy 100 shares at $10.15; Order2
arrives to buy 100 shares as a market order.
Neither Order1 nor Order2 will be routed
because no buy orders will be routed when
the NBO is above the Upper Price Band.
Routable Market Orders
Proposed Rule 11.9(b)(1)(B)(i) would
contain two minor subsections, the first
of which, proposed Rule
11.9(b)(1)(B)(i)(I), would describe
routing behavior under the Plan
applicable to routable market orders and
would state that, for routing strategies
that access all Protected Quotations, if
the NBO (NBB) is Non-Executable and
a buy (sell) market order is placed, the
System will default to re-price such buy
(sell) market order and display it at the
price of the Upper (Lower) Price Band
and will continue to re-price it to the
price of the Upper (Lower) Price Band
as the Upper (Lower) Price Band
adjusts, so long as the buy (sell) market
order does not move above (below) its
market collar price, as defined in Rule
11.5(a)(2), or alternatively, such buy
(sell) market order may be cancelled
pursuant to User instruction. For all
other routing strategies that do not
access all Protected Quotations, routable
market orders will not be re-priced and
displayed at the price of the Upper
(Lower) Price Band and will instead be
cancelled if the NBO (NBB) is NonExecutable.
The rule further provides that if the
Upper (Lower) Price Band crosses a
routable buy (sell) order resting on the
EDGX Book, such buy (sell) order will
be re-priced to the price of the Upper
(Lower) Price Band.
Example 1: Buy Market Order where NBO
is Above Upper Price Band
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.05. A
routable buy market order arrives for 100
shares utilizing a routing strategy that
accesses all Protected Quotations (e.g.,
ROUT). The buy order will not be routed as
the NBO is Non-Executable (greater than the
23 All of the below examples in this section on
changes to the behavior of routable orders as a
result of compliance with the Plan assume that
there is no liquidity on the EDGX Book.
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Upper Price Band) and will be posted and
displayed at $10.05 or cancelled according to
the User’s instructions.
If the Price Bands move up after the
initial re-price to $9.98 by $10.08, the
buy order will be re-priced and
displayed at $10.08. If the Price Bands
moves down after the initial re-price to
$9.92 by $10.02, the buy order will be
re-priced and displayed at $10.02.
In the same example, if the buy
market order arrives for 100 shares
utilizing a routing strategy that does not
access all Protected Quotations, such as
ROCO, then the System will cancel the
buy market order when the NBO is NonExecutable and will not re-price and
display the order at the price of the
Upper Price Band.
Example 2: Market Order is Re-Priced to
Market Collar Price as a Result of Movement
of the Price Bands
Assume the NBBO is $10.00 by $11.00, the
Price Bands are $9.05 by $10.05 and the last
sale was at $10.00. A market order arrives to
buy 100 shares and is displayed at $10.05
with a market collar of $10.50. The Price
Bands then change to $10.00 by $11.00. As
a result, the market order is posted and
displayed at its collar price of $10.50.
Routable Limit Orders
The second minor subsection,
proposed Rule 11.9(b)(1)(B)(i)(II), would
describe routing behavior under the
Plan applicable to routable limit orders
and would state that, if the price of (i)
a routable buy (sell) limit order that is
entered into the System or (ii) the
unfilled balance of such order returned
from routing to away Trading Centers is
greater (less) than the Upper (Lower)
Price Band and is ineligible for routing
as a result of the NBO (NBB) being or
having become Non-Executable, then
the System will default to re-price such
buy (sell) order and display it at the
price of the Upper (Lower) Price Band,
or alternatively, it may be cancelled
pursuant to User instruction. For
routing strategies that access all
Protected Quotations, if the Upper
(Lower) Price Band subsequently moves
above (below) the routable buy (sell)
order’s posting price, such routable
order will continue to be re-priced to
the Upper (Lower) Price Band until the
order reaches its limit price. For all
other routing strategies that do not
access all Protected Quotations, the
routable order will not be re-priced to a
price above (below) the original price at
which it was posted to the EDGX Book.
The rule further provides that if the
Upper (Lower) Price Band crosses a
routable buy (sell) order resting on the
EDGX Book, such buy (sell) order will
be re-priced to the price of the Upper
(Lower) Price Band.
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Example 1: Sell Limit Order That Accesses
All Protected Quotations Where NBB Is
Below Lower Price Band
Assume the NBBO is $10.02 by $10.10 and
the Price Bands are $10.04 by $10.15. A
routable sell order arrives for 100 shares at
$10.01 utilizing a routing strategy that
accesses all Protected Quotations (e.g.,
ROUT). The sell order will not be routed and
will be posted and displayed at $10.04 or
cancelled according to the User’s
instructions.
If the Lower Price Band moves up after the
initial re-price to $10.06 by $10.16, the order
will be re-priced to display at $10.06. If the
Lower Price Band moves down after the
initial re-price to $10.03 by $10.13, the order
will be re-priced to display at $10.03.
Example 2: Sell Limit Order that does not
access all Protected Quotations
Assume the NBBO is $10.02 by $10.10 and
the Price Bands are $10.04 by $10.15. A
routable sell order arrives for 100 shares at
$10.01 utilizing a routing strategy that does
not access all Protected Quotations (e.g.,
ROUZ). The sell order will not be routed and
will instead be posted and displayed at
$10.04 or cancelled according to the User’s
instructions.
If the Lower Price Band moves up to
$10.06 by $10.16 after the initial re-price, the
order will be re-priced and displayed at
$10.06. If the Lower Price Band moves down
to $10.03 by $10.13 after the initial re-price,
the order will be re-priced and displayed at
$10.04, the original price at which it was
posted to the EDGX Book.
emcdonald on DSK67QTVN1PROD with NOTICES
Re-Routing Behavior
The second major subsection,
proposed Rule 11.9(b)(1)(B)(ii), would
describe how re-routing will function
under the Plan and would state that, for
routing strategies that access all
Protected Quotations, when the Upper
(Lower) Price Band adjusts such that the
NBO (NBB) becomes executable, a
routable buy (sell) market or marketable
limit order will be eligible to be rerouted by the Exchange.
Example 1: Routing Buy Order when NBO
Becomes Executable
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.94 by $10.09. A
routable buy market order arrives for 100
shares utilizing a routing strategy that
accesses all Protected Quotations (e.g.,
ROUT).24 The buy order will not be routed
and will instead be posted and displayed at
$10.09. The Price Bands change to $9.95 by
$10.10. The order will be routed since the
NBO is now executable.
Example 2: Routing Sell Order when NBB
Becomes Executable
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $10.05 by $10.15. A
routable sell order arrives for 100 shares at
$9.99 utilizing a routing strategy that
accesses all Protected Quotations (e.g.,
ROUT). The sell order will be re-priced and
24 If, for example, a routing strategy that does not
access all Protected Quotations, such as ROUZ, is
elected by the User, the order is not re-routed and
remains posted on the EDGX Book.
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displayed at $10.05. The Price Bands then
change to $9.98 by $10.10. The sell order will
be routed since the NBB is now executable.
