Self-Regulatory Organizations; Bats EDGX Exchange, Inc. f/k/a EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Adopt Exchange Rule 11.27 To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program, 17225-17231 [2016-06863]
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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
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Washington, DC 20549, on official
business days between the hours of
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received will be posted without change;
the Commission does not edit personal
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submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
BatsEDGA–2016–01, and should be
submitted on or before April 18, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Brent J. Fields,
Secretary.
[FR Doc. 2016–06864 Filed 3–25–16; 8:45 am]
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to the provisions of the Government in
the Sunshine Act, Public Law 94–409,
the Securities and Exchange
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on Wednesday, March 30, 2016 at 10:00
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46 17
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Dated: March 23, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–07021 Filed 3–24–16; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
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[Release No. 34–77416; File No. SRBatsEDGX–2016–01]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc. f/k/a EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Adopt Exchange Rule
11.27 To Implement the Regulation
NMS Plan To Implement a Tick Size
Pilot Program
March 22, 2016.
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 March 15,
2016, Bats EDGX Exchange, Inc. f/k/a
EDGX Exchange, Inc. (the ‘‘Exchange’’
or ‘‘EDGX’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
adopt Exchange Rule 11.27 to
implement the Regulation NMS Plan to
Implement a Tick Size Pilot Program
(‘‘Plan’’). Specifically, the Exchange
proposed Rule 11.27(b) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan. The
proposed rule change is substantially
similar to proposed rule changes
recently approved or published by the
Commission by the Bats BZX Exchange,
Inc. f/k/a BATS Exchange, Inc. (‘‘BZX’’)
to adopt BZX Rule 11.27(b) which also
sets forth requirements for the collection
1 15
U.S.C. 78s(b)(1).
CFR 240.19b-4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b-4(f)(6)(iii).
2 17
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17225
and transmission of data pursuant to
Appendices B and C of the Plan.5
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 25, 2014, NYSE Group,
Inc., on behalf of the Exchange, BZX,
Bats BYX Exchange, Inc., Chicago Stock
Exchange, Inc., Bats EDGA 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 6 and Rule 608
of Regulation NMS thereunder,7 the
Plan to Implement a Tick Size Pilot
Program (‘‘Pilot’’).8 The Participants
filed the Plan to comply with an order
issued by the Commission on June 24,
2014.9 The Plan 10 was published for
comment in the Federal Register on
November 7, 2014, and approved by the
5 See Securities Exchange Act Release Nos. 77105
(February 10, 2016), 81 FR 8112 (February 17, 2016)
(order approving SR–BATS–2015–102); and 77310
(March 7, 2016) (notice for comment and immediate
effectiveness of SR–BATS–2016–27).
6 15 U.S.C. 78k–1.
7 17 CFR 242.608.
8 See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
9 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
10 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
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Commission, as modified, on May 6,
2015.11
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, 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 12 to comply with the
applicable data collection requirements
of the Plan.13
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 random sampling process).14
During the pilot, Pilot Securities in the
control group will be quoted at the
current tick size increment of $0.01 per
share and will trade at the currently
permitted 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.15 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.16 Pilot Securities in the third
test group (‘‘Test Group Three’’) will be
subject to the same quoting and trading
increments 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 Trading Center’s ‘‘Best
Protected Bid’’ or ‘‘Best Protected
11 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’).
12 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
13 The Exchange proposes Interpretations and
Policies .11 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).
14 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
15 See Section VI(B) of the Plan.
16 See Section VI(C) of the Plan.
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Offer,’’ unless an enumerated exception
applies.17 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 18 will apply to
the Trade-at requirement.
In approving the Plan, the
Commission noted that the Trading
Center data reporting requirements
would facilitate an analysis of the
effects of the Pilot on liquidity (e.g.,
transaction costs by order size),
execution quality (e.g., speed of order
executions), market maker activity,
competition between trading venues
(e.g., routing frequency of market
orders), transparency (e.g., choice
between displayed and hidden orders),
and market dynamics (e.g., rates and
speed of order cancellations).19 The
Commission noted that Market Maker
profitability data would assist the
Commission in evaluating the effect, if
any, of a widened tick increment on
market marker profits and any
corresponding changes in the liquidity
of small-capitalization securities.20
Compliance With the Data Collection
Requirements of the Plan
The Plan contains requirements for
collecting and transmitting data to the
Commission and to the public.21
Specifically, Appendix B.I of the Plan
(Market Quality Statistics) requires
Trading Centers 22 to submit variety of
market quality statistics, including
information about an order’s original
size, whether the order was displayable
or not, the cumulative number of orders,
the cumulative number of shares of
orders, and the cumulative number of
shares executed within specific time
increments, e.g., from 30 seconds to less
than 60 seconds after the time of order
receipt. This information shall be
categorized by security, order type,
original order size, hidden status, and
17 See
Section VI(D) of the Plan.
CFR 242.611.
19 See Approval Order, 80 FR at 27543.
20 Id.
21 The Exchange is also required by the Plan 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. The Exchange
intends to separately propose rules that would
require compliance by its Members with the
applicable quoting and trading requirements
specified in the Plan, and has reserved Paragraph
(a) for such rules.
22 The Plan incorporates the definition of a
‘‘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.’’ See 17 CFR 242.600(b).
18 17
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coverage under Rule 605.23 Appendix
B.I of the Plan also contains additional
requirements for market orders and
marketable limit orders, including the
share-weighted average effective spread
for executions of orders; the cumulative
number of shares of orders executed
with price improvement; and, for shares
executed with price improvement, the
share-weighted average amount per
share that prices were improved.
Appendix B.II of the Plan (Market and
Marketable Limit Order Data) requires
Trading Centers to submit information
relating to market orders and marketable
limit orders, including the time of order
receipt, order type, the order size, the
National Best Bid and National Best
Offer (‘‘NBBO’’) quoted price, the NBBO
quoted depth, the average execution
price-share-weighted average, and the
average execution time-share-weighted
average.
The Plan requires Appendix B.I and
B.II data to be submitted by Participants
that operate a Trading Center, and by
members of the Participants that operate
Trading Centers. The Plan provides that
each Participant that is the Designated
Examining Authority (‘‘DEA’’) for a
member of the Participant that operates
a Trading Center shall collect such data
in a pipe delimited format, beginning
six months prior to the Pilot Period and
ending six months after the end of the
Pilot Period. The Plan also requires the
Participant, operating as DEA, to
transmit this information to the SEC
within 30 calendar days following
month end.
The Exchange is therefore proposing
Rule 11.27(b) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan.
Proposed Rule 11.27(b) is substantially
similar to proposed rule changes by
BZX that were recently approved or
published by the Commission to adopt
BZX Rule 11.27(b) which also sets forth
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan.24
Proposed Rule 11.27(b)(1) requires
that a Member that operates a Trading
Center shall establish, maintain and
enforce written policies and procedures
that are reasonably designed to comply
with the data collection and
transmission requirements of Items I
and II to Appendix B of the Plan, and
a Member that is a Market Maker shall
establish, maintain and enforce written
policies and procedures that are
reasonably designed to comply with the
data collection and transmission
23 17
CFR 242.605.
supra note 5.
24 See
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requirements of Item IV of Appendix B
of the Plan and Item I of Appendix C of
the Plan.
Proposed Rule 11.27(b)(2) provides
that the Exchange shall collect and
transmit to the SEC the data described
in Items I and II of Appendix B of the
Plan relating to trading activity in PrePilot Securities and Pilot Securities on
a Trading Center operated by the
Exchange. The Exchange shall transmit
such data to the SEC in a pipe delimited
format, on a disaggregated basis by
Trading Center, within 30 calendar days
following month end for: (i) Each PrePilot Data Collection Security for the
period beginning six months prior to the
Pilot Period through the trading day
immediately preceding the Pilot Period;
and (ii) each Pilot Security for the
period beginning on the first day of the
Pilot Period through six months after
the end of the Pilot Period. The
Exchange also shall make such data
publicly available on the Exchange Web
site on a monthly basis at no charge and
will not identify the Member that
generated the data.
