Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify the Use of Certain Data Feeds, 3282-3287 [2015-00969]

Download as PDF tkelley on DSK3SPTVN1PROD with NOTICES 3282 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices transaction fees when they transact $500,000 versus $550,000 of qualifying transactions. Other market participants will continue to benefit from the order interaction and liquidity that Specialists and Market Markers provide to the marketplace. The Exchange does not believe that amending the types of trades that qualify for the Monthly Market Maker Cap by excluding certain transaction fees related to an order or quote that is contra to a PIXL Order or assessing Specialists and Market Makers the PIXL pricing located in Section IV, A of the Pricing Schedule will impose an undue burden on competition because the Exchange’s proposal results in all market participants on Phlx being assessed the same PIXL pricing. The Exchange’s proposal for Specialists and Market Makers to pay no fees after they have satisfied the obligations related to the Monthly Market Maker Cap, in all Penny Pilot Options, provided they have added liquidity, and to pay lower fees for all other types of transactions, including those transacted in auctions and during the opening process, also does not provide an undue burden on competition. As noted above Specialists and Market Makers have burdensome quoting obligations to the market that do not apply to Customers, Professionals, Firms and Broker-Dealers.26 Specialists and Market Makers serve an important role on the Exchange with regard to order interaction and they provide liquidity in the marketplace. The proposed differentiation as between Specialists and Market Makers as compared to other market participants recognizes the differing contributions made to the trading environment on the Exchange by these market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attract Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. For these reasons noted above, the Exchange does not believe that offering Specialists and Market Makers the opportunity to cap fees in certain symbols imposes an undue burden on competition. The Exchange operates in a highly competitive market, comprised of twelve exchanges, in which market participants can easily and readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or rebates to be inadequate. Accordingly, the fees that are assessed and the rebates paid by the Exchange, as described in the proposal, are influenced by these robust market forces and therefore must remain competitive with fees charged and rebates paid by other venues and therefore must continue to be reasonable and equitably allocated to those members that opt to direct orders to the Exchange rather than competing venues. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.27 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx– 2015–06 and should be submitted on or before February 12, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Brent J. Fields, Secretary. 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: [FR Doc. 2015–00971 Filed 1–21–15; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2015–06 on the subject line. Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify the Use of Certain Data Feeds Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2015–06. 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 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74072; File No. SR–EDGX– 2015–02] January 15, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that, on January 7, 2015, EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The 28 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 26 Id. VerDate Sep<11>2014 27 15 18:09 Jan 21, 2015 Jkt 235001 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00070 Fmt 4703 Sfmt 4703 E:\FR\FM\22JAN1.SGM 22JAN1 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend certain rules to adopt or align system functionality with that currently offered by BATS Exchange, Inc. (‘‘BZX’’) and BATS Y-Exchange, Inc. (‘‘BYX’’, and collectively with BZX, ‘‘BATS’’) in order to provide a consistent technology offering amongst the Exchange and its affiliates. These changes, which are described in detail below, propose to clarify for Members 3 and non-Members the Exchange’s use of certain data feeds for order handling and execution, order routing, and regulatory compliance. On July 15, 2014, the Exchange filed a proposed rule change that described its use of data feeds for order handling and execution, order routing, and regulatory compliance (the ‘‘Initial Proposal’’) with the Commission.4 The Exchange submits this supplemental filing in order to specify for Members and non-Members the Exchange’s use of certain data feeds in connection with the technology migration described in further detail below.5 The text of the proposed rule change is available at the Exchange’s Web site at https://www.directedge.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. tkelley on DSK3SPTVN1PROD with NOTICES II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the 3 The term ‘‘Member’’ is defined as ‘‘any registered broker or dealer, or any person associated with a registered broker or dealer, that has been admitted to membership in the Exchange. A Member will have the status of a ‘‘member’’ of the Exchange as that term is defined in Section 3(a)(3) of the Act.’’ See Exchange Rule 1.5(n). 4 See Securities Exchange Act Release No. 72683 (July 28, 2014), 79 FR 44950 (August 1, 2014) (SR– EDGX–2014–20). Other national securities exchange filed similar proposals. See e.g., Securities Exchange Act Release Nos. 72710 (July 29, 2014), 79 FR 45511 (August 5, 2014) (SR–NYSE–2014–38), and 72684 (July 28, 2014), 79 FR44956 (August 1, 2014) (SR–NASDAQ–2014–072). 5 The Exchange understands that other national security exchanges will file similar proposed rule changes with the Commission to further describe their use of data feeds for order handling and execution, order routing, and regulatory compliance. VerDate Sep<11>2014 18:09 Jan 21, 2015 Jkt 235001 places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background On June 5, 2014, Chair White requested that all national securities exchanges develop proposed rule changes to disclose their use of data feeds to execute and route orders and comply with regulatory requirements.6 In addition, on June 20, 2014, the Commission’s Division of Trading and Markets requested that the Exchange file proposed rule changes that disclose its usage of particular market data feeds, among other things.7 In response to these requests, the Exchange filed the Initial Proposal with the Commission on July 15, 2014.8 The Exchange submits this supplemental filing to describe the Exchange’s use of certain data feeds for order handling and execution, order routing, and regulatory compliance in connection with the technology migration described in further detail below.9 Technology Migration Earlier this year, the Exchange and its affiliate EDGA Exchange, Inc. (‘‘EDGA’’) received approval to effect a merger (the ‘‘Merger’’) of the Exchange’s parent company, Direct Edge Holdings LLC, with BATS Global Markets, Inc., the parent company of BATS (the Exchange, together with BZX, BYX and EDGA, the ‘‘BGM Affiliated Exchanges’’).10 In the context of the Merger, the BGM Affiliated Exchanges are working to migrate EDGA and EDGX onto the BATS technology platform, and align certain system functionality, retaining only intended differences between the BGM Affiliated Exchanges. The proposed amendments are intended to align certain system functionality with that currently offered 6 See Mary Jo White, Chair, Securities and Exchange Commission, Speech at Sandler O’Neill & Partners L.P. Global Exchange and Brokerage Conference (June 5, 2014). 7 See letter from Stephen Luparello, Director, Division of Trading and Markets, Securities and Exchange Commission, to Joe Ratterman, Chief Executive Officer, BATS Global Markets, Inc., dated June 20, 2014. 8 See supra note 6. 9 See supra note 7. 