Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rules To Implement the Quoting and Trading Provisions of the Plan To Implement a Tick Size Pilot Program, 45340-45346 [2016-16492]
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Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE., Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: July 6, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–16494 Filed 7–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
jstallworth on DSK7TPTVN1PROD with NOTICES
Extension:
Rule 15Bc3–1 and Form MSDW; SEC File
No. 270–93, OMB Control No. 3235–
0087.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 15Bc3–1 (17 CFR
15Bc3–1) and Form MSDW (17 CFR
249.1110) under the Securities
Exchange Act of 1934 (17 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 15Bc3–1 provides that a notice
of withdrawal from registration with the
Commission as a bank municipal
securities dealer must be filed on Form
MSDW. The Commission uses the
information submitted on Form MSDW
in determining whether it is in the
public interest to permit a bank
municipal securities dealer to withdraw
its registration. This information is also
important to the municipal securities
dealer’s customers and to the public,
because it provides, among other things,
the name and address of a person to
contact regarding any of the municipal
securities dealer’s unfinished business.
Based upon past submissions, the
staff estimates that, on an annual basis,
approximately five bank municipal
securities dealers will file a notice of
withdrawal from registration with the
Commission as a bank municipal
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securities dealer on Form MSDW. The
staff estimates that the average number
of hours necessary to comply with the
notice requirements set out in Rule
15Bc3–1 and Form MSDW is 0.5 per
respondent, for a total burden of 2.5
hours per year. The staff estimates that
the average internal compliance cost per
hour is approximately $343. Therefore,
the estimated total cost of compliance
for the respondents is approximately
$858.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information will have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information to be collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE., Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: July 6, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–16495 Filed 7–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 24,
2016, NASDAQ BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt rules
under Rule 4770 to implement the
quoting and trading provisions of the
Plan to Implement a Tick Size Pilot
Program submitted to the Commission
pursuant to Rule 608 of Regulation
NMS 3 under the Act (the ‘‘Plan’’).4 The
proposed rule change is substantially
similar to proposed rule changes
recently approved or published by the
Commission by New York Stock
Exchange LLC to adopt NYSE Rules
67(a) and 67(c)–(e), which also
implemented the quoting and trading
provisions of the Plan.5
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxbx.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 242.608.
4 See Securities and Exchange Act Release No.
74892 (May 6, 2015), 80 FR 27513 (File No. 4–657)
(‘‘Tick Plan Approval Order’’). See also Securities
and Exchange Act Release No. 76382 (November 6,
2015) (File No.
4–657), 80 FR 70284 (File No. 4–657) (November
13, 2015), which extended the pilot period
commencement date from May 6, 2015 to October
3, 2016.
5 See Securities Exchange Act Release No. 76229
(October 22, 2015), 80 FR 66065 (October 28, 2015)
(SR–NYSE–2015–46), as amended by Partial
Amendments No. 1 and No. 2 to the Quoting &
Trading Rules Proposal. See Securities Exchange
Act Release No. 77703 (April 25, 2016), 81 FR
25725 (April 29, 2016) (SR–NYSE–2015–46).
2 17
[Release No. 34–78250; File No. SR–BX–
2016–039]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Adopt Rules To
Implement the Quoting and Trading
Provisions of the Plan To Implement a
Tick Size Pilot Program
July 7, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
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Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to establish
rules to require its members to comply
with the requirements of the Plan,
which is designed to study and assess
the impact of increment conventions on
the liquidity and trading of the common
stocks of small capitalization
companies. The Exchange proposes
changes to its rules for a two-year pilot
period that coincides with the pilot
period for the Plan, which is currently
scheduled as a two year pilot to begin
on October 3, 2016.
Background
On August 25, 2014, NYSE Group,
Inc., on behalf of Bats BZX Exchange,
Inc. (f/k/a BATS Exchange, Inc.), Bats
BYX Exchange, Inc. (f/k/a BATS Y–
Exchange, Inc.), Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., the Exchange
[sic], Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), NASDAQ
OMX BX, Inc., NASDAQ OMX PHLX
LLC, New York Stock Exchange LLC,
the Exchange [sic] and NYSE Arca, Inc.,
and the NYSE MKT LLC, (collectively
‘‘Participants’’), filed with the
Commission, pursuant to Section 11A of
the Act 6 and Rule 608 of Regulation
NMS thereunder, the Plan to Implement
a Tick Size Pilot Program.7 The
Participants filed the Plan to comply
with an order issued by the Commission
on June 24, 2014 (the ‘‘June 2014
Order’’).8 The Plan 9 was published for
comment in the Federal Register on
November 7, 2014,10 and approved by
the Commission, as modified, on May 6,
2015.11
The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
U.S.C. 78k–1.
Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
8 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
9 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
10 See Securities and Exchange Act Release No.
73511 (November 3, 2014), 79 FR 66423 (File No.
4–657) (Tick Plan Filing).
11 See Tick Plan Approval Order, supra note 4.
See also Securities Exchange Act Release No. 77277
(March 3, 2016), 81 FR 12162 (March 8, 2016) (File
No. 4–657), which amended the Plan to add
National Stock Exchange, Inc. as a Participant.
impact of increment conventions on the
liquidity and trading of the common
stocks of small capitalization
companies. The Commission plans to
use the Tick Size Pilot Program to assess
whether wider tick sizes enhance the
market quality of Pilot Securities for the
benefit of issuers and investors. Each
Participant is required to comply with,
and to enforce compliance by its
member, as applicable, with the
provisions of the Plan.
On October 9, 2015, the Operating
Committee approved the Exchange’s
proposed rules as model Participant
rules that would require compliance by
a Participant’s members with the
provisions of the Plan, as applicable,
and would establish written policies
and procedures reasonably designed to
comply with applicable quoting and
trading requirements specified in the
Plan.12 As described more fully below,
the proposed rules would require
members to comply with the Plan and
provide for the widening of quoting and
trading increments for Pilot Securities,
consistent with the Plan.
The Plan 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 Plan will consist of a control
group of approximately 1,400 Pilot
Securities and three test groups with
400 Pilot Securities in each selected by
a stratified sampling.13 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.14
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 exception, and a negotiated
6 15
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12 The Operating Committee is required under
Section III(C)(2) of the Plan to ‘‘monitor the
procedures established pursuant to the Plan and
advise Participants with respect to any deficiencies,
problems, or recommendations as the Operating
Committee may deem appropriate.’’ The Operating
Committee is also required to ‘‘establish
specifications and procedures for the
implementation and operation of the Plan that are
consistent with the provisions of the Plan.’’
13 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
14 See Section VI(B) of the Plan. Pilot Securities
in Test Group One will be subject to a midpoint
exception and a retail investor exception.
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trade exception.15 Pilot Securities in the
third test group (‘‘Test Group Three’’)
will be subject to the same terms as Test
Group Two and also will be subject to
the ‘‘Trade-at’’ requirement to prevent
price matching by a person not
displaying at a price of a Trading
Center’s ‘‘Best Protected Bid’’ or ‘‘Best
Protected Offer,’’ unless an enumerated
exception applies.16 In addition to the
exceptions provided under Test Group
Two, an exception for Block Size orders
and exceptions that closely resemble
those under Rule 611 of Regulation
NMS 17 will apply to the Trade-at
requirement.
The Plan also contains requirements
for the collection and transmission of
data to the Commission and the public.
A variety of data generated during the
Plan will be released publicly on an
aggregated basis to assist in analyzing
the impact of wider tick sizes on smaller
capitalization stocks.18
Proposed Rules 4770(a) and (c)
The Plan requires the Exchange to
establish, maintain, and enforce written
policies and procedures that are
reasonably designed to comply with
applicable quoting and trading
requirements specified in the Plan.19
Accordingly, the Exchange is proposing
new Rule 4770(a) to require its members
to comply with the quoting and trading
provisions of the Plan. The proposed
Rules are also designed to ensure the
Exchange’s compliance with the Plan.
Proposed paragraph (a)(1) of new Rule
4770 would establish the following
defined terms:
• ‘‘Plan’’ means the Tick Size Pilot
Plan submitted to the Commission
pursuant to Rule 608(a)(3) of Regulation
NMS under the Act.
• ‘‘Pilot Test Groups’’ means the three
test groups established under the Plan,
consisting of 400 Pilot Securities each,
which satisfy the respective criteria
established by the Plan for each such
test group.
• ‘‘Retail Investor Order’’ would
mean an agency order or a riskless
principal order that meets the criteria of
FINRA Rule 5320.03 that originates
from a natural person and is submitted
to the Exchange by a retail member,
provided that no change is made to the
15 See
Section VI(C) of the Plan.
Section VI(D) of the Plan.
17 17 CFR 242.611.
18 See Section VII of the Plan.
19 The Exchange was also required by the Plan to
develop appropriate policies and procedures that
provide for data collection and reporting to the
Commission of data described in Appendixes B and
C of the Plan. See Securities Exchange Act Release
No. 77457 (March 28, 2016), 81 FR 18913 (April 1,
2016) (SR–BX–2016–019).
16 See
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terms of the order with respect to price
or side of market and the order does not
originate from a trading algorithm or
any other computerized methodology. A
Retail Investor Order may be an odd lot,
round lot, or partial round lot.20
• Trade-at Intermarket Sweep
Order’’ 21 would mean a limit order for
a Pilot Security that meets the following
requirements:
(i) When routed to a Trading Center,
the limit order is identified as a Tradeat Intermarket Sweep Order; and
(ii) Simultaneously with the routing
of the limit order identified as a Tradeat Intermarket Sweep Order, one or
more additional limit orders, as
necessary, are routed to execute against
the full size of any protected bid, in the
case of a limit order to sell, or the full
displayed size of any protected offer, in
the case of a limit order to buy, for the
Pilot Security with a price that is better
than or equal to the limit price of the
20 This definition is the approved definition for
‘‘Retail Investor Order’’ as contemplated by the
Plan. It is also the same definition as given to a
‘‘Retail Order’’ pursuant to the approved rules of
the Exchange, other national securities exchanges’
retail orders. See Rule 4702(b)(6)(A). See also NYSE
Rule 107C(a)(3), NYSE Arca, Inc. Rule 7.44(a)(3),
NYSE MKT LLC Rule 107C(a)(3), and BATS
Y–Exchange, Inc. Rule 11.24(a)(2). The Retail
Investor Order definition includes any order
originating from a natural person. Therefore, any
member that operates a Trading Center may execute
against a Retail Investor Order otherwise than on an
exchange to satisfy the retail investor order
exception proposed in Rule 4770.
