Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rule 4770 To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program, 18925-18931 [2016-07333]
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Federal Register / Vol. 81, No. 63 / Friday, April 1, 2016 / Notices
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 40 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 41
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
on April 4, 2016, the date upon which
the data collection requirements of the
Plan become effective.42 Therefore, the
Commission hereby waives the
operative delay and designates the
proposal operative on April 4, 2016.43
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2016–39 on the subject line.
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Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
40 17 CFR 240.19b–4(f)(6).
41 17 CFR 240.19b–4(f)(6)(iii).
42 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).
43 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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and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2016–39. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml).
Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2016–39 and should be submitted on or
before April 22, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–07335 Filed 3–31–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77456; File No. SR–
NASDAQ–2016–043]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt Rule
4770 To Implement the Regulation
NMS Plan To Implement a Tick Size
Pilot Program
March 28, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
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18925
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 23,
2016, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to a proposal
to adopt Exchange Rule 4770 to
implement the Regulation NMS Plan to
Implement a Tick Size Pilot Program
(‘‘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.3
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.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 aspects of such
statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77105
(February 10, 2016), 81 FR 8112 (February 17, 2016)
(order approving SR–BATS–2015–102); see also
Securities Exchange Act Release No. 77310 (March
7, 2016), 81 FR 13012 (March 11, 2016) (notice for
comment and immediate effectiveness of SR–
BATS–2016–27).
2 17
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Federal Register / Vol. 81, No. 63 / Friday, April 1, 2016 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 25, 2014, NYSE Group,
Inc., on behalf of BATS Exchange, Inc.,
BATS Y-Exchange, Inc., Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), NASDAQ BX, Inc.,
NASDAQ PHLX LLC, the Nasdaq Stock
Market LLC, New York Stock Exchange
LLC (‘‘NYSE’’), NYSE MKT LLC, and
NYSE Arca, Inc. (collectively
‘‘Participants’’), filed with the
Commission, pursuant to Section 11A of
the Act 4 and Rule 608 of Regulation
NMS thereunder,5 the Plan to
Implement a Tick Size Pilot Program
(‘‘Pilot’’).6
The Participants filed the Plan to
comply with an order issued by the
Commission on June 24, 2014.7 The
Plan 8 was published for comment in the
Federal Register on November 7, 2014,
and approved by the Commission, as
modified, on May 6, 2015.9
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 10 to comply with the
applicable data collection requirements
of the Plan.11
4 15
U.S.C. 78k–1.
CFR 242.608.
6 See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
7 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
8 Capitalized terms used in this rule filing are
defined in the Plan, unless otherwise specified
herein.
9 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’).
10 The term ‘‘Member’’ or ‘‘Nasdaq Member’’ is
defined as ‘‘any registered broker or dealer that has
been admitted to membership in Nasdaq. A Nasdaq
Member is not a member of Nasdaq within the
meaning of the Delaware Limited Liability
Company Act by reason of being admitted to
membership in Nasdaq.’’ See Exchange Rule
0120(i).
11 The Exchange proposes Commentary .11 to
Rule 4770 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).12
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.13 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.14 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.15 In addition to the
exceptions provided under Test Group
Two, an exception for Block Size orders
and exceptions that mirror those under
Rule 611 of Regulation NMS 16 will
apply to the Trade-at requirement.
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).17
The Commission also noted that
Market Maker profitability data would
assist the Commission in evaluating the
effect, if any, of a widened tick
12 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
13 See Section VI(B) of the Plan.
14 See Section VI(C) of the Plan.
15 See Section VI(D) of the Plan.
16 17 CFR 242.611.
17 See Approval Order, 80 FR at 27543.
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increment on market marker profits and
any corresponding changes in the
liquidity of small-capitalization
securities.18
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.19
Specifically, Appendix B.I of the Plan
(Market Quality Statistics) requires
Trading Centers 20 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 605.21 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
18 Id.
19 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.
20 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).
21 17 CFR 242.605.
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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 4770(b) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan.
Proposed Rule 4770(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.22
Proposed Rule 4770(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
requirements of Item IV of Appendix B
of the Plan and Item I of Appendix C of
the Plan.
Proposed Rule 4770(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
22 See
supra note 3.
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18927
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 23 engaging in trading
activity on a Trading Center operated by
the Participant. The Exchange is
therefore proposing Rule 4770(b)(3) to
gather data about a Market Maker’s
participation in Pilot Securities and PrePilot Data Collection Securities.
