Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of Amendment Nos. 1 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 3, To Amend EDGX Rule 1.5 and Chapter XI Regarding Current System Functionality Including the Operation of Order Types and Order Instructions, 65450-65463 [2014-26127]

Download as PDF 65450 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices of the Act 8 and paragraph (f) of Rule 19b–4 thereunder.9 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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: rmajette on DSK3VPTVN1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BATS–2014–053 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BATS–2014–053. 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 8 15 9 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BATS– 2014–053, and should be submitted on or before November 25, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–26123 Filed 11–3–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73468; File No. SR–EDGX– 2014–18] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of Amendment Nos. 1 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 3, To Amend EDGX Rule 1.5 and Chapter XI Regarding Current System Functionality Including the Operation of Order Types and Order Instructions October 29, 2014. I. Introduction On July 16, 2014, EDGX Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Rule 1.5 and Chapter XI of its rule book relating to the operation of order types and order instructions on the Exchange, trading sessions and openings and re-openings. The proposed rule change was published for comment in the Federal Register on July 31, 2014.3 On September 11, 2014, the Commission extended the time period for Commission action on the proposal to October 29, 2014.4 The Commission received three comment letters from the same commenter on the proposed rule change,5 as well as a letter from the 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 72676 (July 25, 2014), 79 FR 44520 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 73083 (September 11, 2014), 79 FR 55850 (September 17, 2014). 5 See Letters from Suzanne H. Shatto to Secretary, Commission, dated August 19, 2014 (‘‘Shatto Letter I’’), September 18, 2014 (‘‘Shatto Letter II’’) and September 22, 2014 (‘‘Shatto Letter III’’). The Commission believes that the comments raise 1 15 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 Exchange regarding the first comment letter.6 On October 14, 2014, the Exchange filed Amendment No. 1 to the proposed rule change.7 On October 17, 2014, the Exchange filed Amendment No. 2 to the proposed rule change, which was later withdrawn.8 On October 17, 2014, the Exchange filed Amendment No. 3 to the proposed rule change.9 The Commission is publishing this Notice and Order to solicit comment on Amendment Nos. 1 and 3 and to approve the proposed rule change, as modified by Amendment Nos. 1 and 3, on an accelerated basis. II. Background The proposed rule change, as described in more detail below and in the Notice, amends Rule 1.5 and general market structure issues that are beyond the scope of the proposed rule change. 6 See Letter from Eric Swanson, EVP and General Counsel, DirectEdge, to Secretary, Commission, dated September 12, 2014 (‘‘Exchange Letter’’). According to the Exchange, Shatto Letter I did not raise issues germane to the instant proposed rule change, and therefore the Exchange is not responding to the comments. 7 In Amendment No. 1, the Exchange: (1) Removed the proposed rule text related to Single Re-Price and Short Sale Single Re-Price instructions to indicate that the Exchange will no longer offer such functionality; (2) added language to the Post Only instruction definition to provide that the highest possible rebate paid and the highest possible fee will be used to determine whether an order with a Post Only instruction will execute against orders on the EDGX Book; (3) added rationale to the statutory basis section for suspending the discretion of an order with a Hide Not Slide instruction to execute at the Locking Price when a contra-side order that equals the Locking Price is displayed by the System on the EDGX Book in order to avoid an apparent violation of that contra-side displayed order’s priority; and (4) made a series of non-substantive, corrective changes to the Notice. Amendment No. 1 has been placed in the public comment file for SR–EDGX–2014–18 at https://www.sec.gov/comments/sr-edgx-2014-18/ edgx201418.shtml (see letter from Christopher Solgan, Regulatory Counsel, DirectEdge, to Secretary, Commission, dated October 15, 2014) and also is available on the Exchange’s Web site. 8 Amendment No. 2, dated October 17, 2014, was withdrawn on October 17, 2014. 9 In Amendment No. 3, the Exchange specified that upon return to the Exchange, an order with the Routed and Returned Re-Pricing instruction will execute against marketable contra-side liquidity displayed on the EDGX Book. If there is no marketable contra-side liquidity displayed on the EDGX book upon return but such Routed and Returned Order would be displayed at a price that would be a Locking or Crossing Quotation, then such order will be displayed at a price that is one Minimum Price Variation lower (higher) than the Locking Price for orders to buy (sell), will be ranked at the mid-point of the NBBO with discretion to execute at the Locking Price. A subsequently arriving contra-side order could suspend the Routed and Returned Order’s discretion to execute at the Locking Price. Amendment No. 3 has been placed in the public comment file for SR–EDGX–2014–18 at https://www.sec.gov/comments/sr-edgx-2014-18/ edgx201418.shtml (see letter from Christopher Solgan, Regulatory Counsel, DirectEdge, to Secretary, Commission, dated October 17, 2014) and also is available on the Exchange’s Web site. E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices Chapter XI of the EDGX rule book, relating to: (1) The Exchange’s trading sessions and hours of operation; (2) the process for initial opening and reopening after a trading halt by adding proposed Exchange Rule 11.7, Opening Process; (3) order type, order type instructions and System 10 functionality; (4) the execution priority of orders; and (5) organizational and conforming amendments.11 According to the Exchange, these changes are designed to update its rule book to reflect current system functionality and to propose four new System functionalities, as described in more detail below.12 rmajette on DSK3VPTVN1PROD with NOTICES III. Discussion and Commission Findings After careful review of the proposed rule change and the comments received, the Commission finds that the proposed rule change, as modified by Amendment Nos. 1 and 3, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.13 In particular, as described in more detail below, the Commission finds that the proposed rule change, as modified by Amendment Nos. 1 and 3, is consistent with Section 6(b)(5) of the Act,14 which requires, among other things, that the rules of a national securities exchange 10 Exchange Rule 1.5(cc) defines ‘‘System’’ as ‘‘the electronic communications and trading facility designated by the Board through which securities orders of Users are consolidated for ranking, execution and, when applicable, routing away.’’ 11 The Exchange also proposes moving text from Footnote 4 of the Exchange’s Fee Schedule into proposed Exchange Rule 11.21. 12 See also Notice, supra note 3. The four new System functionalities are as follows: (1) Proposed Rule 11.7(c). Alternatively set the price of the Opening Process for securities listed on either the New York Stock Exchange, Inc. (‘‘NYSE’’) or NYSE MKT LLC (‘‘NYSE MKT’’) at the midpoint of the then prevailing National Best Bid and Offer (‘‘NBBO’’) when the first two-sided quotation published by the listing exchange after 9:30:00 a.m. Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade is reported by the listing exchange within one second of publication of the first twosided quotation by the listing exchange; (2) Proposed Rule 11.7(e). Alternatively set the price of a re-opening at the midpoint of the then prevailing NBBO when the first two-sided quotation is published by the listing exchange following the resumption of trading after a halt, suspension, or pause if no first trade is reported within one second of publication of the first two-sided quotation by the listing exchange; (3) Proposed Rule 11.6(j)(1). Require that an order with a Market Peg instruction that is to be displayed by the System on the EDGX Book include an offset equal to or greater than one Minimum Price Variation; and (4) Proposed Rule 11.6(n)(4). Permit an order with a Post Only instruction to execute against an order resting on the EDGX Book where it is eligible to receive price improvement as described under the proposed rule. 13 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 14 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. This order approves the proposed rule change in its entirety, although only certain more significant aspects of the proposed rules are discussed below. A. Exchange Trading Sessions and Hours of Operation Currently, Exchange Rule 11.1(a) provides that orders may be entered, executed or routed away during Regular Trading Hours, the Pre-Opening Session, and the Post-Closing Session, but does not define those terms. The Exchange proposes to add the term ‘‘Session Indicator’’ to codify the manner that a User 15 may elect the trading sessions for which its orders are eligible for execution. The Exchange also proposes to describe the terms Regular Trading Hours, Pre-Opening Session and Post Closing Session as Session Indicators, and specify the time frames that orders with such indicators would be eligible for execution. Similarly, the Exchange proposes to add and describe the terms ‘‘Regular Session’’ and ‘‘All Sessions’’ as Session Indicators to codify additional options that a User may elect to establish the trading sessions and time frames that an order may be eligible for execution. Proposed Exchange Rule 11.1(a)(1), describing the term Session Indicator, specifies that all orders are eligible for execution during the Regular Session, and that orders not designated for a particular session or session would default to the Regular Session. The proposed rule also specifies that orders may be entered from 6:00 a.m. until 8:00 p.m. Eastern Time but are not eligible for execution until the start of the session selected by the User. Proposed Exchange Rule 11.1(a)(1)(A) specifies that orders designated as PreOpening Session would be eligible for execution between 8:00 a.m. Eastern Time and 4:00 p.m. Eastern Time. Proposed Exchange Rule 11.1(a)(1)(B) specifies that orders designated as Regular Session would be eligible for execution between the completion of the Opening Process or a Contingent Open,16 whichever occurs first, and 4:00 p.m. Eastern Time. Proposed Exchange Rule 11.1(a)(1)(C) specifies that orders 15 The term ‘‘User’’ is defined as ‘‘any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3.’’ See Exchange Rule 1.5(ee). 16 See proposed Exchange Rule 11.7(d). PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 65451 designated as Post-Closing Session would be eligible for execution between the start of the Regular Session and 8:00 p.m. Eastern Time. Proposed Exchange Rule 11.1(a)(1)(D) specifies that orders designated as All Sessions would be eligible for execution between 8:00 a.m. Eastern Time and 8:00 p.m. Eastern Time. The Commission believes that the proposed rules relating to the Exchange trading sessions and hours of trading are consistent with the Act. The proposed rule makes the operation of the Exchange more transparent which should benefit Members, Users, and the general investing public. The Commission also notes that the proposed rule is substantially similar to that of other exchanges.17 B. Process for Initial Opening and ReOpening The Exchange’s current rules make various references to, but do not describe, an Opening Process. Accordingly, the Exchange proposes Exchange Rule 11.7 to codify and describe its current Opening and ReOpening processes, with two changes, which are described below. Proposed Exchange Rule 11.7(a) describes the entry and cancellation of orders before the Opening Process. Specifically, prior to the Regular Session, Users may enter orders to participate in the Opening Process. All orders are eligible to participate during the Opening Process, except (1) orders with a Stop Price 18 or Stop Limit instruction,19 (2) Limit Orders with a Post Only,20 Fill-or-Kill (‘‘FOK’’) or Immediate or Cancel (‘‘IOC’’) instruction, (3) Intermarket Sweep Orders (‘‘ISOs’’) or (4) orders cancelled before the Opening Process. Orders ineligible to participate in the Opening Process, but designated for the Regular Session, would not be accepted by the System on the EDGX Book 21 until the completion of the Opening Process or the initiation of a Contingent Open as set forth by proposed Exchange Rule 11.7. Proposed Exchange Rule 11.7(b) describes the execution of orders during the Opening Process. Specifically, during the Opening Process the 17 See Nasdaq Rules 4751(h) and 4617; see also International Securities Exchange (‘‘ISE’’) Rule 2102, BATS Rules 1.5(c), (r), (w), 11.1 and 11.9(b). 18 See proposed Exchange Rule 11.8(a)(1) discussed below in Section III.C.2.a. 19 See proposed Exchange Rule 11.8(b)(1) discussed below in Section III.C.2.b. 20 See proposed Exchange Rule 11.6(n)(4) discussed below in Section III.C.1.m. 21 The term ‘‘EDGX Book’’ is defined as ‘‘the System’s electronic file of orders.’’ See Exchange Rule 1.5(d). E:\FR\FM\04NON1.SGM 04NON1 rmajette on DSK3VPTVN1PROD with NOTICES 65452 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices Exchange would attempt to execute all eligible orders by matching buy and sell orders, in time sequence, at the midpoint of the NBBO, and would continue until either there were no orders to be matched or there was a remaining imbalance of orders. If the Opening Process resulted in no orders being matched, or a remaining imbalance of orders, the unexecuted orders would then be posted on the EDGX Book, canceled, executed, or routed to an away Trading Center pursuant to proposed Exchange Rule 11.11. Proposed Exchange Rule 11.7(c) describes how the opening price is determined during the Opening Process. Specifically, for securities listed on either the NYSE or NYSE MKT, the Opening Process would set the opening price at the midpoint based on the: (1) First NBBO subsequent to the first reported trade on the listing exchange after 9:30:00 a.m. Eastern Time; or (2) the prevailing NBBO when the first twosided quotation published by the listing exchange after 9:30:00 a.m. Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade is reported by the listing exchange within one second of publication of the first two-sided quotation by the listing exchange.22 For any other listing market, the Opening Process would be priced at the midpoint of the first NBBO disseminated after 9:30:00 a.m. Eastern Time. Proposed Exchange Rule 11.7(d) describes the Contingent Open. A Contingent Open would result if the Opening Process did not yield an opening price by 9:45:00 a.m. Eastern Time. In such an instance, the order would either be posted to the EDGX Book, routed, canceled, or executed consistent with its order type instruction, except that a MidPoint Match (‘‘MPM’’) Order, would be ineligible for execution until an opening price had been determined pursuant to the Opening Process. Proposed Exchange Rule 11.7(e) describes Re-Openings. A Re-Opening would occur after a trading halt, suspension or pause. The Re-Opening price would be the midpoint of the: (1) First NBBO subsequent to the first reported trade on the listing exchange following the resumption of trading after a halt, suspension, or pause; or (ii) then prevailing NBBO when the first two-sided quotation published by the listing exchange following the resumption of trading after a halt, 22 Currently for NYSE and NYSE MKT listed securities, the Opening Process sets the opening price based on the midpoint of the first NBBO subsequent to the first-reported trade on the listing exchange after 9:30:00 a.m. Eastern Time. VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 suspension, or pause if no first trade is reported by the listing exchange within one second of publication of the first two-sided quotation by the listing exchange.23 The Commission finds that the proposed rule to codify the Exchange Opening Process, Contingent Open and Re-Openings is consistent with the Act. The Commission believes that the proposed rule is reasonably designed to facilitate an orderly transition between the Pre-Opening Session and Regular Trading Hours, as well as the resumption of trading after a trading halt, suspension or pause. Finally, the Commission notes that the Exchange rule is based on ISE Rule 2106.24 C. Order Types, Order Type Instructions and System Functionality Under Chapter XI 1. Definitions—Proposed Exchange Rule 11.6 As discussed in more detail below, proposed Exchange Rule 11.6 would relocate and reclassify various terms currently defined in the Exchange rulebook, as well as add certain other defined terms. The Exchange proposes to classify certain existing order types as ‘‘instructions’’ to be attached to one or more standalone order types.25 The Commission notes that several proposed modifications to existing definitions are substantively similar to the current rule text, with added specificity, including: Attributable, Non-Attributable, Crossing Quotation, Locking Quotation, Minimum Price Variation,26 Pegged, Permitted Price, Reserve Quantity, certain routing (Destination Specified and Destinationon-Open) and time-in-force (Immediate 23 Currently, the Re-Opening price of a security is determined by the midpoint of the first NBBO subsequent to the first-reported trade on the listing exchange following the resumption of trading after a halt, suspension, or pause. 24 Unlike ISE Rule 2106, proposed Exchange Rule 11.7 provides for late openings under certain conditions and permits the opening price for securities listed on either the NYSE or NYSE MKT to be priced at the midpoint of either the first NBBO subsequent to the first reported trade on the listing exchange after 9:30:00 a.m. Eastern Time; or the prevailing NBBO when the first two-sided quotation published by the listing exchange after 9:30:00 a.m. Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade is reported by the listing exchange within one second of publication of the first twosided quotation by the listing exchange. See Securities Exchange Act Release No. 54287 (August 8, 2006), 71 FR 46947 (August 15, 2006). 25 Under the proposal, the only standalone order types would be Market Orders, Limit Orders, ISOs, MidPoint Match Orders, NBBO Offset Peg Orders, and Route Peg Orders. See infra Sections III.C.2.a– III.C.2.f, regarding proposed Exchange Rule 11.8, Order Types. 26 See Notice, supra note 3, at 44524, note 29 regarding one non-substantive edit to remove the phrase indications of interest. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 or Cancel and Fill-or-Kill) instructions.27 Although the Exchange did not previously define Cancel Back or Displayed, the Commission notes that these terms are consistent with existing rule text. Certain other proposed modifications to existing Exchange definitions are consistent with the rules of other exchanges, including: Discretionary Range,28 Non-Displayed,29 certain routing instructions (Book Only and Post Only),30 and units of trading (Round Lot, Odd Lot and Mixed Lot).31 Similarly, a number of proposed new definitions/terms are consistent with the rules of exchanges, including: Locking Price,32 Minimum Execution Quantity,33 pegging instructions (Market Peg and Primary Peg),34 Replenishment Amount,35 time-in-force instruction of Good-’til-Time.36 Finally, several proposed new definitions/terms are consistent with the definitions contained in Commission rules Regulation SHO and Regulation NMS, including: Short Sale, Short Exempt and Trading Center. Accordingly, the Commission believes that the proposed rule changes related to these definitions/terms are consistent with the Act. a. Attributable and Non-Attributable The Exchange currently defines the terms ‘‘Attributable Order’’ and ‘‘NonAttributable Order’’ in Exchange Rules 11.5(c)(18) and (19). The Exchange proposes to reclassify these terms as order type instructions and relocate them to proposed Exchange Rule 11.6(a). In addition, the Exchange proposes to amend the terms to provide that: (1) Unless the User elects 27 The Exchange also proposes to delete two additional time-in-force instructions of Good-’tilCancel and Good-’til-Day, that are not currently offered by the Exchange. 28 See Nasdaq Rule 4751(f)(1), and NYSE Arca Rule 7.31(h)(2). 29 See Nasdaq Rule 4751(e)(3), and BATS Rule 11.9(c)(11); see also EDGA Rule 11.5(c)(8). 30 See BATS Rule 11.9(c)(4) (BATS Only Order), BATS–Y Rule 11.9(c)(4) (BATS Only Order), NSX Rule 11.11(c)(6) (NSX Only Order); BATS Rule 11.9(c)(6) (BATS Post Only Order) and BATS–Y Rule 11.9(c)(6); see also NYSE Rule 13 (Add Liquidity Only Modifier) and NYSE Arca Rule 7.31(nn) (Adding Liquidity Only Order). 31 See Nasdaq Rule 4751(g) (definition of ‘‘Order Size’’). 32 See, e.g., BATS Rule 11.13(a)(1). 33 See, e.g., Nasdaq Rule 4751(f)(5), and NSX Rule 11.11(c)(2)(B). 34 See, e.g., NYSE Rule 13 (defining Pegging Interest), and Nasdaq Rule 4751(f)(4). 35 See, e.g., Nasdaq Rule 4751(f)(2) (Reserve Orders) and NYSE Rule 13 (Reserve Order Types). 36 See Chicago Stock Exchange, Inc. (‘‘CHX’’) Rules Art. 1, Rule 2(d)(3) (Good ’Til Date), BATS Rule 11.9(b)(4) (Good ’til Day), BATS–Y Rule 11.9(b)(4) (Good ’til Day), and Nasdaq Rule 4751(h)(4) (System Hours Expire Time). E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices otherwise, all orders will be automatically defaulted by the System to Non-Attributable; and (2) a User may elect an order to be Attributable on an order-by-order basis or instruct the Exchange to default all its orders as Attributable on a port-by-port basis, except if a User instructs the Exchange to default all its orders as Attributable on a particular port, such User would not be able to designate any order from that port as Non-Attributable. The Exchange also proposes to provide that a User’s MPID will be visible via the Exchange’s Book Feed if an Attributable instruction is attached to an order and not visible if an order Non-Attributable is attached to an order. b. Cancel Back The Exchange proposes to add the defined term ‘‘Cancel Back’’ to codify the existing function where a User may opt to have the System cancel the order at the time of receipt, in lieu of a repricing instruction 37 to comply with Regulation NMS, Regulation SHO, or the National Market System Plan to address extraordinary market volatility (the ‘‘LULD Plan’’).38 rmajette on DSK3VPTVN1PROD with NOTICES c. Discretionary Range The Exchange currently defines a ‘‘Discretionary Order’’ in Exchange Rule 11.5(c)(13). The Exchange proposes to reclassify this function as an order type instruction and relocate the term ‘‘Discretionary Range’’ to proposed Exchange Rule 11.6(d). In addition, the Exchange proposes to modify the definition of Discretionary Range to specify which order types39 may include a Discretionary Range instruction, and how the Discretionary Range operates. Specifically, the term Discretionary Range would be defined as an instruction that may accompany an order to buy (sell) a stated amount of a security at a specified, displayed price with discretion to execute up (down) to a specified, non-displayed price.40 The proposal also codifies that the Discretionary Range of an order to buy (sell) cannot be more than $0.99 higher 37 The re-pricing instructions are defined in proposed Exchange Rule 11.6(l) discussed infra Section III.C.1.k. 38 See Appendix A to Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012). 39 Under proposed Exchange Rule 11.8(b)(8), Limit Orders can include a Discretionary Range instruction. 40 The Exchange proposes to modify the existing rule text to make state that an order with a Discretionary Range maintains the ability to execute at its displayed price with discretion to execute at prices to and including a specified, non-displayed price, and not exclusively at those prices. The Discretionary Range may include prices to and more aggressive than the midpoint of the NBBO. VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 (lower) than the order’s displayed price, and that a resting order with a Discretionary Range instruction would execute at its least aggressive price when matched for execution against an incoming order with a Discretionary Range instruction, as permitted by the terms of both the incoming and resting order. d. Display Options The Exchange proposes to include definitions of ‘‘Displayed’’ and ‘‘NonDisplayed’’ in proposed Exchange Rule 11.6(e). Currently the term Displayed is not defined within the Exchange rules. The Exchange would codify that Displayed is the default instruction for all display-eligible orders on the EDGX Book. Currently, the term Non-Displayed Order is defined in Exchange Rule 11.5(c)(8). The Exchange proposes to reclassify this term as an order type instruction, and relocate the amended term to proposed Exchange Rule 11.6(e). In order to reflect its current operation, the Exchange proposes to delete the current rule language stating that the System will not accept Non-Displayed Orders that are priced better than the midpoint of the NBBO, and codify that the Exchange currently accepts orders with a Non-Displayed instruction that are priced better than the midpoint of the NBBO. The proposed rule change also codifies that an order with a NonDisplayed instruction may include a Cancel Back instruction under proposed Exchange Rule 11.6(b), or a re-pricing instruction pursuant to proposed Exchange Rule 11.6(l)(3) described below.41 The proposed definition of Non-Displayed also differs from the current definition in that it deletes rule text regarding the priority and ranking of Non-Displayed Orders because proposed Exchange Rule 11.9 sets forth the priority and ranking of all orders. e. Locking Price Under current Exchange Rule 11.5(c)(4), a re-pricing instruction to comply with Regulation NMS may be triggered if an incoming order, if displayed at its limit price, would be a Locking Quotation.42 In order to specify the price that triggers a Regulation NMS re-pricing instruction the Exchange proposes to define the term, ‘‘Locking Price,’’ as the ‘‘price of an order to buy (sell) that, if, upon entry into the System, or upon return to the System 41 See infra Section III.C.1.k.iii entitled, ‘‘RePricing of Orders with a Non-Displayed Instruction.’’ 42 The term Locking Quotation is proposed to be defined in Exchange Rule 11.6(g), and is further discussed below. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 65453 after being routed away, and displayed by the System on the EDGX Book, it would be a Locking Quotation.’’ 43 f. Locking Quotation and Crossing Quotations Currently, Exchange Rule 11.16 defines the terms ‘‘Locking Quotation’’ 44 and ‘‘Crossing Quotation.’’ 45 The Exchange proposes to relocate the amended terms, respectively, to proposed Exchange Rule 11.6(c) and (g). The amended definitions specify that the display of either a Locking or Crossing Quotation would violate Rule 610(d) of Regulation NMS and that Regulation NMS re-pricing instructions are applicable outside of Regular Trading Hours. g. Minimum Execution Quantity The Exchange proposes to define the term ‘‘Minimum Execution Quantity’’ as an order type instruction.46 Although it is currently available, the Minimum Execution Quantity function is not currently defined by Exchange rules. The Minimum Execution Quantity would be an order type instruction, combined with a Non-Displayed instruction, which would only execute the order to the extent that a minimum quantity could be satisfied by an execution against a single order or multiple aggregated orders simultaneously. An order with a Minimum Execution Quantity instruction could partially execute if the execution size equaled or exceeded the quantity provided in the instruction. The Exchange also proposes that any shares remaining after a partial execution would continue to be executed at a size equal to or exceeding the quantity provided with the instruction, unless the User elects otherwise. The Minimum Execution 43 The term, ‘‘Locking Price’’ is similarly defined in the rules of other exchanges. See, e.g., BATS Rule 11.13(a)(1), which defines ‘‘locking price’’ as ‘‘. . . prices equal to displayed orders on the other side of the market.’’ 44 Locking Quotation is defined as ‘‘[t]he display of a bid for an NMS stock during regular trading hours at a price that equals the price of an offer for such NMS stock previously disseminated pursuant to an effective national market system plan, or the display of an offer for an NMS stock during regular trading hours at a price that equals the price of a bid for such NMS stock previously disseminated pursuant to an effective national market system plan.’’ 45 A Crossing Quotation is defined as ‘‘[t]he display of a bid (offer) for an NMS stock during Regular Trading Hours at a price that is higher (lower) than the price of an offer (bid) for such NMS stock previously disseminated pursuant to an effective national market system plan.’’ 46 The minimum execution quantity instruction is available on other exchanges. See, e.g., Nasdaq Rule 4751(f)(5), and National Stock Exchange, Inc. (‘‘NSX’’) Rule 11.11(c)(2)(B). E:\FR\FM\04NON1.SGM 04NON1 65454 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices Quantity instruction would not be applicable if after a partial execution the remaining shares were less than the quantity provided in the instruction. h. Minimum Price Variation Exchange Rule 11.7, Price Variation, currently defines the term ‘‘Price Variation.’’ 47 The Exchange proposes to relocate the term ‘‘Minimum Price Variation’’ to proposed Exchange Rule 11.6(i) and amend the term to remove the obsolete term, ‘‘indications of interest.’’ 48 rmajette on DSK3VPTVN1PROD with NOTICES i. Pegged Currently the term ‘‘Pegged Order’’ is defined under Exchange Rule 11.5(c)(6). The Exchange proposes to reclassify the term as an instruction and relocate the term to proposed Exchange Rule 11.6(j). The amended definition of a Pegged instruction would continue to indicate that: (1) A User may specify that the order’s price will peg to a price a certain amount away from the NBB or NBO (offset); (2) if an order with a Pegged instruction displayed on the Exchange would lock the market, the price of the order will be automatically adjusted by the System to one Minimum Price Variation below the current NBO (for bids) or to one Minimum Price Variation above the current NBB (for offers); (3) a new time stamp is created for the order each time it is automatically adjusted; and (4) orders with a Pegged instruction are not eligible for routing pursuant to proposed Exchange Rule 11.11. The Exchange also proposes to codify that orders with Pegged instructions would not be used to calculate the NBBO, and buy/sell orders with a Pegged instruction would be cancelled when the NBB/NBO is unavailable. In addition, the Exchange would codify the terms ‘‘Primary Peg’’ and ‘‘Market Peg.’’ 49 Proposed Exchange Rule 11.6(j) would specify that a Pegged instruction may be a Market Peg, which would track NBB, for a sell order, or the NBO, for a buy order; or a Primary Peg, which 47 The Exchange’s existing definition of Price Variation in Exchange Rule 11.7 sets forth that bids, offers, or orders in securities traded on the Exchange shall not be made in an increment smaller than: (1) $0.01 if those bids, offers, or orders are priced equal to or greater than $1.00 per share; or (2) $0.0001 if those bids, offers, or orders are priced less than $1.00 per share; or (3) any other increment established by the Commission for any security which has been granted an exemption from the minimum price increment requirements of Rule 612(a) or 612(b) of Regulation NMS. See current Exchange Rule 11.7 48 See Securities Exchange Act Release No. 64095 (March 18, 2011), 76 FR 16446 (March 23, 2011) (SR–EDGX–2011–06). 49 The Primary Peg and Market Peg order instructions are available on other exchanges. See, e.g., NYSE Rule 13 (defining Pegging Interest), and Nasdaq Rule 4751(f)(4). VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 would track the NBB, for a buy order, or the NBO, for a sell order. The Exchange would also sets forth that a buy (sell) order with a Market Peg instruction and a Displayed instruction must have an offset that is equal to or greater than one Minimum Price Variation below (above) the NBO (NBB) that the order is pegged to.50 The amended term would also specify that if a User does not select an offset, the System would automatically include an offset that is equal to one Minimum Price Variation below (above) the NBO (NBB) that the order is pegged to. For an order with a Non-Displayed instruction, a User could, but would not be required to, select an offset for an order to buy (sell) that is equal to or greater than one Minimum Price Variation below (above) the NBO (NBB) to which the order is pegged. Proposed Exchange Rule 11.6(j) also sets forth that a buy (sell) order with a Primary Peg instruction could, but would not be required to, select an offset equal to or greater than one Minimum Price Variation 51 above or below the NBB or NBO that the order is pegged to. As proposed, an order with a Primary Peg instruction would be eligible to join the Exchange’s BBO if the EDGX Book was locked or crossed by another market, but if an order with a Primary Peg instruction would create a Locking Quotation or Crossing Quotation, the price of the order would be automatically adjusted by the System to one Minimum Price Variation below/ above the current NBO/NBB. The Exchange also codifies that, under proposed Exchange Rule 11.6(l)(3), discussed below, an order with a Pegged and Non-Displayed instruction that is priced more aggressively than the midpoint of the NBBO, would be ranked at the midpoint with discretion to execute to the price established by the offset, or the NBB (NBO) where the offset for an order to sell (buy) is equal to or more aggressive than the NBB (NBO).52 j. Permitted Price The Exchange currently defines the term ‘‘Permitted Price’’ in Exchange Rule 11.5(c)(4)(B).53 The Exchange proposes to relocate the term, without 50 Previously, the System permitted a displayable Market Peg instruction to include a zero-offset. 51 As discussed supra in Section III.C.1.h, the term Minimum Price Variation is defined in proposed Exchange Rule 11.6(i). 52 The Exchange provides examples of the operation of Limit Orders with a Pegged Instruction. See Notice, supra note 3, at 44525. 53 The current definition provides that a short sale order, subject to the Exchange’s short sale price sliding process, will ‘‘be re-priced to display at one Minimum Price Variation above the current NBB.’’ PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 amendment, to proposed Exchange Rule 11.6(k) k. Re-Pricing Instructions The terms ‘‘displayed price sliding’’ 54 and ‘‘short sale price sliding process’’ 55 are currently defined in Exchange Rule 11.5(c)(4)(A) and (B), respectively. However, the Exchange currently offers multiple re-pricing instructions designed to permit Users to comply, separately and respectively, with Rule 610(d) of Regulation NMS or Rule 201 of Regulation SHO. The Exchange proposes to replace the definitions for displayed price sliding process and the short sale price sliding process with proposed Exchange Rule 11.6(l), which would codify three re-pricing options for Regulation NMS (Price Adjust, Hide Not Slide, and Routed and Returned RePricing) and the two re-pricing options for Regulation SHO (Short Sale Price Adjust and Short Sale Price Sliding), all of which are currently available on the 54 The ‘‘displayed price sliding process’’ is currently described under Exchange Rule 11.5(c)(4)(A) as follows: ‘‘An EDGX Only Order that, at the time of entry, would cross a Protected Quotation will be re-priced to the locking price and ranked at such price in the EDGX Book. An EDGX Only Order that, if at the time of entry, would create a violation of Rule 610(d) of Regulation NMS by locking or crossing a Protected Quotation will be displayed by the System at one minimum price variation (‘‘MPV’’) below the current NBO (for bids) or to one MPV above the current NBB (for offers) (collectively, the ‘‘displayed price sliding process’’). In the event the NBBO changes such that the EDGX Only Order at the original locking price would not lock or cross a Protected Quotation, the order will receive a new timestamp, and will be displayed at the original locking price.’’ 55 The ‘‘short sale price sliding process’’ is currently described under Exchange Rule 11.5(c)(4)(B)–(C) as follows: ‘‘An EDGX Only Order that, at the time of entry, could not be executed or displayed pursuant to Rule 201 of Regulation SHO will be re-priced by the System to prevent execution or display at or below the current NBB (such entire process called the ‘‘short sale price sliding process’’). Any EDGX Only order subject to such re-pricing by the System will be re-priced to display at one MPV above the current NBB (‘‘Permitted Price’’). Following the initial adjustment provided for in this paragraph (B), the EDGX Only Order will, to reflect declines in the NBB, continue to be re-priced at the lowest Permitted Price down to the order’s original limit price, or if a market order, until the order is filled. The order will receive a new timestamp each time it is re-priced. Alternatively, following the initial adjustment provided for in paragraph (B), the EDGX Only Order may, in accordance with the User’s instructions, provided that in all cases the display or execution of such lower prices does not violate Rule 201 of Regulation SHO: (i) Be re-priced one additional time to a price that is above the current NBB but equal to the NBB at the time the EDGX Only Order was received and receive a new timestamp; or (ii) not be adjusted further. In the event the NBB changes such that the price of a NonDisplayed Order subject to short sale price sliding would lock or cross the NBB, the Non-Displayed Order will receive a new timestamp, and will be repriced by the System to a Permitted Price. EDGX Only Orders marked ‘‘short exempt’’ shall not be subject to the short sale price sliding process.’’ E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices System.56 The Exchange also proposes to codify the re-pricing instruction for orders with a Non-Displayed instruction, which also is currently available on the System but not reflected in the current rules. rmajette on DSK3VPTVN1PROD with NOTICES i. Re-Pricing Instructions To Comply With Rule 610(d) of Regulation NMS Proposed Exchange Rule 11.6(l)(1)(A) would codify the Price Adjust instruction. Specifically, under the proposed rule, a User may select, or be defaulted by the System,57 to the Price Adjust instruction where an incoming order that would be a Locking Quotation or Crossing Quotation would be displayed and ranked 58 at a price that is one Minimum Price Variation lower (higher) than the Locking Price.59 Subsequently, the order would be displayed and ranked by the System on the EDGX Book at the Locking Price if the NBBO changed such that the order, if displayed at the Locking Price, would not be a Locking Quotation or Crossing Quotation, including where an ISO with a time-in-force (‘‘TIF’’) instruction of Day is entered into the System and displayed on the EDGX Book on the same side of the market as the order at a price that is equal to or more aggressive than the Locking Price.60 The order would not be subject to further reranking and would be displayed by the System on the EDGX Book at the Locking Price until executed or cancelled by the User. The order would receive a new time stamp at the time an order is re-ranked.61 Pursuant to 56 Other exchanges utilize re-pricing processes. See e.g., CHX Art. I, Rule 2(b)(1)(C), BATS Rules 11.9(c)(4), (6) and 11.9(g)(2), BATS–Y Exchange, Inc. (‘‘BATS–Y’’) Rules 11.9(c)(4), (6) and 11.9(g)(2), and Nasdaq’s ‘‘Re-pricing of Orders during Short Sale Period’’ described in Nasdaq Rule 4763(e). In Amendment No. 1, the Exchange removed the proposed Single Re-Price and Short Sale Single RePrice pricing instructions. See supra note 7. 57 Pursuant to proposed Exchange Rule 11.8, an order that would be a Locking Quotation or Crossing Quotation at the time of entry, will be automatically defaulted by the System to the Price Adjust instruction, unless the User affirmatively elects: (1) The Cancel Back instruction; or (2) the Hide Not Slide instruction. 58 For purposes of the description of the repricing instructions under proposed Rule 11.6(l), the terms ‘‘ranked’’ and ‘‘priced’’ are synonymous and used interchangeably. 59 Other exchanges offer similar functionality. See Nasdaq Rule 4751(f)(7) (Price to Comply Order), BATS Rule 11.9(g)(2) (Price Adjust), BATS Rule 11.9(g)(1) (Display-Price Sliding), BATS–Y 11.9(g)(1) (Display-Price Sliding), and CHX Rule Art. I, Rule 2(b)(1)(C)(i) (NMS Price Sliding). 60 See Division of Trading and Markets: Response to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS, Question 5.02, available at https://www.sec.gov/divisions/ marketreg/nmsfaq610-11.htm (last visited October 28, 2014). 61 See proposed Exchange Rule 11.9 in Section III.C., infra, for discussion on priority. VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 proposed Exchange Rule 11.9, all orders that are re-ranked and re-displayed pursuant to the Price Adjust instruction would retain their comparative priority based on the time of initial receipt by the System.62 Proposed Exchange Rule 11.6(l)(1)(B) would codify the Hide Not Slide instruction. Specifically, under the proposed rule, if a User selects the Hide Not Slide instruction, an incoming order that would be a Locking Quotation or Crossing Quotation would be displayed at a price that is one Minimum Price Variation lower (higher) than the Locking Price and ranked at the midpoint of the NBBO with discretion to execute at the Locking Price; provided, however, that if at the time of entry a contra-side order equal to the Locking Price is displayed by the System, the order would be ranked at the midpoint of the NBBO with its discretion to execute to the Locking Price suspended. Discretion to execute to the Locking Price would remain suspended until the contra-side displayed order equal to the Locking Price is cleared. Where the NBBO changes such that the order, if displayed at the Locking Price would not be a Locking Quotation, the System would rank and display the order at the Locking Price. Thereafter, the order would not be subject to further reranking and would be displayed by the System at the Locking Price until it is executed or cancelled by the User. The order would receive a new time stamp when it is ranked at the Locking Price. Pursuant to proposed Exchange Rule 11.9, all orders that are re-ranked and re-displayed by the System pursuant to the Hide Not Slide instruction would retain its comparative priority based upon the time of initial receipt by the System.63 Proposed Exchange Rule 11.6(l)(1)(B)(i) would codify the Routed and Returned Re-Pricing instruction. Specifically, under the proposed rule, if a Limit Order was routed away but not fully executed, the returning remainder of the order, if it would be a Locking Quotation or Crossing Quotation of a quotation displayed by another Trading 62 The Exchange provides examples of the operation of a Price Adjust Instruction. See Notice, supra note 3, at 44526. 63 Orders that are re-ranked and re-displayed pursuant to the Hide Not Slide instruction maintain the same priority as orders that are re-ranked and re-displayed pursuant to the Routed and Returned Re-Pricing instruction at the same price. See proposed Exchange Rules 11.9(a)(2)(B)(i) and (C)(ii). The Exchange provides examples of the operation of a Hide Not Slide Instruction. See Notice, supra note 3, at 44526–27. See also Amendment No. 1, supra note 7, for corrections to Example Nos. 1 and 4. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 65455 Center upon re-entry to the System, would default to a Routed and Returned Re-Pricing instruction, unless the User selected either the Cancel Back, Price Adjust or Hide Not Slide instruction.64 The Routed and Returned Re-Pricing instruction would cause the returning order, that would otherwise be a Locking Quotation or Crossing Quotation based on an away market, to re-price one Minimum Price Variation away from the Locking Price, be ranked at the midpoint of the NBBO, with discretion to execute at the Locking Price. If a contra-side order with a Post Only instruction that equals the Locking Price is subsequently entered and displayed by the System, the order subject to the Routed and Returned RePricing instruction would be ranked at the midpoint of the NBBO with its discretion to execute at the Locking Price suspended until there is no contraside order displayed by the System equals the Locking Price.65 Thereafter, in response to changes in the NBBO, an order subject to the Routed and Returned Re-Pricing instruction would be adjusted and displayed by the System at one Minimum Price Variation below (above) the NBO (NBB) and ranked at the updated midpoint of the NBBO with discretion to execute at the Locking Price until the price of such order reached its limit price; at which point the order would be displayed at the limit price by the System without further adjustment. Upon return to the EDGX Book after being routed away, the order will execute against any marketable contra-side liquidity on the EDGX Book and any remainder will be subject to the Routed and Returned RePricing instruction.66 The order would receive a new time stamp upon returning to the EDGX Book and upon each subsequently re-ranking. Pursuant to proposed Exchange Rule 11.9, all orders that are re-ranked and redisplayed pursuant to the Routed and Returned Re-Pricing instruction would retain their comparative time priority at a price level based upon the time of initial re-entry to the System.67 The Commission finds that the proposed rules related to Regulation NMS re-pricing are consistent with 64 See Amendment No. 3, supra note 9. 65 Id. 66 Id. 67 Orders that are re-ranked and re-displayed pursuant to the Routed and Returned Re-Pricing instruction maintain the same priority as orders that are re-ranked and re-displayed pursuant to the Hide Not Slide instruction at the same price. See proposed Exchange Rules 11.9(a)(2)(B)(i) and (C)(ii). The Exchange provides an example of the operation of a Routed and Returned Re-Pricing Instruction. See Notice, supra note 3, at 44527. See also Amendment No. 3, supra note 9. E:\FR\FM\04NON1.SGM 04NON1 65456 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices Section 6(b)(5) of the Act,68 and the rules and regulation thereunder, including Rule 610 of Regulation NMS.’’ 69 The operation of Price Adjust, Hide Not Slide and Routed and Returned Re-Pricing are consistent with Rule 610(d) of Regulation NMS as they should prevent members from displaying orders that lock or cross any protected quotation in an NMS stock.70 In addition, the Commission notes that other exchanges offer price-sliding functionality to comply with Regulation NMS.71 ii. Re-Pricing Instructions To Comply With Rule 201 of Regulation SHO Proposed Exchange Rule 11.6(l)(2) sets forth the following re-pricing instructions for an order with a Short Sale instruction to comply with Rule 201 of Regulation SHO: (1) Short Sale Price Adjust and (2) Short Sale Price Sliding. Under the proposal, a Limit Order to sell with a Short Sale instruction that cannot display or execute at its limit price at the time of entry because of a short sale price restriction pursuant to Rule 201 of Regulation SHO (‘‘Short Sale Circuit Breaker’’),72 would automatically default to the Short Sale Price Adjust instruction, unless the User affirmatively elects: (1) The Cancel Back instruction; or (2) the Short Sale Price Sliding instruction. Like current Exchange Rule 11.5(c)(4)(E), orders to sell with both a Short Sale and a Short Exempt instruction would not be 68 15 U.S.C. 78f(b)(5). CFR 242.610. 70 Rule 610(d) of Regulation NMS requires exchanges to establish, maintain, and enforce rules that require members reasonably to avoid ‘‘[d]isplaying quotations that lock or cross any protected quotation in an NMS stock.’’ See 17 CFR 242.610(d). 71 See Nasdaq Rule 4751(f)(7) (Price to Comply Order), BATS Rule 11.9(g)(2) (Price Adjust), BATS Rule 11.9(g)(1) (Display-Price Sliding), BATS–Y 11.9(g)(1) (Display-Price Sliding), CHX Rule Art. I, Rule 2(b)(1)(C)(i) (NMS Price Sliding). 72 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010, the Commission adopted amendments to Regulation SHO under the Act in the form of Rule 201, pursuant to which, among other things, short sale orders in covered securities generally cannot be executed or displayed by a trading center at a price that is at or below the current NBB when a Short Sale Circuit Breaker is in effect for the covered security. See Securities Exchange Act Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). In connection with the adoption of Rule 201, Rule 200(g) of Regulation SHO was also amended to include a ‘‘short exempt’’ marking requirement. See also Securities Exchange Act Release No. 63247 (November 4, 2010), 75 FR 68702 (November 9, 2010) (extending the compliance date for Rules 201 and 200(g) to February 28, 2011). See also Division of Trading & Markets: Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/ rule201faq.htm. rmajette on DSK3VPTVN1PROD with NOTICES 69 17 VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 eligible for any of the Regulation SHO re-pricing instructions and instead would execute, display and/or route without regard to whether the order is at a Permitted Price or if a Short Sale Circuit Breaker in effect. In addition, when a Short Sale Circuit Breaker is in effect and the incoming order has a Short Sale instruction, Regulation SHO re-pricing instructions would supersede Regulation NMS re-pricing instructions. Proposed Exchange Rule 11.6(l)(2)(A) would codify the Short Sale Price Adjust instruction. If selected by a User and a Short Sale Circuit Breaker was in effect, the sell order with a Short Sale instruction would be ranked and displayed at the Permitted Price.73 Following the initial ranking, the order, to the extent the NBB declines, would continue to be re-ranked and displayed at the Permitted Price down to the order’s limit price. The order would receive a new time stamp each time it is re-ranked. All orders with Short Sale Price Adjust instructions that are reranked and re-displayed by the System would retain their comparative time priority based on their initial receipt by the System.74 Proposed Exchange Rule 11.6(l)(2)(B) would codify the Short Sale Price Sliding instruction. If selected by a User and a Short Sale Circuit Breaker was in effect, the sell order with a Short Sale instruction would be displayed at the Permitted Price and ranked at the midpoint of the NBBO. Following the initial ranking, the order would, to the extent the NBB declined, be re-ranked and re-displayed with a new time stamp one additional time at a price equal to the NBB at the time of the order’s original entry.75 The Commission finds that the proposed rules related to Regulation SHO re-pricing are consistent with Section 6(b)(5) of the Act,76 as well as Rule 201 of Regulation SHO.77 Rule 201 of Regulation SHO requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution or display of a short sale order at a price at or below the current NBB when a Short Sale Circuit Breaker is in effect, subject to certain exceptions.78 Pursuant to the Exchange’s rules relating to Short Sale Price Adjust and Short Sale Price Sliding, sell orders with a Short Sale instruction that cannot be executed or displayed in compliance with Rule 201 of Regulation SHO would be displayed at the Permitted Price (i.e., above the current NBB). In addition, the Commission notes that Short Sale Price Adjust 79 and Short Sale Price Sliding 80 operate in a manner that is substantially similar to other exchanges. The Commission notes that Short Sale Price Sliding permits sell orders with a Short Sale instruction to be ranked at the midpoint of the NBBO and displayed at the Permitted Price. The Commission finds that Regulation SHO re-pricing to permit an order with a Short Sale instruction to be executed at the midpoint of the NBBO, and displayed above the NBB, is consistent with Rule 201 of Regulation SHO.81 iii. Re-Pricing of Orders With a NonDisplayed Instruction Proposed Exchange Rule 11.6(l)(3) would codify the re-pricing of orders with a Non-Displayed instruction to specify that an order with a NonDisplayed instruction that is priced better than the midpoint of the NBBO, would be ranked at the midpoint of the NBBO with discretion to execute to its limit price.82 In response to changes in the NBBO, an order with a NonDisplayed instruction would be automatically re-ranked, with a new time stamp, until the midpoint of the NBBO reached the order’s limit price. A User may elect the Cancel Back instruction for a buy (sell) order with a Non-Displayed instruction where the limit price is greater (less) than the NBO (NBB). Pursuant to proposed Exchange Rule 11.9, all orders with a NonDisplayed instruction that are re-ranked at the midpoint of the NBBO would retain their comparative time priority based upon their initial ranking at the midpoint of the NBBO.83 78 17 CFR 242.201. BATS Rule 11.9(g)(2), BATS–Y Rule 11.9(g)(2) and Nasdaq Rule 4763(e). 80 See BATS Rule 11.9(g)(2) and BATS–Y Rule 11.9(g)(2) 81 17 CFR 242.201. 82 The Exchange explains that because MidPoint Match Orders, described below, are pegged to the midpoint of the NBBO, the re-pricing and midpoint ranking of orders with a Non-Displayed instruction enables the EDGX Book to avoid internally crossed markets. See Notice, supra note 3, at 44529. 83 The Exchange provides examples of the operation of the re-pricing of Orders with a NonDisplayed Instruction. See Notice, supra note 3, at 44529. 79 See 73 Other exchanges offer similar functionality. See Nasdaq Rule 4763(e) (Re-Pricing of Orders During Short Sale Period), BATS Rule 11.9(g)(2) (Short Sale Price Sliding), BATS–Y 11.9(g)(2) (Short Sale Price Sliding), and CHX Rule Art. I, Rule 2(b)(1)(C)(ii) (Short Sale Price Sliding). 74 The Exchange provides an example of the operation of a Short Sale Price Adjust instruction. See Notice, supra note 3, at 44528. 75 The Exchange provides an example of the operation of a Short Sale Price Sliding instruction. See Notice, supra note 3, at 44528–29. 76 15 U.S.C. 78f(b)(5). 77 17 CFR 242.201. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices l. Reserve Quantity and Replenishment Amounts Exchange Rule 11.5(c)(1) currently defines a ‘‘Reserve Order’’ as ‘‘[a] limit order with a portion of the quantity displayed (‘display quantity’) and with a reserve portion of the quantity (‘reserve quantity’) that is not displayed.’’ The Exchange proposes to reclassify this function as an order type instruction and relocate the term ‘‘Reserve Quantity’’ to proposed Exchange Rule 11.6(m). The term Reserve Quantity would be defined to mean the portion of an order with a Non-Displayed instruction in which a portion of that order is also displayed on the EDGX Book. The Exchange also would specify that both the portion of the order with a Displayed instruction and the Reserve Quantity of the order are available for execution against incoming orders. The Exchange also specifies that where the displayed quantity of an order is reduced to less than a Round Lot, the System, in accordance with the replenishment instruction selected by the User, would replenish the displayed quantity from the Reserve Quantity by at least a single Round Lot. A new time stamp would be created for the displayed portion of the order each time it is replenished from the Reserve Quantity, and the Reserve Quantity would retains its original time stamp of its original entry.84 In addition, the Exchange states that where the combined amount of the displayed quantity and Reserve Quantity of an order is less than one Round Lot, the order would be treated as an order with a Displayed instruction for purposes of execution priority under proposed Exchange Rule 11.9. Proposed Exchange Rule 11.6(m) also codifies the two replenishment instructions 85 currently offered by the Exchange: (1) Fixed Replenishment; and (2) Random Replenishment. The Fixed Replenishment instruction sets forth that the displayed quantity of an order would be replenished by a fixed quantity designated by the User. The Fixed Replenishment quantity for the order would equal the initial displayed quantity designated by the User. The displayed replenishment quantity selected by the System could not be less rmajette on DSK3VPTVN1PROD with NOTICES 84 Other exchanges maintain similar time stamp functionality when replenishing a displayed amount of an order from the order’s undisplayed quantity. See Nasdaq Rule 4751(f)(2) (Reserve Orders), and NYSE Rule 13 (Reserve Order Types, Minimum Display Reserve Order). 85 Other exchanges offer similar functionality for refreshing the displayed portion of an order from a Reserve Quantity. See, e.g., Nasdaq Rule 4751(f)(2) (Reserve Orders) and NYSE Rule 13 (Reserve Order Types). VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 than a single Round Lot or greater than the remaining Reserve Quantity. Under proposed Exchange Rule 11.8(b)(5), the System would automatically default the order to the Fixed Replenishment instruction with a replenishment value equal to the displayed quantity of the order. Under the Random Replenishment instruction, the displayed quantity, both initial and replenished, would be randomly determined by the System within a replenishment range and replenishment value established by the User. The System would randomly select random display in Round Lots based on: (1) The quantity around which the replenishment range is established minus the replenishment value; and (2) the quantity around which the replenishment range is established plus the replenishment value. The displayed replenishment quantity could not: (1) Exceed the remaining Reserve Quantity of the order; (2) be less than a single Round Lot; or (3) greater than the remaining Reserve Quantity.86 m. Routing/Posting Instructions In proposed Exchange Rule 11.6(n), the Exchange proposes to define the following routing and posting instructions that a User may select, depending on the order type: (1) Aggressive or Super Aggressive; (2) Book Only; (3) Post Only; (4) Destination Specified; and (5) Destination-on-Open. The Exchange proposes to codify the terms Aggressive and Super Aggressive. Aggressive is an order instruction that directs the System to route such order if an away Trading Center crosses the limit price of the order resting on the EDGX Book. Super Aggressive is an order instruction that directs the System to route such order if an away Trading Center locks or crosses the limit price of the order resting on the EDGX Book. Current Exchange Rule 11.5(c)(4) defines the term EDGX Only Order.87 The Exchange proposes to reclassify this function as an order type instruction and relocate the amended definition and term ‘‘Book Only’’ to proposed Exchange Rule 11.6(n)(3). The proposed definition of Book Only would specify 86 The Exchange provides examples of the operation of orders with replenishment amounts. See Notice, supra note 3, at 44530. 87 Currently, the term EDGX Only Order is defined as ‘‘[a]n order that is to be ranked and executed on the Exchange pursuant to Rule 11.8 and Rule 11.9(a)(4) or cancelled, without routing away to another trading center. The System will default to the displayed price sliding process and short sale price sliding process for an EDGX Only Order unless the User has entered instructions not to use any of the processes.’’ PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 65457 that it is: ‘‘[a]n order instruction stating that an order will be matched against an order on the EDGX Book or posted to the EDGX Book, but will not route to an away Trading Center.’’ 88 References to the Exchange’s ‘‘display price sliding process and short sale price sliding process’’ would be removed from the amended Book Only definition because, as noted above, proposed Exchange Rule 11.6(l) is proposed to now describe repricing instructions for Regulation NMS and Regulation SHO compliance. Current Exchange Rule 11.5(c)(5) defines the term ‘‘Post Only Order.’’ 89 The Exchange proposes to reclassify this function as an order type instruction and relocate the amended definition and term ‘‘Post Only’’ to proposed Exchange Rule 11.6(n)(4). Currently, the Post Only definition specifies that order would not remove liquidity from the EDGX Book unless ‘‘the User enters an instruction to the contrary.’’ The Exchange proposes amend the definition to specify that an order with a Post Only instruction may remove contra-side liquidity from the EDGX Book when combined with a Hide Not Slide or a Price Adjust instruction if the order is for a security priced below $1.00 or the value of such execution, including any fees charged or rebates provided, equals or exceeds the value of such execution if the order instead posted and provided liquidity.90 In addition, the Exchange proposes to remove references to Exchange’s ‘‘display price sliding process and short sale price sliding process’’ from the amended Post Only definition because, as noted above, proposed Exchange Rule 11.6(l) is proposed to describe re-pricing instructions for Regulation NMS and Regulation SHO compliance. Exchange Rule 11.5(c)(9) currently defines the term ‘‘Destination Specific 88 The proposed definition of Book Only is similar to that of other exchanges. See BATS Rule 11.9(c)(4) (BATS Only Order), BATS–Y Rule 11.9(c)(4) (BATS Only Order), NSX Rule 11.11(c)(6) (NSX Only Order). 89 Currently, the term Post Only Order is defined as ‘‘[a]n order that is to be ranked and executed on the Exchange pursuant to Rule 11.8 and Rule 11.9(a)(4) or cancelled, as appropriate, without routing away to another trading center except that the order will not remove liquidity from the EDGX Book absent an order instruction to the contrary. A EDGX Post Only Order will be subject to the displayed price sliding process and short sale price sliding process unless a User has entered instructions not to use the either or both processes. . . .’’ 90 See also Amendment No. 1, supra note 7. The Exchange further states that to determine at the time of a potential execution whether the value of such execution when removing liquidity equals or exceeds the value of such execution if the order instead posted to the EDGX Book and subsequently provided liquidity, the Exchange will use the highest possible rebate paid and highest possible fee charged for such executions on the Exchange. Id. E:\FR\FM\04NON1.SGM 04NON1 65458 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices Order.’’ 91 The Exchange proposes to reclassify this function as an order type instruction and relocate the amended definition and term ‘‘Destination Specified’’ to proposed Exchange Rule 11.6(n)(4). The amended definition would provide that an order with a Destination Specified instruction may be processed as described in proposed Exchange Rule 11.10(a)(4), returned to the User, or posted to the EDGX Book, unless the User instructs that the order reside on the book of the relevant away Trading Center. Exchange Rule 11.5(c)(10) currently defines the term ‘‘Destination-on-Open Order.’’ The Exchange proposes to reclassify this function as an order type instruction and relocate the amended definition and term ‘‘Destination-onOpen’’ to proposed Exchange Rule 11.6(n)(6). The amended definition would state that a Destination-on-Open instruction may be appended to a Market or a Limit Order and that an unfilled portion of an order with a Destination-on-Open instruction may be cancelled or re-routed. n. Short Sale and Short Exempt Currently, certain current Exchange rules refer to the terms ‘‘short sale order’’ and ‘‘short exempt,’’ 92 but neither term is specifically defined. Proposed Exchange Rules 11.6(o) and 11.6(p) would respectively provide definition for the terms ‘‘Short Sale’’ and ‘‘Short Exempt.’’ The proposed definitions for Short Sale instruction and Short Exempt instruction would be consistent with Rules 200(a) and 201 of Regulation SHO.93 rmajette on DSK3VPTVN1PROD with NOTICES o. Time-In-Force Current Exchange Rule 11.5(b)(1)–(3) defines the terms ‘‘IOC Order,’’ ‘‘Day Order’’ and ‘‘Fill-or-Kill Order.’’ 94 The Exchange proposes to reclassify these terms as time-in-force order type instructions and relocate the definitions, IOC, Day, FOK and Good-‘til Time (‘‘GTT’’), to proposed Exchange Rule 11.6(n)(4). The proposed rule specifies that an order with a TIF instruction of 91 Currently, the term ‘‘Destination Specified Order’’ is defined as ‘‘[a] market or limit order that instructs the System to route the order to a specified away trading center or centers, after exposing the order to the EDGX Book. Destination Specific Orders that are not executed in full after routing away are processed by the Exchange as described below in Rule 11.9(a)(4), save where the User has provided instructions that the order reside on the book of the relevant away trading center.’’ 92 See Exchange Rules 11.9(a)(1) and 11.15. 93 See 17 CFR 242.200 et seq. 94 Current Exchange Rule 11.5(b) includes two (2) additional TIF instructions of Good-’til-Cancel and Good-’til-Day, which the Exchange proposes to delete from its rules because they are not currently offered by the Exchange. VerDate Sep<11>2014 18:09 Nov 03, 2014 Jkt 235001 Day entered into the System before the start of the specified trading session would be placed by the System in a pending state and activated for potential execution upon the start of that trading session. The Exchange proposes to include a new TIF instruction, GTT, which could be appended to an order in any trading session with instructions to cancel at a specified time of day. The proposed rule also sets forth that an order with a GTT instruction would not be eligible for execution over multiples days 95 and that any unexecuted portion of such order with a GTT would be cancelled at: (1) The expiration of the User’s specified time; (2) at the end of the User’s specified trading session(s); or (3) the end of the trading day, as instructed by the User. As proposed, order with a GTT instruction would not be eligible for execution over multiple trading days. p. Trading Center The Exchange proposes to add the term ‘‘Trading Center’’ to proposed Exchange Rule 11.6(r) to be defined as ‘‘[o]ther securities exchanges, facilities of securities exchanges, automated trading systems, electronic communications networks or other brokers or dealers.’’ 96 The term would be consistent with the Trading Center definition of in Rule 600(a)(78) of Regulation NMS.97 q. Units of Trading Current Exchange Rule 11.6 provides that ‘‘[o]ne hundred (100) shares shall constitute a ‘round lot,’ any amount less than 100 shares shall constitute an ‘odd lot,’ and any amount greater than 100 shares that is not a multiple of a round lot shall constitute a ‘mixed lot.’’’ The Exchange proposes to relocate the definition of ‘‘Units of Trading’’ to proposed Exchange Rule 11.6(s). The relocated and amended definition would provide that a Round Lot is 100 shares, unless an alternative number of shares is established as a Round Lot by the listing exchange for the security. Similarly, in proposed Exchange Rule 95 Other exchanges offer TIF instructions similar to GTT. See CHX Rules Art. 1, Rule 2(d)(3) (Good ’Til Date), BATS Rule 11.9(b)(4) (Good ’til Day), BATS–Y Rule 11.9(b)(4) (Good ’til Day), and Nasdaq Rule 4751(h)(4) (System Hours Expire Time). 96 The term Trading Center is defined in Exchange Rule 2.11(a) and appears within Chapter XI. 97 Under Exchange Act Rule 600(a)(78), ‘‘Trading Center’’ is defined as ‘‘a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent.’’ See 242 CFR 600(a)(78). PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 11.9(a)(6)), the Exchange proposes a conforming change to replace the term ‘‘99 shares or fewer’’ with ‘‘less than a Round Lot.’’ Proposed Exchange Rule 11.6(s) would also state that Round Lots are eligible to be Protected Quotations. Current Exchange Rule 11.5(c)(2) defines the term an ‘‘Odd Lot Order’’ as ‘‘[a]n order to buy or sell an odd lot.’’ The Exchange proposes to revise and relocate the term to proposed Exchange Rule 11.6(s)(2). The definition would be amended to indicate that an Odd Lot is ‘‘[a]ny amount less than a Round Lot,’’ and that orders of Odd Lot size are only eligible to be Protected Quotations if aggregated to form a Round Lot. Current Exchange Rule 11.5(c)(3) defines the term a ‘‘Mixed Lot Order.’’ The Exchange proposes to revise and relocate the term to proposed Exchange Rule 11.6(s)(3). The definition would be amended to indicate that ‘‘[a]ny amount greater than a Round Lot that is not an integer multiple of a Round Lot,’’ and that the Odd Lot portions of an order of Mixed Lot size are only eligible to be Protected Quotations if aggregated to form a Round Lot.98 2. Order Types—Proposed Exchange Rule 11.8 The Exchange has determined that the majority of the existing individual order types should be reclassified as order type instructions to be attached to specific, standalone order types.99 Accordingly, the Exchange proposes to delete and replace current Exchange Rule 11.5 with proposed Exchange Rule 11.8, Order Types,100 which would outline the characteristics of the six order types that would be accepted by the System: (1) Market Orders, (2) Limit Orders, (3) ISOs, (4) MidPoint Match Orders, (5) NBBO Offset Peg Orders, and (6) Route Peg Orders. The Commission finds that the proposed rules relating to the definitions and descriptions of order types are consistent with the Act. The Commission notes that the definitions and operations of Market Order, Limit Order, ISO, and MPM Order are substantively similar to the current rule text, with added specificity related to the operation of the standalone order type and the order type instructions that may be attached thereto. The NBBO Offset Peg Order and Route Peg Order are currently offered by the Exchange, and the related rule text has been relocated and reformatted to conform to 98 The proposed definitions are similar to Nasdaq Rule 4751(g) (definition of ‘‘Order Size’’). 