Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rule 11.5(c), NBBO Offset Peg Order, 40227-40230 [2013-15912]

Download as PDF Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices as a facility of EDGA, which are enumerated above. The Commission believes that these conditions mitigate its concerns about potential conflicts of interest and unfair competitive advantage. In particular, the Commission believes that a nonaffiliated SRO’s oversight of DE Route,21 combined with a non-affiliated SRO’s monitoring of DE Route’s compliance with the Exchange’s rules and quarterly reporting to the Exchange, will help to protect the independence of the Exchange’s regulatory responsibilities with respect to DE Route. The Commission also believes that the Exchange’s Rule 2.12(a)(3) is designed to ensure that DE Route cannot use any information advantage it may have because of its affiliation with the Exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,22 that the proposed rule change (SR–EDGX–2013– 17) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–15914 Filed 7–2–13; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–69875; File No. SR–EDGX– 2013–23] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend EDGX Rule 11.5(c), NBBO Offset Peg Order emcdonald on DSK67QTVN1PROD with NOTICES June 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 June 24, 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 oversight will be accomplished through a 17d–2 Agreement. See Approval Order, 75 FR at 13165; and Notice, 78 FR at 31995. 22 15 U.S.C. 78s(b)(2). 23 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Mar<15>2010 17:48 Jul 02, 2013 Jkt 229001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 11.5(c), which describes the manner in which the NBBO Offset Peg Order operates. 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, and at the Public Reference Room of 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 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 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 Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 21 This solicit comments on the proposed rule change from interested persons. 1. Purpose The Exchange proposes to amend Rule 11.5(c)(15), the NBBO Offset Peg Order, to state that the order type will: (1) Only be eligible for execution once the Market Maker quoting obligations under Rule 11.21(d) are triggered; (2) not be repriced when it would establish the National Best Bid or Offer (‘‘NBBO’’); and (3) delay the implementation date of the order type [sic] from April 15, 2013 to no later than October 31, 2013. On September 25, 2012, the Exchange filed for immediate effectiveness a proposed rule change to adopt the NBBO Offset Peg Order.3 The NBBO Offset Peg Order will enable Users 4 to submit buy and sell orders to the Exchange that are pegged to a designated percentage away from the 3 See Securities Exchange Act Release No. 67959 (October 2, 2012), 77 FR 61449 (October 9, 2012) (SR–EDGX–2012–44) (notice of filing and immediate effectiveness of the proposal to adopt the NBBO Offset Peg Order) (‘‘EDGX Adopting Release’’). 4 ‘‘User’’ is defined as ‘‘any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3.’’ EDGX Rule 1.5(ee). PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 40227 NBB and NBO, respectively, while providing them full control over order origination and order marking.5 This retention of control, in turn, is designed to allow Market Makers 6 to comply independently with the requirements of Regulation SHO 7 under the Act and Rule 15c3–5 8 under the Act (the ‘‘Market Access Rule’’). The Exchange subsequently amended the text of Rule 11.5(c)(15) to remove the ability of Users to cancel or reject NBBO Offset Peg Orders under certain circumstances.9 When is a NBBO offset peg order eligible for execution? First, the Exchange proposes that the NBBO Offset Peg Order will only be eligible for execution once the Market Maker quoting obligations under Rule 11.21(d) are triggered. Currently, Rule 11.5(c)(15) allows Users to submit NBBO Offset Peg Orders at the beginning of the Pre-Opening Session,10 but states that the order is not executable or automatically priced until the beginning of Regular Trading Hours.11 However, a Market Maker’s quoting obligations under Rule 11.21(d) do not commence during any trading day until after the first regular way transaction on the primary listing market in the security as reported by the responsible single plan processor.12 Such a transaction may not occur until after the start of Regular Trading Hours. Therefore, the Exchange proposes to amend the text of Rule 11.5(c)(15) to state that an NBBO Offset Peg Order is not executable until after the first regular way transaction on the primary listing market in the security, as reported by the responsible single plan 5 See EDGX Rule 11.5(c)(15). Maker’’ is defined as ‘‘a Member that acts as a Market Maker pursuant to Chapter XI.’’ EDGX Rule 1.5(l). 7 17 CFR 242.200 through 242.204. 8 17 CFR 242.15c3–5. 