Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange Rule 11.21 To Describe Changes to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program, 62219-62221 [2016-21647]
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Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
This order provides notice of filing of
Amendment No. 1 and approves the
proposal, as modified by Amendment
No. 1, on an accelerated basis.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78763; File No. SR–
BatsEDGA–2016–15]
Self-Regulatory Organizations; Bats
EDGA Exchange, Inc.; Notice of Filing
of Amendment No. 1 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 1, To Amend
Exchange Rule 11.21 To Describe
Changes to System Functionality
Necessary To Implement the
Regulation NMS Plan To Implement a
Tick Size Pilot Program
September 2, 2016.
I. Introduction
On June 29, 2016, Bats EDGA
Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGA’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange Act’’
or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2
a proposed rule change to adopt
Exchange Rule 11.21(c) to describe
changes to System 3 functionality to
implement the Regulation NMS Plan to
Implement a Tick Size Pilot Program
(‘‘Plan’’ or ‘‘Pilot’’).4 The proposed rule
change was published for comment in
the Federal Register on July 20, 2016.5
The Commission received one comment
letter from the Exchange in response to
the Notice.6 On September 1, 2016, the
Exchange filed an amendment to the
proposed rule change (‘‘Amendment No.
1’’), which supersedes and replaces the
proposal in its entirety.7
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘System’’ is defined as the ‘‘electronic
communications and trading facility designated by
the Board of Directors of the Exchange through
which securities orders of Users are consolidated
for ranking, execution and, when applicable,
routing away.’’ See Exchange Rule 1.5(aa).
4 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’). Unless otherwise specified,
capitalized terms used in this rule filing are defined
as set forth in the Plan.
5 Securities Exchange Act Release No. 78330 (July
14, 2016), 81 FR 47223 (‘‘Notice’’).
6 See Letter to Brent J. Fields, Secretary,
Commission, from Eric Swanson, General Counsel,
Exchange, dated July 26, 2016 (‘‘Exchange Letter’’).
7 In Amendment No. 1, the Exchange proposes to:
(1) Apply the changes in proposed Rule 11.21(c) to
all Pilot Securities; (2) clarify in Rule 11.21(c)(1)
that the increment for Market Orders and Rule
11.21(c)(5) that the increment for Market Maker Peg
Orders will be at ‘‘permissible’’ increments; (3) state
in Rule 11.21(c)(2) that orders with a Market Peg
instruction, Rule 11.21(c)(4) that orders with a
Discretionary Range, and Rule 11.21(c)(6) that
Supplemental Peg Orders will not be accepted in
Pilot Securities; (4) clarify in Rule 11.21(c)(3) that
MidPoint Peg Orders may not be alternatively
pegged to one minimum price variation inside the
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2 17
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II. Description of the Amended
Proposal
Proposed Exchange Rule 11.21(c)
would specify the order handling for the
following order types in Pilot Securities:
(i) Market Orders; (ii) orders with a
Market Peg instruction; (iii) MidPoint
Peg Orders; (iv) orders with a
Discretionary Range instruction; (v)
Market Maker Peg Orders; (vi)
Supplemental Peg Orders; and (vii)
orders subject to the Display-Price
Sliding process. As proposed, such
order handling would apply to all
orders entered into the System for Pilot
Securities (i.e., Test Group One, Test
Group Two, Test Group Three, and the
Control Group). Additionally, the
Exchange proposes to amend the last
sentence of Rule 11.21(a)(4) to specify
that the current permissible price
increments are set forth under Exchange
Rule 11.6(i), Minimum Price Variation.
