Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adopting Requirements for the Collection and Transmission of Data Pursuant to Appendices B and C of the Regulation NMS Plan To Implement a Tick Size Pilot Program, 19665-19671 [2016-07685]
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Federal Register / Vol. 81, No. 65 / Tuesday, April 5, 2016 / Notices
which today burden partnerships over
corporations.
The deletions of Rules 902 and 907(a)
will remove a current burden on
competition which requires members
and member organizations that are
partnerships to disclose unnecessary
information as compared to other
corporate entities not structured as a
partnership.
The deletion of 907(b) will remove a
current burden on competition by
eliminating the need to identify an
officer that is a member of the exchange
which will have no practical effect on
the exchange’s interaction with the
company. The Exchange does not
believe that there is any impact on intermarket competition.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
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 5 and
subparagraph (f)(6) of Rule 19b–4
thereunder.6
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. The
Exchange has provided the Commission
written notice of its intent to file the
proposed rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing of the
proposed rule change.
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–2016–36 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–Phlx–2016–36. 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–2016–36 and should
be submitted on or before April 26,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Robert W. Errett,
Deputy Secretary.
BILLING CODE 8011–01–P
U.S.C. 78s(b)(3)(a)(iii).
6 17 CFR 240.19b–4(f)(6).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77478; File No. SR–
NYSEMKT–2016–40]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Adopting Requirements
for the Collection and Transmission of
Data Pursuant to Appendices B and C
of the Regulation NMS Plan To
Implement a Tick Size Pilot Program
March 30, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 29,
2016, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(the ‘‘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 adopt
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Regulation
NMS Plan to Implement a Tick Size
Pilot Program (‘‘Plan’’). The proposed
rule change is available on the
Exchange’s Web site at www.nyse.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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
[FR Doc. 2016–07682 Filed 4–4–16; 8:45 a.m.]
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
5 15
2 15
7 17
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 25, 2014, NYSE Group,
Inc., on behalf of the Exchange, New
York Stock Exchange LLC, NYSE Arca,
Inc., the Bats BZX Exchange, Inc. f/k/a
BATS Exchange, Inc. (‘‘BZX’’), BATS
BYX Exchange, Inc. f/k/a BATS YExchange, Inc. (‘‘BYX’’), Bats EDGA
Exchange, Inc., Bats EDGX Exchange,
Inc., Chicago Stock Exchange, Inc.,
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), NASDAQ
OMX BX, Inc., NASDAQ OMX PHLX
LLC, and the Nasdaq Stock Market LLC
(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 Securities and Exchange
Commission (‘‘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
member organizations to comply with
the applicable data collection
requirements of the Plan.10
The Pilot will include stocks of
companies with $3 billion or less in
market capitalization, an average daily
trading volume of one million shares or
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 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
9 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’).
10 The Exchange proposes to provide in the
introduction paragraph to Rule 67—Equities 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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5 17
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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).11
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.12 Pilot Securities in the
second test group (‘‘Test Group Two’’)
will be quoted in $0.05 minimum
increments and will trade at $0.05
minimum increments subject to a
midpoint exception, a retail investor
order exception, and a negotiated trade
exception.13 Pilot Securities in the third
test group (‘‘Test Group Three’’) will be
subject to the same 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.14 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 15 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).16 The
Commission noted that Market Maker
profitability data would assist the
Commission in evaluating the effect, if
any, of a widened tick increment on
market marker profits and any
corresponding changes in the liquidity
of small-capitalization securities.17
11 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
12 See Section VI(B) of the Plan.
13 See Section VI(C) of the Plan.
14 See Section VI(D) of the Plan.
15 17 CFR 242.611.
16 See Approval Order, 80 FR at 27543.
17 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.18
Specifically, Appendix B.I of the Plan
(Market Quality Statistics) requires
Trading Centers 19 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 605.20 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 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
plans to separately propose Rules 67(a)—Equities
and 67(c)–(e)—Equities that would require
compliance by its member organizations with the
applicable quoting and trading requirements
specified in the Plan and has reserved Rules 67(a)—
Equities and (c)–(e)—Equities for this purpose. See,
e.g., Securities Exchange Act Release No. 76229
(October 22, 2015), 80 FR 66065 (October 28, 2015)
(SR–NYSE–2015–46) (‘‘Quoting & Trading Rules
Proposal’’), as amended by Partial Amendment No.
1 to the Quoting & Trading Rules Proposal.
19 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).
20 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 proposing new Rule
67(b)—Equities to set forth the
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan.