9 See Securities Exchange Act Release No. 68596 (January 7, 2013), 78 FR 2477 (January 11, 2013) (SR–EDGX–2012–49) (notice of filing and immediate effectiveness). 10 ‘‘Pre-Opening Session’’ is defined as ‘‘the time between 8:00 a.m. and 9:30 a.m. Eastern Time.’’ EDGX Rule 1.5(s). 11 ‘‘Regular Trading Hours’’ is defined as ‘‘the time between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ EDGX Rule 1.5(y). 12 Under Exchange Rule 11.21(d)(2), the pricing obligations for Market Makers ‘‘(i) shall not commence during any trading day until after the first regular way transaction on the primary listing market in the security, as reported by the responsible single plan processor, and (ii) shall be suspended during a trading halt, suspension, or pause, and shall not re-commence until after the first regular way transaction on the primary listing market in the security following such halt, suspension, or pause, as reported by the responsible single plan processor.’’ Securities Exchange Act Release No. 65964 (December 15, 2011), 76 FR 79254 (December 21, 2011) (order approving SR– EDGX–2011–28). 6 ‘‘Market E:\FR\FM\03JYN1.SGM 03JYN1 40228 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices processor, rather than the beginning of Regular Trading Hours. Accordingly, the amended text would read as follows: Users may submit NBBO Offset Peg Orders to the Exchange starting at the beginning of the Pre-Opening Session, but the order is not executable or automatically priced until after the first regular way transaction on the primary listing market in the security, as reported by the responsible single plan processor and expires at the end of Regular Trading Hours (emphasis added). The Exchange believes that the proposed amendment is necessary because it clarifies that the NBBO Offset Peg Order would only be eligible for execution once the quoting obligations for Market Makers apply. While use of the NBBO Offset Peg Order would not be limited to Market Makers, the Exchange believes that Market Makers would likely be the predominant, if not exclusive, users of the order type. Thus, the NBBO Offset Peg Order is designed such that its price would be automatically set and adjusted, both upon entry and at any time thereafter, in order to comply with the Exchange’s Market Maker quotation requirements.13 Repricing When NBBO Offset Peg Order Establishes NBBO Second, the Exchange proposes to amend Rule 11.5(c)(15) to make clear that a NBBO Offset Peg Order will not use its own pegged price as the basis for adjusting the order’s price. Where there is no NBBO and a NBBO Offset Peg Order, whether upon entry or already on the EDGX Book,14 is pegged to the last reported sale from the single plan processor, the NBBO Offset Peg Order will be reported to the responsible securities information processors and will be disseminated to the Exchange as the NBBO. The Exchange proposes that if after entry, the NBBO Offset Peg Order is priced based on the consolidated last sale and such NBBO Offset Peg Order establishes the NBBO, the NBBO Offset Peg Order will not be subsequently adjusted in accordance with the proposed rule until either there is a new consolidated last sale, or a new NBB or NBO is established by a national securities exchange. The Exchange believes that not adjusting the price in this instance is consistent with the intent of the NBBO Offset Peg Order emcdonald on DSK67QTVN1PROD with NOTICES 13 Exchange Rule 11.21 describes the obligations of Members registered with the Exchange as Market Makers. Among other things, Market Makers are required to maintain continuous, two-sided quotations consistent with the requirements of paragraph (d) of Rule 11.21, which generally states that such quotations must be priced within a designated percentage of the NBB for buy quotations, and the NBO for sell quotations. 14 ‘‘EDGX Book’’ is defined as ‘‘the System’s electronic file of orders.’’ EDGX Rule 1.5(d). VerDate Mar<15>2010 17:48 Jul 02, 2013 Jkt 229001 (i.e., keeping the order a certain percentage away from the inside market) while also avoiding a situation where the order would use its own pegged price as a basis for adjusting the price of the order. The Exchange notes that the proposal amends the functionality of the NBBO Offset Peg Order to more closely resemble analogous order types offered by The NASDAQ Stock Market LLC (‘‘Nasdaq’’),15 BATS Exchange, Inc. (‘‘BATS’’),16 and BATS Y-Exchange, Inc. (‘‘BYX’’).17 Implementation Date Delay The Exchange originally proposed to implement the NBBO Offset Peg Order on or about November 19, 2012 18 and later delayed the implementation date to on or about April 15, 2013.19 The Exchange now proposes to further delay the implementation date to no later than October 31, 2013. The Exchange anticipates uniform industry-wide amendments to the market making quoting requirements’ Designated Percentages 20 and Defined Limits 21 to realign the percentages based on the Appendix A Percentage Parameters of 15 See NASDAQ Rule 4751(f)(15). See also Securities Exchange Act Release No. 67584 (August 2, 2012), 77 FR 47472 (August 8, 2012) (SR– NASDAQ–2012–066) (order approving Nasdaq’s Market Maker Peg Order available for exchange market makers) (‘‘Nasdaq Approval Order’’). 