99 See Notice, supra note 3, at 44532. 100 Id. E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices rmajette on DSK3VPTVN1PROD with NOTICES the reorganization of the Exchange rule book without substantive amendment. Accordingly, the Commission believes that these proposed rule changes are consistent with the Act. a. Market Order Current Exchange Rule 11.5(a)(2) defines the term ‘‘Market Order.’’ The Exchange proposed to relocate the term to proposed Exchange Rule 11.8(a), and revise it to include additional language describing the operation of the order type and the order type instructions that may be attached thereto. Specifically, proposed Exchange Rule 11.8(a) would define a Market Order as ‘‘[a]n order to buy or sell a stated amount of a security that is to be executed at the NBBO or better when the order reaches the Exchange.’’ The proposed rule also specifies that Market Orders are eligible to execute during the Regular Session; ineligible to execute during the Pre-Opening or the PostClosing Trading Sessions; may be an Odd Lot, Round Lot, or Mixed Lot; and may include a Stop Price instruction. Proposed Exchange Rule 11.8(a)(2) would specify that a Market Order would default to a TIF instruction of Day, unless otherwise instructed by the User; and that in addition to Day, a User could append a Market Order with an IOC or FOK instruction. The proposed rule also sets forth that a Market Order with a FOK instruction would cancel if not executed in full portion immediately after entry 101 and that a Market Order with an IOC instruction would cancel any unexecuted portion of the order after checking the System for available shares, and, if applicable, upon return to the System after being routed to an away Trading Center. The proposed rule also specifies that a Market Order that does not include a Book Only, IOC or FOK instruction and cannot be executed in accordance with proposed Exchange Rule 11.10(a)(4) would be eligible for routing pursuant to proposed Exchange Rule 11.11.102 Under the proposed rules, a Market Order would post to the book in certain instances. Under proposed Exchange Rule 11.10(a)(3)(A), where the NBO/ NBB is greater/lesser than the Upper/ Lower Price Band, an incoming nonroutable buy/sell Market Order would post to the EDGX Book at a price equal to the Upper (Lower) Price Band, unless appended with a TIF instruction of IOC or FOK or a Cancel Back instruction.103 101 See Amendment No. 1, supra note 7. Exchange provides examples of the operation of Market Orders. See Notice, supra note 3, at 44533–34. 103 Current Exchange Rule 11.9(a)(3)(A) states, ‘‘[w]here a non-routable buy (sell) Market Order is 102 The VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 Under Proposed Exchange Rule 11.8(a)(4), a Market Order appended with both a Day and a Short Sale instruction that could not execute because of a Short Sale Restriction, would display pursuant to the Short Sale Price Sliding instruction.104 Under the proposed rules, there are also certain instances when a Market Order would cancel instead of execute. The proposed rule specifies that if a Market Order with a Book Only instruction is re-priced when the NBO/ NBB is greater/less than the Upper/ Lower Price Band, the order would be cancelled pursuant to proposed Exchange Rule 11.10(a)(4). The Exchange also specifies that, except for a Market Order that include a Destination-on-Open instruction, any portion of a Market Order that would execute at a price more than the greater of $0.50 or five percent worse than the consolidated last sale as published by the responsible single plan processor at the time the order is entered into the System, would be cancelled. b. Limit Order Current Exchange Rule 11.5(a)(1) defines a Limit Order as, ‘‘[a]n order to buy or sell a stated amount of a security at a specified price or better’’ and a ‘‘marketable’’ Limit Order as a ‘‘limit order to buy (sell) at or above (below) the lowest (highest) Protected Offer (Bid) for the security.’’ The term would be relocated to proposed Exchange Rule 11.8(b), and be amended to include additional language describing the operation of the order type and the order type instructions that may be attached thereto. The proposed rule specifies that a Limit Order is eligible for execution during the Pre-Opening Session, Regular Session, and the PostClosing Session, and could be an Odd Lot, Round Lot or Mixed Lot. A Limit Order could also be appended with the applicable combination of the following order type instructions: 105 IOC, FOK, Day, GTT, Displayed, Non-Displayed, Attributable, Non-Attributable, Post Only, Book Only, Discretionary Range, Reserve Quantity, Pegged, Minimum Execution Quantity, Stop Limit, Destination Specified, Destination-onentered into the System and the NBB (NBO) is greater (less) than to the Upper (Lower) Price Band, such order will be posted to the EDGX Book or executed, unless (1) the order is an IOC Order, in which case it will be cancelled if not executed, or (2) the User has entered instructions to cancel the order.’’ See also Securities Exchange Act Release No. 69003 (February 27, 2013), 78 FR 14380 (March 5, 2013) (SR–EDGX–2013–08). 104 See proposed Exchange Rule 11.6(l)(2), supra Section III.C.1.k.ii. 105 See discussion of Order Type Instructions, supra Section III.C.1. PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 65459 Open instruction, Aggressive or Super Aggressive. Proposed Exchange Rule 11.8(b)(7) specifies that a marketable Limit Order would be eligible to be routed pursuant to proposed Exchange Rule 11.11, unless it was appended with a Post Only, Book Only or Pegged instruction.106 c. Intermarket Sweep Order Current Exchange Rule 11.5(d)(1), specifies that the System accepts incoming ISOs (as such term is defined in Regulation NMS) and that to be eligible for treatment as an ISO, the order must be: (1) A Limit Order; (2) marked ISO; and (3) the User entering the order must simultaneously route one or more additional Limit Orders marked ISO, if necessary, to away markets to execute against the full displayed size of any Protected Quotation for the security with a price that is superior to the limit price of the ISO entered in the System. Such orders, if they meet the requirements of the foregoing sentence, may be executed at one or multiple price levels in the System without regard to Protected Quotations at away Trading Centers consistent with Regulation NMS (i.e., may trade through such quotations). The term would be relocated to proposed Exchange Rule 11.8(c), and amended to include additional language describing the operation of the order type and the order type instructions that may be attached thereto. Proposed Exchange Rule 11.8(c) would continue to instruct Members that the Exchange relies on, and it is the Member’s responsibility, to properly mark ISOs, to satisfy the compliance requirements of Regulation NMS.107 The proposed Rule also specifies that a User entering an ISO with a Day instruction is representing that it has simultaneously routed one or more additional ISOs, if necessary, to away Trading Centers to execute against the full displayed size of any Protected Quotation for the security with a price that is superior or equal to the limit price of the ISO entered in the System.108 106 In the Notice, the Exchange provides order handling examples of Limit Orders with various order type instructions under various book conditions. See Notice, supra note 3, at 44535–36. See also Amendment No. 1, supra note 7, for a discussion regarding (1) the Exchange joining the NBO, (2) Displayed limit orders with Post Only or Book Only instructions, and (3) order handling examples that previously included the Single RePrice instruction. See also Amendment No. 3, supra note 9, concerning orders with Routed and Returned Re-Pricing instructions. 107 See Notice, supra note 3, at 44537. 108 The ISO exception under Exchange Rule 11.10(f) requires that ISOs be routed to execute E:\FR\FM\04NON1.SGM Continued 04NON1 65460 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices Proposed Exchange Rule 11.8(c)(4) would also specify that incoming ISOs may be submitted during the PreOpening Session, Regular Session, and Post-Closing Session. Proposed Exchange Rule 11.8(c)(1)–(4) would also state that an incoming ISO will have a default TIF instruction of Day, unless the User selects a TIF instruction of GTT or IOC. Incoming ISOs cannot include a TIF instruction of FOK. The proposed Rule also sets forth that an incoming ISO with a Post Only and TIF instruction of GTT or Day, but without a Price Adjust or Hide Not Slide instruction, would be rejected if, marketable against a resting order with a Displayed instruction. Any unfilled portion of an ISO with a TIF instruction of GTT or Day would be posted at the ISO’s limit price on the EDGX Book. Proposed Exchange Rule 11.8(c) would specify that an ISO with a Post Only instruction and TIF instruction of GTT or Day may also be appended with Regulation NMS or Regulation SHO repricing instructions. Proposed Exchange Rule 11.8(c)(7) would permit a User to attach an instruction to an outbound ISO in order to permit that ISO to be immediately routed to an away Trading Center.109 However, pursuant to proposed Exchange Rule 11.11, inbound ISOs would not be eligible for routing under any circumstances. rmajette on DSK3VPTVN1PROD with NOTICES d. MidPoint Match Order Exchange Rule 11.5(c)(7) currently defines an MPM Order as ‘‘[a]n order with an instruction to execute it at the midpoint of the NBBO.’’ The term would be relocated to proposed Exchange Rule 11.8(d), and amended to include additional language describing the operation of the order type and the order type instructions that may be attached thereto. The MPM Order definition would be amended to specify that it could be a Market Order or a Limit Order, as well as to indicate that the limit price of an MPM order would represent the highest/lowest price at which order may buy/sell.110 The against all protected quotations with a price that is better than or equal the display price, rather than solely to protected quotations for a security with a price that is superior to the ISO’s limit price. See Question 5.02 in the Division of Trading and Markets, Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS (last updated April 4, 2008) available at https://www.sec.gov/divisions/marketreg/ nmsfaq610-11.htm. 109 This Directed Intermarket Sweep Order functionality is currently provided pursuant to Exchange Rule 11.5(d)(2). See Notice, supra note 3, at 44537. 110 For example, if an MPM Order to buy is entered with a limit price that was less than the prevailing midpoint of the NBBO it would not be VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 proposed rule would also set forth that notwithstanding the co-designation as a Market or Limit Order, the operation of the MPM Order would be governed by proposed Exchange Rule 11.8(d). Proposed Exchange Rule 11.8(d)(1) specifies that an MPM Order could be appended with a TIF instruction of Day, FOK, IOC, or GTT. Proposed Exchange Rule 11.8(d)(2) specifies that an MPM Order could include a Minimum Execution Quantity instruction. Proposed Exchange Rule 11.8(d)(3) specifies that MPM Orders would default to a Non-Displayed instruction and are not eligible to include a Displayed instruction. Proposed Exchange Rule 11.8(d)(5) specifies that, pursuant to proposed Exchange Rule 11.11, MPM Orders are ineligible for routing. Pursuant to the proposed rule, MPM Orders may only be executed during the Regular Session, and any unexecuted portion of a resting MPM Order with a Day or GTT instruction would receive a new time stamp each time it is re-priced in response to changes to the midpoint of the NBBO. However, an incoming or resting MPM Order would be ineligible for execution if there was a Locking Quotation or Crossing Quotation. The ability of the resting or incoming MPM Order to execute would resume, and the order would receive a new time stamp, when the locked/crossed condition was resolved and a new midpoint relative to the NBBO was established, the MPM Order would receive a new time stamp. Similarly, MPM Orders would be ineligible to execute if the midpoint of the NBBO was below the Lower Price Band or above the Upper Price Band. Pursuant to proposed Exchange Rule 11.9, all MPM Orders would retain their comparative priority based upon order’s initial receipt and ranking at the midpoint of the NBBO. The proposed rule would also specify that MPM Orders are eligible to participate in the Opening Process; but ineligible to participate in the PreOpening Session, Post-Closing Session, or the Contingent Open pursuant to proposed Exchange Rule 11.7(d). Pursuant to proposed Exchange Rule 11.7(d), if there is a Contingent Open an MPM Order would remain ineligible to trade during the Regular Session until a price for an Open Transaction has been determined pursuant to proposed Exchange Rule 11.7(c). eligible to execute at the mid-point of the NBBO. An MPM Order to buy with a limit price that is greater than the prevailing NBBO would be able to execute at the mid-point of the NBBO and not at its limit price. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 e. NBBO Offset Peg Order Exchange Rule 11.5(c)(15) currently defines the NBBO Offset Peg Order. The term would be relocated to proposed Exchange Rule 11.8(e) and reformatted, without substantive amendment. The NBBO Offset Peg Order would continue to be defined as a Limit Order that, upon entry, is automatically priced by the System at the Designated Percentage 111 away from the current NBB/NBO for a buy/sell order, or if there is no NBB/NBO, at the Designated Percentage away from the last reported sale from the responsible single plan processor. The proposed rule would specify that notwithstanding its codesignation as a Limit Order, the operation of an NBBO Offset Peg Order would be governed by proposed Exchange Rule 11.8(e). The proposed rule also sets forth that the price of an NBBO Offset Peg Order bid or offer would automatically adjust to the Designated Percentage away from the current NBB/NBO; or if there is no current NBB/NBO, to the Designated Percentage away from the last reported sale from the responsible single plan processor, upon reaching the Defined Limit.112 The proposed rule also sets forth that if an NBBO Offset Peg Order moves a specified number of percentage points away from the Designated Percentage toward the current NBB/ NBO, the price of such bid/offer would automatically adjust the Designated Percentage away from the current NBB/ NBO; or if there is no current NBB/NBO, the order would automatically adjust to the Designated Percentage away from the last reported sale from the responsible single plan processor. Pursuant to the proposed rule, cancellation or rejection would result if the order exceeded its limit price due to an NBBO Offset Peg Order being priced at the Designated Percentage away from the current NBB/NBO; or, if there is no current NBB/NBO, to the Designated Percentage away from the last reported sale from the responsible single plan processor. As proposed, the absence of a current NBB/NBO and last sale reported by the responsible single plan processor would also cause the order to be cancelled or rejected. Under the proposed rule, if a resident NBBO Offset Peg Order was priced based on the last sale reported by the responsible single plan processor and such NBBO Offset Peg Order is established as the NBB/NBO, the NBBO Offset Peg Order would not adjust until either new last sale reported by the 111 See 112 See E:\FR\FM\04NON1.SGM proposed Exchange Rule 11.20(d)(2)(D). proposed Exchange Rule 11.20(d)(2)(F). 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices rmajette on DSK3VPTVN1PROD with NOTICES responsible single plan processor, or a new NBB/NBO was established by a national securities exchange. However, if a Crossing Quotation existed, the NBBO Peg Offset Order would automatically price at the Designated Percentage 113 (away from the current NBO/NBB for a buy/sell order). The proposed rule sets forth that NBBO Offset Peg Orders may only include a TIF instruction of Day; may only be Round Lots or Mixed Lots; are defaulted by the System to a Displayed instruction and are not eligible to include a Non-Displayed instruction; and may be submitted at the beginning of the Pre-Opening Session, but are not executable or automatically priced until after the first regular way last sale on the relevant listing exchange for the security, as reported by the responsible single plan processor. In addition the rule sets forth that NBBO Offset Peg Orders would receive a new time stamp each time it re-prices in response to changes in the NBB, NBO, or last reported sale; would be ineligible for routing pursuant to proposed Exchange Rule 11.11; and would expire at the end of the Regular Session. Finally, pursuant to Exchange Rule 11.20(d), irrespective of the NBBO Offset Peg Order, and consistent with its obligations, Market Makers would continue to be responsible for entering, monitoring, and re-submitting, as applicable, quotations. f. Route Peg Order Exchange Rule 11.5(c)(17) currently defines the term Route Peg Order. The term would be relocated to proposed Exchange Rule 11.8(f) and reformatted to conform to other rule changes, without substantive amendment. The Route Peg Order is a passive, resting order that does not remove liquidity or execute at a price inferior to a Protected Quotation. The Route Peg Order would be defined as a non-displayed Limit Order that is eligible for execution at the NBB for a buy order and NBO for a sell order against an order that is in the process of being routed to away Trading Centers with an order size equal to or less than the aggregate size of the Route Peg Order interest available at that price. The proposed rule would specify that notwithstanding its co-designation as a Limit Order, the operation of a Route Offset Peg Order would be governed by proposed Exchange Rule 11.8(f). The proposed rule would also set forth that Route Peg Orders may only have a TIF instruction of GTT or Day and would be ineligible to include a TIF 113 See proposed Exchange Rule 11.20(d)(2)(D). VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 instruction of IOC or FOK; may only be Round Lots or Mixed Lots; would default to, and could be appended with a Non-Displayed instruction; but not with the Displayed instruction. In addition, the proposed rule sets forth that the Route Peg Order could include a Minimum Execution Quantity but is ineligible for routing pursuant to proposed Exchange Rule 11.11. The proposed rule also set forth that Route Peg Orders may be entered, cancelled, and cancelled/replaced prior to and during the Regular Session and all unexecuted portions thereof are cancelled at the end of the Regular Session. Route Peg Orders would only be eligible for execution in a given security during the Regular Session, except during the Opening Session and until orders in a given security can be posted on the EDGX Book during the Regular Session. Route Peg Orders would also be ineligible for execution if a Locking Quotation or Crossing Quotation existed; however the ability of the Route Peg Order to execute would resume once the locked/crossed condition was cleared. D. Execution Priority of Orders 1. Priority—Proposed Exchange Rule 11.9 Current Exchange Rule 11.8 sets forth the priority of order executions. The Exchange proposes to relocate the provision to proposed Exchange Rule 11.9 and to amend it to codify and state the following: (1) The priority of orders at certain price points; (2) the priority of Limit Orders with a Reserve Quantity; and (3) certain other conforming and clarifying changes. The Exchange states that its proposed amendments outline current System functionality in the Exchange’s Rules. Under Exchange Rule 11.9(a), orders of Users are first ranked and maintained by the System on the EDGX Book according to their price. Orders at the same price and of the same type are then ranked by the System depending on the time they were entered into the System. The Exchange proposes to amend Exchange Rule 11.9 to specify how orders with certain order type instructions are ranked by the System: 114 (1) At a price other than the midpoint of the NBBO; (2) at the midpoint of the NBBO; and (3) where buy (sell) orders utilize instructions that cause them to be ranked by the System 114 In Amendment No. 3, the Exchange states that it is currently conducting a review of its System functionality and will file, as appropriate, any proposed rule changes necessary to clarify the operation of its order types not covered by this filing by November 1, 2014. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 65461 upon clearance of a Locking Quotation.115 The Exchange also proposes to provide that, for purposes of priority under Exchange Rule 11.9(a)(2)(A) and (B): (1) An ISO 116 and NBBO Offset Peg Order 117 are to be treated as Limit Orders; 118 and (2) orders subject to a re-pricing instruction to comply with Rule 201 of Regulation SHO under proposed Exchange Rule 11.6(l)(2), including Market Orders that are displayed on the EDGX Book pursuant to proposed Exchange Rule 11.8(a)(4) and proposed Exchange Rule 11.10(a)(3)(A), maintain the same priority as Limit Orders at that price. 2. Prices Other Than the Midpoint of the NBBO Current Exchange Rule 11.8(a)(2) states, in sum, that the System shall execute equally priced trading interest in time priority in the following order: (1) Displayed size of limit orders; (2) MidPoint Match Orders; (3) Nondisplayed limit orders and reserve orders; (4) Discretionary range of Discretionary Orders as set forth in current Exchange Rule 11.5(c)(13); and (5) Route Peg Orders as set forth in current Exchange Rule 11.5(c)(17). The Exchange proposes to amend the above priority to state that it applies to equally priced trading interest at prices other than at the midpoint of the NBBO or where orders are re-ranked at the Locking Price after a Locking Quotation clears.119 As amended, proposed Exchange Rule 11.9(a)(2)(A) would state that the System will execute equally priced trading interest within the System at prices, other than at the midpoint of the NBBO or where orders are re-ranked at the Locking Price after a Locking Quotation clears, in time priority in the following order: (1) The portion of a Limit Order with a Displayed instruction; (2) Limit Orders with a Non-Displayed instruction and the Reserve Quantity of Limit Orders; (3) Limit Orders executed within their Discretionary Range; and (4) Route Peg Orders.120 115 For purposes of priority under proposed Exchange Rule 11.9(a)(2)(A), (B) and (C), the Exchange notes that orders of Odd Lot, Round Lot, or Mixed Lot size are treated equally. 116 See proposed Exchange Rule 11.8(c), discussed above in Section III.C.2.c. 117 See proposed Exchange Rule 11.8(e), discussed above in Section III.C.2.e. 118 See proposed Exchange Rule 11.8(b), discussed above in Section III.C.2.b. 119 The Exchange also proposes to amend the description of order types under proposed Exchange Rules 11.9(a)(2)(A)(i)–(iv) to be consistent with proposed Exchange Rule 11.8, Order Types. 120 See proposed Exchange Rule 11.9(a)(2)(A). See also Notice, supra note 3, at 44539 for an example E:\FR\FM\04NON1.SGM Continued 04NON1 65462 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices 3. At the Midpoint of the NBBO The Exchange also proposes to outline a separate priority for orders ranked at the midpoint of the NBBO under proposed Exchange Rule 11.9(a)(2)(B). Where orders are priced at the midpoint of the NBBO, the first order priced at the midpoint of the NBBO within each of the categories set forth in paragraphs (i) through (iv) of proposed Exchange Rule 11.9(a)(2)(B) shall have precedence at the midpoint of the NBBO, up to the number of shares of stock specified in the order. The System shall execute trading interest priced at the midpoint of the NBBO within the System in time priority in the following order: (1) Limit Orders to which the Hide Not Slide or Routed and Returned Re-Pricing instruction has been applied; (2) MidPoint Match Orders; (3) Limit Orders with a Non-Displayed instruction; and (4) Limit Orders executed within their Discretionary Range.121 4. Orders Re-Ranked Upon Clearance of a Locking Quotation rmajette on DSK3VPTVN1PROD with NOTICES The Exchange also proposes to outline a priority of orders for orders that utilize instructions that result in their being reranked upon clearance of a Locking Quotation. In such case, the System reranks and displays such orders at the Locking Price. The Exchange proposes to include proposed Exchange Rule 11.9(a)(2)(C), which would state that, where an order is re-ranked to the Locking Price after a Locking Quotation clears, the System will re-rank and display such orders at the Locking Price in time priority in the following order: (1) ISO with a TIF instruction of Day that establishes a new NBBO at the Locked Price; (2) Limit Orders to which the Hide Not Slide or Routed and Returned Re-Pricing instruction has been applied; (3) Limit Orders to which the Price Adjust instruction has been applied; and (4) orders with a Pegged instruction.122 Orders not executed and remaining on the EDGX Book after being re-ranked upon clearance of the Locking Quotation will be executed in time illustrating the operation of priority at prices other than the Midpoint of the NBBO. 121 See proposed Exchange Rule 11.9(a)(2)(B). See also Notice, supra note 3, at 44540 for an example illustrating the operation of priority at prices at the midpoint of the NBBO. 122 See proposed Exchange Rule 11.9(a)(2)(C). See also Notice, supra note 3, at 44540 for an example with two scenarios illustrating the operation of priority for orders re-ranked upon clearance of a locking quotation. See also Amendment No. 1, supra note 7, which replaces the order with a Single Re-Price instruction with an order with a Price Adjust instruction. VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 priority under proposed Exchange Rule 11.9(a)(2)(A) described above. 5. Reserve Quantity Priority The Exchange proposes to amend Exchange Rule 11.9(a)(6) to modify the description of the priority of an order with a Reserve Quantity and to amend certain terms to be consistent with the order type rules under proposed Exchange Rules 11.6 and 11.8. For both the Fixed Replenishment and Random Replenishment instruction, the displayed quantity receives a new time stamp each time it is replenished from the Reserve Quantity. The Reserve Quantity retains the time stamp of its original entry. Current Exchange Rule 11.8(a)(6) discusses the priority of the Reserve Quantity of an order and states that ‘‘[a] new time stamp is created both for the refreshed and reserved portion of the order each time it is refreshed from reserve.’’ The Exchange proposes to amend this description to state that a new time stamp is created only for the displayed quantity of the order each time it is replenished from Reserve Quantity. In addition, as discussed above in Section III.C.1.l, proposed Exchange Rule 11.8(m)(1) states that a new time stamp is created for the portion of the order with a Displayed instruction each time it is replenished from the Reserve Quantity, while the Reserve Quantity retains the time-stamp of its original entry.123 The Commission finds that proposed Exchange Rule 11.9 relating to priority is consistent with Section 6(b)(5) of the Act,124 in that it is designed 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. The proposed rule change codifies the order handling and execution priority of orders on the EDGX Book which in turn provides greater transparency for, and thereby benefit, Members, Users, and the general investing public. IV. Accelerated Approval The Commission finds goods cause, pursuant to Section 19(b)(2) of the Exchange Act,125 for approving the proposed rule change, as modified by Amendment Nos. 1 and 3 thereto, prior to the 30th day after publication of notice of the filing of Amendment Nos. 1 and 3 in the Federal Register. Amendment No. 1 removes proposed rule text relating to the Single Re-Price 123 See proposed Exchange Rule 11.9(a)(6). See also Notice, supra note 3, at 44540 for an example illustrating the operation of priority for an order with a Reserve Quantity. 124 15 U.S.C. 78f(b)(5). 125 15 U.S.C. 78s(b)(2). PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 and Short Sale Single Re-Price pricing instructions to indicate that the Exchange will no longer offer such functionality, adds language to the Post Only instruction definition to provide that the highest possible rebate paid and the highest possible fee will be used to determine whether the order with a Post Only instruction will execute against orders on the EDGX Book upon arrival, adds rationale to the statutory basis section for suspending the discretion of an order with a Hide Not Slide instruction to execute at the Locking Price when a contra-side order that equals the Locking Price is displayed by the System on the EDGX Book in order to avoid an apparent violation of that contra-side displayed order’s priority, and makes a series of non-substantive, corrective changes to the Notice. According to the Exchange, Amendment No. 1 reflects the Exchange’s efforts to simplify its proposal and streamline System functionality, thereby benefiting Members, Users and the investing public by making the rules and functionality easier to understand. According to the Exchange, Amendment No. 3 clarifies the operation of the Routed and Returned Re-Pricing instruction, thereby making the rules and functionality easier to understand. Accordingly, the Commission does not believe that Amendments No. 1 and 3 raise any novel regulatory issues and therefore finds that good cause exists to approve the proposal, as modified by Amendment Nos. 1 and 3, on an accelerated basis. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment Nos. 1 and 3 to the proposed rule change, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– EDGX–2014–18 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–EDGX–2014–18. This file number should be included on the subject line if email is used. E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 79, No. 213 / Tuesday, November 4, 2014 / Notices To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–EDGX– 2014–18 and should be submitted on or before November 25, 2014. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,126 that the proposed rule change (SR–EDGX–2014– 18), as modified by Amendment Nos. 1 and 3, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.127 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–26127 Filed 11–3–14; 8:45 am] rmajette on DSK3VPTVN1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73465; File No. SR–CME– 2014–44] Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Modifications to Its OTC IRS Fee Schedule October 29, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 20, 2014, Chicago Mercantile Exchange Inc. (‘‘CME’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in Items I, II and III below, which Items have been primarily prepared by CME. CME filed the proposal pursuant to Section 19(b)(3)(A) of the Act,3 and Rule 19b–4(f)(2) 4 thereunder, so that the proposal was effective upon filing with the Commission. 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 CME is filing proposed rule changes that are limited to its business as a derivatives clearing organization. More specifically, the proposed rule changes would modify the fee schedule applicable to its over-the-counter (‘‘OTC’’) interest rate swap (‘‘IRS’’) clearing offering. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CME included statements concerning the purpose 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. CME has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(2). 2 17 126 15 127 17 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). VerDate Sep<11>2014 15:39 Nov 03, 2014 Jkt 235001 PO 00000 Frm 00092 Fmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change CME is registered as a derivatives clearing organization with the Commodity Futures Trading Commission (‘‘CFTC’’) and currently offers clearing services for many different futures and swaps products. With this filing, CME proposes to modify the fee schedule (the ‘‘Fee Schedule’’) that applies to OTC IRS cleared at CME. The propose fee changes relate to back-loaded trades submitted by IRS Clearing Members. The proposed changes are limited to the current CME OTC Interest Rate Swaps IRS Clearing Member Fee Schedule and would not impact the corresponding OTC IRS Customer Fee Schedule. The proposed modifications would simply make amendments to certain exceptions that apply to the basic transaction fee charged to IRS Clearing Members for OTC IRS. Currently, transaction fees are eligible for waiver on all back-loaded trades, which are defined as trades ‘‘where the Trade Date is prior to the Cleared Date’’—the amendments would change this definition so that backloaded trades for these purposes would instead be defined as trades where the Trade Date is at least five days prior to the Cleared Date. In addition, the amendments would make clear that transaction fees will be waived on all trades executed to facilitate client terminations, defined as where the Effective Date is no more than the Standard Day Offset for that currency denomination after the Trade Date, rather than Cleared Date. The changes that are described in this filing impact fees that are limited to CME’s business as a derivatives clearing organization clearing products under the exclusive jurisdiction of the CFTC and do not materially impact CME’s security-based swap clearing business in any way. The fee changes would become effective immediately but would be operationalized on November 1, 2014. CME notes that it has already submitted the proposed rule changes that are the subject of this filing to its primary regulator, the CFTC, in CME Submission 14–442. CME believes the proposed rule changes are consistent with the requirements of the Exchange Act including Section 17A of the Exchange Act.5 More specifically, the proposed rule changes establish or change a member due, fee or other charge 5 15 Sfmt 4703 65463 U.S.C. 78q–1. E:\FR\FM\04NON1.SGM 04NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 213 (Tuesday, November 4, 2014)]
[Notices]
[Pages 65450-65463]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26127]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73468; File No. SR-EDGX-2014-18]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing of Amendment Nos. 1 and 3 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 
3, To Amend EDGX Rule 1.5 and Chapter XI Regarding Current System 
Functionality Including the Operation of Order Types and Order 
Instructions