Proposed Rule 4770(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 have an obligation
to collect the data required under
subparagraph (b)(3)(A) of Rule 4770 and
in accordance with Item IV of Appendix
B of the Plan. Therefore, the Exchange
proposes to adopt subparagraph
(b)(3)(B) to Rule 4770 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 4770(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.24
Proposed Rule 4770(b)(3)(C) provides
that the Exchange shall transmit the
data collected by the DEA or FINRA
pursuant to Rule 4770(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, 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 4770(b)(4) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendix C.I of the Plan. Proposed Rule
4770(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.
23 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.’’
24 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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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 4770,
the Exchange proposes to adopt
subparagraph (b)(4)(B) to Rule 4770 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
4770(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.25
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
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 4770(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 Commentary, to clarify other
aspects of the data collection
requirements.26 Proposed Commentary
25 Id.
26 The Exchange is also proposing Commentary
.01 to Rule 4770 to clarify that certain enumerated
terms used throughout Rule 4770 shall have the
same meaning as set forth in the Plan.
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.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 Commentary .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.27 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).
Commentary .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.28
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 nonexecutable. 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
27 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’’).
28 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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primary listing exchange declares a fiveminute 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.
Commentary .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.
Commentary .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).29 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.
29 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.
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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.30
Commentary .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
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 Commentary .05.31
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.
Commentary .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
30 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 27.
31 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 27.
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categories for these orders types for
purposes of Appendix B reporting. The
Exchange is therefore proposing
Commentary .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
Commentary .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 32 shall not be deemed a
Trading Center for purposes of
Appendix B to the Plan. The Exchange
is therefore proposing Commentary .07
to make this clarification.
The Exchange is proposing
Commentary .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
32 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.
PO 00000
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18929
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.33
The Exchange is proposing
Commentary .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 Commentary .09 to make this
change.34
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
33 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).
34 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.
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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.35
Finally, the Exchange is proposing
Commentary .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
Commentary .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 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 PrePilot Data Collection Securities are
selected. The Pre-Pilot Data Collection
Securities shall be selected thirty days
prior to the commencement of the sixmonth 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 PrePilot Security.
35 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 27.
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17:25 Mar 31, 2016
Jkt 238001
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,36 in general, and furthers the
objectives of Section 6(b)(5) of the Act,37
in particular, in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that this
proposal is consistent with the Act
because it implements 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 impose
any burden on competition 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.
36 15
37 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00108
Fmt 4703
Sfmt 4703
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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)(iii) of the Act 38 and
subparagraph (f)(6) of Rule 19b–4
thereunder.39
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 40 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 41
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
on April 4, 2016, the date upon which
the data collection requirements of the
Plan become effective.42 Therefore, the
Commission hereby waives the
operative delay and designates the
proposal operative on April 4, 2016.43
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: (i) Necessary or appropriate in
38 15
U.S.C. 78s(b)(3)(a)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
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. The Exchange has satisfied this
requirement.
40 17 CFR 240.19b–4(f)(6).
41 17 CFR 240.19b–4(f)(6)(iii).
42 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).
43 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).
39 17
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the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
asabaliauskas on DSK3SPTVN1PROD with NOTICES
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–
NASDAQ–2016–043 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2016–043. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml).
Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing 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–
NASDAQ–2016–043 and should be
submitted on or before April 22, 2016.
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17:25 Mar 31, 2016
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–07333 Filed 3–31–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[OMB Control No. 3235–0217, SEC File No.
270–224]
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension:
Rule 17e–1.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) (‘‘Paperwork
Reduction Act’’), the Securities and
Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for extension of the
previously approved collection of
information described below.
Rule 17e–1 (17 CFR 270.17e–1) under
the Investment Company Act of 1940
(15 U.S.C. 80a–1 et seq.) (the
‘‘Investment Company Act’’) deems a
remuneration as ‘‘not exceeding the
usual and customary broker’s
commission’’ for purposes of Section
17(e)(2)(A) if, among other things, a
registered investment company’s
(‘‘fund’s’’) board of directors has
adopted procedures reasonably
designed to provide that the
remuneration to an affiliated broker is a
reasonable and fair amount compared to
that received by other brokers in
connection with comparable
transactions involving similar securities
being purchased or sold on a securities
exchange during a comparable period of
time and the board makes and approves
such changes as it deems necessary. In
addition, each quarter, the board must
determine that all transactions effected
under the rule during the preceding
quarter complied with the established
procedures. Rule 17e–1 also requires the
fund to (i) maintain permanently a
written copy of the procedures adopted
by the board for complying with the
requirements of the rule; and (ii)
maintain for a period of six years, the
first two in an easily accessible place, a
44 17
PO 00000
CFR 200.30–3(a)(12).
