Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rule 11.340(b) To Set Forth the Requirements for the Collection and Transmission of Data Pursuant to the Regulation NMS Plan To Implement a Tick Size Pilot Program, 52933-52939 [2016-18912]
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Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices
proposed rule change is available at the
Exchange’s Web site at
www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78481; File No. SR–IEX–
2016–07]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt Rule
11.340(b) To Set Forth the
Requirements for the Collection and
Transmission of Data Pursuant to the
Regulation NMS Plan To Implement a
Tick Size Pilot Program
August 4, 2016.
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Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 28,
2016, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. 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
Pursuant to the provisions of section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’), and Rule 19b–4
thereunder, Investors Exchange LLC
(‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend Rule 11.340, which is
currently reserved, to implement the
Regulation NMS Plan to Implement a
Tick Size Pilot Program (‘‘Plan’’).
Specifically, the Exchange proposes to
adopt Rule 11.340(b) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan. The
proposed rule change is substantially
similar to proposed rule changes
recently approved or published by the
Commission for the Bats BZX Exchange,
Inc. f/k/a BATS Exchange, Inc. (‘‘BZX’’)
to adopt BZX Rule 11.27(b) which also
sets forth requirements for the collection
and transmission of data pursuant to
Appendices B and C of the Plan. The
Exchange has designated this proposal
as a ‘‘non-controversial’’ proposed rule
change pursuant to section 19(b)(3)(A)
of the Act and provided the Commission
with the notice required by Rule 19b–
4(f)(6)(iii) under the Act. The text of the
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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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 statement 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
On August 25, 2014, NYSE Group,
Inc., on behalf of BATS Exchange, Inc.,
BATS Y-Exchange, Inc., Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, the Nasdaq
Stock Market LLC, New York Stock
Exchange LLC (‘‘NYSE’’), NYSE MKT
LLC, and NYSE Arca, Inc. (collectively
‘‘Participants’’), filed with the
Commission, pursuant to section 11A of
the Act 4 and Rule 608 of Regulation
NMS thereunder,5 the Plan to
Implement a Tick Size Pilot Program
(‘‘Pilot’’).6 The Participants filed the
Plan to comply with an order issued by
the Commission on June 24, 2014.7 The
Plan 8 was published for comment in the
Federal Register on November 7, 2014,
and approved by the Commission, as
modified, on May 6, 2015.9 On
November 6, 2015, the Commission
granted the Participants an exemption
from implementing the Plan until
October 3, 2016.10 An amendment to the
4 15
U.S.C. 78k-1
CFR 242.608.
6 See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
7 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
8 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
9 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015) (File No.
4–657) (‘‘Approval Order’’).
10 See Securities Exchange Act Release No. 76382
(November 6, 2015), 80 FR 70284 (November 13,
5 17
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52933
Plan adding IEX as a Participant will be
filed with the Commission shortly.
The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
impact of increment conventions on the
liquidity and trading of the common
stocks of small-capitalization
companies. Each Participant is required
to comply, and to enforce compliance
by its member organizations, as
applicable, with the provisions of the
Plan. As is described more fully below,
the proposed rules would require IEX
Members 11 to comply with the
applicable data collection requirements
of the Plan.12
The Pilot will include stocks of
companies with $3 billion or less in
market capitalization, an average daily
trading volume of one million shares or
less, and a volume weighted average
price of at least $2.00 for every trading
day. The Pilot will consist of a control
group of approximately 1,400 Pilot
Securities and three test groups with
400 Pilot Securities in each (selected by
a stratified random sampling process).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 the $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
order exception, and a negotiated trade
exception.15 Pilot Securities in the third
test group (‘‘Test Group Three’’) will be
subject to the same quoting and trading
increments as Test Group Two and also
2015) (File No. 4–657) (Order Granting Exemption
from Compliance with the National Market System
Plan to Implement a Tick Size Pilot Program).
11 An IEX Member is ‘‘. . . any registered broker
or dealer that has been admitted to membership in
the Exchange. A Member will have the status of a
Member of the Exchange as that term is defined in
Section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership,
corporation, limited liability company, or other
organization that is a registered broker or dealer
pursuant to Section 15 of the Act, and which has
been approved by the Exchange.’’ See IEX Rule
1.160(s).
12 The Exchange proposes Supplementary
Material .01 to Rule 11.340 to provide that the Rule
shall be in effect during a pilot period to coincide
with the pilot period for the Plan (including any
extensions to the pilot period for the Plan).
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.
15 See Section VI(C) of the Plan.
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Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices
will be subject to the ‘‘Trade-at’’
requirements to prevent price matching
by a market participant that is not
displaying at a Trading Center’s ‘‘Best
Protected Bid’’ or ‘‘Best Protected
Offer,’’ unless an enumerated exception
applies.16 In addition to the exceptions
provided under Test Group Two, an
exception for Block Size orders and
exceptions that mirror those under Rule
611 of Regulation NMS 17 will apply to
the Trade-at requirement.
In approving the Plan, the
Commission noted that the Trading
Center data reporting requirements
would facilitate an analysis of the
effects of the Pilot on liquidity (e.g.,
transaction costs by order size),
execution quality (e.g., speed of order
executions), market maker activity,
competition between trading venues
(e.g., routing frequency of market
orders), transparency (e.g., choice
between displayed and hidden orders),
and market dynamics (e.g., rates and
speed of order cancellations).18 The
Commission noted that Market Maker
profitability data would assist the
Commission in evaluating the effect, if
any, of a widened tick increment on
market maker profits and any
corresponding changes in the liquidity
of small-capitalization securities.19
Compliance With the Data Collection
Requirements of the Plan
The Plan contains requirements for
collecting and transmitting data to the
Commission and to the public.20
Specifically, Appendix B.I of the Plan
(Market Quality Statistics) requires
Trading Centers 21 to submit a variety of
market quality statistics, including
information about an order’s original
size, whether the order was displayable
or not, the cumulative number of orders,
the cumulative number of shares of
orders, and the cumulative number of
16 See
Section VI(D) of the Plan.
CFR 242.611.
18 See Approval Order, 80 FR at 27543.
19 Id.
20 The Exchange is also required by the Plan to
establish, maintain, and enforce written policies
and procedures that are reasonably designed to
comply with applicable quoting and trading
requirements specified in the Plan. The Exchange
intends to separately propose rules that would
require compliance by its Members with the
applicable quoting and trading requirements
specified in the Plan, and has reserved paragraph
(a) for such rules.
21 The Plan incorporates the definition of a
‘‘Trading Center’’ from Rule 600(b)(78) of
Regulation NMS. Regulation NMS defines a
‘‘Trading Center’’ as ‘‘a national securities exchange
or national securities association that operates an
SRO trading facility, an alternative trading system,
an exchange market maker, an OTC market maker,
or any other broker or dealer that executes orders
internally by trading as principal or crossing orders
as agent.’’ See 17 CFR 242.600(b).
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17 17
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shares executed within specific time
increments, e.g., from 30 seconds to less
than 60 seconds after the time of order
receipt. This information shall be
categorized by security, order type,
original order size, hidden status, and
coverage under Rule 605.22 Appendix
B.I of the Plan also contains additional
requirements for market orders and
marketable limit orders, including the
share-weighted average spread for
executions of orders; the cumulative
number of shares of orders executed
with price improvement; and, for shares
executed with price improvement, the
share-weighted average amount per
share that prices were improved.
Appendix B.II of the Plan (Market and
Marketable Limit Order Data) requires
Trading Centers to submit information
relating to market orders and marketable
limit orders, including the time of order
receipt, order type, the order size, the
National Best Bid and National Best
Offer (‘‘NBBO’’) quoted price, the NBBO
quoted depth, the average execution
price-share-weighted average, and the
average execution time-share-weighted
average.
The Plan requires Appendix B.I and
B.II data to be submitted by Participants
that operate a Trading Center, and by
members of the Participants that operate
Trading Centers. The Plan provides that
each Participant that is a Designated
Examining Authority (‘‘DEA’’) for a
member of the Participant that operates
a Trading Center shall collect such data
in a pipe delimited format, beginning
six months prior to the Pilot Period and
ending six months after the end of the
Pilot Period. The Plan also requires the
Participant, operating as DEA, to
transmit this information to the SEC
within 30 calendar days following
month end.
The Exchange is therefore proposing
Rule 11.340(b) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan.
Proposed Rule 11.340(b) is substantially
similar to proposed rule changes of BZX
that were recently approved or
published by the Commission to adopt
BZX Rule 11.27(b) which also sets forth
requirements for the collection and
transmission of data pursuant to
Appendices B and C of the Plan.23
Proposed Rule 11.340(b)(1) requires
that a Member that operates a Trading
Center shall establish, maintain and
enforce written policies and procedures
22 17
CFR 242.605.
Securities Exchange Act Release Nos.
77105 (February 10, 2016), 81 FR 8112 (February
17, 2016) (order approving SR–BATS–2015–102);
and 77310 (March 7, 2016) (notice for comment and
immediate effectiveness of SR–BATS–2016–27).
23 See
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that are reasonably designed to comply
with the data collection and
transmission requirements of Items I
and II to Appendix B of the Plan, and
a Member that is a Market Maker 24 shall
establish, maintain and enforce written
policies and procedures that are
reasonably designed to comply with the
data collection and transmission
requirements of Item IV of Appendix B
of the Plan and Item I of Appendix C of
the Plan.