16 See BATS Rule 11.9(c)(16). See also Securities Exchange Act Release No. 67756 (August 29, 2012), 77 FR 54633 (September 5, 2012) (SR–BATS–2012– 026) (order approving BATS’s Market Maker Peg Order available for exchange market makers) (‘‘BATS Approval Order’’); and Securities Exchange Release No. 69310 (April 4, 2013), 78 FR 21447 (April 10, 2013) (SR–BATS–2013–022) (notice of filing and immediate effectiveness to amend BATS’ Market Maker Peg Order). 17 See BYX Rule 11.9(c)(16). See also Securities Exchange Act Release No. 67755 (August 29, 2012), 77 FR 54630 (September 5, 2012) (SR–BYX–2012– 012) (order approving BYX’s Market Maker Peg Order available for exchange market makers) (‘‘BYX Approval Order’’); and Securities Exchange Act Release No. 69309 (April 4, 2013), 78 FR 21455 (April 10, 2013) (SR–BYX–2013–011) (notice of filing and immediate effectiveness to amend the BYX Market Maker Peg Order). 18 See EDGX Adopting Release, supra note 3. 19 See Securities Exchange Act Release No. 68596, supra note 9. 20 ‘‘Designated Percentage’’ is defined as ‘‘8% with respect to securities included in the S&P 500® Index and the Russell 1000® Index, as well as a pilot list of Exchange Traded Products for securities subject to an individual stock pause trigger under the applicable rules of a primary listing market (‘‘Original Circuit Breaker Securities’’). For times during Regular Trading Hours when stock pause triggers are not in effect under the rules of the primary listing market, the Designated Percentage shall be 20% for Original Circuit Breaker Securities.’’ EDGX Rule 11.21(d)(2)(D). 21 ’’Defined Limit’’ is defined as ‘‘9.5% for Original Circuit Breaker Securities. For times during Regular Trading Hours when stock pause triggers are not in effect under the rules of the primary listing market, the Defined Limit shall be 21.5% for Original Circuit Breaker Securities.’’ EDGX Rule 11.21(d)(2)(F). PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 the National Market System Plan to Address Extraordinary Market Volatility (the ‘‘Limit-Up/Limit-Down Plan’’).22 This additional time will enable the Exchange to make the necessary system changes to implement the NBBO Offset Peg Order to accommodate those amendments. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 23 and furthers the objectives of Section 6(b)(5) of the Act,24 in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanisms 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 proposing that the order type will only be eligible for execution once the Market Maker quoting obligations under Rule 11.21(d) are triggered makes the order type consistent with when market making obligations begin 25 and therefore, simplifies its functionality. While use of the NBBO Offset Peg Order would not be limited to Market Makers, the Exchange believes that Market Makers would likely be the predominant, if not exclusive, users of the order type. Thus, the NBBO Offset Peg Order is designed such that its price would be automatically set and adjusted, both upon entry and at any time thereafter, in order to comply with the Exchange’s Market Maker quotation requirements.26 Therefore, the Exchange believes the proposed rule change is designed to promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in facilitating transactions in securities, and remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, protect investors and the public interest. The Exchange also believes that the proposed amendment removes impediments to and perfects the 22 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (approving the Limit-Up/Limit-Down Plan on a pilot basis). 23 15 U.S.C. 78f(b). 24 15 U.S.C. 78f(b)(5). 25 The Exchange notes while use of the NBBO Offset Peg Order would not be limited to Market Makers that Market Makers would likely be the predominant, if not exclusive, users of the order type. 26 EDGX Rule 11.21(d)(2). E:\FR\FM\03JYN1.SGM 03JYN1 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices mechanisms of a free and open market and a national market system because it clarifies that a NBBO Offset Peg Order will not use its own pegged price as the basis for adjusting the order’s price. The Exchange notes that the proposed clarification is substantially similar to that for similar order types (Market Maker Peg Orders) on Nasdaq, BATS, and BYX.27 Further, clarifying when a NBBO Offset Peg Order would not be repriced to align with the functionality of similar order types on other exchanges fosters cooperation and coordination with persons engaged in facilitating transactions in securities, and removes impediments to a free and open market and a national market system because it will result in a continuing benefit to market participants by simplifying the functionality of the order type and its complexity of implementation. Lastly, the Exchange believes that the delay of the implementation date is also consistent with Section 6(b)(5) of the Act 28 because it is designed to coordinate the implementation of the NBBO Offset Peg Order with anticipated changes to market making