Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend Rule 11.2 To State That EDGX Exchange, Inc. Will Not Designate for Trading Any Security Admitted to Unlisted Trading Privileges on the Exchange Unless That Security Satisfies Certain Liquidity Requirements, 29778-29781 [2015-12412]

Download as PDF asabaliauskas on DSK5VPTVN1PROD with NOTICES 29778 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices placed within the discretion of the thenexisting Independent Board Members. 7. Independent legal counsel, as defined in rule 0–1(a)(6) under the Act, will be engaged to represent the Independent Board Members. The selection of such counsel will be within the discretion of the then existing Independent Board Members. 8. The Adviser will provide the Board, no less frequently than quarterly, with information about the profitability of the Adviser on a per Sub-Advised Series basis. The information will reflect the impact on profitability of the hiring or termination of any sub-adviser during the applicable quarter. 9. Whenever a sub-adviser is hired or terminated, the Adviser will provide the Board with information showing the expected impact on the profitability of the Adviser. 10. Whenever a sub-adviser change is proposed for a Sub-Advised Series with an Affiliated Sub-Adviser or a WhollyOwned Sub-Adviser, the Board, including a majority of the Independent Board Members, will make a separate finding, reflected in the Board minutes, that such change is in the best interests of the Sub-Advised Series and its shareholders and does not involve a conflict of interest from which the Adviser or the Affiliated Sub-Adviser or Wholly-Owned Sub-Adviser derives an inappropriate advantage. 11. No director or officer of a SubAdvised Series, or director or officer of the Adviser, will own directly or indirectly (other than through a pooled investment vehicle that is not controlled by such person) any interest in a SubAdviser, except for (i) ownership of interests in the Adviser or any entity, other than a Wholly-Owned SubAdviser that controls, is controlled by, or is under common control with the Adviser; or (ii) ownership of less than 1% of the outstanding securities of any class of equity or debt of a publicly traded company that is either a SubAdviser or an entity that controls, is controlled by, or is under common control with a Sub-Adviser. 12. Each Sub-Advised Series will disclose the Aggregate Fee Disclosure in its registration statement. 13. In the event the Commission adopts a rule under the Act providing substantially similar relief to that in the order requested in the application, the requested order will expire on the effective date of that rule. 14. Any new Sub-Advisory Agreement or any amendment to a SubAdvised Series’ existing Investment Management Agreement or SubAdvisory Agreement that directly or indirectly results in an increase in the VerDate Sep<11>2014 19:31 May 21, 2015 Jkt 235001 aggregate advisory fee rate payable by the Sub-Advised Series will be submitted to the Sub-Advised Series’ shareholders for approval. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2015–12381 Filed 5–21–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74985; File No. SR–EDGX– 2015–21] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend Rule 11.2 To State That EDGX Exchange, Inc. Will Not Designate for Trading Any Security Admitted to Unlisted Trading Privileges on the Exchange Unless That Security Satisfies Certain Liquidity Requirements May 18, 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 May 5, 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, II, and III below, which Items have been prepared by the Exchange. On May 15, 2015, BATS filed Amendment No. 1 to the proposal. Amendment No. 1 amended and replaced the original proposal in its entirety. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, 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 Rule 11.2 to state that the Exchange will not designate for trading any security admitted to unlisted trading privileges on the Exchange unless that security satisfies certain liquidity requirements, as further described below. The text of the proposed rule change is available at the Exchange’s Web site at www.batstrading.com, at the principal office of the Exchange, and at 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00177 Fmt 4703 Sfmt 4703 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 With limited exception, the current equity market structure under Regulation NMS applies the same rules with respect to, among other things, tick sizes, order protection, locked and crossed markets, and access fees to all exchange-listed securities. The Exchange believes that Regulation NMS, along with technological advancements, has produced great efficiencies to the equity market, resulting in intense competition between exchanges and broker-dealers. The Exchange believes the net result for most exchange-listed securities has been decreases in transaction costs, including decreases in explicit commissions and the narrowing of effective spreads investors pay to enter and exit positions. However, the Exchange recognizes that not all exchange-listed securities have benefited to the same extent under the current one-size fits all approach to the equity market. In particular, investors continue to experience difficulty trading illiquid securities, including paying higher effective spreads and difficulty sourcing liquidity across multiple exchanges and non-exchange trading venues while minimizing market impact. The Exchange believes the market quality of securities that are today illiquid could benefit from a concentration of quoted liquidity on the listing exchange. By concentrating quoted liquidity on the listing exchange, for the reasons discussed below, the Exchange believes liquidity providers will quote more competitively, resulting in more efficient price formation and a E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES narrower national best bid or offer (‘‘NBBO’’), as well as the display of more quoted size at price levels outside the NBBO (‘‘depth