The Exchange proposes in Exchange
Rule 11.21(c) specific procedures for
handling, executing, repricing and
displaying certain order types and order
type instructions. The provisions in
proposed Rule 11.21(c) would apply to
all Pilot Securities. Further, the
Exchange proposes that only the
provisions in Exchange Rules 11.21(a)
and (b) would be limited to the Pilot
Period.8
1. Market Orders
Proposed Exchange Rule 11.21(c)(1)
provides that for purposes of
determining whether the execution
price of a Market Order is more than 5
percent worse than the national best bid
or offer (‘‘NBBO’’) 9 under current
Exchange Rule 11.8(a)(7), the execution
price for a buy (sell) will be rounded
down (up) to the nearest permissible
increment.10
2. Market Peg Instruction
Under Exchange Rule 11.9(c)(8)(B), an
order with a Market Peg instruction is
pegged to the contra-side NBBO. EDGA
Users can specify that such an order
will offset the inside quote on the contra
side of the market by an amount (‘‘Offset
same side of the NBBO as the order; (5) delete the
proposal to amend orders with a Non-Displayed
instruction; and (6) clarify how orders subject to
Display-Price Sliding will operate when they are
unexecutable at the locking price.
8 The Exchange proposes to clarify in the
introduction to Exchange Rule 11.21 that only the
provisions in 11.21(a) and 11.21(b) would be in
effect during the Pilot Period.
9 See Exchange Rule 1.5(o).
10 See Amendment No. 1.
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62219
Amount’’). Under proposed Exchange
Rule 11.21(c)(2), the Exchange proposes
not to accept orders with a Market Peg
instruction, regardless of price, in any
Pilot Security.11
3. MidPoint Peg Orders
Under Exchange Rule 11.9(c)(9), the
System automatically adjusts the price
of a MidPoint Peg Order in response to
changes in the NBBO to be pegged to the
mid-point of the NBBO, or,
alternatively, pegged to the less
aggressive midpoint of the NBBO, or
one minimum price variation inside the
same side of the NBBO as the MidPoint
Peg Order.
Under proposed Exchange Rule
11.21(c)(3), the Exchange proposes that
MidPoint Peg Orders for Pilot Securities
would not be permitted to alternatively
peg to one minimum price variation
inside the same side of the NBBO as the
order.12
4. Discretionary Range Instruction
Under Exchange Rule 11.6(d), an
order with a Discretionary Range
instructionis a limit order with a
displayed or non-displayed ranked price
and size and an additional nondisplayed ‘‘discretionary price.’’ The
Exchange proposes to not accept orders
with a Discretionary Range instruction,
regardless of price, in any Pilot
Security.13
5. Market Maker Peg Orders
Under Exchange Rule 11.8(f), a
Market Maker Peg Order is a limit order
that is automatically priced by the
System at the Designated Percentage (as
defined in Exchange Rule 11.20(d)(2)D))
away from the then current national best
bid (‘‘NBB’’) or national best offer
(‘‘NBO’’), or if no NBB or NBO, at the
Designated Percentage away from the
last reported sale from the responsible
single plan processor in order to comply
with the quotation requirements for
Market Makers set forth in Exchange
Rule 11.20(d). The Exchange proposes
that Market Marker Peg Orders to buy
(sell) be rounded up (down) to the
nearest permissible increment when the
pricing results in an impermissible
increment.
6. Supplemental Peg Orders
Under Exchange Rule 11.8(g), a
Supplemental Peg Order is a nondisplayed limit order that posts to the
Exchange Book and thereafter is eligible
for execution at the NBB for buy orders
and NBO for sell orders against routable
11 Id.
12 Id.
13 Id.
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08SEN1
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Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
orders that are equal to or less than the
aggregate size of the Supplemental Peg
Order interest available at that price.
The Exchange proposes not to accept
Supplemental Peg Orders, regardless of
price, for any Pilot Security.14
7. Display-Price Sliding
Under Exchange Rule 11.6(l)(1)(B), an
order eligible for display by the
Exchange, that at the time of entry
would create a violation of Rule 610(d)
of Regulation NMS by locking or
crossing a Protected Quotation of an
external market, would be ranked at the
locking price in the Exchange Book and
displayed by the System at one
minimum price variation below the
current NBO (for bids) or one minimum
price variation above the current NBB
(for offers). The ranked and displayed
prices of an order subject to DisplayPrice Sliding may be adjusted once or
multiple times depending on the
instructions of a User and changes to the
prevailing NBBO.