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Sfmt 4703
18931
written record of each transaction
subject to the rule, setting forth the
amount and source of the commission,
fee, or other remuneration received; the
identity of the broker; the terms of the
transaction; and the materials used to
determine that the transactions were
effected in compliance with the
procedures adopted by the board. The
recordkeeping requirements under rule
17e–1 enable the Commission to ensure
that affiliated brokers receive
compensation that does not exceed the
usual and customary broker’s
commission. Without the recordkeeping
requirements, Commission inspectors
would have difficulty ascertaining
whether funds were complying with
rule 17e–1.
Based on an analysis of fund filings,
the staff estimates that approximately
320 funds enter into subadvisory
agreements each year.1 Based on
discussions with industry
representatives, the staff estimates that
it will require approximately 3 attorney
hours to draft and execute additional
clauses in new subadvisory contracts in
order for funds and subadvisers to be
able to rely on the exemptions in rule
17e–1. Because these additional clauses
are identical to the clauses that a fund
would need to insert in their
subadvisory contracts to rely on rules
12d3–1, 10f–3, and 17a–10, and because
we believe that funds that use one such
rule generally use all of these rules, we
apportion this 3 hour time burden
equally to all four rules. Therefore, we
estimate that the burden allocated to
rule 17e–1 for this contract change
would be 0.75 hours.2 Assuming that all
320 funds enter into new subadvisory
contracts each year make the
modification to their contract required
by the rule, we estimate that the rule’s
contract modification requirement will
result in 240 burden hours annually.3
Based on an analysis of fund filings,
we estimate that approximately 1,696
funds use at least one affiliated broker.
Based on staff experience and
conversations with fund representatives,
the staff estimates approximately 40
percent of transactions (and thus, 40%
of funds) that occur under the rule 17e–
1 Based on data from Morningstar, as of
September, 2015, there are 12,426 registered funds
(open-end funds, closed-end funds, and exchangetraded funds), 4,683 funds of which have
subadvisory relationships (approximately 38%).
Based on data from the 2015 ICI Factbook, 843 new
funds were established in 2014 (654 open-end
funds + 176 exchange-traded funds + 13 closed-end
funds (from the ICI Research Perspective, April
2015)). 843 new funds × 38% = 320 funds.
2 3 hours ÷ 4 rules = 0.75 hours.
3 This estimate is based on the following
calculation: 0.75 hours × 320 funds = 240 burden
hours.
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]]>Agencies
[Federal Register Volume 81, Number 63 (Friday, April 1, 2016)]
[Notices]
[Pages 18925-18931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07333]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77456; File No. SR-NASDAQ-2016-043]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Rule 4770 To Implement the Regulation NMS Plan To Implement a
Tick Size Pilot Program
March 28, 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 23, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to a proposal to adopt Exchange Rule 4770 to
implement the Regulation NMS Plan to Implement a Tick Size Pilot
Program (``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.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 77105 (February 10,
2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-2015-
102); see also Securities Exchange Act Release No. 77310 (March 7,
2016), 81 FR 13012 (March 11, 2016) (notice for comment and
immediate effectiveness of SR-BATS-2016-27).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaq.cchwallstreet.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 aspects of such
statements.
[[Page 18926]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange,
Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory
Authority, Inc. (``FINRA''), NASDAQ BX, Inc., NASDAQ PHLX LLC, the
Nasdaq Stock Market LLC, New York Stock Exchange LLC (``NYSE''), NYSE
MKT LLC, and NYSE Arca, Inc. (collectively ``Participants''), filed
with the Commission, pursuant to Section 11A of the Act \4\ and Rule
608 of Regulation NMS thereunder,\5\ the Plan to Implement a Tick Size
Pilot Program (``Pilot'').\6\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78k-1.
\5\ 17 CFR 242.608.
\6\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
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The Participants filed the Plan to comply with an order issued by
the Commission on June 24, 2014.\7\ The Plan \8\ was published for
comment in the Federal Register on November 7, 2014, and approved by
the Commission, as modified, on May 6, 2015.\9\
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\7\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\8\ Capitalized terms used in this rule filing are defined in
the Plan, unless otherwise specified herein.
\9\ 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 \10\ to comply with the applicable
data collection requirements of the Plan.\11\
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\10\ The term ``Member'' or ``Nasdaq Member'' is defined as
``any registered broker or dealer that has been admitted to
membership in Nasdaq. A Nasdaq Member is not a member of Nasdaq
within the meaning of the Delaware Limited Liability Company Act by
reason of being admitted to membership in Nasdaq.'' See Exchange
Rule 0120(i).