of book’’). In turn, the Exchange believes that these enhancements to market quality could ultimately increase investor and member interest in such securities resulting in greater average daily trading volume. As such, as described below, the Exchange is proposing to adopt rules to clarify the circumstances under which the Exchange would voluntarily provide advance notice to the industry that it is ceasing to quote and trade certain specific illiquid securities until such securities meet and sustain an average daily volume threshold indicative of increased liquidity. In particular, the Exchange proposes to amend Rule 11.2 to state that the Exchange may determine not to designate for trading any security admitted to unlisted trading privileges on the Exchange if that security falls below certain consolidated average daily volume requirements, as further described below. Rule 11.2 currently states that any class of securities listed or admitted to unlisted trading privileges on the Exchange pursuant to Chapter XIV of the Exchange’s rules 3 shall be eligible to become designated for trading on the Exchange. The Rule further states that all securities designated for trading are eligible for odd-lot, round-lot and mixed-lot executions, unless otherwise indicated by the Exchange or limited pursuant to Exchange rules. The Exchange proposes to include these existing provisions of Rule 11.2 within subparagraph (a) of the proposed rule in order to separately propose additional provisions under subparagraphs (b), (c), and (d). The Exchange proposes to add new subparagraph (b) to Rule 11.2, which would state that the Exchange may determine not to designate for trading any security admitted to unlisted trading privileges on the Exchange pursuant to Chapter XIV of the Exchange’s rules when that security’s consolidated average daily trading volume is equal to or less than 2,500 shares during the preceding 90 calendar days.4 The Exchange further proposes to 3 Chapter XIV of the Exchange’s rules discusses the securities eligible to be designated for trading on the Exchange. Exchange Rule 14.1, in particular, states that the Exchange may extend unlisted trading privileges to any Equity Security (as defined in the Rule) that is listed on another national securities exchange or with respect to which unlisted trading privileges may otherwise be extended in accordance with Section 12(f) of the Exchange Act. 4 Based on internal statistics, the Exchange anticipates that limiting the rule’s applicability to those securities with a consolidated average daily VerDate Sep<11>2014 18:19 May 21, 2015 Jkt 235001 add new subparagraph (c) to Rule 11.2, which would state that any security not designated for trading by the Exchange pursuant to subparagraph (b) of this Rule may be designated for trading by the Exchange if its consolidated average daily trading volume exceeds 5,000 shares over any 90 calendar day period since the security was not designated for trading pursuant to subparagraph (b). The Exchange also proposes to make clear that new subparagraph (c) is not intended to limit the Exchange’s ability to designate any security for trading pursuant to the Exchange’s general authority under subparagraph (a) of Rule 11.2. The Exchange also proposes to add new subparagraph (d) to Rule 11.2, which would require the Exchange to provide notice at least one trading day in advance of any securities it is making unavailable for trading pursuant to subparagraph (b) of Rule 11.2, and any securities it is making available for trading under subparagraph (c) of Rule 11.2. While the Exchange is proposing to retain discretion over whether it will in fact determine not to quote and trade securities that meet the criteria described in proposed new subparagraphs (b) and (c) of Rule 11.2, the Exchange notes that nothing in its rules or applicable securities regulation requires it to designate for trading any class of securities listed or admitted to unlisted trading privileges on the Exchange pursuant to Chapter XIV of the Exchange’s rules. The Exchange believes that adopting such a provision in its rules could enhance market quality for securities falling below the consolidated average daily volume threshold by facilitating the concentration of quoted liquidity on the listing exchange.5 In determining whether to exercise its discretion under proposed new subparagraphs (b) and (c) of Rule 11.2, the Exchange would consider such factors as member and investor feedback as well as whether the other non-listing exchanges have decided to cease quoting and trading in the effected securities. The Exchange further believes that adoption of a rule requiring it to provide advance notice to its members of any securities the Exchange is choosing not to trade under proposed new subparagraph (b) of Rule 11.2 and any securities it is making available for trading pursuant to trading volume of 2,500 shares or less during the preceding 90 calendar days will affect approximately 700 securities. 5 The Exchange understands that the EDGA Exchange, Inc., BATS Exchange, Inc., and BATS YExchange, Inc. will separately file substantially similar proposed rule changes with the Commission. PO 00000 Frm 00178 Fmt 4703 Sfmt 4703 29779 proposed new subparagraph (c) of Rule 11.2 will help avoid confusion by providing transparency and certainty to members and investors regarding the securities the Exchange is or is not designating for quoting and trading on the Exchange. The Exchange believes that limiting the impact of paragraph (b) of the proposed rule change to securities with a consolidated average daily trading volume that is equal to or less than 2,500 shares during the preceding 90 calendar days is reasonable because such securities tend to be illiquid, as reflected by larger quoted and effective spreads, with smaller quoted size at both the NBBO and throughout the depth of book than more actively-traded securities. Similarly, the Exchange believes that considering to designate for trading those securities that have not been trading on the Exchange pursuant to paragraph (b) once such securities