The Exchange proposes that orders
subject to the Display-Price Sliding that
are unexecutable at the locking price
will be ranked at the midpoint of the
NBBO, and displayed one minimum
price variation below (above) the
current NBO (NBB) for bids (for offers)
for all Pilot Securities. In the Control
Group, Test Group One, and Test Group
Two, these orders would be initially
ranked at the locking price and
displayed one minimum price variation
away. If a subsequent incoming PostOnly Order arrives on the Exchange
book on the opposite side, then the
orders subject to Display-Price Sliding
would be adjusted to rank at the
midpoint of the NBBO and continue to
be displayed at one minimum price
variation away. In Test Group Three,
orders subject to Display-Price Sliding
would be ranked at the midpoint of the
NBBO and displayed at one minimum
price variation away. In addition, the
Exchange proposes to cancel orders
subject to Display-Price Sliding when
the NBBO widens and a contra-side
Non-Displayed Order is resting on the
Exchange Book at a price that such
order would adjust, and the User has
selected a single price adjustment. Like
today, if the User has selected multiple
price adjustments an order subject to
Display-Price Sliding would not cancel
in this scenario.
III. Discussion and Commission’s
Findings
After careful review of the proposed
rule change, as modified by Amendment
No. 1, the Commission finds that the
14 Id.
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19:34 Sep 07, 2016
Jkt 238001
proposal, as modified by Amendment
No. 1,15 is consistent with the
requirements of the Exchange Act and
the rules and regulations thereunder
that are applicable to a national
securities exchange.16 Specifically, the
Commission finds that the rule change
is consistent with Section 6(b)(5) of the
Exchange Act, which requires that the
rules of a national securities exchange
be designed, among other things, to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and to
protect investors and the public interest;
and are not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
As noted in the Approval Order, the
Plan is by design, an objective, datadriven test to evaluate how a wider tick
size would impact trading, liquidity,
and market quality of securities of
smaller capitalization companies. In
addition, the Plan is designed with three
Test Groups and a Control Group, to
allow analysis and comparison of
incremental market structure changes
on the Pilot Securities and is designed
to produce empirical data that could
inform future policy decisions.
The Exchange proposes certain
changes to modify the operation of the
System for compliance with the Plan.
For example, the Exchange proposes to
clarify how Market Orders and Market
Maker Peg Orders would be rounded to
permissible increments under the Plan.
The Commission finds that these
changes are consistent with the Section
6(b)(5) of the Exchange Act 17 and Rule
608 of Regulation NMS 18 because they
implement the Plan and clarify
Exchange rules.
In addition, the Exchange proposes to
eliminate certain order types and
modify certain order handling functions
for Pilot Securities. Specifically, the
Exchange proposes to no longer accept
three order types: Orders with a Market
Peg instruction, orders with a
Discretionary Range instruction, and
Supplemental Peg Orders. The
Exchange noted that these orders are
15 The Commission notes that the Exchange Letter
was submitted in connection with the Exchange’s
original proposal. Because the Exchange has filed
Amendment No. 1, which supersedes and replaces
the Exchange’s original proposal in its entirety, the
Commission does not believe it is necessary to
summarize or respond to the Exchange Letter.
16 In approving this rule change, the Commission
has considered the rule’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
17 15 U.S.C. 78f(b)(5).
18 17 CFR 242.608.
PO 00000
Frm 00149
Fmt 4703
Sfmt 4703
infrequently used in Pilot Securities.
The Exchange stated that eliminating
these order types for Pilot Securities
could reduce System complexity and
maintain consistent functionality among
all Pilot Securities. Finally, the
Exchange noted that these order types
would have limited ability to execute
under Test Group Three.
The Exchange also proposes to change
the handling of orders subject to
Display-Price Sliding in Pilot Securities.
Orders that are subject to Display PriceSliding in Pilot Securities that are
unexecutable at the locking price will be
ranked at the midpoint of the NBBO and
displayed one minimum variation away.