21 The Plan defines a Trade-at Intermarket Sweep
Order (‘‘ISO’’) as a limit order for a Pilot Security
that, when routed to a Trading Center, is identified
as an ISO, and simultaneous with the routing of the
limit order identified as an ISO, one or more
additional limit orders, as necessary, are routed to
execute against the full displayed size of any
protected bid (in the case of a limit order to sell)
or the full displayed size of any protected offer (in
the case of a limit order to buy) for the Pilot
Security with a price that is equal to the limit price
of the limit order identified as an ISO. These
additional routed orders also must be marked as
ISOs. See Plan, Section I(MM). Since the Plan
allows (i) an order that is identified as an ISO to
be executed at the price of a Protected Quotation
(see Plan, Section VI(D)(8) and proposed Rule
4770(c)(3)(D)(iii)i.) and (ii) an order to execute at
the price of a Protected Quotation that ‘‘is executed
by a trading center that simultaneously routed
Trade-at ISO to execute against the full displayed
size of the Protected Quotation that was trade at’’
(see Plan, Section VI(D)(9) and proposed Rule
4770(c)(3)(D)(iii)j.)), the Exchange proposes to
clarify the use of an ISO in connection with the
Trade-at requirement by adopting, as part of
proposed Rule 4770(a)(1), a comprehensive
definition of ‘‘Trade-at ISO.’’ As set forth in the
Plan and as noted above, the definition of a Tradeat ISO used in the Plan does not distinguish ISOs
that are compliant with Rule 611 or Regulation
NMS from ISOs that are compliant with Trade-at.
The Exchange therefore proposes the separate
definition of Trade-at ISO contained in proposed
Rule 4770(a). The Exchange believes that this
proposed definition will further clarify to recipients
of ISOs in Test Group Three securities whether the
ISO satisfies the requirements of Rule 611 of
Regulation NMS or Trade-at.
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limit order identified as a Trade-at
Intermarket Sweep Order. These
additional routed orders also must be
marked as Trade-at Intermarket Sweep
Orders.
• Paragraph (a)(1)(E) would provide
that all capitalized terms not otherwise
defined in this rule shall have the
meanings set forth in the Plan,
Regulation NMS under the Act, or
Exchange rules, as applicable.
Proposed Paragraph (a)(2) would state
that the Exchange is a Participant in,
and subject to the applicable
requirements of, the Plan; proposed
Paragraph (a)(3) would require members
to establish, maintain and enforce
written policies and procedures that are
reasonably designed to comply with the
applicable requirements of the Plan,
which would allow the Exchange to
enforce compliance by its members with
the provisions of the Plan, as required
pursuant to Section II(B) of the Plan.
In addition, Paragraph (a)(4) would
provide that Exchange systems would
not display, quote or trade in violation
of the applicable quoting and trading
requirements for a Pilot Security
specified in the Plan and this proposed
rule, unless such quotation or
transaction is specifically exempted
under the Plan.22
The Exchange also proposes to add
Rule 4770(a)(5) to provide for the
treatment of Pilot Securities that drop
below a $1.00 value during the Pilot
Period.23 The Exchange proposes that if
the price of a Pilot Security drops below
22 The Exchange is still evaluating its internal
policies and procedures to ensure compliance with
the Plan, and plans to separately propose rules that
would address violations of the Plan.
23 New York Stock Exchange LLC, on behalf of the
Participants, submitted a letter to Commission
requesting exemption from certain provisions of the
Plan related to quoting and trading. See letter from
Elizabeth K. King, NYSE, to Brent J. Fields,
Secretary, Commission, dated October 14, 2015 (the
‘‘October Exemption Request’’). FINRA, also on
behalf of the Plan Participants, submitted a separate
letter to Commission requesting additional
exemptions from certain provisions of the Plan
related to quoting and trading. See letter from
Marcia E. Asquith, Senior Vice President and
Corporate Secretary, FINRA, to Robert W. Errett,
Deputy Secretary, Commission, dated February 23,
2016 (the ‘‘February Exemption Request,’’ and
together with the October Exemption Request, the
‘‘Exemption Request Letters’’). The Commission,
pursuant to its authority under Rule 608(e) of
Regulation NMS, granted New York Stock Exchange
LLC a limited exemption from the requirement to
comply with certain provisions of the Plan as
specified in the Exemption Request Letters and
noted herein. See letter from David Shillman,
Associate Director, Division of Trading and
Markets, Commission to Sherry Sandler, Associate
General Counsel, New York Stock Exchange LLC,
dated April 25, 2016 (the ‘‘Exemption Letter’’). The
Exchange is seeking the same exemptions as
requested in the Exemption Request Letters,
including without limitation, an exemption relating
to proposed Rule 4770(a)(5).
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$1.00 during regular trading on any
given business day, such Pilot Security
would continue to be subject to the Plan
and the requirements described below
that necessitate members to comply
with the specific quoting and trading
obligations for each respective Pilot Test
Group under the Plan, and would
continue to trade in accordance with the
proposed rules below as if the price of
the Pilot Security had not dropped
below $1.00. However, if the Closing
Price of a Pilot Security on any given
business day is below $1.00, such Pilot
Security would be moved out of its
respective Pilot Test Group into the
control group (which consists of Pilot
Securities not placed into a Pilot Test
Group), and may then be quoted and
traded at any price increment that is
currently permitted by Exchange rules
for the remainder of the Pilot Period.
Notwithstanding anything contained
herein to the contrary, the Exchange
proposes that, at all times during the
Pilot Period, Pilot Securities (whether in
the control group or any Pilot Test
Group) would continue to be subject to
the data collection rules, which are
enumerated in Rule 4770(b).
The Exchange proposes Rules
4770(c)(1)–(3), which would require
members to comply with the specific
quoting and trading obligations for each
Pilot Test Group under the Plan. With
regard to Pilot Securities in Test Group
One, proposed Rule 4770(c)(1) would
provide that no member may display,
rank, or accept from any person any
displayable or non-displayable bids or
offers, orders, or indications of interest
in increments other than $0.05.
However, orders priced to trade at the
midpoint of the National Best Bid and
National Best Offer (‘‘NBBO’’) or Best
Protected Bid and Best Protected Offer
(‘‘PBBO’’) and orders entered in the
Exchange’s Retail Price Improvement
Program as Retail Price Improving
Orders (as defined in Rule 4780(a)(3)) 24
may be ranked and accepted in
increments of less than $0.05. Pilot
Securities in Test Group One may
continue to trade at any price increment
that is currently permitted by Rule
4701(k).25
With regard to Pilot Securities in Test
Group Two, proposed Rule
4770(c)(2)(A) would provide that such
24 A Retail Price Improvement Order is an Order
Type with a Non-Display Order Attribute that is
held on the Exchange Book in order to provide
liquidity at a price at least $0.001 better than the
NBBO through a special execution process
described in Rule 4780. See Rules 4780(a)(3) and
4702(b)(5).
25 Rule 4701(k) describes the minimum price
variation for quoting and entry of orders in equity
securities listed on the Exchange or a national
securities exchange other than the Exchange.
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Pilot Securities would be subject to all
of the same quoting requirements as
described above for Pilot Securities in
Test Group One, along with the
applicable quoting exceptions. In
addition, proposed Rule 4770(c)(2)(B)
would provide that, absent one of the
listed exceptions in proposed
4770(c)(2)(C) enumerated below, no
member may execute orders in any Pilot
Security in Test Group Two in price
increments other than $0.05. The $0.05
trading increment would apply to all
trades, including Brokered Cross Trades.
Paragraph (2)(C) would set forth
further requirements for Pilot Securities
in Test Group Two. Specifically,
members trading Pilot Securities in Test
Group Two would be allowed to trade
in increments less than $0.05 under the
following circumstances:
(i) Trading may occur at the midpoint
between the NBBO or PBBO;
(ii) Retail Investor Orders may be
provided with price improvement that
is at least $0.005 better than the PBBO;
(iii) Negotiated Trades may trade in
increments less than $0.05; and
(iv) Execution of a customer order to
comply with IM–2110–2 26 following
the execution of a proprietary trade by
the member at an increment other than
$0.05, where such proprietary trade was
permissible pursuant to an exception
under the Plan.27
26 Exchange IM–2110–2 ‘‘Trading Ahead of
Customer Limit Order’’ incorporates by reference
NASD IM–2110, which was replaced by FINRA
Rule 5320. FINRA Rule 5320 is titled ‘‘Prohibition
Against Trading Ahead of Customer Orders,’’ which
states:
(a) Except as provided herein, a member that
accepts and holds an order in an equity security
from its own customer or a customer of another
broker-dealer without immediately executing the
order is prohibited from trading that security on the
same side of the market for its own account at a
price that would satisfy the customer order, unless
it immediately thereafter executes the customer
order up to the size and at the same or better price
at which it traded for its own account.
(b) A member must have a written methodology
in place governing the execution and priority of all
pending orders that is consistent with the
requirements of this Rule and Rule 5310. A member
also must ensure that this methodology is
consistently applied.
27 The Exchange proposes to add this exemption
to permit members to fill a customer order in a Pilot
Security at a non-nickel increment to comply with
IM–2110–2 under limited circumstances.