have a consolidated average daily trading volume that exceeds 5,000 shares over a 90 calendar day period since the security was not designated for trading pursuant to proposed subparagraph (b) of Rule 11.2 is reasonable because such activity may demonstrate that such securities are now trading more effectively. The Exchange believes that its proposed rule changes may facilitate an improvement in market quality for the effected securities.6 In particular, the Exchange believes that by concentrating the quoted liquidity in such securities on the listing exchange, liquidity providers will be incented to quote on such exchange more competitively, resulting in narrower bid-ask spreads and greater quoted depth of book. The Exchange believes liquidity providers would be so incented because concentrating the quoted liquidity in such securities on the listing exchange would: (i) Reduce liquidity providers’ risk of adverse selection inherent in quoting in a fragmented market, (ii) provide greater certainty of execution on the one 6 Based on an internal study, the Exchange believes a majority of the securities that would be covered by the Rule’s criteria are small-cap companies (i.e., companies with a market capitalization of $250 million or less). Suggesting that the current U.S. equity market often fails to provide sufficient liquidity for the securities of small-cap companies, the Commission’s Advisory Committee on Small and Emerging Companies (‘‘Advisory Committee’’) recommended to the Commission concentrating the market for such securities through the creation of a separate U.S. equity market. See Recommendations Regarding Separate U.S. Equity Market for Securities of Small and Emerging Companies, by the Advisory Committee on Small and Emerging Companies, dated February 1, 2013. The Advisory Committee also stated that other actions with respect to trading venues may also be warranted to facilitate liquidity in small and emerging companies. Id. E:\FR\FM\22MYN1.SGM 22MYN1 29780 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES exchange at which liquidity providers are quoting, and (iii) enhance competition for order book priority at the NBBO and throughout the depth of book. Although the Exchange would be voluntarily foregoing potential market share by not quoting and trading securities subject to the Rule, the Exchange believes the aforementioned enhancements in market quality may increase investor interest in trading such securities, which in turn would generate increased volume and ultimately benefit the Exchange once such securities become eligible for trading on the Exchange under the rule in the future. 2. Statutory Basis The Exchange believes that the proposed rule changes are consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 7 and further the objectives of Section 6(b)(5) of the Act 8 because they are 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, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and, in general, to protect investors and the public interest. The Exchange notes that nothing in its rules or any applicable securities regulation requires it to designate for trading any class of securities listed or admitted to unlisted trading privileges on the Exchange pursuant to Chapter XIV of the Exchange’s rules. However, the Exchange believes adopting a rule to clarify the circumstances under which the Exchange would voluntarily provide advance notice to the industry that it is ceasing to quote and trade certain specific illiquid securities until such securities meet and sustain a consolidated average daily volume threshold indicative of increased liquidity would promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system by facilitating the concentration of displayed liquidity on the listing exchange for effected securities, which the Exchange believes could enhance the market quality of such securities.9 The Exchange believes that concentrating displayed liquidity on the listing exchange in certain illiquid securities may enhance market quality of such securities by enabling liquidity 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 9 See supra note 6. 8 15 VerDate Sep<11>2014 18:19 May 21, 2015 Jkt 235001 providers to more efficiently form competitive prices at the NBBO, and to provide greater quoted depth of book. In addition, the Exchange believes that if displayed liquidity is concentrated on the listing exchange in such securities, the listing exchange may have flexibility to innovate with alternative market structures, such as variable tick sizes or periodic batch auctions that are not currently possible under Regulation NMS when multiple exchanges are quoting and trading the securities, and which may further enhance the market quality of the effected illiquid securities.10 The proposed rule change promotes just and equitable principles of trade because it will provide certainty and transparency to members and investors with respect to which securities the Exchange will or will not designate for quoting and trading on the Exchange, thereby avoiding confusion. (B) Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that nothing in its rules or any applicable securities regulation require it to designate for trading any class of securities listed or admitted to unlisted trading privileges on the Exchange pursuant to Chapter XIV of the Exchange’s rules. The Exchange believes enacting such a provision in its rules would not impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. While the Exchange will be voluntarily foregoing potential market share by not quoting and trading securities subject to the rule, the Exchange believes the proposal will enhance market quality in such securities by increasing quoting competition among liquidity providers on the listing exchange, which will result in better prices at the NBBO and greater depth of book. The Exchange further believes these enhancements in market quality may increase investor 10 The Exchange is not proposing or advocating any form of trade-at prohibition, which, depending on its various iterations, would generally act to prevent trading off-exchange without first executing against all equal or better priced protected quotations. Rather, the Exchange is proposing and advocating a reduction in the number of displayed venues on which certain illiquid securities will be quoted and traded, which the Exchange believes will concentrate the quoting activity serving to enhance quote competition and thereby increase market quality by narrowing the NBBO and increasing the quoted depth of book for effected securities, without regard to off-exchange trading. PO 00000 Frm 00179 Fmt 4703 Sfmt 4703 interest in trading such securities, which in turn would improve competition by generating increased volume which would also ultimately benefit the Exchange once such securities become eligible for trading on the Exchange under the rule in the future. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule changes. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as modified by Amendment No. 1, 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–2015–21 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–2015–21. 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 E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices 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 will also 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– 2015–21 and should be submitted on or before June 12, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–12412 Filed 5–21–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74988; File No. SR–BYX– 2015–25] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend Rule 11.2 To State That the BATS Y-Exchange, Inc. Will Not Designate for Trading Any Security Admitted to Unlisted Trading Privileges on the Exchange Unless That Security Satisfies Certain Liquidity Requirements asabaliauskas on DSK5VPTVN1PROD with NOTICES May 18, 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 May 5, 2015, BATS Y-Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. On May 15, 2015, the 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:19 May 21, 2015 Jkt 235001 Exchange filed Amendment No. 1 to the proposal. Amendment No. 1 amended and replaced the original proposal in its entirety. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, 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 Rule 11.2 to state that the Exchange will not designate for trading any security admitted to unlisted trading privileges on the Exchange unless that security satisfies certain liquidity requirements, as further described below. The text of the proposed rule change is available at the Exchange’s Web site at www.batstrading.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 With limited exception, the current equity market structure under Regulation NMS applies the same rules with respect to, among other things, tick sizes, order protection, locked and crossed markets, and access fees to all exchange-listed securities. The Exchange believes that Regulation NMS, along with technological advancements, has produced great efficiencies to the equity market, resulting in intense competition between exchanges and broker-dealers. The Exchange believes the net result for most exchange-listed securities has been decreases in transaction costs, including decreases in explicit commissions and the narrowing of effective spreads investors pay to enter and exit positions. However, the PO 00000 Frm 00180 Fmt 4703 Sfmt 4703 29781 Exchange recognizes that not all exchange-listed securities have benefited to the same extent under the current one-size fits all approach to the equity market. In particular, investors continue to experience difficulty trading illiquid securities, including paying higher effective spreads and difficulty sourcing liquidity across multiple exchanges and non-exchange trading venues while minimizing market impact. The Exchange believes the market quality of securities that are today illiquid could benefit from a concentration of quoted liquidity on the listing exchange. By concentrating quoted liquidity on the listing exchange, for the reasons discussed below, the Exchange believes liquidity providers will quote more competitively, resulting in more efficient price formation and a narrower national best bid or offer (‘‘NBBO’’), as well as the display of more quoted size at price levels outside the NBBO (‘‘depth of book’’). In turn, the Exchange believes that these enhancements to market quality could ultimately increase investor and member interest in such securities resulting in greater average daily trading volume. As such, as described below, the Exchange is proposing to adopt rules to clarify the circumstances under which the Exchange would voluntarily provide advance notice to the industry that it is ceasing to quote and trade certain specific illiquid securities until such securities meet and sustain an average daily volume threshold indicative of increased liquidity. In particular, the Exchange proposes to amend Rule 11.2 to state that the Exchange may determine not to designate for trading any security admitted to unlisted trading privileges on the Exchange if that security falls below certain consolidated average daily volume requirements, as further described below. Rule 11.2 currently states that any class of securities listed or admitted to unlisted trading privileges on the Exchange pursuant to Chapter XIV of the Exchange’s rules 3 shall be eligible to become designated for trading on the Exchange. The Rule further states that all securities designated for trading are eligible for odd-lot, round-lot and mixed-lot executions, unless otherwise indicated 3 Chapter XIV of the Exchange’s rules discusses the securities eligible to be designated for trading on the Exchange. Exchange Rule 14.1, in particular, states that the Exchange may extend unlisted trading privileges to any Equity Security (as defined in the Rule) that is listed on another national securities exchange or with respect to which unlisted trading privileges may otherwise be extended in accordance with Section 12(f) of the Exchange Act. E:\FR\FM\22MYN1.SGM 22MYN1