10 See Securities Exchange Act Release No. 71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR–EDGX–2013–43; SR–EDGA–2013–34). PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 3283 by BATS in order to provide a consistent technology offering for Users11 of the BGM Affiliated Exchanges. The Exchange notes that the proposed rule text is based on corresponding proposals being submitted by all of the BGM Affiliated Exchanges. The proposed amendments do not propose to implement new or unique functionality that has not been previously filed with the Commission or is not available on BATS or BYX. To ensure proper context and a complete filing describing the Exchange’s procedures in this area both prior to and after the technology migration, the Exchange has repeated relevant information from the Initial Proposal and supplemented such information as necessary. In each section below the Exchange first describes its pre-integration functionality, which will be in place until the technology migration is complete, followed by a description of post-integration functionality. The Exchange anticipates completing the technology migration on or about January 12, 2015. Order Handling and Execution Pre-Integration Functionality. The Exchange’s Matching Engine (the ‘‘ME’’) determines whether an order should be displayed, executed internally, or routed to another market center. In making this determination, the ME continually receives and maintains quote data that is delivered from an internal processor (the ‘‘Feed Handler’’). The market data processed by the Feed Handler is sourced directly from the Securities Information Processors (‘‘SIP’’) feeds. Specifically, the Exchange’s ME uses the Consolidated Tape Association (CTA) market data operated by the Securities Industry Automation Corp. in Tapes A and B and Unlisted Trading Privileges (UTP) market data operated by NASDAQ OMX Group, Inc. in Tape C securities. These SIP feeds contain the best (topof-book) prices in round lot quotations of each protected venue. The Exchange’s ME consumes the SIP feeds to obtain the top-of-book quotes from each protected venue, including the Exchange’s affiliates, EDGX, BZX, and BYX, and the Financial Industry Regulatory Authority’s (‘‘FINRA’’) Alternative Display Facility (‘‘ADF’’). The SIP feeds do not display odd lot quotations; therefore, the ME does not use odd lot quotations to calculate the national best 11 The term ‘‘User’’ is defined as ‘‘any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3.’’ See Exchange Rule 1.5(ee). E:\FR\FM\22JAN1.SGM 22JAN1 3284 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices tkelley on DSK3SPTVN1PROD with NOTICES bid and offer (‘‘NBBO’’). However, a protected venue may aggregate odd lot quotations to create round lot quotations and publish those round lot quotations to the SIPs feeds. Based on the SIP feeds and the EDGX Book,12 the ME constructs the NBBO. The ME will also update the NBBO upon receipt of an Intermarket Sweep Order (‘‘ISO’’) with a time-in-force of Day (‘‘Day ISO’’). When a Day ISO is posted on the EDGX Book, the ME uses the receipt of a Day ISO as evidence that the protected quotes have been cleared, and the ME does not check away markets for equal or better-priced protected quotes.13 The ME will then display and execute non-ISO orders at the same price as the Day ISO. The NBBO is utilized for order handling and execution. The Exchange looks to its calculation of the NBBO, based on the SIP feeds and the EDGX Book, when determining the price at which an order with a Pegged instruction,14 MidPoint Peg Order,15 MidPoint Discretionary Order,16 Market Maker Peg Order,17 or Supplemental Peg Order18 is to be pegged. Post-Integration Functionality. As proposed, following the technology migration, in order to calculate the NBBO in its Matching Engine (the ‘‘ME’’), the Exchange will use quotes disseminated by market centers through proprietary data feeds (generally referred to as ‘‘Direct Feeds’’) as well as by the SIP. The ME will use quotes disseminated from SIP feeds for the Chicago Stock Exchange, Inc., NYSE MKT LLC and FINRA’s ADF. The ME will consume the Direct Feeds from every other protected venue, including the Exchange’s affiliates, BZX, BYX and EDGA. The ME will include odd lot quotations in its calculation of the NBBO depending on the source of the quotation. Where a protected market center aggregates odd lot quotations at a single price level into round lot quotations and publishes such aggregated quotations to the SIPs, then the ME will include those odd lot quotations in its calculation of the NBBO. In addition, where a protected market center aggregates odd lot quotations across more than one price level and publishes such aggregated quotations to the SIPs, then the ME will include those odd lot quotations in its calculation of the NBBO. In addition to receiving Direct Feeds and SIP feeds, the ME’s calculation of the NBBO may be adjusted based on orders sent to other venues with protected quotations, execution reports received from those venues, and certain orders received by the Exchange (collectively ‘‘Feedback’’). The Exchange does not include its quotes in the calculation of the Exchange’s NBBO because the system is designed such that all incoming orders are separately compared to the Exchange’s Best Bid or Offer and the Exchange calculated NBBO, which together create a complete view of the NBBO, prior to display, execution, or routing. Feedback from the receipt of ISOs with a time-in-force of Day (‘‘Day ISOs’’) and feedback from the Exchange’s routing broker/dealer, BATS Trading, Inc., (‘‘BATS Trading’’),19 defined respectively as ‘‘Day ISO Feedback and ‘‘Router Feedback,’’ will be used to augment the market data received by Direct Feeds and the SIP feeds as further described below. The Exchange’s ME will update the NBBO upon receipt of a Day ISO. When a Day ISO is posted on the EDGX Book, the ME uses the receipt of a Day ISO as evidence that the protected quotes have been cleared, and the ME does not check away markets for equal or better-priced protected quotes.20 The ME will then display and execute non-ISO orders at the same price as the Day ISO. All Feedback expires as soon as: (i) one (1) second passes; (ii) the Exchange receives new quote information; or (iii) the Exchange receives updated 12 The term ‘‘EDGX Book’’ is defined as ‘‘the System’s electronic file of orders.’’ See Exchange Rule 1.5(d). 13 Pursuant to Regulation NMS, a broker-dealer routing a Day ISO is required to simultaneously route one or more additional ISOs, as necessary, to execute against the full displayed size of any protected quote priced equal to or better than the Day ISO. See also Question 5.02 in the ‘‘Division of Trading and Markets, Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS’’ (last updated April 4, 2008) available at https://www.sec.gov/divisions/ marketreg/nmsfaq610–11.htm. 14 See Exchange Rule 11.6(j). 15 See Exchange Rule 11.8(d). 16 See Exchange Rule 11.8(e). 17 See Exchange Rule 11.8(f). 18 See Exchange Rule 11.8(g). 19 The Exchange notes that it recently filed a separate proposal reflecting a change from its current routing broker-dealer, Direct Edge ECN LLC (d/b/a DE Route), to the use of BATS Trading, Inc. as the Exchange’s routing broker-dealer in connection with the technology migration. See Securities Exchange Act Release No. 73940 (December 24, 2014), 80 FR 63 (January 2, 2015) (SR–EDGX–2014–35). 20 Pursuant to Regulation NMS, a broker-dealer routing a Day ISO is required to simultaneously route one or more additional ISOs, as necessary, to execute against the full displayed size of any protected quote priced equal to or better than the Day ISO. See also Question 5.02 in the ‘‘Division of Trading and Markets, Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS’’ (last updated April 4, 2008) available at https://www.sec.gov/divisions/ marketreg/nmsfaq610–11.htm. VerDate Sep<11>2014 18:09 Jan 21, 2015 Jkt 235001 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 Feedback information. With the exception of Day ISO Feedback, the Exchange currently generates Feedback where an order was routed using a routing strategy offered by the Exchange that accesses protected quotes of trading venues on the System Routing Table (‘‘Smart Order Routing’’).21 As described above, the NBBO is utilized for order handling and execution. In determining the price where an order with a Pegged instruction, 22 MidPoint Peg Order, 23 MidPoint Discretionary Order, 24 Market Maker Peg Order25 or Supplemental Peg Order26 is to be pegged, the Exchange uses the Pegged NBBO (‘‘PBBO’’). The Exchange will calculate the PBBO using information regarding orders displayed on the EDGX Book in addition to the quotes disseminated by market centers through Direct Feeds, SIP feeds, and Feedback used by the ME for its NBBO calculation. Order Routing Pre-Integration Functionality. When the Exchange has a marketable order with instructions from the sender that the order is eligible to be routed, and the ME identifies that there is no matching price available on the Exchange, but there is a matching price represented at another venue that displays protected quotes, then the ME will send the order to the Routing Engine (‘‘RE’’) of Direct Edge ECN LLC (d/b/a DE Route).27 In determining whether to route an order and to which venue(s) it should be routed, the RE uses quotes disseminated from Direct Feeds, including EDGA, EDGX, BZX and BYX, and the SIP feeds from those venues where the Exchange does not take the Direct Feeds, including FINRA’s ADF. The RE utilizes a third-party market data processor that consumes the Direct Feeds and the SIP feeds, aggregates the quantities of symbols by price level, and redistributes them to an internal quote processor (the ‘‘Quote Server’’). The RE will request from the Quote Server a market data snapshot which includes the top-of-book and/or depth-of-book of each market center offering depth-ofbook feeds. Depending on the source of the quotation, the Quote Server may include odd lot quotations if the market 21 As set forth in Rule 11.11(g), the term ‘‘System routing table’’ refers to the proprietary process for determining the specific trading venues to which the System routes orders and the order in which it routes them. 22 See Exchange Rule 11.6(j). 