Appendix B.IV (Daily Market Maker
Participation Statistics) requires a
Participant to collect data related to
Market Maker participation from each
Market Maker 25 engaging in trading
activity on a Trading Center operated by
the Participant. The Exchange is
therefore proposing Rule 11.27(b)(3) to
gather data about a Market Maker’s
participation in Pilot Securities and PrePilot Data Collection Securities.
Proposed Rule 11.27(b)(3)(A) provides
that a Member that is a Market Maker
shall collect and transmit to their DEA
data relating to Item IV of Appendix B
of the Plan with respect to activity
conducted on any Trading Center in
Pilot Securities and Pre-Pilot Data
Collection Securities in furtherance of
its status as a registered Market Maker,
including a Trading Center that executes
trades otherwise than on a national
securities exchange, for transactions that
have settled or reached settlement date.
The proposed rule requires Market
Makers to transmit such data in a format
required by their DEA, by 12:00 p.m.
EST on T+4 for: (i) Transactions in each
Pre-Pilot Data Collection Security for
the period beginning six months prior to
the Pilot Period through the trading day
immediately preceding the Pilot Period;
and (ii) for transactions in each Pilot
Security for the period beginning on the
first day of the Pilot Period through six
months after the end of the Pilot Period.
The Exchange understands that some
Members may utilize a DEA that is not
a Participant to the Plan and that their
DEA would not be subject to the Plan’s
data collection requirements. In such
case, a DEA that is not a Participant of
the Plan would not be required to
collect the required data and may not
establish procedures for which Members
it acts a DEA for to report the data
required under subparagraphs (b)(3)(A)
of Rule 11.27 and in accordance with
Item IV of Appendix B of the Plan.
Therefore, the Exchange proposes to
adopt subparagraph (b)(3)(B) to Rule
11.27 to require a Member that is a
Market Maker whose DEA is not a
Participant to the Plan to transmit the
data collected pursuant to paragraph
(3)(A) of Rule 11.27(b) to FINRA, which
is a Participant to the Plan and is to
collect data relating to Item IV of
Appendix B of the Plan on behalf of the
Participants. For Market Makers for
which it is the DEA, FINRA issued a
Market Maker Transaction Data
Technical Specification to collect data
on Pre-Pilot Data Collection Securities
and Pilot Securities from Trading
Centers to comply with the Plan’s data
collection requirements.26
Proposed Rule 11.27(b)(3)(C) provides
that the Exchange shall transmit the
data collected by the DEA or FINRA
pursuant to Rule 11.27(b)(3)(A) and (B)
above relating to Market Maker activity
on a Trading Center operated by the
Exchange to the SEC in a pipe delimited
format within 30 calendar days
following month end. The Exchange
shall also make such data publicly
available on the Exchange Web site on
a monthly basis at no charge and shall
not identify the Trading Center that
generated the data.
Appendix C.I (Market Maker
Profitability) requires a Participant to
collect data related to Market Maker
profitability from each Market Maker for
which it is the DEA. Specifically, the
Participant is required to collect the
total number of shares of orders
executed by the Market Maker; the raw
Market Maker realized trading profits,
and the raw Market Maker unrealized
trading profits. Data shall be collected
for dates starting six months prior to the
Pilot Period through six months after
the end of the Pilot Period. This data
shall be collected on a monthly basis, to
be provided in a pipe delimited format
to the Participant, as DEA, within 30
25 The Plan defines a Market Maker as ‘‘a dealer
registered with any self-regulatory organization, in
accordance with the rules thereof, as (i) a market
maker or (ii) a liquidity provider with an obligation
to maintain continuous, two-sided trading interest.’’
26 FINRA members for which FINRA is their DEA
should refer to the Market Maker Transaction Data
Technical Specification on the FINRA Web site at
https://www.finra.org/sites/default/files/marketmaker-transaction-data-tech-specs.pdf.
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calendar days following month end.
Appendix C.II (Aggregated Market
Maker Profitability) requires the
Participant, as DEA, to aggregate the
Appendix C.I data, and to categorize
this data by security as well as by the
control group and each Test Group. That
aggregated data shall contain
information relating to total raw Market
Maker realized trading profits, volumeweighted average of raw Market Maker
realized trading profits, the total raw
Market Maker unrealized trading profits,
and the volume-weighted average of
Market Maker unrealized trading profits.
The Exchange is therefore proposing
Rule 11.27(b)(4) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendix C.I of the Plan. Proposed Rule
11.27(b)(4)(A) requires that a Member
that is a Market Maker shall collect and
transmit to their DEA the data described
in Item I of Appendix C of the Plan with
respect to executions in Pilot Securities
that have settled or reached settlement
date that were executed on any Trading
Center. The proposed rule also requires
Members to provide such data in a
format required by their DEA by 12 p.m.
EST on T+4 for executions during and
outside of Regular Trading Hours in
each: (i) Pre-Pilot Data Collection
Security for the period beginning six
months prior to the Pilot Period through
the trading day immediately preceding
the Pilot Period; and (ii) Pilot Security
for the period beginning on the first day
of the Pilot Period through six months
after the end of the Pilot Period.
For the same reasons set forth above
for subparagraph (b)(3)(B) to Rule 11.27,
the Exchange proposes to adopt
subparagraph (b)(4)(B) to Rule 11.27 to
require a Member that is a Market Maker
whose DEA is not a Participant to the
Plan to transmit the data collected
pursuant to paragraph (4)(A) of Rule
11.27(b) to FINRA. As stated above,
FINRA is a Participant to the Plan and
is to collect data relating to Item I of
Appendix C of the Plan on behalf of the
Participants. For Market Makers for
which it is the DEA, FINRA issued a
Market Maker Transaction Data
Technical Specification to collect data
on Pre-Pilot Data Collection Securities
and Pilot Securities from Trading
Centers to comply with the Plan’s data
collection requirements.27
The Exchange is also adopting a rule
setting forth the manner in which
Market Maker participation will be
calculated. Item III of Appendix B of the
Plan requires each Participant that is a
national securities exchange to collect
daily Market Maker registration
27 Id.
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statistics categorized by security,
including the following information: (i)
Ticker symbol; (ii) the Participant
exchange; (iii) number of registered
market makers; and (iv) the number of
other registered liquidity providers.
Therefore, the Exchange proposes to
adopt Rule 11.27(b)(5) providing that
the Exchange shall collect and transmit
to the SEC the data described in Item III
of Appendix B of the Plan relating to
daily Market Maker registration
statistics in a pipe delimited format
within 30 calendar days following
month end for: (i) Transactions in each
Pre-Pilot Data Collection Security for
the period beginning six months prior to
the Pilot Period through the trading day
immediately preceding the Pilot Period;
and (ii) transactions in each Pilot
Security for the period beginning on the
first day of the Pilot Period through six
months after the end of the Pilot Period.
The Exchange is also proposing,
through Interpretations and Policies, to
clarify other aspects of the data
collection requirements.28 Proposed
Interpretations and Policies .02 relates
to the use of the retail investor order flag
for purposes of Appendix B.II(n)
reporting. The Plan currently states that
market and marketable limit orders shall
include a ‘‘yes/no’’ field relating to the
Retail Investor Order flag. The Exchange
is proposing Interpretations and Policies
.02 to clarify that, for purposes of the
reporting requirement in Appendix
B.II(n), a Trading Center shall report ‘‘y’’
to their DEA where it is relying upon
the Retail Investor Order exception to
Test Groups Two and Three, and ‘‘n’’ for
all other instances.29 The Exchange
believes that requiring the identification
of a Retail Investor Orders only where
the exception may apply (i.e., Pilot
Securities in Test Groups Two and
Three) is consistent with Appendix
B.II(n).
Interpretations and Policies .03
requires that Members populate a field
to identify to their DEA whether an
28 The Exchange is also proposing Interpretations
and Policies .01 to Rule 11.27 to clarify that certain
enumerated terms used throughout Rule 11.27 shall
have the same meaning as set forth in the Plan.
29 FINRA, on behalf of the Plan Participants
submitted a letter to Commission requesting
exemption from certain provisions of the Plan
related to data collection. See letter from Marcia E.
