Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend Rule 11.2 To State That EDGA Exchange, Inc. Will Not Designate for Trading Any Security Admitted to Unlisted Trading Privileges on the Exchange Unless That Security Satisfies Certain Liquidity Requirements, 29772-29775 [2015-12413]

Download as PDF 29772 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices • Send an email to rule-comments@ sec.gov. Please include File Number SR– BATS–2015–37 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–BATS–2015–37. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 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–BATS– 2015–37 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. 2015–12414 Filed 5–21–15; 8:45 am] asabaliauskas on DSK5VPTVN1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74986; File No. SR–EDGA– 2015–19] Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend Rule 11.2 To State That EDGA 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, EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) 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 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 1 15 11 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:19 May 21, 2015 2 17 Jkt 235001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00171 Fmt 4703 Sfmt 4703 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 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 E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices asabaliauskas on DSK5VPTVN1PROD with NOTICES 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 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 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 trading volume of 2,500 shares or less during the preceding 90 calendar days will affect approximately 700 securities. VerDate Sep<11>2014 18:19 May 21, 2015 Jkt 235001 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 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 5 The Exchange understands that the EDGX Exchange, Inc., BATS Exchange, Inc., and BATS YExchange, Inc. will separately file substantially similar proposed rule changes with the Commission. PO 00000 Frm 00172 Fmt 4703 Sfmt 4703 29773 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 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 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 29774 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices trading on the Exchange under the rule in the future. asabaliauskas on DSK5VPTVN1PROD with NOTICES 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 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 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 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. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others (B) Self-Regulatory Organization’s Statement on Burden on Competition 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. 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. 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 00173 Fmt 4703 Sfmt 4703 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 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– EDGA–2015–19 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–EDGA–2015–19. 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 E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 80, No. 99 / Friday, May 22, 2015 / Notices 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–EDGA– 2015–19 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. 2015–12413 Filed 5–21–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 31603; 812–14370] BMO Funds, Inc. and BMO Asset Management Corp.; Notice of Application May 15, 2015. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application under section 6(c) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from section 15(a) of the Act and rule 18f–2 under the Act, as well as from certain disclosure requirements. AGENCY: Applicants request an order that would permit them to enter into and materially amend subadvisory agreements with WhollyOwned Sub-Advisers (as defined below) and non-affiliated sub-advisers without shareholder approval and would grant relief from certain disclosure requirements. APPLICANTS: BMO Funds, Inc. (the ‘‘Company’’) and BMO Asset Management Corp. (the ‘‘Adviser’’). FILING DATES: The application was filed October 10, 2014, and amended on January 30, 2015, and May 8, 2015. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request asabaliauskas on DSK5VPTVN1PROD with NOTICES SUMMARY OF APPLICATION: 11 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:19 May 21, 2015 Jkt 235001 a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on June 9, 2015 and should be accompanied by proof of service on the applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 of the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549– 1090. Applicants, 111 East Kilbourn Avenue, Suite 200, Milwaukee, WI 53202. FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at (202) 551–6811, or Danielle Marchesani, Branch Chief, at (202) 551–6821 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Applicants’ Representations 1. The Company is organized as a Wisconsin corporation and is registered under the Act as an open-end management investment company. The Company currently has, or intends to introduce, at least one series of shares (each, a ‘‘Series’’), with its own distinct investment objective, policies and restrictions, that would operate under a multi-manager structure. The Adviser is a Delaware corporation and is registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’).1 The Adviser is an 1 Applicants request that the relief apply to applicants, as well as to any future Series and any other existing or future registered open-end investment management company or series thereof that: (a) Is advised by the Adviser; (b) uses the multi-manager structure described in the application (‘‘Multi-Manager Structure’’); and (c) complies with the terms and conditions of the application (‘‘Sub-Advised Series’’). All registered open-end investment companies that currently intend to rely on the requested order are named as applicants. Any entity that relies on the requested order will do so only in accordance with the terms and conditions contained in the application. If the name of any Sub-Advised Series contains the name PO 00000 Frm 00174 Fmt 4703 Sfmt 4703 29775 indirect wholly-owned subsidiary of the Bank of Montreal, a Canadian bank holding company. 2. Each Series has, or will have, as its investment adviser, the Adviser, or an entity controlling, controlled by or under common control with the Adviser or its successors (included in the term, the ‘‘Adviser’’).2 An Adviser serves, or will serve, as the investment adviser to each Series pursuant to an investment advisory agreement with the Company (the ‘‘Investment Management Agreement’’). Each Investment Management Agreement has been or will be approved by the board of directors (the ‘‘Board’’),3 including a majority of the members of the Board who are not ‘‘interested persons,’’ as defined in section 2(a)(19) of the Act, of the Series, or the Adviser (‘‘Independent Board Members’’), and by the shareholders of the relevant Series as required by sections 15(a) and 15(c) of the Act and rule 18f–2 thereunder. The terms of these Investment Management Agreements comply or will comply with section 15(a) of the Act. 3. Under the terms of each Investment Management Agreement, the Adviser, subject to the supervision of the Board, will provide continuous investment management of the assets of each Series. The Adviser will periodically review a Series’ investment policies and strategies, and based on the need of a particular Series may recommend changes to the investment policies and strategies of the Series for consideration by the Board. For its services to each Series under the applicable Investment Management Agreement, the Adviser will receive an investment management fee from that Series. Each Investment Management Agreement provides that the Adviser may, subject to the approval of the Board, including a majority of the Independent Board Members, and the shareholders of the applicable SubAdvised Series (if required), delegate portfolio management responsibilities of all or a portion of the assets of a SubAdvised Series to one or more SubAdvisers.4 of a sub-adviser (as defined below), the name of the Adviser that serves as the primary adviser to the Sub-Advised Series, or a trademark or trade name that is owned by or publicly used to identify that Adviser, will precede the name of the sub-adviser. 2 Each Adviser is, or will be, registered with the Commission as an investment adviser under the Advisers Act. For the purposes of the requested order, ‘‘successor’’ is limited to an entity that results from a reorganization into another jurisdiction or a change in the type of business organization. 3 The term ‘‘Board’’ also includes the board of trustees or directors of a future Sub-Advised Series. 4 A ‘‘Sub-Adviser’’ is (a) an indirect or direct ‘‘wholly-owned subsidiary’’ (as such term is E:\FR\FM\22MYN1.SGM Continued 22MYN1

Agencies

[Federal Register Volume 80, Number 99 (Friday, May 22, 2015)]
[Notices]
[Pages 29772-29775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12413]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74986; File No. SR-EDGA-2015-19]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, and Amendment No. 1 Thereto, To Amend 
Rule 11.2 To State That EDGA 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, EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') 
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 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

[[Page 29773]]

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

[[Page 29774]]

trading on the Exchange under the rule in the future.
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    \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.
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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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    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\
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    \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.
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    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-EDGA-2015-19 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-EDGA-2015-19. 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

[[Page 29775]]

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-EDGA-2015-19 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\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12413 Filed 5-21-15; 8:45 am]
BILLING CODE 8011-01-P
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