23 See Exchange Rule 11.8(d). 24 See Exchange Rule 11.8(e). 25 See Exchange Rule 11.8(f). 26 See Exchange Rule 11.8(g). 27 See supra note 21. E:\FR\FM\22JAN1.SGM 22JAN1 tkelley on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices center publishes odd lot quotations in its Direct Feed. Based on this snapshot, the RE determines where to route the order, allocating the shares to the venues at each price level up to the limit price of the order, starting with the best quotes subject to the Member’s instructions. If there are any shares remaining after the response to the initial route is received, the RE will take another snapshot from the Quote Server and send out orders based on the same logic. If the full quantity of the order is not executed after multiple route attempts, the order is returned to the ME. In addition, the RE utilizes in-flight order information in its routing methodology. The RE tracks the details of each in-flight order, including the quantity routed and the corresponding quote published by the routed venue. After the RE requests a market data snapshot from the Quote Server and the RE has already targeted this quote (identified by venue, symbol, price, quantity and time stamp), then the RE will subtract the routed quantity of inflight orders from the quote size displayed in the market data snapshot. The RE will route an order for the remaining quantity to the venue. If there are no residual shares, the RE will bypass the quote. The RE also utilizes responses from other venues displaying protected quotes in its routing methodology. When the RE receives a response from a venue that does not completely fill the order targeting a quote, and no subsequent quote update has been received from that venue at the same price level, the RE will mark that venue’s quote as stale at that price level.28 Absent additional quote updates from that venue, the RE will bypass the quote for one (1) second. After one second, if the quote is still included in the market data snapshot, the RE will target the quote again. Post Integration Functionality. As proposed, following the technology migration, when the Exchange has a marketable order with instructions from the sender that the order is eligible to be routed, and the ME identifies that there is no matching price available on the Exchange but there is a matching price represented at another venue that displays protected quotes, then the ME will send the order to the RE of BATS Trading. 28 Question 11 of the ‘‘Division of Market Regulation: Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS’’ describes routing practices in the context of stale quotes, available at https:// www.sec.gov/divisions/marketreg/rule611faq.pdf. VerDate Sep<11>2014 18:09 Jan 21, 2015 Jkt 235001 In determining whether to route an order and to which venue(s) it should be routed, the RE will make its own calculation of the NBBO using the Direct Feeds, SIP feeds, and Router Feedback, as described below.29 The RE will include odd lot quotations in its calculation of the NBBO depending on the source of the quotation. Where a protected market center aggregates odd lot quotations at a single price level into round lot quotations and publishes such aggregated quotations to the SIPs, then the RE will include those odd lot quotations in its calculation of the NBBO. The RE will not utilize Day ISO Feedback in constructing the NBBO; however, because all orders initially flow through the ME, to the extent Day ISO Feedback has updated the ME’s calculation of the NBBO, all orders processed by the RE will take Day ISO Feedback into account. The RE will receive Feedback from all Smart Order Routing strategies. There are three types of Router Feedback that contribute to the Exchange’s calculation of the NBBO: • Immediate Feedback. Where BATS Trading routes an order to a venue with a protected quotation using Smart Order Routing (a ‘‘Feedback Order’’), the number of shares available at that venue will be immediately decreased by the number of shares routed to the venue at the applicable price level. • Execution Feedback. Where BATS Trading receives an execution report associated with a Feedback Order that indicates that the order has fully executed with no remaining shares associated with the order, all opposite side quotes on the venue’s order book that are priced more aggressively than the price at which the order was executed will be ignored. • Cancellation Feedback. Where BATS Trading receives an execution report associated with a Feedback Order that indicates that the order has not fully executed (either a partial execution or a cancellation), all opposite side quotes on the venue’s order book that are priced equal to or more aggressively than the limit price for the order will be ignored. All Feedback expires as soon as: (i) one (1) second passes; (ii) the Exchange receives new quote information; or (iii) the Exchange receives updated Feedback information. 29 The ME and RE consume the same Direct Feeds and SIP feeds. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 3285 Regulatory Compliance Locked or Crossed Markets. Pre-Integration Functionality. The ME determines whether the display of an order would lock or cross the market. At the time an order is entered into the ME, the ME will establish, based upon the prevailing top-of-book quotes of other exchanges displaying protected quotes received from the SIP feeds, whether the order will lock or cross the prevailing NBBO for a security. In the event that the order would produce a locking or crossing condition, the ME will cancel the order, re-price30 the order or route the order based on the Member’s instructions. Two exceptions to this logic are Day ISOs and declarations of self-help. Pursuant to Regulation NMS, when an Exchange receives a Day ISO, the sender of the ISO retains the responsibility to comply with applicable rules relating to locked and crossed markets.31 In such case, the Exchange will display a Day ISO order at the Member’s price, even if such price would lock or cross the market.32 Declarations of self-help occur when the RE detects that an exchange displaying protected quotes is slow, as defined in Regulation NMS, or nonresponsive to the Exchange’s routed orders. In this circumstance, according to Rule 611(b) of Regulation NMS, the Exchange may display a quotation that may lock or cross quotations from the market that the Exchange invoked selfhelp against.33 The ME and RE, when they process market data, maintain logic that ignores the quotes generated from the self-helped market in their calculations of the NBBO for execution and routing determinations in compliance with Regulation NMS. The Exchange also disables all routing to the self-helped market. The ME and Quote Server continue to consume the selfhelped market center’s quotes, however, in order to immediately include the quote in the NBBO calculation and enable routing once self-help is revoked. The Exchange excludes quotes from the self-helped market for re-pricing purposes and to price orders such as orders with a Pegged instruction and MidPoint Peg Orders. Post-Integration Functionality. The Exchange’s post-integration 30 See Exchange Rule 11.6(l). supra note 22. 32 See supra note 22. 33 See also Question 5.03 in the ‘‘Division of Trading and Markets, Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS’’ (last updated April 4, 2008) available at https://www.sec.gov/divisions/ marketreg/nmsfaq610-11.htm. 31 See E:\FR\FM\22JAN1.SGM 22JAN1 3286 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices functionality is similar to the preintegration functionality. However, the Exchange notes that at the time an order is entered into the ME, the ME will establish, based upon its calculation of the NBBO from Direct Feeds, SIP feeds and Feedback, whether the order will lock or cross the prevailing NBBO for a security. Trade-Through Rule Pre-Integration Functionality. Pursuant to Rule 611 of Regulation NMS, the Exchange shall establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on trading centers of protected quotations in NMS stocks that do not fall within a valid exception and, if relying on such an exception, that are reasonably designed to ensure compliance with the terms of the exception. The ME does not permit an execution on the Exchange if there are better-priced protected quotations displayed in the market unless the order is an ISO. At the time an order is entered into the ME, the ME uses the view of the NBBO as described above. If the NBBO is priced better than what is resident on the Exchange, the Exchange will not match such order on the EDGX Book, and based on the Member’s instructions, the ME will cancel the order, re-price the order or route the order. Post-Integration Functionality. The Exchange’s post-integration functionality that describes compliance with the trade-through rule is the same as the Exchange’s pre-integration functionality. The Exchange again notes that following the technology migration, it will calculation the NBBO using Direct Feeds, SIP Feeds, and Feedback. Regulation SHO Pre-Integration Functionality. The Exchange cannot execute a short sale order 34 equal to or below the current National Best Bid (‘‘NBB’’) when a short sale price restriction is in effect pursuant to Rule 201 of Regulation SHO (‘‘Short Sale Circuit Breaker’’).35 When 34 See Exchange Rule 11.6(l)(2). CFR 242.200(g); 17 CFR 242.201. On February 26, 2010, the Commission adopted amendments to Regulation SHO under the Act in the form of Rule 201, pursuant to which, among other things, short sale orders in covered securities generally cannot be executed or displayed by a trading center, such as the Exchange, at a price that is at or below the current NBB when a Short Sale Circuit Breaker is in effect for the covered security. See Securities Exchange Act Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). 