\11\ The Exchange proposes Commentary .11 to Rule 4770 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).\12\ 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.
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\12\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
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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.\13\ 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.\14\ 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.\15\ In addition to the exceptions provided under
Test Group Two, an exception for Block Size orders and exceptions that
mirror those under Rule 611 of Regulation NMS \16\ will apply to the
Trade-at requirement.
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\13\ See Section VI(B) of the Plan.
\14\ See Section VI(C) of the Plan.
\15\ See Section VI(D) of the Plan.
\16\ 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).\17\
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\17\ See Approval Order, 80 FR at 27543.
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The Commission also 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.\18\
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\18\ 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.\19\ Specifically, Appendix B.I of
the Plan (Market Quality Statistics) requires Trading Centers \20\ 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.\21\ 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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\19\ 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.
\20\ 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).
\21\ 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
[[Page 18927]]
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 4770(b) to set forth the
requirements for the collection and transmission of data pursuant to
Appendices B and C of the Plan. Proposed Rule 4770(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.\22\
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\22\ See supra note 3.
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Proposed Rule 4770(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
requirements of Item IV of Appendix B of the Plan and Item I of
Appendix C of the Plan.
Proposed Rule 4770(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 \23\ engaging in trading activity
on a Trading Center operated by the Participant. The Exchange is
therefore proposing Rule 4770(b)(3) to gather data about a Market
Maker's participation in Pilot Securities and Pre-Pilot Data Collection
Securities. Proposed Rule 4770(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.
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\23\ 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 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 have an obligation to
collect the data required under subparagraph (b)(3)(A) of Rule 4770 and
in accordance with Item IV of Appendix B of the Plan. Therefore, the
Exchange proposes to adopt subparagraph (b)(3)(B) to Rule 4770 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 4770(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.\24\
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\24\ 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 4770(b)(3)(C) provides that the Exchange shall
transmit the data collected by the DEA or FINRA pursuant to Rule
4770(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 4770(b)(4) to set forth
the requirements for the collection and transmission of data pursuant
to Appendix C.I of the Plan. Proposed Rule 4770(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.
[[Page 18928]]
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 4770, the Exchange proposes to adopt subparagraph (b)(4)(B) to
Rule 4770 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 4770(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.\25\
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\25\ 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
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 4770(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 Commentary, to clarify
other aspects of the data collection requirements.\26\ Proposed
Commentary .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
Commentary .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.\27\
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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\26\ The Exchange is also proposing Commentary .01 to Rule 4770
to clarify that certain enumerated terms used throughout Rule 4770
shall have the same meaning as set forth in the Plan.
\27\ 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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Commentary .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.\28\ 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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\28\ 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.
Commentary .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.
Commentary .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).\29\ 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.
[[Page 18929]]
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.\30\
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\29\ 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.
\30\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 27.
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Commentary .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 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 Commentary .05.\31\ 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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\31\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 27.
---------------------------------------------------------------------------
Commentary .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
Commentary .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 Commentary .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 \32\ shall not be deemed a Trading Center for
purposes of Appendix B to the Plan. The Exchange is therefore proposing
Commentary .07 to make this clarification.
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\32\ 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.
---------------------------------------------------------------------------
The Exchange is proposing Commentary .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.\33\
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\33\ 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 Commentary .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 Commentary .09 to make this change.\34\
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\34\ 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.
---------------------------------------------------------------------------
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
[[Page 18930]]
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.\35\
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\35\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 27.
---------------------------------------------------------------------------
Finally, the Exchange is proposing Commentary .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 Commentary .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 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,\36\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\37\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that this proposal is consistent with the Act
because it implements 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
impose any burden on competition 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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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)(iii) of the Act \38\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\39\
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\38\ 15 U.S.C. 78s(b)(3)(a)(iii).
\39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \40\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \41\ 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 on April
4, 2016, the date upon which the data collection requirements of the
Plan become effective.\42\ Therefore, the Commission hereby waives the
operative delay and designates the proposal operative on April 4,
2016.\43\
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\40\ 17 CFR 240.19b-4(f)(6).
\41\ 17 CFR 240.19b-4(f)(6)(iii).
\42\ 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).
\43\ 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: (i)
Necessary or appropriate in
[[Page 18931]]
the public interest; (ii) for the protection of investors; or (iii)
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-043 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2016-043. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing 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-NASDAQ-2016-043 and should
be submitted on or before April 22, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
Robert W. Errett,
Deputy Secretary.
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\44\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-07333 Filed 3-31-16; 8:45 am]
BILLING CODE 8011-01-P