quoting requirements in response to the LimitUp/Limit-Down Plan. Thus, the Exchange believes that the proposed rule change promotes the efficient execution of investor transactions, and thus investor confidence, over the long term. emcdonald on DSK67QTVN1PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change would increase intermarket competition among the exchanges because the NBBO Offset Peg Order will directly compete with similar existing order types offered by Nasdaq, BATS and BYX.29 Amending Rule 11.5(c)(15), to clarify that the NBBO Offset Peg Order will not use its own pegged price as the basis for adjusting the order’s price is similar to the functionality of the Market Maker Peg Order on Nasdaq, BATS, and BYX; 30 and, therefore, reduces the potential for confusion amongst market participants. In addition, the Exchange believes 27 Nasdaq Rule 4751(f)(15); BATS Rule 11.9(c)(16); BYX Rule 11.9(c)(16). The Exchange has previously noted that such Market Maker Peg Orders are similar in functionality to the NBBO Offset Peg Order. See EDGX Adopting Release, supra note 3. 28 15 U.S.C. 78f(b)(5). 29 Nasdaq Rule 4751(f)(15); BATS Rule 11.9(c)(16); BYX Rule 11.9(c)(16). 30 Id. VerDate Mar<15>2010 17:48 Jul 02, 2013 Jkt 229001 proposing that the NBBO Offset Order will only be eligible for execution once its Market Maker quoting obligations under Rule 11.21(d) are triggered simplifies the functionality and corresponding complexity of implementation. The proposed rule change would not burden intramarket competition because the NBBO Offset Peg Order would be available to all Members 31 on a uniform basis. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 32 and Rule 19b– 4(f)(6) 33 thereunder. At any time within sixty (60) days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 34 of the Act 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 31 ‘‘Member’’ is defined as ‘‘any registered broker or dealer, or any person associated with a registered broker or dealer, that has been admitted to membership in the Exchange. A Member will have the status of a ‘‘member’’ of the Exchange as that term is defined in Section 3(a)(3) of the Act.’’ EDGX Rule 1.5(n). 32 15 U.S.C. 78s(b)(3)(A). 33 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 34 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 40229 arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–EDGX–2013–23 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 Number SR–EDGX–2013–23. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–EDGX– 2013–23 and should be submitted on or before July 24, 2013. E:\FR\FM\03JYN1.SGM 03JYN1 40230 Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.35 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–15912 Filed 7–2–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69867; File No. SR–CBOE– 2013–066] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Extending AIM Pilot Programs June 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 June 26, 2013, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II 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 its rules related to its Automated Improvement Mechanism (‘‘AIM’’). The text of the proposed rule change is provided below. (Additions are italicized; deletions are [bracketed].) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * emcdonald on DSK67QTVN1PROD with NOTICES Rule 6.74A. Automated Improvement Mechanism (‘‘AIM’’) Notwithstanding the provisions of Rule 6.74, a Trading Permit Holder that represents agency orders may electronically execute an order it represents as agent (‘‘Agency Order’’) against principal interest or against a solicited order provided it submits the Agency Order for electronic execution 35 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 17:48 Jul 02, 2013 Jkt 229001 into the AIM auction (‘‘Auction’’) pursuant to this Rule. (a)–(b) No change. * * * Interpretations and Policies: .01–.02 No change. .03 Initially, and for at least a Pilot Period expiring on July 18, 2014[3], there will be no minimum size requirement for orders to be eligible for the Auction. During this Pilot Period, the Exchange will submit certain data, periodically as required by the Commission, to provide supporting evidence that, among other things, there is meaningful competition for all size orders and that there is an active and liquid market functioning on the Exchange outside of the Auction mechanism. Any data which is submitted to the Commission will be provided on a confidential basis. .04–.05 No change. .06 Subparagraph (b)(2)(E) of this rule will be effective for a Pilot Period until July 18, 2014[3]. During the Pilot Period, the Exchange will submit certain data, periodically as required by the Commission, relating to the frequency with which early termination of the Auction occurs pursuant to this provision as well as any other provision, and also the frequency with which early termination pursuant to this provision results in favorable pricing for the Agency Order. Any data which is submitted to the Commission will be provided on a confidential basis. .07–.08 No change. * * * * * The