Specifically, the exception would allow the
execution of a customer order following a
proprietary trade by the member at an increment
other than $0.05 in the same security, on the same
side and at the same price as (or within the
prescribed amount of) a customer order owed a fill
pursuant to IM–2110–2, where the triggering
proprietary trade was permissible pursuant to an
exception under the Plan. The Commission granted
New York Stock Exchange LLC an exemption from
Rule 608(c) related to this provision. See Exemption
Letter, supra note 23. The Exchange is seeking the
same exemptions as requested in the Exemption
Request Letters. The Exchange believes such an
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Paragraph (3)(A)–(3)(C) would set
forth the requirements for Pilot
Securities in Test Group Three.
Members quoting or trading such Pilot
Securities would be subject to all of the
same quoting and trading requirements
as described above for Pilot Securities in
Test Group Two, including the quoting
and trading exceptions applicable to
Pilot Securities in Test Group Two. In
addition, proposed Paragraph (3)(D)
would provide for an additional
prohibition on Pilot Securities in Test
Group Three referred to as the ‘‘Tradeat Prohibition.’’ 28 Paragraph (3)(D)(ii)
would provide that, absent one of the
listed exceptions in proposed Rule
4770(c)(3)(D)(iii) enumerated below, no
member may execute a sell order for a
Pilot Security in Test Group Three at the
price of a Protected Bid or execute a buy
order for a Pilot Security in Test Group
Three at the price of a Protected Offer.
Proposed Rule 4770(c)(3)(D)(iii)
would allow members to execute a sell
order for a Pilot Security in Test Group
Three at the price of a Protected Bid or
execute a buy order for a Pilot Security
in Test Group Three at the price of a
Protected Offer if any of the following
circumstances exist:
a. The order is executed as agent or
riskless principal by an independent
trading unit, as defined under Rule
200(f) of Regulation SHO,29 of a Trading
Center within a member that has a
displayed quotation as agent or riskless
principal, via either a processor or an
SRO Quotation Feed, at a price equal to
the traded-at Protected Quotation, that
was displayed before the order was
received,30 but only up to the full
exception best facilitates the ability of members to
continue to protect customer orders while retaining
the flexibility to engage in proprietary trades that
comply with an exception to the Plan.
28 Proposed 4770(c)(3)(D)(i) would define the
‘‘Trade-at Prohibition’’ to mean the prohibition
against executions by a Trading Center of a sell
order for a Pilot Security at the price of a Protected
Bid or the execution of a buy order for a Pilot
Security at the price of a Protected Offer during
regular trading hours.
29 The Exchange is proposing that, for proposed
Rules 4770(c)(3)(D)(iii)a. and b., a Trading Center
operated by a broker-dealer would mean an
independent trading unit, as defined under Rule
200(f) of Regulation SHO, within such brokerdealer. See 17 CFR 242.200.
Independent trading unit aggregation is available
if traders in an aggregation unit pursue only the
particular trading objective(s) or strategy(s) of that
aggregation unit and do not coordinate that strategy
with any other aggregation unit. Therefore, a
Trading Center cannot rely on quotations displayed
by that broker dealer from a different independent
trading unit. As an example, an agency desk of a
broker-dealer cannot rely on the quotation of a
proprietary desk in a separate independent trading
unit at that same broker-dealer.
30 The Exchange is proposing to adopt this
limitation to ensure that a Trading Center does not
display a quotation after the time of order receipt
PO 00000
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45343
displayed size of that independent
trading unit’s previously displayed
quote; 31
b. The order is executed by an
independent trading unit, as defined
under Rule 200(f) of Regulation SHO, of
a Trading Center within a member that
has a displayed quotation for the
account of that Trading Center on a
principal (excluding riskless
principal 32) basis, via either a processor
or an SRO Quotation Feed, at a price
equal to the traded-at Protected
Quotation, that was displayed before the
order was received, but only up to the
full displayed size of that independent
unit’s previously displayed quote; 33
c. The order is of Block Size 34 at the
time of origin and may not be:
A. an aggregation of non-block orders;
B. broken into orders smaller than
Block Size prior to submitting the order
to a Trading Center for execution; or
C. executed on multiple Trading
Centers; 35
solely for the purpose of trading at the price of a
protected quotation without routing to that
protected quotation.
31 This proposed exception to Trade-at would
allow a Trading Center to execute an order at the
Protected Quotation in the same capacity in which
it has displayed a quotation at a price equal to the
Protected Quotation and up to the displayed size of
such displayed quotation.
32 As described above, proposed Rule
4770(c)(3)(D)(iii)a. would establish the
circumstances in which a Trading Center displaying
an order as riskless principal would be permitted
to Trade-at the Protected Quotation. Accordingly,
the Exchange proposes that proposed Rule
4770(c)(3)(D)(iii)b. would exclude such
circumstances.
33 The display exceptions to Trade-at set forth in
proposed Rules 4770(c)(3)(D)(iii)a. and b. would not
permit a broker-dealer to trade on the basis of
interest it is not responsible for displaying. In
particular, a broker-dealer that matches orders in
the over-the-counter market shall be deemed to
have ‘‘executed’’ such orders as a Trading Center for
purposes of proposed Rule 4770. Accordingly, if a
broker-dealer is not displaying a quotation at a price
equal to the Protected Quotation, it could not
submit matched trades to an alternative trading
center (‘‘ATS’’) that was displaying on an agency
basis the quotation of another ATS subscriber.
However, a broker-dealer that is displaying, as
principal, via either a processor or an SRO
Quotation Feed, a buy order at the protected bid,
could internalize a customer sell order up to its
displayed size. The display exceptions would not
permit a non-displayed Trading Center to submit
matched trades to an ATS that was displaying on
an agency basis the quotation of another ATS
subscriber and confirmed that a broker-dealer
would not be permitted to trade on the basis of
interest that it is not responsible for displaying.
34 ‘‘Block Size’’ is defined in the Plan as an order
(1) of at least 5,000 shares or (2) for a quantity of
stock having a market value of at least $100,000.
35 Once a Block Size order or portion of such
Block Size order is routed from one Trading Center
to another Trading Center in compliance with Rule
611 of Regulation NMS, the Block Size order would
not lose the Trade-at exemption provided under
proposed Rule 4770(c)(3)(D)(iii)c. For example, if an
exchange has a Protected Bid of 3,000 shares, with
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jstallworth on DSK7TPTVN1PROD with NOTICES
d. The order is a Retail Investor Order
executed with at least $0.005 price
improvement;
e. The order is executed when the
Trading Center displaying the Protected
Quotation that was traded at was
experiencing a failure, material delay, or
malfunction of its systems or
equipment;
f. The order is executed as part of a
transaction that was not a ‘‘regular way’’
contract;
g. The order is executed as part of a
single-priced opening, reopening, or
closing transaction on the Exchange;
h. The order is executed when a
Protected Bid was priced higher than a
Protected Offer in the Pilot Security in
Test Group Three;
i. The order is identified as a Tradeat Intermarket Sweep Order; 36
j. The order is executed by a Trading
Center that simultaneously routed
Trade-at Intermarket Sweep Orders to
execute against the full displayed size of
the Protected Quotation that was traded
at; 37
k. The order is executed as part of a
Negotiated Trade;
l. The order is executed when the
Trading Center displaying the Protected
2,000 shares in reserve, and receives a 5,000 share
order to sell, the exchange would be able to execute
the entire 5,000 share order without having to route
to an away market at any other Protected Bid at the
same price. If, however, that exchange only has
1,000 shares in reserve, the entire order would not
be able to be executed on that exchange, and the
exchange would only be able to execute 3,000
shares and route the rest to away markets at other
Protected Bids at the same price, before executing
the 1,000 shares in reserve.
36 In connection with the definition of a Tradeat ISO proposed in Rule 4770(a)(1)(D), this
exception refers to the ISO that is received by a
Trading Center.
The Exchange proposed an exemption to the
Trade-at Prohibition for Trade-at ISOs to clarify that
an ISO that is received by a Trading Center (and
which could form the basis of an execution at the
price of a Protected Quotation pursuant to Section
VI(D)(8) of the Plan), is identified as a Trade-at ISO.
Depending on whether Rule 611 of Regulation NMS
or the Trade-at requirement applies, an ISO may
mean that the sender of the ISO has swept betterpriced Protected Quotations, so that the recipient of
that ISO may trade through the price of the
Protected Quotation (Rule 611 of Regulation NMS),
or it could mean that the sender of the ISO has
swept Protected Quotations at the same price that
it wishes to execute at (in addition to any betterpriced quotations), so the recipient of that ISO may
trade at the price of the Protected Quotation (Tradeat). Given that the meaning of an ISO may differ
under Rule 611 of Regulation NMS and Trade-at,
the Exchange proposed an exemption to the Tradeat Prohibition for Trade-at ISOs so that the recipient
of an ISO in a Test Group Three security would
know, upon receipt of that ISO, that the Trading
Center that sent the ISO had already executed
against the full size of displayed quotations at that
price, e.g., the recipient of that ISO could
permissibly trade at the price of the Protected
Quotation.
37 In connection with the definition of a Tradeat ISO proposed in Rule 4770(a)(1)(D), this
exception refers to the Trading Center that routed
the ISO.