Proposed Rule 11.340(b)(2) provides
that the Exchange shall collect and
transmit to the SEC the data described
in Items I and II of Appendix B of the
Plan relating to trading activity in PrePilot Securities and Pilot Securities on
a Trading Center operated by the
Exchange. The Exchange shall transmit
such data to the SEC in a pipe delimited
format, on a disaggregated basis by
Trading Center, within 30 calendar days
following month end for: (i) Each PrePilot Data Collection Security for the
period beginning six months prior to the
Pilot Period through the trading day
immediately preceding the Pilot Period;
and (ii) each Pilot Security for the
period beginning on the first day of the
Pilot Period through six months after
the end of the Pilot Period. The
Exchange also shall make such data
publicly available on the Exchange Web
site on a monthly basis at no charge and
will not identify the Member that
generated the data.
On June 17, 2016 the Commission
granted to IEX an application for
registration as a national securities
exchange under section 6 of the Act.25
IEX intends to launch exchange
operations during a security-by-security
phase-in period scheduled to begin on
August 19, 2016. During the phase-in
period, securities will transition from
being available for trading on the
Alternative Trading System operated by
the Exchange’s affiliate IEX Services
LLC (‘‘IEX ATS’’), to the Exchange.
Once a security becomes available for
trading on the Exchange it will no
longer be available for trading on the
IEX ATS.26 The IEX ATS currently
reports data for Pilot Securities to
FINRA pursuant to FINRA Rule 6191(b).
During the phase-in period, the IEX ATS
will continue to report data to FINRA
24 The Plan defines a Market Maker as ‘‘a dealer
registered with any self-regulatory organization, in
accordance with the rules thereof, as (i) a market
maker or (ii) a liquidity provider with an obligation
to maintain continuous, two-sided trading interest.’’
25 See Securities Exchange Act Release No. 34–
78101 (June 17, 2016), 81 FR 41141 (June 23, 2016)
(File No. 10–222).
26 See, https://iextrading.com/trading/alerts/
2016/028/#exchange-transition for detailed
information on the transition from the IEX ATS to
Exchange.
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Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices
for Pilot Securities that have not yet
transitioned to the Exchange. Data for
Pilot Securities that have transitioned to
the Exchange will be reported to the
SEC pursuant to IEX Rule 11.340(b), as
proposed. Accordingly, reporting for
Pilot Securities will take place as
appropriate based on each Pilot
Security’s status as either available for
trading on the IEX ATS or the Exchange.
Appendix B.IV (Daily Market Maker
Participation Statistics) requires a
Participant to collect data related to
Market Maker participation from each
Market Maker engaging in trading
activity on a Trading Center operated by
the Participant. The Exchange is
therefore proposing Rule 11.340(b)(3) to
gather data about a Market Maker’s
participation in Pilot Securities and PrePilot Data Collection Securities.
Proposed Rule 11.340(b)(3)(A) provides
that a Member that is a Market Maker
shall collect and transmit to their DEA
data relating to Item IV of Appendix B
of the Plan with respect to activity
conducted on any Trading Center in
Pilot Securities and Pre-Pilot Data
Collection Securities in furtherance of
its status as a registered Market Maker,
including a Trading Center that executes
trades otherwise than on a national
securities exchange, for transactions that
have settled or reached settlement date.
The proposed rule requires Market
Makers to transmit such data in a format
required by their DEA, by 12:00 p.m.
EST on T+4 for: (i) Transactions in each
Pre-Pilot Data Collection Security for
the period beginning six months prior to
the Pilot Period through the trading day
immediately preceding the Pilot Period;
and (ii) for transactions in each Pilot
Security for the period beginning on the
first day of the Pilot Period through six
months after the end of the Pilot Period.
The Exchange understands that some
Members may have a DEA that is not a
Participant to the Plan and that such
non-Participant DEA would not be
subject to the Plan’s data collection
requirements. In such case, a DEA that
is not a Participant of the Plan would
not be required to collect the required
data and may not establish procedures
for those Members for which it acts as
DEA to report the data required under
subparagraphs (b)(3)(A) of Rule 11.340
and in accordance with Item IV of
Appendix B of the Plan. Therefore, the
Exchange proposes to adopt
subparagraph (b)(3)(B) to Rule 11.340 to
require a Member that is a Market Maker
whose DEA is not a Participant to the
Plan to transmit the data collected
pursuant to paragraph (3)(A) of Rule
11.340(b) to FINRA, which is a
Participant to the Plan and will collect
data relating to Item IV of Appendix B
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of the Plan on behalf of the Participants.
For Market Makers for which it is the
DEA, FINRA issued a Market Maker
Transaction Data Technical
Specification to collect data on Pre-Pilot
Data Collection Securities and Pilot
Securities from Trading Centers to
comply with the Plan’s data collection
requirements.27
Proposed Rule 11.340(b)(3)(C)
provides that the Exchange shall
transmit the data collected by the DEA
or FINRA pursuant to Rule
11.340(b)(3)(A) and (B) above relating to
Market Maker activity on a Trading
Center operated by the Exchange to the
SEC in a pipe delimited format within
30 calendar days following month end.
The Exchange shall also make such data
publicly available on the Exchange Web
site on a monthly basis at no charge and
shall not identify the Trading Center
that generated the data.
Appendix C.I (Market Maker
Profitability) requires a Participant to
collect data related to Market Maker
profitability from each Market Maker for
which it is the DEA. Specifically, the
Participant is required to collect the
total number of shares of orders
executed by the Market Maker; the raw
Market Maker realized trading profits,
and the raw Market Maker unrealized
trading profits. Data shall be collected
for dates starting six months prior to the
Pilot Period through six months after
the end of the Pilot Period. This data
shall be collected on a monthly basis, to
be provided in a pipe delimited format
to the Participant, as DEA, within 30
calendar days following month end.
Appendix C.II (Aggregated Market
Maker Profitability) requires the
Participant, as DEA, to aggregate the
Appendix C.I data, and to categorize
this data by security as well as by the
control group and each Test Group. That
aggregated data shall contain
information relating to total raw Market
Maker realized trading profits, volumeweighted average of raw Market Maker
realized trading profits, the total raw
Market Maker unrealized trading profits,
and the volume-weighted average of
Market Maker unrealized trading profits.
The Exchange is therefore proposing
Rule 11.340(b)(4) to set forth the
requirements for the collection and
transmission of data pursuant to
Appendix C.I of the Plan. Proposed Rule
11.340(b)(4)(A) requires that a Member
that is a Market Maker shall collect and
transmit to their DEA the data described
in Item I of Appendix C of the Plan, as
27 FINRA members for which FINRA is their DEA
should refer to the Market Maker Transaction
Technical Specification on the FINRA Web site at
https://www.finra.org/sites/default/files/marketmaker-transaction-data-tech-specs.pdf.
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52935
modified by Paragraph (b)(5) with
respect to executions in Pilot Securities
that have settled or reached settlement
date that were executed on any Trading
Center. The proposed rule also requires
Members to provide such data in a
format required by their DEA by 12 p.m.
EST on T+4 for executions during and
outside of Regular Trading Hours in
each: (i) Pre-Pilot Data Collection
Security for the period beginning six
months prior to the Pilot Period through
the trading day immediately preceding
the Pilot Period; and (ii) Pilot Security
for the period beginning on the first day
of the Pilot Period through six months
after the end of the Pilot Period.
For the same reasons set forth above
for subparagraph (b)(3)(B) to Rule
11.340, the Exchange proposes to adopt
subparagraph (b)(4)(B) to Rule 11.340 to
require a Member that is a Market Maker
whose DEA is not a Participant to the
Plan to transmit the data collected
pursuant to paragraph (4)(A) of Rule
11.340(b) to FINRA. As stated above,
FINRA is a Participant to the Plan and
is to collect data relating to Item I of
Appendix C of the Plan on behalf of the
Participants. For Market Makers for
which it is the DEA, FINRA issued a
Market Maker Transaction Data
Technical Specification to collect data
on Pre-Pilot Data Collection Securities
and Pilot Securities from Trading
Centers to comply with the Plan’s data
collection requirements.28
The Exchange is also adopting a rule
setting forth the manner in which
Market Maker participation will be
calculated. Item III of Appendix B of the
Plan requires each Participant that is a
national securities exchange to collect
daily Market Maker registration
statistics categorized by security,
including the following information: (i)
Ticker symbol; (ii) the Participant
exchange; (iii) number of registered
market makers; and (iv) the number of
other registered liquidity providers.
Therefore, the Exchange proposes to
adopt Rule 11.340(b)(5) providing that
the Exchange shall collect and transmit
to the SEC the data described in Item III
of Appendix B of the Plan relating to
daily Market Maker registration
statistics in a pipe delimited format
within 30 calendar days following
month end for: (i) Transactions in each
Pre-Pilot Data Collection Security for
the period beginning six months prior to
the Pilot Period through the trading day
immediately preceding the Pilot Period;
and (ii) transactions in each Pilot
Security for the period beginning on the
first day of the Pilot Period through six
months after the end of the Pilot Period.
28 Id.
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The Exchange notes that, as of the date
of this filing, it does not have any
registered Market Makers and therefore
will not have daily Market Maker
registration statistics to collect or
transmit to the SEC or to FINRA
pursuant to Item III of Appendix B of
the Plan unless and until such time as
it has registered Market Makers.