Finally, the Exchange proposes to
modify the handling of MidPoint Peg
Orders in Pilot Securities. As proposed,
MidPoint Peg Orders would not be able
to alternatively peg to one minimum
price variation inside the same side of
the NBBO as the order. The Exchange
noted that there is a de minimis usage
of the alternative pegging function in
Pilot Securities that does not justify the
complexity and risk to the System that
would be created by re-programming the
System to support the function.
In the Notice, the Commission noted
that proposed rule changes, other than
those necessary for compliance with
Plan, that are targeted at Pilot Securities,
that have a disparate impact on different
Test Groups and the Control Group, and
that are to apply temporarily only for
the Pilot Period, could bias the results
of the Pilot and undermine the value of
the data generated in informing future
policy decisions. The Commission notes
that the Exchange has modified its
proposal so that those proposed changes
that are not necessary for compliance
with the Plan apply equally to all three
Test Groups and the Control Group, and
their duration is not limited to the Pilot
Period. Thus, the Commission believes
that the incremental design of the Pilot
is maintained such that the data
generated by the Test Groups and the
Control Group could allow the
Commission and interested parties to
compare the change in market structure
`
of each group vis-a-vis the other groups.
Further, the Commission does not
believe that the changes would bias the
results of the Pilot or undermine the
value of the data generated in informing
future policy decisions.
Accordingly, the Commission finds
that the proposed rule change, as
modified by Amendment No.1, is
consistent with the requirements of the
Exchange Act.
E:\FR\FM\08SEN1.SGM
08SEN1
Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
IV. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposal, as
modified by Amendment No. 1, is
consistent with the Exchange Act.
Comments may be submitted by any of
the following methods:
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of Amendment No.
1 in the Federal Register. In
Amendment No. 1, the Exchange
proposes to: (1) Apply the changes in
proposed Rule 11.21(c) to all Pilot
Securities; (2) clarify in Rule 11.21(c)(1)
that the increment for Market Orders
and Rule 11.21(c)(5) that the increment
for Market Maker Peg Orders will be at
‘‘permissible’’ increments; (3) state in
Rule 11.21(c)(2) that orders with a
Market Peg instruction, Rule 11.21(c)(4)
that orders with a Discretionary Range,
and Rule 11.21(c)(6) that Supplemental
Peg Orders will not be accepted in Pilot
Securities; (4) clarify in Rule 11.21(c)(3)
that MidPoint Peg Orders may not be
alternatively pegged to one minimum
price variation inside the same side of
the NBBO as the order; (5) delete the
proposal to amend orders with a NonDisplayed instruction; and (6) clarify
how orders subject to Display-Price
Sliding will operate when they are
unexecutable at the locking price.
The Commission believes that
Amendment No. 1 modifies the
proposal so that it does not cause a
disparate impact on different Test
Groups and the Control Group. In
addition, the Commission notes that the
Pilot is scheduled to start on October 3,
2016, and accelerated approval would
ensure that the rules of the Exchange
would be in place for the start of the
Pilot. Accordingly, the Commission
finds good cause, pursuant to Section
19(b)(2) of the Exchange Act,19 to
approve the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
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–
BatsEDGA–2016–15 on the subject line.
Paper Comments
mstockstill on DSK3G9T082PROD with NOTICES
• 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–BatsEDGA–2016–15. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing will also 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–
BatsEDGA–2016–15 and should be
submitted on or before September 29,
2016.
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19:34 Sep 07, 2016
Jkt 238001
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,20
that the proposed rule change (SR–
BatsEDGA–2016–15), as modified by
Amendment No. 1, be and hereby is
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Brent J. Fields,
Secretary.
[FR Doc. 2016–21647 Filed 9–7–16; 8:45 am]
BILLING CODE 8011–01–P
19 15
U.S.C. 78s(b)(2).