Asquith, Senior Vice President and Corporate
Secretary, FINRA dated December 9, 2015 to Robert
W. Errett, Deputy Secretary, Commission
(‘‘Exemption Request’’). The Commission, pursuant
to its authority under Rule 608(e) of Regulation
NMS, granted BZX a limited exemption from the
requirement to comply with certain provisions of
the Plan as specified in the letter and noted herein.
See letter from David Shillman, Associate Director,
Division of Trading and Markets, Commission to
Eric Swanson, General Counsel, BZX, dated
February 10, 2016 (‘‘Exemption Letter’’).
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order is affected by the bands in place
pursuant to the National Market System
Plan to Address Extraordinary Market
Volatility.30 Pursuant to the Limit-Up
Limit-Down Plan, between 9:30 a.m.
and 4:00 p.m., the Securities
Information Processor (‘‘SIP’’) calculates
a lower price band and an upper price
band for each NMS stock. These price
bands represent a specified percentage
above or below the stock’s reference
price, which generally is calculated
based on reported transactions in that
stock over the preceding five minutes.
When one side of the market for an
individual security is outside the
applicable price band, the SIP identifies
that quotation as non-executable. When
the other side of the market reaches the
applicable price band (e.g., the offer
reaches the lower price band), the
security enters a Limit State. The stock
would exit a Limit State if, within 15
seconds of entering the Limit State, all
Limit State Quotations were executed or
canceled in their entirety. If the security
does not exit a Limit State within 15
seconds, then the primary listing
exchange declares a five-minute trading
pause, which would be applicable to all
markets trading the security.
The Exchange and the other
Participants have determined that it is
appropriate to create a new flag for
reporting orders that are affected by the
Limit-Up Limit-Down bands.
Accordingly, a Trading Center shall
report a value of ‘‘Y’’ to their DEA when
the ability of an order to execute has
been affected by the Limit-Up LimitDown bands in effect at the time of
order receipt. A Trading Center shall
report a value of ‘‘N’’ to their DEA when
the ability of an order to execute has not
been affected by the Limit-Up LimitDown bands in effect at the time of
order receipt.
Interpretations and Policies .03 also
requires, for securities that may trade in
a foreign market, that the Participant
indicate whether the order was handled
domestically, or routed to a foreign
venue. Accordingly, the Participant will
indicate, for purposes of Appendix B.I,
whether the order was: (1) Fully
executed domestically, or (2) fully or
partially executed on a foreign market.
For purposes of Appendix B.II, the
Participant will classify all orders in
securities that may trade in a foreign
market Pilot and Pre-Pilot Securities as:
(1) Directed to a domestic venue for
execution; (2) may only be directed to
a foreign venue for execution; or (3) was
30 See National Market System Plan to Address
Extraordinary Market Volatility, Securities
Exchange Act Release No. 67091 (May 31, 2012), 77
FR 33498 (June 6, 2012) (File No. 4–631) (‘‘LimitUp Limit-Down Plan’’).
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fully or partially directed to a foreign
venue at the discretion of the member.
The Exchange believes that this
proposed flag will better identify orders
in securities that may trade in a foreign
market, as such orders that were routed
to foreign venues would not be subject
to the Plan’s quoting and trading
requirements, and could otherwise
compromise the integrity of the data.
Interpretations and Policies .04 relates
to the time ranges specified in
Appendix B.I.a(14), B.I.a(15), B.I.a(21)
and B.I.a(22).31 The Exchange and the
other Participants have determined that
it is appropriate to change the reporting
times in these provisions to require
more granular reporting for these
categories. Accordingly, the Exchange
proposes to add Appendix B.I.a(14A),
which will require Trading Centers to
report the cumulative number of shares
of orders executed from 100
microseconds to less than 1 millisecond
after the time of order receipt. Appendix
B.I.a(15) will be changed to require the
cumulative number of shares of orders
executed from 1 millisecond to less than
100 milliseconds after the time of order
receipt. The Exchange also proposes to
add Appendix B.I.a(21A), which will
require Trading Centers to report the
cumulative number of shares of orders
canceled from 100 microseconds to less
than 1 millisecond after the time of
order receipt. Appendix B.I.a(22) will be
changed to require the cumulative
number of shares of orders canceled
from 1 millisecond to less than 100
milliseconds after the time of order
receipt. The Exchange believes that
these new reporting requirements will
contribute to a meaningful analysis of
the Pilot by producing more granular
data on these points.32
Interpretations and Policies .05 relates
to the relevant measurement for
purposes of Appendix B.I.a(31)–(33)
reporting. Currently, the Plan states that
this data shall be reported as of the time
of order execution. The Exchange and
the other Participants believe that this
31 Specifically, Appendix B.I.a(14) requires
reporting of the cumulative number of shares of
orders executed from 0 to less than 100
microseconds after the time of order receipt;
Appendix B.I.a(15) requires reporting of the
cumulative number of shares of orders executed
from 100 microseconds to less than 100
milliseconds after the time of order receipt;
Appendix B.I.a(21) requires reporting of the
cumulative number of shares of orders cancelled
from 0 to less than 100 microseconds after the time
of order receipt; and Appendix B.I.a(22) requires
reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less
than 100 milliseconds after the time of order
receipt.
32 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 29.
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information should more properly be
captured at the time of order receipt as
evaluating share-weighted average
prices at the time of order receipt is
more consistent with the goal of
observing the effect of the Pilot on the
liquidity of Pilot Securities. The
Exchange is therefore proposing to make
this change through Interpretations and
Policies .05.33 This change will make
these provisions consistent with the
remainder of the statistics in Appendix
B.I.a, which are all based on order
receipt.
Interpretations and Policies .06
addresses the status of not-held and
auction orders for purposes of Appendix
B.I reporting. Currently, Appendix B.I
sets forth eight categories of orders,
including market orders, marketable
limit orders, and inside-the-quote
resting limit orders, for which daily
market quality statistics must be
reported. Currently, Appendix B.I does
not provide a category for not held
orders, clean cross orders, auction
orders, or orders received when the
NBBO is crossed. The Exchange and the
other Participants have determined that
it is appropriate to include separate
categories for these orders types for
purposes of Appendix B reporting. The
Exchange is therefore proposing
Interpretations and Policies .06 to
provide that not held orders shall be
included as an order type for purposes
of Appendix B reporting, and shall be
assigned the number (18). Clean cross
orders shall be included as an order
type for purposes of Appendix B
reporting, and shall be assigned the
number (19); auction orders shall be
included an as order type for purposes
of Appendix B reporting, and shall be
assigned the number (20); and orders
that cannot otherwise be classified,
including, for example, orders received
when the NBBO is crossed shall be
included as an order type for purposes
of Appendix B reporting, and shall be
assigned the number (21). All of these
orders already are included in the scope
of Appendix B; however, without this
proposed change, these order types
would be categorized with other orders,
such as regular held orders, that should
be able to be fully executed upon
receipt, which would compromise the
value of this data.
The Exchange is proposing
Interpretations and Policies .07 to
clarify the scope of the Plan as it relates
to Members that only execute orders
limited purposes. Specifically, The
Exchange and the other Participants
33 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 29.
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believe that a Member that only
executes orders otherwise than on a
national securities exchange for the
purpose of: (1) Correcting a bona fide
error related to the execution of a
customer order; (2) purchasing a
security from a customer at a nominal
price solely for purposes of liquidating
the customer’s position; or (3)
completing the fractional share portion
of an order 34 shall not be deemed a
Trading Center for purposes of
Appendix B to the Plan. The Exchange
is therefore proposing Supplementary
Material .09 to make this clarification.