text of the proposed rule change is available on the Exchange’s Web site (http://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose In February 2006, CBOE obtained approval from the Commission to adopt the AIM auction process.3 AIM exposes certain orders electronically to an auction process to provide these orders with the opportunity to receive an execution at an improved price. The AIM auction is available only for orders that a Trading Permit Holder represents as agent (‘‘Agency Order’’) and for which a second order of the same size as the Agency Order (and on the opposite side of the market) is also submitted (effectively stopping the Agency Order at a given price). The Commission approved two components of AIM on a pilot basis: (1) That there is no minimum size requirement for orders to be eligible for the auction; and (2) that the auction will conclude prematurely anytime there is a quote lock on the Exchange pursuant to Rule 6.45A(d).4 In connection with the pilot programs, the Exchange has submitted to the Commission reports providing detailed AIM auction and order execution data, and the Exchange will continue to submit to the Commission these reports. Seven oneyear extensions to the pilot programs have previously become effective.5 The proposed rule change merely extends the duration of the pilot programs until July 18, 2014. Extending the pilots for an additional year will allow the Commission more time to consider the impact of the pilot programs on AIM order executions. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the 3 See Securities Exchange Release No. 53222 (February 3, 2006), 71 FR 7089 (February 10, 2006) (SR–CBOE–2005–060). 4 A quote lock occurs when a CBOE MarketMaker’s quote interacts with the quote of another CBOE Market-Maker (i.e. when internal quotes lock). 5 See Securities Exchange Act Release Nos. 54147 (July 14, 2006), 71 FR 41487 (July 21, 2006) (SR– CBOE–2006–064); 56094 (July 18, 2007), 72 FR 40910 (July 25, 2007) (SR–CBOE–2007–080); 58196 (July 18, 2008), 73 FR 43803 (July 28, 2008) (SR– CBOE–2008–076) (in this filing, the Exchange agreed to provide to the Commission additional information relating to the AIM auctions each month in order to aid the Commission in its evaluation of the pilot program, which the Exchange will continue to do); 60338 (July 17, 2009), 74 FR 36803 (July 24, 2009) (SR–CBOE– 2009–051); 62522 (July 16, 2010), 75 FR 43596 (July 26, 2010) (SR–CBOE–2010–067); 64930 (July 20, 2011), 76 FR 44636 (July 26, 2011) (SR–CBOE– 2011–066); and 67302 (June 28, 2012), 77 FR 39779 (July 5, 2012) (SR–CBOE–2012–061). E:\FR\FM\03JYN1.SGM 03JYN1

Agencies

[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40227-40230]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15912]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69875; File No. SR-EDGX-2013-23]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
EDGX Rule 11.5(c), NBBO Offset Peg Order

June 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 June 24, 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 Rule 11.5(c), which describes the 
manner in which the NBBO Offset Peg Order operates. 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, and at the 
Public Reference Room of 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 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 
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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 11.5(c)(15), the NBBO Offset 
Peg Order, to state that the order type will: (1) Only be eligible for 
execution once the Market Maker quoting obligations under Rule 11.21(d) 
are triggered; (2) not be repriced when it would establish the National 
Best Bid or Offer (``NBBO''); and (3) delay the implementation date of 
the order type [sic] from April 15, 2013 to no later than October 31, 
2013.
    On September 25, 2012, the Exchange filed for immediate 
effectiveness a proposed rule change to adopt the NBBO Offset Peg 
Order.\3\ The NBBO Offset Peg Order will enable Users \4\ to submit buy 
and sell orders to the Exchange that are pegged to a designated 
percentage away from the NBB and NBO, respectively, while providing 
them full control over order origination and order marking.\5\ This 
retention of control, in turn, is designed to allow Market Makers \6\ 
to comply independently with the requirements of Regulation SHO \7\ 
under the Act and Rule 15c3-5 \8\ under the Act (the ``Market Access 
Rule''). The Exchange subsequently amended the text of Rule 11.5(c)(15) 
to remove the ability of Users to cancel or reject NBBO Offset Peg 
Orders under certain circumstances.\9\
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    \3\ See Securities Exchange Act Release No. 67959 (October 2, 
2012), 77 FR 61449 (October 9, 2012) (SR-EDGX-2012-44) (notice of 
filing and immediate effectiveness of the proposal to adopt the NBBO 
Offset Peg Order) (``EDGX Adopting Release'').
    \4\ ``User'' is defined as ``any Member or Sponsored Participant 
who is authorized to obtain access to the System pursuant to Rule 
11.3.'' EDGX Rule 1.5(ee).