Proposed Rule 67(b)—Equities is
substantially similar to the proposed
rule changes by BZX that were recently
approved 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.21
Proposed Rule 67(b)(1)—Equities
requires that a member organization 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
organization 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 67(b)(2)—Equities
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 Data Collection Securities 22
21 See Securities Exchange Act Release Nos.
77105 (February 10, 2016), 81 FR 8112 (February
17, 2016) (order approving SR–BATS–2015–102);
and 77310 (March 7, 2016) (notice for comment and
immediate effectiveness of SR–BATS–2016–27).
The Exchange proposes a non-substantive
difference to use the term ‘‘member organization’’
instead of ‘‘member’’ in proposed Rule 67.
22 The Exchange is proposing Supplementary
Material .90 to proposed Rule 67(b)—Equities 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
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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
organization 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 67(b)(3)—
Equities to gather data about a Market
Maker’s participation in Pilot Securities
and Pre-Pilot Data Collection Securities.
Proposed Rule 67(b)(3)(A)—Equities
provides that a member organization
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
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.
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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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
member organizations may utilize a
DEA that is not a Participant to the Plan
and that their DEA would not be subject
to the Plan’s data collection
requirements. In such case, a DEA that
is not a Participant of the Plan would
not be required to collect the required
data and may not establish procedures
for which member organizations it acts
a DEA for to report the data required
under subparagraphs (b)(3)(A) of Rule
67—Equities and in accordance with
Item IV of Appendix B of the Plan.
Therefore, the Exchange proposes to
adopt subparagraph (b)(3)(B) to Rule
67—Equities to require a member
organization 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
67(b)—Equities 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 67(b)(3)(C)—Equities
provides that the Exchange shall
transmit the data collected by the DEA
or FINRA pursuant to Rule 67(b)(3)(A)—
Equities and Rule 67(b)(3)(B)—Equities
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
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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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 67(b)(4)—Equities to set forth the
requirements for the collection and
transmission of data pursuant to
Appendix C.I of the Plan. Proposed Rule
67(b)(4)(A)—Equities requires that a
member organization 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 member
organizations to provide such data in a
format required by their DEA by 12 p.m.
EST on T+4 for executions during and
outside of Regular Trading Hours in
each: (i) Pre-Pilot Data Collection
Security for the period beginning six
months prior to the Pilot Period through
the trading day immediately preceding
the Pilot Period; and (ii) Pilot Security
for the period beginning on the first day
of the Pilot Period through six months
after the end of the Pilot Period.
For the same reasons set forth above
for subparagraph (b)(3)(B) to Rule 67—
Equities, the Exchange proposes to
adopt subparagraph (b)(4)(B) to Rule
67—Equities to require a member
organization 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
67(b)—Equities 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
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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 67(b)(5)—Equities 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 Supplementary Material to
proposed Rule 67(b)—Equities, to clarify
other aspects of the data collection
requirements. Supplementary Material
.10 to proposed Rule 67(b)—Equities
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
Supplementary Material .10 to proposed
Rule 67(b)—Equities 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.26
25 Id.
26 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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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).
Supplementary Material .20 to
proposed Rule 67(b)—Equities requires
that member organizations 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.27 Pursuant to the Limit-Up
Limit-Down Plan, between 9:30 a.m.
and 4:00 p.m., the Securities
Information Processor (‘‘SIP’’) calculates
a lower price band and an upper price
band for each NMS stock. These price
bands represent a specified percentage
above or below the stock’s reference
price, which generally is calculated
based on reported transactions in that
stock over the preceding five minutes.
When one side of the market for an
individual security is outside the
applicable price band, the SIP identifies
that quotation as non-executable. When
the other side of the market reaches the
applicable price band (e.g., the offer
reaches the lower price band), the
security enters a Limit State. The stock
would exit a Limit State if, within 15
seconds of entering the Limit State, all
Limit State Quotations were executed or
canceled in their entirety. If the security
does not exit a Limit State within 15
seconds, then the primary listing
exchange declares a five-minute trading
pause, which would be applicable to all
markets trading the security.
The Exchange and the other
Participants have determined that it is
appropriate to create a new flag for
reporting orders that are affected by the
Limit-Up Limit-Down bands.
Accordingly, a Trading Center shall
report a value of ‘‘Y’’ to their DEA when
the ability of an order to execute has
been affected by the Limit-Up LimitDown bands in effect at the time of
order receipt. A Trading Center shall
report a value of ‘‘N’’ to their DEA when
the ability of an order to execute has not
been affected by the Limit-Up LimitDown bands in effect at the time of
order receipt.