VerDate Sep<11>2014
15:08 Jul 12, 2016
Jkt 238001
Quotation that was traded at had
displayed, within one second prior to
execution of the transaction that
constituted the Trade-at, a Best
Protected Bid or Best Protected Offer, as
applicable, for the Pilot Security in Test
Group Three with a price that was
inferior to the price of the Trade-at
transaction;
m. The order is executed by a Trading
Center which, at the time of order
receipt, the Trading Center had
guaranteed an execution at no worse
than a specified price (a ‘‘stopped
order’’), where:
A. The stopped order was for the
account of a customer;
B. The customer agreed to the
specified price on an order-by-order
basis; and
C. The price of the Trade-at
transaction was, for a stopped buy
order, equal to or less than the National
Best Bid in the Pilot Security in Test
Group Three at the time of execution or,
for a stopped sell order, equal to or
greater than the National Best Offer in
the Pilot Security in Test Group Three
at the time of execution, as long as such
order is priced at an acceptable
increment; 38
38 The stopped order exemption in Rule 611 of
Regulation NMS applies where ‘‘[t]he price of the
trade-through transaction was, for a stopped buy
order, lower than the national best bid in the NMS
stock at the time of execution or, for a stopped sell
order, higher than the national best offer in the
NMS stock at the time of execution’’ (see 17 CFR
242.611(b)(9)). The Trade-at stopped order
exception applies where ‘‘the price of the Trade-at
transaction was, for a stopped buy order, equal to
the national best bid in the Pilot Security at the
time of execution or, for a stopped sell order, equal
to the national best offer in the Pilot Security at the
time of execution’’ (see Plan, Section VI(D)(12)).
To illustrate the application of the stopped order
exemption as it currently operates under Rule 611
of Regulation NMS and as it is currently proposed
for Trade-at, assume the National Best Bid is $10.00
and another protected quote is at $9.95. Under Rule
611 of Regulation NMS, a stopped order to buy can
be filled at $9.95 and the firm does not have to send
an ISO to access the protected quote at $10.00 since
the price of the stopped order must be lower than
the National Best Bid. For the stopped order to also
be executed at $9.95 and satisfy the Trade-at
requirements, the Trade-at exception would have to
be revised to allow an order to execute at the price
of a protected quote which, in this case, could be
$9.95.
Based on the fact that a stopped order would be
treated differently under the Rule 611 of Regulation
NMS exception than under the Trade-at exception
in the Plan, the Exchange believes that it is
appropriate to amend the Trade-at stopped order
exception in the Plan to ensure that the application
of this exception would produce a consistent result
under both Regulation NMS and the Plan.
Therefore, the Exchange proposes in this proposed
Rule 4770(c)(3)(D)(iii)m. to allow a transaction to
satisfy the Trade-at requirement if the stopped order
price, for a stopped buy order, is equal to or less
than the National Best Bid, and for a stopped sell
order, is equal to or greater than the National Best
Offer, as long as such order is priced at an
acceptable increment. The Commission granted
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Frm 00071
Fmt 4703
Sfmt 4703
n. The order is for a fractional share
of a Pilot Security in Test Group Three,
provided that such fractional share
order was not the result of breaking an
order for one or more whole shares of
a Pilot Security in Test Group Three
into orders for fractional shares or was
not otherwise effected to evade the
requirements of the Trade-at Prohibition
or any other provisions of the Plan; or
o. The order is to correct a bona fide
error, which is recorded by the Trading
Center in its error account.39 A bona
fide error is defined as:
A. The inaccurate conveyance or
execution of any term of an order
including, but not limited to, price,
number of shares or other unit of
trading; identification of the security;
identification of the account for which
securities are purchased or sold; lost or
New York Stock Exchange LLC an exemption from
Rule 608(c) related to this provision. See Exemption
Letter, supra note 23. The Exchange is seeking the
same exemptions as requested in the Exemption
Request Letters.
39 The exceptions to the Trade-at requirement set
forth in the Plan and in the Exchange’s proposed
Rule 4770(c)(3)(D)(iii) are, in part, based on the
exceptions to the trade-through requirement set
forth in Rule 611 of Regulation NMS, including
exceptions for an order that is executed as part of
a transaction that was not a ‘‘regular way’’ contract,
and an order that is executed as part of a singlepriced opening, reopening, or closing transaction by
the Trading Center (see 17 CFR 242.611(b)(2) and
(b)(3)). Following the adoption of Rule 611 of
Regulation NMS and its exceptions, the
Commission issued exemptive relief that created
exceptions from Rule 611 of Regulation NMS for
certain error correction transactions. See Securities
Exchange Act Release No. 55884 (June 8, 2007), 72
FR 32926 (June 14, 2007); Securities Exchange Act
Release No. 55883 (June 8, 2007), 72 FR 32927 (June
14, 2007). The Exchange has determined that it is
appropriate to incorporate this additional exception
to the Trade-at Prohibition, as this exception is
equally applicable in the Trade-at context.
Accordingly, the Exchange is proposing to
exempt certain transactions to correct bona fide
errors in the execution of customer orders from the
Trade-at Prohibition, subject to the conditions set
forth by the SEC’s order exempting these
transactions from Rule 611 of Regulation NMS. The
Commission granted New York Stock Exchange LLC
an exemption from Rule 608(c) related to this
provision. See Exemption Letter, supra note 23. The
Exchange is seeking the same exemptions as
requested in the Exemption Request Letters.
As with the corresponding exception under Rule
611 of Regulation NMS, the bona fide error would
have to be evidenced by objective facts and
circumstances, the Trading Center would have to
maintain documentation of such facts and
circumstances and record the transaction in its error
account. To avail itself of the exemption, the
Trading Center would have to establish, maintain,
and enforce written policies and procedures
reasonably designed to address the occurrence of
errors and, in the event of an error, the use and
terms of a transaction to correct the error in
compliance with this exemption. Finally, the
Trading Center would have to regularly surveil to
ascertain the effectiveness of its policies and
procedures to address errors and transactions to
correct errors and take prompt action to remedy
deficiencies in such policies and procedures. See
Securities Exchange Act Release No. 55884 (June 8,
2007), 72 FR 32926 (June 14, 2007).
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Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
otherwise misplaced order tickets; short
sales that were instead sold long or vice
versa; or the execution of an order on
the wrong side of a market;
B. The unauthorized or unintended
purchase, sale, or allocation of
securities, or the failure to follow
specific client instructions;
C. The incorrect entry of data into
relevant systems, including reliance on
incorrect cash positions, withdrawals,
or securities positions reflected in an
account; or
D. A delay, outage, or failure of a
communication system used to transmit
market data prices or to facilitate the
delivery or execution of an order.
Finally, Proposed Rule
4770(c)(3)(D)(iv) would prevent
members from breaking an order into
smaller orders or otherwise effecting or
executing an order to evade the
requirements of the Trade-at Prohibition
or any other provisions of the Plan.
jstallworth on DSK7TPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,40 in general, and furthers the
objectives of Section 6(b)(5) of the Act,41
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Exchange believes
that the proposed rule change is
consistent with the Act because it
ensures that the Exchange and its
members would be in compliance with
a Plan approved by the Commission
pursuant to an order issued by the
Commission in reliance on Section 11A
of the Act.42 Such approved Plan gives
the Exchange authority 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
believes that the proposed rule change
is consistent with the authority granted
to it by the Plan to establish
specifications and procedures for the
implementation and operation of the
Plan that are consistent with the
provisions of the Plan. Likewise, the
Exchange believes that the proposed
rule change provides interpretations of
the Plan that are consistent with the
40 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
42 15 U.S.C. 78k–1.
15:08 Jul 12, 2016
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes are being made to
establish, maintain, and enforce written
policies and procedures that are
reasonably designed to comply with the
trading and quoting requirements
specified in the Plan, of which other
equities exchanges are also Participants.
Other competing national securities
exchanges are subject to the same
trading and quoting requirements
specified in the Plan. Therefore, the
proposed changes would not impose
any burden on competition, while
providing certainty of treatment and
execution of trading interests on the
Exchange to market participants in NMS
Stocks that are acting in compliance
with the requirements specified in the
Plan.
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.
41 15
VerDate Sep<11>2014
Act, in general, and furthers the
objectives of the Act, in particular.
Furthermore, the Exchange is a
Participant under the Plan and subject,
itself, to the provisions of the Plan. The
proposed rule change ensures that the
Exchange’s systems would not display
or execute trading interests outside the
requirements specified in such Plan.
The proposal would also help allow
market participants to continue to trade
NMS Stocks within quoting and trading
requirements that are in compliance
with the Plan, with certainty on how
certain orders and trading interests
would be treated. This, in turn, will
help encourage market participants to
continue to provide liquidity in the
marketplace.
Because the Plan supports further
examination and analysis on the impact
of tick sizes on the trading and liquidity
of the securities of small capitalization
companies, and the Commission
believes that altering tick sizes could
result in significant market-wide
benefits and improvements to liquidity
and capital formation, adopting rules
that enforce compliance by its members
with the provisions of the Plan would
help promote liquidity in the
marketplace and perfect the mechanism
of a free and open market and national
market system.
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45345
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 43 and
subparagraph (f)(6) of Rule 19b–4
thereunder.44
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2016–039 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–BX–2016–039. 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/
43 15
U.S.C. 78s(b)(3)(a)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
44 17
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Federal Register / Vol. 81, No. 134 / Wednesday, July 13, 2016 / Notices
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–BX–
2016–039, and should be submitted on
or before August 3, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Brent J. Fields,
Secretary.
[FR Doc. 2016–16492 Filed 7–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78243; File No. SR–BOX–
2016–28]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing of Proposed Rule Change To
Expand the Short Term Option Series
Program To Allow Wednesday
Expirations for SPY Options
jstallworth on DSK7TPTVN1PROD with NOTICES
July 7, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2016, BOX Options Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
15:08 Jul 12, 2016
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend IM–
5050–6 to Rule 5050 to allow the listing
and trading of options with Wednesday
expirations. The text of the proposed
rule change is available from the
principal office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s Internet Web
site at https://boxexchange.com.
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to expand the
Short Term Option Series Program
outlined in IM–5050–6 to Rule 5050 to
allow the listing and trading of options
with Wednesday expirations.
