Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt Rule 11.27 Regarding the Quoting and Trading Requirements of the Tick Size Pilot Program, 76591-76595 [2015-30943]
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[FR Doc. 2015–30929 Filed 12–8–15; 8:45 am]
BILLING CODE 3270–F6–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76552; File No. SR–BATS–
2015–108]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Adopt Rule
11.27 Regarding the Quoting and
Trading Requirements of the Tick Size
Pilot Program
December 3, 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 November
30, 2015, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) 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. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to adopt
Exchange Rule 11.27 to implement the
Regulation NMS Plan to Implement a
Tick Size Pilot Program (‘‘Plan’’).3
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Exchange notes that proposed rule change
is substantially similar to that proposed by FINRA
under their proposed Rule 6191. See SR–FINRA–
2015–047 (filed November 13, 2015).
2 17
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76591
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
On August 25, 2014, NYSE Group,
Inc., on behalf of the Exchange, BATS
Y-Exchange, Inc., Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, the Nasdaq
Stock Market LLC, New York Stock
Exchange LLC (‘‘NYSE’’), NYSE MKT
LLC, and NYSE Arca, Inc. (collectively
‘‘Participants’’), filed with the
Commission, pursuant to Section 11A of
the Act 4 and Rule 608 of Regulation
NMS thereunder, the Plan to implement
a tick size pilot program (‘‘Pilot’’).5 The
Participants filed the Plan to comply
with an order issued by the Commission
on June 24, 2014.6 The Plan 7 was
published for comment in the Federal
Register on November 7, 2014, and
approved by the Commission, as
modified, on May 6, 2015.8
4 15
U.S.C. 78k–1.
Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
6 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
7 Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth in
the Plan. The Exchange also proposes
supplementary material as part of this proposed
rule change to, among other things, provide that the
terms used in proposed Rule 11.27 shall have the
same meaning as provided in the Plan, unless
otherwise specified.
8 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27514 (May 13, 2015)
(‘‘Approval Order’’).
5 See
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The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
impact of increment conventions on the
liquidity and trading of the common
stocks of small-capitalization
companies. Each Participant is required
to comply with, and to enforce
compliance by its member
organizations, as applicable, with the
provisions of the Plan. As is described
more fully below, the proposed rules
would require Members 9 to comply
with the applicable quoting and trading
increments for Pilot Securities.10
The Pilot will include stocks of
companies with $3 billion or less in
market capitalization, an average daily
trading volume of one million shares or
less, and a volume weighted average
price of at least $2.00 for every trading
day. The Pilot will consist of a control
group of approximately 1400 Pilot
Securities and three test groups with
400 Pilot Securities in each selected by
a stratified sampling.11 During the pilot,
Pilot securities in the control group will
be quoted and traded at the currently
permissible increments. Pilot Securities
in the first test group (‘‘Test Group
One’’) will be quoted in $0.05 minimum
increments but will continue to trade at
any price increment that is currently
permitted.12 Pilot Securities in the
second test group (‘‘Test Group Two’’)
will be quoted in $0.05 minimum
increments and will trade at $0.05
minimum increments subject to a
midpoint exception, a retail investor
order exception, and a negotiated trade
exception.13 Pilot Securities in the third
test group (‘‘Test Group Three’’) will be
subject to the same restrictions as Test
Group Two and also will be subject to
the ‘‘Trade-at’’ requirement to prevent
price matching by a market participant
that is not displaying at a price of a
Trading Center’s 14 ‘‘Best Protected Bid’’
9 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer, or any person associated
with a registered broker or dealer, that has been
admitted to membership in the Exchange. A
Member will have the status of a ‘‘member’’ of the
Exchange as that term is defined in Section 3(a)(3)
of the Act.’’ See Exchange Rule 1.5(n).
10 The Exchange proposes to add Information and
Policy .03 to Rule 11.27 to provide that the Rule
shall be in effect during a pilot period to coincide
with the pilot period for the Plan (including any
extensions to the pilot period for the Plan).
11 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
12 See Section VI(B) of the Plan.
13 See Section VI(C) of the Plan.
14 The Plan incorporates the definition of
‘‘Trading Center’’ from Rule 600(b)(78) of
Regulation NMS. Regulation NMS defines a Trading
Center as ‘‘a national securities exchange or
national securities association that operates an SRO
trading facility, an alternative trading system, an
exchange market maker, an OTC market maker, or
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or ‘‘Best Protected Offer,’’ unless an
enumerated exception applies.15 In
addition to the exceptions provided
under Test Group Two, an exception for
Block Size orders and exceptions that
mirror those under Rule 611 of
Regulation NMS 16 will apply to the
Trade-at requirement.
Compliance With the Quoting and
Trading Increments of the Plan
The Plan requires the Exchange to
establish, maintain, and enforce written
policies and procedures that are
reasonably designed to comply with
applicable quoting and trading
requirements specified in the Plan.17
Accordingly, the Exchange is proposing
new Rule 11.27 (Compliance with
Regulation NMS Plan to Implement a
Tick Size Pilot Program) to require
Members to comply with the quoting
and trading provisions of the Plan.
Proposed Rule 11.27(a) (Compliance
with Quoting and Trading Restrictions)
sets forth the requirements for the
Exchange and Members in meeting their
obligations under the Plan. Rule
11.27(a)(1) will require Members to
establish, maintain and enforce written
policies and procedures that are
reasonably designed to comply with the
applicable quoting and trading
requirements of the Plan. Rule
11.27(a)(2) provides that the Exchange
Systems 18 will not display, quote or
trade in violation of the applicable
quoting and trading requirements for a
Pilot Security specified in the Plan and
this Rule, unless such quotation or
transaction is specifically exempted
under the Plan.
Proposed Rule 11.27(a)(3) clarifies the
treatment of Pilot Securities that drop
below $1.00 during the Pilot Period. In
particular, Rule 11.27(a)(3) provides
that, if the price of a Pilot Security
drops below $1.00 during regular
trading hours on any trading day, such
Pilot Security will continue to be a Pilot
Security subject to the Plan. However, if
any other broker or dealer that executes orders
internally by trading as principal or crossing orders
as agent.’’
15 See Section VI(D) of the Plan.
16 17 CFR 242.611.