20 Id.
21 17
PO 00000
CFR 200.30–3(a)(12)
Frm 00150
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62221
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension:
Form 10–K, SEC File No. 270–48, OMB
Control No. 3235–0063
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Form 10–K (17 CFR 249.310) is filed
by issuers of securities to satisfy their
annual reporting obligations under to
Section 13 or 15(d) of the Exchange Act
(‘‘Exchange Act’’) (15 U.S.C. 78m or
78o(d)). The information provided by
Form 10–K is intended to ensure the
adequacy of information available to
investors and securities markets about
an issuer. Form 10–K takes
approximately 2003.7884 hours per
response to prepare and is filed by
approximately 8,137 respondents. We
estimate that 75% of the approximately
2003.7884 hours per response
(1,502.8413 hours) is prepared by the
company for an annual reporting burden
of 12,228,620 hours (1,502.8413 hours
per response × 8,137 responses).
Written comments are invited on: (a)
Whether this proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of burden imposed by the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
E:\FR\FM\08SEN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 174 (Thursday, September 8, 2016)]
[Notices]
[Pages 62219-62221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21647]
[[Page 62219]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78763; File No. SR-BatsEDGA-2016-15]
Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice
of Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Amend
Exchange Rule 11.21 To Describe Changes to System Functionality
Necessary To Implement the Regulation NMS Plan To Implement a Tick Size
Pilot Program
September 2, 2016.
I. Introduction
On June 29, 2016, Bats EDGA Exchange, Inc. (``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt Exchange Rule 11.21(c)
to describe changes to System \3\ functionality to implement the
Regulation NMS Plan to Implement a Tick Size Pilot Program (``Plan'' or
``Pilot'').\4\ The proposed rule change was published for comment in
the Federal Register on July 20, 2016.\5\ The Commission received one
comment letter from the Exchange in response to the Notice.\6\ On
September 1, 2016, the Exchange filed an amendment to the proposed rule
change (``Amendment No. 1''), which supersedes and replaces the
proposal in its entirety.\7\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The term ``System'' is defined as the ``electronic
communications and trading facility designated by the Board of
Directors of the Exchange through which securities orders of Users
are consolidated for ranking, execution and, when applicable,
routing away.'' See Exchange Rule 1.5(aa).
\4\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (``Approval Order''). Unless otherwise
specified, capitalized terms used in this rule filing are defined as
set forth in the Plan.
\5\ Securities Exchange Act Release No. 78330 (July 14, 2016),
81 FR 47223 (``Notice'').
\6\ See Letter to Brent J. Fields, Secretary, Commission, from
Eric Swanson, General Counsel, Exchange, dated July 26, 2016
(``Exchange Letter'').
\7\ In Amendment No. 1, the Exchange proposes to: (1) Apply the
changes in proposed Rule 11.21(c) to all Pilot Securities; (2)
clarify in Rule 11.21(c)(1) that the increment for Market Orders and
Rule 11.21(c)(5) that the increment for Market Maker Peg Orders will
be at ``permissible'' increments; (3) state in Rule 11.21(c)(2) that
orders with a Market Peg instruction, Rule 11.21(c)(4) that orders
with a Discretionary Range, and Rule 11.21(c)(6) that Supplemental
Peg Orders will not be accepted in Pilot Securities; (4) clarify in
Rule 11.21(c)(3) that MidPoint Peg Orders may not be alternatively
pegged to one minimum price variation inside the same side of the
NBBO as the order; (5) delete the proposal to amend orders with a
Non-Displayed instruction; and (6) clarify how orders subject to
Display-Price Sliding will operate when they are unexecutable at the
locking price.
---------------------------------------------------------------------------
This order provides notice of filing of Amendment No. 1 and
approves the proposal, as modified by Amendment No. 1, on an
accelerated basis.