Currently, under the Short Term
Option Series Program, which was
initiated in 2010,3 the Exchange may
open for trading on any Thursday or
Friday that is a business day series of
options on that class that expire on each
of the next five Fridays, provided that
such Friday is not a Friday in which
monthly options series or Quarterly
Options Series expire (‘‘Short Term
Option Series’’). The Exchange is now
proposing to amend its rule to permit
the listing of options expiring on
Wednesdays. Specifically, BOX is
proposing that it may open for trading
on any Tuesday or Wednesday that is a
business day, series of options on the
SPDR S&P 500 ETF Trust (SPY) to
expire on any Wednesday of the month
that is a business day and is not a
Wednesday in which Quarterly Options
Jkt 238001
Series expire (‘‘Wednesday SPY
Expirations’’).4 The proposed
Wednesday SPY Expiration series will
be similar to the current Short Term
Option Series, with certain exceptions,
as explained in greater detail below. The
Exchange notes that having Wednesday
expirations is not a novel proposal.
Specifically, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’)
recently received approval to list
Wednesday expirations for broad-based
indexes.5
In regards to Wednesday SPY
Expirations, the Exchange is proposing
to remove the current restriction
preventing BOX from listing Short Term
Option Series that expire in the same
week in which monthly option series in
the same class expire. Specifically, the
Exchange will be allowed to list
Wednesday SPY Expirations in the same
week in which monthly option series in
SPY expire. The current restriction to
prohibit the expiration of monthly and
Short Term Option Series from expiring
on the same trading day is reasonable to
avoid investor confusion. This
confusion will not apply with
Wednesday SPY Expirations and
standard monthly options because they
will not expire on the same trading day,
as standard monthly options do not
expire on Wednesdays. Additionally, it
would lead to investor confusion if
Wednesday SPY Expirations were not
listed for one week every month because
there was a monthly SPY expiration on
the Friday of that week.
Under the proposed Wednesday SPY
Expirations, BOX may list up to five
consecutive Wednesday SPY
Expirations at one time. The Exchange
may have no more than a total of five
Wednesday SPY Expirations listed. This
is the same listing procedure as Short
Term Option Series that expire on
Fridays. The Exchange is also proposing
to clarify that the five series limit in the
current Short Term Option Series
Program Rule will not include any
Wednesday SPY Expirations.6 This
means, under the proposal, the
Exchange would be allowed to list five
Short Term Option Series expirations
for SPY expiring on Friday under the
current rule and five Wednesday SPY
Expirations. The interval between strike
prices for the proposed Wednesday SPY
Expirations will be the same as those for
the current Short Term Option Series.
Specifically, the Wednesday SPY
4 See
Proposed IM–5050–6(c) to Rule 5050.
Securities Exchange Act Release No. 76909
(January 14, 2016), 81 FR 3512 (January 21, 2016)
(Order Approving SR–CBOE–2015–106).
6 See proposed changes to IM–5050–6(a) to Rule
5050.
5 See
3 See Securities Exchange Act Release No. 62505
(July 15, 2010), 75 FR 42792 (July 22, 2010) (Notice
of Filing and Immediate Effectiveness of SR–BX–
2010–047).
45 17
VerDate Sep<11>2014
comments on the proposed rule from
interested persons.
PO 00000
Frm 00073
Fmt 4703
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]]>Agencies
[Federal Register Volume 81, Number 134 (Wednesday, July 13, 2016)]
[Notices]
[Pages 45340-45346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16492]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78250; File No. SR-BX-2016-039]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt Rules To
Implement the Quoting and Trading Provisions of the Plan To Implement a
Tick Size Pilot Program
July 7, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 24, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt rules under Rule 4770 to implement
the quoting and trading provisions of the Plan to Implement a Tick Size
Pilot Program submitted to the Commission pursuant to Rule 608 of
Regulation NMS \3\ under the Act (the ``Plan'').\4\ The proposed rule
change is substantially similar to proposed rule changes recently
approved or published by the Commission by New York Stock Exchange LLC
to adopt NYSE Rules 67(a) and 67(c)-(e), which also implemented the
quoting and trading provisions of the Plan.\5\
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\3\ 17 CFR 242.608.
\4\ See Securities and Exchange Act Release No. 74892 (May 6,
2015), 80 FR 27513 (File No. 4-657) (``Tick Plan Approval Order'').
See also Securities and Exchange Act Release No. 76382 (November 6,
2015) (File No. 4-657), 80 FR 70284 (File No. 4-657) (November 13,
2015), which extended the pilot period commencement date from May 6,
2015 to October 3, 2016.
\5\ See Securities Exchange Act Release No. 76229 (October 22,
2015), 80 FR 66065 (October 28, 2015) (SR-NYSE-2015-46), as amended
by Partial Amendments No. 1 and No. 2 to the Quoting & Trading Rules
Proposal. See Securities Exchange Act Release No. 77703 (April 25,
2016), 81 FR 25725 (April 29, 2016) (SR-NYSE-2015-46).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxbx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set
[[Page 45341]]
forth in sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish rules to require its members to
comply with the requirements of the Plan, which is designed to study
and assess the impact of increment conventions on the liquidity and
trading of the common stocks of small capitalization companies. The
Exchange proposes changes to its rules for a two-year pilot period that
coincides with the pilot period for the Plan, which is currently
scheduled as a two year pilot to begin on October 3, 2016.
Background
On August 25, 2014, NYSE Group, Inc., on behalf of Bats BZX
Exchange, Inc. (f/k/a BATS Exchange, Inc.), Bats BYX Exchange, Inc. (f/
k/a BATS Y-Exchange, Inc.), Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc., the Exchange [sic], Financial
Industry Regulatory Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, New York Stock Exchange LLC, the Exchange [sic]
and NYSE Arca, Inc., and the NYSE MKT LLC, (collectively
``Participants''), filed with the Commission, pursuant to Section 11A
of the Act \6\ and Rule 608 of Regulation NMS thereunder, the Plan to
Implement a Tick Size Pilot Program.\7\ The Participants filed the Plan
to comply with an order issued by the Commission on June 24, 2014 (the
``June 2014 Order'').\8\ The Plan \9\ was published for comment in the
Federal Register on November 7, 2014,\10\ and approved by the
Commission, as modified, on May 6, 2015.\11\
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\6\ 15 U.S.C. 78k-1.
\7\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\8\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\9\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\10\ See Securities and Exchange Act Release No. 73511 (November
3, 2014), 79 FR 66423 (File No. 4-657) (Tick Plan Filing).
\11\ See Tick Plan Approval Order, supra note 4. See also
Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR
12162 (March 8, 2016) (File No. 4-657), which amended the Plan to
add National Stock Exchange, Inc. as a Participant.
---------------------------------------------------------------------------
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. The Commission plans to use the Tick Size
Pilot Program to assess whether wider tick sizes enhance the market
quality of Pilot Securities for the benefit of issuers and investors.
Each Participant is required to comply with, and to enforce compliance
by its member, as applicable, with the provisions of the Plan.
On October 9, 2015, the Operating Committee approved the Exchange's
proposed rules as model Participant rules that would require compliance
by a Participant's members with the provisions of the Plan, as
applicable, and would establish written policies and procedures
reasonably designed to comply with applicable quoting and trading
requirements specified in the Plan.\12\ As described more fully below,
the proposed rules would require members to comply with the Plan and
provide for the widening of quoting and trading increments for Pilot
Securities, consistent with the Plan.
---------------------------------------------------------------------------
\12\ The Operating Committee is required under Section III(C)(2)
of the Plan to ``monitor the procedures established pursuant to the
Plan and advise Participants with respect to any deficiencies,
problems, or recommendations as the Operating Committee may deem
appropriate.'' The Operating Committee is also required to
``establish specifications and procedures for the implementation and
operation of the Plan that are consistent with the provisions of the
Plan.''
---------------------------------------------------------------------------
The Plan 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 Plan will consist of a control group
of approximately 1,400 Pilot Securities and three test groups with 400
Pilot Securities in each selected by a stratified sampling.\13\ 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.\14\ 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 exception, and a negotiated trade exception.\15\ Pilot
Securities in the third test group (``Test Group Three'') will be
subject to the same terms as Test Group Two and also will be subject to
the ``Trade-at'' requirement to prevent price matching by a person not
displaying at a price of a Trading Center's ``Best Protected Bid'' or
``Best Protected Offer,'' unless an enumerated exception applies.\16\
In addition to the exceptions provided under Test Group Two, an
exception for Block Size orders and exceptions that closely resemble
those under Rule 611 of Regulation NMS \17\ will apply to the Trade-at
requirement.
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\13\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\14\ See Section VI(B) of the Plan. Pilot Securities in Test
Group One will be subject to a midpoint exception and a retail
investor exception.
\15\ See Section VI(C) of the Plan.
\16\ See Section VI(D) of the Plan.
\17\ 17 CFR 242.611.
---------------------------------------------------------------------------
The Plan also contains requirements for the collection and
transmission of data to the Commission and the public. A variety of
data generated during the Plan will be released publicly on an
aggregated basis to assist in analyzing the impact of wider tick sizes
on smaller capitalization stocks.\18\
---------------------------------------------------------------------------
\18\ See Section VII of the Plan.
---------------------------------------------------------------------------
Proposed Rules 4770(a) and (c)
The Plan requires the Exchange to establish, maintain, and enforce
written policies and procedures that are reasonably designed to comply
with applicable quoting and trading requirements specified in the
Plan.\19\ Accordingly, the Exchange is proposing new Rule 4770(a) to
require its members to comply with the quoting and trading provisions
of the Plan. The proposed Rules are also designed to ensure the
Exchange's compliance with the Plan.
---------------------------------------------------------------------------
\19\ The Exchange was also required by the Plan to develop
appropriate policies and procedures that provide for data collection
and reporting to the Commission of data described in Appendixes B
and C of the Plan. See Securities Exchange Act Release No. 77457
(March 28, 2016), 81 FR 18913 (April 1, 2016) (SR-BX-2016-019).