Agencies

[Federal Register Volume 80, Number 99 (Friday, May 22, 2015)]
[Notices]
[Pages 29778-29781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12412]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74985; File No. SR-EDGX-2015-21]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend 
Rule 11.2 To State That EDGX Exchange, Inc. Will Not Designate for 
Trading Any Security Admitted to Unlisted Trading Privileges on the 
Exchange Unless That Security Satisfies Certain Liquidity Requirements

May 18, 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 May 5, 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, II, and III below, which 
Items have been prepared by the Exchange. On May 15, 2015, BATS filed 
Amendment No. 1 to the proposal. Amendment No. 1 amended and replaced 
the original proposal in its entirety. The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
modified by Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 11.2 to state that the 
Exchange will not designate for trading any security admitted to 
unlisted trading privileges on the Exchange unless that security 
satisfies certain liquidity requirements, as further described below.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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
    With limited exception, the current equity market structure under 
Regulation NMS applies the same rules with respect to, among other 
things, tick sizes, order protection, locked and crossed markets, and 
access fees to all exchange-listed securities. The Exchange believes 
that Regulation NMS, along with technological advancements, has 
produced great efficiencies to the equity market, resulting in intense 
competition between exchanges and broker-dealers. The Exchange believes 
the net result for most exchange-listed securities has been decreases 
in transaction costs, including decreases in explicit commissions and 
the narrowing of effective spreads investors pay to enter and exit 
positions. However, the Exchange recognizes that not all exchange-
listed securities have benefited to the same extent under the current 
one-size fits all approach to the equity market. In particular, 
investors continue to experience difficulty trading illiquid 
securities, including paying higher effective spreads and difficulty 
sourcing liquidity across multiple exchanges and non-exchange trading 
venues while minimizing market impact.
    The Exchange believes the market quality of securities that are 
today illiquid could benefit from a concentration of quoted liquidity 
on the listing exchange. By concentrating quoted liquidity on the 
listing exchange, for the reasons discussed below, the Exchange 
believes liquidity providers will quote more competitively, resulting 
in more efficient price formation and a