II. Description of the Amended Proposal
Proposed Exchange Rule 11.21(c) would specify the order handling
for the following order types in Pilot Securities: (i) Market Orders;
(ii) orders with a Market Peg instruction; (iii) MidPoint Peg Orders;
(iv) orders with a Discretionary Range instruction; (v) Market Maker
Peg Orders; (vi) Supplemental Peg Orders; and (vii) orders subject to
the Display-Price Sliding process. As proposed, such order handling
would apply to all orders entered into the System for Pilot Securities
(i.e., Test Group One, Test Group Two, Test Group Three, and the
Control Group). Additionally, the Exchange proposes to amend the last
sentence of Rule 11.21(a)(4) to specify that the current permissible
price increments are set forth under Exchange Rule 11.6(i), Minimum
Price Variation.
The Exchange proposes in Exchange Rule 11.21(c) specific procedures
for handling, executing, repricing and displaying certain order types
and order type instructions. The provisions in proposed Rule 11.21(c)
would apply to all Pilot Securities. Further, the Exchange proposes
that only the provisions in Exchange Rules 11.21(a) and (b) would be
limited to the Pilot Period.\8\
---------------------------------------------------------------------------
\8\ The Exchange proposes to clarify in the introduction to
Exchange Rule 11.21 that only the provisions in 11.21(a) and
11.21(b) would be in effect during the Pilot Period.
---------------------------------------------------------------------------
1. Market Orders
Proposed Exchange Rule 11.21(c)(1) provides that for purposes of
determining whether the execution price of a Market Order is more than
5 percent worse than the national best bid or offer (``NBBO'') \9\
under current Exchange Rule 11.8(a)(7), the execution price for a buy
(sell) will be rounded down (up) to the nearest permissible
increment.\10\
---------------------------------------------------------------------------
\9\ See Exchange Rule 1.5(o).
\10\ See Amendment No. 1.
---------------------------------------------------------------------------
2. Market Peg Instruction
Under Exchange Rule 11.9(c)(8)(B), an order with a Market Peg
instruction is pegged to the contra-side NBBO. EDGA Users can specify
that such an order will offset the inside quote on the contra side of
the market by an amount (``Offset Amount''). Under proposed Exchange
Rule 11.21(c)(2), the Exchange proposes not to accept orders with a
Market Peg instruction, regardless of price, in any Pilot Security.\11\
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
3. MidPoint Peg Orders
Under Exchange Rule 11.9(c)(9), the System automatically adjusts
the price of a MidPoint Peg Order in response to changes in the NBBO to
be pegged to the mid-point of the NBBO, or, alternatively, pegged to
the less aggressive midpoint of the NBBO, or one minimum price
variation inside the same side of the NBBO as the MidPoint Peg Order.
Under proposed Exchange Rule 11.21(c)(3), the Exchange proposes
that MidPoint Peg Orders for Pilot Securities would not be permitted to
alternatively peg to one minimum price variation inside the same side
of the NBBO as the order.\12\
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\12\ Id.
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4. Discretionary Range Instruction
Under Exchange Rule 11.6(d), an order with a Discretionary Range
instructionis a limit order with a displayed or non-displayed ranked
price and size and an additional non-displayed ``discretionary price.''
The Exchange proposes to not accept orders with a Discretionary Range
instruction, regardless of price, in any Pilot Security.\13\
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\13\ Id.
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5. Market Maker Peg Orders
Under Exchange Rule 11.8(f), a Market Maker Peg Order is a limit
order that is automatically priced by the System at the Designated
Percentage (as defined in Exchange Rule 11.20(d)(2)D)) away from the
then current national best bid (``NBB'') or national best offer
(``NBO''), or if no NBB or NBO, at the Designated Percentage away from
the last reported sale from the responsible single plan processor in
order to comply with the quotation requirements for Market Makers set
forth in Exchange Rule 11.20(d). The Exchange proposes that Market
Marker Peg Orders to buy (sell) be rounded up (down) to the nearest
permissible increment when the pricing results in an impermissible
increment.