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, tkelley on DSK3SPTVN1PROD with NOTICES 35 17 VerDate Sep<11>2014 18:09 Jan 21, 2015 Jkt 235001 a Short Sale Circuit Breaker is in effect, the Exchange utilizes information received from the SIP feeds and a view of the EDGX Book to assess its compliance with Rule 201 of Regulation SHO. The NBBO used for compliance with Rule 201 of Regulation SHO includes quotes from market centers against which the Exchange has declared self-help. Post-Integration Functionality. The Exchange’s post-integration functionality is similar to the preintegration functionality, including that the NBBO used for compliance with Rule 201 of Regulation SHO will include quotes from market centers against which the Exchange has declared self-help. However, the Exchange notes that when a Short Sale Circuit Breaker is in effect, the Exchange will utilize information received from Direct Feeds, SIP feeds, Feedback and a view of the EDGX Book to assess its compliance with Rule 201 of Regulation SHO. Latent or Inaccurate Direct Feeds Pre-Integration Functionality. Where the Exchange’s systems detect problems with one or more Direct Feeds, the Quote Server can manually fail over to the SIP feed to calculate the NBBO for the market center(s) where the applicable Direct Feed is experiencing issues. In order to make this determination, the Quote Server continuously polls every Direct Feed line and generates an email alert if the difference between a quote’s sent time (as stamped by the sending market) and the time of receipt by the Exchange exceeds one (1) second. Post-Integration Functionality. As proposed, where the Exchange’s systems detect problems with one or more Direct Feeds, the Exchange will immediately fail over to the SIP feed to calculate the NBBO for the market center(s) where the applicable Direct Feed is experiencing issues. The Exchange can also manually fail over to the SIP feed in lieu of Direct Feed data upon identification by a market center of an issue with its Direct Feed(s). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act36 in general, and furthers the objectives of Section 6(b)(5) of the Act37 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. 36 15 U.S.C. 78f(b). 37 15 U.S.C. 78f(b)(5). PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange does not believe that this proposal will permit unfair discrimination among customers, brokers, or dealers because it will be available to all Users. The Exchange believes that its proposal to describe the Exchange’s use of data feeds removes impediments to and perfects the mechanism of a free and open market and protects investors and the public interest because it provides additional specificity and transparency regarding both the current operation of the System and the operation of the System following the migration to BATS technology. The Exchange’s proposal will enable investors to better assess the quality of the Exchange’s execution and routing services. The Exchange believes the additional transparency into the operation of the Exchange as described in the proposal will remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposal will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. On the contrary, the Exchange believes the proposal would enhance competition because describing the Exchange’s use of data feeds enhances transparency and enables investors to better assess the quality of the Exchange’s execution and routing services. In addition, the Exchange believes the proposed rule change will benefit Exchange participants in that it is one of several changes necessary to achieve a consistent technology offering by the BGM Affiliated Exchanges [sic] C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange filed the Initial Proposal with the Commission on July 15, 2014, and it was published for comment in the Federal Register on August 1, 2014. The Commission received one (1) written comment letter E:\FR\FM\22JAN1.SGM 22JAN1 Federal Register / Vol. 80, No. 14 / Thursday, January 22, 2015 / Notices commenting on the Initial Proposal.38 The Commission also received three (3) letters commenting on companion filings: two (2) letters commented on SR–BATS–2014–029,39 and one (1) letter commented on SR–BATS–2014– 029 and SR–BYX–2014–012.40 The Exchange believes that the comments raised in these letters are either not directly related to the Exchange’s proposal but instead raise larger market structure issues or are adequately addressed in this proposal, particularly as it relates to the Commission’s request to describe the Exchange’s use of data feeds for order handling and execution, order routing, and regulatory compliance. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act41 and Rule 19b–4(f)(6) thereunder.42 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act43 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii)44 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon tkelley on DSK3SPTVN1PROD with NOTICES 38 See Letter from Suzanne Hamlet Shatto to the Commission, dated August 19, 2014 (SR–EDGX– 2014–20) (discussing Dodd Frank principles). 39 See Letter from R.T. Leuchtkafer to the Commission, dated August 22, 2014 (SR–BATS– 2014–029) (discussing the Exchange’s market data feed practices). See Letter from Eric Scott Hunsader, Nanex, LLC, to the Commission, dated August 22, 2014 (SR–BATS–2014–029) (discussing the Exchange’s use of NBBO as a defined term). 40 See Letter from Donald Bollerman, Head of Market Operations, IEX ATS, to the Commission, dated September 25, 2014 (SR–BATS–2014–029) (SR–BYX–2014–012) (discussing the Exchange’s calculation of the PBBO). 41 15 U.S.C. 78s(b)(3)(A). 42 17 CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 43 17 CFR 240.19b–4(f)(6). 44 17 CFR 240.19b–4(f)(6)(iii). VerDate Sep<11>2014 18:09 Jan 21, 2015 Jkt 235001 filing. The Exchange stated that waiver of the operative delay will allow the Exchange to immediately adopt rule text consistent with the Initial Proposal and operate in the same manner as BATS with respect to the use of data feeds. In addition, the Exchange stated that waiver of the operative delay will allow it to continue to move towards a complete technology integration of the BGM Affiliated Exchanges to ensure stability of the System. For these reasons, the Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the operative delay and designates the proposal operative upon filing.45 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– EDGX–2015–02 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–EDGX–2015–02. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s 45 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 3287 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 a.m. and 3 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– 2015–02 and should be submitted on or before February 12, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.46 Brent J. Fields, Secretary. [FR Doc. 2015–00969 Filed 1–21–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74073; File No. SR–OCC– 2014–812] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Advance Notice Concerning Extended and Overnight Trading Sessions January 15, 2015. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 1 (‘‘Payment, Clearing and Settlement Supervision Act’’) and Rule 19b– 4(n)(1)(i) under the Securities Exchange Act of 1934 2 notice is hereby given that on December 12, 2014, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the 46 17 CFR 200.30–3(a)(12). U.S.C. 5465(e)(1). 2 17 CFR 240.19b–4(n)(1)(i). 1 12 E:\FR\FM\22JAN1.SGM 22JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 14 (Thursday, January 22, 2015)]
[Notices]
[Pages 3282-3287]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00969]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74072; File No. SR-EDGX-2015-02]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify
the Use of Certain Data Feeds