17 The Exchange is also required by the Plan to
develop appropriate policies and procedures that
provide for data collection and reporting to the
Commission of data described in Appendixes B and
C of the Plan. The Exchange intends to separately
propose rules that would require compliance by its
Members with the collection of data provisions of
the Plan described in Section VII of the Plan, and
has reserved Paragraph (b) for such rules.
18 The term ‘‘System’’ is defined as ‘‘the
electronic communications and trading facility
designated by the Board through which securities
orders of Users are consolidated for ranking,
execution and, when applicable, routing away.’’ See
Exchange Rule 1.5(aa).
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the Closing Price of a Pilot Security on
any given trading day is below $1.00,
such Pilot Security will be moved out of
its Pilot Test Group into the Control
Group, and may then be quoted and
traded at any price increment that is
currently permitted for the remainder of
the Pilot Period. Rule 11.27(a)(3) also
provides that, notwithstanding anything
contained within these rules to the
contrary, Pilot Securities (whether in
the Control Group or any Pilot Test
Group) will continue to be subject to the
data collection requirements of the Plan
at all times during the Pilot Period and
for the six-month period following the
end of the Pilot Period.
In approving the Plan, the
Commission noted that the Participants
had proposed additional selection
criteria to minimize the likelihood that
securities that trade with a share price
of $1.00 or less would be included in
the Pilot, and stated that, once
established, the universe of Pilot
Securities should stay as consistent as
possible so that the analysis and data
can be accurate throughout the Pilot
Period.19 The Exchange notes that a
Pilot Security that drops below $1.00
during regular trading hours will remain
in its applicable Test Group; a Pilot
Security will only be moved to the
Control Group if its Closing Price on any
given trading day is below $1.00. The
Exchange believes that this provision is
appropriate because it will help ensure
that Pilot Securities in Test Groups One,
Two and Three continue to reflect the
Pilot’s selection criteria, helping ensure
the accuracy of the resulting data. The
Exchange also believes that this
provision is appropriate because it
responds to comments that the Plan
address the treatment of securities that
trade below $1.00 during the Pilot
Period.20
Proposed Rule 11.27(a)(4) sets forth
the applicable limitations for securities
in Test Group One. Consistent with the
language of the Plan, Rule 11.27(a)(4)
provides that no Member may display,
rank, or accept from any person any
displayable or non-displayable bids or
offers, orders, or indications of interest
in any Pilot Security in Test Group One
in increments other than $0.05.
However, orders priced to execute at the
midpoint of the national best bid and
national best offer (‘‘NBBO’’) or best
protected bid and best protected offer
(‘‘PBBO’’) 21 and orders entered in a
19 See Approval Order, supra note 7, 80 FR at
27535.
20 Id.
21 Regulation NMS defines a protected bid or
protected offer as a quotation in an NMS stock that
(1) is displayed by an automated trading center; (2)
is disseminated pursuant to an effective national
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Participant-operated retail liquidity
program may be ranked and accepted in
increments of less than $0.05. Pilot
Securities in Test Group One may
continue to trade at any price increment
that is currently permitted by applicable
Participant, SEC and Exchange rules.
Proposed Rule 11.27(a)(5) sets forth
the applicable quoting and trading
requirements for securities in Test
Group Two. This provision states that
no Member may display, rank, or accept
from any person any displayable or nondisplayable bids or offers, orders, or
indications of interest in any Pilot
Security in Test Group Two in
increments other than $0.05. However,
orders priced to execute at the midpoint
of the NBBO or PBBO and orders
entered in a Participant-operated retail
liquidity program may be ranked and
accepted in increments of less than
$0.05.
Proposed Rule 11.27(a)(5) also sets
forth the applicable trading restrictions
for Test Group Two securities. Absent
any of the exceptions listed in the Rule,
no Member may execute orders in any
Pilot Security in Test Group Two in
price increments other than $0.05. The
$0.05 trading increment will apply to all
trades, including Brokered Cross Trades.
Consistent with the language of the
Plan, the Rule provides that Pilot
Securities in Test Group Two may trade
in increments of less than $0.05 under
the following circumstances: (1) Trading
may occur at the midpoint between the
NBBO or the PBBO; (2) Retail Investor
Orders may be provided with price
improvement that is at least $0.005
better than the PBBO; and (3) Negotiated
Trades may trade in increments of less
than $0.05.
Proposed Rule 11.27(a)(6) sets forth
the applicable quoting and trading
restrictions for Pilot Securities in Test
Group Three. The rule provides that no
Member may display, rank, or accept
from any person any displayable or nondisplayable bids or offers, orders, or
indications of interest in any Pilot
Security in Test Group Three in
increments other than $0.05. However,
orders priced to execute at the midpoint
of the NBBO or PBBO and orders
market system plan; and (3) is an automated
quotation that is the best bid or best offer of a
national securities exchange, the best bid or best
offer of The Nasdaq Stock Market, Inc., or the best
bid or best offer of a national securities association
other than the best bid or best offer of The Nasdaq
Stock Market, Inc. See 17 CFR 242.600(57). In the
Approval Order, the Commission noted that the
protected quotation standard encompasses the
aggregate of the most aggressively priced displayed
liquidity on all Trading Centers, whereas the NBBO
standard is limited to the single best order in the
market. See Approval Order, supra note 7, 80 FR
at 27539.
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entered in a Participant-operated retail
liquidity program may be ranked and
accepted in increments of less than
$0.05. The rule also states that, absent
any of the applicable exceptions, no
Member that operates a Trading Center
may execute orders in any Pilot Security
in Test Group Three in price increments
other than $0.05. The $0.05 trading
increment will apply to all trades,
including Brokered Cross Trades.22
Proposed Rule 11.27(a)(6)(C) sets forth
the exceptions pursuant to which Pilot
Securities in Test Group Three may
trade in increments of less than $0.05.
First, trading may occur at the midpoint
between the NBBO or PBBO. Second,
Retail Investor Orders may be provided
with price improvement that is at least
$0.005 better than the PBBO. Third,
Negotiated Trades may trade in
increments of less than $0.05.