[[Page 29779]]

narrower national best bid or offer (``NBBO''), as well as the display 
of more quoted size at price levels outside the NBBO (``depth of 
book''). In turn, the Exchange believes that these enhancements to 
market quality could ultimately increase investor and member interest 
in such securities resulting in greater average daily trading volume. 
As such, as described below, the Exchange is proposing to adopt rules 
to clarify the circumstances under which the Exchange would voluntarily 
provide advance notice to the industry that it is ceasing to quote and 
trade certain specific illiquid securities until such securities meet 
and sustain an average daily volume threshold indicative of increased 
liquidity.
    In particular, the Exchange proposes to amend Rule 11.2 to state 
that the Exchange may determine not to designate for trading any 
security admitted to unlisted trading privileges on the Exchange if 
that security falls below certain consolidated average daily volume 
requirements, as further described below. Rule 11.2 currently states 
that any class of securities listed or admitted to unlisted trading 
privileges on the Exchange pursuant to Chapter XIV of the Exchange's 
rules \3\ shall be eligible to become designated for trading on the 
Exchange. The Rule further states that all securities designated for 
trading are eligible for odd-lot, round-lot and mixed-lot executions, 
unless otherwise indicated by the Exchange or limited pursuant to 
Exchange rules. The Exchange proposes to include these existing 
provisions of Rule 11.2 within subparagraph (a) of the proposed rule in 
order to separately propose additional provisions under subparagraphs 
(b), (c), and (d).
---------------------------------------------------------------------------

    \3\ Chapter XIV of the Exchange's rules discusses the securities 
eligible to be designated for trading on the Exchange. Exchange Rule 
14.1, in particular, states that the Exchange may extend unlisted 
trading privileges to any Equity Security (as defined in the Rule) 
that is listed on another national securities exchange or with 
respect to which unlisted trading privileges may otherwise be 
extended in accordance with Section 12(f) of the Exchange Act.
---------------------------------------------------------------------------

    The Exchange proposes to add new subparagraph (b) to Rule 11.2, 
which would state that the Exchange may determine not to designate for 
trading any security admitted to unlisted trading privileges on the 
Exchange pursuant to Chapter XIV of the Exchange's rules when that 
security's consolidated average daily trading volume is equal to or 
less than 2,500 shares during the preceding 90 calendar days.\4\ The 
Exchange further proposes to add new subparagraph (c) to Rule 11.2, 
which would state that any security not designated for trading by the 
Exchange pursuant to subparagraph (b) of this Rule may be designated 
for trading by the Exchange if its consolidated average daily trading 
volume exceeds 5,000 shares over any 90 calendar day period since the 
security was not designated for trading pursuant to subparagraph (b). 
The Exchange also proposes to make clear that new subparagraph (c) is 
not intended to limit the Exchange's ability to designate any security 
for trading pursuant to the Exchange's general authority under 
subparagraph (a) of Rule 11.2. The Exchange also proposes to add new 
subparagraph (d) to Rule 11.2, which would require the Exchange to 
provide notice at least one trading day in advance of any securities it 
is making unavailable for trading pursuant to subparagraph (b) of Rule 
11.2, and any securities it is making available for trading under 
subparagraph (c) of Rule 11.2.
---------------------------------------------------------------------------