---------------------------------------------------------------------------
Proposed paragraph (a)(1) of new Rule 4770 would establish the
following defined terms:
``Plan'' means the Tick Size Pilot Plan submitted to the
Commission pursuant to Rule 608(a)(3) of Regulation NMS under the Act.
``Pilot Test Groups'' means the three test groups
established under the Plan, consisting of 400 Pilot Securities each,
which satisfy the respective criteria established by the Plan for each
such test group.
``Retail Investor Order'' would mean an agency order or a
riskless principal order that meets the criteria of FINRA Rule 5320.03
that originates from a natural person and is submitted to the Exchange
by a retail member, provided that no change is made to the
[[Page 45342]]
terms of the order with respect to price or side of market and the
order does not originate from a trading algorithm or any other
computerized methodology. A Retail Investor Order may be an odd lot,
round lot, or partial round lot.\20\
---------------------------------------------------------------------------
\20\ This definition is the approved definition for ``Retail
Investor Order'' as contemplated by the Plan. It is also the same
definition as given to a ``Retail Order'' pursuant to the approved
rules of the Exchange, other national securities exchanges' retail
orders. See Rule 4702(b)(6)(A). See also NYSE Rule 107C(a)(3), NYSE
Arca, Inc. Rule 7.44(a)(3), NYSE MKT LLC Rule 107C(a)(3), and BATS
Y-Exchange, Inc. Rule 11.24(a)(2). The Retail Investor Order
definition includes any order originating from a natural person.
Therefore, any member that operates a Trading Center may execute
against a Retail Investor Order otherwise than on an exchange to
satisfy the retail investor order exception proposed in Rule 4770.
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Trade-at Intermarket Sweep Order'' \21\ would mean a limit
order for a Pilot Security that meets the following requirements:
---------------------------------------------------------------------------
\21\ The Plan defines a Trade-at Intermarket Sweep Order
(``ISO'') as a limit order for a Pilot Security that, when routed to
a Trading Center, is identified as an ISO, and simultaneous with the
routing of the limit order identified as an ISO, one or more
additional limit orders, as necessary, are routed to execute against
the full displayed size of any protected bid (in the case of a limit
order to sell) or the full displayed size of any protected offer (in
the case of a limit order to buy) for the Pilot Security with a
price that is equal to the limit price of the limit order identified
as an ISO. These additional routed orders also must be marked as
ISOs. See Plan, Section I(MM). Since the Plan allows (i) an order
that is identified as an ISO to be executed at the price of a
Protected Quotation (see Plan, Section VI(D)(8) and proposed Rule
4770(c)(3)(D)(iii)i.) and (ii) an order to execute at the price of a
Protected Quotation that ``is executed by a trading center that
simultaneously routed Trade-at ISO to execute against the full
displayed size of the Protected Quotation that was trade at'' (see
Plan, Section VI(D)(9) and proposed Rule 4770(c)(3)(D)(iii)j.)), the
Exchange proposes to clarify the use of an ISO in connection with
the Trade-at requirement by adopting, as part of proposed Rule
4770(a)(1), a comprehensive definition of ``Trade-at ISO.'' As set
forth in the Plan and as noted above, the definition of a Trade-at
ISO used in the Plan does not distinguish ISOs that are compliant
with Rule 611 or Regulation NMS from ISOs that are compliant with
Trade-at. The Exchange therefore proposes the separate definition of
Trade-at ISO contained in proposed Rule 4770(a). The Exchange
believes that this proposed definition will further clarify to
recipients of ISOs in Test Group Three securities whether the ISO
satisfies the requirements of Rule 611 of Regulation NMS or Trade-
at.
---------------------------------------------------------------------------
(i) When routed to a Trading Center, the limit order is identified
as a Trade-at Intermarket Sweep Order; and
(ii) Simultaneously with the routing of the limit order identified
as a Trade-at Intermarket Sweep Order, one or more additional limit
orders, as necessary, are routed to execute against the full size of
any protected bid, in the case of a limit order to sell, or the full
displayed size of any protected offer, in the case of a limit order to
buy, for the Pilot Security with a price that is better than or equal
to the limit price of the limit order identified as a Trade-at
Intermarket Sweep Order. These additional routed orders also must be
marked as Trade-at Intermarket Sweep Orders.
Paragraph (a)(1)(E) would provide that all capitalized
terms not otherwise defined in this rule shall have the meanings set
forth in the Plan, Regulation NMS under the Act, or Exchange rules, as
applicable.
Proposed Paragraph (a)(2) would state that the Exchange is a
Participant in, and subject to the applicable requirements of, the
Plan; proposed Paragraph (a)(3) would require members to establish,
maintain and enforce written policies and procedures that are
reasonably designed to comply with the applicable requirements of the
Plan, which would allow the Exchange to enforce compliance by its
members with the provisions of the Plan, as required pursuant to
Section II(B) of the Plan.
In addition, Paragraph (a)(4) would provide that Exchange systems
would not display, quote or trade in violation of the applicable
quoting and trading requirements for a Pilot Security specified in the
Plan and this proposed rule, unless such quotation or transaction is
specifically exempted under the Plan.\22\
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\22\ The Exchange is still evaluating its internal policies and
procedures to ensure compliance with the Plan, and plans to
separately propose rules that would address violations of the Plan.
---------------------------------------------------------------------------
The Exchange also proposes to add Rule 4770(a)(5) to provide for
the treatment of Pilot Securities that drop below a $1.00 value during
the Pilot Period.\23\ The Exchange proposes that if the price of a
Pilot Security drops below $1.00 during regular trading on any given
business day, such Pilot Security would continue to be subject to the
Plan and the requirements described below that necessitate members to
comply with the specific quoting and trading obligations for each
respective Pilot Test Group under the Plan, and would continue to trade
in accordance with the proposed rules below as if the price of the
Pilot Security had not dropped below $1.00. However, if the Closing
Price of a Pilot Security on any given business day is below $1.00,
such Pilot Security would be moved out of its respective Pilot Test
Group into the control group (which consists of Pilot Securities not
placed into a Pilot Test Group), and may then be quoted and traded at
any price increment that is currently permitted by Exchange rules for
the remainder of the Pilot Period. Notwithstanding anything contained
herein to the contrary, the Exchange proposes that, at all times during
the Pilot Period, Pilot Securities (whether in the control group or any
Pilot Test Group) would continue to be subject to the data collection
rules, which are enumerated in Rule 4770(b).
---------------------------------------------------------------------------
\23\ New York Stock Exchange LLC, on behalf of the Participants,
submitted a letter to Commission requesting exemption from certain
provisions of the Plan related to quoting and trading. See letter
from Elizabeth K. King, NYSE, to Brent J. Fields, Secretary,
Commission, dated October 14, 2015 (the ``October Exemption
Request''). FINRA, also on behalf of the Plan Participants,
submitted a separate letter to Commission requesting additional
exemptions from certain provisions of the Plan related to quoting
and trading. See letter from Marcia E. Asquith, Senior Vice
President and Corporate Secretary, FINRA, to Robert W. Errett,
Deputy Secretary, Commission, dated February 23, 2016 (the
``February Exemption Request,'' and together with the October
Exemption Request, the ``Exemption Request Letters''). The
Commission, pursuant to its authority under Rule 608(e) of
Regulation NMS, granted New York Stock Exchange LLC a limited
exemption from the requirement to comply with certain provisions of
the Plan as specified in the Exemption Request Letters and noted
herein. See letter from David Shillman, Associate Director, Division
of Trading and Markets, Commission to Sherry Sandler, Associate
General Counsel, New York Stock Exchange LLC, dated April 25, 2016
(the ``Exemption Letter''). The Exchange is seeking the same
exemptions as requested in the Exemption Request Letters, including
without limitation, an exemption relating to proposed Rule
4770(a)(5).
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The Exchange proposes Rules 4770(c)(1)-(3), which would require
members to comply with the specific quoting and trading obligations for
each Pilot Test Group under the Plan. With regard to Pilot Securities
in Test Group One, proposed Rule 4770(c)(1) would provide that no
member may display, rank, or accept from any person any displayable or
non-displayable bids or offers, orders, or indications of interest in
increments other than $0.05. However, orders priced to trade at the
midpoint of the National Best Bid and National Best Offer (``NBBO'') or
Best Protected Bid and Best Protected Offer (``PBBO'') and orders
entered in the Exchange's Retail Price Improvement Program as Retail
Price Improving Orders (as defined in Rule 4780(a)(3)) \24\ may be
ranked and accepted in increments of less than $0.05. Pilot Securities
in Test Group One may continue to trade at any price increment that is
currently permitted by Rule 4701(k).\25\
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\24\ A Retail Price Improvement Order is an Order Type with a
Non-Display Order Attribute that is held on the Exchange Book in
order to provide liquidity at a price at least $0.001 better than
the NBBO through a special execution process described in Rule 4780.
See Rules 4780(a)(3) and 4702(b)(5).
\25\ Rule 4701(k) describes the minimum price variation for
quoting and entry of orders in equity securities listed on the
Exchange or a national securities exchange other than the Exchange.
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With regard to Pilot Securities in Test Group Two, proposed Rule
4770(c)(2)(A) would provide that such
[[Page 45343]]
Pilot Securities would be subject to all of the same quoting
requirements as described above for Pilot Securities in Test Group One,
along with the applicable quoting exceptions. In addition, proposed
Rule 4770(c)(2)(B) would provide that, absent one of the listed
exceptions in proposed 4770(c)(2)(C) enumerated below, no member may
execute orders in any Pilot Security in Test Group Two in price
increments other than $0.05. The $0.05 trading increment would apply to
all trades, including Brokered Cross Trades.