The Exchange is proposing
Interpretations and Policies .08 to
clarify that, for purposes of the Plan,
Trading Centers must begin the data
collection required pursuant to
Appendix B.I.a(1) through B.II.(y) of the
Plan and Item I of Appendix C of the
Plan on April 4, 2016. While the
Exchange or the Member’s DEA will
provide the information required by
Appendix B and C of the Plan during
the Pilot Period, the requirement that
the Exchange or their DEA provide
information to the SEC within 30 days
following month end and make such
data publicly available on its Web site
pursuant to Appendix B and C shall
commence six months prior to the
beginning of the Pilot Period.35
The Exchange is proposing
Interpretations and Policies .09 to
address the requirement in Appendix
C.I(b) of the Plan that the calculation of
raw Market Maker realized trading
profits utilize a last in, first out
(‘‘LIFO’’)-like method to determine
which share prices shall be used in that
calculation. The Exchange and the other
Participants believe that it is more
appropriate to utilize a methodology
that yields LIFO-like results, rather than
utilizing a LIFO-like method, and the
Exchange is therefore proposing
Interpretations and Policies .09 to make
34 The Exchange notes that where a Member
purchases a fractional share from a customer, the
Trading Center that executes the remaining whole
shares of that customer order would subject to
subject to Appendix B of the Plan.
35 In its order approving the Plan, the SEC noted
that the Pilot shall be implemented within one year
of the date of publication of its order, e.g., by May
6, 2016. See Approval Order, 80 FR at 27545.
However, on November 6, 2015, the SEC extended
the implementation date approximately five months
to October 3, 2016. See Securities Exchange Act
Release No. 76382 (November 6, 2015), 80 FR 70284
(File No. 4–657) (Order Granting Exemption From
Compliance With the National Market System Plan
To Implement a Tick Size Pilot Program). See also
Letter from Brendon J. Weiss, Co-Head, Government
Affairs, Intercontinental Exchange/NYSE, to Brent J.
Fields, Secretary, Commission, dated November 4,
2015 (requesting the data collection period be
extended until six months after the requisite SRO
rules are approved, and the implementation data of
the Tick Size Pilot until six months thereafter).
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17229
this change.36 The Exchange is
proposing that, for purposes of Item I of
Appendix C, the Participants shall
calculate daily Market Maker realized
profitability statistics for each trading
day on a daily LIFO basis using reported
trade price and shall include only trades
executed on the subject trading day. The
daily LIFO calculation shall not include
any positions carried over from previous
trading days. For purposes of Item I.c of
Appendix C, the Participants shall
calculate daily Market Maker unrealized
profitability statistics for each trading
day on an average price basis.
Specifically, the Participants must
calculate the volume weighted average
price of the excess (deficit) of buy
volume over sell volume for the current
trading day using reported trade price.
The gain (loss) of the excess (deficit) of
buy volume over sell volume shall be
determined by using the volume
weighted average price compared to the
closing price of the security as reported
by the primary listing exchange. In
reporting unrealized trading profits, the
Participant shall also report the number
of excess (deficit) shares held by the
Market Maker, the volume weighted
average price of that excess (deficit) and
the closing price of the security as
reported by the primary listing exchange
used in reporting unrealized profit.37
Finally, the Exchange is proposing
Interpretations and Policies .10 to
address the securities that will be used
for data collection purposes prior to the
commencement of the Pilot. The
Exchange and the other Participants
have determined that it is appropriate to
collect data for a group of securities that
is larger, and using different
quantitative thresholds, than the group
of securities that will be Pilot Securities.
The Exchange is therefore proposing
Interpretations and Policies .10 to define
‘‘Pre-Pilot Data Collection Securities’’ as
the securities designated by the
Participants for purposes of the data
collection requirements described in
Items I, II and IV of Appendix B and
Item I of Appendix C of the Plan for the
36 Appendix C.I currently requires Market Maker
profitability statistics to include (1) the total
number of shares of orders executed by the Market
Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market
value of Market Maker shares and the market value
of Market Maker purchases, using a LIFO-like
method; and (3) raw Market Maker unrealized
trading profits, which is the difference between the
purchase or sale price of the end-of-day inventory
position of the Market Maker and the Closing Price.
In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a
long position, the purchase price will be subtracted
from the Closing Price.
37 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 29.
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Federal Register / Vol. 81, No. 59 / Monday, March 28, 2016 / Notices
period beginning six months prior to the
Pilot Period and ending on the trading
day immediately preceding the Pilot
Period. The Participants shall compile
the list of Pre-Pilot Data Collection
Securities by selecting all NMS stocks
with a market capitalization of $5
billion or less, a Consolidated Average
Daily Volume (CADV) of 2 million
shares or less and a closing price of $1
per share or more. The market
capitalization and the closing price
thresholds shall be applied to the last
day of the Pre-Pilot measurement
period, and the CADV threshold shall be
applied to the duration of the Pre-Pilot
measurement period. The Pre-Pilot
measurement period shall be the three
calendar months ending on the day
when the Pre-Pilot Data Collection
Securities are selected. The Pre-Pilot
Data Collection Securities shall be
selected thirty days prior to the
commencement of the six-month PrePilot Period. On the trading day that is
the first trading day of the Pilot Period
through six months after the end of the
Pilot Period, the data collection
requirements will become applicable to
the Pilot Securities only. A Pilot
Security will only be eligible to be
included in a Test Group if it was a PrePilot Security.
Lhorne on DSK5TPTVN1PROD with NOTICES
Implementation Date
The proposed rule change will be
effective on April 4, 2016.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 38 in general, and furthers the
objectives of Section 6(b)(5) of the Act 39
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 and clarifies the
provisions of the Plan, and is designed
to assist the Exchange in meeting its
regulatory obligations pursuant of 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
38 15
39 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Jkt 238001
therefore in furtherance of the purposes
of the Act. 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 because the proposal
implements and clarifies the
requirements of the Plan and applies
specific obligations to Members in
furtherance of compliance with the
Plan.
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 of the Plan. The
Exchange also notes that the data
collection requirements for Members
that operate Trading Centers will apply
equally to all such Members, as will the
data collection requirements for Market
Makers.
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
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 40 and Rule 19b–
4(f)(6) thereunder.41
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 42 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 43
permits the Commission to designate a
shorter time if such action is consistent
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b-4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
42 17 CFR 240.19b–4(f)(6).
43 17 CFR 240.19b–4(f)(6)(iii).
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The Commission
believes that waiver of the operative
delay is consistent with the protection
of investors and the public interest
because it would allow the Exchange to
implement the proposed amendments
by April 4, 2016, the date upon which
the data collection requirements of the
Plan become effective.44 Therefore, the
Commission hereby waives the
operative delay and designates the
proposal operative as of the date of this
Notice.45
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SRBatsEDGX–2016–01 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR-BatsEDGX–2016–01. 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
40 15
41 17
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44 See Securities Exchange Act Release No. 76382
(November 6, 2015), 80 FR 70284 (File No. 4–657)
(Order Granting Exemption From Compliance With
the National Market System Plan To Implement a
Tick Size Pilot Program).
45 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
BatsEDGX–2016–01, and should be
submitted on or before April 18,2016.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.46
Brent J. Fields,
Secretary.
[FR Doc. 2016–06863 Filed 3–25–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77415; File No. SR–OCC–
2016–006]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Related to
the Voluntary Termination by Offset
and Re-Matching of Matched-Book
Positions in the Stock Loan/Hedge
Program
Lhorne on DSK5TPTVN1PROD with NOTICES
March 22, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 15,
2016, The Options Clearing Corporation
(‘‘OCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
46 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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14:52 Mar 25, 2016
Jkt 238001
17231
in Items I, II, and III below, which Items
have been prepared primarily by OCC.
OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(iii) 3 of
the Act and Rule 19b–4(f)(4)(i) 4
thereunder so that the proposal was
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the rule change from
interested persons.
offset and re-matching of such positions
without requiring the transfer of
securities against the payment of
settlement prices as currently required
under OCC’s rules. The proposed
termination by offset and re-matching of
stock loan and borrow positions is
designed to leave the affected Clearing
Members with the same net position in
such stock loan and borrow positions as
prior to the adjustment.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The purpose of this proposed rule
change is to enhance the overall
resilience of OCC’s Stock Loan/Hedge
Program 5 by allowing OCC to close out
the Matched-Book Positions (as defined
herein) of Hedge Clearing Members
requesting an orderly wind down of
Matched-Book Positions through the
termination by offset and ‘‘re-matching’’
of such positions without requiring the
transfer of securities against the
payment of settlement prices as
currently required under OCC’s rules.