    \4\ Based on internal statistics, the Exchange anticipates that 
limiting the rule's applicability to those securities with a 
consolidated average daily trading volume of 2,500 shares or less 
during the preceding 90 calendar days will affect approximately 700 
securities.
---------------------------------------------------------------------------

    While the Exchange is proposing to retain discretion over whether 
it will in fact determine not to quote and trade securities that meet 
the criteria described in proposed new subparagraphs (b) and (c) of 
Rule 11.2, the Exchange notes that nothing in its rules or applicable 
securities regulation requires it to designate for trading any class of 
securities listed or admitted to unlisted trading privileges on the 
Exchange pursuant to Chapter XIV of the Exchange's rules. The Exchange 
believes that adopting such a provision in its rules could enhance 
market quality for securities falling below the consolidated average 
daily volume threshold by facilitating the concentration of quoted 
liquidity on the listing exchange.\5\ In determining whether to 
exercise its discretion under proposed new subparagraphs (b) and (c) of 
Rule 11.2, the Exchange would consider such factors as member and 
investor feedback as well as whether the other non-listing exchanges 
have decided to cease quoting and trading in the effected securities. 
The Exchange further believes that adoption of a rule requiring it to 
provide advance notice to its members of any securities the Exchange is 
choosing not to trade under proposed new subparagraph (b) of Rule 11.2 
and any securities it is making available for trading pursuant to 
proposed new subparagraph (c) of Rule 11.2 will help avoid confusion by 
providing transparency and certainty to members and investors regarding 
the securities the Exchange is or is not designating for quoting and 
trading on the Exchange.
---------------------------------------------------------------------------

    \5\ The Exchange understands that the EDGA Exchange, Inc., BATS 
Exchange, Inc., and BATS Y-Exchange, Inc. will separately file 
substantially similar proposed rule changes with the Commission.
---------------------------------------------------------------------------

    The Exchange believes that limiting the impact of paragraph (b) of 
the proposed rule change to securities with a consolidated average 
daily trading volume that is equal to or less than 2,500 shares during 
the preceding 90 calendar days is reasonable because such securities 
tend to be illiquid, as reflected by larger quoted and effective 
spreads, with smaller quoted size at both the NBBO and throughout the 
depth of book than more actively-traded securities. Similarly, the 
Exchange believes that considering to designate for trading those 
securities that have not been trading on the Exchange pursuant to 
paragraph (b) once such securities have a consolidated average daily 
trading volume that exceeds 5,000 shares over a 90 calendar day period 
since the security was not designated for trading pursuant to proposed 
subparagraph (b) of Rule 11.2 is reasonable because such activity may 
demonstrate that such securities are now trading more effectively. The 
Exchange believes that its proposed rule changes may facilitate an 
improvement in market quality for the effected securities.\6\ In 
particular, the Exchange believes that by concentrating the quoted 
liquidity in such securities on the listing exchange, liquidity 
providers will be incented to quote on such exchange more 
competitively, resulting in narrower bid-ask spreads and greater quoted 
depth of book. The Exchange believes liquidity providers would be so 
incented because concentrating the quoted liquidity in such securities 
on the listing exchange would: (i) Reduce liquidity providers' risk of 
adverse selection inherent in quoting in a fragmented market, (ii) 
provide greater certainty of execution on the one

[[Page 29780]]

exchange at which liquidity providers are quoting, and (iii) enhance 
competition for order book priority at the NBBO and throughout the 
depth of book. Although the Exchange would be voluntarily foregoing 
potential market share by not quoting and trading securities subject to 
the Rule, the Exchange believes the aforementioned enhancements in 
market quality may increase investor interest in trading such 
securities, which in turn would generate increased volume and 
ultimately benefit the Exchange once such securities become eligible 
for trading on the Exchange under the rule in the future.
---------------------------------------------------------------------------