Proposed Rule 11.27(a)(6)(D) sets
forth the ‘‘Trade-at Prohibition,’’ which
is the prohibition against executions by
a Member that operates a Trading Center
of a sell order for a Pilot Security in Test
Group Three at the price of a Protected
Bid or the execution of a buy order for
a Pilot Security in Test Group Three at
the price of a Protected Offer during
regular trading hours, absent any of the
exceptions set forth in Rule
11.27(a)(6)(D). Consistent with the Plan,
the rule reiterates that a member that
operates a Trading Center that is
displaying a quotation, via either a
processor or an SRO quotation feed, that
is a Protected Bid or Protected Offer is
permitted to execute orders at that level,
but only up to the amount of its
displayed size. A Member that operates
a Trading Center that was not displaying
a quotation that is the same price as a
Protected Quotation, via either a
processor or an SRO quotation feed, is
prohibited from price-matching
protected quotations unless an
exception applies.
Consistent with the Plan, proposed
Rule 11.27(a)(6)(D) also sets forth the
exceptions to the Trade-at prohibition,
pursuant to which a Member that
operates a Trading Center may execute
a sell order for a Pilot Security in Test
Group Three at the price of a Protected
Bid or execute a buy order for a Pilot
Security in Test Group Three at the
price of a Protected Offer. The first
exception to the Trade-at Prohibition is
the ‘‘display exception,’’ which allows a
trade to occur at the price of the
Protected Quotation, up to the Trading
Center’s full displayed size, if the order
22 A brokered cross trade is a trade that a brokerdealer that is a member of a Participant executes
directly by matching simultaneous buy and sell
orders for a Pilot Security. See Section I(G) of the
Plan.
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76593
‘‘is executed by a trading center that is
displaying a quotation.’’ 23
In Rule 11.27(a)(6)(D), the Exchange
proposes that a Member that utilizes the
independent aggregation unit concept
may satisfy the display exception only
if the same independent aggregation
unit that displays interest via either a
processor or an SRO Quotation Feed
also executes an order in reliance upon
this exception. The rule provides that
‘‘independent aggregation unit’’ has the
same meaning as provided under Rule
200(f) of SEC Regulation SHO.24 This
provision also recognizes that not all
members may utilize the independent
aggregation unit concept as part of their
regulatory structure, and still permits
such members to utilize the display
exception if all the other requirements
of that exception are met.
As initially proposed by the
Participants, the Plan contained an
additional condition to the display
exception, which would have required
that, where the quotation is displayed
through a national securities exchange,
the execution at the size of the order
must occur against the displayed size on
that national securities exchange; and
where the quotation is displayed
through the Alternative Display Facility
or another facility approved by the
Commission that does not provide
execution functionality, the execution at
the size of the order must occur against
the displayed size in accordance with
the rules of the Alternative Display
Facility of such approved facility
(‘‘venue limitation’’).25 Some
commenters stated that this provision
was anti-competitive, as it would have
forced off-exchange Trading Centers to
route orders to the venue on which the
order was displayed.26
In approving the Plan, the
Commission modified the Trade-At
Prohibition to remove the venue
limitation.27 The Commission noted
that the venue limitation was not
23 See
Section VI(D)(1) of the Plan.
CFR 242.200. Treatment as an independent
aggregation unit is available if traders in an
aggregation unit pursue only the particular trading
objective(s) or strategy(ies) of that aggregation unit
and do not coordinate that strategy with any other
aggregation unit. Therefore, one independent
aggregation unit within a Trading Center cannot
execute trades pursuant to the display exception in
reliance on quotations displayed by a different
independent aggregation unit. As an example, an
agency desk of a Trading Center cannot rely on the
quotation of a proprietary desk in a separate
independent aggregation unit at that same Trading
Center.
25 See Securities Exchange Act Release No. 73511
(November 3, 2014), 79 FR 66423, 66437 (November
7, 2014).
26 See Approval Order, supra note 7, 80 FR at
27540.
27 Id.
24 17
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Federal Register / Vol. 80, No. 236 / Wednesday, December 9, 2015 / Notices
prescribed in its Order mandating the
filing of the Plan.28 The Commission
also noted that the venue limitation
would have unnecessarily restricted the
ability of off-exchange market
participants to execute orders in Test
Group Three Securities, and that
removing the venue limitation should
mitigate concerns about the cost and
complexity of the Pilot by reducing the
need for off-exchange Trading Centers to
route to the exchange.29 The
Commission also stated that the venue
limitation did not create any additional
incentives to display liquidity in
furtherance of the purposes of the
Trade-At Prohibition, because the
requirement that a Trading Center could
only trade at a protected quotation up to
its displayed size should be sufficient to
incentivize displayed liquidity.30
Consistent with Plan and the SEC’s
determination to remove the venue
limitation, the Exchange is making clear
that the display exception applies to
trades done by a Trading Center
otherwise than on an exchange where
the Trading Center has previously
displayed a quotation in either an
agency or a principal capacity. As part
of the display exception, the Exchange
also proposes that a Trading Center that
is displaying a quotation as agent or
riskless principal may only execute as
agent or riskless principal, while a
Trading Center displaying a quotation as
principal (excluding riskless principal)
may execute either as principal or agent
or riskless principal. The Exchange
believes this is consistent with the Plan
and the objective of the Trade-at
Prohibition, which is to promote the
display of liquidity and generally to
prevent any Trading Center that is not
quoting from price-matching Protected
Quotations.31 Providing that a Trading
Center may not execute on a proprietary
basis in reliance on a quotation
representing customer interest (whether
agency or riskless principal) ensures
28 Id.
29 Id.
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30 Id.
31 The Exchange notes that proposed Rule
11.27(a)(6)(D)(ii) a. is identical to that proposed by
FINRA under their proposed Rule 6191(a)(6)(D)(ii)
a. See SR–FINRA–2015–047 (filed November 13,
2015). The Exchange also notes that the New York
Stock Exchange, Inc. (‘‘NYSE’’) has recently
proposed a rule that states the display exception
would only apply to trades done by a Trading
Center otherwise than on an exchange where the
Trading Center has previously displayed a
quotation in a principal capacity only. See
Securities Exchange Act Release No. 76229 (October
22, 2015), 80 FR 66065 (October 28, 2015) (SR–
NYSE–2015–46) (proposing NYSE Rule
67(e)(4)(C)(i)). The Exchange does not believe
proposed NYSE Rule 67(e)(4)(C)(i) is consistent
with the SEC’s modification of the Trade-At
Prohibition to remove the venue limitation.
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that the Trading Center cannot avoid
compliance with the Trade-at
Prohibition by trading on a proprietary
basis in reliance on a quotation that
does not represent such Trading
Center’s own interest. Where a Trading
Center is displaying a quotation at the
same price as a Protected Quotation in
a proprietary capacity, transactions in
any capacity at the price and up to the
size of such Trading Center’s displayed
quotation would be permissible.