Supplementary Material .20 to
proposed Rule 67(b)—Equities 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
27 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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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.
Supplementary Material .30 to
proposed Rule 67(b)—Equities 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).28 The Exchange and the other
Participants have determined that it is
appropriate to change the reporting
times in these provisions to require
more granular reporting for these
categories. Accordingly, the Exchange
proposes to add Appendix B.I.a(14A),
which will require Trading Centers to
report the cumulative number of shares
of orders executed from 100
microseconds to less than 1 millisecond
after the time of order receipt. Appendix
B.I.a(15) will be changed to require the
cumulative number of shares of orders
executed from 1 millisecond to less than
100 milliseconds after the time of order
receipt. The Exchange also proposes to
add Appendix B.I.a(21A), which will
require Trading Centers to report the
cumulative number of shares of orders
canceled from 100 microseconds to less
than 1 millisecond after the time of
order receipt. Appendix B.I.a(22) will be
changed to require the cumulative
number of shares of orders canceled
from 1 millisecond to less than 100
milliseconds after the time of order
receipt. The Exchange believes that
these new reporting requirements will
contribute to a meaningful analysis of
28 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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the Pilot by producing more granular
data on these points.29
Supplementary Material .40 to
proposed Rule 67(b)—Equities 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 Supplementary
Material .40 to proposed Rule 67(b)—
Equities.30 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.
Supplementary Material .50 to
proposed Rule 67(b)—Equities
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
Supplementary Material .50 to proposed
Rule 67(b)—Equities 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
29 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 26.
30 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 26.
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19669
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
Supplementary Material .60 to proposed
Rule 67(b)—Equities to clarify the scope
of the Plan as it relates to member
organizations that only execute orders
limited purposes. Specifically, The
Exchange and the other Participants
believe that a member organization 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 31 shall not be deemed a
Trading Center for purposes of
Appendix B to the Plan. The Exchange
is therefore proposing Supplementary
Material .60 to proposed Rule 67(b)—
Equities to make this clarification.
The Exchange is proposing
Supplementary Material .70 to proposed
Rule 67(b)—Equities 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 organization’s DEA will
provide the information required by
Appendix B and C of the Plan during
the Pilot Period, the requirement thats
[sic] 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.32
31 The Exchange notes that where a member
organization 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.
32 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.
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The Exchange is proposing
Supplementary Material .80 to proposed
Rule 67(b)—Equities 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 Supplementary Material .80
to proposed Rule 67(b)—Equities to
make this change.33 The Exchange is
proposing that, for purposes of Item I of
Appendix C, the Participants shall
calculate daily Market Maker realized
profitability statistics for each trading
day on a daily LIFO basis using reported
trade price and shall include only trades
executed on the subject trading day. The
daily LIFO calculation shall not include
any positions carried over from previous
trading days. For purposes of Item I.c of
Appendix C, the Participants shall
calculate daily Market Maker unrealized
profitability statistics for each trading
day on an average price basis.
Specifically, the Participants must
calculate the volume weighted average
price of the excess (deficit) of buy
volume over sell volume for the current
trading day using reported trade price.
The gain (loss) of the excess (deficit) of
buy volume over sell volume shall be
determined by using the volume
weighted average price compared to the
closing price of the security as reported
by the primary listing exchange. In
reporting unrealized trading profits, the
Participant shall also report the number
of excess (deficit) shares held by the
Market Maker, the volume weighted
average price of that excess (deficit) and
the closing price of the security as
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).
33 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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reported by the primary listing exchange
used in reporting unrealized profit.34
Finally, the Exchange is proposing
Supplementary Material .90 to proposed
Rule 67(b)—Equities to address the
securities that will be used for data
collection purposes prior to the
commencement of the Pilot Period. 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
Supplementary Material .90 to proposed
Rule 67(b)—Equities 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 Data Collection 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 35 in general, and furthers the
34 The Commission granted BZX an exemption
from Rule 608(c) related to this provision. See
Exemption Letter, supra note 26.
35 15 U.S.C. 78f(b).
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Sfmt 4703
objectives of Section 6(b)(5) of the Act 36
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 member
organizations in furtherance of
compliance with the Plan.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that the proposed rule
change implements the provisions of the
Plan, and is designed to assist the
Exchange in meeting its regulatory
obligations pursuant of the Plan. The
Exchange also notes that the data
collection requirements for member
organizations that operate Trading
Centers will apply equally to all such
member organizations, 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 solicited
or received with respect to the proposed
rule change.