Paragraph (2)(C) would set forth further requirements for Pilot
Securities in Test Group Two. Specifically, members trading Pilot
Securities in Test Group Two would be allowed to trade in increments
less than $0.05 under the following circumstances:
(i) Trading may occur at the midpoint between the NBBO or PBBO;
(ii) Retail Investor Orders may be provided with price improvement
that is at least $0.005 better than the PBBO;
(iii) Negotiated Trades may trade in increments less than $0.05;
and
(iv) Execution of a customer order to comply with IM-2110-2 \26\
following the execution of a proprietary trade by the member at an
increment other than $0.05, where such proprietary trade was
permissible pursuant to an exception under the Plan.\27\
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\26\ Exchange IM-2110-2 ``Trading Ahead of Customer Limit
Order'' incorporates by reference NASD IM-2110, which was replaced
by FINRA Rule 5320. FINRA Rule 5320 is titled ``Prohibition Against
Trading Ahead of Customer Orders,'' which states:
(a) Except as provided herein, a member that accepts and holds
an order in an equity security from its own customer or a customer
of another broker-dealer without immediately executing the order is
prohibited from trading that security on the same side of the market
for its own account at a price that would satisfy the customer
order, unless it immediately thereafter executes the customer order
up to the size and at the same or better price at which it traded
for its own account.
(b) A member must have a written methodology in place governing
the execution and priority of all pending orders that is consistent
with the requirements of this Rule and Rule 5310. A member also must
ensure that this methodology is consistently applied.
\27\ The Exchange proposes to add this exemption to permit
members to fill a customer order in a Pilot Security at a non-nickel
increment to comply with IM-2110-2 under limited circumstances.
Specifically, the exception would allow the execution of a customer
order following a proprietary trade by the member at an increment
other than $0.05 in the same security, on the same side and at the
same price as (or within the prescribed amount of) a customer order
owed a fill pursuant to IM-2110-2, where the triggering proprietary
trade was permissible pursuant to an exception under the Plan. The
Commission granted New York Stock Exchange LLC an exemption from
Rule 608(c) related to this provision. See Exemption Letter, supra
note 23. The Exchange is seeking the same exemptions as requested in
the Exemption Request Letters. The Exchange believes such an
exception best facilitates the ability of members to continue to
protect customer orders while retaining the flexibility to engage in
proprietary trades that comply with an exception to the Plan.
---------------------------------------------------------------------------
Paragraph (3)(A)-(3)(C) would set forth the requirements for Pilot
Securities in Test Group Three. Members quoting or trading such Pilot
Securities would be subject to all of the same quoting and trading
requirements as described above for Pilot Securities in Test Group Two,
including the quoting and trading exceptions applicable to Pilot
Securities in Test Group Two. In addition, proposed Paragraph (3)(D)
would provide for an additional prohibition on Pilot Securities in Test
Group Three referred to as the ``Trade-at Prohibition.'' \28\ Paragraph
(3)(D)(ii) would provide that, absent one of the listed exceptions in
proposed Rule 4770(c)(3)(D)(iii) enumerated below, no member may
execute a sell order for a Pilot Security in Test Group Three at the
price of a Protected Bid or execute a buy order for a Pilot Security in
Test Group Three at the price of a Protected Offer.
---------------------------------------------------------------------------
\28\ Proposed 4770(c)(3)(D)(i) would define the ``Trade-at
Prohibition'' to mean the prohibition against executions by a
Trading Center of a sell order for a Pilot Security at the price of
a Protected Bid or the execution of a buy order for a Pilot Security
at the price of a Protected Offer during regular trading hours.
---------------------------------------------------------------------------
Proposed Rule 4770(c)(3)(D)(iii) would allow members to execute a
sell order for a Pilot Security in Test Group Three at the price of a
Protected Bid or execute a buy order for a Pilot Security in Test Group
Three at the price of a Protected Offer if any of the following
circumstances exist:
a. The order is executed as agent or riskless principal by an
independent trading unit, as defined under Rule 200(f) of Regulation
SHO,\29\ of a Trading Center within a member that has a displayed
quotation as agent or riskless principal, via either a processor or an
SRO Quotation Feed, at a price equal to the traded-at Protected
Quotation, that was displayed before the order was received,\30\ but
only up to the full displayed size of that independent trading unit's
previously displayed quote; \31\
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\29\ The Exchange is proposing that, for proposed Rules
4770(c)(3)(D)(iii)a. and b., a Trading Center operated by a broker-
dealer would mean an independent trading unit, as defined under Rule
200(f) of Regulation SHO, within such broker-dealer. See 17 CFR
242.200.
Independent trading unit aggregation is available if traders in
an aggregation unit pursue only the particular trading objective(s)
or strategy(s) of that aggregation unit and do not coordinate that
strategy with any other aggregation unit. Therefore, a Trading
Center cannot rely on quotations displayed by that broker dealer
from a different independent trading unit. As an example, an agency
desk of a broker-dealer cannot rely on the quotation of a
proprietary desk in a separate independent trading unit at that same
broker-dealer.
\30\ The Exchange is proposing to adopt this limitation to
ensure that a Trading Center does not display a quotation after the
time of order receipt solely for the purpose of trading at the price
of a protected quotation without routing to that protected
quotation.
\31\ This proposed exception to Trade-at would allow a Trading
Center to execute an order at the Protected Quotation in the same
capacity in which it has displayed a quotation at a price equal to
the Protected Quotation and up to the displayed size of such
displayed quotation.
---------------------------------------------------------------------------
b. The order is executed by an independent trading unit, as defined
under Rule 200(f) of Regulation SHO, of a Trading Center within a
member that has a displayed quotation for the account of that Trading
Center on a principal (excluding riskless principal \32\) basis, via
either a processor or an SRO Quotation Feed, at a price equal to the
traded-at Protected Quotation, that was displayed before the order was
received, but only up to the full displayed size of that independent
unit's previously displayed quote; \33\
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\32\ As described above, proposed Rule 4770(c)(3)(D)(iii)a.
would establish the circumstances in which a Trading Center
displaying an order as riskless principal would be permitted to
Trade-at the Protected Quotation. Accordingly, the Exchange proposes
that proposed Rule 4770(c)(3)(D)(iii)b. would exclude such
circumstances.
\33\ The display exceptions to Trade-at set forth in proposed
Rules 4770(c)(3)(D)(iii)a. and b. would not permit a broker-dealer
to trade on the basis of interest it is not responsible for
displaying. In particular, a broker-dealer that matches orders in
the over-the-counter market shall be deemed to have ``executed''
such orders as a Trading Center for purposes of proposed Rule 4770.
Accordingly, if a broker-dealer is not displaying a quotation at a
price equal to the Protected Quotation, it could not submit matched
trades to an alternative trading center (``ATS'') that was
displaying on an agency basis the quotation of another ATS
subscriber. However, a broker-dealer that is displaying, as
principal, via either a processor or an SRO Quotation Feed, a buy
order at the protected bid, could internalize a customer sell order
up to its displayed size. The display exceptions would not permit a
non-displayed Trading Center to submit matched trades to an ATS that
was displaying on an agency basis the quotation of another ATS
subscriber and confirmed that a broker-dealer would not be permitted
to trade on the basis of interest that it is not responsible for
displaying.
---------------------------------------------------------------------------
c. The order is of Block Size \34\ at the time of origin and may
not be:
---------------------------------------------------------------------------
\34\ ``Block Size'' is defined in the Plan as an order (1) of at
least 5,000 shares or (2) for a quantity of stock having a market
value of at least $100,000.
---------------------------------------------------------------------------
A. an aggregation of non-block orders;
B. broken into orders smaller than Block Size prior to submitting
the order to a Trading Center for execution; or
C. executed on multiple Trading Centers; \35\
---------------------------------------------------------------------------
\35\ Once a Block Size order or portion of such Block Size order
is routed from one Trading Center to another Trading Center in
compliance with Rule 611 of Regulation NMS, the Block Size order
would not lose the Trade-at exemption provided under proposed Rule
4770(c)(3)(D)(iii)c. For example, if an exchange has a Protected Bid
of 3,000 shares, with 2,000 shares in reserve, and receives a 5,000
share order to sell, the exchange would be able to execute the
entire 5,000 share order without having to route to an away market
at any other Protected Bid at the same price. If, however, that
exchange only has 1,000 shares in reserve, the entire order would
not be able to be executed on that exchange, and the exchange would
only be able to execute 3,000 shares and route the rest to away
markets at other Protected Bids at the same price, before executing
the 1,000 shares in reserve.
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[[Page 45344]]
d. The order is a Retail Investor Order executed with at least
$0.005 price improvement;
e. The order is executed when the Trading Center displaying the
Protected Quotation that was traded at was experiencing a failure,
material delay, or malfunction of its systems or equipment;
f. The order is executed as part of a transaction that was not a
``regular way'' contract;
g. The order is executed as part of a single-priced opening,
reopening, or closing transaction on the Exchange;
h. The order is executed when a Protected Bid was priced higher
than a Protected Offer in the Pilot Security in Test Group Three;
i. The order is identified as a Trade-at Intermarket Sweep Order;
\36\
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\36\ In connection with the definition of a Trade-at ISO
proposed in Rule 4770(a)(1)(D), this exception refers to the ISO
that is received by a Trading Center.
The Exchange proposed an exemption to the Trade-at Prohibition
for Trade-at ISOs to clarify that an ISO that is received by a
Trading Center (and which could form the basis of an execution at
the price of a Protected Quotation pursuant to Section VI(D)(8) of
the Plan), is identified as a Trade-at ISO. Depending on whether
Rule 611 of Regulation NMS or the Trade-at requirement applies, an
ISO may mean that the sender of the ISO has swept better-priced
Protected Quotations, so that the recipient of that ISO may trade
through the price of the Protected Quotation (Rule 611 of Regulation
NMS), or it could mean that the sender of the ISO has swept
Protected Quotations at the same price that it wishes to execute at
(in addition to any better-priced quotations), so the recipient of
that ISO may trade at the price of the Protected Quotation (Trade-
at). Given that the meaning of an ISO may differ under Rule 611 of
Regulation NMS and Trade-at, the Exchange proposed an exemption to
the Trade-at Prohibition for Trade-at ISOs so that the recipient of
an ISO in a Test Group Three security would know, upon receipt of
that ISO, that the Trading Center that sent the ISO had already
executed against the full size of displayed quotations at that
price, e.g., the recipient of that ISO could permissibly trade at
the price of the Protected Quotation.