Behavior of Orders Utilizing SWP
Routing Strategies
The third and final major subsection,
Rule 11.9(b)(1)(B)(iii), would describe
how orders utilizing routing strategies
SWPA, SWPB and SWPC 25 (together,
‘‘SWP routing strategies’’) will function
under the Plan and would state that the
System will immediately cancel orders
utilizing a SWP routing strategy when
an order to buy utilizing an SWP routing
strategy has a limit price that is greater
than the Upper Price Band or if a sell
order utilizing an SWP routing strategy
has a limit price that is less than the
Lower Price Band. The following
examples illustrate how an order
utilizing a SWP routing strategy (an
‘‘SWP order’’) would behave in
accordance with the Plan:
Example 1: Buy SWP Limit Price Crosses
the Upper Price Band (Price Band Inside the
NBBO)
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $10.00 by $10.08. A SWP
order is placed to buy 100 shares at $10.10.
The order is rejected immediately because its
$10.10 limit price crosses the Upper Price
Band.
Example 2: Buy SWP Limit Price Crosses
the Upper Price Band (Price Band Outside
the NBBO)
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.11. A SWP
order is placed to buy 100 shares at $10.12.
The order is rejected immediately because its
$10.12 limit price crosses the Upper Price
Band.
Example 3: Buy SWP Limit Price is the
same as the price of the Upper Price Band
(Price Band Outside the NBBO)
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.11. A SWP
order is placed to buy 100 shares at $10.11.
The order is executed and ISOs can be routed
out since the limit of $10.11 is equal to the
Upper Price Band.
Miscellaneous Organizational
Amendments to Rule 11.9
The Exchange proposes to add Rule
11.9(a)(1) (Compliance with Regulation
SHO), which would contain unchanged
text from current Rule 11.9(a) relevant
to compliance with Regulation SHO.
The Exchange proposes to add Rule
11.9(a)(2) (Compliance with Regulation
NMS), which would contain unchanged
text from current Rule 11.9(a) relevant
to compliance with Regulation NMS.
The Exchange proposes to re-number
current Rule 11.9(a)(1) (Execution
against EDGX Book) to new Rule
11.9(a)(4). The text of the rule would
remain unchanged.
25 Rules 11.9(b)(3)(o), (p) and (q) define SWPA,
SWPB and SWPC routing strategies, respectively.
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The Exchange proposes to rename
current Rule 11.9(b) (Execution and
Routing) to Rule 11.9(b) (Routing). The
Exchange proposes to add Rule
11.9(b)(1), which would contain text in
current Rule 11.9(b)(2) with regard to
routing to away trading centers. The text
of the rule will remain unchanged aside
from updated cross references. The
Exchange also proposes to add Rule
11.9(b)(1)(A), which would contain
unchanged text in current Rule
11.9(b)(2) relevant to Regulation SHO.
The Exchange proposes to add new
Rules 11.9(b)(1)(C) and (D), which
would contain the unchanged text of
current Rules 11.9(b)(2)(A) and (B),
respectively. Lastly, the Exchange
proposes to re-number current Rule
11.9(b)(3) to new Rule 11.9(b)(2). The
text of the rule will remain unchanged.
Orders and Modifiers (Rule 11.5)
The Exchange proposes to amend
cross references in Rules 11.5(a)(2),
11.5(c)(4)–(10), and 11.5(d)(1) in
response to the re-numbering of
subsections within Rule 11.9, as
discussed in detail above.
Mid-Point Match Orders
The Exchange proposes to amend
Rule 11.5(c)(7) to describe the behavior
of Mid-Point Match (‘‘MPM’’) Orders 26
under the Plan.
The Exchange believes that, when a
Protected Quotation 27 is crossed by the
Price Bands and all Trading Centers
have not yet replaced their quotes to realign them with the Price Bands, the
integrity of the NBBO is compromised.
In such circumstances, the Exchange
believes that it is fair and reasonable to
shut down all midpoint trading until the
Protected Quotation(s) is(are) no longer
crossed by the Price Bands.
In addition, pursuant to Rule
11.9(a)(3), MPM Orders will not trade
with any other orders when the
midpoint of the NBBO is below the
Lower Price Band or above the Upper
Price Band since MPM Orders only
execute at the midpoint of the NBBO.
MPM Orders will continue to execute at
the midpoint of the NBBO as long as the
execution price is between the Lower
and Upper Price Bands.
Example 1: MPM Order Does Not Trade
when Upper Price Band Crosses Protected
Bids from other Exchanges
Assume the NBBO is $10.00 by $10.01 and
the Price Bands are $9.02 by $10.02. The best
bids are $10.00 at NYSE, $10.00 at BATS and
$9.95 at ARCA. Order1 is placed to Sell 100
shares at $9.95 as a MPM Order. The Price
Bands then change to $8.99 by $9.99 and the
NBBO changes to $9.95 by $10.01 (BATS and
26 As
27 As
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defined in Rule 11.5(v).
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NYSE’s best bids are excluded from the
NBBO by the SIP and neither exchange has
yet submitted new quotes to the SIP). Order2
is placed to buy 100 shares at $9.99. Order2
does not trade with Order1 and remains
posted on the EDGX Book at $9.99.
Example 2: MPM Orders Cannot Trade
when the Price Band is Crossing the
Midpoint of the NBBO
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $10.00 by $10.04. A MPM
Order is placed to buy 100 shares at $11.00
and posted at $10.05. A MPM Order is placed
to sell 100 shares at $10.00. The MPM Orders
cannot trade at $10.05 because the Upper
Price Band is crossing the midpoint of the
NBBO. Both orders will remain posted on the
EDGX Book at $10.05. No execution will
occur between the orders until the Upper
Price Band no longer crosses the midpoint of
the NBBO.
emcdonald on DSK67QTVN1PROD with NOTICES
Priority of Orders (Rule 11.8)
The Exchange proposes to add new
Rule 11.8(a)(8), which would state that
when a Price Band crosses an order
resting on the EDGX Book, such order
will be provided a new time stamp 28
and prioritized based on its existing
time stamp at the time the new Price
Bands are established. Furthermore, if
an order is resting on the Book at a price
equal to the Upper (Lower) Price Band,
such order will not be re-priced, but
will be provided a new time stamp and
prioritized based on its existing time
stamp at the time the new Price Bands
are established.
The Exchange views this method of
retaining priority based on time as being
the method that is most fair to its
Members and subject to the least
amount of manipulation. The Exchange
believes that time priority is a superior
approach to price priority because
under a time priority approach, it would
be more difficult for certain Members to
price their orders on the EDGA Book in
a way that gives them a potential
priority advantage when such orders are
subsequently re-priced by a Price Band
crossing the price at which such orders
reside on the Book.
The following examples demonstrate
how order priority will be affected by
the Plan.