    \5\ See EDGX Rule 11.5(c)(15).
    \6\ ``Market Maker'' is defined as ``a Member that acts as a 
Market Maker pursuant to Chapter XI.'' EDGX Rule 1.5(l).
    \7\ 17 CFR 242.200 through 242.204.
    \8\ 17 CFR 242.15c3-5.
    \9\ See Securities Exchange Act Release No. 68596 (January 7, 
2013), 78 FR 2477 (January 11, 2013) (SR-EDGX-2012-49) (notice of 
filing and immediate effectiveness).
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    When is a NBBO offset peg order eligible for execution?
    First, the Exchange proposes that the NBBO Offset Peg Order will 
only be eligible for execution once the Market Maker quoting 
obligations under Rule 11.21(d) are triggered. Currently, Rule 
11.5(c)(15) allows Users to submit NBBO Offset Peg Orders at the 
beginning of the Pre-Opening Session,\10\ but states that the order is 
not executable or automatically priced until the beginning of Regular 
Trading Hours.\11\ However, a Market Maker's quoting obligations under 
Rule 11.21(d) do not commence during any trading day until after the 
first regular way transaction on the primary listing market in the 
security as reported by the responsible single plan processor.\12\ Such 
a transaction may not occur until after the start of Regular Trading 
Hours. Therefore, the Exchange proposes to amend the text of Rule 
11.5(c)(15) to state that an NBBO Offset Peg Order is not executable 
until after the first regular way transaction on the primary listing 
market in the security, as reported by the responsible single plan

[[Page 40228]]

processor, rather than the beginning of Regular Trading Hours. 
Accordingly, the amended text would read as follows:
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    \10\ ``Pre-Opening Session'' is defined as ``the time between 
8:00 a.m. and 9:30 a.m. Eastern Time.'' EDGX Rule 1.5(s).
    \11\ ``Regular Trading Hours'' is defined as ``the time between 
9:30 a.m. and 4:00 p.m. Eastern Time.'' EDGX Rule 1.5(y).
    \12\ Under Exchange Rule 11.21(d)(2), the pricing obligations 
for Market Makers ``(i) shall not commence during any trading day 
until after the first regular way transaction on the primary listing 
market in the security, as reported by the responsible single plan 
processor, and (ii) shall be suspended during a trading halt, 
suspension, or pause, and shall not re-commence until after the 
first regular way transaction on the primary listing market in the 
security following such halt, suspension, or pause, as reported by 
the responsible single plan processor.'' Securities Exchange Act 
Release No. 65964 (December 15, 2011), 76 FR 79254 (December 21, 
2011) (order approving SR-EDGX-2011-28).

    Users may submit NBBO Offset Peg Orders to the Exchange starting 
at the beginning of the Pre-Opening Session, but the order is not 
executable or automatically priced until after the first regular way 
transaction on the primary listing market in the security, as 
reported by the responsible single plan processor and expires at the 
---------------------------------------------------------------------------
end of Regular Trading Hours (emphasis added).

    The Exchange believes that the proposed amendment is necessary 
because it clarifies that the NBBO Offset Peg Order would only be 
eligible for execution once the quoting obligations for Market Makers 
apply. While use of the NBBO Offset Peg Order would not be limited to 
Market Makers, the Exchange believes that Market Makers would likely be 
the predominant, if not exclusive, users of the order type. Thus, the 
NBBO Offset Peg Order is designed such that its price would be 
automatically set and adjusted, both upon entry and at any time 
thereafter, in order to comply with the Exchange's Market Maker 
quotation requirements.\13\
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    \13\ Exchange Rule 11.21 describes the obligations of Members 
registered with the Exchange as Market Makers. Among other things, 
Market Makers are required to maintain continuous, two-sided 
quotations consistent with the requirements of paragraph (d) of Rule 
11.21, which generally states that such quotations must be priced 
within a designated percentage of the NBB for buy quotations, and 
the NBO for sell quotations.