Transactions executed pursuant to the
display exception may occur on the
venue on which such quotation is
displayed or over the counter.
The proposal also excepts Block Size
orders 32 and permits Trading Centers to
trade at the price of a Protected
Quotation, provided that the order is of
Block Size at the time of origin and is
not an aggregation of non-block orders,
broken into orders smaller than Block
Size prior to submitting the order to a
Trading Center for execution; or
executed on multiple Trading Centers.33
The Plan only provides that Block Size
orders shall be exempted from the
Trade-At Prohibition. In requiring that
the order be of Block Size at the time of
origin and not an aggregation of nonblock orders, or broken into orders
smaller than Block Size prior to
submitting the order to a Trading Center
for execution; or executed on multiple
Trading Centers, the Exchange believes
that it is providing clarity as to the
circumstances under which a Block Size
order will be excepted from the TradeAt Prohibition.
Consistent with the Plan, the proposal
also excepts an order that is a Retail
Investor Order that is executed with at
least $0.005 price improvement.
The exceptions set forth in proposed
Rule 11.27(a)(6)(D)(ii) d. through l. are
based on the exceptions found in Rule
611 of Regulation NMS.34 The
subparagraph d. exception applies when
the order is executed when the Trading
Center displaying the Protected
Quotation that was traded at was
experiencing a failure, material delay, or
malfunction of its systems or
equipment. The subparagraph e.
exception applies to an order that is
executed as part of a transaction that
was not a ‘‘regular way’’ contract. The
32 ‘‘Block Size’’ is defined in the Plan as an order
(1) of at least 5,000 shares or (2) for a quantity of
stock having a market value of at least $100,000.
33 Once a Block Size order or portion of such
Block Size order is routed from one Trading Center
to another Trading Center in compliance with Rule
611 of Regulation NMS, the Block Size order would
lose the proposed Trade-at exemption, unless the
Block Size remaining after the first route and
execution meets the Block Size definition under the
Plan.
34 See 17 CFR 242.611.
PO 00000
Frm 00152
Fmt 4703
Sfmt 4703
subparagraph f. exception applies to an
order that is executed as part of a singlepriced opening, reopening, or closing
transaction by the Trading Center. The
subparagraph g. exception applies to an
order that is executed when a Protected
Bid was priced higher than a Protected
Offer in a Pilot Security. The
subparagraph h. exception applies when
the order is identified as a Trade-at
Intermarket Sweep Order. The
subparagraph i. exception applies when
the order is executed by a Trading
Center that simultaneously routed
Trade-at Intermarket Sweep Orders to
execute against the full displayed size of
the Protected Quotation that was traded
at. The subparagraph j. exception
applies when the order is executed as
part of a Negotiated Trade. The
subparagraph k. exception applies when
the order is executed when the Trading
Center displaying the Protected
Quotation that was traded at had
displayed, within one second prior to
execution of the transaction that
constituted the Trade-at, a Best
Protected Bid or Best Protected Offer, as
applicable, for the Pilot Security with a
price that was inferior to the price of the
Trade-at transaction.
The exception proposed in
subparagraph l. applies to a ‘‘stopped
order.’’ Both the Plan and Rule
11.27(a)(6) define a ‘‘stopped order’’ as
an order that is executed by a Trading
Center which, at the time of order
receipt, the Trading Center had
guaranteed an execution at no worse
than a specified price, where (1) the
stopped order was for the account of a
customer; (2) the customer agreed to the
specified price on an order-by-order
basis; and (3) the price of the Trade-at
transaction was, for a stopped buy
order, equal to the National Best Bid in
the Pilot Security at the time of
execution or, for a stopped sell order,
equal to the National Best Offer in the
Pilot Security at the time of execution.
Consistent with the Plan, the final
exception to the Trade-At Prohibition
and its accompanying supplementary
material applies to an order that is for
a fractional share of a Pilot Security.
The supplementary material provides
that such fractional share orders may
not be the result of breaking an order for
one or more whole shares of a Pilot
Security into orders for fractional shares
or that otherwise were effected to evade
the requirements of the Trade-at
Prohibition or any other provisions of
the Plan. In approving the Plan, the
Commission noted that this exception
was appropriate, as there could be
E:\FR\FM\09DEN1.SGM
09DEN1
Federal Register / Vol. 80, No. 236 / Wednesday, December 9, 2015 / Notices
potential difficulty in the routing and
executing of fractional shares.35
If the Commission approves the
proposed rule change, the proposed rule
change will be effective upon
Commission approval and shall become
operative upon the commencement of
the Pilot Period.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 36 in general, and furthers the
objectives of Section 6(b)(5) of the Act 37
in particular, in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that this
proposal is consistent with the Act
because it implements, interprets, and
clarifies the provisions of the Plan, and
is designed to assist the Exchange and
Members in meeting regulatory
obligations pursuant to the Plan. In
approving the Plan, the SEC noted that
the Pilot was an appropriate, datadriven test that was designed to evaluate
the impact of a wider tick size on
trading, liquidity, and the market
quality of securities of smaller
capitalization companies, and was
therefore in furtherance of the purposes
of the Act. To the extent that this
proposal implements, interprets, and
clarifies the Plan and applies specific
requirements to Members, the Exchange
believes that this proposal is in
furtherance of the objectives of the Plan,
as identified by the SEC, and is
therefore consistent with the Act.
mstockstill on DSK4VPTVN1PROD with NOTICES
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change 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 the proposed rule
change implements the provisions of the
Plan, and is designed to assist the
Exchange in meeting its regulatory
obligations pursuant to the Plan. The
Exchange also notes that the quoting
and trading requirements of the Plan
will apply equally to all Members that
trade Pilot Securities.
35 See
Approval Order, supra note 7, 80 FR at
27541.
36 15 U.S.C. 78f(b).
37 15 U.S.C. 78f(b)(5).
VerDate Sep<11>2014
18:21 Dec 08, 2015
Jkt 238001
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
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.
76595
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing 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 No. SR–BATS–
2015–108 and should be submitted on
or before December 30, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Robert W. Errett,
Deputy Secretary.