Example 1: Price Band Crosses Orders
Resting on the EDGX Book
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.15. Two
orders are placed: Order1 arrives to buy 100
shares at $10.05 and then Order2 arrives to
buy 100 shares at $10.08. The Price Bands
change to $9.95 by $10.05 and Order2 is repriced to $10.05 as a result of the adjustment
of the Upper Price Band. Order3 is then
placed to sell 100 shares at $10.05. Order1
will trade with Order3. Initially, Order2 will
have price priority while the Price Bands are
28 A new time stamp enables the Exchange’s
System to record every time an order is re-priced.
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outside of the NBBO. However, after the
Price Bands adjust, Order1 will have priority
based on its existing time stamp at the time
the new Price Bands were established.
Example 2: Price Band Crosses Orders
Resting on the EDGX Book
Assume the NBBO is $10.00 by $10.10 and
the Price Bands are $9.95 by $10.15. Two
orders are placed: Order1 arrives to buy 100
shares at $10.08 and then Order2 arrives to
buy 100 shares at $10.05. The Price Bands
change to $9.95 by $10.05 and Order1 is repriced to $10.05 as a result of the adjustment
of the Upper Price Band. Order3 is then
placed to sell 100 shares at $10.05. Order1
will trade with Order3 because it retains its
priority based on its existing time stamp at
the time the new Price Bands were
established. When the Price Bands adjusted,
both Order1 and Order2 obtained new time
stamps and retained priority based on the
time stamps that existed relative to one
another at the time the new Price Bands were
established.
Definitions (Rule 1.5)
The Exchange proposes to add new
Rule 1.5(gg), which would define the
term the ‘‘Plan’’ to mean The National
Market System Plan to Address
Extraordinary Market Volatility as well
as state that a number of terms used in
the Rules and related to the Plan shall
have the definitions and meanings
ascribed to them under the Plan.
Trading Halts Due to Extraordinary
Market Volatility (Rule 11.14)
The Exchange proposes to amend
Rule 11.14(d) (individual stock trading
pauses) to explain how the rule will
operate during the phased
implementation of the Plan. Currently,
under Rule 11.14(d), if a primary listing
market issues an individual stock
trading pause in any NMS stock, the
Exchange will pause trading in that
security until trading has resumed on
the primary listing market. If, however,
trading has not resumed on the primary
listing market and ten minutes have
passed since the individual stock
trading pause message has been
received from the responsible single
plan processor, the Exchange may
resume trading in such stock. During
Phase 1 of the Plan, an individual stock
trading pause in Tier 1 NMS Stocks that
are subject to the requirements of the
Plan shall be subject to the Plan. Tier 1
NMS Stocks not yet subject to the
requirements of the Plan and Tier 2
NMS Stocks shall be subject to the
requirements set forth in paragraph (d)
of Rule 11.14. Once the Plan has been
fully implemented and all NMS stocks
are subject to the Plan, Rule 11.14(d)
will no longer apply.
2. Statutory Basis
The statutory basis for the proposed
rule change is Section 6(b)(5) of the
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14385
Act,29 which requires the rules of an
exchange to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The Exchange believes
that the proposed rule change meets
these requirements in that it seeks to
promote the efficient execution of
investor transactions, and thus
strengthen investor confidence, over the
long term by providing additional
transparency regarding the order
handling procedures employed by the
Exchange and certain obligations of
Members when sending orders to the
Exchange consistent with the Plan. The
Exchange also believes that the
proposed amendments to Rules 11.8 and
11.9 will assist Users in executing or
displaying their orders consistent with
the Plan, especially under fast moving
conditions where the Price Bands and
NBBO are quickly updating. In addition,
Users can choose to use an IOC Order
or opt out of certain default re-pricing
processes, as described in proposed
Rules 11.9(b)(3) and 11.9(b)(1)(B)(i)(I–
II), that re-price a buy (sell) order to the
price of the Upper (Lower) Price Band.
If Users choose to do so, the Exchange
will instead cancel their orders instead
as per User instructions.
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
Exchange believes that its rules are
comparable, in part, with re-pricing and
cancellation processes offered by other
exchanges in response to the Plan. The
Exchange also believes that there is no
impact on competition as analogous rule
changes are being filed by all
Participants to the Plan and the Plan
itself was developed and jointly filed by
all Participants in the first instance.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
29 15
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U.S.C. 78f(b)(5).
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Federal Register / Vol. 78, No. 43 / Tuesday, March 5, 2013 / Notices
19(b)(3)(A)(iii) of the Act 30 and Rule
19b–4(f)(6) thereunder.31 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) of the Act 32 to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
No. SR–EDGX–2013–08 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–EDGX–2013–08. This file number
should be included on the subject line
emcdonald on DSK67QTVN1PROD with NOTICES
30 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
32 15 U.S.C. 78s(b)(2)(B).
31 17
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15:14 Mar 04, 2013
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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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–EDGX–
2013–08 and should be submitted on or
before March 26, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05004 Filed 3–4–13; 8:45 am]
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
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 amend the
Fees Schedule of its CBOE Stock
Exchange (‘‘CBSX’’). The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission.
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
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68998; File No. SR–CBOE–
2013–024]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the CBOE
Stock Exchange Fees Schedule
February 27, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
21, 2013, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
The Exchange proposes to amend the
CBSX Fees Schedule with regard to the
data reports it provides to Trading
Permit Holders (‘‘TPHs’’) and other
interested parties at their requests.
These persons and organizations
sometimes approach CBSX and request
that CBSX prepare and provide various
reports regarding their trading activity.
The production of these reports
sometimes requires that employees put
in a significant amount of time and
work to write and develop the programs
necessary to be able to run or generate
such reports. Currently, the CBSX Fees
Schedule does not speak to such
requests (though the Fees Schedule of
CBOE, CBSX’s parent exchange, does 3).
The Exchange proposes to add to the
CBSX Fees Schedule a comprehensive,
consistent and standard structure
33 17
1 15
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3 See CBOE Fees Schedule, Exchange Data
Reports table.
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]]>Agencies
[Federal Register Volume 78, Number 43 (Tuesday, March 5, 2013)]
[Notices]
[Pages 14380-14386]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05004]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69003; File No. SR-EDGX-2013-08]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
EDGX Rules 1.5, 11.5, 11.8, 11.9 and 11.14 in Connection With the
Implementation of the National Market System Plan To Address
Extraordinary Market Volatility
February 27, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 13, 2013, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 1.5, 11.5, 11.8, 11.9 and
11.14 regarding the implementation of the National Market System Plan
to Address Extraordinary Market Volatility (as amended, the ``Plan'')
as approved by the Securities and Exchange Commission.\3\ All of the
changes described herein are applicable to EDGX Members. The text of
the proposed rule change is available on the Exchange's Internet Web
site at www.directedge.com, at the Exchange's principal office, on the
Commission's Internet Web site at www.sec.gov, and at the Commission's
Public Reference Room.
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\3\ See Securities Exchange Release No. 67091 (May 31, 2012), 77
FR 33498 (June 6, 2012) (approving the Plan on a pilot basis).