October 29, 2014.

I. Introduction

    On July 16, 2014, EDGX Exchange, Inc. (``Exchange'' or ``EDGX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend Rule 1.5 and Chapter XI of its rule book relating to the 
operation of order types and order instructions on the Exchange, 
trading sessions and openings and re-openings. The proposed rule change 
was published for comment in the Federal Register on July 31, 2014.\3\ 
On September 11, 2014, the Commission extended the time period for 
Commission action on the proposal to October 29, 2014.\4\ The 
Commission received three comment letters from the same commenter on 
the proposed rule change,\5\ as well as a letter from the Exchange 
regarding the first comment letter.\6\ On October 14, 2014, the 
Exchange filed Amendment No. 1 to the proposed rule change.\7\ On 
October 17, 2014, the Exchange filed Amendment No. 2 to the proposed 
rule change, which was later withdrawn.\8\ On October 17, 2014, the 
Exchange filed Amendment No. 3 to the proposed rule change.\9\ The 
Commission is publishing this Notice and Order to solicit comment on 
Amendment Nos. 1 and 3 and to approve the proposed rule change, as 
modified by Amendment Nos. 1 and 3, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72676 (July 25, 
2014), 79 FR 44520 (``Notice'').
    \4\ See Securities Exchange Act Release No. 73083 (September 11, 
2014), 79 FR 55850 (September 17, 2014).
    \5\ See Letters from Suzanne H. Shatto to Secretary, Commission, 
dated August 19, 2014 (``Shatto Letter I''), September 18, 2014 
(``Shatto Letter II'') and September 22, 2014 (``Shatto Letter 
III''). The Commission believes that the comments raise general 
market structure issues that are beyond the scope of the proposed 
rule change.
    \6\ See Letter from Eric Swanson, EVP and General Counsel, 
DirectEdge, to Secretary, Commission, dated September 12, 2014 
(``Exchange Letter''). According to the Exchange, Shatto Letter I 
did not raise issues germane to the instant proposed rule change, 
and therefore the Exchange is not responding to the comments.
    \7\ In Amendment No. 1, the Exchange: (1) Removed the proposed 
rule text related to Single Re-Price and Short Sale Single Re-Price 
instructions to indicate that the Exchange will no longer offer such 
functionality; (2) added language to the Post Only instruction 
definition to provide that the highest possible rebate paid and the 
highest possible fee will be used to determine whether an order with 
a Post Only instruction will execute against orders on the EDGX 
Book; (3) added rationale to the statutory basis section for 
suspending the discretion of an order with a Hide Not Slide 
instruction to execute at the Locking Price when a contra-side order 
that equals the Locking Price is displayed by the System on the EDGX 
Book in order to avoid an apparent violation of that contra-side 
displayed order's priority; and (4) made a series of non-
substantive, corrective changes to the Notice. Amendment No. 1 has 
been placed in the public comment file for SR-EDGX-2014-18 at https://www.sec.gov/comments/sr-edgx-2014-18/edgx201418.shtml (see letter 
from Christopher Solgan, Regulatory Counsel, DirectEdge, to 
Secretary, Commission, dated October 15, 2014) and also is available 
on the Exchange's Web site.
    \8\ Amendment No. 2, dated October 17, 2014, was withdrawn on 
October 17, 2014.
    \9\ In Amendment No. 3, the Exchange specified that upon return 
to the Exchange, an order with the Routed and Returned Re-Pricing 
instruction will execute against marketable contra-side liquidity 
displayed on the EDGX Book. If there is no marketable contra-side 
liquidity displayed on the EDGX book upon return but such Routed and 
Returned Order would be displayed at a price that would be a Locking 
or Crossing Quotation, then such order will be displayed at a price 
that is one Minimum Price Variation lower (higher) than the Locking 
Price for orders to buy (sell), will be ranked at the mid-point of 
the NBBO with discretion to execute at the Locking Price. A 
subsequently arriving contra-side order could suspend the Routed and 
Returned Order's discretion to execute at the Locking Price. 
Amendment No. 3 has been placed in the public comment file for SR-
EDGX-2014-18 at https://www.sec.gov/comments/sr-edgx-2014-18/edgx201418.shtml (see letter from Christopher Solgan, Regulatory 
Counsel, DirectEdge, to Secretary, Commission, dated October 17, 
2014) and also is available on the Exchange's Web site.
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II. Background