IV. Solicitation of Comments
[FR Doc. 2015–30943 Filed 12–8–15; 8:45 am]
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposal is
consistent with the Act. Comments may
be submitted by any of the following
methods:
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76549; File No. SR–
NYSEArca–2015–115]
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 No. SR–
BATS–2015–108 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR–BATS–2015–108. 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
PO 00000
Frm 00153
Fmt 4703
Sfmt 4703
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending NYSE Arca
Equities Rules 7.44 and 7.44P To
Distinguish Between Retail Orders
Routed on Behalf of Other BrokerDealers and Retail Orders That are
Routed on Behalf of Introduced Retail
Accounts That are Carried on a Fully
Disclosed Basis
December 3, 2015.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 19, 2015, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
E:\FR\FM\09DEN1.SGM
09DEN1
]]>Agencies
[Federal Register Volume 80, Number 236 (Wednesday, December 9, 2015)]
[Notices]
[Pages 76591-76595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30943]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76552; File No. SR-BATS-2015-108]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Adopt Rule 11.27 Regarding the
Quoting and Trading Requirements of the Tick Size Pilot Program
December 3, 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 November 30, 2015, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') 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. The
Commission is publishing this notice to solicit comments on the
proposed rule change 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 is proposing to adopt Exchange Rule 11.27 to implement
the Regulation NMS Plan to Implement a Tick Size Pilot Program
(``Plan'').\3\
---------------------------------------------------------------------------
\3\ The Exchange notes that proposed rule change is
substantially similar to that proposed by FINRA under their proposed
Rule 6191. See SR-FINRA-2015-047 (filed November 13, 2015).
---------------------------------------------------------------------------
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
On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange,
BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange,
Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority,
Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq
Stock Market LLC, New York Stock Exchange LLC (``NYSE''), NYSE MKT LLC,
and NYSE Arca, Inc. (collectively ``Participants''), filed with the
Commission, pursuant to Section 11A of the Act \4\ and Rule 608 of
Regulation NMS thereunder, the Plan to implement a tick size pilot
program (``Pilot'').\5\ The Participants filed the Plan to comply with
an order issued by the Commission on June 24, 2014.\6\ The Plan \7\ was
published for comment in the Federal Register on November 7, 2014, and
approved by the Commission, as modified, on May 6, 2015.\8\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78k-1.
\5\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\6\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\7\ Unless otherwise specified, capitalized terms used in this
rule filing are defined as set forth in the Plan. The Exchange also
proposes supplementary material as part of this proposed rule change
to, among other things, provide that the terms used in proposed Rule
11.27 shall have the same meaning as provided in the Plan, unless
otherwise specified.
\8\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27514 (May 13, 2015) (``Approval Order'').
---------------------------------------------------------------------------
[[Page 76592]]
The Plan is designed to allow the Commission, market participants,
and the public to study and assess the impact of increment conventions
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Participant is required to comply with,
and to enforce compliance by its member organizations, as applicable,
with the provisions of the Plan. As is described more fully below, the
proposed rules would require Members \9\ to comply with the applicable
quoting and trading increments for Pilot Securities.\10\
---------------------------------------------------------------------------
\9\ The term ``Member'' is defined as ``any registered broker or
dealer, or any person associated with a registered broker or dealer,
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
\10\ The Exchange proposes to add Information and Policy .03 to
Rule 11.27 to provide that the Rule shall be in effect during a
pilot period to coincide with the pilot period for the Plan
(including any extensions to the pilot period for the Plan).
---------------------------------------------------------------------------
The Pilot will include stocks of companies with $3 billion or less
in market capitalization, an average daily trading volume of one
million shares or less, and a volume weighted average price of at least
$2.00 for every trading day. The Pilot will consist of a control group
of approximately 1400 Pilot Securities and three test groups with 400
Pilot Securities in each selected by a stratified sampling.\11\ During
the pilot, Pilot securities in the control group will be quoted and
traded at the currently permissible increments. Pilot Securities in the
first test group (``Test Group One'') will be quoted in $0.05 minimum
increments but will continue to trade at any price increment that is
currently permitted.\12\ Pilot Securities in the second test group
(``Test Group Two'') will be quoted in $0.05 minimum increments and
will trade at $0.05 minimum increments subject to a midpoint exception,
a retail investor order exception, and a negotiated trade
exception.\13\ Pilot Securities in the third test group (``Test Group
Three'') will be subject to the same restrictions as Test Group Two and
also will be subject to the ``Trade-at'' requirement to prevent price
matching by a market participant that is not displaying at a price of a
Trading Center's \14\ ``Best Protected Bid'' or ``Best Protected
Offer,'' unless an enumerated exception applies.\15\ In addition to the
exceptions provided under Test Group Two, an exception for Block Size
orders and exceptions that mirror those under Rule 611 of Regulation
NMS \16\ will apply to the Trade-at requirement.
---------------------------------------------------------------------------
\11\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\12\ See Section VI(B) of the Plan.
\13\ See Section VI(C) of the Plan.
\14\ The Plan incorporates the definition of ``Trading Center''
from Rule 600(b)(78) of Regulation NMS. Regulation NMS defines a
Trading Center as ``a national securities exchange or national
securities association that operates an SRO trading facility, an
alternative trading system, an exchange market maker, an OTC market
maker, or any other broker or dealer that executes orders internally
by trading as principal or crossing orders as agent.''
\15\ See Section VI(D) of the Plan.
\16\ 17 CFR 242.611.
---------------------------------------------------------------------------
Compliance With the Quoting and Trading Increments of the Plan
The Plan requires the Exchange to establish, maintain, and enforce
written policies and procedures that are reasonably designed to comply
with applicable quoting and trading requirements specified in the
Plan.\17\ Accordingly, the Exchange is proposing new Rule 11.27
(Compliance with Regulation NMS Plan to Implement a Tick Size Pilot
Program) to require Members to comply with the quoting and trading
provisions of the Plan.
---------------------------------------------------------------------------
\17\ The Exchange is also required by the Plan to develop
appropriate policies and procedures that provide for data collection
and reporting to the Commission of data described in Appendixes B
and C of the Plan. The Exchange intends to separately propose rules
that would require compliance by its Members with the collection of
data provisions of the Plan described in Section VII of the Plan,
and has reserved Paragraph (b) for such rules.