6. Supplemental Peg Orders
Under Exchange Rule 11.8(g), a Supplemental Peg Order is a non-
displayed limit order that posts to the Exchange Book and thereafter is
eligible for execution at the NBB for buy orders and NBO for sell
orders against routable
[[Page 62220]]
orders that are equal to or less than the aggregate size of the
Supplemental Peg Order interest available at that price. The Exchange
proposes not to accept Supplemental Peg Orders, regardless of price,
for any Pilot Security.\14\
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\14\ Id.
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7. Display-Price Sliding
Under Exchange Rule 11.6(l)(1)(B), an order eligible for display by
the Exchange, that at the time of entry would create a violation of
Rule 610(d) of Regulation NMS by locking or crossing a Protected
Quotation of an external market, would be ranked at the locking price
in the Exchange Book and displayed by the System at one minimum price
variation below the current NBO (for bids) or one minimum price
variation above the current NBB (for offers). The ranked and displayed
prices of an order subject to Display-Price Sliding may be adjusted
once or multiple times depending on the instructions of a User and
changes to the prevailing NBBO.
The Exchange proposes that orders subject to the Display-Price
Sliding that are unexecutable at the locking price will be ranked at
the midpoint of the NBBO, and displayed one minimum price variation
below (above) the current NBO (NBB) for bids (for offers) for all Pilot
Securities. In the Control Group, Test Group One, and Test Group Two,
these orders would be initially ranked at the locking price and
displayed one minimum price variation away. If a subsequent incoming
Post-Only Order arrives on the Exchange book on the opposite side, then
the orders subject to Display-Price Sliding would be adjusted to rank
at the midpoint of the NBBO and continue to be displayed at one minimum
price variation away. In Test Group Three, orders subject to Display-
Price Sliding would be ranked at the midpoint of the NBBO and displayed
at one minimum price variation away. In addition, the Exchange proposes
to cancel orders subject to Display-Price Sliding when the NBBO widens
and a contra-side Non-Displayed Order is resting on the Exchange Book
at a price that such order would adjust, and the User has selected a
single price adjustment. Like today, if the User has selected multiple
price adjustments an order subject to Display-Price Sliding would not
cancel in this scenario.
III. Discussion and Commission's Findings
After careful review of the proposed rule change, as modified by
Amendment No. 1, the Commission finds that the proposal, as modified by
Amendment No. 1,\15\ is consistent with the requirements of the
Exchange Act and the rules and regulations thereunder that are
applicable to a national securities exchange.\16\ Specifically, the
Commission finds that the rule change is consistent with Section
6(b)(5) of the Exchange Act, which requires that the rules of a
national securities exchange be designed, among other things, to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and to protect investors and the public interest; and are not designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\15\ The Commission notes that the Exchange Letter was submitted
in connection with the Exchange's original proposal. Because the
Exchange has filed Amendment No. 1, which supersedes and replaces
the Exchange's original proposal in its entirety, the Commission
does not believe it is necessary to summarize or respond to the
Exchange Letter.
\16\ In approving this rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
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As noted in the Approval Order, the Plan is by design, an
objective, data-driven test to evaluate how a wider tick size would
impact trading, liquidity, and market quality of securities of smaller
capitalization companies. In addition, the Plan is designed with three
Test Groups and a Control Group, to allow analysis and comparison of
incremental market structure changes on the Pilot Securities and is
designed to produce empirical data that could inform future policy
decisions.
The Exchange proposes certain changes to modify the operation of
the System for compliance with the Plan. For example, the Exchange
proposes to clarify how Market Orders and Market Maker Peg Orders would
be rounded to permissible increments under the Plan. The Commission
finds that these changes are consistent with the Section 6(b)(5) of the
Exchange Act \17\ and Rule 608 of Regulation NMS \18\ because they
implement the Plan and clarify Exchange rules.
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\17\ 15 U.S.C. 78f(b)(5).
\18\ 17 CFR 242.608.
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In addition, the Exchange proposes to eliminate certain order types
and modify certain order handling functions for Pilot Securities.