36 15
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U.S.C. 78f(b)(5).
05APN1
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 37 and Rule 19b–
4(f)(6) thereunder.38
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 39 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 40
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.41 Therefore, the
Commission hereby waives the
operative delay and designates the
proposal operative on April 4, 2016.42
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
37 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
39 17 CFR 240.19b–4(f)(6).
40 17 CFR 240.19b–4(f)(6)(iii).
41 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).
42 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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38 17
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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–
NYSEMKT–2016–40 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2016–40. 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–
NYSEMKT–2016–40, and should be
submitted on or before April 26, 2016.
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19671
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–07685 Filed 4–4–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77477; File No. SR–NYSE–
2016–17]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1 Thereto,
To Amend Rule 86 To Add Additional
Order Types to the NYSE BondsSM
Platform, Codify Functionality of Order
Types Currently Available on NYSE
Bonds, and Amend the Definition of
Indicative Match Price in Current Rule
86(B)(2)(G) To Provide Greater Detail of
How an IMP Is Established With
Respect to Bond Auctions
March 30, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
16, 2016, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. On March 29,
2016, the Exchange filed Amendment
No. 1 to the proposal.4 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as modified by Amendment No. 1, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 86 to add additional order types to
the NYSE BondsSM platform and to
codify functionality of order types
currently available on NYSE Bonds. The
Exchange also proposes to amend the
43 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 In Amendment No. 1, the Exchange proposed
changes to amend the proposed rule text of Rule
86(j)(A)(ii) in Exhibit 5 and the purpose section of
each of the Form 19b–4 and Exhibit 1 to clarify the
effective time used to determine the priority of
Timed Orders. The Exchange also amended the
purpose section of each of the Form 19b–4 and
Exhibit 1 to add that all-or-none and minimum
quantity contingencies are displayed.
1 15
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]]>Agencies
[Federal Register Volume 81, Number 65 (Tuesday, April 5, 2016)]
[Notices]
[Pages 19665-19671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07685]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77478; File No. SR-NYSEMKT-2016-40]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Adopting Requirements
for the Collection and Transmission of Data Pursuant to Appendices B
and C of the Regulation NMS Plan To Implement a Tick Size Pilot Program
March 30, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on March 29, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE
MKT'') filed with the Securities and Exchange Commission (the
``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\ 15 U.S.C. 78a.
\3\ 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 adopt requirements for the collection and
transmission of data pursuant to Appendices B and C of the Regulation
NMS Plan to Implement a Tick Size Pilot Program (``Plan''). The
proposed rule change is available on the Exchange's Web site at
www.nyse.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 self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 19666]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange,
New York Stock Exchange LLC, NYSE Arca, Inc., the Bats BZX Exchange,
Inc. f/k/a BATS Exchange, Inc. (``BZX''), BATS BYX Exchange, Inc. f/k/a
BATS Y-Exchange, Inc. (``BYX''), Bats EDGA Exchange, Inc., Bats EDGX
Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry
Regulatory Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX
PHLX LLC, and the Nasdaq Stock Market LLC (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 Securities and
Exchange Commission (``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\
---------------------------------------------------------------------------
\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.
\7\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\8\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\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 member organizations to comply with the
applicable data collection requirements of the Plan.\10\
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\10\ The Exchange proposes to provide in the introduction
paragraph to Rule 67--Equities 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).\11\ 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.\12\ Pilot Securities in the second test
group (``Test Group Two'') will be quoted in $0.05 minimum increments
and will trade at $0.05 minimum increments subject to a midpoint
exception, a retail investor order exception, and a negotiated trade
exception.\13\ Pilot Securities in the third test group (``Test Group
Three'') will be subject to the same 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.\14\ 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 \15\ will apply to the Trade-at requirement.
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\11\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\12\ See Section VI(B) of the Plan.
\13\ See Section VI(C) of the Plan.
\14\ See Section VI(D) of the Plan.
\15\ 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).\16\ The Commission noted that Market Maker
profitability data would assist the Commission in evaluating the
effect, if any, of a widened tick increment on market marker profits
and any corresponding changes in the liquidity of small-capitalization
securities.\17\
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\16\ See Approval Order, 80 FR at 27543.