The Exchange is also proposing,
through Supplementary Material, to
clarify other aspects of the data
collection requirements.29 Proposed
Supplementary Material .02 relates to
the use of the retail investor order flag
for purposes of Appendix B.II(n)
reporting. The Plan currently states that
market and marketable limit orders shall
include a ‘‘yes/no’’ field relating to the
Retail Investor Order flag. The Exchange
is proposing Supplementary Material
.02 to clarify that, for purposes of the
reporting requirement in Appendix
B.II(n), a Trading Center shall report ‘‘y’’
to their DEA where it is relying upon
the Retail Investor Order exception to
Test Groups Two and Three, and ‘‘n’’ for
all other instances.30 The Exchange
believes that requiring the identification
of a Retail Investor Orders only where
the exception may apply (i.e., Pilot
Securities in Test Groups Two and
Three) is consistent with Appendix
B.II(n).
Supplementary Material .03 requires
that Members populate a field to
identify to their DEA whether an order
is affected by the bands in place
pursuant to the National Market System
Plan to Address Extraordinary Market
29 The Exchange is also proposing Supplementary
Material .01 to Rule 11.340 to clarify that certain
enumerated terms used throughout Rule 11.340
shall have the same meaning as set forth in the Plan.
30 FINRA, on behalf of the Plan Participants at the
time submitted a letter to the Commission
requesting exemption from certain provisions of the
Plan related to data collection. See letter from
Marcia E. Asquith, Senior Vice President and
Corporate Secretary, FINRA dated December 9,
2015 to Robert W. Errett, Deputy Secretary,
Commission (‘‘Exemption Request’’). The
Commission, pursuant to its authority under Rule
608(e) of Regulation NMS, granted BZX, as of
February 10, 2016, a limited exemption from the
requirement to comply with certain provisions of
the Plan as specified in the letter and noted herein.
See e.g., letter from David Shillman, Associate
Director, Division of Trading and Markets,
Commission to Eric Swanson, General Counsel,
BZX, dated February 10, 2016 (‘‘Exemption Letter’’).
On April 4, 2016, the Commission granted the
National Stock Exchange, Inc. (‘‘NSX’’), which was
not a Plan Participant as of February 10, 2016,
comparative limited exemption from such
requirements. See, letter from John C. Roeser,
Associate Director, Division of Trading and
Markets, Commission to James Buckley, Chief
Regulatory Officer, NSX, dated April 4, 2016. IEX
was not a Plan Participant at the time that such
exemptions were requested or granted and
respectfully requests that the Commission grant to
it the same exemptions that the Commission
granted to the other Plan Participants.
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Volatility.31 Pursuant to the Limit-Up
Limit-Down Plan, between 9:30 a.m.
and 4:00 p.m., the Securities
Information Processor (‘‘SIP’’) calculates
a lower price band and an upper price
band for each NMS stock. These price
bands represent a specified percentage
above or below the stock’s reference
price, which generally is calculated
based on reported transactions in that
stock over the preceding five minutes.
When one side of the market for an
individual security is outside the
applicable price band, the SIP identifies
that quotation as non-executable. When
the other side of the market reaches the
applicable price band (e.g., the offer
reaches the lower price band), the
security enters a Limit State. The stock
would exit a Limit State if, within 15
seconds of entering the Limit State, all
Limit State Quotations were executed or
canceled in their entirety. If the security
does not exit a Limit State within 15
seconds, then the primary listing
exchange declares a five-minute trading
pause, which would be applicable to all
markets trading the security.
The Exchange and the other
Participants have determined that it is
appropriate to create a new flag for
reporting orders that are affected by the
Limit-Up Limit-Down bands.
Accordingly, a Trading Center shall
report a value of ‘‘Y’’ to their DEA when
the ability of an order to execute has
been affected by the Limit-Up LimitDown bands in effect at the time of
order receipt. A Trading Center shall
report a value of ‘‘N’’ to their DEA when
the ability of an order to execute has not
been affected by the Limit-Up LimitDown bands in effect at the time of
order receipt.
Supplementary Material .03 also
requires, for securities that may trade in
a foreign market, that the Participant
indicate whether the order was handled
domestically, or routed to a foreign
venue. Accordingly, the Participant will
indicate, for purposes of Appendix B.I,
whether the order was: (1) Fully
executed domestically, or (2) fully or
partially executed on a foreign market.
For purposes of Appendix B.II, the
Participant will classify all orders in
dually-listed Pilot and Pre-Pilot
Securities as: (1) Directed to a domestic
venue for execution; (2) may only be
directed to a foreign venue for
execution; or (3) was fully or partially
directed to a foreign venue at the
discretion of the Member. The Exchange
believes that this proposed flag will
31 See National Market System Plan to Address
Extraordinary Market Volatility, Securities
Exchange Act Release No. 67091 (May 31, 2012), 77
FR 33498 (June 6, 2012) (File No. 4–631) (‘‘LimitUp Limit-Down Plan’’).
PO 00000
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Fmt 4703
Sfmt 4703
better identify orders in securities that
may trade in a foreign market, as such
orders that were routed to foreign
venues would not be subject to the
Plan’s quoting and trading
requirements, and could otherwise
compromise the integrity of the data.
Supplementary Material .04 relates to
the time ranges specified in Appendix
B.I.a(14), B.I.a(15), B.I.a(21) and
B.I.a(22).32 The Exchange and the other
Participants have determined that it is
appropriate to change the reporting
times in these provisions to require
more granular reporting for these
categories. Accordingly, the Exchange
proposes to add Appendix B.I.a(14A),
which will require Trading Centers to
report the cumulative number of shares
of orders executed from 100
microseconds to less than 1 millisecond
after the time of order receipt. Appendix
B.I.a(15) will be changed to require the
cumulative number of shares of orders
executed from 1 millisecond to less than
100 milliseconds after the time of order
receipt. The Exchange also proposes to
add Appendix B.I.a(21A), which will
require Trading Centers to report the
cumulative number of shares of orders
canceled from 100 microseconds to less
than 1 millisecond after the time of
order receipt. Appendix B.I.a(22) will be
changed to require the cumulative
number of shares of orders canceled
from 1 millisecond to less than 100
milliseconds after the time of order
receipt. The Exchange believes that
these new reporting requirements will
contribute to a meaningful analysis of
the Pilot by producing more granular
data on these points.33
Supplementary Material .05 relates to
the relevant measurement for purposes
of Appendix B.I.a(31)–(33) reporting.
Currently, the Plan states that this data
shall be reported as of the time of order
execution. The Exchange and the other
Participants believe that this
information should more properly be
captured at the time of order receipt as
32 Specifically, Appendix B.I.a(14) requires
reporting of the cumulative number of shares of
orders executed from 0 to less than 100
microseconds after the time of order receipt;
Appendix B.I.a(15) requires reporting of the
cumulative number of shares of orders executed
from 100 microseconds to less than 100
milliseconds after the time of order receipt;
Appendix B.I.a(21) requires reporting of the
cumulative number of shares of orders cancelled
from 0 to less than 100 microseconds after the time
of order receipt; and appendix B.I.a(22) requires
reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less
than 100 milliseconds after the time of order
receipt.
33 On February 10, 2016, the Commission granted
BZX an exemption from Rule 608(c) related to this
provision. See Exemption Letter, supra, note 30.
IEX requests that the Commission grant to it this
same exemption.
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mstockstill on DSK3G9T082PROD with NOTICES
evaluating share-weighted average
prices at the time of order receipt is
more consistent with the goal of
observing the effect of the Pilot on the
liquidity of Pilot Securities. The
Exchange is therefore proposing to make
this change through Supplementary
Material .05.34 This change will make
these provisions consistent with the
remainder of the statistics in Appendix
B.I.a, which are all based on order
receipt.
Supplementary Material .06 addresses
the status of not-held and auction orders
for purposes of Appendix B.I reporting.
Currently, Appendix B.I sets forth eight
categories of orders, including market
orders, marketable limit orders, and
inside-thequote resting limit orders, for
which daily market quality statistics
must be reported. Currently, Appendix
B.I does not provide a category for not
held orders, clean cross orders, auction
orders, or orders received when the
NBBO is crossed. The Exchange and the
other Participants have determined that
it is appropriate to include separate
categories for both not held orders and
auction orders for purposes of Appendix
B reporting. The Exchange is therefore
proposing Supplementary Material .06
to provide that not held orders shall be
included as an order type for purposes
of Appendix B reporting, and shall be
assigned the number (18). Clean cross
orders shall be included as an order
type for purposes of Appendix B
reporting, and shall be assigned the
number (19); auction orders shall be
included an as order type for purposes
of Appendix B reporting, and shall be
assigned the number (20); 35 and orders
that cannot otherwise be classified,
including, for example, orders received
when the NBBO is crossed shall be
included as an order type for purposes
of Appendix B reporting, and shall be
assigned the number (21). All of these
orders already are included in the scope
of Appendix B; however, without this
proposed change, these order types
would be categorized with other orders,
such as regular held orders, that should
be able to be fully executed upon
receipt, which would compromise the
value of this data.
The Exchange is proposing
Supplementary Material .07 to clarify
the scope of the Plan as it relates to
Members that only execute orders
34 On February 10, 2016, the Commission granted
BZX an exemption from Rule 608(c) related to this
provision. See Exemption Letter, supra, note 30.
IEX requests that the Commission grant to it this
same exemption.
35 The Exchange notes that, as of the date of this
filing, it does not offer order types specifically
defined as ‘‘not held,’’ ‘‘clean cross,’’ or ‘‘auction
order.’’