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Repricing When NBBO Offset Peg Order Establishes NBBO
    Second, the Exchange proposes to amend Rule 11.5(c)(15) to make 
clear that a NBBO Offset Peg Order will not use its own pegged price as 
the basis for adjusting the order's price. Where there is no NBBO and a 
NBBO Offset Peg Order, whether upon entry or already on the EDGX 
Book,\14\ is pegged to the last reported sale from the single plan 
processor, the NBBO Offset Peg Order will be reported to the 
responsible securities information processors and will be disseminated 
to the Exchange as the NBBO. The Exchange proposes that if after entry, 
the NBBO Offset Peg Order is priced based on the consolidated last sale 
and such NBBO Offset Peg Order establishes the NBBO, the NBBO Offset 
Peg Order will not be subsequently adjusted in accordance with the 
proposed rule until either there is a new consolidated last sale, or a 
new NBB or NBO is established by a national securities exchange. The 
Exchange believes that not adjusting the price in this instance is 
consistent with the intent of the NBBO Offset Peg Order (i.e., keeping 
the order a certain percentage away from the inside market) while also 
avoiding a situation where the order would use its own pegged price as 
a basis for adjusting the price of the order. The Exchange notes that 
the proposal amends the functionality of the NBBO Offset Peg Order to 
more closely resemble analogous order types offered by The NASDAQ Stock 
Market LLC (``Nasdaq''),\15\ BATS Exchange, Inc. (``BATS''),\16\ and 
BATS Y-Exchange, Inc. (``BYX'').\17\
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    \14\ ``EDGX Book'' is defined as ``the System's electronic file 
of orders.'' EDGX Rule 1.5(d).
    \15\ See NASDAQ Rule 4751(f)(15). See also Securities Exchange 
Act Release No. 67584 (August 2, 2012), 77 FR 47472 (August 8, 2012) 
(SR-NASDAQ-2012-066) (order approving Nasdaq's Market Maker Peg 
Order available for exchange market makers) (``Nasdaq Approval 
Order'').
    \16\ See BATS Rule 11.9(c)(16). See also Securities Exchange Act 
Release No. 67756 (August 29, 2012), 77 FR 54633 (September 5, 2012) 
(SR-BATS-2012-026) (order approving BATS's Market Maker Peg Order 
available for exchange market makers) (``BATS Approval Order''); and 
Securities Exchange Release No. 69310 (April 4, 2013), 78 FR 21447 
(April 10, 2013) (SR-BATS-2013-022) (notice of filing and immediate 
effectiveness to amend BATS' Market Maker Peg Order).
    \17\ See BYX Rule 11.9(c)(16). See also Securities Exchange Act 
Release No. 67755 (August 29, 2012), 77 FR 54630 (September 5, 2012) 
(SR-BYX-2012-012) (order approving BYX's Market Maker Peg Order 
available for exchange market makers) (``BYX Approval Order''); and 
Securities Exchange Act Release No. 69309 (April 4, 2013), 78 FR 
21455 (April 10, 2013) (SR-BYX-2013-011) (notice of filing and 
immediate effectiveness to amend the BYX Market Maker Peg Order).
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Implementation Date Delay
    The Exchange originally proposed to implement the NBBO Offset Peg 
Order on or about November 19, 2012 \18\ and later delayed the 
implementation date to on or about April 15, 2013.\19\ The Exchange now 
proposes to further delay the implementation date to no later than 
October 31, 2013. The Exchange anticipates uniform industry-wide 
amendments to the market making quoting requirements' Designated 
Percentages \20\ and Defined Limits \21\ to realign the percentages 
based on the Appendix A Percentage Parameters of the National Market 
System Plan to Address Extraordinary Market Volatility (the ``Limit-Up/
Limit-Down Plan'').\22\ This additional time will enable the Exchange 
to make the necessary system changes to implement the NBBO Offset Peg 
Order to accommodate those amendments.
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    \18\ See EDGX Adopting Release, supra note 3.
    \19\ See Securities Exchange Act Release No. 68596, supra note 
9.
    \20\ ``Designated Percentage'' is defined as ``8% with respect 
to securities included in the S&P 500[supreg] Index and the Russell 
1000[supreg] Index, as well as a pilot list of Exchange Traded 
Products for securities subject to an individual stock pause trigger 
under the applicable rules of a primary listing market (``Original 
Circuit Breaker Securities''). For times during Regular Trading 
Hours when stock pause triggers are not in effect under the rules of 
the primary listing market, the Designated Percentage shall be 20% 
for Original Circuit Breaker Securities.'' EDGX Rule 11.21(d)(2)(D).
    \21\ ''Defined Limit'' is defined as ``9.5% for Original Circuit 
Breaker Securities. For times during Regular Trading Hours when 
stock pause triggers are not in effect under the rules of the 
primary listing market, the Defined Limit shall be 21.5% for 
Original Circuit Breaker Securities.'' EDGX Rule 11.21(d)(2)(F).