Specifically, the Exchange proposes to no longer accept three order
types: Orders with a Market Peg instruction, orders with a
Discretionary Range instruction, and Supplemental Peg Orders. The
Exchange noted that these orders are infrequently used in Pilot
Securities. The Exchange stated that eliminating these order types for
Pilot Securities could reduce System complexity and maintain consistent
functionality among all Pilot Securities. Finally, the Exchange noted
that these order types would have limited ability to execute under Test
Group Three.
The Exchange also proposes to change the handling of orders subject
to Display-Price Sliding in Pilot Securities. Orders that are subject
to Display Price-Sliding in Pilot Securities that are unexecutable at
the locking price will be ranked at the midpoint of the NBBO and
displayed one minimum variation away.
Finally, the Exchange proposes to modify the handling of MidPoint
Peg Orders in Pilot Securities. As proposed, MidPoint Peg Orders would
not be able to alternatively peg to one minimum price variation inside
the same side of the NBBO as the order. The Exchange noted that there
is a de minimis usage of the alternative pegging function in Pilot
Securities that does not justify the complexity and risk to the System
that would be created by re-programming the System to support the
function.
In the Notice, the Commission noted that proposed rule changes,
other than those necessary for compliance with Plan, that are targeted
at Pilot Securities, that have a disparate impact on different Test
Groups and the Control Group, and that are to apply temporarily only
for the Pilot Period, could bias the results of the Pilot and undermine
the value of the data generated in informing future policy decisions.
The Commission notes that the Exchange has modified its proposal so
that those proposed changes that are not necessary for compliance with
the Plan apply equally to all three Test Groups and the Control Group,
and their duration is not limited to the Pilot Period. Thus, the
Commission believes that the incremental design of the Pilot is
maintained such that the data generated by the Test Groups and the
Control Group could allow the Commission and interested parties to
compare the change in market structure of each group vis-[agrave]-vis
the other groups. Further, the Commission does not believe that the
changes would bias the results of the Pilot or undermine the value of
the data generated in informing future policy decisions.
Accordingly, the Commission finds that the proposed rule change, as
modified by Amendment No.1, is consistent with the requirements of the
Exchange Act.
[[Page 62221]]
IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposal, as
modified by Amendment No. 1, is consistent with the Exchange 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-BatsEDGA-2016-15 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-BatsEDGA-2016-15. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-
BatsEDGA-2016-15 and should be submitted on or before September 29,
2016.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of Amendment No. 1 in the
Federal Register. In Amendment No. 1, the Exchange proposes to: (1)
Apply the changes in proposed Rule 11.21(c) to all Pilot Securities;
(2) clarify in Rule 11.21(c)(1) that the increment for Market Orders
and Rule 11.21(c)(5) that the increment for Market Maker Peg Orders
will be at ``permissible'' increments; (3) state in Rule 11.21(c)(2)
that orders with a Market Peg instruction, Rule 11.21(c)(4) that orders
with a Discretionary Range, and Rule 11.21(c)(6) that Supplemental Peg
Orders will not be accepted in Pilot Securities; (4) clarify in Rule
11.21(c)(3) that MidPoint Peg Orders may not be alternatively pegged to
one minimum price variation inside the same side of the NBBO as the
order; (5) delete the proposal to amend orders with a Non-Displayed
instruction; and (6) clarify how orders subject to Display-Price
Sliding will operate when they are unexecutable at the locking price.
The Commission believes that Amendment No. 1 modifies the proposal
so that it does not cause a disparate impact on different Test Groups
and the Control Group. In addition, the Commission notes that the Pilot
is scheduled to start on October 3, 2016, and accelerated approval
would ensure that the rules of the Exchange would be in place for the
start of the Pilot. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Exchange Act,\19\ to approve the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
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\19\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\20\ that the proposed rule change (SR-BatsEDGA-2016-15),
as modified by Amendment No. 1, be and hereby is approved on an
accelerated basis.
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\20\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12)
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Brent J. Fields,
Secretary.
[FR Doc. 2016-21647 Filed 9-7-16; 8:45 am]
BILLING CODE 8011-01-P