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Jkt 238001
limited purposes. Specifically, The
Exchange and the other Participants
believe that a Member that only
executes orders otherwise than on a
national securities exchange for the
purpose of: (1) Correcting a bona fide
error related to the execution of a
customer order; (2) purchasing a
security from a customer at a nominal
price solely for purposes of liquidating
the customer’s position; or (3)
completing the fractional share portion
of an order 36 shall not be deemed a
Trading Center for purposes of
Appendix B to the Plan. The Exchange
is therefore proposing Supplementary
Material .09 to make this clarification.
The Exchange is proposing
Supplementary Material .08 to clarify
that, for purposes of the Plan, Trading
Centers must begin the data collection
required pursuant to Appendix B.I.a(1)
through B.II.(y) of the Plan and Item I of
Appendix C of the Plan on April 4,
2016. While the Exchange or the
Member’s DEA will provide the
information required by Appendix B
and C of the Plan during the Pilot
Period, the requirement that the
Exchange or their DEA provide
information to the SEC within 30 days
following month end and make such
data publicly available on its Web site
pursuant to Appendix B and C shall
commence six months prior to the
beginning of the Pilot Period.37
The Exchange is proposing
Supplementary Material .09 to address
the requirement in Appendix C.I(b) of
the Plan that the calculation of raw
Market Maker realized trading profits
utilize a last in, first out (‘‘LIFO’’)-like
method to determine which share prices
shall be used in that calculation. The
Exchange and the other Participants
believe that it is more appropriate to
utilize a methodology that yields LIFOlike results, rather than utilizing a LIFOlike method, and the Exchange is
therefore proposing Supplementary
Material .09 to make this change.38 The
36 The Exchange notes that where a Member
purchases a fractional share from a customer, the
Trading Center that executes the remaining whole
shares of that customer order would be subject to
Appendix B of the Plan.
37 In the Approval Order, the SEC noted that the
Pilot shall be implemented within one year of the
date of publication, i.e., by May 6, 2016. See
Approval Order, 80 FR at 27545. The SEC
subsequently extended the implementation date
approximately five months to October 3, 2016. See
supra, note 9. See also Letter dated November 4,
2015 from Brendon J. Weiss, Co-Head, Government
Affairs, Intercontinental Exchange/NYSE, to Brent J.
Fields, Secretary, Commission (requesting the data
collection period be extended until six months after
the requisite SRO rules are approved, and the
implementation date of the Tick Size Pilot until six
months thereafter).
38 Appendix C.I currently requires Market Maker
profitability statistics to include (1) the total
PO 00000
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Fmt 4703
Sfmt 4703
52937
Exchange is proposing that, for purposes
of Item I of Appendix C, the Participants
shall calculate daily Market Maker
realized profitability statistics for each
trading day on a daily LIFO basis using
reported trade price and shall include
only trades executed on the subject
trading day. The daily LIFO calculation
shall not include any positions carried
over from previous trading days. For
purposes of Item I.c of Appendix C, the
Participants shall calculate daily Market
Maker unrealized profitability statistics
for each trading day on an average price
basis. Specifically, the Participants must
calculate the volume weighted average
price of the excess (deficit) of buy
volume over sell volume for the current
trading day using reported trade price.
The gain (loss) of the excess (deficit) of
buy volume over sell volume shall be
determined by using the volume
weighted average price compared to the
closing price of the security as reported
by the primary listing exchange. In
reporting unrealized trading profits, the
Participant shall also report the number
of excess (deficit) shares held by the
Market Maker, the volume weighted
average price of that excess (deficit) and
the closing price of the security as
reported by the primary listing exchange
used in reporting unrealized profit.39
Finally, the Exchange is proposing
Supplementary Material .10 to address
the securities that will be used for data
collection purposes prior to the
commencement of the Pilot. The
Exchange and the other Participants
have determined that it is appropriate to
collect data for a group of securities that
is larger, and using different
quantitative thresholds, than the group
of securities that will be Pilot Securities.
The Exchange is therefore proposing
Supplementary Material .09 to define
‘‘Pre-Pilot Data Collection Securities’’ as
the securities designated by the
Participants for purposes of the data
collection requirements described in
Items I, II and IV of Appendix B and
Item I of Appendix C of the Plan for the
period beginning six months prior to the
number of shares of orders executed by the Market
Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market
value of Market Maker shares and the market value
of Market Maker purchases, using a LIFO-like
method; and (3) raw Market Maker unrealized
trading profits, which is the difference between the
purchase or sale price of the end-of-day inventory
position of the Market Maker and the Closing Price.
In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a
long position, the purchase price will be subtracted
from the Closing Price.
39 The Commission granted BZX, as of February
10, 2016, an exemption from Rule 608(c) related to
this provision. See Exemption Letter, supra, note
30. IEX requests that the Commission grant to it this
same exemption.
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Federal Register / Vol. 81, No. 154 / Wednesday, August 10, 2016 / Notices
Pilot Period and ending on the trading
day immediately preceding the Pilot
Period. The Participants shall compile
the list of Pre-Pilot Data Collection
Securities by selecting all NMS stocks
with a market capitalization of $5
billion or less, a Consolidated Average
Daily Volume (CADV) of 2 million
shares or less and a closing price of $1
per share or more. The market
capitalization and the closing price
thresholds shall be applied to the last
day of the Pre-Pilot measurement
period, and the CADV threshold shall be
applied to the duration of the Pre-Pilot
measurement period. The Pre-Pilot
measurement period shall be the three
calendar months ending on the day
when the Pre-Pilot Data Collection
Securities are selected. The Pre-Pilot
Data Collection Securities shall be
selected thirty days prior to the
commencement of the six-month PrePilot Period. On the trading day that is
the first trading day of the Pilot Period
through six months after the end of the
Pilot Period, the data collection
requirements will become applicable to
the Pilot Securities only. A Pilot
Security will only be eligible to be
included in a Test Group if it was a
PrePilot Security.
mstockstill on DSK3G9T082PROD with NOTICES
Implementation Date
The proposed rule change will be
effective to coincide with IEX’s launch
of exchange operations during a
security-by-security phase-in period.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with the provisions
of section 6 of the Act,40 in general and
furthers the objectives of sections 6(b)(5)
of the Act 41 in particular, in that it is
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
to remove impediments to and perfect
the mechanism of a free and open
market and a national market system
and, in general, to protect investors and
the public interest.
The Exchange believes that this
proposal is consistent with the Act
because it implements and clarifies the
provisions of the Plan, and is designed
to assist the Exchange in meeting its
regulatory obligations pursuant to the
Plan. In approving the Plan, the SEC
noted that the Pilot was an appropriate,
data-driven test that was designed to
evaluate the impact of wider tick size on
trading, liquidity, and the market
quality of securities of smaller
40 15
41 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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17:34 Aug 09, 2016
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capitalization companies, and was
therefore in furtherance of the purposes
of the Act. The Exchange believes that
this proposal is in furtherance of the
objectives of the Plan, as identified by
the SEC, and is therefore consistent with
the Act because the proposal
implements and clarifies the
requirements of the Plan and applies
specific obligations to Members in
furtherance of compliance with the
Plan.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that the proposed rule
change implements the provisions of the
Plan, and is designed to assist the
Exchange in meeting its regulatory
obligations pursuant to the Plan. The
Exchange also notes that the data
collection requirements for Members
that operate Trading Centers will apply
equally to all such Members, as will the
data collection requirements for Market
Makers.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to section
19(b)(3)(A) of the Act 42 and Rule 19b–
4(f)(6) thereunder.43
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 44 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 45
permits the Commission to designate a
42 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
44 17 CFR 240.19b–4(f)(6).
45 17 CFR 240.19b–4(f)(6)(iii).
43 17
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shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The Commission
believes that waiver of the operative
delay is consistent with the protection
of investors and the public interest
because it would allow the Exchange to
implement the proposed rule change to
coincide with IEX’s intent to launch
exchange operations during a securityby-security phase-in period scheduled
to begin on August 19, 2016. Therefore,
the Commission hereby waives the
operative delay and designates the
proposal operative upon filing.46
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2016–07 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–IEX–2016–07. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
46 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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–IEX–
2016–07, and should be submitted on or
before August 31, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.47
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–18912 Filed 8–9–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–32207; File No. 812–14580]
Allianz Life Insurance Company of
North America, et al; Notice of
Application
August 3, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order approving the substitution of
certain securities pursuant to section
26(c) of the Investment Company Act of
1940, as amended (‘‘Act’’) and an order
of exemption pursuant to section 17(b)
of the Act from section 17(a) of the Act.
AGENCY:
Allianz Life Insurance
Company of North America (‘‘Allianz
Life’’) and Allianz Life Insurance
Company of New York (‘‘Allianz NY’’)
(together the ‘‘Insurance Company
Applicants’’); their respective separate
accounts, Allianz Life Variable Account
A (‘‘Allianz Account A’’), Allianz Life
Variable Account B (‘‘Allianz Account
mstockstill on DSK3G9T082PROD with NOTICES
APPLICANTS:
47 17
CFR 200.30–3(a)(12).
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B’’), and Allianz Life of NY Variable
Account C (‘‘Allianz Account C’’)
(collectively, the ‘‘Separate Accounts’’
and together with the Insurance
Company Applicants, the ‘‘Section 26
Applicants’’); and Allianz Variable
Insurance Products Trust (the ‘‘VIP
Trust’’ and collectively with the Section
26 Applicants, the ‘‘Section 17
Applicants’’).