January 15, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on January 7, 2015, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The

[[Page 3283]]

Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange filed a proposal to amend certain rules to adopt or
align system functionality with that currently offered by BATS
Exchange, Inc. (``BZX'') and BATS Y-Exchange, Inc. (``BYX'', and
collectively with BZX, ``BATS'') in order to provide a consistent
technology offering amongst the Exchange and its affiliates. These
changes, which are described in detail below, propose to clarify for
Members \3\ and non-Members the Exchange's use of certain data feeds
for order handling and execution, order routing, and regulatory
compliance.
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\3\ The term ``Member'' is defined as ``any registered broker or
dealer, or any person associated with a registered broker or dealer,
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
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On July 15, 2014, the Exchange filed a proposed rule change that
described its use of data feeds for order handling and execution, order
routing, and regulatory compliance (the ``Initial Proposal'') with the
Commission.\4\ The Exchange submits this supplemental filing in order
to specify for Members and non-Members the Exchange's use of certain
data feeds in connection with the technology migration described in
further detail below.\5\
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\4\ See Securities Exchange Act Release No. 72683 (July 28,
2014), 79 FR 44950 (August 1, 2014) (SR-EDGX-2014-20). Other
national securities exchange filed similar proposals. See e.g.,
Securities Exchange Act Release Nos. 72710 (July 29, 2014), 79 FR
45511 (August 5, 2014) (SR-NYSE-2014-38), and 72684 (July 28, 2014),
79 FR44956 (August 1, 2014) (SR-NASDAQ-2014-072).
\5\ The Exchange understands that other national security
exchanges will file similar proposed rule changes with the
Commission to further describe their use of data feeds for order
handling and execution, order routing, and regulatory compliance.
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The text of the proposed rule change is available at the Exchange's
Web site at https://www.directedge.com/, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
On June 5, 2014, Chair White requested that all national securities
exchanges develop proposed rule changes to disclose their use of data
feeds to execute and route orders and comply with regulatory
requirements.\6\ In addition, on June 20, 2014, the Commission's
Division of Trading and Markets requested that the Exchange file
proposed rule changes that disclose its usage of particular market data
feeds, among other things.\7\ In response to these requests, the
Exchange filed the Initial Proposal with the Commission on July 15,
2014.\8\ The Exchange submits this supplemental filing to describe the
Exchange's use of certain data feeds for order handling and execution,
order routing, and regulatory compliance in connection with the
technology migration described in further detail below.\9\
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\6\ See Mary Jo White, Chair, Securities and Exchange
Commission, Speech at Sandler O'Neill & Partners L.P. Global
Exchange and Brokerage Conference (June 5, 2014).
\7\ See letter from Stephen Luparello, Director, Division of
Trading and Markets, Securities and Exchange Commission, to Joe
Ratterman, Chief Executive Officer, BATS Global Markets, Inc., dated
June 20, 2014.
\8\ See supra note 6.
\9\ See supra note 7.
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Technology Migration
Earlier this year, the Exchange and its affiliate EDGA Exchange,
Inc. (``EDGA'') received approval to effect a merger (the ``Merger'')
of the Exchange's parent company, Direct Edge Holdings LLC, with BATS
Global Markets, Inc., the parent company of BATS (the Exchange,
together with BZX, BYX and EDGA, the ``BGM Affiliated Exchanges'').\10\
In the context of the Merger, the BGM Affiliated Exchanges are working
to migrate EDGA and EDGX onto the BATS technology platform, and align
certain system functionality, retaining only intended differences
between the BGM Affiliated Exchanges.
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\10\ See Securities Exchange Act Release No. 71449 (January 30,
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43; SR-EDGA-2013-
34).
---------------------------------------------------------------------------

The proposed amendments are intended to align certain system
functionality with that currently offered by BATS in order to provide a
consistent technology offering for Users\11\ of the BGM Affiliated
Exchanges. The Exchange notes that the proposed rule text is based on
corresponding proposals being submitted by all of the BGM Affiliated
Exchanges. The proposed amendments do not propose to implement new or
unique functionality that has not been previously filed with the
Commission or is not available on BATS or BYX.
---------------------------------------------------------------------------

\11\ The term ``User'' is defined as ``any Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Rule 11.3.'' See Exchange Rule 1.5(ee).
---------------------------------------------------------------------------

To ensure proper context and a complete filing describing the
Exchange's procedures in this area both prior to and after the
technology migration, the Exchange has repeated relevant information
from the Initial Proposal and supplemented such information as
necessary. In each section below the Exchange first describes its pre-
integration functionality, which will be in place until the technology
migration is complete, followed by a description of post-integration
functionality. The Exchange anticipates completing the technology
migration on or about January 12, 2015.
Order Handling and Execution
Pre-Integration Functionality. The Exchange's Matching Engine (the
``ME'') determines whether an order should be displayed, executed
internally, or routed to another market center. In making this
determination, the ME continually receives and maintains quote data
that is delivered from an internal processor (the ``Feed Handler'').
The market data processed by the Feed Handler is sourced directly from
the Securities Information Processors (``SIP'') feeds. Specifically,
the Exchange's ME uses the Consolidated Tape Association (CTA) market
data operated by the Securities Industry Automation Corp. in Tapes A
and B and Unlisted Trading Privileges (UTP) market data operated by
NASDAQ OMX Group, Inc. in Tape C securities.
These SIP feeds contain the best (top-of-book) prices in round lot
quotations of each protected venue. The Exchange's ME consumes the SIP
feeds to obtain the top-of-book quotes from each protected venue,
including the Exchange's affiliates, EDGX, BZX, and BYX, and the
Financial Industry Regulatory Authority's (``FINRA'') Alternative
Display Facility (``ADF''). The SIP feeds do not display odd lot
quotations; therefore, the ME does not use odd lot quotations to
calculate the national best