---------------------------------------------------------------------------
Proposed Rule 11.27(a) (Compliance with Quoting and Trading
Restrictions) sets forth the requirements for the Exchange and Members
in meeting their obligations under the Plan. Rule 11.27(a)(1) will
require Members to establish, maintain and enforce written policies and
procedures that are reasonably designed to comply with the applicable
quoting and trading requirements of the Plan. Rule 11.27(a)(2) provides
that the Exchange Systems \18\ will not display, quote or trade in
violation of the applicable quoting and trading requirements for a
Pilot Security specified in the Plan and this Rule, unless such
quotation or transaction is specifically exempted under the Plan.
---------------------------------------------------------------------------
\18\ The term ``System'' is defined as ``the electronic
communications and trading facility designated by the Board through
which securities orders of Users are consolidated for ranking,
execution and, when applicable, routing away.'' See Exchange Rule
1.5(aa).
---------------------------------------------------------------------------
Proposed Rule 11.27(a)(3) clarifies the treatment of Pilot
Securities that drop below $1.00 during the Pilot Period. In
particular, Rule 11.27(a)(3) provides that, if the price of a Pilot
Security drops below $1.00 during regular trading hours on any trading
day, such Pilot Security will continue to be a Pilot Security subject
to the Plan. However, if the Closing Price of a Pilot Security on any
given trading day is below $1.00, such Pilot Security will be moved out
of its Pilot Test Group into the Control Group, and may then be quoted
and traded at any price increment that is currently permitted for the
remainder of the Pilot Period. Rule 11.27(a)(3) also provides that,
notwithstanding anything contained within these rules to the contrary,
Pilot Securities (whether in the Control Group or any Pilot Test Group)
will continue to be subject to the data collection requirements of the
Plan at all times during the Pilot Period and for the six-month period
following the end of the Pilot Period.
In approving the Plan, the Commission noted that the Participants
had proposed additional selection criteria to minimize the likelihood
that securities that trade with a share price of $1.00 or less would be
included in the Pilot, and stated that, once established, the universe
of Pilot Securities should stay as consistent as possible so that the
analysis and data can be accurate throughout the Pilot Period.\19\ The
Exchange notes that a Pilot Security that drops below $1.00 during
regular trading hours will remain in its applicable Test Group; a Pilot
Security will only be moved to the Control Group if its Closing Price
on any given trading day is below $1.00. The Exchange believes that
this provision is appropriate because it will help ensure that Pilot
Securities in Test Groups One, Two and Three continue to reflect the
Pilot's selection criteria, helping ensure the accuracy of the
resulting data. The Exchange also believes that this provision is
appropriate because it responds to comments that the Plan address the
treatment of securities that trade below $1.00 during the Pilot
Period.\20\
---------------------------------------------------------------------------
\19\ See Approval Order, supra note 7, 80 FR at 27535.
\20\ Id.
---------------------------------------------------------------------------
Proposed Rule 11.27(a)(4) sets forth the applicable limitations for
securities in Test Group One. Consistent with the language of the Plan,
Rule 11.27(a)(4) provides that no Member may display, rank, or accept
from any person any displayable or non-displayable bids or offers,
orders, or indications of interest in any Pilot Security in Test Group
One in increments other than $0.05. However, orders priced to execute
at the midpoint of the national best bid and national best offer
(``NBBO'') or best protected bid and best protected offer (``PBBO'')
\21\ and orders entered in a
[[Page 76593]]
Participant-operated retail liquidity program may be ranked and
accepted in increments of less than $0.05. Pilot Securities in Test
Group One may continue to trade at any price increment that is
currently permitted by applicable Participant, SEC and Exchange rules.
---------------------------------------------------------------------------
\21\ Regulation NMS defines a protected bid or protected offer
as a quotation in an NMS stock that (1) is displayed by an automated
trading center; (2) is disseminated pursuant to an effective
national market system plan; and (3) is an automated quotation that
is the best bid or best offer of a national securities exchange, the
best bid or best offer of The Nasdaq Stock Market, Inc., or the best
bid or best offer of a national securities association other than
the best bid or best offer of The Nasdaq Stock Market, Inc. See 17
CFR 242.600(57). In the Approval Order, the Commission noted that
the protected quotation standard encompasses the aggregate of the
most aggressively priced displayed liquidity on all Trading Centers,
whereas the NBBO standard is limited to the single best order in the
market. See Approval Order, supra note 7, 80 FR at 27539.
---------------------------------------------------------------------------
Proposed Rule 11.27(a)(5) sets forth the applicable quoting and
trading requirements for securities in Test Group Two. This provision
states that no Member may display, rank, or accept from any person any
displayable or non-displayable bids or offers, orders, or indications
of interest in any Pilot Security in Test Group Two in increments other
than $0.05. However, orders priced to execute at the midpoint of the
NBBO or PBBO and orders entered in a Participant-operated retail
liquidity program may be ranked and accepted in increments of less than
$0.05.
Proposed Rule 11.27(a)(5) also sets forth the applicable trading
restrictions for Test Group Two securities. Absent any of the
exceptions listed in the Rule, no Member may execute orders in any
Pilot Security in Test Group Two in price increments other than $0.05.
The $0.05 trading increment will apply to all trades, including
Brokered Cross Trades.
Consistent with the language of the Plan, the Rule provides that
Pilot Securities in Test Group Two may trade in increments of less than
$0.05 under the following circumstances: (1) Trading may occur at the
midpoint between the NBBO or the PBBO; (2) Retail Investor Orders may
be provided with price improvement that is at least $0.005 better than
the PBBO; and (3) Negotiated Trades may trade in increments of less
than $0.05.
Proposed Rule 11.27(a)(6) sets forth the applicable quoting and
trading restrictions for Pilot Securities in Test Group Three. The rule
provides that no Member may display, rank, or accept from any person
any displayable or non-displayable bids or offers, orders, or
indications of interest in any Pilot Security in Test Group Three in
increments other than $0.05. However, orders priced to execute at the
midpoint of the NBBO or PBBO and orders entered in a Participant-
operated retail liquidity program may be ranked and accepted in
increments of less than $0.05. The rule also states that, absent any of
the applicable exceptions, no Member that operates a Trading Center may
execute orders in any Pilot Security in Test Group Three in price
increments other than $0.05. The $0.05 trading increment will apply to
all trades, including Brokered Cross Trades.\22\
---------------------------------------------------------------------------
\22\ A brokered cross trade is a trade that a broker-dealer that
is a member of a Participant executes directly by matching
simultaneous buy and sell orders for a Pilot Security. See Section
I(G) of the Plan.