SUMMARY OF APPLICATION: The
Applicants seek an order pursuant to
section 26(c) of the Act, approving the
substitution of shares issued by certain
investment portfolios of registered
investment companies (the ‘‘Target
Funds’’) for the shares of certain
investment portfolios of registered
investment companies (the ‘‘Destination
Funds’’), held by the Separate Accounts
to support certain variable life insurance
policies and variable annuity contracts
(the ‘‘Contracts’’) issued by Allianz Life
and Allianz NY (the ‘‘Substitutions’’).
The Section 17 Applicants seek an order
pursuant to section 17(b) of the Act
exempting them from section 17(a) of
the Act to the extent necessary to permit
them to engage in certain in-kind
transactions in connection with the
Substitutions.
FILING DATE: The application was filed
on November 16, 2015 and amended on
June 27, 2016.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the Secretary of
the Commission and serving applicants
with a copy of the request, personally or
by mail. Hearing requests should be
received by the Commission by 5:30
p.m. on August 26, 2016, and should be
accompanied by proof of service on
applicants in the form of an affidavit or,
for lawyers, a certificate of service.
Pursuant to rule 0–5 under the Act,
hearing requests should state the nature
of the requester’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090. Applicants: Allianz Life Insurance
Company of North America, Allianz Life
Variable Account A, and Allianz Life
Variable Account B, 5701 Golden Hills
Dr., Minneapolis, MN 55416–1297;
Allianz Life Insurance Company of New
York, and Allianz Life of NY Variable
Account C, 28 Liberty Street, 38th Floor,
New York, NY 10005–1423; and Allianz
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52939
Variable Insurance Products Trust, 5701
Golden Hills Drive, Minneapolis, MN
55416–1297.
FOR FURTHER INFORMATION CONTACT:
Barbara T. Heussler, Senior Counsel, at
(202) 551–6990 or Mary Kay Frech,
Branch Chief, at (202) 551–6821 (Chief
Counsel’s Office, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
Applicants’ Representations
1. Allianz Life is a stock life insurance
company organized under the laws of
the state of Minnesota. Allianz Life
offers fixed and variable annuities and
individual life insurance. Allianz Life is
licensed to do direct business in 49
states and the District of Columbia.
Allianz Life is an indirect, whollyowned subsidiary of Allianz SE., a
European stock corporation.
2. Allianz NY is a stock life insurance
company organized under the laws of
the state of New York. Allianz NY offers
fixed and variable annuities. Allianz NY
is licensed to do direct business in six
states, including New York and the
District of Columbia. Allianz NY is a
wholly-owned subsidiary of Allianz
Life, and an indirect, wholly-owned
subsidiary of Allianz SE.
3. Allianz Account A is a segregated
asset account of Allianz Life established
under Minnesota insurance laws.
Allianz Account A is used to fund
certain variable life insurance policies
issued by Allianz Life. Allianz Account
A is divided into a number of
subaccounts (each a ‘‘Subaccount’’),
each of which invests in and reflects the
investment performance of a specific
underlying registered investment
company or portfolio thereof (each an
‘‘Investment Option’’). Allianz Account
A is registered as a unit investment trust
under the Act.
4. Allianz Account B is a segregated
asset account of Allianz Life established
under Minnesota insurance laws.
Allianz Account B is used to fund
certain variable annuity contracts issued
by Allianz Life. Allianz Account B is
divided into a number of Subaccounts,
each of which invests in and reflects the
investment performance of a specific
Investment Option. Allianz Account B
is registered as a unit investment trust
under the Act.
5. Allianz Account C is a segregated
asset account of Allianz NY established
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]]>Agencies
[Federal Register Volume 81, Number 154 (Wednesday, August 10, 2016)]
[Notices]
[Pages 52933-52939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18912]
[[Page 52933]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78481; File No. SR-IEX-2016-07]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Rule 11.340(b) To Set Forth the Requirements for the Collection and
Transmission of Data Pursuant to the Regulation NMS Plan To Implement a
Tick Size Pilot Program
August 4, 2016.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 28, 2016, the Investors Exchange LLC (``IEX'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of section 19(b)(1) under the Securities
Exchange Act of 1934 (``Act''), and Rule 19b-4 thereunder, Investors
Exchange LLC (``IEX'' or ``Exchange'') is filing with the Securities
and Exchange Commission (``Commission'') a proposed rule change to
amend Rule 11.340, which is currently reserved, to implement the
Regulation NMS Plan to Implement a Tick Size Pilot Program (``Plan'').
Specifically, the Exchange proposes to adopt Rule 11.340(b) to set
forth the requirements for the collection and transmission of data
pursuant to Appendices B and C of the Plan. The proposed rule change is
substantially similar to proposed rule changes recently approved or
published by the Commission for the Bats BZX Exchange, Inc. f/k/a BATS
Exchange, Inc. (``BZX'') to adopt BZX Rule 11.27(b) which also sets
forth requirements for the collection and transmission of data pursuant
to Appendices B and C of the Plan. The Exchange has designated this
proposal as a ``non-controversial'' proposed rule change pursuant to
section 19(b)(3)(A) of the Act and provided the Commission with the
notice required by Rule 19b-4(f)(6)(iii) under the Act. The text of the
proposed rule change is available at the Exchange's Web site at
www.iextrading.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement 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
On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange,
Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC,
the Nasdaq Stock Market LLC, New York Stock Exchange LLC (``NYSE''),
NYSE MKT LLC, and NYSE Arca, Inc. (collectively ``Participants''),
filed with the Commission, pursuant to section 11A of the Act \4\ and
Rule 608 of Regulation NMS thereunder,\5\ the Plan to Implement a Tick
Size Pilot Program (``Pilot'').\6\ The Participants filed the Plan to
comply with an order issued by the Commission on June 24, 2014.\7\ The
Plan \8\ was published for comment in the Federal Register on November
7, 2014, and approved by the Commission, as modified, on May 6,
2015.\9\ On November 6, 2015, the Commission granted the Participants
an exemption from implementing the Plan until October 3, 2016.\10\ An
amendment to the Plan adding IEX as a Participant will be filed with
the Commission shortly.
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\4\ 15 U.S.C. 78k-1
\5\ 17 CFR 242.608.
\6\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\7\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\8\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\9\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (File No. 4-657) (``Approval Order'').
\10\ See Securities Exchange Act Release No. 76382 (November 6,
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657) (Order
Granting Exemption from Compliance with the National Market System
Plan to Implement a Tick Size Pilot Program).
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The Plan is designed to allow the Commission, market participants,
and the public to study and assess the impact of increment conventions
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Participant is required to comply, and
to enforce compliance by its member organizations, as applicable, with
the provisions of the Plan. As is described more fully below, the
proposed rules would require IEX Members \11\ to comply with the
applicable data collection requirements of the Plan.\12\
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\11\ An IEX Member is ``. . . any registered broker or dealer
that has been admitted to membership in the Exchange. A Member will
have the status of a Member of the Exchange as that term is defined
in Section 3(a)(3) of the Act. Membership may be granted to a sole
proprietor, partnership, corporation, limited liability company, or
other organization that is a registered broker or dealer pursuant to
Section 15 of the Act, and which has been approved by the
Exchange.'' See IEX Rule 1.160(s).
\12\ The Exchange proposes Supplementary Material .01 to Rule
11.340 to provide that the Rule shall be in effect during a pilot
period to coincide with the pilot period for the Plan (including any
extensions to the pilot period for the Plan).
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The Pilot will include stocks of companies with $3 billion or less
in market capitalization, an average daily trading volume of one
million shares or less, and a volume weighted average price of at least
$2.00 for every trading day. The Pilot will consist of a control group
of approximately 1,400 Pilot Securities and three test groups with 400
Pilot Securities in each (selected by a stratified random sampling
process).\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 the
$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 order exception, and a negotiated
trade exception.\15\ Pilot Securities in the third test group (``Test
Group Three'') will be subject to the same quoting and trading
increments as Test Group Two and also
[[Page 52934]]
will be subject to the ``Trade-at'' requirements to prevent price
matching by a market participant that is not displaying at a Trading
Center's ``Best Protected Bid'' or ``Best Protected Offer,'' unless an
enumerated exception applies.\16\ In addition to the exceptions
provided under Test Group Two, an exception for Block Size orders and
exceptions that mirror those under Rule 611 of Regulation NMS \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.
\15\ See Section VI(C) of the Plan.
\16\ See Section VI(D) of the Plan.
\17\ 17 CFR 242.611.
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In approving the Plan, the Commission noted that the Trading Center
data reporting requirements would facilitate an analysis of the effects
of the Pilot on liquidity (e.g., transaction costs by order size),
execution quality (e.g., speed of order executions), market maker
activity, competition between trading venues (e.g., routing frequency
of market orders), transparency (e.g., choice between displayed and
hidden orders), and market dynamics (e.g., rates and speed of order
cancellations).\18\ The Commission noted that Market Maker
profitability data would assist the Commission in evaluating the
effect, if any, of a widened tick increment on market maker profits and
any corresponding changes in the liquidity of small-capitalization
securities.\19\
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\18\ See Approval Order, 80 FR at 27543.
\19\ Id.