    \22\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (approving the Limit-Up/Limit-Down 
Plan on a pilot basis).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \23\ and furthers the objectives of 
Section 6(b)(5) of the Act,\24\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposing that the order type will only 
be eligible for execution once the Market Maker quoting obligations 
under Rule 11.21(d) are triggered makes the order type consistent with 
when market making obligations begin \25\ and therefore, simplifies its 
functionality. While use of the NBBO Offset Peg Order would not be 
limited to Market Makers, the Exchange believes that Market Makers 
would likely be the predominant, if not exclusive, users of the order 
type. Thus, the NBBO Offset Peg Order is designed such that its price 
would be automatically set and adjusted, both upon entry and at any 
time thereafter, in order to comply with the Exchange's Market Maker 
quotation requirements.\26\ Therefore, the Exchange believes the 
proposed rule change is designed to promote just and equitable 
principles of trade, foster cooperation and coordination with persons 
engaged in facilitating transactions in securities, and remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest.
---------------------------------------------------------------------------

    \25\ The Exchange notes while use of the NBBO Offset Peg Order 
would not be limited to Market Makers that Market Makers would 
likely be the predominant, if not exclusive, users of the order 
type.
    \26\ EDGX Rule 11.21(d)(2).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed amendment removes 
impediments to and perfects the

[[Page 40229]]

mechanisms of a free and open market and a national market system 
because it clarifies that a NBBO Offset Peg Order will not use its own 
pegged price as the basis for adjusting the order's price. The Exchange 
notes that the proposed clarification is substantially similar to that 
for similar order types (Market Maker Peg Orders) on Nasdaq, BATS, and 
BYX.\27\ Further, clarifying when a NBBO Offset Peg Order would not be 
re-priced to align with the functionality of similar order types on 
other exchanges fosters cooperation and coordination with persons 
engaged in facilitating transactions in securities, and removes 
impediments to a free and open market and a national market system 
because it will result in a continuing benefit to market participants 
by simplifying the functionality of the order type and its complexity 
of implementation.
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    \27\ Nasdaq Rule 4751(f)(15); BATS Rule 11.9(c)(16); BYX Rule 
11.9(c)(16). The Exchange has previously noted that such Market 
Maker Peg Orders are similar in functionality to the NBBO Offset Peg 
Order. See EDGX Adopting Release, supra note 3.
---------------------------------------------------------------------------

    Lastly, the Exchange believes that the delay of the implementation 
date is also consistent with Section 6(b)(5) of the Act \28\ because it 
is designed to coordinate the implementation of the NBBO Offset Peg 
Order with anticipated changes to market making quoting requirements in 
response to the Limit-Up/Limit-Down Plan. Thus, the Exchange believes 
that the proposed rule change promotes the efficient execution of 
investor transactions, and thus investor confidence, over the long 
term.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change 
would increase intermarket competition among the exchanges because the 
NBBO Offset Peg Order will directly compete with similar existing order 
types offered by Nasdaq, BATS and BYX.\29\ Amending Rule 11.5(c)(15), 
to clarify that the NBBO Offset Peg Order will not use its own pegged 
price as the basis for adjusting the order's price is similar to the 
functionality of the Market Maker Peg Order on Nasdaq, BATS, and BYX; 
\30\ and, therefore, reduces the potential for confusion amongst market 
participants. In addition, the Exchange believes proposing that the 
NBBO Offset Order will only be eligible for execution once its Market 
Maker quoting obligations under Rule 11.21(d) are triggered simplifies 
the functionality and corresponding complexity of implementation. The 
proposed rule change would not burden intramarket competition because 
the NBBO Offset Peg Order would be available to all Members \31\ on a 
uniform basis.
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    \29\ Nasdaq Rule 4751(f)(15); BATS Rule 11.9(c)(16); BYX Rule 
11.9(c)(16).
    \30\ Id.
    \31\ ``Member'' is defined as ``any registered broker or dealer, 
or any person associated with a registered broker or dealer, that 
has been admitted to membership in the Exchange. A Member will have 
the status of a ``member'' of the Exchange as that term is defined 
in Section 3(a)(3) of the Act.'' EDGX Rule 1.5(n).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b-4(f)(6) 
\33\ thereunder.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within sixty (60) days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2013-23 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 Number SR-EDGX-2013-23. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-EDGX-2013-23 and should be 
submitted on or before July 24, 2013.


[[Page 40230]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15912 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P