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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 self-regulatory organization
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
[[Page 14381]]
the places specified in Item IV below. The self-regulatory organization
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
EDGX proposes to amend Rules 1.5, 11.5, 11.8, 11.9 and 11.14 in
connection with the implementation of the Plan.
Background
On April 5, 2011, NYSE Euronext, on behalf of the New York Stock
Exchange LLC (``NYSE''), NYSE Amex LLC, and NYSE Arca, Inc. (``Arca''),
and the following parties to the Plan: BATS Exchange, Inc., BATS Y-
Exchange, Inc. (together, ``BATS''), Chicago Board Options Exchange,
Incorporated, Chicago Stock Exchange, Inc., EDGX, EDGA Exchange, Inc.,
Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, and National Stock
Exchange, Inc. (collectively with NYSE, NYSE MKT, and Arca, the
``Participants''), filed with the Commission pursuant to Section 11A of
the Securities Exchange Act of 1934 (``Act''),\4\ and Rule 608
thereunder,\5\ the Plan to create a market-wide limit up-limit down
(``LULD'') mechanism that is intended to address extraordinary market
volatility in NMS Stocks.\6\ The Plan sets forth procedures that
provide for market-wide LULD requirements that would be designed to
prevent trades in individual NMS Stocks from occurring outside of
specified price bands. These LULD requirements would be coupled with
trading pauses\7\ to accommodate more fundamental price moves (as
opposed to erroneous trades or momentary gaps in liquidity).
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\4\ 15 U.S.C. 78k-1.
\5\ 17 CFR 242.608.
\6\ See Letter from Janet M. McGinness, Senior Vice President,
Legal and Corporate Secretary, NYSE Euronext, to Elizabeth M.
Murphy, Secretary, Commission, dated April 5, 2011 (``Transmittal
Letter''). The term ``NMS Stock'' shall have the meaning provided in
Rule 600(b)(47) of Regulation NMS under the Act.
\7\ As defined in Section I(X) of the Plan.
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The price bands would consist of a Lower Price Band (the ``Lower
Price Band'') and an Upper Price Band (the ``Upper Price Band''--each a
``Price Band'' and, together with the Lower Price Band, the ``Price
Bands'') for each NMS Stock. The Price Bands would be calculated by the
Securities Information Processors (the ``SIP'' or ``Processors'')
responsible for consolidation of information for an NMS Stock pursuant
to Rule 603(b) of Regulation NMS under the Act.\8\ The Price Bands
would be based on a Reference Price \9\ that equals the arithmetic mean
price of Eligible Reported Transactions \10\ for the NMS Stock over the
immediately preceding five-minute period. The Price Bands for an NMS
Stock would be calculated by applying the Percentage Parameter \11\ for
such NMS Stock to the Reference Price, with the Lower Price Band being
a Percentage Parameter below the Reference Price, and the Upper Price
Band being a Percentage Parameter above the Reference Price. Between
9:30 a.m. and 9:45 a.m. ET and 3:35 p.m. and 4:00 p.m. ET, the Price
Bands would be calculated by applying double the Percentage Parameters.
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\8\ 17 CFR 242.603(b).
\9\ As defined in Section I(T) of the Plan.
\10\ As defined in the proposed Plan, Eligible Reported
Transactions would have the meaning prescribed by the Operating
Committee for the proposed Plan, and generally mean transactions
that are eligible to update the sale price of an NMS Stock.
\11\ As initially proposed by the Participants, the Percentage
Parameters for Tier 1 NMS Stocks (i.e., stocks in the S&P 500 Index
or Russell 1000 Index and certain ETPs) with a Reference Price of
$1.00 or more would be five percent and less than $1.00 would be the
lesser of (a) $0.15 or (b) 75 percent. The Percentage Parameters for
Tier 2 NMS Stocks (i.e., all NMS Stocks other than those in Tier 1)
with a Reference Price of $1.00 or more would be 10 percent and less
than $1.00 would be the lesser of (a) $0.15 or (b) 75 percent. The
Percentage Parameters for a Tier 2 NMS Stock that is a leveraged ETP
would be the applicable Percentage Parameter set forth above
multiplied by the leverage ratio of such product. On May 24, 2012,
the Participants amended the Plan to create a 20% price band for
Tier 1 and Tier 2 stocks with a Reference Price of $0.75 or more and
up to and including $3.00. The Percentage Parameter for stocks with
a Reference Price below $0.75 would be the lesser of (a) $0.15 or
(b) 75 percent. See Securities Exchange Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012).
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Under the Plan, the Exchange is required to establish, maintain,
and enforce written policies and procedures reasonably designed to
prevent the display of offers below the Lower Price Band and bids above
the Upper Price Band for an NMS Stock. The Processors would disseminate
an offer below the Lower Price Band or bid above the Upper Price Band
that nevertheless inadvertently may be submitted despite such
reasonable policies and procedures, but with an appropriate flag
identifying it as non-executable; such bid or offer would not be
included in National Best Bid (``NBB'') or National Best Offer (``NBO''
and, together with the NBB, the ``NBBO'') calculations. In addition,
the Exchange is required to develop, maintain, and enforce policies and
procedures reasonably designed to prevent trades at prices outside the
Price Bands, with the exception of single-priced opening, reopening,
and closing transactions on the primary listing exchange.
In connection with the upcoming implementation of the Plan on April
8, 2013, the Exchange proposes to amend the following rules:
Order Execution (Rule 11.9)
The Exchange proposes to re-organize Rule 11.9 so that matters
relevant to order execution would be covered in Rule 11.9(a), while
matters relevant to order routing would be covered in Rule 11.9(b).
Rules 11.9(a) and (b) would be structured so that each would contain
subsections that would describe the manner by which execution and
routing would be affected by the Plan, among other regulations. The
Exchange proposes to add Rule 11.9(a)(3) that would provide particular
details with regard to how the Plan would modify order behavior on the
Exchange. Proposed Rule 11.9(a)(3) and its subparagraphs are described
below.
Compliance With the Plan
The Exchange proposes to add Rule 11.9(a)(3), which would state
that, except as provided in Section VI of the Plan,\12\ for any
executions to occur during Regular Trading Hours, such executions must
occur at a price that is greater than or equal to the Lower Price Band
and less than or equal to the Upper Price Band, when such Price Bands
are disseminated.
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\12\ Section VI(A)(1) of the Plan provides that ``single-priced
opening, reopening, and closing transactions on the Primary Listing
Exchange, however, shall be excluded from this limitation. In
addition, any transaction that both (i) does not update the last
sale price (except if solely because the transaction was reported
late), and (ii) is excepted or exempt from Rule 611 under Regulation
NMS shall be excluded from this limitation.''
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Default Behavior for Non-Routable Orders Not Crossing the Price Bands
The Exchange proposes to add Rule 11.9(a)(3)(A), which would state
that, when a non-routable buy (sell) order is entered into the System
\13\ at a price less (greater) than or equal to the Upper (Lower) Price
Band, such order will be posted to the EDGX Book \14\ or executed,
unless (i) the order is an Immediate-or-Cancel (``IOC'') Order,\15\ in
which case it will be cancelled if not executed, or (ii) the User \16\
has entered instructions to cancel the order.