---------------------------------------------------------------------------
Proposed Rule 11.27(a)(6)(C) sets forth the exceptions pursuant to
which Pilot Securities in Test Group Three may trade in increments of
less than $0.05. First, trading may occur at the midpoint between the
NBBO or PBBO. Second, Retail Investor Orders may be provided with price
improvement that is at least $0.005 better than the PBBO. Third,
Negotiated Trades may trade in increments of less than $0.05.
Proposed Rule 11.27(a)(6)(D) sets forth the ``Trade-at
Prohibition,'' which is the prohibition against executions by a Member
that operates a Trading Center of a sell order for a Pilot Security in
Test Group Three at the price of a Protected Bid or the execution of a
buy order for a Pilot Security in Test Group Three at the price of a
Protected Offer during regular trading hours, absent any of the
exceptions set forth in Rule 11.27(a)(6)(D). Consistent with the Plan,
the rule reiterates that a member that operates a Trading Center that
is displaying a quotation, via either a processor or an SRO quotation
feed, that is a Protected Bid or Protected Offer is permitted to
execute orders at that level, but only up to the amount of its
displayed size. A Member that operates a Trading Center that was not
displaying a quotation that is the same price as a Protected Quotation,
via either a processor or an SRO quotation feed, is prohibited from
price-matching protected quotations unless an exception applies.
Consistent with the Plan, proposed Rule 11.27(a)(6)(D) also sets
forth the exceptions to the Trade-at prohibition, pursuant to which a
Member that operates a Trading Center may execute a sell order for a
Pilot Security in Test Group Three at the price of a Protected Bid or
execute a buy order for a Pilot Security in Test Group Three at the
price of a Protected Offer. The first exception to the Trade-at
Prohibition is the ``display exception,'' which allows a trade to occur
at the price of the Protected Quotation, up to the Trading Center's
full displayed size, if the order ``is executed by a trading center
that is displaying a quotation.'' \23\
---------------------------------------------------------------------------
\23\ See Section VI(D)(1) of the Plan.
---------------------------------------------------------------------------
In Rule 11.27(a)(6)(D), the Exchange proposes that a Member that
utilizes the independent aggregation unit concept may satisfy the
display exception only if the same independent aggregation unit that
displays interest via either a processor or an SRO Quotation Feed also
executes an order in reliance upon this exception. The rule provides
that ``independent aggregation unit'' has the same meaning as provided
under Rule 200(f) of SEC Regulation SHO.\24\ This provision also
recognizes that not all members may utilize the independent aggregation
unit concept as part of their regulatory structure, and still permits
such members to utilize the display exception if all the other
requirements of that exception are met.
---------------------------------------------------------------------------
\24\ 17 CFR 242.200. Treatment as an independent aggregation
unit is available if traders in an aggregation unit pursue only the
particular trading objective(s) or strategy(ies) of that aggregation
unit and do not coordinate that strategy with any other aggregation
unit. Therefore, one independent aggregation unit within a Trading
Center cannot execute trades pursuant to the display exception in
reliance on quotations displayed by a different independent
aggregation unit. As an example, an agency desk of a Trading Center
cannot rely on the quotation of a proprietary desk in a separate
independent aggregation unit at that same Trading Center.
---------------------------------------------------------------------------
As initially proposed by the Participants, the Plan contained an
additional condition to the display exception, which would have
required that, where the quotation is displayed through a national
securities exchange, the execution at the size of the order must occur
against the displayed size on that national securities exchange; and
where the quotation is displayed through the Alternative Display
Facility or another facility approved by the Commission that does not
provide execution functionality, the execution at the size of the order
must occur against the displayed size in accordance with the rules of
the Alternative Display Facility of such approved facility (``venue
limitation'').\25\ Some commenters stated that this provision was anti-
competitive, as it would have forced off-exchange Trading Centers to
route orders to the venue on which the order was displayed.\26\
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release No. 73511 (November 3,
2014), 79 FR 66423, 66437 (November 7, 2014).
\26\ See Approval Order, supra note 7, 80 FR at 27540.
---------------------------------------------------------------------------
In approving the Plan, the Commission modified the Trade-At
Prohibition to remove the venue limitation.\27\ The Commission noted
that the venue limitation was not
[[Page 76594]]
prescribed in its Order mandating the filing of the Plan.\28\ The
Commission also noted that the venue limitation would have
unnecessarily restricted the ability of off-exchange market
participants to execute orders in Test Group Three Securities, and that
removing the venue limitation should mitigate concerns about the cost
and complexity of the Pilot by reducing the need for off-exchange
Trading Centers to route to the exchange.\29\ The Commission also
stated that the venue limitation did not create any additional
incentives to display liquidity in furtherance of the purposes of the
Trade-At Prohibition, because the requirement that a Trading Center
could only trade at a protected quotation up to its displayed size
should be sufficient to incentivize displayed liquidity.\30\
---------------------------------------------------------------------------
\27\ Id.
\28\ Id.
\29\ Id.
\30\ Id.
---------------------------------------------------------------------------
Consistent with Plan and the SEC's determination to remove the
venue limitation, the Exchange is making clear that the display
exception applies to trades done by a Trading Center otherwise than on
an exchange where the Trading Center has previously displayed a
quotation in either an agency or a principal capacity. As part of the
display exception, the Exchange also proposes that a Trading Center
that is displaying a quotation as agent or riskless principal may only
execute as agent or riskless principal, while a Trading Center
displaying a quotation as principal (excluding riskless principal) may
execute either as principal or agent or riskless principal. The
Exchange believes this is consistent with the Plan and the objective of
the Trade-at Prohibition, which is to promote the display of liquidity
and generally to prevent any Trading Center that is not quoting from
price-matching Protected Quotations.\31\ Providing that a Trading
Center may not execute on a proprietary basis in reliance on a
quotation representing customer interest (whether agency or riskless
principal) ensures that the Trading Center cannot avoid compliance with
the Trade-at Prohibition by trading on a proprietary basis in reliance
on a quotation that does not represent such Trading Center's own
interest. Where a Trading Center is displaying a quotation at the same
price as a Protected Quotation in a proprietary capacity, transactions
in any capacity at the price and up to the size of such Trading
Center's displayed quotation would be permissible. Transactions
executed pursuant to the display exception may occur on the venue on
which such quotation is displayed or over the counter.