[[Page 3284]]

bid and offer (``NBBO''). However, a protected venue may aggregate odd
lot quotations to create round lot quotations and publish those round
lot quotations to the SIPs feeds. Based on the SIP feeds and the EDGX
Book,\12\ the ME constructs the NBBO.
---------------------------------------------------------------------------

\12\ The term ``EDGX Book'' is defined as ``the System's
electronic file of orders.'' See Exchange Rule 1.5(d).
---------------------------------------------------------------------------

The ME will also update the NBBO upon receipt of an Intermarket
Sweep Order (``ISO'') with a time-in-force of Day (``Day ISO''). When a
Day ISO is posted on the EDGX Book, the ME uses the receipt of a Day
ISO as evidence that the protected quotes have been cleared, and the ME
does not check away markets for equal or better-priced protected
quotes.\13\ The ME will then display and execute non-ISO orders at the
same price as the Day ISO.
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\13\ Pursuant to Regulation NMS, a broker-dealer routing a Day
ISO is required to simultaneously route one or more additional ISOs,
as necessary, to execute against the full displayed size of any
protected quote priced equal to or better than the Day ISO. See also
Question 5.02 in the ``Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Rule 611 and Rule 610 of
Regulation NMS'' (last updated April 4, 2008) available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------

The NBBO is utilized for order handling and execution. The Exchange
looks to its calculation of the NBBO, based on the SIP feeds and the
EDGX Book, when determining the price at which an order with a Pegged
instruction,\14\ MidPoint Peg Order,\15\ MidPoint Discretionary
Order,\16\ Market Maker Peg Order,\17\ or Supplemental Peg Order\18\ is
to be pegged.
Post-Integration Functionality. As proposed, following the
technology migration, in order to calculate the NBBO in its Matching
Engine (the ``ME''), the Exchange will use quotes disseminated by
market centers through proprietary data feeds (generally referred to as
``Direct Feeds'') as well as by the SIP. The ME will use quotes
disseminated from SIP feeds for the Chicago Stock Exchange, Inc., NYSE
MKT LLC and FINRA's ADF. The ME will consume the Direct Feeds from
every other protected venue, including the Exchange's affiliates, BZX,
BYX and EDGA.
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\14\ See Exchange Rule 11.6(j).
\15\ See Exchange Rule 11.8(d).
\16\ See Exchange Rule 11.8(e).
\17\ See Exchange Rule 11.8(f).
\18\ See Exchange Rule 11.8(g).
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The ME will include odd lot quotations in its calculation of the
NBBO depending on the source of the quotation. Where a protected market
center aggregates odd lot quotations at a single price level into round
lot quotations and publishes such aggregated quotations to the SIPs,
then the ME will include those odd lot quotations in its calculation of
the NBBO. In addition, where a protected market center aggregates odd
lot quotations across more than one price level and publishes such
aggregated quotations to the SIPs, then the ME will include those odd
lot quotations in its calculation of the NBBO.
In addition to receiving Direct Feeds and SIP feeds, the ME's
calculation of the NBBO may be adjusted based on orders sent to other
venues with protected quotations, execution reports received from those
venues, and certain orders received by the Exchange (collectively
``Feedback''). The Exchange does not include its quotes in the
calculation of the Exchange's NBBO because the system is designed such
that all incoming orders are separately compared to the Exchange's Best
Bid or Offer and the Exchange calculated NBBO, which together create a
complete view of the NBBO, prior to display, execution, or routing.
Feedback from the receipt of ISOs with a time-in-force of Day
(``Day ISOs'') and feedback from the Exchange's routing broker/dealer,
BATS Trading, Inc., (``BATS Trading''),\19\ defined respectively as
``Day ISO Feedback and ``Router Feedback,'' will be used to augment the
market data received by Direct Feeds and the SIP feeds as further
described below. The Exchange's ME will update the NBBO upon receipt of
a Day ISO. When a Day ISO is posted on the EDGX Book, the ME uses the
receipt of a Day ISO as evidence that the protected quotes have been
cleared, and the ME does not check away markets for equal or better-
priced protected quotes.\20\ The ME will then display and execute non-
ISO orders at the same price as the Day ISO.
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\19\ The Exchange notes that it recently filed a separate
proposal reflecting a change from its current routing broker-dealer,
Direct Edge ECN LLC (d/b/a DE Route), to the use of BATS Trading,
Inc. as the Exchange's routing broker-dealer in connection with the
technology migration. See Securities Exchange Act Release No. 73940
(December 24, 2014), 80 FR 63 (January 2, 2015) (SR-EDGX-2014-35).
\20\ Pursuant to Regulation NMS, a broker-dealer routing a Day
ISO is required to simultaneously route one or more additional ISOs,
as necessary, to execute against the full displayed size of any
protected quote priced equal to or better than the Day ISO. See also
Question 5.02 in the ``Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Rule 611 and Rule 610 of
Regulation NMS'' (last updated April 4, 2008) available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------

All Feedback expires as soon as: (i) one (1) second passes; (ii)
the Exchange receives new quote information; or (iii) the Exchange
receives updated Feedback information. With the exception of Day ISO
Feedback, the Exchange currently generates Feedback where an order was
routed using a routing strategy offered by the Exchange that accesses
protected quotes of trading venues on the System Routing Table (``Smart
Order Routing'').\21\
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\21\ As set forth in Rule 11.11(g), the term ``System routing
table'' refers to the proprietary process for determining the
specific trading venues to which the System routes orders and the
order in which it routes them.
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As described above, the NBBO is utilized for order handling and
execution. In determining the price where an order with a Pegged
instruction, \22\ MidPoint Peg Order, \23\ MidPoint Discretionary
Order, \24\ Market Maker Peg Order\25\ or Supplemental Peg Order\26\ is
to be pegged, the Exchange uses the Pegged NBBO (``PBBO''). The
Exchange will calculate the PBBO using information regarding orders
displayed on the EDGX Book in addition to the quotes disseminated by
market centers through Direct Feeds, SIP feeds, and Feedback used by
the ME for its NBBO calculation.
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\22\ See Exchange Rule 11.6(j).
\23\ See Exchange Rule 11.8(d).
\24\ See Exchange Rule 11.8(e).
\25\ See Exchange Rule 11.8(f).
\26\ See Exchange Rule 11.8(g).
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Order Routing
Pre-Integration Functionality. When the Exchange has a marketable
order with instructions from the sender that the order is eligible to
be routed, and the ME identifies that there is no matching price
available on the Exchange, but there is a matching price represented at
another venue that displays protected quotes, then the ME will send the
order to the Routing Engine (``RE'') of Direct Edge ECN LLC (d/b/a DE
Route).\27\
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\27\ See supra note 21.
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In determining whether to route an order and to which venue(s) it
should be routed, the RE uses quotes disseminated from Direct Feeds,
including EDGA, EDGX, BZX and BYX, and the SIP feeds from those venues
where the Exchange does not take the Direct Feeds, including FINRA's
ADF.
The RE utilizes a third-party market data processor that consumes
the Direct Feeds and the SIP feeds, aggregates the quantities of
symbols by price level, and redistributes them to an internal quote
processor (the ``Quote Server''). The RE will request from the Quote
Server a market data snapshot which includes the top-of-book and/or
depth-of-book of each market center offering depth-of-book feeds.
Depending on the source of the quotation, the Quote Server may include
odd lot quotations if the market