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\13\ As defined in Rule 1.5(cc).
\14\ As defined in Rule 1.5(d).
\15\ As defined in Rule 11.5(b)(1).
\16\ As defined in Rule 1.5(ee).
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[[Page 14382]]
Default Behavior when a Non-Routable Buy (Sell) Order Arrives at a
Price Higher (Lower) than the Upper (Lower) Price Band
The Exchange proposes to add Rule 11.9(a)(3)(B), which would state
that, when a non-routable buy (sell) order arrives at a price greater
(less) than the Upper (Lower) Price Band, the Exchange will re-price
and display such buy (sell) order at the price of the Upper (Lower)
Price Band.
Default Behavior When the Upper (Lower) Price Band Moves to a Price
Higher (Lower) Than a Resting Buy (Sell) Order's Displayed Posting
Price
If the price of the Upper (Lower) Price Band moves above (below) a
non-routable buy (sell) order's displayed posting price, such buy
(sell) order will not be adjusted further and will remain posted at the
original price at which it was posted to the EDGX Book.
Default Behavior When the Upper (Lower) Price Band Crosses a Resting
Buy (Sell) Order's Displayed Posting Price
Proposed Rule 11.9(a)(3)(B) would also state that, when the Upper
(Lower) Price Band crosses a non-routable buy (sell) order resting on
the EDGX Book, such buy (sell) order will be re-priced to the price of
the Upper (Lower) Price Band.
Routable Market and Limit Orders
The Exchange proposes to add Rule 11.9(a)(3)(C), which would cross
reference how routable market and limit orders would behave under the
Plan.\17\ The proposed order handling under the Plan would be set forth
in proposed Rule 11.9(b)(1)(B) and described in the section entitled
``Changes in Routing Behavior to Comply with the Plan,'' below.
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\17\ The Exchange notes that the behavior of stop orders and
stop limit orders, as defined in Exchange Rule 1.5, are not
specifically addressed in this filing as they are converted to
market and limit orders when the stop price is elected and will then
behave like market or limit orders, respectively, as described
above.
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Short Sale Behavior
The Exchange proposes to add Rule 11.9(a)(3)(D), which would
describe how short sale orders would be re-priced in accordance with
both Regulation SHO and the Plan. In particular, the proposed rule
would state that, where a short sale order is entered into the System
with a limit price below the Lower Price Band and a short sale price
test restriction under Rule 201 of Regulation SHO (``short sale price
test restriction'') is in effect for the covered security, the System
will re-price such order to the Lower Price Band as long as the Lower
Price Band is at a Permitted Price.\18\ When a short sale order is
entered into the System with a limit price above the Lower Price Band
and a short sale price test restriction is in effect for the covered
security, the System will re-price such order, if necessary, at a
Permitted Price pursuant to Rule 11.5(c)(4).
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\18\ As defined in Rule 11.5(c)(4)(B).
Example: Sell Short Order is priced at the Lower Price Band
where the Lower Price Band is above the NBB
Assume the NBBO is $10.00 by $10.10, the Price Bands \19\ are
$10.01 by $10.15, and the short sale price test restriction is in
effect. A sell short order arrives to sell 100 shares at $10.00 and
is displayed at $10.01. The sell short order will be allowed to be
priced at the Lower Price Band so long as the Lower Price Band is
above the NBB during the short sale price test restriction.
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\19\ Note that Price Band prices used in all examples in this
filing are for illustrative purposes only and do not reflect the
method by which the actual Price Bands will be calculated in
accordance with the Plan.
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Policies and Procedures
The Exchange proposes to add Rule 11.9(a)(3)(E) to specify that
pursuant to Section IV of the Plan, all Trading Centers \20\ in NMS
Stocks, including those operated by Members of the Exchange, shall
establish maintain, and enforce written policies and procedures that
are reasonably designed to comply with the requirements specified in
Section VI of the Plan, and to comply with the Trading Pauses specified
in Section VII of the Plan.
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\20\ As defined in Rule 2.11(a).
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Applicability of the Plan to Specific Order Types
The following examples and descriptions demonstrate how Rules
11.9(a)(3)(A)-(C), as described above, will affect specific order
functionality under the Plan.
Immediate-or-Cancel (``IOC'') Orders
As described in proposed Rule 11.9(a)(3)(A), IOC Orders will be
executed to the extent allowed within the Price Bands, and the portion
not so executed will be cancelled.
In general, IOC and IOC Intermarket Sweep Orders \21\ (``IOC ISO'')
will be handled the same way when the Price Bands are inside of the
NBBO. Buy IOC/IOC ISOs will be executed up to the Upper Price Band and
the remainder will be canceled back to the User. Sell IOC/IOC ISOs will
be executed down to the Lower Price Band and the remainder will be
canceled back to the User. IOC ISOs will be prevented from executing at
prices that cross the Price Bands when the limit price of the ISO
crosses a Price Band that is outside of the NBBO.
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\21\ ISO Orders are described in Exchange Rule 11.5(d) and
defined under Regulation NMS. See Securities Exchange Act Release
No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
Example 1: Sell IOC Order Executes Down to the Lower Price Band
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$10.04 by $10.15. Three orders are placed: Order1 to buy 100 shares
at $10.02; Order2 to buy 100 shares at $10.04; and an IOC Order to
sell 200 shares at $10.02. The IOC Order will execute 100 shares at
$10.04 against Order2 and the remaining 100 shares will be cancelled
back to the User. The IOC Order cannot execute against Order1
because Order1 is priced below the Lower Price Band.
Example 2: Sell IOC ISO Executes through NBBO Down to the Lower
Price Band
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.99 by $10.15. Three orders are placed: Order1 to buy 100 shares
at $9.99; Order2 to buy 100 shares at $9.98; and an IOC ISO to sell
200 shares at $9.98. The IOC ISO will execute 100 shares at $9.99
against Order1 and the remaining 100 shares will be canceled back to
the User. The IOC ISO cannot execute against Order2 because Order2
is priced below the Lower Price Band.
EDGX Only/Post Only Orders \22\
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\22\ As defined in Rules 11.5(c)(4) and (5).
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As described in proposed Rule 11.9(a)(3)(B), where a non-routable
order such as a EDGX Only/Post Only buy (sell) Order is entered into
the System at a price above (below) the Upper (Lower) Price Band, such
buy (sell) order will be re-priced and displayed at the price of the
Upper (Lower) Price Band. If the Upper (Lower) Price Band moves higher
(lower) than the EDGX Only/Post Only buy (sell) Order's posting price,
such buy (sell) order will not be adjusted further and will remain at
the original price at which it was posted to the EDGX Book.
Example 1: EDGX Only/Post Only Order is entered into the System
at a Price That Crosses the Price Bands
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.08. An EDGX Only/Post Only buy Order arrives at $10.09.
The buy order will be re-priced, displayed and posted to the EDGX
Book at $10.08, the price of the Upper Price Band.