All capitalized terms not defined herein
have the same meaning as in OCC’s ByLaws and Rules.6
Background
In the Stock Loan/Hedge Program,
OCC acts as a central counterparty
(‘‘CCP’’) for Hedge Loans that are
directly negotiated by Hedge Clearing
Members and sent to OCC for clearance
and settlement. A prospective Lending
Clearing Member and a prospective
Borrowing Clearing Member identify
each other (independent of OCC) and
agree on the terms of the stock loan. The
Hedge Clearing Members then send the
details of the stock loan to The
Depository Trust Company
(‘‘Depository’’) with a certain ‘‘reason
code,’’ 7 which designates the stock loan
as a Hedge Loan for guaranty and
clearance at OCC. The Lending Clearing
Member instructs the Depository to
transfer a specified number of shares of
Eligible Stock to the account of the
Borrowing Clearing Member, and the
Borrowing Clearing Member instructs
the Depository to transfer the
appropriate amount of cash collateral to
the account of the Lending Clearing
Member.8 The Depository then sends
the Hedge Loan information to OCC via
an end-of-day report.9 After OCC
receives the report from the Depository,
OCC validates and novates the stock
loan transaction and becomes the lender
to the Borrowing Clearing Member and
the borrower to the Lending Clearing
Member.10
After novation, as part of the
guaranty, OCC makes Mark-to-Market
Payments for all Hedge Loans on a daily
basis to collateralize all loans to the
negotiated levels.11 As the CCP, OCC
guarantees the return of the full value of
cash collateral to a Borrowing Clearing
Member and the Loaned Stock, or value
of that Loaned Stock, to the Lending
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC 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. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
OCC proposes amendments to its ByLaws and Rules designed to enhance the
overall resilience of OCC’s Stock Loan/
Hedge Program by allowing OCC to
close out the Matched-Book Positions of
a Hedge Clearing Member requesting an
orderly wind down of Matched-Book
Positions through the termination by
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(4)(i).
5 See Article XXI of OCC’s By-Laws and Chapter
XXII of OCC’s Rules. It is also noted that no changes
are being proposed to Article XXIA of OCC’s ByLaws or Chapter XXIIA of OCC’s Rules, which
address OCC’s Market Loan Program.
6 Staff has inserted this sentence based on OCC’s
request to clarify the use of capitalized terms by
OCC in these statements prepared by OCC.
4 17
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7 Unique reason codes were created by the
Depository for Clearing Members to designate stock
loan transactions intended to be sent to OCC for
novation and guarantee.
8 See OCC Rule 2202(a).
9 See OCC Rule 2202(b).
10 Id.
11 Mark-to-Market Payments are based on the
value of the loaned securities and made between
Clearing Members using OCC’s cash settlement
system. The percentage of the value of the loaned
securities, either 100% or 102%, is dependent upon
the agreement between the two Hedge Clearing
Members party to the transaction.
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]]>Agencies
[Federal Register Volume 81, Number 59 (Monday, March 28, 2016)]
[Notices]
[Pages 17225-17231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06863]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77416; File No. SR-BatsEDGX-2016-01]
Self-Regulatory Organizations; Bats EDGX Exchange, Inc. f/k/a
EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Adopt Exchange Rule 11.27 To Implement the
Regulation NMS Plan To Implement a Tick Size Pilot Program
March 22, 2016.
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 March 15, 2016, Bats EDGX Exchange, Inc. f/k/a EDGX Exchange,
Inc. (the ``Exchange'' or ``EDGX'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange has designated this proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it
effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to adopt Exchange Rule 11.27 to
implement the Regulation NMS Plan to Implement a Tick Size Pilot
Program (``Plan''). Specifically, the Exchange proposed Rule 11.27(b)
to set forth the requirements for the collection and transmission of
data pursuant to Appendices B and C of the Plan. The proposed rule
change is substantially similar to proposed rule changes recently
approved or published by the Commission by the Bats BZX Exchange, Inc.
f/k/a BATS Exchange, Inc. (``BZX'') to adopt BZX Rule 11.27(b) which
also sets forth requirements for the collection and transmission of
data pursuant to Appendices B and C of the Plan.\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release Nos. 77105 (February 10,
2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-2015-
102); and 77310 (March 7, 2016) (notice for comment and immediate
effectiveness of SR-BATS-2016-27).
---------------------------------------------------------------------------
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange,
BZX, Bats BYX Exchange, Inc., Chicago Stock Exchange, Inc., Bats EDGA
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 \6\ and Rule 608 of
Regulation NMS thereunder,\7\ the Plan to Implement a Tick Size Pilot
Program (``Pilot'').\8\ The Participants filed the Plan to comply with
an order issued by the Commission on June 24, 2014.\9\ The Plan \10\
was published for comment in the Federal Register on November 7, 2014,
and approved by the
[[Page 17226]]
Commission, as modified, on May 6, 2015.\11\
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\6\ 15 U.S.C. 78k-1.
\7\ 17 CFR 242.608.
\8\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\9\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\10\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\11\ See Securities Exchange Act Release No. 74892 (May 6,
2015), 80 FR 27513 (May 13, 2015) (``Approval Order'').
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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, 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 \12\ to comply with the applicable
data collection requirements of the Plan.\13\
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\12\ The term ``Member'' is defined as ``any registered broker
or dealer that has been admitted to membership in the Exchange.''
See Exchange Rule 1.5(n).
\13\ The Exchange proposes Interpretations and Policies .11 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).
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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 random sampling
process).\14\ During the pilot, Pilot Securities in the control group
will be quoted at the current tick size increment of $0.01 per share
and will trade at the currently permitted 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.\15\ 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.\16\ Pilot Securities in the third test group (``Test Group
Three'') will be subject to the same quoting and trading increments 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 Trading Center's ``Best Protected Bid'' or ``Best
Protected Offer,'' unless an enumerated exception applies.\17\ 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 \18\ will apply to the Trade-at requirement.
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\14\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\15\ See Section VI(B) of the Plan.
\16\ See Section VI(C) of the Plan.
\17\ See Section VI(D) of the Plan.
\18\ 17 CFR 242.611.
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In approving the Plan, the Commission noted that the Trading Center
data reporting requirements would facilitate an analysis of the effects
of the Pilot on liquidity (e.g., transaction costs by order size),
execution quality (e.g., speed of order executions), market maker
activity, competition between trading venues (e.g., routing frequency
of market orders), transparency (e.g., choice between displayed and
hidden orders), and market dynamics (e.g., rates and speed of order
cancellations).\19\ The Commission noted that Market Maker
profitability data would assist the Commission in evaluating the
effect, if any, of a widened tick increment on market marker profits
and any corresponding changes in the liquidity of small-capitalization
securities.\20\
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\19\ See Approval Order, 80 FR at 27543.
\20\ Id.
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Compliance With the Data Collection Requirements of the Plan
The Plan contains requirements for collecting and transmitting data
to the Commission and to the public.\21\ Specifically, Appendix B.I of
the Plan (Market Quality Statistics) requires Trading Centers \22\ to
submit variety of market quality statistics, including information
about an order's original size, whether the order was displayable or
not, the cumulative number of orders, the cumulative number of shares
of orders, and the cumulative number of shares executed within specific
time increments, e.g., from 30 seconds to less than 60 seconds after
the time of order receipt. This information shall be categorized by
security, order type, original order size, hidden status, and coverage
under Rule 605.\23\ Appendix B.I of the Plan also contains additional
requirements for market orders and marketable limit orders, including
the share-weighted average effective spread for executions of orders;
the cumulative number of shares of orders executed with price
improvement; and, for shares executed with price improvement, the
share-weighted average amount per share that prices were improved.
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\21\ The Exchange is also required by the Plan 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. The Exchange intends to
separately propose rules that would require compliance by its
Members with the applicable quoting and trading requirements
specified in the Plan, and has reserved Paragraph (a) for such
rules.
\22\ The Plan incorporates the definition of a ``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.'' See 17 CFR 242.600(b).
\23\ 17 CFR 242.605.