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Compliance With the Data Collection Requirements of the Plan
The Plan contains requirements for collecting and transmitting data
to the Commission and to the public.\20\ Specifically, Appendix B.I of
the Plan (Market Quality Statistics) requires Trading Centers \21\ to
submit a variety of market quality statistics, including information
about an order's original size, whether the order was displayable or
not, the cumulative number of orders, the cumulative number of shares
of orders, and the cumulative number of shares executed within specific
time increments, e.g., from 30 seconds to less than 60 seconds after
the time of order receipt. This information shall be categorized by
security, order type, original order size, hidden status, and coverage
under Rule 605.\22\ Appendix B.I of the Plan also contains additional
requirements for market orders and marketable limit orders, including
the share-weighted average spread for executions of orders; the
cumulative number of shares of orders executed with price improvement;
and, for shares executed with price improvement, the share-weighted
average amount per share that prices were improved.
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\20\ The Exchange is also required by the Plan to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with applicable quoting and trading
requirements specified in the Plan. The Exchange intends to
separately propose rules that would require compliance by its
Members with the applicable quoting and trading requirements
specified in the Plan, and has reserved paragraph (a) for such
rules.
\21\ The Plan incorporates the definition of a ``Trading
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS
defines a ``Trading Center'' as ``a national securities exchange or
national securities association that operates an SRO trading
facility, an alternative trading system, an exchange market maker,
an OTC market maker, or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as
agent.'' See 17 CFR 242.600(b).
\22\ 17 CFR 242.605.
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Appendix B.II of the Plan (Market and Marketable Limit Order Data)
requires Trading Centers to submit information relating to market
orders and marketable limit orders, including the time of order
receipt, order type, the order size, the National Best Bid and National
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average
execution price-share-weighted average, and the average execution time-
share-weighted average.
The Plan requires Appendix B.I and B.II data to be submitted by
Participants that operate a Trading Center, and by members of the
Participants that operate Trading Centers. The Plan provides that each
Participant that is a Designated Examining Authority (``DEA'') for a
member of the Participant that operates a Trading Center shall collect
such data in a pipe delimited format, beginning six months prior to the
Pilot Period and ending six months after the end of the Pilot Period.
The Plan also requires the Participant, operating as DEA, to transmit
this information to the SEC within 30 calendar days following month
end.
The Exchange is therefore proposing Rule 11.340(b) to set forth the
requirements for the collection and transmission of data pursuant to
Appendices B and C of the Plan. Proposed Rule 11.340(b) is
substantially similar to proposed rule changes of BZX that were
recently approved or published by the Commission to adopt BZX Rule
11.27(b) which also sets forth requirements for the collection and
transmission of data pursuant to Appendices B and C of the Plan.\23\
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\23\ See Securities Exchange Act Release Nos. 77105 (February
10, 2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-
2015-102); and 77310 (March 7, 2016) (notice for comment and
immediate effectiveness of SR-BATS-2016-27).
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Proposed Rule 11.340(b)(1) requires that a Member that operates a
Trading Center shall establish, maintain and enforce written policies
and procedures that are reasonably designed to comply with the data
collection and transmission requirements of Items I and II to Appendix
B of the Plan, and a Member that is a Market Maker \24\ shall
establish, maintain and enforce written policies and procedures that
are reasonably designed to comply with the data collection and
transmission requirements of Item IV of Appendix B of the Plan and Item
I of Appendix C of the Plan.
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\24\ The Plan defines a Market Maker as ``a dealer registered
with any self-regulatory organization, in accordance with the rules
thereof, as (i) a market maker or (ii) a liquidity provider with an
obligation to maintain continuous, two-sided trading interest.''
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Proposed Rule 11.340(b)(2) provides that the Exchange shall collect
and transmit to the SEC the data described in Items I and II of
Appendix B of the Plan relating to trading activity in Pre-Pilot
Securities and Pilot Securities on a Trading Center operated by the
Exchange. The Exchange shall transmit such data to the SEC in a pipe
delimited format, on a disaggregated basis by Trading Center, within 30
calendar days following month end for: (i) Each Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) each Pilot Security for the period beginning on the
first day of the Pilot Period through six months after the end of the
Pilot Period. The Exchange also shall make such data publicly available
on the Exchange Web site on a monthly basis at no charge and will not
identify the Member that generated the data.
On June 17, 2016 the Commission granted to IEX an application for
registration as a national securities exchange under section 6 of the
Act.\25\ IEX intends to launch exchange operations during a security-
by-security phase-in period scheduled to begin on August 19, 2016.
During the phase-in period, securities will transition from being
available for trading on the Alternative Trading System operated by the
Exchange's affiliate IEX Services LLC (``IEX ATS''), to the Exchange.
Once a security becomes available for trading on the Exchange it will
no longer be available for trading on the IEX ATS.\26\ The IEX ATS
currently reports data for Pilot Securities to FINRA pursuant to FINRA
Rule 6191(b). During the phase-in period, the IEX ATS will continue to
report data to FINRA
[[Page 52935]]
for Pilot Securities that have not yet transitioned to the Exchange.
Data for Pilot Securities that have transitioned to the Exchange will
be reported to the SEC pursuant to IEX Rule 11.340(b), as proposed.
Accordingly, reporting for Pilot Securities will take place as
appropriate based on each Pilot Security's status as either available
for trading on the IEX ATS or the Exchange.
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\25\ See Securities Exchange Act Release No. 34-78101 (June 17,
2016), 81 FR 41141 (June 23, 2016) (File No. 10-222).
\26\ See, https://iextrading.com/trading/alerts/2016/028/#exchange-transition for detailed information on the transition from
the IEX ATS to Exchange.
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Appendix B.IV (Daily Market Maker Participation Statistics)
requires a Participant to collect data related to Market Maker
participation from each Market Maker engaging in trading activity on a
Trading Center operated by the Participant. The Exchange is therefore
proposing Rule 11.340(b)(3) to gather data about a Market Maker's
participation in Pilot Securities and Pre-Pilot Data Collection
Securities. Proposed Rule 11.340(b)(3)(A) provides that a Member that
is a Market Maker shall collect and transmit to their DEA data relating
to Item IV of Appendix B of the Plan with respect to activity conducted
on any Trading Center in Pilot Securities and Pre-Pilot Data Collection
Securities in furtherance of its status as a registered Market Maker,
including a Trading Center that executes trades otherwise than on a
national securities exchange, for transactions that have settled or
reached settlement date. The proposed rule requires Market Makers to
transmit such data in a format required by their DEA, by 12:00 p.m. EST
on T+4 for: (i) Transactions in each Pre-Pilot Data Collection Security
for the period beginning six months prior to the Pilot Period through
the trading day immediately preceding the Pilot Period; and (ii) for
transactions in each Pilot Security for the period beginning on the
first day of the Pilot Period through six months after the end of the
Pilot Period.
The Exchange understands that some Members may have a DEA that is
not a Participant to the Plan and that such non-Participant DEA would
not be subject to the Plan's data collection requirements. In such
case, a DEA that is not a Participant of the Plan would not be required
to collect the required data and may not establish procedures for those
Members for which it acts as DEA to report the data required under
subparagraphs (b)(3)(A) of Rule 11.340 and in accordance with Item IV
of Appendix B of the Plan. Therefore, the Exchange proposes to adopt
subparagraph (b)(3)(B) to Rule 11.340 to require a Member that is a
Market Maker whose DEA is not a Participant to the Plan to transmit the
data collected pursuant to paragraph (3)(A) of Rule 11.340(b) to FINRA,
which is a Participant to the Plan and will collect data relating to
Item IV of Appendix B of the Plan on behalf of the Participants. For
Market Makers for which it is the DEA, FINRA issued a Market Maker
Transaction Data Technical Specification to collect data on Pre-Pilot
Data Collection Securities and Pilot Securities from Trading Centers to
comply with the Plan's data collection requirements.\27\
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\27\ FINRA members for which FINRA is their DEA should refer to
the Market Maker Transaction Technical Specification on the FINRA
Web site at https://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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Proposed Rule 11.340(b)(3)(C) provides that the Exchange shall
transmit the data collected by the DEA or FINRA pursuant to Rule
11.340(b)(3)(A) and (B) above relating to Market Maker activity on a
Trading Center operated by the Exchange to the SEC in a pipe delimited
format within 30 calendar days following month end. The Exchange shall
also make such data publicly available on the Exchange Web site on a
monthly basis at no charge and shall not identify the Trading Center
that generated the data.
Appendix C.I (Market Maker Profitability) requires a Participant to
collect data related to Market Maker profitability from each Market
Maker for which it is the DEA. Specifically, the Participant is
required to collect the total number of shares of orders executed by
the Market Maker; the raw Market Maker realized trading profits, and
the raw Market Maker unrealized trading profits. Data shall be
collected for dates starting six months prior to the Pilot Period
through six months after the end of the Pilot Period. This data shall
be collected on a monthly basis, to be provided in a pipe delimited
format to the Participant, as DEA, within 30 calendar days following
month end. Appendix C.II (Aggregated Market Maker Profitability)
requires the Participant, as DEA, to aggregate the Appendix C.I data,
and to categorize this data by security as well as by the control group
and each Test Group. That aggregated data shall contain information
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
The Exchange is therefore proposing Rule 11.340(b)(4) to set forth
the requirements for the collection and transmission of data pursuant
to Appendix C.I of the Plan. Proposed Rule 11.340(b)(4)(A) requires
that a Member that is a Market Maker shall collect and transmit to
their DEA the data described in Item I of Appendix C of the Plan, as
modified by Paragraph (b)(5) with respect to executions in Pilot
Securities that have settled or reached settlement date that were
executed on any Trading Center. The proposed rule also requires Members
to provide such data in a format required by their DEA by 12 p.m. EST
on T+4 for executions during and outside of Regular Trading Hours in
each: (i) Pre-Pilot Data Collection Security for the period beginning
six months prior to the Pilot Period through the trading day
immediately preceding the Pilot Period; and (ii) Pilot Security for the
period beginning on the first day of the Pilot Period through six
months after the end of the Pilot Period.