Example 2: Price Band Moves Higher Than EDGX Only/Post Only Buy
Order on the EDGX Book
Assume the same facts as in Example 1, but now the Price Bands
adjust to $9.95 by $10.10. The buy order will not be adjusted
further and will instead remain on the EDGX Book at $10.08, the
original price at which it was posted to the EDGX Book.
[[Page 14383]]
Changes in Routing Behavior to Comply With the Plan
The Exchange proposes to add Rule 11.9(b)(1)(B), which would
describe how routing will function under the Plan and would be divided
into three major subsections, detailed under the subheadings listed
below.
Default Routing Behavior
The first major subsection, proposed Rule 11.9(b)(1)(B)(i), would
describe how default routing behavior would function in accordance with
the Plan and would state that, in order to comply with the Plan, a
routable buy (sell) market or routable marketable limit order will be
routed by the Exchange only when the NBO (NBB) is or becomes executable
according to the Plan, which would be when the NBO is less than or
equal to the Upper Price Band (NBB is greater than or equal to the
Lower Price Band). According to the Plan, the NBO (NBB) is or becomes
non-executable when the NBO is greater than the Upper Price Band (the
NBB is less than the Lower Price Band) (``Non-Executable''). Proposed
Rule 11.9(b)(1)(B)(i) would also state that, excluding routing
strategies SWPA, SWPB and SWPC, for purposes of Rules
11.9(b)(1)(B)(i)(I) and (II), routing strategies that access all
Protected Quotations include the following routing strategies as
described in current Rule 11.9(b)(3) (proposed to be re-numbered Rule
11.9(b)(2)): ROUT, ROUX, ROUC, ROUE and ROOC. Routing strategies that
do not access all Protected Quotations include all other routing
strategies listed in current Rule 11.9(b)(3).
Routing strategies that access all Protected Quotations (other than
SWPA, SWPB and SWPC) are designed to maximize liquidity with the
intention to fully execute a marketable order. Routing strategies that
do not access all Protected Quotations are designed with other
objectives in mind and are not as likely to fully execute a marketable
order because of the smaller number of liquidity sources accessed. For
example, routing strategy ROUZ, which does not access all Protected
Quotations, will only access dark pools after interacting with the EDGX
Book and then post any remainder to the EDGX Book unless otherwise
instructed by the User.
If a marketable order utilizing a routing strategy that accesses
all Protected Quotations cannot be executed because the Upper (Lower)
Price Band crosses the NBO (NBB) (i.e., the NBO/NBB is non-executable),
the Exchange believes that, in order to fulfill the routing strategy's
objective of maximizing liquidity and fully executing a marketable
order, it is appropriate to re-price such order up to the order's limit
price and re-route such order once the Upper (Lower) Price Band no
longer crosses the NBO (NBB) (i.e., the NBO/NBB becomes executable).
Below are examples illustrating how default routing behavior will
function in accordance with the Plan.\23\
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\23\ All of the below examples in this section on changes to the
behavior of routable orders as a result of compliance with the Plan
assume that there is no liquidity on the EDGX Book.
Example: Buy Order Example where NBO is Above the Upper Price
Band
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.05. Order1 arrives to buy 100 shares at $10.15; Order2
arrives to buy 100 shares as a market order. Neither Order1 nor
Order2 will be routed because no buy orders will be routed when the
NBO is above the Upper Price Band.
Routable Market Orders
Proposed Rule 11.9(b)(1)(B)(i) would contain two minor subsections,
the first of which, proposed Rule 11.9(b)(1)(B)(i)(I), would describe
routing behavior under the Plan applicable to routable market orders
and would state that, for routing strategies that access all Protected
Quotations, if the NBO (NBB) is Non-Executable and a buy (sell) market
order is placed, the System will default to re-price such buy (sell)
market order and display it at the price of the Upper (Lower) Price
Band and will continue to re-price it to the price of the Upper (Lower)
Price Band as the Upper (Lower) Price Band adjusts, so long as the buy
(sell) market order does not move above (below) its market collar
price, as defined in Rule 11.5(a)(2), or alternatively, such buy (sell)
market order may be cancelled pursuant to User instruction. For all
other routing strategies that do not access all Protected Quotations,
routable market orders will not be re-priced and displayed at the price
of the Upper (Lower) Price Band and will instead be cancelled if the
NBO (NBB) is Non-Executable.
The rule further provides that if the Upper (Lower) Price Band
crosses a routable buy (sell) order resting on the EDGX Book, such buy
(sell) order will be re-priced to the price of the Upper (Lower) Price
Band.
Example 1: Buy Market Order where NBO is Above Upper Price Band
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.05. A routable buy market order arrives for 100 shares
utilizing a routing strategy that accesses all Protected Quotations
(e.g., ROUT). The buy order will not be routed as the NBO is Non-
Executable (greater than the Upper Price Band) and will be posted
and displayed at $10.05 or cancelled according to the User's
instructions.
If the Price Bands move up after the initial re-price to $9.98 by
$10.08, the buy order will be re-priced and displayed at $10.08. If the
Price Bands moves down after the initial re-price to $9.92 by $10.02,
the buy order will be re-priced and displayed at $10.02.
In the same example, if the buy market order arrives for 100 shares
utilizing a routing strategy that does not access all Protected
Quotations, such as ROCO, then the System will cancel the buy market
order when the NBO is Non-Executable and will not re-price and display
the order at the price of the Upper Price Band.
Example 2: Market Order is Re-Priced to Market Collar Price as
a Result of Movement of the Price Bands
Assume the NBBO is $10.00 by $11.00, the Price Bands are $9.05
by $10.05 and the last sale was at $10.00. A market order arrives to
buy 100 shares and is displayed at $10.05 with a market collar of
$10.50. The Price Bands then change to $10.00 by $11.00. As a
result, the market order is posted and displayed at its collar price
of $10.50.
Routable Limit Orders
The second minor subsection, proposed Rule 11.9(b)(1)(B)(i)(II),
would describe routing behavior under the Plan applicable to routable
limit orders and would state that, if the price of (i) a routable buy
(sell) limit order that is entered into the System or (ii) the unfilled
balance of such order returned from routing to away Trading Centers is
greater (less) than the Upper (Lower) Price Band and is ineligible for
routing as a result of the NBO (NBB) being or having become Non-
Executable, then the System will default to re-price such buy (sell)
order and display it at the price of the Upper (Lower) Price Band, or
alternatively, it may be cancelled pursuant to User instruction. For
routing strategies that access all Protected Quotations, if the Upper
(Lower) Price Band subsequently moves above (below) the routable buy
(sell) order's posting price, such routable order will continue to be
re-priced to the Upper (Lower) Price Band until the order reaches its
limit price. For all other routing strategies that do not access all
Protected Quotations, the routable order will not be re-priced to a
price above (below) the original price at which it was posted to the
EDGX Book.
The rule further provides that if the Upper (Lower) Price Band
crosses a routable buy (sell) order resting on the EDGX Book, such buy
(sell) order will be re-priced to the price of the Upper (Lower) Price
Band.