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Appendix B.II of the Plan (Market and Marketable Limit Order Data)
requires Trading Centers to submit information relating to market
orders and marketable limit orders, including the time of order
receipt, order type, the order size, the National Best Bid and National
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average
execution price-share-weighted average, and the average execution time-
share-weighted average.
The Plan requires Appendix B.I and B.II data to be submitted by
Participants that operate a Trading Center, and by members of the
Participants that operate Trading Centers. The Plan provides that each
Participant that is the Designated Examining Authority (``DEA'') for a
member of the Participant that operates a Trading Center shall collect
such data in a pipe delimited format, beginning six months prior to the
Pilot Period and ending six months after the end of the Pilot Period.
The Plan also requires the Participant, operating as DEA, to transmit
this information to the SEC within 30 calendar days following month
end.
The Exchange is therefore proposing Rule 11.27(b) to set forth the
requirements for the collection and transmission of data pursuant to
Appendices B and C of the Plan. Proposed Rule 11.27(b) is substantially
similar to proposed rule changes by BZX that were recently approved or
published by the Commission to adopt BZX Rule 11.27(b) which also sets
forth requirements for the collection and transmission of data pursuant
to Appendices B and C of the Plan.\24\
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\24\ See supra note 5.
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Proposed Rule 11.27(b)(1) requires that a Member that operates a
Trading Center shall establish, maintain and enforce written policies
and procedures that are reasonably designed to comply with the data
collection and transmission requirements of Items I and II to Appendix
B of the Plan, and a Member that is a Market Maker shall establish,
maintain and enforce written policies and procedures that are
reasonably designed to comply with the data collection and transmission
[[Page 17227]]
requirements of Item IV of Appendix B of the Plan and Item I of
Appendix C of the Plan.
Proposed Rule 11.27(b)(2) provides that the Exchange shall collect
and transmit to the SEC the data described in Items I and II of
Appendix B of the Plan relating to trading activity in Pre-Pilot
Securities and Pilot Securities on a Trading Center operated by the
Exchange. The Exchange shall transmit such data to the SEC in a pipe
delimited format, on a disaggregated basis by Trading Center, within 30
calendar days following month end for: (i) Each Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) each Pilot Security for the period beginning on the
first day of the Pilot Period through six months after the end of the
Pilot Period. The Exchange also shall make such data publicly available
on the Exchange Web site on a monthly basis at no charge and will not
identify the Member that generated the data.
Appendix B.IV (Daily Market Maker Participation Statistics)
requires a Participant to collect data related to Market Maker
participation from each Market Maker \25\ engaging in trading activity
on a Trading Center operated by the Participant. The Exchange is
therefore proposing Rule 11.27(b)(3) to gather data about a Market
Maker's participation in Pilot Securities and Pre-Pilot Data Collection
Securities. Proposed Rule 11.27(b)(3)(A) provides that a Member that is
a Market Maker shall collect and transmit to their DEA data relating to
Item IV of Appendix B of the Plan with respect to activity conducted on
any Trading Center in Pilot Securities and Pre-Pilot Data Collection
Securities in furtherance of its status as a registered Market Maker,
including a Trading Center that executes trades otherwise than on a
national securities exchange, for transactions that have settled or
reached settlement date. The proposed rule requires Market Makers to
transmit such data in a format required by their DEA, by 12:00 p.m. EST
on T+4 for: (i) Transactions in each Pre-Pilot Data Collection Security
for the period beginning six months prior to the Pilot Period through
the trading day immediately preceding the Pilot Period; and (ii) for
transactions in each Pilot Security for the period beginning on the
first day of the Pilot Period through six months after the end of the
Pilot Period.
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\25\ The Plan defines a Market Maker as ``a dealer registered
with any self-regulatory organization, in accordance with the rules
thereof, as (i) a market maker or (ii) a liquidity provider with an
obligation to maintain continuous, two-sided trading interest.''
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The Exchange understands that some Members may utilize a DEA that
is not a Participant to the Plan and that their DEA would not be
subject to the Plan's data collection requirements. In such case, a DEA
that is not a Participant of the Plan would not be required to collect
the required data and may not establish procedures for which Members it
acts a DEA for to report the data required under subparagraphs
(b)(3)(A) of Rule 11.27 and in accordance with Item IV of Appendix B of
the Plan. Therefore, the Exchange proposes to adopt subparagraph
(b)(3)(B) to Rule 11.27 to require a Member that is a Market Maker
whose DEA is not a Participant to the Plan to transmit the data
collected pursuant to paragraph (3)(A) of Rule 11.27(b) to FINRA, which
is a Participant to the Plan and is to collect data relating to Item IV
of Appendix B of the Plan on behalf of the Participants. For Market
Makers for which it is the DEA, FINRA issued a Market Maker Transaction
Data Technical Specification to collect data on Pre-Pilot Data
Collection Securities and Pilot Securities from Trading Centers to
comply with the Plan's data collection requirements.\26\
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\26\ FINRA members for which FINRA is their DEA should refer to
the Market Maker Transaction Data Technical Specification on the
FINRA Web site at https://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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Proposed Rule 11.27(b)(3)(C) provides that the Exchange shall
transmit the data collected by the DEA or FINRA pursuant to Rule
11.27(b)(3)(A) and (B) above relating to Market Maker activity on a
Trading Center operated by the Exchange to the SEC in a pipe delimited
format within 30 calendar days following month end. The Exchange shall
also make such data publicly available on the Exchange Web site on a
monthly basis at no charge and shall not identify the Trading Center
that generated the data.
Appendix C.I (Market Maker Profitability) requires a Participant to
collect data related to Market Maker profitability from each Market
Maker for which it is the DEA. Specifically, the Participant is
required to collect the total number of shares of orders executed by
the Market Maker; the raw Market Maker realized trading profits, and
the raw Market Maker unrealized trading profits. Data shall be
collected for dates starting six months prior to the Pilot Period
through six months after the end of the Pilot Period. This data shall
be collected on a monthly basis, to be provided in a pipe delimited
format to the Participant, as DEA, within 30 calendar days following
month end. Appendix C.II (Aggregated Market Maker Profitability)
requires the Participant, as DEA, to aggregate the Appendix C.I data,
and to categorize this data by security as well as by the control group
and each Test Group. That aggregated data shall contain information
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
The Exchange is therefore proposing Rule 11.27(b)(4) to set forth
the requirements for the collection and transmission of data pursuant
to Appendix C.I of the Plan. Proposed Rule 11.27(b)(4)(A) requires that
a Member that is a Market Maker shall collect and transmit to their DEA
the data described in Item I of Appendix C of the Plan with respect to
executions in Pilot Securities that have settled or reached settlement
date that were executed on any Trading Center. The proposed rule also
requires Members to provide such data in a format required by their DEA
by 12 p.m. EST on T+4 for executions during and outside of Regular
Trading Hours in each: (i) Pre-Pilot Data Collection Security for the
period beginning six months prior to the Pilot Period through the
trading day immediately preceding the Pilot Period; and (ii) Pilot
Security for the period beginning on the first day of the Pilot Period
through six months after the end of the Pilot Period.
For the same reasons set forth above for subparagraph (b)(3)(B) to
Rule 11.27, the Exchange proposes to adopt subparagraph (b)(4)(B) to
Rule 11.27 to require a Member that is a Market Maker whose DEA is not
a Participant to the Plan to transmit the data collected pursuant to
paragraph (4)(A) of Rule 11.27(b) to FINRA. As stated above, FINRA is a
Participant to the Plan and is to collect data relating to Item I of
Appendix C of the Plan on behalf of the Participants. For Market Makers
for which it is the DEA, FINRA issued a Market Maker Transaction Data
Technical Specification to collect data on Pre-Pilot Data Collection
Securities and Pilot Securities from Trading Centers to comply with the
Plan's data collection requirements.\27\
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\27\ Id.