    The proposed rule change, as described in more detail below and in 
the Notice, amends Rule 1.5 and

[[Page 65451]]

Chapter XI of the EDGX rule book, relating to: (1) The Exchange's 
trading sessions and hours of operation; (2) the process for initial 
opening and re-opening after a trading halt by adding proposed Exchange 
Rule 11.7, Opening Process; (3) order type, order type instructions and 
System \10\ functionality; (4) the execution priority of orders; and 
(5) organizational and conforming amendments.\11\ According to the 
Exchange, these changes are designed to update its rule book to reflect 
current system functionality and to propose four new System 
functionalities, as described in more detail below.\12\
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    \10\ Exchange Rule 1.5(cc) defines ``System'' as ``the 
electronic communications and trading facility designated by the 
Board through which securities orders of Users are consolidated for 
ranking, execution and, when applicable, routing away.''
    \11\ The Exchange also proposes moving text from Footnote 4 of 
the Exchange's Fee Schedule into proposed Exchange Rule 11.21.
    \12\ See also Notice, supra note 3. The four new System 
functionalities are as follows: (1) Proposed Rule 11.7(c). 
Alternatively set the price of the Opening Process for securities 
listed on either the New York Stock Exchange, Inc. (``NYSE'') or 
NYSE MKT LLC (``NYSE MKT'') at the midpoint of the then prevailing 
National Best Bid and Offer (``NBBO'') when the first two-sided 
quotation published by the listing exchange after 9:30:00 a.m. 
Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade 
is reported by the listing exchange within one second of publication 
of the first two-sided quotation by the listing exchange; (2) 
Proposed Rule 11.7(e). Alternatively set the price of a re-opening 
at the midpoint of the then prevailing NBBO when the first two-sided 
quotation is published by the listing exchange following the 
resumption of trading after a halt, suspension, or pause if no first 
trade is reported within one second of publication of the first two-
sided quotation by the listing exchange; (3) Proposed Rule 
11.6(j)(1). Require that an order with a Market Peg instruction that 
is to be displayed by the System on the EDGX Book include an offset 
equal to or greater than one Minimum Price Variation; and (4) 
Proposed Rule 11.6(n)(4). Permit an order with a Post Only 
instruction to execute against an order resting on the EDGX Book 
where it is eligible to receive price improvement as described under 
the proposed rule.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change and the comments 
received, the Commission finds that the proposed rule change, as 
modified by Amendment Nos. 1 and 3, is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\13\ In particular, as described in more 
detail below, the Commission finds that the proposed rule change, as 
modified by Amendment Nos. 1 and 3, is consistent with Section 6(b)(5) 
of the Act,\14\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. This order 
approves the proposed rule change in its entirety, although only 
certain more significant aspects of the proposed rules are discussed 
below.
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    \13\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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A. Exchange Trading Sessions and Hours of Operation

    Currently, Exchange Rule 11.1(a) provides that orders may be 
entered, executed or routed away during Regular Trading Hours, the Pre-
Opening Session, and the Post-Closing Session, but does not define 
those terms. The Exchange proposes to add the term ``Session 
Indicator'' to codify the manner that a User \15\ may elect the trading 
sessions for which its orders are eligible for execution. The Exchange 
also proposes to describe the terms Regular Trading Hours, Pre-Opening 
Session and Post Closing Session as Session Indicators, and specify the 
time frames that orders with such indicators would be eligible for 
execution. Similarly, the Exchange proposes to add and describe the 
terms ``Regular Session'' and ``All Sessions'' as Session Indicators to 
codify additional options that a User may elect to establish the 
trading sessions and time frames that an order may be eligible for 
execution.
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    \15\ The term ``User'' is defined as ``any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.'' See Exchange Rule 1.5(ee).
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.1(a)(1), describing the term Session 
Indicator, specifies that all orders are eligible for execution during 
the Regular Session, and that orders not designated for a particular 
session or session would default to the Regular Session. The proposed 
rule also specifies that orders may be entered from 6:00 a.m. until 
8:00 p.m. Eastern Time but are not eligible for execution until the 
start of the session selected by the User.
    Proposed Exchange Rule 11.1(a)(1)(A) specifies that orders 
designated as Pre-Opening Session would be eligible for execution 
between 8:00 a.m. Eastern Time and 4:00 p.m. Eastern Time. Proposed 
Exchange Rule 11.1(a)(1)(B) specifies that orders designated as Regular 
Session would be eligible for execution between the completion of the 
Opening Process or a Contingent Open,\16\ whichever occurs first, and 
4:00 p.m. Eastern Time. Proposed Exchange Rule 11.1(a)(1)(C) specifies 
that orders designated as Post-Closing Session would be eligible for 
execution between the start of the Regular Session and 8:00 p.m. 
Eastern Time. Proposed Exchange Rule 11.1(a)(1)(D) specifies that 
orders designated as All Sessions would be eligible for execution 
between 8:00 a.m. Eastern Time and 8:00 p.m. Eastern Time.
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    \16\ See proposed Exchange Rule 11.7(d).
---------------------------------------------------------------------------

    The Commission believes that the proposed rules relating to the 
Exchange trading sessions and hours of trading are consistent with the 
Act. The proposed rule makes the operation of the Exchange more 
transparent which should benefit Members, Users, and the general 
investing public. The Commission also notes that the proposed rule is 
substantially similar to that of other exchanges.\17\
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    \17\ See Nasdaq Rules 4751(h) and 4617; see also International 
Securities Exchange (``ISE'') Rule 2102, BATS Rules 1.5(c), (r), 
(w), 11.1 and 11.9(b).
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B. Process for Initial Opening and Re-Opening

    The Exchange's current rules make various references to, but do not 
describe, an Opening Process. Accordingly, the Exchange proposes 
Exchange Rule 11.7 to codify and describe its current Opening and Re-
Opening processes, with two changes, which are described below.
    Proposed Exchange Rule 11.7(a) describes the entry and cancellation 
of orders before the Opening Process. Specifically, prior to the 
Regular Session, Users may enter orders to participate in the Opening 
Process. All orders are eligible to participate during the Opening 
Process, except (1) orders with a Stop Price \18\ or Stop Limit 
instruction,\19\ (2) Limit Orders with a Post Only,\20\ Fill-or-Kill 
(``FOK'') or Immediate or Cancel (``IOC'') instruction, (3) Intermarket 
Sweep Orders (``ISOs'') or (4) orders cancelled before the Opening 
Process. Orders ineligible to participate in the Opening Process, but 
designated for the Regular Session, would not be accepted by the System 
on the EDGX Book \21\ until the completion of the Opening Process or 
the initiation of a Contingent Open as set forth by proposed Exchange 
Rule 11.7.
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    \18\ See proposed Exchange Rule 11.8(a)(1) discussed below in 
Section III.C.2.a.
    \19\ See proposed Exchange Rule 11.8(b)(1) discussed below in 
Section III.C.2.b.
    \20\ See proposed Exchange Rule 11.6(n)(4) discussed below in 
Section III.C.1.m.
    \21\ The term ``EDGX Book'' is defined as ``the System's 
electronic file of orders.'' See Exchange Rule 1.5(d).
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    Proposed Exchange Rule 11.7(b) describes the execution of orders 
during the Opening Process. Specifically, during the Opening Process 
the

[[Page 65452]]

Exchange would attempt to execute all eligible orders by matching buy 
and sell orders, in time sequence, at the midpoint of the NBBO, and 
would continue until either there were no orders to be matched or there 
was a remaining imbalance of orders. If the Opening Process resulted in 
no orders being matched, or a remaining imbalance of orders, the 
unexecuted orders would then be posted on the EDGX Book, canceled, 
executed, or routed to an away Trading Center pursuant to proposed 
Exchange Rule 11.11.
    Proposed Exchange Rule 11.7(c) describes how the opening price is 
determined during the Opening Process. Specifically, for securities 
listed on either the NYSE or NYSE MKT, the Opening Process would set 
the opening price at the midpoint based on the: (1) First NBBO 
subsequent to the first reported trade on the listing exchange after 
9:30:00 a.m. Eastern Time; or (2) the prevailing NBBO when the first 
two-sided quotation published by the listing exchange after 9:30:00 
a.m. Eastern Time, but before 9:45:00 a.m. Eastern Time if no first 
trade is reported by the listing exchange within one second of 
publication of the first two-sided quotation by the listing 
exchange.\22\ For any other listing market, the Opening Process would 
be priced at the midpoint of the first NBBO disseminated after 9:30:00 
a.m. Eastern Time.
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    \22\ Currently for NYSE and NYSE MKT listed securities, the 
Opening Process sets the opening price based on the midpoint of the 
first NBBO subsequent to the first-reported trade on the listing 
exchange after 9:30:00 a.m. Eastern Time.
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    Proposed Exchange Rule 11.7(d) describes the Contingent Open. A 
Contingent Open would result if the Opening Process did not yield an 
opening price by 9:45:00 a.m. Eastern Time. In such an instance, the 
order would either be posted to the EDGX Book, routed, canceled, or 
executed consistent with its order type instruction, except that a 
MidPoint Match (``MPM'') Order, would be ineligible for execution until 
an opening price had been determined pursuant to the Opening Process.
    Proposed Exchange Rule 11.7(e) describes Re-Openings. A Re-Opening 
would occur after a trading halt, suspension or pause. The Re-Opening 
price would be the midpoint of the: (1) First NBBO subsequent to the 
first reported trade on the listing exchange following the resumption 
of trading after a halt, suspension, or pause; or (ii) then prevailing 
NBBO when the first two-sided quotation published by the listing 
exchange following the resumption of trading after a halt, suspension, 
or pause if no first trade is reported by the listing exchange within 
one second of publication of the first two-sided quotation by the 
listing exchange.\23\
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    \23\ Currently, the Re-Opening price of a security is determined 
by the midpoint of the first NBBO subsequent to the first-reported 
trade on the listing exchange following the resumption of trading 
after a halt, suspension, or pause.
---------------------------------------------------------------------------

    The Commission finds that the proposed rule to codify the Exchange 
Opening Process, Contingent Open and Re-Openings is consistent with the 
Act. The Commission believes that the proposed rule is reasonably 
designed to facilitate an orderly transition between the Pre-Opening 
Session and Regular Trading Hours, as well as the resumption of trading 
after a trading halt, suspension or pause. Finally, the Commission 
notes that the Exchange rule is based on ISE Rule 2106.\24\
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    \24\ Unlike ISE Rule 2106, proposed Exchange Rule 11.7 provides 
for late openings under certain conditions and permits the opening 
price for securities listed on either the NYSE or NYSE MKT to be 
priced at the midpoint of either the first NBBO subsequent to the 
first reported trade on the listing exchange after 9:30:00 a.m. 
Eastern Time; or the prevailing NBBO when the first two-sided 
quotation published by the listing exchange after 9:30:00 a.m. 
Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade 
is reported by the listing exchange within one second of publication 
of the first two-sided quotation by the listing exchange. See 
Securities Exchange Act Release No. 54287 (August 8, 2006), 71 FR 
46947 (August 15, 2006).
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C. Order Types, Order Type Instructions and System Functionality Under 
Chapter XI

1. Definitions--Proposed Exchange Rule 11.6
    As discussed in more detail below, proposed Exchange Rule 11.6 
would relocate and reclassify various terms currently defined in the 
Exchange rulebook, as well as add certain other defined terms. The 
Exchange proposes to classify certain existing order types as 
``instructions'' to be attached to one or more standalone order 
types.\25\
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    \25\ Under the proposal, the only standalone order types would 
be Market Orders, Limit Orders, ISOs, MidPoint Match Orders, NBBO 
Offset Peg Orders, and Route Peg Orders. See infra Sections 
III.C.2.a-III.C.2.f, regarding proposed Exchange Rule 11.8, Order 
Types.
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    The Commission notes that several proposed modifications to 
existing definitions are substantively similar to the current rule 
text, with added specificity, including: Attributable, Non-
Attributable, Crossing Quotation, Locking Quotation, Minimum Price 
Variation,\26\ Pegged, Permitted Price, Reserve Quantity, certain 
routing (Destination Specified and Destination-on-Open) and time-in-
force (Immediate or Cancel and Fill-or-Kill) instructions.\27\ Although 
the Exchange did not previously define Cancel Back or Displayed, the 
Commission notes that these terms are consistent with existing rule 
text.
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    \26\ See Notice, supra note 3, at 44524, note 29 regarding one 
non-substantive edit to remove the phrase indications of interest.
    \27\ The Exchange also proposes to delete two additional time-
in-force instructions of Good-'til-Cancel and Good-'til-Day, that 
are not currently offered by the Exchange.
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    Certain other proposed modifications to existing Exchange 
definitions are consistent with the rules of other exchanges, 
including: Discretionary Range,\28\ Non-Displayed,\29\ certain routing 
instructions (Book Only and Post Only),\30\ and units of trading (Round 
Lot, Odd Lot and Mixed Lot).\31\ Similarly, a number of proposed new 
definitions/terms are consistent with the rules of exchanges, 
including: Locking Price,\32\ Minimum Execution Quantity,\33\ pegging 
instructions (Market Peg and Primary Peg),\34\ Replenishment 
Amount,\35\ time-in-force instruction of Good-'til-Time.\36\ Finally, 
several proposed new definitions/terms are consistent with the 
definitions contained in Commission rules Regulation SHO and Regulation 
NMS, including: Short Sale, Short Exempt and Trading Center. 
Accordingly, the Commission believes that the proposed rule changes 
related to these definitions/terms are consistent with the Act.
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    \28\ See Nasdaq Rule 4751(f)(1), and NYSE Arca Rule 7.31(h)(2).
    \29\ See Nasdaq Rule 4751(e)(3), and BATS Rule 11.9(c)(11); see 
also EDGA Rule 11.5(c)(8).
    \30\ See BATS Rule 11.9(c)(4) (BATS Only Order), BATS-Y Rule 
11.9(c)(4) (BATS Only Order), NSX Rule 11.11(c)(6) (NSX Only Order); 
BATS Rule 11.9(c)(6) (BATS Post Only Order) and BATS-Y Rule 
11.9(c)(6); see also NYSE Rule 13 (Add Liquidity Only Modifier) and 
NYSE Arca Rule 7.31(nn) (Adding Liquidity Only Order).
    \31\ See Nasdaq Rule 4751(g) (definition of ``Order Size'').
    \32\ See, e.g., BATS Rule 11.13(a)(1).
    \33\ See, e.g., Nasdaq Rule 4751(f)(5), and NSX Rule 
11.11(c)(2)(B).
    \34\ See, e.g., NYSE Rule 13 (defining Pegging Interest), and 
Nasdaq Rule 4751(f)(4).
    \35\ See, e.g., Nasdaq Rule 4751(f)(2) (Reserve Orders) and NYSE 
Rule 13 (Reserve Order Types).
    \36\ See Chicago Stock Exchange, Inc. (``CHX'') Rules Art. 1, 
Rule 2(d)(3) (Good 'Til Date), BATS Rule 11.9(b)(4) (Good 'til Day), 
BATS-Y Rule 11.9(b)(4) (Good 'til Day), and Nasdaq Rule 4751(h)(4) 
(System Hours Expire Time).
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a. Attributable and Non-Attributable
    The Exchange currently defines the terms ``Attributable Order'' and 
``Non-Attributable Order'' in Exchange Rules 11.5(c)(18) and (19). The 
Exchange proposes to reclassify these terms as order type instructions 
and relocate them to proposed Exchange Rule 11.6(a). In addition, the 
Exchange proposes to amend the terms to provide that: (1) Unless the 
User elects

[[Page 65453]]

otherwise, all orders will be automatically defaulted by the System to 
Non-Attributable; and (2) a User may elect an order to be Attributable 
on an order-by-order basis or instruct the Exchange to default all its 
orders as Attributable on a port-by-port basis, except if a User 
instructs the Exchange to default all its orders as Attributable on a 
particular port, such User would not be able to designate any order 
from that port as Non-Attributable. The Exchange also proposes to 
provide that a User's MPID will be visible via the Exchange's Book Feed 
if an Attributable instruction is attached to an order and not visible 
if an order Non-Attributable is attached to an order.
b. Cancel Back
    The Exchange proposes to add the defined term ``Cancel Back'' to 
codify the existing function where a User may opt to have the System 
cancel the order at the time of receipt, in lieu of a re-pricing 
instruction \37\ to comply with Regulation NMS, Regulation SHO, or the 
National Market System Plan to address extraordinary market volatility 
(the ``LULD Plan'').\38\
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    \37\ The re-pricing instructions are defined in proposed 
Exchange Rule 11.6(l) discussed infra Section III.C.1.k.
    \38\ See Appendix A to Securities Exchange Act Release No. 67091 
(May 31, 2012), 77 FR 33498 (June 6, 2012).
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c. Discretionary Range
    The Exchange currently defines a ``Discretionary Order'' in 
Exchange Rule 11.5(c)(13). The Exchange proposes to reclassify this 
function as an order type instruction and relocate the term 
``Discretionary Range'' to proposed Exchange Rule 11.6(d). In addition, 
the Exchange proposes to modify the definition of Discretionary Range 
to specify which order types\39\ may include a Discretionary Range 
instruction, and how the Discretionary Range operates. Specifically, 
the term Discretionary Range would be defined as an instruction that 
may accompany an order to buy (sell) a stated amount of a security at a 
specified, displayed price with discretion to execute up (down) to a 
specified, non-displayed price.\40\ The proposal also codifies that the 
Discretionary Range of an order to buy (sell) cannot be more than $0.99 
higher (lower) than the order's displayed price, and that a resting 
order with a Discretionary Range instruction would execute at its least 
aggressive price when matched for execution against an incoming order 
with a Discretionary Range instruction, as permitted by the terms of 
both the incoming and resting order.
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    \39\ Under proposed Exchange Rule 11.8(b)(8), Limit Orders can 
include a Discretionary Range instruction.
    \40\ The Exchange proposes to modify the existing rule text to 
make state that an order with a Discretionary Range maintains the 
ability to execute at its displayed price with discretion to execute 
at prices to and including a specified, non-displayed price, and not 
exclusively at those prices. The Discretionary Range may include 
prices to and more aggressive than the midpoint of the NBBO.
---------------------------------------------------------------------------

d. Display Options
    The Exchange proposes to include definitions of ``Displayed'' and 
``Non-Displayed'' in proposed Exchange Rule 11.6(e). Currently the term 
Displayed is not defined within the Exchange rules. The Exchange would 
codify that Displayed is the default instruction for all display-
eligible orders on the EDGX Book.
    Currently, the term Non-Displayed Order is defined in Exchange Rule 
11.5(c)(8). The Exchange proposes to reclassify this term as an order 
type instruction, and relocate the amended term to proposed Exchange 
Rule 11.6(e). In order to reflect its current operation, the Exchange 
proposes to delete the current rule language stating that the System 
will not accept Non-Displayed Orders that are priced better than the 
midpoint of the NBBO, and codify that the Exchange currently accepts 
orders with a Non-Displayed instruction that are priced better than the 
midpoint of the NBBO. The proposed rule change also codifies that an 
order with a Non-Displayed instruction may include a Cancel Back 
instruction under proposed Exchange Rule 11.6(b), or a re-pricing 
instruction pursuant to proposed Exchange Rule 11.6(l)(3) described 
below.\41\ The proposed definition of Non-Displayed also differs from 
the current definition in that it deletes rule text regarding the 
priority and ranking of Non-Displayed Orders because proposed Exchange 
Rule 11.9 sets forth the priority and ranking of all orders.
---------------------------------------------------------------------------

    \41\ See infra Section III.C.1.k.iii entitled, ``Re-Pricing of 
Orders with a Non-Displayed Instruction.''
---------------------------------------------------------------------------

e. Locking Price
    Under current Exchange Rule 11.5(c)(4), a re-pricing instruction to 
comply with Regulation NMS may be triggered if an incoming order, if 
displayed at its limit price, would be a Locking Quotation.\42\ In 
order to specify the price that triggers a Regulation NMS re-pricing 
instruction the Exchange proposes to define the term, ``Locking 
Price,'' as the ``price of an order to buy (sell) that, if, upon entry 
into the System, or upon return to the System after being routed away, 
and displayed by the System on the EDGX Book, it would be a Locking 
Quotation.'' \43\
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    \42\ The term Locking Quotation is proposed to be defined in 
Exchange Rule 11.6(g), and is further discussed below.
    \43\ The term, ``Locking Price'' is similarly defined in the 
rules of other exchanges. See, e.g., BATS Rule 11.13(a)(1), which 
defines ``locking price'' as ``. . . prices equal to displayed 
orders on the other side of the market.''
---------------------------------------------------------------------------

f. Locking Quotation and Crossing Quotations
    Currently, Exchange Rule 11.16 defines the terms ``Locking 
Quotation'' \44\ and ``Crossing Quotation.'' \45\ The Exchange proposes 
to relocate the amended terms, respectively, to proposed Exchange Rule 
11.6(c) and (g). The amended definitions specify that the display of 
either a Locking or Crossing Quotation would violate Rule 610(d) of 
Regulation NMS and that Regulation NMS re-pricing instructions are 
applicable outside of Regular Trading Hours.
---------------------------------------------------------------------------