[[Page 3285]]

center publishes odd lot quotations in its Direct Feed.
Based on this snapshot, the RE determines where to route the order,
allocating the shares to the venues at each price level up to the limit
price of the order, starting with the best quotes subject to the
Member's instructions. If there are any shares remaining after the
response to the initial route is received, the RE will take another
snapshot from the Quote Server and send out orders based on the same
logic. If the full quantity of the order is not executed after multiple
route attempts, the order is returned to the ME.
In addition, the RE utilizes in-flight order information in its
routing methodology. The RE tracks the details of each in-flight order,
including the quantity routed and the corresponding quote published by
the routed venue. After the RE requests a market data snapshot from the
Quote Server and the RE has already targeted this quote (identified by
venue, symbol, price, quantity and time stamp), then the RE will
subtract the routed quantity of in-flight orders from the quote size
displayed in the market data snapshot. The RE will route an order for
the remaining quantity to the venue. If there are no residual shares,
the RE will bypass the quote.
The RE also utilizes responses from other venues displaying
protected quotes in its routing methodology. When the RE receives a
response from a venue that does not completely fill the order targeting
a quote, and no subsequent quote update has been received from that
venue at the same price level, the RE will mark that venue's quote as
stale at that price level.\28\ Absent additional quote updates from
that venue, the RE will bypass the quote for one (1) second. After one
second, if the quote is still included in the market data snapshot, the
RE will target the quote again.
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\28\ Question 11 of the ``Division of Market Regulation:
Responses to Frequently Asked Questions Concerning Rule 611 and Rule
610 of Regulation NMS'' describes routing practices in the context
of stale quotes, available at https://www.sec.gov/divisions/marketreg/rule611faq.pdf.
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Post Integration Functionality. As proposed, following the
technology migration, when the Exchange has a marketable order with
instructions from the sender that the order is eligible to be routed,
and the ME identifies that there is no matching price available on the
Exchange but there is a matching price represented at another venue
that displays protected quotes, then the ME will send the order to the
RE of BATS Trading.
In determining whether to route an order and to which venue(s) it
should be routed, the RE will make its own calculation of the NBBO
using the Direct Feeds, SIP feeds, and Router Feedback, as described
below.\29\ The RE will include odd lot quotations in its calculation of
the NBBO depending on the source of the quotation. Where a protected
market center aggregates odd lot quotations at a single price level
into round lot quotations and publishes such aggregated quotations to
the SIPs, then the RE will include those odd lot quotations in its
calculation of the NBBO.
---------------------------------------------------------------------------

\29\ The ME and RE consume the same Direct Feeds and SIP feeds.
---------------------------------------------------------------------------

The RE will not utilize Day ISO Feedback in constructing the NBBO;
however, because all orders initially flow through the ME, to the
extent Day ISO Feedback has updated the ME's calculation of the NBBO,
all orders processed by the RE will take Day ISO Feedback into account.
The RE will receive Feedback from all Smart Order Routing strategies.
There are three types of Router Feedback that contribute to the
Exchange's calculation of the NBBO:
Immediate Feedback. Where BATS Trading routes an order to
a venue with a protected quotation using Smart Order Routing (a
``Feedback Order''), the number of shares available at that venue will
be immediately decreased by the number of shares routed to the venue at
the applicable price level.
Execution Feedback. Where BATS Trading receives an
execution report associated with a Feedback Order that indicates that
the order has fully executed with no remaining shares associated with
the order, all opposite side quotes on the venue's order book that are
priced more aggressively than the price at which the order was executed
will be ignored.
Cancellation Feedback. Where BATS Trading receives an
execution report associated with a Feedback Order that indicates that
the order has not fully executed (either a partial execution or a
cancellation), all opposite side quotes on the venue's order book that
are priced equal to or more aggressively than the limit price for the
order will be ignored.
All Feedback expires as soon as: (i) one (1) second passes; (ii)
the Exchange receives new quote information; or (iii) the Exchange
receives updated Feedback information.
Regulatory Compliance
Locked or Crossed Markets.
Pre-Integration Functionality. The ME determines whether the
display of an order would lock or cross the market. At the time an
order is entered into the ME, the ME will establish, based upon the
prevailing top-of-book quotes of other exchanges displaying protected
quotes received from the SIP feeds, whether the order will lock or
cross the prevailing NBBO for a security. In the event that the order
would produce a locking or crossing condition, the ME will cancel the
order, re-price\30\ the order or route the order based on the Member's
instructions. Two exceptions to this logic are Day ISOs and
declarations of self-help.
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\30\ See Exchange Rule 11.6(l).
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Pursuant to Regulation NMS, when an Exchange receives a Day ISO,
the sender of the ISO retains the responsibility to comply with
applicable rules relating to locked and crossed markets.\31\ In such
case, the Exchange will display a Day ISO order at the Member's price,
even if such price would lock or cross the market.\32\
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\31\ See supra note 22.
\32\ See supra note 22.
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Declarations of self-help occur when the RE detects that an
exchange displaying protected quotes is slow, as defined in Regulation
NMS, or non-responsive to the Exchange's routed orders. In this
circumstance, according to Rule 611(b) of Regulation NMS, the Exchange
may display a quotation that may lock or cross quotations from the
market that the Exchange invoked self-help against.\33\ The ME and RE,
when they process market data, maintain logic that ignores the quotes
generated from the self-helped market in their calculations of the NBBO
for execution and routing determinations in compliance with Regulation
NMS. The Exchange also disables all routing to the self-helped market.
The ME and Quote Server continue to consume the self-helped market
center's quotes, however, in order to immediately include the quote in
the NBBO calculation and enable routing once self-help is revoked. The
Exchange excludes quotes from the self-helped market for re-pricing
purposes and to price orders such as orders with a Pegged instruction
and MidPoint Peg Orders.
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\33\ See also Question 5.03 in the ``Division of Trading and
Markets, Responses to Frequently Asked Questions Concerning Rule 611
and Rule 610 of Regulation NMS'' (last updated April 4, 2008)
available at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
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Post-Integration Functionality. The Exchange's post-integration