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j. The order is executed by a Trading Center that simultaneously
routed Trade-at Intermarket Sweep Orders to execute against the full
displayed size of the Protected Quotation that was traded at; \37\
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\37\ In connection with the definition of a Trade-at ISO
proposed in Rule 4770(a)(1)(D), this exception refers to the Trading
Center that routed the ISO.
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k. The order is executed as part of a Negotiated Trade;
l. The order is executed when the Trading Center displaying the
Protected Quotation that was traded at had displayed, within one second
prior to execution of the transaction that constituted the Trade-at, a
Best Protected Bid or Best Protected Offer, as applicable, for the
Pilot Security in Test Group Three with a price that was inferior to
the price of the Trade-at transaction;
m. The order is executed by a Trading Center which, at the time of
order receipt, the Trading Center had guaranteed an execution at no
worse than a specified price (a ``stopped order''), where:
A. The stopped order was for the account of a customer;
B. The customer agreed to the specified price on an order-by-order
basis; and
C. The price of the Trade-at transaction was, for a stopped buy
order, equal to or less than the National Best Bid in the Pilot
Security in Test Group Three at the time of execution or, for a stopped
sell order, equal to or greater than the National Best Offer in the
Pilot Security in Test Group Three at the time of execution, as long as
such order is priced at an acceptable increment; \38\
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\38\ The stopped order exemption in Rule 611 of Regulation NMS
applies where ``[t]he price of the trade-through transaction was,
for a stopped buy order, lower than the national best bid in the NMS
stock at the time of execution or, for a stopped sell order, higher
than the national best offer in the NMS stock at the time of
execution'' (see 17 CFR 242.611(b)(9)). The Trade-at stopped order
exception applies where ``the price of the Trade-at transaction was,
for a stopped buy order, equal to the national best bid in the Pilot
Security at the time of execution or, for a stopped sell order,
equal to the national best offer in the Pilot Security at the time
of execution'' (see Plan, Section VI(D)(12)).
To illustrate the application of the stopped order exemption as
it currently operates under Rule 611 of Regulation NMS and as it is
currently proposed for Trade-at, assume the National Best Bid is
$10.00 and another protected quote is at $9.95. Under Rule 611 of
Regulation NMS, a stopped order to buy can be filled at $9.95 and
the firm does not have to send an ISO to access the protected quote
at $10.00 since the price of the stopped order must be lower than
the National Best Bid. For the stopped order to also be executed at
$9.95 and satisfy the Trade-at requirements, the Trade-at exception
would have to be revised to allow an order to execute at the price
of a protected quote which, in this case, could be $9.95.
Based on the fact that a stopped order would be treated
differently under the Rule 611 of Regulation NMS exception than
under the Trade-at exception in the Plan, the Exchange believes that
it is appropriate to amend the Trade-at stopped order exception in
the Plan to ensure that the application of this exception would
produce a consistent result under both Regulation NMS and the Plan.
Therefore, the Exchange proposes in this proposed Rule
4770(c)(3)(D)(iii)m. to allow a transaction to satisfy the Trade-at
requirement if the stopped order price, for a stopped buy order, is
equal to or less than the National Best Bid, and for a stopped sell
order, is equal to or greater than the National Best Offer, as long
as such order is priced at an acceptable increment. The Commission
granted New York Stock Exchange LLC an exemption from Rule 608(c)
related to this provision. See Exemption Letter, supra note 23. The
Exchange is seeking the same exemptions as requested in the
Exemption Request Letters.
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n. The order is for a fractional share of a Pilot Security in Test
Group Three, provided that such fractional share order was not the
result of breaking an order for one or more whole shares of a Pilot
Security in Test Group Three into orders for fractional shares or was
not otherwise effected to evade the requirements of the Trade-at
Prohibition or any other provisions of the Plan; or
o. The order is to correct a bona fide error, which is recorded by
the Trading Center in its error account.\39\ A bona fide error is
defined as:
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\39\ The exceptions to the Trade-at requirement set forth in the
Plan and in the Exchange's proposed Rule 4770(c)(3)(D)(iii) are, in
part, based on the exceptions to the trade-through requirement set
forth in Rule 611 of Regulation NMS, including exceptions for an
order that is executed as part of a transaction that was not a
``regular way'' contract, and an order that is executed as part of a
single-priced opening, reopening, or closing transaction by the
Trading Center (see 17 CFR 242.611(b)(2) and (b)(3)). Following the
adoption of Rule 611 of Regulation NMS and its exceptions, the
Commission issued exemptive relief that created exceptions from Rule
611 of Regulation NMS for certain error correction transactions. See
Securities Exchange Act Release No. 55884 (June 8, 2007), 72 FR
32926 (June 14, 2007); Securities Exchange Act Release No. 55883
(June 8, 2007), 72 FR 32927 (June 14, 2007). The Exchange has
determined that it is appropriate to incorporate this additional
exception to the Trade-at Prohibition, as this exception is equally
applicable in the Trade-at context.
Accordingly, the Exchange is proposing to exempt certain
transactions to correct bona fide errors in the execution of
customer orders from the Trade-at Prohibition, subject to the
conditions set forth by the SEC's order exempting these transactions
from Rule 611 of Regulation NMS. The Commission granted New York
Stock Exchange LLC an exemption from Rule 608(c) related to this
provision. See Exemption Letter, supra note 23. The Exchange is
seeking the same exemptions as requested in the Exemption Request
Letters.
As with the corresponding exception under Rule 611 of Regulation
NMS, the bona fide error would have to be evidenced by objective
facts and circumstances, the Trading Center would have to maintain
documentation of such facts and circumstances and record the
transaction in its error account. To avail itself of the exemption,
the Trading Center would have to establish, maintain, and enforce
written policies and procedures reasonably designed to address the
occurrence of errors and, in the event of an error, the use and
terms of a transaction to correct the error in compliance with this
exemption. Finally, the Trading Center would have to regularly
surveil to ascertain the effectiveness of its policies and
procedures to address errors and transactions to correct errors and
take prompt action to remedy deficiencies in such policies and
procedures. See Securities Exchange Act Release No. 55884 (June 8,
2007), 72 FR 32926 (June 14, 2007).
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A. The inaccurate conveyance or execution of any term of an order
including, but not limited to, price, number of shares or other unit of
trading; identification of the security; identification of the account
for which securities are purchased or sold; lost or
[[Page 45345]]
otherwise misplaced order tickets; short sales that were instead sold
long or vice versa; or the execution of an order on the wrong side of a
market;
B. The unauthorized or unintended purchase, sale, or allocation of
securities, or the failure to follow specific client instructions;
C. The incorrect entry of data into relevant systems, including
reliance on incorrect cash positions, withdrawals, or securities
positions reflected in an account; or
D. A delay, outage, or failure of a communication system used to
transmit market data prices or to facilitate the delivery or execution
of an order.
Finally, Proposed Rule 4770(c)(3)(D)(iv) would prevent members from
breaking an order into smaller orders or otherwise effecting or
executing an order to evade the requirements of the Trade-at
Prohibition or any other provisions of the Plan.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\40\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\41\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect investors and the public interest. The
Exchange believes that the proposed rule change is consistent with the
Act because it ensures that the Exchange and its members would be in
compliance with a Plan approved by the Commission pursuant to an order
issued by the Commission in reliance on Section 11A of the Act.\42\
Such approved Plan gives the Exchange authority 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 believes that the proposed rule
change is consistent with the authority granted to it by the Plan to
establish specifications and procedures for the implementation and
operation of the Plan that are consistent with the provisions of the
Plan. Likewise, the Exchange believes that the proposed rule change
provides interpretations of the Plan that are consistent with the Act,
in general, and furthers the objectives of the Act, in particular.
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\40\ 15 U.S.C. 78f(b).
\41\ 15 U.S.C. 78f(b)(5).
\42\ 15 U.S.C. 78k-1.
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Furthermore, the Exchange is a Participant under the Plan and
subject, itself, to the provisions of the Plan. The proposed rule
change ensures that the Exchange's systems would not display or execute
trading interests outside the requirements specified in such Plan. The
proposal would also help allow market participants to continue to trade
NMS Stocks within quoting and trading requirements that are in
compliance with the Plan, with certainty on how certain orders and
trading interests would be treated. This, in turn, will help encourage
market participants to continue to provide liquidity in the
marketplace.
Because the Plan supports further examination and analysis on the
impact of tick sizes on the trading and liquidity of the securities of
small capitalization companies, and the Commission believes that
altering tick sizes could result in significant market-wide benefits
and improvements to liquidity and capital formation, adopting rules
that enforce compliance by its members with the provisions of the Plan
would help promote liquidity in the marketplace and perfect the
mechanism of a free and open market and national market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes are
being made to establish, maintain, and enforce written policies and
procedures that are reasonably designed to comply with the trading and
quoting requirements specified in the Plan, of which other equities
exchanges are also Participants. Other competing national securities
exchanges are subject to the same trading and quoting requirements
specified in the Plan. Therefore, the proposed changes would not impose
any burden on competition, while providing certainty of treatment and
execution of trading interests on the Exchange to market participants
in NMS Stocks that are acting in compliance with the requirements
specified in the Plan.
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 \43\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\44\
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\43\ 15 U.S.C. 78s(b)(3)(a)(iii).
\44\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2016-039 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-BX-2016-039. 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/
[[Page 45346]]
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-BX-
2016-039, and should be submitted on or before August 3, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16492 Filed 7-12-16; 8:45 am]
BILLING CODE 8011-01-P