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The Exchange is also adopting a rule setting forth the manner in
which Market Maker participation will be calculated. Item III of
Appendix B of the Plan requires each Participant that is a national
securities exchange to collect daily Market Maker registration
[[Page 17228]]
statistics categorized by security, including the following
information: (i) Ticker symbol; (ii) the Participant exchange; (iii)
number of registered market makers; and (iv) the number of other
registered liquidity providers. Therefore, the Exchange proposes to
adopt Rule 11.27(b)(5) providing that the Exchange shall collect and
transmit to the SEC the data described in Item III of Appendix B of the
Plan relating to daily Market Maker registration statistics in a pipe
delimited format within 30 calendar days following month end for: (i)
Transactions in each Pre-Pilot Data Collection Security for the period
beginning six months prior to the Pilot Period through the trading day
immediately preceding the Pilot Period; and (ii) transactions in each
Pilot Security for the period beginning on the first day of the Pilot
Period through six months after the end of the Pilot Period.
The Exchange is also proposing, through Interpretations and
Policies, to clarify other aspects of the data collection
requirements.\28\ Proposed Interpretations and Policies .02 relates to
the use of the retail investor order flag for purposes of Appendix
B.II(n) reporting. The Plan currently states that market and marketable
limit orders shall include a ``yes/no'' field relating to the Retail
Investor Order flag. The Exchange is proposing Interpretations and
Policies .02 to clarify that, for purposes of the reporting requirement
in Appendix B.II(n), a Trading Center shall report ``y'' to their DEA
where it is relying upon the Retail Investor Order exception to Test
Groups Two and Three, and ``n'' for all other instances.\29\ The
Exchange believes that requiring the identification of a Retail
Investor Orders only where the exception may apply (i.e., Pilot
Securities in Test Groups Two and Three) is consistent with Appendix
B.II(n).
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\28\ The Exchange is also proposing Interpretations and Policies
.01 to Rule 11.27 to clarify that certain enumerated terms used
throughout Rule 11.27 shall have the same meaning as set forth in
the Plan.
\29\ FINRA, on behalf of the Plan Participants submitted a
letter to Commission requesting exemption from certain provisions of
the Plan related to data collection. See letter from Marcia E.
Asquith, Senior Vice President and Corporate Secretary, FINRA dated
December 9, 2015 to Robert W. Errett, Deputy Secretary, Commission
(``Exemption Request''). The Commission, pursuant to its authority
under Rule 608(e) of Regulation NMS, granted BZX a limited exemption
from the requirement to comply with certain provisions of the Plan
as specified in the letter and noted herein. See letter from David
Shillman, Associate Director, Division of Trading and Markets,
Commission to Eric Swanson, General Counsel, BZX, dated February 10,
2016 (``Exemption Letter'').
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Interpretations and Policies .03 requires that Members populate a
field to identify to their DEA whether an order is affected by the
bands in place pursuant to the National Market System Plan to Address
Extraordinary Market Volatility.\30\ Pursuant to the Limit-Up Limit-
Down Plan, between 9:30 a.m. and 4:00 p.m., the Securities Information
Processor (``SIP'') calculates a lower price band and an upper price
band for each NMS stock. These price bands represent a specified
percentage above or below the stock's reference price, which generally
is calculated based on reported transactions in that stock over the
preceding five minutes. When one side of the market for an individual
security is outside the applicable price band, the SIP identifies that
quotation as non-executable. When the other side of the market reaches
the applicable price band (e.g., the offer reaches the lower price
band), the security enters a Limit State. The stock would exit a Limit
State if, within 15 seconds of entering the Limit State, all Limit
State Quotations were executed or canceled in their entirety. If the
security does not exit a Limit State within 15 seconds, then the
primary listing exchange declares a five-minute trading pause, which
would be applicable to all markets trading the security.
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\30\ See National Market System Plan to Address Extraordinary
Market Volatility, Securities Exchange Act Release No. 67091 (May
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up
Limit-Down Plan'').
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The Exchange and the other Participants have determined that it is
appropriate to create a new flag for reporting orders that are affected
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall
report a value of ``Y'' to their DEA when the ability of an order to
execute has been affected by the Limit-Up Limit-Down bands in effect at
the time of order receipt. A Trading Center shall report a value of
``N'' to their DEA when the ability of an order to execute has not been
affected by the Limit-Up Limit-Down bands in effect at the time of
order receipt.
Interpretations and Policies .03 also requires, for securities that
may trade in a foreign market, that the Participant indicate whether
the order was handled domestically, or routed to a foreign venue.
Accordingly, the Participant will indicate, for purposes of Appendix
B.I, whether the order was: (1) Fully executed domestically, or (2)
fully or partially executed on a foreign market. For purposes of
Appendix B.II, the Participant will classify all orders in securities
that may trade in a foreign market Pilot and Pre-Pilot Securities as:
(1) Directed to a domestic venue for execution; (2) may only be
directed to a foreign venue for execution; or (3) was fully or
partially directed to a foreign venue at the discretion of the member.
The Exchange believes that this proposed flag will better identify
orders in securities that may trade in a foreign market, as such orders
that were routed to foreign venues would not be subject to the Plan's
quoting and trading requirements, and could otherwise compromise the
integrity of the data.
Interpretations and Policies .04 relates to the time ranges
specified in Appendix B.I.a(14), B.I.a(15), B.I.a(21) and
B.I.a(22).\31\ The Exchange and the other Participants have determined
that it is appropriate to change the reporting times in these
provisions to require more granular reporting for these categories.
Accordingly, the Exchange proposes to add Appendix B.I.a(14A), which
will require Trading Centers to report the cumulative number of shares
of orders executed from 100 microseconds to less than 1 millisecond
after the time of order receipt. Appendix B.I.a(15) will be changed to
require the cumulative number of shares of orders executed from 1
millisecond to less than 100 milliseconds after the time of order
receipt. The Exchange also proposes to add Appendix B.I.a(21A), which
will require Trading Centers to report the cumulative number of shares
of orders canceled from 100 microseconds to less than 1 millisecond
after the time of order receipt. Appendix B.I.a(22) will be changed to
require the cumulative number of shares of orders canceled from 1
millisecond to less than 100 milliseconds after the time of order
receipt. The Exchange believes that these new reporting requirements
will contribute to a meaningful analysis of the Pilot by producing more
granular data on these points.\32\
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\31\ Specifically, Appendix B.I.a(14) requires reporting of the
cumulative number of shares of orders executed from 0 to less than
100 microseconds after the time of order receipt; Appendix B.I.a(15)
requires reporting of the cumulative number of shares of orders
executed from 100 microseconds to less than 100 milliseconds after
the time of order receipt; Appendix B.I.a(21) requires reporting of
the cumulative number of shares of orders cancelled from 0 to less
than 100 microseconds after the time of order receipt; and Appendix
B.I.a(22) requires reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less than 100 milliseconds
after the time of order receipt.
\32\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 29.
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Interpretations and Policies .05 relates to the relevant
measurement for purposes of Appendix B.I.a(31)-(33) reporting.
Currently, the Plan states that this data shall be reported as of the
time of order execution. The Exchange and the other Participants
believe that this
[[Page 17229]]
information should more properly be captured at the time of order
receipt as evaluating share-weighted average prices at the time of
order receipt is more consistent with the goal of observing the effect
of the Pilot on the liquidity of Pilot Securities. The Exchange is
therefore proposing to make this change through Interpretations and
Policies .05.\33\ This change will make these provisions consistent
with the remainder of the statistics in Appendix B.I.a, which are all
based on order receipt.
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\33\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 29.
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Interpretations and Policies .06 addresses the status of not-held
and auction orders for purposes of Appendix B.I reporting. Currently,
Appendix B.I sets forth eight categories of orders, including market
orders, marketable limit orders, and inside-the-quote resting limit
orders, for which daily market quality statistics must be reported.
Currently, Appendix B.I does not provide a category for not held
orders, clean cross orders, auction orders, or orders received when the
NBBO is crossed. The Exchange and the other Participants have
determined that it is appropriate to include separate categories for
these orders types for purposes of Appendix B reporting. The Exchange
is therefore proposing Interpretations and Policies .06 to provide that
not held orders shall be included as an order type for purposes of
Appendix B reporting, and shall be assigned the number (18). Clean
cross orders shall be included as an order type for purposes of
Appendix B reporting, and shall be assigned the number (19); auction
orders shall be included an as order type for purposes of Appendix B
reporting, and shall be assigned the number (20); and orders that
cannot otherwise be classified, including, for example, orders received
when the NBBO is crossed shall be included as an order type for
purposes of Appendix B reporting, and shall be assigned the number
(21). All of these orders already are included in the scope of Appendix
B; however, without this proposed change, these order types would be
categorized with other orders, such as regular held orders, that should
be able to be fully executed upon receipt, which would compromise the
value of this data.