    \44\ Locking Quotation is defined as ``[t]he display of a bid 
for an NMS stock during regular trading hours at a price that equals 
the price of an offer for such NMS stock previously disseminated 
pursuant to an effective national market system plan, or the display 
of an offer for an NMS stock during regular trading hours at a price 
that equals the price of a bid for such NMS stock previously 
disseminated pursuant to an effective national market system plan.''
    \45\ A Crossing Quotation is defined as ``[t]he display of a bid 
(offer) for an NMS stock during Regular Trading Hours at a price 
that is higher (lower) than the price of an offer (bid) for such NMS 
stock previously disseminated pursuant to an effective national 
market system plan.''
---------------------------------------------------------------------------

g. Minimum Execution Quantity
    The Exchange proposes to define the term ``Minimum Execution 
Quantity'' as an order type instruction.\46\ Although it is currently 
available, the Minimum Execution Quantity function is not currently 
defined by Exchange rules. The Minimum Execution Quantity would be an 
order type instruction, combined with a Non-Displayed instruction, 
which would only execute the order to the extent that a minimum 
quantity could be satisfied by an execution against a single order or 
multiple aggregated orders simultaneously. An order with a Minimum 
Execution Quantity instruction could partially execute if the execution 
size equaled or exceeded the quantity provided in the instruction. The 
Exchange also proposes that any shares remaining after a partial 
execution would continue to be executed at a size equal to or exceeding 
the quantity provided with the instruction, unless the User elects 
otherwise. The Minimum Execution

[[Page 65454]]

Quantity instruction would not be applicable if after a partial 
execution the remaining shares were less than the quantity provided in 
the instruction.
---------------------------------------------------------------------------

    \46\ The minimum execution quantity instruction is available on 
other exchanges. See, e.g., Nasdaq Rule 4751(f)(5), and National 
Stock Exchange, Inc. (``NSX'') Rule 11.11(c)(2)(B).
---------------------------------------------------------------------------

h. Minimum Price Variation
    Exchange Rule 11.7, Price Variation, currently defines the term 
``Price Variation.'' \47\ The Exchange proposes to relocate the term 
``Minimum Price Variation'' to proposed Exchange Rule 11.6(i) and amend 
the term to remove the obsolete term, ``indications of interest.'' \48\
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    \47\ The Exchange's existing definition of Price Variation in 
Exchange Rule 11.7 sets forth that bids, offers, or orders in 
securities traded on the Exchange shall not be made in an increment 
smaller than: (1) $0.01 if those bids, offers, or orders are priced 
equal to or greater than $1.00 per share; or (2) $0.0001 if those 
bids, offers, or orders are priced less than $1.00 per share; or (3) 
any other increment established by the Commission for any security 
which has been granted an exemption from the minimum price increment 
requirements of Rule 612(a) or 612(b) of Regulation NMS. See current 
Exchange Rule 11.7
    \48\ See Securities Exchange Act Release No. 64095 (March 18, 
2011), 76 FR 16446 (March 23, 2011) (SR-EDGX-2011-06).
---------------------------------------------------------------------------

i. Pegged
    Currently the term ``Pegged Order'' is defined under Exchange Rule 
11.5(c)(6). The Exchange proposes to reclassify the term as an 
instruction and relocate the term to proposed Exchange Rule 11.6(j). 
The amended definition of a Pegged instruction would continue to 
indicate that: (1) A User may specify that the order's price will peg 
to a price a certain amount away from the NBB or NBO (offset); (2) if 
an order with a Pegged instruction displayed on the Exchange would lock 
the market, the price of the order will be automatically adjusted by 
the System to one Minimum Price Variation below the current NBO (for 
bids) or to one Minimum Price Variation above the current NBB (for 
offers); (3) a new time stamp is created for the order each time it is 
automatically adjusted; and (4) orders with a Pegged instruction are 
not eligible for routing pursuant to proposed Exchange Rule 11.11.
    The Exchange also proposes to codify that orders with Pegged 
instructions would not be used to calculate the NBBO, and buy/sell 
orders with a Pegged instruction would be cancelled when the NBB/NBO is 
unavailable. In addition, the Exchange would codify the terms ``Primary 
Peg'' and ``Market Peg.'' \49\ Proposed Exchange Rule 11.6(j) would 
specify that a Pegged instruction may be a Market Peg, which would 
track NBB, for a sell order, or the NBO, for a buy order; or a Primary 
Peg, which would track the NBB, for a buy order, or the NBO, for a sell 
order. The Exchange would also sets forth that a buy (sell) order with 
a Market Peg instruction and a Displayed instruction must have an 
offset that is equal to or greater than one Minimum Price Variation 
below (above) the NBO (NBB) that the order is pegged to.\50\ The 
amended term would also specify that if a User does not select an 
offset, the System would automatically include an offset that is equal 
to one Minimum Price Variation below (above) the NBO (NBB) that the 
order is pegged to. For an order with a Non-Displayed instruction, a 
User could, but would not be required to, select an offset for an order 
to buy (sell) that is equal to or greater than one Minimum Price 
Variation below (above) the NBO (NBB) to which the order is pegged.
---------------------------------------------------------------------------

    \49\ The Primary Peg and Market Peg order instructions are 
available on other exchanges. See, e.g., NYSE Rule 13 (defining 
Pegging Interest), and Nasdaq Rule 4751(f)(4).
    \50\ Previously, the System permitted a displayable Market Peg 
instruction to include a zero-offset.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(j) also sets forth that a buy (sell) 
order with a Primary Peg instruction could, but would not be required 
to, select an offset equal to or greater than one Minimum Price 
Variation \51\ above or below the NBB or NBO that the order is pegged 
to. As proposed, an order with a Primary Peg instruction would be 
eligible to join the Exchange's BBO if the EDGX Book was locked or 
crossed by another market, but if an order with a Primary Peg 
instruction would create a Locking Quotation or Crossing Quotation, the 
price of the order would be automatically adjusted by the System to one 
Minimum Price Variation below/above the current NBO/NBB. The Exchange 
also codifies that, under proposed Exchange Rule 11.6(l)(3), discussed 
below, an order with a Pegged and Non-Displayed instruction that is 
priced more aggressively than the midpoint of the NBBO, would be ranked 
at the midpoint with discretion to execute to the price established by 
the offset, or the NBB (NBO) where the offset for an order to sell 
(buy) is equal to or more aggressive than the NBB (NBO).\52\
---------------------------------------------------------------------------

    \51\ As discussed supra in Section III.C.1.h, the term Minimum 
Price Variation is defined in proposed Exchange Rule 11.6(i).
    \52\ The Exchange provides examples of the operation of Limit 
Orders with a Pegged Instruction. See Notice, supra note 3, at 
44525.
---------------------------------------------------------------------------

j. Permitted Price
    The Exchange currently defines the term ``Permitted Price'' in 
Exchange Rule 11.5(c)(4)(B).\53\ The Exchange proposes to relocate the 
term, without amendment, to proposed Exchange Rule 11.6(k)
---------------------------------------------------------------------------

    \53\ The current definition provides that a short sale order, 
subject to the Exchange's short sale price sliding process, will 
``be re-priced to display at one Minimum Price Variation above the 
current NBB.''
---------------------------------------------------------------------------

k. Re-Pricing Instructions
    The terms ``displayed price sliding'' \54\ and ``short sale price 
sliding process'' \55\ are currently defined in Exchange Rule 
11.5(c)(4)(A) and (B), respectively. However, the Exchange currently 
offers multiple re-pricing instructions designed to permit Users to 
comply, separately and respectively, with Rule 610(d) of Regulation NMS 
or Rule 201 of Regulation SHO. The Exchange proposes to replace the 
definitions for displayed price sliding process and the short sale 
price sliding process with proposed Exchange Rule 11.6(l), which would 
codify three re-pricing options for Regulation NMS (Price Adjust, Hide 
Not Slide, and Routed and Returned Re-Pricing) and the two re-pricing 
options for Regulation SHO (Short Sale Price Adjust and Short Sale 
Price Sliding), all of which are currently available on the

[[Page 65455]]

System.\56\ The Exchange also proposes to codify the re-pricing 
instruction for orders with a Non-Displayed instruction, which also is 
currently available on the System but not reflected in the current 
rules.
---------------------------------------------------------------------------

    \54\ The ``displayed price sliding process'' is currently 
described under Exchange Rule 11.5(c)(4)(A) as follows: ``An EDGX 
Only Order that, at the time of entry, would cross a Protected 
Quotation will be re-priced to the locking price and ranked at such 
price in the EDGX Book. An EDGX Only Order that, if at the time of 
entry, would create a violation of Rule 610(d) of Regulation NMS by 
locking or crossing a Protected Quotation will be displayed by the 
System at one minimum price variation (``MPV'') below the current 
NBO (for bids) or to one MPV above the current NBB (for offers) 
(collectively, the ``displayed price sliding process''). In the 
event the NBBO changes such that the EDGX Only Order at the original 
locking price would not lock or cross a Protected Quotation, the 
order will receive a new timestamp, and will be displayed at the 
original locking price.''
    \55\ The ``short sale price sliding process'' is currently 
described under Exchange Rule 11.5(c)(4)(B)-(C) as follows: ``An 
EDGX Only Order that, at the time of entry, could not be executed or 
displayed pursuant to Rule 201 of Regulation SHO will be re-priced 
by the System to prevent execution or display at or below the 
current NBB (such entire process called the ``short sale price 
sliding process''). Any EDGX Only order subject to such re-pricing 
by the System will be re-priced to display at one MPV above the 
current NBB (``Permitted Price''). Following the initial adjustment 
provided for in this paragraph (B), the EDGX Only Order will, to 
reflect declines in the NBB, continue to be re-priced at the lowest 
Permitted Price down to the order's original limit price, or if a 
market order, until the order is filled. The order will receive a 
new timestamp each time it is re-priced. Alternatively, following 
the initial adjustment provided for in paragraph (B), the EDGX Only 
Order may, in accordance with the User's instructions, provided that 
in all cases the display or execution of such lower prices does not 
violate Rule 201 of Regulation SHO: (i) Be re-priced one additional 
time to a price that is above the current NBB but equal to the NBB 
at the time the EDGX Only Order was received and receive a new 
timestamp; or (ii) not be adjusted further. In the event the NBB 
changes such that the price of a Non-Displayed Order subject to 
short sale price sliding would lock or cross the NBB, the Non-
Displayed Order will receive a new timestamp, and will be re-priced 
by the System to a Permitted Price. EDGX Only Orders marked ``short 
exempt'' shall not be subject to the short sale price sliding 
process.''
    \56\ Other exchanges utilize re-pricing processes. See e.g., CHX 
Art. I, Rule 2(b)(1)(C), BATS Rules 11.9(c)(4), (6) and 11.9(g)(2), 
BATS-Y Exchange, Inc. (``BATS-Y'') Rules 11.9(c)(4), (6) and 
11.9(g)(2), and Nasdaq's ``Re-pricing of Orders during Short Sale 
Period'' described in Nasdaq Rule 4763(e). In Amendment No. 1, the 
Exchange removed the proposed Single Re-Price and Short Sale Single 
Re-Price pricing instructions. See supra note 7.
---------------------------------------------------------------------------

i. Re-Pricing Instructions To Comply With Rule 610(d) of Regulation NMS
    Proposed Exchange Rule 11.6(l)(1)(A) would codify the Price Adjust 
instruction. Specifically, under the proposed rule, a User may select, 
or be defaulted by the System,\57\ to the Price Adjust instruction 
where an incoming order that would be a Locking Quotation or Crossing 
Quotation would be displayed and ranked \58\ at a price that is one 
Minimum Price Variation lower (higher) than the Locking Price.\59\ 
Subsequently, the order would be displayed and ranked by the System on 
the EDGX Book at the Locking Price if the NBBO changed such that the 
order, if displayed at the Locking Price, would not be a Locking 
Quotation or Crossing Quotation, including where an ISO with a time-in-
force (``TIF'') instruction of Day is entered into the System and 
displayed on the EDGX Book on the same side of the market as the order 
at a price that is equal to or more aggressive than the Locking 
Price.\60\ The order would not be subject to further re-ranking and 
would be displayed by the System on the EDGX Book at the Locking Price 
until executed or cancelled by the User. The order would receive a new 
time stamp at the time an order is re-ranked.\61\ Pursuant to proposed 
Exchange Rule 11.9, all orders that are re-ranked and re-displayed 
pursuant to the Price Adjust instruction would retain their comparative 
priority based on the time of initial receipt by the System.\62\
---------------------------------------------------------------------------

    \57\ Pursuant to proposed Exchange Rule 11.8, an order that 
would be a Locking Quotation or Crossing Quotation at the time of 
entry, will be automatically defaulted by the System to the Price 
Adjust instruction, unless the User affirmatively elects: (1) The 
Cancel Back instruction; or (2) the Hide Not Slide instruction.
    \58\ For purposes of the description of the re-pricing 
instructions under proposed Rule 11.6(l), the terms ``ranked'' and 
``priced'' are synonymous and used interchangeably.
    \59\ Other exchanges offer similar functionality. See Nasdaq 
Rule 4751(f)(7) (Price to Comply Order), BATS Rule 11.9(g)(2) (Price 
Adjust), BATS Rule 11.9(g)(1) (Display-Price Sliding), BATS-Y 
11.9(g)(1) (Display-Price Sliding), and CHX Rule Art. I, Rule 
2(b)(1)(C)(i) (NMS Price Sliding).
    \60\ See Division of Trading and Markets: Response to Frequently 
Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS, 
Question 5.02, available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm (last visited October 28, 2014).
    \61\ See proposed Exchange Rule 11.9 in Section III.C., infra, 
for discussion on priority.
    \62\ The Exchange provides examples of the operation of a Price 
Adjust Instruction. See Notice, supra note 3, at 44526.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(1)(B) would codify the Hide Not 
Slide instruction. Specifically, under the proposed rule, if a User 
selects the Hide Not Slide instruction, an incoming order that would be 
a Locking Quotation or Crossing Quotation would be displayed at a price 
that is one Minimum Price Variation lower (higher) than the Locking 
Price and ranked at the midpoint of the NBBO with discretion to execute 
at the Locking Price; provided, however, that if at the time of entry a 
contra-side order equal to the Locking Price is displayed by the 
System, the order would be ranked at the midpoint of the NBBO with its 
discretion to execute to the Locking Price suspended. Discretion to 
execute to the Locking Price would remain suspended until the contra-
side displayed order equal to the Locking Price is cleared. Where the 
NBBO changes such that the order, if displayed at the Locking Price 
would not be a Locking Quotation, the System would rank and display the 
order at the Locking Price. Thereafter, the order would not be subject 
to further re-ranking and would be displayed by the System at the 
Locking Price until it is executed or cancelled by the User. The order 
would receive a new time stamp when it is ranked at the Locking Price. 
Pursuant to proposed Exchange Rule 11.9, all orders that are re-ranked 
and re-displayed by the System pursuant to the Hide Not Slide 
instruction would retain its comparative priority based upon the time 
of initial receipt by the System.\63\
---------------------------------------------------------------------------

    \63\ Orders that are re-ranked and re-displayed pursuant to the 
Hide Not Slide instruction maintain the same priority as orders that 
are re-ranked and re-displayed pursuant to the Routed and Returned 
Re-Pricing instruction at the same price. See proposed Exchange 
Rules 11.9(a)(2)(B)(i) and (C)(ii). The Exchange provides examples 
of the operation of a Hide Not Slide Instruction. See Notice, supra 
note 3, at 44526-27. See also Amendment No. 1, supra note 7, for 
corrections to Example Nos. 1 and 4.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(1)(B)(i) would codify the Routed and 
Returned Re-Pricing instruction. Specifically, under the proposed rule, 
if a Limit Order was routed away but not fully executed, the returning 
remainder of the order, if it would be a Locking Quotation or Crossing 
Quotation of a quotation displayed by another Trading Center upon re-
entry to the System, would default to a Routed and Returned Re-Pricing 
instruction, unless the User selected either the Cancel Back, Price 
Adjust or Hide Not Slide instruction.\64\ The Routed and Returned Re-
Pricing instruction would cause the returning order, that would 
otherwise be a Locking Quotation or Crossing Quotation based on an away 
market, to re-price one Minimum Price Variation away from the Locking 
Price, be ranked at the midpoint of the NBBO, with discretion to 
execute at the Locking Price. If a contra-side order with a Post Only 
instruction that equals the Locking Price is subsequently entered and 
displayed by the System, the order subject to the Routed and Returned 
Re-Pricing instruction would be ranked at the midpoint of the NBBO with 
its discretion to execute at the Locking Price suspended until there is 
no contra-side order displayed by the System equals the Locking 
Price.\65\ Thereafter, in response to changes in the NBBO, an order 
subject to the Routed and Returned Re-Pricing instruction would be 
adjusted and displayed by the System at one Minimum Price Variation 
below (above) the NBO (NBB) and ranked at the updated midpoint of the 
NBBO with discretion to execute at the Locking Price until the price of 
such order reached its limit price; at which point the order would be 
displayed at the limit price by the System without further adjustment. 
Upon return to the EDGX Book after being routed away, the order will 
execute against any marketable contra-side liquidity on the EDGX Book 
and any remainder will be subject to the Routed and Returned Re-Pricing 
instruction.\66\ The order would receive a new time stamp upon 
returning to the EDGX Book and upon each subsequently re-ranking. 
Pursuant to proposed Exchange Rule 11.9, all orders that are re-ranked 
and re-displayed pursuant to the Routed and Returned Re-Pricing 
instruction would retain their comparative time priority at a price 
level based upon the time of initial re-entry to the System.\67\
---------------------------------------------------------------------------

    \64\ See Amendment No. 3, supra note 9.
    \65\ Id.
    \66\ Id.
    \67\ Orders that are re-ranked and re-displayed pursuant to the 
Routed and Returned Re-Pricing instruction maintain the same 
priority as orders that are re-ranked and re-displayed pursuant to 
the Hide Not Slide instruction at the same price. See proposed 
Exchange Rules 11.9(a)(2)(B)(i) and (C)(ii). The Exchange provides 
an example of the operation of a Routed and Returned Re-Pricing 
Instruction. See Notice, supra note 3, at 44527. See also Amendment 
No. 3, supra note 9.
---------------------------------------------------------------------------

    The Commission finds that the proposed rules related to Regulation 
NMS re-pricing are consistent with

[[Page 65456]]

Section 6(b)(5) of the Act,\68\ and the rules and regulation 
thereunder, including Rule 610 of Regulation NMS.'' \69\ The operation 
of Price Adjust, Hide Not Slide and Routed and Returned Re-Pricing are 
consistent with Rule 610(d) of Regulation NMS as they should prevent 
members from displaying orders that lock or cross any protected 
quotation in an NMS stock.\70\ In addition, the Commission notes that 
other exchanges offer price-sliding functionality to comply with 
Regulation NMS.\71\
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    \68\ 15 U.S.C. 78f(b)(5).
    \69\ 17 CFR 242.610.
    \70\ Rule 610(d) of Regulation NMS requires exchanges to 
establish, maintain, and enforce rules that require members 
reasonably to avoid ``[d]isplaying quotations that lock or cross any 
protected quotation in an NMS stock.'' See 17 CFR 242.610(d).
    \71\ See Nasdaq Rule 4751(f)(7) (Price to Comply Order), BATS 
Rule 11.9(g)(2) (Price Adjust), BATS Rule 11.9(g)(1) (Display-Price 
Sliding), BATS-Y 11.9(g)(1) (Display-Price Sliding), CHX Rule Art. 
I, Rule 2(b)(1)(C)(i) (NMS Price Sliding).
---------------------------------------------------------------------------

ii. Re-Pricing Instructions To Comply With Rule 201 of Regulation SHO
    Proposed Exchange Rule 11.6(l)(2) sets forth the following re-
pricing instructions for an order with a Short Sale instruction to 
comply with Rule 201 of Regulation SHO: (1) Short Sale Price Adjust and 
(2) Short Sale Price Sliding. Under the proposal, a Limit Order to sell 
with a Short Sale instruction that cannot display or execute at its 
limit price at the time of entry because of a short sale price 
restriction pursuant to Rule 201 of Regulation SHO (``Short Sale 
Circuit Breaker''),\72\ would automatically default to the Short Sale 
Price Adjust instruction, unless the User affirmatively elects: (1) The 
Cancel Back instruction; or (2) the Short Sale Price Sliding 
instruction. Like current Exchange Rule 11.5(c)(4)(E), orders to sell 
with both a Short Sale and a Short Exempt instruction would not be 
eligible for any of the Regulation SHO re-pricing instructions and 
instead would execute, display and/or route without regard to whether 
the order is at a Permitted Price or if a Short Sale Circuit Breaker in 
effect. In addition, when a Short Sale Circuit Breaker is in effect and 
the incoming order has a Short Sale instruction, Regulation SHO re-
pricing instructions would supersede Regulation NMS re-pricing 
instructions.
---------------------------------------------------------------------------

    \72\ 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010, 
the Commission adopted amendments to Regulation SHO under the Act in 
the form of Rule 201, pursuant to which, among other things, short 
sale orders in covered securities generally cannot be executed or 
displayed by a trading center at a price that is at or below the 
current NBB when a Short Sale Circuit Breaker is in effect for the 
covered security. See Securities Exchange Act Release No. 61595 
(February 26, 2010), 75 FR 11232 (March 10, 2010). In connection 
with the adoption of Rule 201, Rule 200(g) of Regulation SHO was 
also amended to include a ``short exempt'' marking requirement. See 
also Securities Exchange Act Release No. 63247 (November 4, 2010), 
75 FR 68702 (November 9, 2010) (extending the compliance date for 
Rules 201 and 200(g) to February 28, 2011). See also Division of 
Trading & Markets: Responses to Frequently Asked Questions 
Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/rule201faq.htm.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(2)(A) would codify the Short Sale 
Price Adjust instruction. If selected by a User and a Short Sale 
Circuit Breaker was in effect, the sell order with a Short Sale 
instruction would be ranked and displayed at the Permitted Price.\73\ 
Following the initial ranking, the order, to the extent the NBB 
declines, would continue to be re-ranked and displayed at the Permitted 
Price down to the order's limit price. The order would receive a new 
time stamp each time it is re-ranked. All orders with Short Sale Price 
Adjust instructions that are re-ranked and re-displayed by the System 
would retain their comparative time priority based on their initial 
receipt by the System.\74\
---------------------------------------------------------------------------

    \73\ Other exchanges offer similar functionality. See Nasdaq 
Rule 4763(e) (Re-Pricing of Orders During Short Sale Period), BATS 
Rule 11.9(g)(2) (Short Sale Price Sliding), BATS-Y 11.9(g)(2) (Short 
Sale Price Sliding), and CHX Rule Art. I, Rule 2(b)(1)(C)(ii) (Short 
Sale Price Sliding).
    \74\ The Exchange provides an example of the operation of a 
Short Sale Price Adjust instruction. See Notice, supra note 3, at 
44528.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(2)(B) would codify the Short Sale 
Price Sliding instruction. If selected by a User and a Short Sale 
Circuit Breaker was in effect, the sell order with a Short Sale 
instruction would be displayed at the Permitted Price and ranked at the 
midpoint of the NBBO. Following the initial ranking, the order would, 
to the extent the NBB declined, be re-ranked and re-displayed with a 
new time stamp one additional time at a price equal to the NBB at the 
time of the order's original entry.\75\
---------------------------------------------------------------------------

    \75\ The Exchange provides an example of the operation of a 
Short Sale Price Sliding instruction. See Notice, supra note 3, at 
44528-29.
---------------------------------------------------------------------------

    The Commission finds that the proposed rules related to Regulation 
SHO re-pricing are consistent with Section 6(b)(5) of the Act,\76\ as 
well as Rule 201 of Regulation SHO.\77\ Rule 201 of Regulation SHO 
requires trading centers to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the execution or 
display of a short sale order at a price at or below the current NBB 
when a Short Sale Circuit Breaker is in effect, subject to certain 
exceptions.\78\ Pursuant to the Exchange's rules relating to Short Sale 
Price Adjust and Short Sale Price Sliding, sell orders with a Short 
Sale instruction that cannot be executed or displayed in compliance 
with Rule 201 of Regulation SHO would be displayed at the Permitted 
Price (i.e., above the current NBB). In addition, the Commission notes 
that Short Sale Price Adjust \79\ and Short Sale Price Sliding \80\ 
operate in a manner that is substantially similar to other exchanges.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78f(b)(5).
    \77\ 17 CFR 242.201.
    \78\ 17 CFR 242.201.
    \79\ See BATS Rule 11.9(g)(2), BATS-Y Rule 11.9(g)(2) and Nasdaq 
Rule 4763(e).
    \80\ See BATS Rule 11.9(g)(2) and BATS-Y Rule 11.9(g)(2)
---------------------------------------------------------------------------

    The Commission notes that Short Sale Price Sliding permits sell 
orders with a Short Sale instruction to be ranked at the midpoint of 
the NBBO and displayed at the Permitted Price. The Commission finds 
that Regulation SHO re-pricing to permit an order with a Short Sale 
instruction to be executed at the midpoint of the NBBO, and displayed 
above the NBB, is consistent with Rule 201 of Regulation SHO.\81\
---------------------------------------------------------------------------

    \81\ 17 CFR 242.201.
---------------------------------------------------------------------------

iii. Re-Pricing of Orders With a Non-Displayed Instruction
    Proposed Exchange Rule 11.6(l)(3) would codify the re-pricing of 
orders with a Non-Displayed instruction to specify that an order with a 
Non-Displayed instruction that is priced better than the midpoint of 
the NBBO, would be ranked at the midpoint of the NBBO with discretion 
to execute to its limit price.\82\ In response to changes in the NBBO, 
an order with a Non-Displayed instruction would be automatically re-
ranked, with a new time stamp, until the midpoint of the NBBO reached 
the order's limit price. A User may elect the Cancel Back instruction 
for a buy (sell) order with a Non-Displayed instruction where the limit 
price is greater (less) than the NBO (NBB). Pursuant to proposed 
Exchange Rule 11.9, all orders with a Non-Displayed instruction that 
are re-ranked at the midpoint of the NBBO would retain their 
comparative time priority based upon their initial ranking at the 
midpoint of the NBBO.\83\
---------------------------------------------------------------------------

    \82\ The Exchange explains that because MidPoint Match Orders, 
described below, are pegged to the midpoint of the NBBO, the re-
pricing and midpoint ranking of orders with a Non-Displayed 
instruction enables the EDGX Book to avoid internally crossed 
markets. See Notice, supra note 3, at 44529.
    \83\ The Exchange provides examples of the operation of the re-
pricing of Orders with a Non-Displayed Instruction. See Notice, 
supra note 3, at 44529.