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\31\ The Exchange notes that proposed Rule 11.27(a)(6)(D)(ii) a.
is identical to that proposed by FINRA under their proposed Rule
6191(a)(6)(D)(ii) a. See SR-FINRA-2015-047 (filed November 13,
2015). The Exchange also notes that the New York Stock Exchange,
Inc. (``NYSE'') has recently proposed a rule that states the display
exception would only apply to trades done by a Trading Center
otherwise than on an exchange where the Trading Center has
previously displayed a quotation in a principal capacity only. See
Securities Exchange Act Release No. 76229 (October 22, 2015), 80 FR
66065 (October 28, 2015) (SR-NYSE-2015-46) (proposing NYSE Rule
67(e)(4)(C)(i)). The Exchange does not believe proposed NYSE Rule
67(e)(4)(C)(i) is consistent with the SEC's modification of the
Trade-At Prohibition to remove the venue limitation.
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The proposal also excepts Block Size orders \32\ and permits
Trading Centers to trade at the price of a Protected Quotation,
provided that the order is of Block Size at the time of origin and is
not an aggregation of non-block orders, broken into orders smaller than
Block Size prior to submitting the order to a Trading Center for
execution; or executed on multiple Trading Centers.\33\ The Plan only
provides that Block Size orders shall be exempted from the Trade-At
Prohibition. In requiring that the order be of Block Size at the time
of origin and not an aggregation of non-block orders, or broken into
orders smaller than Block Size prior to submitting the order to a
Trading Center for execution; or executed on multiple Trading Centers,
the Exchange believes that it is providing clarity as to the
circumstances under which a Block Size order will be excepted from the
Trade-At Prohibition.
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\32\ ``Block Size'' is defined in the Plan as an order (1) of at
least 5,000 shares or (2) for a quantity of stock having a market
value of at least $100,000.
\33\ Once a Block Size order or portion of such Block Size order
is routed from one Trading Center to another Trading Center in
compliance with Rule 611 of Regulation NMS, the Block Size order
would lose the proposed Trade-at exemption, unless the Block Size
remaining after the first route and execution meets the Block Size
definition under the Plan.
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Consistent with the Plan, the proposal also excepts an order that
is a Retail Investor Order that is executed with at least $0.005 price
improvement.
The exceptions set forth in proposed Rule 11.27(a)(6)(D)(ii) d.
through l. are based on the exceptions found in Rule 611 of Regulation
NMS.\34\ The subparagraph d. exception applies when the order is
executed when the Trading Center displaying the Protected Quotation
that was traded at was experiencing a failure, material delay, or
malfunction of its systems or equipment. The subparagraph e. exception
applies to an order that is executed as part of a transaction that was
not a ``regular way'' contract. The subparagraph f. exception applies
to an order that is executed as part of a single-priced opening,
reopening, or closing transaction by the Trading Center. The
subparagraph g. exception applies to an order that is executed when a
Protected Bid was priced higher than a Protected Offer in a Pilot
Security. The subparagraph h. exception applies when the order is
identified as a Trade-at Intermarket Sweep Order. The subparagraph i.
exception applies when the order is executed by a Trading Center that
simultaneously routed Trade-at Intermarket Sweep Orders to execute
against the full displayed size of the Protected Quotation that was
traded at. The subparagraph j. exception applies when the order is
executed as part of a Negotiated Trade. The subparagraph k. exception
applies when the order is executed when the Trading Center displaying
the Protected Quotation that was traded at had displayed, within one
second prior to execution of the transaction that constituted the
Trade-at, a Best Protected Bid or Best Protected Offer, as applicable,
for the Pilot Security with a price that was inferior to the price of
the Trade-at transaction.
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\34\ See 17 CFR 242.611.
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The exception proposed in subparagraph l. applies to a ``stopped
order.'' Both the Plan and Rule 11.27(a)(6) define a ``stopped order''
as an order that is executed by a Trading Center which, at the time of
order receipt, the Trading Center had guaranteed an execution at no
worse than a specified price, where (1) the stopped order was for the
account of a customer; (2) the customer agreed to the specified price
on an order-by-order basis; and (3) the price of the Trade-at
transaction was, for a stopped buy order, equal to the National Best
Bid in the Pilot Security at the time of execution or, for a stopped
sell order, equal to the National Best Offer in the Pilot Security at
the time of execution.
Consistent with the Plan, the final exception to the Trade-At
Prohibition and its accompanying supplementary material applies to an
order that is for a fractional share of a Pilot Security. The
supplementary material provides that such fractional share orders may
not be the result of breaking an order for one or more whole shares of
a Pilot Security into orders for fractional shares or that otherwise
were effected to evade the requirements of the Trade-at Prohibition or
any other provisions of the Plan. In approving the Plan, the Commission
noted that this exception was appropriate, as there could be
[[Page 76595]]
potential difficulty in the routing and executing of fractional
shares.\35\
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\35\ See Approval Order, supra note 7, 80 FR at 27541.
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If the Commission approves the proposed rule change, the proposed
rule change will be effective upon Commission approval and shall become
operative upon the commencement of the Pilot Period.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \36\ in general, and furthers the objectives of Section
6(b)(5) of the Act \37\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that this proposal is consistent with the Act
because it implements, interprets, and clarifies the provisions of the
Plan, and is designed to assist the Exchange and Members in meeting
regulatory obligations pursuant to the Plan. In approving the Plan, the
SEC noted that the Pilot was an appropriate, data-driven test that was
designed to evaluate the impact of a wider tick size on trading,
liquidity, and the market quality of securities of smaller
capitalization companies, and was therefore in furtherance of the
purposes of the Act. To the extent that this proposal implements,
interprets, and clarifies the Plan and applies specific requirements to
Members, the Exchange believes that this proposal is in furtherance of
the objectives of the Plan, as identified by the SEC, and is therefore
consistent with the Act.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change 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 the proposed rule change implements the provisions of the
Plan, and is designed to assist the Exchange in meeting its regulatory
obligations pursuant to the Plan. The Exchange also notes that the
quoting and trading requirements of the Plan will apply equally to all
Members that trade Pilot Securities.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
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 proposal 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 No. SR-BATS-2015-108 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-BATS-2015-108. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing 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 No. SR-BATS-2015-108 and should be
submitted on or before December 30, 2015.
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\38\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30943 Filed 12-8-15; 8:45 am]
BILLING CODE 8011-01-P