The Exchange is proposing Interpretations and Policies .07 to
clarify the scope of the Plan as it relates to Members that only
execute orders limited purposes. Specifically, The Exchange and the
other Participants believe that a Member that only executes orders
otherwise than on a national securities exchange for the purpose of:
(1) Correcting a bona fide error related to the execution of a customer
order; (2) purchasing a security from a customer at a nominal price
solely for purposes of liquidating the customer's position; or (3)
completing the fractional share portion of an order \34\ shall not be
deemed a Trading Center for purposes of Appendix B to the Plan. The
Exchange is therefore proposing Supplementary Material .09 to make this
clarification.
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\34\ The Exchange notes that where a Member purchases a
fractional share from a customer, the Trading Center that executes
the remaining whole shares of that customer order would subject to
subject to Appendix B of the Plan.
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The Exchange is proposing Interpretations and Policies .08 to
clarify that, for purposes of the Plan, Trading Centers must begin the
data collection required pursuant to Appendix B.I.a(1) through B.II.(y)
of the Plan and Item I of Appendix C of the Plan on April 4, 2016.
While the Exchange or the Member's DEA will provide the information
required by Appendix B and C of the Plan during the Pilot Period, the
requirement that the Exchange or their DEA provide information to the
SEC within 30 days following month end and make such data publicly
available on its Web site pursuant to Appendix B and C shall commence
six months prior to the beginning of the Pilot Period.\35\
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\35\ In its order approving the Plan, the SEC noted that the
Pilot shall be implemented within one year of the date of
publication of its order, e.g., by May 6, 2016. See Approval Order,
80 FR at 27545. However, on November 6, 2015, the SEC extended the
implementation date approximately five months to October 3, 2016.
See Securities Exchange Act Release No. 76382 (November 6, 2015), 80
FR 70284 (File No. 4-657) (Order Granting Exemption From Compliance
With the National Market System Plan To Implement a Tick Size Pilot
Program). See also Letter from Brendon J. Weiss, Co-Head, Government
Affairs, Intercontinental Exchange/NYSE, to Brent J. Fields,
Secretary, Commission, dated November 4, 2015 (requesting the data
collection period be extended until six months after the requisite
SRO rules are approved, and the implementation data of the Tick Size
Pilot until six months thereafter).
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The Exchange is proposing Interpretations and Policies .09 to
address the requirement in Appendix C.I(b) of the Plan that the
calculation of raw Market Maker realized trading profits utilize a last
in, first out (``LIFO'')-like method to determine which share prices
shall be used in that calculation. The Exchange and the other
Participants believe that it is more appropriate to utilize a
methodology that yields LIFO-like results, rather than utilizing a
LIFO-like method, and the Exchange is therefore proposing
Interpretations and Policies .09 to make this change.\36\ The Exchange
is proposing that, for purposes of Item I of Appendix C, the
Participants shall calculate daily Market Maker realized profitability
statistics for each trading day on a daily LIFO basis using reported
trade price and shall include only trades executed on the subject
trading day. The daily LIFO calculation shall not include any positions
carried over from previous trading days. For purposes of Item I.c of
Appendix C, the Participants shall calculate daily Market Maker
unrealized profitability statistics for each trading day on an average
price basis. Specifically, the Participants must calculate the volume
weighted average price of the excess (deficit) of buy volume over sell
volume for the current trading day using reported trade price. The gain
(loss) of the excess (deficit) of buy volume over sell volume shall be
determined by using the volume weighted average price compared to the
closing price of the security as reported by the primary listing
exchange. In reporting unrealized trading profits, the Participant
shall also report the number of excess (deficit) shares held by the
Market Maker, the volume weighted average price of that excess
(deficit) and the closing price of the security as reported by the
primary listing exchange used in reporting unrealized profit.\37\
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\36\ Appendix C.I currently requires Market Maker profitability
statistics to include (1) the total number of shares of orders
executed by the Market Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market value of Market
Maker shares and the market value of Market Maker purchases, using a
LIFO-like method; and (3) raw Market Maker unrealized trading
profits, which is the difference between the purchase or sale price
of the end-of-day inventory position of the Market Maker and the
Closing Price. In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a long position,
the purchase price will be subtracted from the Closing Price.
\37\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 29.
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Finally, the Exchange is proposing Interpretations and Policies .10
to address the securities that will be used for data collection
purposes prior to the commencement of the Pilot. The Exchange and the
other Participants have determined that it is appropriate to collect
data for a group of securities that is larger, and using different
quantitative thresholds, than the group of securities that will be
Pilot Securities. The Exchange is therefore proposing Interpretations
and Policies .10 to define ``Pre-Pilot Data Collection Securities'' as
the securities designated by the Participants for purposes of the data
collection requirements described in Items I, II and IV of Appendix B
and Item I of Appendix C of the Plan for the
[[Page 17230]]
period beginning six months prior to the Pilot Period and ending on the
trading day immediately preceding the Pilot Period. The Participants
shall compile the list of Pre-Pilot Data Collection Securities by
selecting all NMS stocks with a market capitalization of $5 billion or
less, a Consolidated Average Daily Volume (CADV) of 2 million shares or
less and a closing price of $1 per share or more. The market
capitalization and the closing price thresholds shall be applied to the
last day of the Pre-Pilot measurement period, and the CADV threshold
shall be applied to the duration of the Pre-Pilot measurement period.
The Pre-Pilot measurement period shall be the three calendar months
ending on the day when the Pre-Pilot Data Collection Securities are
selected. The Pre-Pilot Data Collection Securities shall be selected
thirty days prior to the commencement of the six-month Pre-Pilot
Period. On the trading day that is the first trading day of the Pilot
Period through six months after the end of the Pilot Period, the data
collection requirements will become applicable to the Pilot Securities
only. A Pilot Security will only be eligible to be included in a Test
Group if it was a Pre-Pilot Security.
Implementation Date
The proposed rule change will be effective on April 4, 2016.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \38\ in general, and furthers the objectives of Section
6(b)(5) of the Act \39\ 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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\38\ 15 U.S.C. 78f(b).
\39\ 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 and clarifies the provisions of the Plan, and is
designed to assist the Exchange in meeting its regulatory obligations
pursuant of 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. 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 because the proposal implements and clarifies the requirements of
the Plan and applies specific obligations to Members in furtherance of
compliance with the Plan.
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 of the Plan. The Exchange also notes that the data
collection requirements for Members that operate Trading Centers will
apply equally to all such Members, as will the data collection
requirements for Market Makers.
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
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \40\ and Rule 19b-4(f)(6) thereunder.\41\
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\40\ 15 U.S.C. 78s(b)(3)(A).
\41\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \42\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \43\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Commission believes that waiver of the operative delay is consistent
with the protection of investors and the public interest because it
would allow the Exchange to implement the proposed amendments by April
4, 2016, the date upon which the data collection requirements of the
Plan become effective.\44\ Therefore, the Commission hereby waives the
operative delay and designates the proposal operative as of the date of
this Notice.\45\
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\42\ 17 CFR 240.19b-4(f)(6).
\43\ 17 CFR 240.19b-4(f)(6)(iii).
\44\ See Securities Exchange Act Release No. 76382 (November 6,
2015), 80 FR 70284 (File No. 4-657) (Order Granting Exemption From
Compliance With the National Market System Plan To Implement a Tick
Size Pilot Program).
\45\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BatsEDGX-2016-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BatsEDGX-2016-01. 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
[[Page 17231]]
post all comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-BatsEDGX-2016-01, and should be submitted on or before
April 18, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
Brent J. Fields,
Secretary.
[FR Doc. 2016-06863 Filed 3-25-16; 8:45 am]
BILLING CODE 8011-01-P