For the same reasons set forth above for subparagraph (b)(3)(B) to
Rule 11.340, the Exchange proposes to adopt subparagraph (b)(4)(B) to
Rule 11.340 to require a Member that is a Market Maker whose DEA is not
a Participant to the Plan to transmit the data collected pursuant to
paragraph (4)(A) of Rule 11.340(b) to FINRA. As stated above, FINRA is
a Participant to the Plan and is to collect data relating to Item I of
Appendix C of the Plan on behalf of the Participants. For Market Makers
for which it is the DEA, FINRA issued a Market Maker Transaction Data
Technical Specification to collect data on Pre-Pilot Data Collection
Securities and Pilot Securities from Trading Centers to comply with the
Plan's data collection requirements.\28\
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\28\ Id.
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The Exchange is also adopting a rule setting forth the manner in
which Market Maker participation will be calculated. Item III of
Appendix B of the Plan requires each Participant that is a national
securities exchange to collect daily Market Maker registration
statistics categorized by security, including the following
information: (i) Ticker symbol; (ii) the Participant exchange; (iii)
number of registered market makers; and (iv) the number of other
registered liquidity providers. Therefore, the Exchange proposes to
adopt Rule 11.340(b)(5) providing that the Exchange shall collect and
transmit to the SEC the data described in Item III of Appendix B of the
Plan relating to daily Market Maker registration statistics in a pipe
delimited format within 30 calendar days following month end for: (i)
Transactions in each Pre-Pilot Data Collection Security for the period
beginning six months prior to the Pilot Period through the trading day
immediately preceding the Pilot Period; and (ii) transactions in each
Pilot Security for the period beginning on the first day of the Pilot
Period through six months after the end of the Pilot Period.
[[Page 52936]]
The Exchange notes that, as of the date of this filing, it does not
have any registered Market Makers and therefore will not have daily
Market Maker registration statistics to collect or transmit to the SEC
or to FINRA pursuant to Item III of Appendix B of the Plan unless and
until such time as it has registered Market Makers.
The Exchange is also proposing, through Supplementary Material, to
clarify other aspects of the data collection requirements.\29\ Proposed
Supplementary Material .02 relates to the use of the retail investor
order flag for purposes of Appendix B.II(n) reporting. The Plan
currently states that market and marketable limit orders shall include
a ``yes/no'' field relating to the Retail Investor Order flag. The
Exchange is proposing Supplementary Material .02 to clarify that, for
purposes of the reporting requirement in Appendix B.II(n), a Trading
Center shall report ``y'' to their DEA where it is relying upon the
Retail Investor Order exception to Test Groups Two and Three, and ``n''
for all other instances.\30\ The Exchange believes that requiring the
identification of a Retail Investor Orders only where the exception may
apply (i.e., Pilot Securities in Test Groups Two and Three) is
consistent with Appendix B.II(n).
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\29\ The Exchange is also proposing Supplementary Material .01
to Rule 11.340 to clarify that certain enumerated terms used
throughout Rule 11.340 shall have the same meaning as set forth in
the Plan.
\30\ FINRA, on behalf of the Plan Participants at the time
submitted a letter to the Commission requesting exemption from
certain provisions of the Plan related to data collection. See
letter from Marcia E. Asquith, Senior Vice President and Corporate
Secretary, FINRA dated December 9, 2015 to Robert W. Errett, Deputy
Secretary, Commission (``Exemption Request''). The Commission,
pursuant to its authority under Rule 608(e) of Regulation NMS,
granted BZX, as of February 10, 2016, a limited exemption from the
requirement to comply with certain provisions of the Plan as
specified in the letter and noted herein. See e.g., letter from
David Shillman, Associate Director, Division of Trading and Markets,
Commission to Eric Swanson, General Counsel, BZX, dated February 10,
2016 (``Exemption Letter''). On April 4, 2016, the Commission
granted the National Stock Exchange, Inc. (``NSX''), which was not a
Plan Participant as of February 10, 2016, comparative limited
exemption from such requirements. See, letter from John C. Roeser,
Associate Director, Division of Trading and Markets, Commission to
James Buckley, Chief Regulatory Officer, NSX, dated April 4, 2016.
IEX was not a Plan Participant at the time that such exemptions were
requested or granted and respectfully requests that the Commission
grant to it the same exemptions that the Commission granted to the
other Plan Participants.
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Supplementary Material .03 requires that Members populate a field
to identify to their DEA whether an order is affected by the bands in
place pursuant to the National Market System Plan to Address
Extraordinary Market Volatility.\31\ Pursuant to the Limit-Up Limit-
Down Plan, between 9:30 a.m. and 4:00 p.m., the Securities Information
Processor (``SIP'') calculates a lower price band and an upper price
band for each NMS stock. These price bands represent a specified
percentage above or below the stock's reference price, which generally
is calculated based on reported transactions in that stock over the
preceding five minutes. When one side of the market for an individual
security is outside the applicable price band, the SIP identifies that
quotation as non-executable. When the other side of the market reaches
the applicable price band (e.g., the offer reaches the lower price
band), the security enters a Limit State. The stock would exit a Limit
State if, within 15 seconds of entering the Limit State, all Limit
State Quotations were executed or canceled in their entirety. If the
security does not exit a Limit State within 15 seconds, then the
primary listing exchange declares a five-minute trading pause, which
would be applicable to all markets trading the security.
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\31\ See National Market System Plan to Address Extraordinary
Market Volatility, Securities Exchange Act Release No. 67091 (May
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up
Limit-Down Plan'').
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The Exchange and the other Participants have determined that it is
appropriate to create a new flag for reporting orders that are affected
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall
report a value of ``Y'' to their DEA when the ability of an order to
execute has been affected by the Limit-Up Limit-Down bands in effect at
the time of order receipt. A Trading Center shall report a value of
``N'' to their DEA when the ability of an order to execute has not been
affected by the Limit-Up Limit-Down bands in effect at the time of
order receipt.
Supplementary Material .03 also requires, for securities that may
trade in a foreign market, that the Participant indicate whether the
order was handled domestically, or routed to a foreign venue.
Accordingly, the Participant will indicate, for purposes of Appendix
B.I, whether the order was: (1) Fully executed domestically, or (2)
fully or partially executed on a foreign market. For purposes of
Appendix B.II, the Participant will classify all orders in dually-
listed Pilot and Pre-Pilot Securities as: (1) Directed to a domestic
venue for execution; (2) may only be directed to a foreign venue for
execution; or (3) was fully or partially directed to a foreign venue at
the discretion of the Member. The Exchange believes that this proposed
flag will better identify orders in securities that may trade in a
foreign market, as such orders that were routed to foreign venues would
not be subject to the Plan's quoting and trading requirements, and
could otherwise compromise the integrity of the data.
Supplementary Material .04 relates to the time ranges specified in
Appendix B.I.a(14), B.I.a(15), B.I.a(21) and B.I.a(22).\32\ The
Exchange and the other Participants have determined that it is
appropriate to change the reporting times in these provisions to
require more granular reporting for these categories. Accordingly, the
Exchange proposes to add Appendix B.I.a(14A), which will require
Trading Centers to report the cumulative number of shares of orders
executed from 100 microseconds to less than 1 millisecond after the
time of order receipt. Appendix B.I.a(15) will be changed to require
the cumulative number of shares of orders executed from 1 millisecond
to less than 100 milliseconds after the time of order receipt. The
Exchange also proposes to add Appendix B.I.a(21A), which will require
Trading Centers to report the cumulative number of shares of orders
canceled from 100 microseconds to less than 1 millisecond after the
time of order receipt. Appendix B.I.a(22) will be changed to require
the cumulative number of shares of orders canceled from 1 millisecond
to less than 100 milliseconds after the time of order receipt. The
Exchange believes that these new reporting requirements will contribute
to a meaningful analysis of the Pilot by producing more granular data
on these points.\33\
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\32\ Specifically, Appendix B.I.a(14) requires reporting of the
cumulative number of shares of orders executed from 0 to less than
100 microseconds after the time of order receipt; Appendix B.I.a(15)
requires reporting of the cumulative number of shares of orders
executed from 100 microseconds to less than 100 milliseconds after
the time of order receipt; Appendix B.I.a(21) requires reporting of
the cumulative number of shares of orders cancelled from 0 to less
than 100 microseconds after the time of order receipt; and appendix
B.I.a(22) requires reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less than 100 milliseconds
after the time of order receipt.
\33\ On February 10, 2016, the Commission granted BZX an
exemption from Rule 608(c) related to this provision. See Exemption
Letter, supra, note 30. IEX requests that the Commission grant to it
this same exemption.
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Supplementary Material .05 relates to the relevant measurement for
purposes of Appendix B.I.a(31)-(33) reporting. Currently, the Plan
states that this data shall be reported as of the time of order
execution. The Exchange and the other Participants believe that this
information should more properly be captured at the time of order
receipt as
[[Page 52937]]
evaluating share-weighted average prices at the time of order receipt
is more consistent with the goal of observing the effect of the Pilot
on the liquidity of Pilot Securities. The Exchange is therefore
proposing to make this change through Supplementary Material .05.\34\
This change will make these provisions consistent with the remainder of
the statistics in Appendix B.I.a, which are all based on order receipt.