[[Page 14384]]
Example 1: Sell Limit Order That Accesses All Protected
Quotations Where NBB Is Below Lower Price Band
Assume the NBBO is $10.02 by $10.10 and the Price Bands are
$10.04 by $10.15. A routable sell order arrives for 100 shares at
$10.01 utilizing a routing strategy that accesses all Protected
Quotations (e.g., ROUT). The sell order will not be routed and will
be posted and displayed at $10.04 or cancelled according to the
User's instructions.
If the Lower Price Band moves up after the initial re-price to
$10.06 by $10.16, the order will be re-priced to display at $10.06.
If the Lower Price Band moves down after the initial re-price to
$10.03 by $10.13, the order will be re-priced to display at $10.03.
Example 2: Sell Limit Order that does not access all Protected
Quotations
Assume the NBBO is $10.02 by $10.10 and the Price Bands are
$10.04 by $10.15. A routable sell order arrives for 100 shares at
$10.01 utilizing a routing strategy that does not access all
Protected Quotations (e.g., ROUZ). The sell order will not be routed
and will instead be posted and displayed at $10.04 or cancelled
according to the User's instructions.
If the Lower Price Band moves up to $10.06 by $10.16 after the
initial re-price, the order will be re-priced and displayed at
$10.06. If the Lower Price Band moves down to $10.03 by $10.13 after
the initial re-price, the order will be re-priced and displayed at
$10.04, the original price at which it was posted to the EDGX Book.
Re-Routing Behavior
The second major subsection, proposed Rule 11.9(b)(1)(B)(ii), would
describe how re-routing will function under the Plan and would state
that, for routing strategies that access all Protected Quotations, when
the Upper (Lower) Price Band adjusts such that the NBO (NBB) becomes
executable, a routable buy (sell) market or marketable limit order will
be eligible to be re-routed by the Exchange.
Example 1: Routing Buy Order when NBO Becomes Executable
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.94 by $10.09. A routable buy market order arrives for 100 shares
utilizing a routing strategy that accesses all Protected Quotations
(e.g., ROUT).\24\ The buy order will not be routed and will instead
be posted and displayed at $10.09. The Price Bands change to $9.95
by $10.10. The order will be routed since the NBO is now executable.
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\24\ If, for example, a routing strategy that does not access
all Protected Quotations, such as ROUZ, is elected by the User, the
order is not re-routed and remains posted on the EDGX Book.
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Example 2: Routing Sell Order when NBB Becomes Executable
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$10.05 by $10.15. A routable sell order arrives for 100 shares at
$9.99 utilizing a routing strategy that accesses all Protected
Quotations (e.g., ROUT). The sell order will be re-priced and
displayed at $10.05. The Price Bands then change to $9.98 by $10.10.
The sell order will be routed since the NBB is now executable.
Behavior of Orders Utilizing SWP Routing Strategies
The third and final major subsection, Rule 11.9(b)(1)(B)(iii),
would describe how orders utilizing routing strategies SWPA, SWPB and
SWPC \25\ (together, ``SWP routing strategies'') will function under
the Plan and would state that the System will immediately cancel orders
utilizing a SWP routing strategy when an order to buy utilizing an SWP
routing strategy has a limit price that is greater than the Upper Price
Band or if a sell order utilizing an SWP routing strategy has a limit
price that is less than the Lower Price Band. The following examples
illustrate how an order utilizing a SWP routing strategy (an ``SWP
order'') would behave in accordance with the Plan:
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\25\ Rules 11.9(b)(3)(o), (p) and (q) define SWPA, SWPB and SWPC
routing strategies, respectively.
Example 1: Buy SWP Limit Price Crosses the Upper Price Band
(Price Band Inside the NBBO)
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$10.00 by $10.08. A SWP order is placed to buy 100 shares at $10.10.
The order is rejected immediately because its $10.10 limit price
crosses the Upper Price Band.
Example 2: Buy SWP Limit Price Crosses the Upper Price Band
(Price Band Outside the NBBO)
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.11. A SWP order is placed to buy 100 shares at $10.12.
The order is rejected immediately because its $10.12 limit price
crosses the Upper Price Band.
Example 3: Buy SWP Limit Price is the same as the price of the
Upper Price Band (Price Band Outside the NBBO)
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.11. A SWP order is placed to buy 100 shares at $10.11.
The order is executed and ISOs can be routed out since the limit of
$10.11 is equal to the Upper Price Band.
Miscellaneous Organizational Amendments to Rule 11.9
The Exchange proposes to add Rule 11.9(a)(1) (Compliance with
Regulation SHO), which would contain unchanged text from current Rule
11.9(a) relevant to compliance with Regulation SHO. The Exchange
proposes to add Rule 11.9(a)(2) (Compliance with Regulation NMS), which
would contain unchanged text from current Rule 11.9(a) relevant to
compliance with Regulation NMS. The Exchange proposes to re-number
current Rule 11.9(a)(1) (Execution against EDGX Book) to new Rule
11.9(a)(4). The text of the rule would remain unchanged.
The Exchange proposes to rename current Rule 11.9(b) (Execution and
Routing) to Rule 11.9(b) (Routing). The Exchange proposes to add Rule
11.9(b)(1), which would contain text in current Rule 11.9(b)(2) with
regard to routing to away trading centers. The text of the rule will
remain unchanged aside from updated cross references. The Exchange also
proposes to add Rule 11.9(b)(1)(A), which would contain unchanged text
in current Rule 11.9(b)(2) relevant to Regulation SHO. The Exchange
proposes to add new Rules 11.9(b)(1)(C) and (D), which would contain
the unchanged text of current Rules 11.9(b)(2)(A) and (B),
respectively. Lastly, the Exchange proposes to re-number current Rule
11.9(b)(3) to new Rule 11.9(b)(2). The text of the rule will remain
unchanged.
Orders and Modifiers (Rule 11.5)
The Exchange proposes to amend cross references in Rules
11.5(a)(2), 11.5(c)(4)-(10), and 11.5(d)(1) in response to the re-
numbering of subsections within Rule 11.9, as discussed in detail
above.
Mid-Point Match Orders
The Exchange proposes to amend Rule 11.5(c)(7) to describe the
behavior of Mid-Point Match (``MPM'') Orders \26\ under the Plan.
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\26\ As defined in Rule 11.5(c)(7).
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The Exchange believes that, when a Protected Quotation \27\ is
crossed by the Price Bands and all Trading Centers have not yet
replaced their quotes to re-align them with the Price Bands, the
integrity of the NBBO is compromised. In such circumstances, the
Exchange believes that it is fair and reasonable to shut down all
midpoint trading until the Protected Quotation(s) is(are) no longer
crossed by the Price Bands.
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\27\ As defined in Rule 11.5(v).
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In addition, pursuant to Rule 11.9(a)(3), MPM Orders will not trade
with any other orders when the midpoint of the NBBO is below the Lower
Price Band or above the Upper Price Band since MPM Orders only execute
at the midpoint of the NBBO. MPM Orders will continue to execute at the
midpoint of the NBBO as long as the execution price is between the
Lower and Upper Price Bands.