[[Page 3286]]

functionality is similar to the pre-integration functionality. However,
the Exchange notes that at the time an order is entered into the ME,
the ME will establish, based upon its calculation of the NBBO from
Direct Feeds, SIP feeds and Feedback, whether the order will lock or
cross the prevailing NBBO for a security.
Trade-Through Rule
Pre-Integration Functionality. Pursuant to Rule 611 of Regulation
NMS, the Exchange shall establish, maintain, and enforce written
policies and procedures that are reasonably designed to prevent trade-
throughs on trading centers of protected quotations in NMS stocks that
do not fall within a valid exception and, if relying on such an
exception, that are reasonably designed to ensure compliance with the
terms of the exception. The ME does not permit an execution on the
Exchange if there are better-priced protected quotations displayed in
the market unless the order is an ISO. At the time an order is entered
into the ME, the ME uses the view of the NBBO as described above. If
the NBBO is priced better than what is resident on the Exchange, the
Exchange will not match such order on the EDGX Book, and based on the
Member's instructions, the ME will cancel the order, re-price the order
or route the order.
Post-Integration Functionality. The Exchange's post-integration
functionality that describes compliance with the trade-through rule is
the same as the Exchange's pre-integration functionality. The Exchange
again notes that following the technology migration, it will
calculation the NBBO using Direct Feeds, SIP Feeds, and Feedback.
Regulation SHO
Pre-Integration Functionality. The Exchange cannot execute a short
sale order \34\ equal to or below the current National Best Bid
(``NBB'') when a short sale price restriction is in effect pursuant to
Rule 201 of Regulation SHO (``Short Sale Circuit Breaker'').\35\ When a
Short Sale Circuit Breaker is in effect, the Exchange utilizes
information received from the SIP feeds and a view of the EDGX Book to
assess its compliance with Rule 201 of Regulation SHO. The NBBO used
for compliance with Rule 201 of Regulation SHO includes quotes from
market centers against which the Exchange has declared self-help.
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\34\ See Exchange Rule 11.6(l)(2).
\35\ 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010,
the Commission adopted amendments to Regulation SHO under the Act in
the form of Rule 201, pursuant to which, among other things, short
sale orders in covered securities generally cannot be executed or
displayed by a trading center, such as the Exchange, at a price that
is at or below the current NBB when a Short Sale Circuit Breaker is
in effect for the covered security. See Securities Exchange Act
Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010).
In connection with the adoption of Rule 201, Rule 200(g) of
Regulation SHO was also amended to include a ``short exempt''
marking requirement. See also Securities Exchange Act Release No.
63247 (November 4, 2010), 75 FR 68702 (November 9, 2010) (extending
the compliance date for Rules 201 and 200(g) to February 28, 2011).
See also Division of Trading & Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/rule201faq.htm.
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Post-Integration Functionality. The Exchange's post-integration
functionality is similar to the pre-integration functionality,
including that the NBBO used for compliance with Rule 201 of Regulation
SHO will include quotes from market centers against which the Exchange
has declared self-help. However, the Exchange notes that when a Short
Sale Circuit Breaker is in effect, the Exchange will utilize
information received from Direct Feeds, SIP feeds, Feedback and a view
of the EDGX Book to assess its compliance with Rule 201 of Regulation
SHO.
Latent or Inaccurate Direct Feeds
Pre-Integration Functionality. Where the Exchange's systems detect
problems with one or more Direct Feeds, the Quote Server can manually
fail over to the SIP feed to calculate the NBBO for the market
center(s) where the applicable Direct Feed is experiencing issues. In
order to make this determination, the Quote Server continuously polls
every Direct Feed line and generates an email alert if the difference
between a quote's sent time (as stamped by the sending market) and the
time of receipt by the Exchange exceeds one (1) second.
Post-Integration Functionality. As proposed, where the Exchange's
systems detect problems with one or more Direct Feeds, the Exchange
will immediately fail over to the SIP feed to calculate the NBBO for
the market center(s) where the applicable Direct Feed is experiencing
issues. The Exchange can also manually fail over to the SIP feed in
lieu of Direct Feed data upon identification by a market center of an
issue with its Direct Feed(s).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act\36\ in general, and furthers the objectives of Section
6(b)(5) of the Act\37\ in particular, in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest. The Exchange does not
believe that this proposal will permit unfair discrimination among
customers, brokers, or dealers because it will be available to all
Users.
---------------------------------------------------------------------------

\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that its proposal to describe the Exchange's
use of data feeds removes impediments to and perfects the mechanism of
a free and open market and protects investors and the public interest
because it provides additional specificity and transparency regarding
both the current operation of the System and the operation of the
System following the migration to BATS technology. The Exchange's
proposal will enable investors to better assess the quality of the
Exchange's execution and routing services. The Exchange believes the
additional transparency into the operation of the Exchange as described
in the proposal will remove impediments to and perfect the mechanism of
a free and open market and a national market system, and, in general,
protect investors and the public interest.

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

The Exchange does not believe that the proposal will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. On the contrary, the Exchange believes the
proposal would enhance competition because describing the Exchange's
use of data feeds enhances transparency and enables investors to better
assess the quality of the Exchange's execution and routing services. In
addition, the Exchange believes the proposed rule change will benefit
Exchange participants in that it is one of several changes necessary to
achieve a consistent technology offering by the BGM Affiliated
Exchanges [sic]

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

The Exchange filed the Initial Proposal with the Commission on July
15, 2014, and it was published for comment in the Federal Register on
August 1, 2014. The Commission received one (1) written comment letter

[[Page 3287]]

commenting on the Initial Proposal.\38\ The Commission also received
three (3) letters commenting on companion filings: two (2) letters
commented on SR-BATS-2014-029,\39\ and one (1) letter commented on SR-
BATS-2014-029 and SR-BYX-2014-012.\40\ The Exchange believes that the
comments raised in these letters are either not directly related to the
Exchange's proposal but instead raise larger market structure issues or
are adequately addressed in this proposal, particularly as it relates
to the Commission's request to describe the Exchange's use of data
feeds for order handling and execution, order routing, and regulatory
compliance.
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\38\ See Letter from Suzanne Hamlet Shatto to the Commission,
dated August 19, 2014 (SR-EDGX-2014-20) (discussing Dodd Frank
principles).
\39\ See Letter from R.T. Leuchtkafer to the Commission, dated
August 22, 2014 (SR-BATS-2014-029) (discussing the Exchange's market
data feed practices). See Letter from Eric Scott Hunsader, Nanex,
LLC, to the Commission, dated August 22, 2014 (SR-BATS-2014-029)
(discussing the Exchange's use of NBBO as a defined term).
\40\ See Letter from Donald Bollerman, Head of Market
Operations, IEX ATS, to the Commission, dated September 25, 2014
(SR-BATS-2014-029) (SR-BYX-2014-012) (discussing the Exchange's
calculation of the PBBO).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act\41\ and Rule 19b-4(f)(6)
thereunder.\42\
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\41\ 15 U.S.C. 78s(b)(3)(A).
\42\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act\43\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii)\44\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
stated that waiver of the operative delay will allow the Exchange to
immediately adopt rule text consistent with the Initial Proposal and
operate in the same manner as BATS with respect to the use of data
feeds. In addition, the Exchange stated that waiver of the operative
delay will allow it to continue to move towards a complete technology
integration of the BGM Affiliated Exchanges to ensure stability of the
System. For these reasons, the Commission believes that waiver of the
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposal operative upon filing.\45\
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\43\ 17 CFR 240.19b-4(f)(6).
\44\ 17 CFR 240.19b-4(f)(6)(iii).
\45\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

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

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-EDGX-2015-02 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-EDGX-2015-02. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 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-2015-02 and should be
submitted on or before February 12, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00969 Filed 1-21-15; 8:45 am]
BILLING CODE 8011-01-P

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