\17\ 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.\18\ Specifically, Appendix B.I of
the Plan (Market Quality Statistics) requires Trading Centers \19\ 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.\20\ 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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\18\ 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 plans to separately
propose Rules 67(a)--Equities and 67(c)-(e)--Equities that would
require compliance by its member organizations with the applicable
quoting and trading requirements specified in the Plan and has
reserved Rules 67(a)--Equities and (c)-(e)--Equities for this
purpose. See, e.g., Securities Exchange Act Release No. 76229
(October 22, 2015), 80 FR 66065 (October 28, 2015) (SR-NYSE-2015-46)
(``Quoting & Trading Rules Proposal''), as amended by Partial
Amendment No. 1 to the Quoting & Trading Rules Proposal.
\19\ 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).
\20\ 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 19667]]
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 proposing new Rule 67(b)--Equities to set forth the
requirements for the collection and transmission of data pursuant to
Appendices B and C of the Plan. Proposed Rule 67(b)--Equities is
substantially similar to the proposed rule changes by BZX that were
recently approved 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.\21\
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\21\ See Securities Exchange Act Release Nos. 77105 (February
10, 2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-
2015-102); and 77310 (March 7, 2016) (notice for comment and
immediate effectiveness of SR-BATS-2016-27). The Exchange proposes a
non-substantive difference to use the term ``member organization''
instead of ``member'' in proposed Rule 67.
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Proposed Rule 67(b)(1)--Equities requires that a member
organization 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
organization 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 67(b)(2)--Equities 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 Data
Collection Securities \22\ 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 organization that generated the data.
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\22\ The Exchange is proposing Supplementary Material .90 to
proposed Rule 67(b)--Equities 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.
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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 67(b)(3)--Equities to gather data about a
Market Maker's participation in Pilot Securities and Pre-Pilot Data
Collection Securities. Proposed Rule 67(b)(3)(A)--Equities provides
that a member organization 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.
---------------------------------------------------------------------------
\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.''
---------------------------------------------------------------------------
The Exchange understands that some member organizations may utilize
a DEA that is not a Participant to the Plan and that their DEA would
not be subject to the Plan's data collection requirements. In such
case, a DEA that is not a Participant of the Plan would not be required
to collect the required data and may not establish procedures for which
member organizations it acts a DEA for to report the data required
under subparagraphs (b)(3)(A) of Rule 67--Equities and in accordance
with Item IV of Appendix B of the Plan. Therefore, the Exchange
proposes to adopt subparagraph (b)(3)(B) to Rule 67--Equities to
require a member organization 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 67(b)--Equities 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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
Proposed Rule 67(b)(3)(C)--Equities provides that the Exchange
shall transmit the data collected by the DEA or FINRA pursuant to Rule
67(b)(3)(A)--Equities and Rule 67(b)(3)(B)--Equities 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
[[Page 19668]]
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 67(b)(4)--Equities to set
forth the requirements for the collection and transmission of data
pursuant to Appendix C.I of the Plan. Proposed Rule 67(b)(4)(A)--
Equities requires that a member organization 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 member organizations to
provide such data in a format required by their DEA by 12 p.m. EST on
T+4 for executions during and outside of Regular Trading Hours in each:
(i) Pre-Pilot Data Collection Security for the period beginning six
months prior to the Pilot Period through the trading day immediately
preceding the Pilot Period; and (ii) Pilot Security for the period
beginning on the first day of the Pilot Period through six months after
the end of the Pilot Period.
For the same reasons set forth above for subparagraph (b)(3)(B) to
Rule 67--Equities, the Exchange proposes to adopt subparagraph
(b)(4)(B) to Rule 67--Equities to require a member organization 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 67(b)--Equities
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 67(b)(5)--Equities 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 Supplementary Material to
proposed Rule 67(b)--Equities, to clarify other aspects of the data
collection requirements. Supplementary Material .10 to proposed Rule
67(b)--Equities 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 Supplementary Material .10 to proposed Rule 67(b)--Equities
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.\26\ 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\ 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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Supplementary Material .20 to proposed Rule 67(b)--Equities
requires that member organizations 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.\27\ 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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\27\ 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.
Supplementary Material .20 to proposed Rule 67(b)--Equities 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
[[Page 19669]]
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.