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[[Page 65457]]

l. Reserve Quantity and Replenishment Amounts
    Exchange Rule 11.5(c)(1) currently defines a ``Reserve Order'' as 
``[a] limit order with a portion of the quantity displayed (`display 
quantity') and with a reserve portion of the quantity (`reserve 
quantity') that is not displayed.'' The Exchange proposes to reclassify 
this function as an order type instruction and relocate the term 
``Reserve Quantity'' to proposed Exchange Rule 11.6(m). The term 
Reserve Quantity would be defined to mean the portion of an order with 
a Non-Displayed instruction in which a portion of that order is also 
displayed on the EDGX Book. The Exchange also would specify that both 
the portion of the order with a Displayed instruction and the Reserve 
Quantity of the order are available for execution against incoming 
orders. The Exchange also specifies that where the displayed quantity 
of an order is reduced to less than a Round Lot, the System, in 
accordance with the replenishment instruction selected by the User, 
would replenish the displayed quantity from the Reserve Quantity by at 
least a single Round Lot. A new time stamp would be created for the 
displayed portion of the order each time it is replenished from the 
Reserve Quantity, and the Reserve Quantity would retains its original 
time stamp of its original entry.\84\ In addition, the Exchange states 
that where the combined amount of the displayed quantity and Reserve 
Quantity of an order is less than one Round Lot, the order would be 
treated as an order with a Displayed instruction for purposes of 
execution priority under proposed Exchange Rule 11.9.
---------------------------------------------------------------------------

    \84\ Other exchanges maintain similar time stamp functionality 
when replenishing a displayed amount of an order from the order's 
undisplayed quantity. See Nasdaq Rule 4751(f)(2) (Reserve Orders), 
and NYSE Rule 13 (Reserve Order Types, Minimum Display Reserve 
Order).
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(m) also codifies the two replenishment 
instructions \85\ currently offered by the Exchange: (1) Fixed 
Replenishment; and (2) Random Replenishment. The Fixed Replenishment 
instruction sets forth that the displayed quantity of an order would be 
replenished by a fixed quantity designated by the User. The Fixed 
Replenishment quantity for the order would equal the initial displayed 
quantity designated by the User. The displayed replenishment quantity 
selected by the System could not be less than a single Round Lot or 
greater than the remaining Reserve Quantity. Under proposed Exchange 
Rule 11.8(b)(5), the System would automatically default the order to 
the Fixed Replenishment instruction with a replenishment value equal to 
the displayed quantity of the order.
---------------------------------------------------------------------------

    \85\ Other exchanges offer similar functionality for refreshing 
the displayed portion of an order from a Reserve Quantity. See, 
e.g., Nasdaq Rule 4751(f)(2) (Reserve Orders) and NYSE Rule 13 
(Reserve Order Types).
---------------------------------------------------------------------------

    Under the Random Replenishment instruction, the displayed quantity, 
both initial and replenished, would be randomly determined by the 
System within a replenishment range and replenishment value established 
by the User. The System would randomly select random display in Round 
Lots based on: (1) The quantity around which the replenishment range is 
established minus the replenishment value; and (2) the quantity around 
which the replenishment range is established plus the replenishment 
value. The displayed replenishment quantity could not: (1) Exceed the 
remaining Reserve Quantity of the order; (2) be less than a single 
Round Lot; or (3) greater than the remaining Reserve Quantity.\86\
---------------------------------------------------------------------------

    \86\ The Exchange provides examples of the operation of orders 
with replenishment amounts. See Notice, supra note 3, at 44530.
---------------------------------------------------------------------------

m. Routing/Posting Instructions
    In proposed Exchange Rule 11.6(n), the Exchange proposes to define 
the following routing and posting instructions that a User may select, 
depending on the order type: (1) Aggressive or Super Aggressive; (2) 
Book Only; (3) Post Only; (4) Destination Specified; and (5) 
Destination-on-Open.
    The Exchange proposes to codify the terms Aggressive and Super 
Aggressive. Aggressive is an order instruction that directs the System 
to route such order if an away Trading Center crosses the limit price 
of the order resting on the EDGX Book. Super Aggressive is an order 
instruction that directs the System to route such order if an away 
Trading Center locks or crosses the limit price of the order resting on 
the EDGX Book.
    Current Exchange Rule 11.5(c)(4) defines the term EDGX Only 
Order.\87\ The Exchange proposes to reclassify this function as an 
order type instruction and relocate the amended definition and term 
``Book Only'' to proposed Exchange Rule 11.6(n)(3). The proposed 
definition of Book Only would specify that it is: ``[a]n order 
instruction stating that an order will be matched against an order on 
the EDGX Book or posted to the EDGX Book, but will not route to an away 
Trading Center.'' \88\ References to the Exchange's ``display price 
sliding process and short sale price sliding process'' would be removed 
from the amended Book Only definition because, as noted above, proposed 
Exchange Rule 11.6(l) is proposed to now describe re-pricing 
instructions for Regulation NMS and Regulation SHO compliance.
---------------------------------------------------------------------------

    \87\ Currently, the term EDGX Only Order is defined as ``[a]n 
order that is to be ranked and executed on the Exchange pursuant to 
Rule 11.8 and Rule 11.9(a)(4) or cancelled, without routing away to 
another trading center. The System will default to the displayed 
price sliding process and short sale price sliding process for an 
EDGX Only Order unless the User has entered instructions not to use 
any of the processes.''
    \88\ The proposed definition of Book Only is similar to that of 
other exchanges. See BATS Rule 11.9(c)(4) (BATS Only Order), BATS-Y 
Rule 11.9(c)(4) (BATS Only Order), NSX Rule 11.11(c)(6) (NSX Only 
Order).
---------------------------------------------------------------------------

    Current Exchange Rule 11.5(c)(5) defines the term ``Post Only 
Order.'' \89\ The Exchange proposes to reclassify this function as an 
order type instruction and relocate the amended definition and term 
``Post Only'' to proposed Exchange Rule 11.6(n)(4). Currently, the Post 
Only definition specifies that order would not remove liquidity from 
the EDGX Book unless ``the User enters an instruction to the 
contrary.'' The Exchange proposes amend the definition to specify that 
an order with a Post Only instruction may remove contra-side liquidity 
from the EDGX Book when combined with a Hide Not Slide or a Price 
Adjust instruction if the order is for a security priced below $1.00 or 
the value of such execution, including any fees charged or rebates 
provided, equals or exceeds the value of such execution if the order 
instead posted and provided liquidity.\90\ In addition, the Exchange 
proposes to remove references to Exchange's ``display price sliding 
process and short sale price sliding process'' from the amended Post 
Only definition because, as noted above, proposed Exchange Rule 11.6(l) 
is proposed to describe re-pricing instructions for Regulation NMS and 
Regulation SHO compliance.
---------------------------------------------------------------------------

    \89\ Currently, the term Post Only Order is defined as ``[a]n 
order that is to be ranked and executed on the Exchange pursuant to 
Rule 11.8 and Rule 11.9(a)(4) or cancelled, as appropriate, without 
routing away to another trading center except that the order will 
not remove liquidity from the EDGX Book absent an order instruction 
to the contrary. A EDGX Post Only Order will be subject to the 
displayed price sliding process and short sale price sliding process 
unless a User has entered instructions not to use the either or both 
processes. . . .''
    \90\ See also Amendment No. 1, supra note 7. The Exchange 
further states that to determine at the time of a potential 
execution whether the value of such execution when removing 
liquidity equals or exceeds the value of such execution if the order 
instead posted to the EDGX Book and subsequently provided liquidity, 
the Exchange will use the highest possible rebate paid and highest 
possible fee charged for such executions on the Exchange. Id.
---------------------------------------------------------------------------

    Exchange Rule 11.5(c)(9) currently defines the term ``Destination 
Specific

[[Page 65458]]

Order.'' \91\ The Exchange proposes to reclassify this function as an 
order type instruction and relocate the amended definition and term 
``Destination Specified'' to proposed Exchange Rule 11.6(n)(4). The 
amended definition would provide that an order with a Destination 
Specified instruction may be processed as described in proposed 
Exchange Rule 11.10(a)(4), returned to the User, or posted to the EDGX 
Book, unless the User instructs that the order reside on the book of 
the relevant away Trading Center.
---------------------------------------------------------------------------

    \91\ Currently, the term ``Destination Specified Order'' is 
defined as ``[a] market or limit order that instructs the System to 
route the order to a specified away trading center or centers, after 
exposing the order to the EDGX Book. Destination Specific Orders 
that are not executed in full after routing away are processed by 
the Exchange as described below in Rule 11.9(a)(4), save where the 
User has provided instructions that the order reside on the book of 
the relevant away trading center.''
---------------------------------------------------------------------------

    Exchange Rule 11.5(c)(10) currently defines the term ``Destination-
on-Open Order.'' The Exchange proposes to reclassify this function as 
an order type instruction and relocate the amended definition and term 
``Destination-on-Open'' to proposed Exchange Rule 11.6(n)(6). The 
amended definition would state that a Destination-on-Open instruction 
may be appended to a Market or a Limit Order and that an unfilled 
portion of an order with a Destination-on-Open instruction may be 
cancelled or re-routed.
n. Short Sale and Short Exempt
    Currently, certain current Exchange rules refer to the terms 
``short sale order'' and ``short exempt,'' \92\ but neither term is 
specifically defined. Proposed Exchange Rules 11.6(o) and 11.6(p) would 
respectively provide definition for the terms ``Short Sale'' and 
``Short Exempt.'' The proposed definitions for Short Sale instruction 
and Short Exempt instruction would be consistent with Rules 200(a) and 
201 of Regulation SHO.\93\
---------------------------------------------------------------------------

    \92\ See Exchange Rules 11.9(a)(1) and 11.15.
    \93\ See 17 CFR 242.200 et seq.
---------------------------------------------------------------------------

o. Time-In-Force
    Current Exchange Rule 11.5(b)(1)-(3) defines the terms ``IOC 
Order,'' ``Day Order'' and ``Fill-or-Kill Order.'' \94\ The Exchange 
proposes to reclassify these terms as time-in-force order type 
instructions and relocate the definitions, IOC, Day, FOK and Good-`til 
Time (``GTT''), to proposed Exchange Rule 11.6(n)(4). The proposed rule 
specifies that an order with a TIF instruction of Day entered into the 
System before the start of the specified trading session would be 
placed by the System in a pending state and activated for potential 
execution upon the start of that trading session.
---------------------------------------------------------------------------

    \94\ Current Exchange Rule 11.5(b) includes two (2) additional 
TIF instructions of Good-'til-Cancel and Good-'til-Day, which the 
Exchange proposes to delete from its rules because they are not 
currently offered by the Exchange.
---------------------------------------------------------------------------

    The Exchange proposes to include a new TIF instruction, GTT, which 
could be appended to an order in any trading session with instructions 
to cancel at a specified time of day. The proposed rule also sets forth 
that an order with a GTT instruction would not be eligible for 
execution over multiples days \95\ and that any unexecuted portion of 
such order with a GTT would be cancelled at: (1) The expiration of the 
User's specified time; (2) at the end of the User's specified trading 
session(s); or (3) the end of the trading day, as instructed by the 
User. As proposed, order with a GTT instruction would not be eligible 
for execution over multiple trading days.
---------------------------------------------------------------------------

    \95\ Other exchanges offer TIF instructions similar to GTT. See 
CHX Rules Art. 1, Rule 2(d)(3) (Good 'Til Date), BATS Rule 
11.9(b)(4) (Good 'til Day), BATS-Y Rule 11.9(b)(4) (Good 'til Day), 
and Nasdaq Rule 4751(h)(4) (System Hours Expire Time).
---------------------------------------------------------------------------

p. Trading Center
    The Exchange proposes to add the term ``Trading Center'' to 
proposed Exchange Rule 11.6(r) to be defined as ``[o]ther securities 
exchanges, facilities of securities exchanges, automated trading 
systems, electronic communications networks or other brokers or 
dealers.'' \96\ The term would be consistent with the Trading Center 
definition of in Rule 600(a)(78) of Regulation NMS.\97\
---------------------------------------------------------------------------

    \96\ The term Trading Center is defined in Exchange Rule 2.11(a) 
and appears within Chapter XI.
    \97\ Under Exchange Act Rule 600(a)(78), ``Trading Center'' is 
defined as ``a national securities exchange or national securities 
association that operates an SRO trading facility, an alternative 
trading system, an exchange market maker, an OTC market maker, or 
any other broker or dealer that executes orders internally by 
trading as principal or crossing orders as agent.'' See 242 CFR 
600(a)(78).
---------------------------------------------------------------------------

q. Units of Trading
    Current Exchange Rule 11.6 provides that ``[o]ne hundred (100) 
shares shall constitute a `round lot,' any amount less than 100 shares 
shall constitute an `odd lot,' and any amount greater than 100 shares 
that is not a multiple of a round lot shall constitute a `mixed lot.''' 
The Exchange proposes to relocate the definition of ``Units of 
Trading'' to proposed Exchange Rule 11.6(s). The relocated and amended 
definition would provide that a Round Lot is 100 shares, unless an 
alternative number of shares is established as a Round Lot by the 
listing exchange for the security. Similarly, in proposed Exchange Rule 
11.9(a)(6)), the Exchange proposes a conforming change to replace the 
term ``99 shares or fewer'' with ``less than a Round Lot.'' Proposed 
Exchange Rule 11.6(s) would also state that Round Lots are eligible to 
be Protected Quotations.
    Current Exchange Rule 11.5(c)(2) defines the term an ``Odd Lot 
Order'' as ``[a]n order to buy or sell an odd lot.'' The Exchange 
proposes to revise and relocate the term to proposed Exchange Rule 
11.6(s)(2). The definition would be amended to indicate that an Odd Lot 
is ``[a]ny amount less than a Round Lot,'' and that orders of Odd Lot 
size are only eligible to be Protected Quotations if aggregated to form 
a Round Lot.
    Current Exchange Rule 11.5(c)(3) defines the term a ``Mixed Lot 
Order.'' The Exchange proposes to revise and relocate the term to 
proposed Exchange Rule 11.6(s)(3). The definition would be amended to 
indicate that ``[a]ny amount greater than a Round Lot that is not an 
integer multiple of a Round Lot,'' and that the Odd Lot portions of an 
order of Mixed Lot size are only eligible to be Protected Quotations if 
aggregated to form a Round Lot.\98\
---------------------------------------------------------------------------

    \98\ The proposed definitions are similar to Nasdaq Rule 4751(g) 
(definition of ``Order Size'').
---------------------------------------------------------------------------

2. Order Types--Proposed Exchange Rule 11.8
    The Exchange has determined that the majority of the existing 
individual order types should be reclassified as order type 
instructions to be attached to specific, standalone order types.\99\ 
Accordingly, the Exchange proposes to delete and replace current 
Exchange Rule 11.5 with proposed Exchange Rule 11.8, Order Types,\100\ 
which would outline the characteristics of the six order types that 
would be accepted by the System: (1) Market Orders, (2) Limit Orders, 
(3) ISOs, (4) MidPoint Match Orders, (5) NBBO Offset Peg Orders, and 
(6) Route Peg Orders.
---------------------------------------------------------------------------

    \99\ See Notice, supra note 3, at 44532.
    \100\ Id.
---------------------------------------------------------------------------

    The Commission finds that the proposed rules relating to the 
definitions and descriptions of order types are consistent with the 
Act. The Commission notes that the definitions and operations of Market 
Order, Limit Order, ISO, and MPM Order are substantively similar to the 
current rule text, with added specificity related to the operation of 
the standalone order type and the order type instructions that may be 
attached thereto. The NBBO Offset Peg Order and Route Peg Order are 
currently offered by the Exchange, and the related rule text has been 
relocated and reformatted to conform to

[[Page 65459]]

the reorganization of the Exchange rule book without substantive 
amendment. Accordingly, the Commission believes that these proposed 
rule changes are consistent with the Act.
a. Market Order
    Current Exchange Rule 11.5(a)(2) defines the term ``Market Order.'' 
The Exchange proposed to relocate the term to proposed Exchange Rule 
11.8(a), and revise it to include additional language describing the 
operation of the order type and the order type instructions that may be 
attached thereto.
    Specifically, proposed Exchange Rule 11.8(a) would define a Market 
Order as ``[a]n order to buy or sell a stated amount of a security that 
is to be executed at the NBBO or better when the order reaches the 
Exchange.'' The proposed rule also specifies that Market Orders are 
eligible to execute during the Regular Session; ineligible to execute 
during the Pre-Opening or the Post-Closing Trading Sessions; may be an 
Odd Lot, Round Lot, or Mixed Lot; and may include a Stop Price 
instruction. Proposed Exchange Rule 11.8(a)(2) would specify that a 
Market Order would default to a TIF instruction of Day, unless 
otherwise instructed by the User; and that in addition to Day, a User 
could append a Market Order with an IOC or FOK instruction. The 
proposed rule also sets forth that a Market Order with a FOK 
instruction would cancel if not executed in full portion immediately 
after entry \101\ and that a Market Order with an IOC instruction would 
cancel any unexecuted portion of the order after checking the System 
for available shares, and, if applicable, upon return to the System 
after being routed to an away Trading Center. The proposed rule also 
specifies that a Market Order that does not include a Book Only, IOC or 
FOK instruction and cannot be executed in accordance with proposed 
Exchange Rule 11.10(a)(4) would be eligible for routing pursuant to 
proposed Exchange Rule 11.11.\102\
---------------------------------------------------------------------------

    \101\ See Amendment No. 1, supra note 7.
    \102\ The Exchange provides examples of the operation of Market 
Orders. See Notice, supra note 3, at 44533-34.
---------------------------------------------------------------------------

    Under the proposed rules, a Market Order would post to the book in 
certain instances. Under proposed Exchange Rule 11.10(a)(3)(A), where 
the NBO/NBB is greater/lesser than the Upper/Lower Price Band, an 
incoming non-routable buy/sell Market Order would post to the EDGX Book 
at a price equal to the Upper (Lower) Price Band, unless appended with 
a TIF instruction of IOC or FOK or a Cancel Back instruction.\103\ 
Under Proposed Exchange Rule 11.8(a)(4), a Market Order appended with 
both a Day and a Short Sale instruction that could not execute because 
of a Short Sale Restriction, would display pursuant to the Short Sale 
Price Sliding instruction.\104\
---------------------------------------------------------------------------

    \103\ Current Exchange Rule 11.9(a)(3)(A) states, ``[w]here a 
non-routable buy (sell) Market Order is entered into the System and 
the NBB (NBO) is greater (less) than to the Upper (Lower) Price 
Band, such order will be posted to the EDGX Book or executed, unless 
(1) the order is an IOC Order, in which case it will be cancelled if 
not executed, or (2) the User has entered instructions to cancel the 
order.'' See also Securities Exchange Act Release No. 69003 
(February 27, 2013), 78 FR 14380 (March 5, 2013) (SR-EDGX-2013-08).
    \104\ See proposed Exchange Rule 11.6(l)(2), supra Section 
III.C.1.k.ii.
---------------------------------------------------------------------------

    Under the proposed rules, there are also certain instances when a 
Market Order would cancel instead of execute. The proposed rule 
specifies that if a Market Order with a Book Only instruction is re-
priced when the NBO/NBB is greater/less than the Upper/Lower Price 
Band, the order would be cancelled pursuant to proposed Exchange Rule 
11.10(a)(4). The Exchange also specifies that, except for a Market 
Order that include a Destination-on-Open instruction, any portion of a 
Market Order that would execute at a price more than the greater of 
$0.50 or five percent worse than the consolidated last sale as 
published by the responsible single plan processor at the time the 
order is entered into the System, would be cancelled.
b. Limit Order
    Current Exchange Rule 11.5(a)(1) defines a Limit Order as, ``[a]n 
order to buy or sell a stated amount of a security at a specified price 
or better'' and a ``marketable'' Limit Order as a ``limit order to buy 
(sell) at or above (below) the lowest (highest) Protected Offer (Bid) 
for the security.'' The term would be relocated to proposed Exchange 
Rule 11.8(b), and be amended to include additional language describing 
the operation of the order type and the order type instructions that 
may be attached thereto. The proposed rule specifies that a Limit Order 
is eligible for execution during the Pre-Opening Session, Regular 
Session, and the Post-Closing Session, and could be an Odd Lot, Round 
Lot or Mixed Lot. A Limit Order could also be appended with the 
applicable combination of the following order type instructions: \105\ 
IOC, FOK, Day, GTT, Displayed, Non-Displayed, Attributable, Non-
Attributable, Post Only, Book Only, Discretionary Range, Reserve 
Quantity, Pegged, Minimum Execution Quantity, Stop Limit, Destination 
Specified, Destination-on-Open instruction, Aggressive or Super 
Aggressive.
---------------------------------------------------------------------------

    \105\ See discussion of Order Type Instructions, supra Section 
III.C.1.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.8(b)(7) specifies that a marketable Limit 
Order would be eligible to be routed pursuant to proposed Exchange Rule 
11.11, unless it was appended with a Post Only, Book Only or Pegged 
instruction.\106\
---------------------------------------------------------------------------

    \106\ In the Notice, the Exchange provides order handling 
examples of Limit Orders with various order type instructions under 
various book conditions. See Notice, supra note 3, at 44535-36. See 
also Amendment No. 1, supra note 7, for a discussion regarding (1) 
the Exchange joining the NBO, (2) Displayed limit orders with Post 
Only or Book Only instructions, and (3) order handling examples that 
previously included the Single Re-Price instruction. See also 
Amendment No. 3, supra note 9, concerning orders with Routed and 
Returned Re-Pricing instructions.
---------------------------------------------------------------------------

c. Intermarket Sweep Order
    Current Exchange Rule 11.5(d)(1), specifies that the System accepts 
incoming ISOs (as such term is defined in Regulation NMS) and that to 
be eligible for treatment as an ISO, the order must be: (1) A Limit 
Order; (2) marked ISO; and (3) the User entering the order must 
simultaneously route one or more additional Limit Orders marked ISO, if 
necessary, to away markets to execute against the full displayed size 
of any Protected Quotation for the security with a price that is 
superior to the limit price of the ISO entered in the System. Such 
orders, if they meet the requirements of the foregoing sentence, may be 
executed at one or multiple price levels in the System without regard 
to Protected Quotations at away Trading Centers consistent with 
Regulation NMS (i.e., may trade through such quotations). The term 
would be relocated to proposed Exchange Rule 11.8(c), and amended to 
include additional language describing the operation of the order type 
and the order type instructions that may be attached thereto. Proposed 
Exchange Rule 11.8(c) would continue to instruct Members that the 
Exchange relies on, and it is the Member's responsibility, to properly 
mark ISOs, to satisfy the compliance requirements of Regulation 
NMS.\107\ The proposed Rule also specifies that a User entering an ISO 
with a Day instruction is representing that it has simultaneously 
routed one or more additional ISOs, if necessary, to away Trading 
Centers to execute against the full displayed size of any Protected 
Quotation for the security with a price that is superior or equal to 
the limit price of the ISO entered in the System.\108\
---------------------------------------------------------------------------

    \107\ See Notice, supra note 3, at 44537.
    \108\ The ISO exception under Exchange Rule 11.10(f) requires 
that ISOs be routed to execute against all protected quotations with 
a price that is better than or equal the display price, rather than 
solely to protected quotations for a security with a price that is 
superior to the ISO's limit price. See Question 5.02 in the Division 
of Trading and Markets, Responses to Frequently Asked Questions 
Concerning Rule 611 and Rule 610 of Regulation NMS (last updated 
April 4, 2008) available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.