Example 1: MPM Order Does Not Trade when Upper Price Band
Crosses Protected Bids from other Exchanges
Assume the NBBO is $10.00 by $10.01 and the Price Bands are
$9.02 by $10.02. The best bids are $10.00 at NYSE, $10.00 at BATS
and $9.95 at ARCA. Order1 is placed to Sell 100 shares at $9.95 as a
MPM Order. The Price Bands then change to $8.99 by $9.99 and the
NBBO changes to $9.95 by $10.01 (BATS and
[[Page 14385]]
NYSE's best bids are excluded from the NBBO by the SIP and neither
exchange has yet submitted new quotes to the SIP). Order2 is placed
to buy 100 shares at $9.99. Order2 does not trade with Order1 and
remains posted on the EDGX Book at $9.99.
Example 2: MPM Orders Cannot Trade when the Price Band is
Crossing the Midpoint of the NBBO
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$10.00 by $10.04. A MPM Order is placed to buy 100 shares at $11.00
and posted at $10.05. A MPM Order is placed to sell 100 shares at
$10.00. The MPM Orders cannot trade at $10.05 because the Upper
Price Band is crossing the midpoint of the NBBO. Both orders will
remain posted on the EDGX Book at $10.05. No execution will occur
between the orders until the Upper Price Band no longer crosses the
midpoint of the NBBO.
Priority of Orders (Rule 11.8)
The Exchange proposes to add new Rule 11.8(a)(8), which would state
that when a Price Band crosses an order resting on the EDGX Book, such
order will be provided a new time stamp \28\ and prioritized based on
its existing time stamp at the time the new Price Bands are
established. Furthermore, if an order is resting on the Book at a price
equal to the Upper (Lower) Price Band, such order will not be re-
priced, but will be provided a new time stamp and prioritized based on
its existing time stamp at the time the new Price Bands are
established.
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\28\ A new time stamp enables the Exchange's System to record
every time an order is re-priced.
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The Exchange views this method of retaining priority based on time
as being the method that is most fair to its Members and subject to the
least amount of manipulation. The Exchange believes that time priority
is a superior approach to price priority because under a time priority
approach, it would be more difficult for certain Members to price their
orders on the EDGA Book in a way that gives them a potential priority
advantage when such orders are subsequently re-priced by a Price Band
crossing the price at which such orders reside on the Book.
The following examples demonstrate how order priority will be
affected by the Plan.
Example 1: Price Band Crosses Orders Resting on the EDGX Book
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.15. Two orders are placed: Order1 arrives to buy 100
shares at $10.05 and then Order2 arrives to buy 100 shares at
$10.08. The Price Bands change to $9.95 by $10.05 and Order2 is re-
priced to $10.05 as a result of the adjustment of the Upper Price
Band. Order3 is then placed to sell 100 shares at $10.05. Order1
will trade with Order3. Initially, Order2 will have price priority
while the Price Bands are outside of the NBBO. However, after the
Price Bands adjust, Order1 will have priority based on its existing
time stamp at the time the new Price Bands were established.
Example 2: Price Band Crosses Orders Resting on the EDGX Book
Assume the NBBO is $10.00 by $10.10 and the Price Bands are
$9.95 by $10.15. Two orders are placed: Order1 arrives to buy 100
shares at $10.08 and then Order2 arrives to buy 100 shares at
$10.05. The Price Bands change to $9.95 by $10.05 and Order1 is re-
priced to $10.05 as a result of the adjustment of the Upper Price
Band. Order3 is then placed to sell 100 shares at $10.05. Order1
will trade with Order3 because it retains its priority based on its
existing time stamp at the time the new Price Bands were
established. When the Price Bands adjusted, both Order1 and Order2
obtained new time stamps and retained priority based on the time
stamps that existed relative to one another at the time the new
Price Bands were established.
Definitions (Rule 1.5)
The Exchange proposes to add new Rule 1.5(gg), which would define
the term the ``Plan'' to mean The National Market System Plan to
Address Extraordinary Market Volatility as well as state that a number
of terms used in the Rules and related to the Plan shall have the
definitions and meanings ascribed to them under the Plan.
Trading Halts Due to Extraordinary Market Volatility (Rule 11.14)
The Exchange proposes to amend Rule 11.14(d) (individual stock
trading pauses) to explain how the rule will operate during the phased
implementation of the Plan. Currently, under Rule 11.14(d), if a
primary listing market issues an individual stock trading pause in any
NMS stock, the Exchange will pause trading in that security until
trading has resumed on the primary listing market. If, however, trading
has not resumed on the primary listing market and ten minutes have
passed since the individual stock trading pause message has been
received from the responsible single plan processor, the Exchange may
resume trading in such stock. During Phase 1 of the Plan, an individual
stock trading pause in Tier 1 NMS Stocks that are subject to the
requirements of the Plan shall be subject to the Plan. Tier 1 NMS
Stocks not yet subject to the requirements of the Plan and Tier 2 NMS
Stocks shall be subject to the requirements set forth in paragraph (d)
of Rule 11.14. Once the Plan has been fully implemented and all NMS
stocks are subject to the Plan, Rule 11.14(d) will no longer apply.
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\29\ which requires the rules of an exchange to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, to protect investors and the public interest. The
Exchange believes that the proposed rule change meets these
requirements in that it seeks to promote the efficient execution of
investor transactions, and thus strengthen investor confidence, over
the long term by providing additional transparency regarding the order
handling procedures employed by the Exchange and certain obligations of
Members when sending orders to the Exchange consistent with the Plan.
The Exchange also believes that the proposed amendments to Rules 11.8
and 11.9 will assist Users in executing or displaying their orders
consistent with the Plan, especially under fast moving conditions where
the Price Bands and NBBO are quickly updating. In addition, Users can
choose to use an IOC Order or opt out of certain default re-pricing
processes, as described in proposed Rules 11.9(b)(3) and
11.9(b)(1)(B)(i)(I-II), that re-price a buy (sell) order to the price
of the Upper (Lower) Price Band. If Users choose to do so, the Exchange
will instead cancel their orders instead as per User instructions.
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\29\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
its rules are comparable, in part, with re-pricing and cancellation
processes offered by other exchanges in response to the Plan. The
Exchange also believes that there is no impact on competition as
analogous rule changes are being filed by all Participants to the Plan
and the Plan itself was developed and jointly filed by all Participants
in the first instance.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
[[Page 14386]]
19(b)(3)(A)(iii) of the Act \30\ and Rule 19b-4(f)(6) thereunder.\31\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\30\ 15 U.S.C. 78s(b)(3)(A)(iii).
\31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) of the Act \32\ to determine whether the proposed
rule change should be approved or disapproved.
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\32\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-EDGX-2013-08 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-EDGX-2013-08. 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-EDGX-2013-08 and should be
submitted on or before March 26, 2013.
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\33\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05004 Filed 3-4-13; 8:45 am]
BILLING CODE 8011-01-P