    \6\ Based on an internal study, the Exchange believes a majority 
of the securities that would be covered by the Rule's criteria are 
small-cap companies (i.e., companies with a market capitalization of 
$250 million or less). Suggesting that the current U.S. equity 
market often fails to provide sufficient liquidity for the 
securities of small-cap companies, the Commission's Advisory 
Committee on Small and Emerging Companies (``Advisory Committee'') 
recommended to the Commission concentrating the market for such 
securities through the creation of a separate U.S. equity market. 
See Recommendations Regarding Separate U.S. Equity Market for 
Securities of Small and Emerging Companies, by the Advisory 
Committee on Small and Emerging Companies, dated February 1, 2013. 
The Advisory Committee also stated that other actions with respect 
to trading venues may also be warranted to facilitate liquidity in 
small and emerging companies. Id.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
\7\ and further the objectives of Section 6(b)(5) of the Act \8\ 
because they are 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, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange notes that nothing in its rules or any applicable 
securities regulation requires it to designate for trading any class of 
securities listed or admitted to unlisted trading privileges on the 
Exchange pursuant to Chapter XIV of the Exchange's rules. However, the 
Exchange believes adopting a rule to clarify the circumstances under 
which the Exchange would voluntarily provide advance notice to the 
industry that it is ceasing to quote and trade certain specific 
illiquid securities until such securities meet and sustain a 
consolidated average daily volume threshold indicative of increased 
liquidity would promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by facilitating the concentration of displayed 
liquidity on the listing exchange for effected securities, which the 
Exchange believes could enhance the market quality of such 
securities.\9\ The Exchange believes that concentrating displayed 
liquidity on the listing exchange in certain illiquid securities may 
enhance market quality of such securities by enabling liquidity 
providers to more efficiently form competitive prices at the NBBO, and 
to provide greater quoted depth of book. In addition, the Exchange 
believes that if displayed liquidity is concentrated on the listing 
exchange in such securities, the listing exchange may have flexibility 
to innovate with alternative market structures, such as variable tick 
sizes or periodic batch auctions that are not currently possible under 
Regulation NMS when multiple exchanges are quoting and trading the 
securities, and which may further enhance the market quality of the 
effected illiquid securities.\10\
---------------------------------------------------------------------------

    \9\ See supra note 6.
    \10\ The Exchange is not proposing or advocating any form of 
trade-at prohibition, which, depending on its various iterations, 
would generally act to prevent trading off-exchange without first 
executing against all equal or better priced protected quotations. 
Rather, the Exchange is proposing and advocating a reduction in the 
number of displayed venues on which certain illiquid securities will 
be quoted and traded, which the Exchange believes will concentrate 
the quoting activity serving to enhance quote competition and 
thereby increase market quality by narrowing the NBBO and increasing 
the quoted depth of book for effected securities, without regard to 
off-exchange trading.
---------------------------------------------------------------------------

    The proposed rule change promotes just and equitable principles of 
trade because it will provide certainty and transparency to members and 
investors with respect to which securities the Exchange will or will 
not designate for quoting and trading on the Exchange, thereby avoiding 
confusion.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that nothing in its rules or any applicable securities regulation 
require it to designate for trading any class of securities listed or 
admitted to unlisted trading privileges on the Exchange pursuant to 
Chapter XIV of the Exchange's rules. The Exchange believes enacting 
such a provision in its rules would not impose a burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. While the Exchange will be voluntarily foregoing potential 
market share by not quoting and trading securities subject to the rule, 
the Exchange believes the proposal will enhance market quality in such 
securities by increasing quoting competition among liquidity providers 
on the listing exchange, which will result in better prices at the NBBO 
and greater depth of book. The Exchange further believes these 
enhancements in market quality may increase investor interest in 
trading such securities, which in turn would improve competition by 
generating increased volume which would also ultimately benefit the 
Exchange once such securities become eligible for trading on the 
Exchange under the rule in the future.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 1, 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-2015-21 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-2015-21. 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

[[Page 29781]]

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 will also 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-2015-21 and should be 
submitted on or before June 12, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12412 Filed 5-21-15; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.