Supplementary Material .30 to proposed Rule 67(b)--Equities 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).\28\ The Exchange and the other Participants
have determined that it is appropriate to change the reporting times in
these provisions to require more granular reporting for these
categories. Accordingly, the Exchange proposes to add Appendix
B.I.a(14A), which will require Trading Centers to report the cumulative
number of shares of orders executed from 100 microseconds to less than
1 millisecond after the time of order receipt. Appendix B.I.a(15) will
be changed to require the cumulative number of shares of orders
executed from 1 millisecond to less than 100 milliseconds after the
time of order receipt. The Exchange also proposes to add Appendix
B.I.a(21A), which will require Trading Centers to report the cumulative
number of shares of orders canceled from 100 microseconds to less than
1 millisecond after the time of order receipt. Appendix B.I.a(22) will
be changed to require the cumulative number of shares of orders
canceled from 1 millisecond to less than 100 milliseconds after the
time of order receipt. The Exchange believes that these new reporting
requirements will contribute to a meaningful analysis of the Pilot by
producing more granular data on these points.\29\
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\28\ 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.
\29\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 26.
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Supplementary Material .40 to proposed Rule 67(b)--Equities 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 Supplementary Material .40 to proposed Rule 67(b)--
Equities.\30\ 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.
---------------------------------------------------------------------------
\30\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 26.
---------------------------------------------------------------------------
Supplementary Material .50 to proposed Rule 67(b)--Equities
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 Supplementary
Material .50 to proposed Rule 67(b)--Equities 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 Supplementary Material .60 to proposed
Rule 67(b)--Equities to clarify the scope of the Plan as it relates to
member organizations that only execute orders limited purposes.
Specifically, The Exchange and the other Participants believe that a
member organization 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 \31\ shall not be deemed a Trading Center for
purposes of Appendix B to the Plan. The Exchange is therefore proposing
Supplementary Material .60 to proposed Rule 67(b)--Equities to make
this clarification.
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\31\ The Exchange notes that where a member organization
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 Supplementary Material .70 to proposed
Rule 67(b)--Equities 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 organization's
DEA will provide the information required by Appendix B and C of the
Plan during the Pilot Period, the requirement thats [sic] 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.\32\
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\32\ 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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[[Page 19670]]
The Exchange is proposing Supplementary Material .80 to proposed
Rule 67(b)--Equities 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
Supplementary Material .80 to proposed Rule 67(b)--Equities to make
this change.\33\ The Exchange is proposing that, for purposes of Item I
of Appendix C, the Participants shall calculate daily Market Maker
realized profitability statistics for each trading day on a daily LIFO
basis using reported trade price and shall include only trades executed
on the subject trading day. The daily LIFO calculation shall not
include any positions carried over from previous trading days. For
purposes of Item I.c of Appendix C, the Participants shall calculate
daily Market Maker unrealized profitability statistics for each trading
day on an average price basis. Specifically, the Participants must
calculate the volume weighted average price of the excess (deficit) of
buy volume over sell volume for the current trading day using reported
trade price. The gain (loss) of the excess (deficit) of buy volume over
sell volume shall be determined by using the volume weighted average
price compared to the closing price of the security as reported by the
primary listing exchange. In reporting unrealized trading profits, the
Participant shall also report the number of excess (deficit) shares
held by the Market Maker, the volume weighted average price of that
excess (deficit) and the closing price of the security as reported by
the primary listing exchange used in reporting unrealized profit.\34\
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\33\ 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.
\34\ The Commission granted BZX an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 26.
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Finally, the Exchange is proposing Supplementary Material .90 to
proposed Rule 67(b)--Equities to address the securities that will be
used for data collection purposes prior to the commencement of the
Pilot Period. 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 Supplementary Material .90 to proposed Rule 67(b)--Equities
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
Data Collection 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 \35\ in general, and furthers the objectives of Section
6(b)(5) of the Act \36\ 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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\35\ 15 U.S.C. 78f(b).
\36\ 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 member organizations in
furtherance of compliance with the Plan.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that the proposed rule change implements the provisions of the
Plan, and is designed to assist the Exchange in meeting its regulatory
obligations pursuant of the Plan. The Exchange also notes that the data
collection requirements for member organizations that operate Trading
Centers will apply equally to all such member organizations, 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 solicited or received with respect to the
proposed rule change.
[[Page 19671]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \37\ and Rule 19b-4(f)(6) thereunder.\38\
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\37\ 15 U.S.C. 78s(b)(3)(A).
\38\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \39\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ 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.\41\ Therefore, the Commission hereby waives the
operative delay and designates the proposal operative on April 4,
2016.\42\
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\39\ 17 CFR 240.19b-4(f)(6).
\40\ 17 CFR 240.19b-4(f)(6)(iii).
\41\ 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).
\42\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2016-40 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2016-40. 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-NYSEMKT-2016-40, and should
be submitted on or before April 26, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07685 Filed 4-4-16; 8:45 am]
BILLING CODE 8011-01-P