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[[Page 65460]]

    Proposed Exchange Rule 11.8(c)(4) would also specify that incoming 
ISOs may be submitted during the Pre-Opening Session, Regular Session, 
and Post-Closing Session. Proposed Exchange Rule 11.8(c)(1)-(4) would 
also state that an incoming ISO will have a default TIF instruction of 
Day, unless the User selects a TIF instruction of GTT or IOC. Incoming 
ISOs cannot include a TIF instruction of FOK. The proposed Rule also 
sets forth that an incoming ISO with a Post Only and TIF instruction of 
GTT or Day, but without a Price Adjust or Hide Not Slide instruction, 
would be rejected if, marketable against a resting order with a 
Displayed instruction. Any unfilled portion of an ISO with a TIF 
instruction of GTT or Day would be posted at the ISO's limit price on 
the EDGX Book.
    Proposed Exchange Rule 11.8(c) would specify that an ISO with a 
Post Only instruction and TIF instruction of GTT or Day may also be 
appended with Regulation NMS or Regulation SHO re-pricing instructions.
    Proposed Exchange Rule 11.8(c)(7) would permit a User to attach an 
instruction to an outbound ISO in order to permit that ISO to be 
immediately routed to an away Trading Center.\109\ However, pursuant to 
proposed Exchange Rule 11.11, inbound ISOs would not be eligible for 
routing under any circumstances.
---------------------------------------------------------------------------

    \109\ This Directed Intermarket Sweep Order functionality is 
currently provided pursuant to Exchange Rule 11.5(d)(2). See Notice, 
supra note 3, at 44537.
---------------------------------------------------------------------------

d. MidPoint Match Order
    Exchange Rule 11.5(c)(7) currently defines an MPM Order as ``[a]n 
order with an instruction to execute it at the midpoint of the NBBO.'' 
The term would be relocated to proposed Exchange Rule 11.8(d), and 
amended to include additional language describing the operation of the 
order type and the order type instructions that may be attached 
thereto. The MPM Order definition would be amended to specify that it 
could be a Market Order or a Limit Order, as well as to indicate that 
the limit price of an MPM order would represent the highest/lowest 
price at which order may buy/sell.\110\ The proposed rule would also 
set forth that notwithstanding the co-designation as a Market or Limit 
Order, the operation of the MPM Order would be governed by proposed 
Exchange Rule 11.8(d).
---------------------------------------------------------------------------

    \110\ For example, if an MPM Order to buy is entered with a 
limit price that was less than the prevailing midpoint of the NBBO 
it would not be eligible to execute at the mid-point of the NBBO. An 
MPM Order to buy with a limit price that is greater than the 
prevailing NBBO would be able to execute at the mid-point of the 
NBBO and not at its limit price.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.8(d)(1) specifies that an MPM Order could 
be appended with a TIF instruction of Day, FOK, IOC, or GTT. Proposed 
Exchange Rule 11.8(d)(2) specifies that an MPM Order could include a 
Minimum Execution Quantity instruction. Proposed Exchange Rule 
11.8(d)(3) specifies that MPM Orders would default to a Non-Displayed 
instruction and are not eligible to include a Displayed instruction. 
Proposed Exchange Rule 11.8(d)(5) specifies that, pursuant to proposed 
Exchange Rule 11.11, MPM Orders are ineligible for routing.
    Pursuant to the proposed rule, MPM Orders may only be executed 
during the Regular Session, and any unexecuted portion of a resting MPM 
Order with a Day or GTT instruction would receive a new time stamp each 
time it is re-priced in response to changes to the midpoint of the 
NBBO. However, an incoming or resting MPM Order would be ineligible for 
execution if there was a Locking Quotation or Crossing Quotation. The 
ability of the resting or incoming MPM Order to execute would resume, 
and the order would receive a new time stamp, when the locked/crossed 
condition was resolved and a new midpoint relative to the NBBO was 
established, the MPM Order would receive a new time stamp. Similarly, 
MPM Orders would be ineligible to execute if the midpoint of the NBBO 
was below the Lower Price Band or above the Upper Price Band. Pursuant 
to proposed Exchange Rule 11.9, all MPM Orders would retain their 
comparative priority based upon order's initial receipt and ranking at 
the midpoint of the NBBO.
    The proposed rule would also specify that MPM Orders are eligible 
to participate in the Opening Process; but ineligible to participate in 
the Pre-Opening Session, Post-Closing Session, or the Contingent Open 
pursuant to proposed Exchange Rule 11.7(d). Pursuant to proposed 
Exchange Rule 11.7(d), if there is a Contingent Open an MPM Order would 
remain ineligible to trade during the Regular Session until a price for 
an Open Transaction has been determined pursuant to proposed Exchange 
Rule 11.7(c).
e. NBBO Offset Peg Order
    Exchange Rule 11.5(c)(15) currently defines the NBBO Offset Peg 
Order. The term would be relocated to proposed Exchange Rule 11.8(e) 
and reformatted, without substantive amendment. The NBBO Offset Peg 
Order would continue to be defined as a Limit Order that, upon entry, 
is automatically priced by the System at the Designated Percentage 
\111\ away from the current NBB/NBO for a buy/sell order, or if there 
is no NBB/NBO, at the Designated Percentage away from the last reported 
sale from the responsible single plan processor. The proposed rule 
would specify that notwithstanding its co-designation as a Limit Order, 
the operation of an NBBO Offset Peg Order would be governed by proposed 
Exchange Rule 11.8(e).
---------------------------------------------------------------------------

    \111\ See proposed Exchange Rule 11.20(d)(2)(D).
---------------------------------------------------------------------------

    The proposed rule also sets forth that the price of an NBBO Offset 
Peg Order bid or offer would automatically adjust to the Designated 
Percentage away from the current NBB/NBO; or if there is no current 
NBB/NBO, to the Designated Percentage away from the last reported sale 
from the responsible single plan processor, upon reaching the Defined 
Limit.\112\ The proposed rule also sets forth that if an NBBO Offset 
Peg Order moves a specified number of percentage points away from the 
Designated Percentage toward the current NBB/NBO, the price of such 
bid/offer would automatically adjust the Designated Percentage away 
from the current NBB/NBO; or if there is no current NBB/NBO, the order 
would automatically adjust to the Designated Percentage away from the 
last reported sale from the responsible single plan processor. Pursuant 
to the proposed rule, cancellation or rejection would result if the 
order exceeded its limit price due to an NBBO Offset Peg Order being 
priced at the Designated Percentage away from the current NBB/NBO; or, 
if there is no current NBB/NBO, to the Designated Percentage away from 
the last reported sale from the responsible single plan processor. As 
proposed, the absence of a current NBB/NBO and last sale reported by 
the responsible single plan processor would also cause the order to be 
cancelled or rejected.
---------------------------------------------------------------------------

    \112\ See proposed Exchange Rule 11.20(d)(2)(F).
---------------------------------------------------------------------------

    Under the proposed rule, if a resident NBBO Offset Peg Order was 
priced based on the last sale reported by the responsible single plan 
processor and such NBBO Offset Peg Order is established as the NBB/NBO, 
the NBBO Offset Peg Order would not adjust until either new last sale 
reported by the

[[Page 65461]]

responsible single plan processor, or a new NBB/NBO was established by 
a national securities exchange. However, if a Crossing Quotation 
existed, the NBBO Peg Offset Order would automatically price at the 
Designated Percentage \113\ (away from the current NBO/NBB for a buy/
sell order).
---------------------------------------------------------------------------

    \113\ See proposed Exchange Rule 11.20(d)(2)(D).
---------------------------------------------------------------------------

    The proposed rule sets forth that NBBO Offset Peg Orders may only 
include a TIF instruction of Day; may only be Round Lots or Mixed Lots; 
are defaulted by the System to a Displayed instruction and are not 
eligible to include a Non-Displayed instruction; and may be submitted 
at the beginning of the Pre-Opening Session, but are not executable or 
automatically priced until after the first regular way last sale on the 
relevant listing exchange for the security, as reported by the 
responsible single plan processor. In addition the rule sets forth that 
NBBO Offset Peg Orders would receive a new time stamp each time it re-
prices in response to changes in the NBB, NBO, or last reported sale; 
would be ineligible for routing pursuant to proposed Exchange Rule 
11.11; and would expire at the end of the Regular Session. Finally, 
pursuant to Exchange Rule 11.20(d), irrespective of the NBBO Offset Peg 
Order, and consistent with its obligations, Market Makers would 
continue to be responsible for entering, monitoring, and re-submitting, 
as applicable, quotations.
f. Route Peg Order
    Exchange Rule 11.5(c)(17) currently defines the term Route Peg 
Order. The term would be relocated to proposed Exchange Rule 11.8(f) 
and reformatted to conform to other rule changes, without substantive 
amendment. The Route Peg Order is a passive, resting order that does 
not remove liquidity or execute at a price inferior to a Protected 
Quotation. The Route Peg Order would be defined as a non-displayed 
Limit Order that is eligible for execution at the NBB for a buy order 
and NBO for a sell order against an order that is in the process of 
being routed to away Trading Centers with an order size equal to or 
less than the aggregate size of the Route Peg Order interest available 
at that price. The proposed rule would specify that notwithstanding its 
co-designation as a Limit Order, the operation of a Route Offset Peg 
Order would be governed by proposed Exchange Rule 11.8(f).
    The proposed rule would also set forth that Route Peg Orders may 
only have a TIF instruction of GTT or Day and would be ineligible to 
include a TIF instruction of IOC or FOK; may only be Round Lots or 
Mixed Lots; would default to, and could be appended with a Non-
Displayed instruction; but not with the Displayed instruction. In 
addition, the proposed rule sets forth that the Route Peg Order could 
include a Minimum Execution Quantity but is ineligible for routing 
pursuant to proposed Exchange Rule 11.11.
    The proposed rule also set forth that Route Peg Orders may be 
entered, cancelled, and cancelled/replaced prior to and during the 
Regular Session and all unexecuted portions thereof are cancelled at 
the end of the Regular Session. Route Peg Orders would only be eligible 
for execution in a given security during the Regular Session, except 
during the Opening Session and until orders in a given security can be 
posted on the EDGX Book during the Regular Session. Route Peg Orders 
would also be ineligible for execution if a Locking Quotation or 
Crossing Quotation existed; however the ability of the Route Peg Order 
to execute would resume once the locked/crossed condition was cleared.

D. Execution Priority of Orders

1. Priority--Proposed Exchange Rule 11.9
    Current Exchange Rule 11.8 sets forth the priority of order 
executions. The Exchange proposes to relocate the provision to proposed 
Exchange Rule 11.9 and to amend it to codify and state the following: 
(1) The priority of orders at certain price points; (2) the priority of 
Limit Orders with a Reserve Quantity; and (3) certain other conforming 
and clarifying changes. The Exchange states that its proposed 
amendments outline current System functionality in the Exchange's 
Rules.
    Under Exchange Rule 11.9(a), orders of Users are first ranked and 
maintained by the System on the EDGX Book according to their price. 
Orders at the same price and of the same type are then ranked by the 
System depending on the time they were entered into the System. The 
Exchange proposes to amend Exchange Rule 11.9 to specify how orders 
with certain order type instructions are ranked by the System: \114\ 
(1) At a price other than the midpoint of the NBBO; (2) at the midpoint 
of the NBBO; and (3) where buy (sell) orders utilize instructions that 
cause them to be ranked by the System upon clearance of a Locking 
Quotation.\115\ The Exchange also proposes to provide that, for 
purposes of priority under Exchange Rule 11.9(a)(2)(A) and (B): (1) An 
ISO \116\ and NBBO Offset Peg Order \117\ are to be treated as Limit 
Orders; \118\ and (2) orders subject to a re-pricing instruction to 
comply with Rule 201 of Regulation SHO under proposed Exchange Rule 
11.6(l)(2), including Market Orders that are displayed on the EDGX Book 
pursuant to proposed Exchange Rule 11.8(a)(4) and proposed Exchange 
Rule 11.10(a)(3)(A), maintain the same priority as Limit Orders at that 
price.
---------------------------------------------------------------------------

    \114\ In Amendment No. 3, the Exchange states that it is 
currently conducting a review of its System functionality and will 
file, as appropriate, any proposed rule changes necessary to clarify 
the operation of its order types not covered by this filing by 
November 1, 2014.
    \115\ For purposes of priority under proposed Exchange Rule 
11.9(a)(2)(A), (B) and (C), the Exchange notes that orders of Odd 
Lot, Round Lot, or Mixed Lot size are treated equally.
    \116\ See proposed Exchange Rule 11.8(c), discussed above in 
Section III.C.2.c.
    \117\ See proposed Exchange Rule 11.8(e), discussed above in 
Section III.C.2.e.
    \118\ See proposed Exchange Rule 11.8(b), discussed above in 
Section III.C.2.b.
---------------------------------------------------------------------------

2. Prices Other Than the Midpoint of the NBBO
    Current Exchange Rule 11.8(a)(2) states, in sum, that the System 
shall execute equally priced trading interest in time priority in the 
following order: (1) Displayed size of limit orders; (2) MidPoint Match 
Orders; (3) Non-displayed limit orders and reserve orders; (4) 
Discretionary range of Discretionary Orders as set forth in current 
Exchange Rule 11.5(c)(13); and (5) Route Peg Orders as set forth in 
current Exchange Rule 11.5(c)(17). The Exchange proposes to amend the 
above priority to state that it applies to equally priced trading 
interest at prices other than at the midpoint of the NBBO or where 
orders are re-ranked at the Locking Price after a Locking Quotation 
clears.\119\ As amended, proposed Exchange Rule 11.9(a)(2)(A) would 
state that the System will execute equally priced trading interest 
within the System at prices, other than at the midpoint of the NBBO or 
where orders are re-ranked at the Locking Price after a Locking 
Quotation clears, in time priority in the following order: (1) The 
portion of a Limit Order with a Displayed instruction; (2) Limit Orders 
with a Non-Displayed instruction and the Reserve Quantity of Limit 
Orders; (3) Limit Orders executed within their Discretionary Range; and 
(4) Route Peg Orders.\120\
---------------------------------------------------------------------------

    \119\ The Exchange also proposes to amend the description of 
order types under proposed Exchange Rules 11.9(a)(2)(A)(i)-(iv) to 
be consistent with proposed Exchange Rule 11.8, Order Types.
    \120\ See proposed Exchange Rule 11.9(a)(2)(A). See also Notice, 
supra note 3, at 44539 for an example illustrating the operation of 
priority at prices other than the Midpoint of the NBBO.

---------------------------------------------------------------------------

[[Page 65462]]

3. At the Midpoint of the NBBO
    The Exchange also proposes to outline a separate priority for 
orders ranked at the midpoint of the NBBO under proposed Exchange Rule 
11.9(a)(2)(B). Where orders are priced at the midpoint of the NBBO, the 
first order priced at the midpoint of the NBBO within each of the 
categories set forth in paragraphs (i) through (iv) of proposed 
Exchange Rule 11.9(a)(2)(B) shall have precedence at the midpoint of 
the NBBO, up to the number of shares of stock specified in the order. 
The System shall execute trading interest priced at the midpoint of the 
NBBO within the System in time priority in the following order: (1) 
Limit Orders to which the Hide Not Slide or Routed and Returned Re-
Pricing instruction has been applied; (2) MidPoint Match Orders; (3) 
Limit Orders with a Non-Displayed instruction; and (4) Limit Orders 
executed within their Discretionary Range.\121\
---------------------------------------------------------------------------

    \121\ See proposed Exchange Rule 11.9(a)(2)(B). See also Notice, 
supra note 3, at 44540 for an example illustrating the operation of 
priority at prices at the midpoint of the NBBO.
---------------------------------------------------------------------------

4. Orders Re-Ranked Upon Clearance of a Locking Quotation
    The Exchange also proposes to outline a priority of orders for 
orders that utilize instructions that result in their being re-ranked 
upon clearance of a Locking Quotation. In such case, the System re-
ranks and displays such orders at the Locking Price. The Exchange 
proposes to include proposed Exchange Rule 11.9(a)(2)(C), which would 
state that, where an order is re-ranked to the Locking Price after a 
Locking Quotation clears, the System will re-rank and display such 
orders at the Locking Price in time priority in the following order: 
(1) ISO with a TIF instruction of Day that establishes a new NBBO at 
the Locked Price; (2) Limit Orders to which the Hide Not Slide or 
Routed and Returned Re-Pricing instruction has been applied; (3) Limit 
Orders to which the Price Adjust instruction has been applied; and (4) 
orders with a Pegged instruction.\122\ Orders not executed and 
remaining on the EDGX Book after being re-ranked upon clearance of the 
Locking Quotation will be executed in time priority under proposed 
Exchange Rule 11.9(a)(2)(A) described above.
---------------------------------------------------------------------------

    \122\ See proposed Exchange Rule 11.9(a)(2)(C). See also Notice, 
supra note 3, at 44540 for an example with two scenarios 
illustrating the operation of priority for orders re-ranked upon 
clearance of a locking quotation. See also Amendment No. 1, supra 
note 7, which replaces the order with a Single Re-Price instruction 
with an order with a Price Adjust instruction.
---------------------------------------------------------------------------

5. Reserve Quantity Priority
    The Exchange proposes to amend Exchange Rule 11.9(a)(6) to modify 
the description of the priority of an order with a Reserve Quantity and 
to amend certain terms to be consistent with the order type rules under 
proposed Exchange Rules 11.6 and 11.8.
    For both the Fixed Replenishment and Random Replenishment 
instruction, the displayed quantity receives a new time stamp each time 
it is replenished from the Reserve Quantity. The Reserve Quantity 
retains the time stamp of its original entry. Current Exchange Rule 
11.8(a)(6) discusses the priority of the Reserve Quantity of an order 
and states that ``[a] new time stamp is created both for the refreshed 
and reserved portion of the order each time it is refreshed from 
reserve.'' The Exchange proposes to amend this description to state 
that a new time stamp is created only for the displayed quantity of the 
order each time it is replenished from Reserve Quantity. In addition, 
as discussed above in Section III.C.1.l, proposed Exchange Rule 
11.8(m)(1) states that a new time stamp is created for the portion of 
the order with a Displayed instruction each time it is replenished from 
the Reserve Quantity, while the Reserve Quantity retains the time-stamp 
of its original entry.\123\
---------------------------------------------------------------------------

    \123\ See proposed Exchange Rule 11.9(a)(6). See also Notice, 
supra note 3, at 44540 for an example illustrating the operation of 
priority for an order with a Reserve Quantity.
---------------------------------------------------------------------------

    The Commission finds that proposed Exchange Rule 11.9 relating to 
priority is consistent with Section 6(b)(5) of the Act,\124\ in that it 
is designed 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. The proposed rule change codifies 
the order handling and execution priority of orders on the EDGX Book 
which in turn provides greater transparency for, and thereby benefit, 
Members, Users, and the general investing public.
---------------------------------------------------------------------------

    \124\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Accelerated Approval

    The Commission finds goods cause, pursuant to Section 19(b)(2) of 
the Exchange Act,\125\ for approving the proposed rule change, as 
modified by Amendment Nos. 1 and 3 thereto, prior to the 30th day after 
publication of notice of the filing of Amendment Nos. 1 and 3 in the 
Federal Register. Amendment No. 1 removes proposed rule text relating 
to the Single Re-Price and Short Sale Single Re-Price pricing 
instructions to indicate that the Exchange will no longer offer such 
functionality, adds language to the Post Only instruction definition to 
provide that the highest possible rebate paid and the highest possible 
fee will be used to determine whether the order with a Post Only 
instruction will execute against orders on the EDGX Book upon arrival, 
adds rationale to the statutory basis section for suspending the 
discretion of an order with a Hide Not Slide instruction to execute at 
the Locking Price when a contra-side order that equals the Locking 
Price is displayed by the System on the EDGX Book in order to avoid an 
apparent violation of that contra-side displayed order's priority, and 
makes a series of non-substantive, corrective changes to the Notice. 
According to the Exchange, Amendment No. 1 reflects the Exchange's 
efforts to simplify its proposal and streamline System functionality, 
thereby benefiting Members, Users and the investing public by making 
the rules and functionality easier to understand. According to the 
Exchange, Amendment No. 3 clarifies the operation of the Routed and 
Returned Re-Pricing instruction, thereby making the rules and 
functionality easier to understand. Accordingly, the Commission does 
not believe that Amendments No. 1 and 3 raise any novel regulatory 
issues and therefore finds that good cause exists to approve the 
proposal, as modified by Amendment Nos. 1 and 3, on an accelerated 
basis.
---------------------------------------------------------------------------

    \125\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment Nos. 1 
and 3 to the proposed rule change, is consistent with the Act. Comments 
may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2014-18 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2014-18. This file 
number should be included on the subject line if email is used.

[[Page 65463]]

    To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
EDGX-2014-18 and should be submitted on or before November 25, 2014.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\126\ that the proposed rule change (SR-EDGX-2014-18), as modified 
by Amendment Nos. 1 and 3, be, and hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \126\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\127\
---------------------------------------------------------------------------

    \127\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26127 Filed 11-3-14; 8:45 am]
BILLING CODE 8011-01-P

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