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\34\ On February 10, 2016, the Commission granted BZX an
exemption from Rule 608(c) related to this provision. See Exemption
Letter, supra, note 30. IEX requests that the Commission grant to it
this same exemption.
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Supplementary Material .06 addresses the status of not-held and
auction orders for purposes of Appendix B.I reporting. Currently,
Appendix B.I sets forth eight categories of orders, including market
orders, marketable limit orders, and inside-thequote resting limit
orders, for which daily market quality statistics must be reported.
Currently, Appendix B.I does not provide a category for not held
orders, clean cross orders, auction orders, or orders received when the
NBBO is crossed. The Exchange and the other Participants have
determined that it is appropriate to include separate categories for
both not held orders and auction orders for purposes of Appendix B
reporting. The Exchange is therefore proposing Supplementary Material
.06 to provide that not held orders shall be included as an order type
for purposes of Appendix B reporting, and shall be assigned the number
(18). Clean cross orders shall be included as an order type for
purposes of Appendix B reporting, and shall be assigned the number
(19); auction orders shall be included an as order type for purposes of
Appendix B reporting, and shall be assigned the number (20); \35\ and
orders that cannot otherwise be classified, including, for example,
orders received when the NBBO is crossed shall be included as an order
type for purposes of Appendix B reporting, and shall be assigned the
number (21). All of these orders already are included in the scope of
Appendix B; however, without this proposed change, these order types
would be categorized with other orders, such as regular held orders,
that should be able to be fully executed upon receipt, which would
compromise the value of this data.
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\35\ The Exchange notes that, as of the date of this filing, it
does not offer order types specifically defined as ``not held,''
``clean cross,'' or ``auction order.''
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The Exchange is proposing Supplementary Material .07 to clarify the
scope of the Plan as it relates to Members that only execute orders
limited purposes. Specifically, The Exchange and the other Participants
believe that a Member that only executes orders otherwise than on a
national securities exchange for the purpose of: (1) Correcting a bona
fide error related to the execution of a customer order; (2) purchasing
a security from a customer at a nominal price solely for purposes of
liquidating the customer's position; or (3) completing the fractional
share portion of an order \36\ shall not be deemed a Trading Center for
purposes of Appendix B to the Plan. The Exchange is therefore proposing
Supplementary Material .09 to make this clarification.
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\36\ The Exchange notes that where a Member purchases a
fractional share from a customer, the Trading Center that executes
the remaining whole shares of that customer order would be subject
to Appendix B of the Plan.
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The Exchange is proposing Supplementary Material .08 to clarify
that, for purposes of the Plan, Trading Centers must begin the data
collection required pursuant to Appendix B.I.a(1) through B.II.(y) of
the Plan and Item I of Appendix C of the Plan on April 4, 2016. While
the Exchange or the Member's DEA will provide the information required
by Appendix B and C of the Plan during the Pilot Period, the
requirement that the Exchange or their DEA provide information to the
SEC within 30 days following month end and make such data publicly
available on its Web site pursuant to Appendix B and C shall commence
six months prior to the beginning of the Pilot Period.\37\
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\37\ In the Approval Order, the SEC noted that the Pilot shall
be implemented within one year of the date of publication, i.e., by
May 6, 2016. See Approval Order, 80 FR at 27545. The SEC
subsequently extended the implementation date approximately five
months to October 3, 2016. See supra, note 9. See also Letter dated
November 4, 2015 from Brendon J. Weiss, Co-Head, Government Affairs,
Intercontinental Exchange/NYSE, to Brent J. Fields, Secretary,
Commission (requesting the data collection period be extended until
six months after the requisite SRO rules are approved, and the
implementation date of the Tick Size Pilot until six months
thereafter).
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The Exchange is proposing Supplementary Material .09 to address the
requirement in Appendix C.I(b) of the Plan that the calculation of raw
Market Maker realized trading profits utilize a last in, first out
(``LIFO'')-like method to determine which share prices shall be used in
that calculation. The Exchange and the other Participants believe that
it is more appropriate to utilize a methodology that yields LIFO-like
results, rather than utilizing a LIFO-like method, and the Exchange is
therefore proposing Supplementary Material .09 to make this change.\38\
The Exchange is proposing that, for purposes of Item I of Appendix C,
the Participants shall calculate daily Market Maker realized
profitability statistics for each trading day on a daily LIFO basis
using reported trade price and shall include only trades executed on
the subject trading day. The daily LIFO calculation shall not include
any positions carried over from previous trading days. For purposes of
Item I.c of Appendix C, the Participants shall calculate daily Market
Maker unrealized profitability statistics for each trading day on an
average price basis. Specifically, the Participants must calculate the
volume weighted average price of the excess (deficit) of buy volume
over sell volume for the current trading day using reported trade
price. The gain (loss) of the excess (deficit) of buy volume over sell
volume shall be determined by using the volume weighted average price
compared to the closing price of the security as reported by the
primary listing exchange. In reporting unrealized trading profits, the
Participant shall also report the number of excess (deficit) shares
held by the Market Maker, the volume weighted average price of that
excess (deficit) and the closing price of the security as reported by
the primary listing exchange used in reporting unrealized profit.\39\
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\38\ Appendix C.I currently requires Market Maker profitability
statistics to include (1) the total number of shares of orders
executed by the Market Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market value of Market
Maker shares and the market value of Market Maker purchases, using a
LIFO-like method; and (3) raw Market Maker unrealized trading
profits, which is the difference between the purchase or sale price
of the end-of-day inventory position of the Market Maker and the
Closing Price. In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a long position,
the purchase price will be subtracted from the Closing Price.
\39\ The Commission granted BZX, as of February 10, 2016, an
exemption from Rule 608(c) related to this provision. See Exemption
Letter, supra, note 30. IEX requests that the Commission grant to it
this same exemption.
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Finally, the Exchange is proposing Supplementary Material .10 to
address the securities that will be used for data collection purposes
prior to the commencement of the Pilot. The Exchange and the other
Participants have determined that it is appropriate to collect data for
a group of securities that is larger, and using different quantitative
thresholds, than the group of securities that will be Pilot Securities.
The Exchange is therefore proposing Supplementary Material .09 to
define ``Pre-Pilot Data Collection Securities'' as the securities
designated by the Participants for purposes of the data collection
requirements described in Items I, II and IV of Appendix B and Item I
of Appendix C of the Plan for the period beginning six months prior to
the
[[Page 52938]]
Pilot Period and ending on the trading day immediately preceding the
Pilot Period. The Participants shall compile the list of Pre-Pilot Data
Collection Securities by selecting all NMS stocks with a market
capitalization of $5 billion or less, a Consolidated Average Daily
Volume (CADV) of 2 million shares or less and a closing price of $1 per
share or more. The market capitalization and the closing price
thresholds shall be applied to the last day of the Pre-Pilot
measurement period, and the CADV threshold shall be applied to the
duration of the Pre-Pilot measurement period. The Pre-Pilot measurement
period shall be the three calendar months ending on the day when the
Pre-Pilot Data Collection Securities are selected. The Pre-Pilot Data
Collection Securities shall be selected thirty days prior to the
commencement of the six-month Pre-Pilot Period. On the trading day that
is the first trading day of the Pilot Period through six months after
the end of the Pilot Period, the data collection requirements will
become applicable to the Pilot Securities only. A Pilot Security will
only be eligible to be included in a Test Group if it was a PrePilot
Security.
Implementation Date
The proposed rule change will be effective to coincide with IEX's
launch of exchange operations during a security-by-security phase-in
period.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of section 6 of the Act,\40\ in general and furthers the
objectives of sections 6(b)(5) of the Act \41\ in particular, in that
it is designed to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest.
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\40\ 15 U.S.C. 78f(b).
\41\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that this proposal is consistent with the Act
because it implements and clarifies the provisions of the Plan, and is
designed to assist the Exchange in meeting its regulatory obligations
pursuant to the Plan. In approving the Plan, the SEC noted that the
Pilot was an appropriate, data-driven test that was designed to
evaluate the impact of wider tick size on trading, liquidity, and the
market quality of securities of smaller capitalization companies, and
was therefore in furtherance of the purposes of the Act. The Exchange
believes that this proposal is in furtherance of the objectives of the
Plan, as identified by the SEC, and is therefore consistent with the
Act because the proposal implements and clarifies the requirements of
the Plan and applies specific obligations to Members in furtherance of
compliance with the Plan.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change implements the provisions of the Plan, and is
designed to assist the Exchange in meeting its regulatory obligations
pursuant to the Plan. The Exchange also notes that the data collection
requirements for Members that operate Trading Centers will apply
equally to all such Members, as will the data collection requirements
for Market Makers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to section
19(b)(3)(A) of the Act \42\ and Rule 19b-4(f)(6) thereunder.\43\
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \44\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \45\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Commission believes that waiver of the operative delay is consistent
with the protection of investors and the public interest because it
would allow the Exchange to implement the proposed rule change to
coincide with IEX's intent to launch exchange operations during a
security-by-security phase-in period scheduled to begin on August 19,
2016. Therefore, the Commission hereby waives the operative delay and
designates the proposal operative upon filing.\46\
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\44\ 17 CFR 240.19b-4(f)(6).
\45\ 17 CFR 240.19b-4(f)(6)(iii).
\46\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-IEX-2016-07 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-IEX-2016-07. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the
[[Page 52939]]
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-IEX-2016-07, and should be
submitted on or before August 31, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18912 Filed 8-9-16; 8:45 am]
BILLING CODE 8011-01-P
