Self-Regulatory Organizations; Bats EDGX 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 11.22 To Describe Changes to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program, 62205-62208 [2016-21650]

Download as PDF Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such 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 under section 19(b)(2)(B) 20 of the Act 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: mstockstill on DSK3G9T082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– NYSEArca–2016–122 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–NYSEArca–2016–122. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 20 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 19:34 Sep 07, 2016 Jkt 238001 10:00 a.m. and 3:00 p.m. Copies of such 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 No. SR–NYSEArca– 2016–122, and should be submitted on or before September 29, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–21495 Filed 9–7–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78767; File No. SR– BatsEDGX–2016–26] Self-Regulatory Organizations; Bats EDGX 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 11.22 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 EDGX Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGX’’) 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 11.22(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 21 17 CFR 200.30–3(a)(12). 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(cc). 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. 1 15 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 62205 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 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 11.22(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 11.22(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 11.22(c) specific procedures for handling, executing, repricing and displaying certain order types and order type instructions. The provisions in proposed Rule 11.22(c) would apply to all Pilot Securities. Further, the Exchange proposes that only the provisions in Exchange Rules 11.22(a) and (b) would be limited to the Pilot Period.8 5 Securities Exchange Act Release No. 78331 (July 14, 2016), 81 FR 47205 (‘‘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 11.22(c) to all Pilot Securities; (2) clarify in Rule 11.22(c)(1) that the increment for Market Orders and Rule 11.22(c)(5) that the increment for Market Maker Peg Orders will be at ‘‘permissible’’ increments; (3) state in Rule 11.22(c)(2) that orders with a Market Peg instruction, Rule 11.22(c)(4) that orders with a Discretionary Range, and Rule 11.22(c)(6) that Supplemental Peg Orders will not be accepted in Pilot Securities; (4) clarify in Rule 11.22(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. 8 The Exchange proposes to clarify in the introduction to Exchange Rule 11.22 that only the E:\FR\FM\08SEN1.SGM Continued 08SEN1 62206 Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices 1. Market Orders Proposed Exchange Rule 11.22(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 11.6(j)(1), an order with a Market Peg instruction is pegged to the contra-side NBBO. EDGX 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 11.22(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 11.8(d), 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 11.22(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 instruction is 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 mstockstill on DSK3G9T082PROD with NOTICES 5. Market Maker Peg Orders Under Exchange Rule 11.8(e), a Market Maker Peg Order is a limit order that is automatically priced by the System at the Designated Percentage (as provisions in 11.22(a) and 11.22(b) would be in effect during the Pilot Period. 9 See Exchange Rule 1.5(o). 10 See Amendment No. 1. 11 Id. 12 Id. 13 Id. VerDate Sep<11>2014 19:34 Sep 07, 2016 Jkt 238001 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(f), 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 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 14 Id. PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 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. 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 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). E:\FR\FM\08SEN1.SGM 08SEN1 mstockstill on DSK3G9T082PROD with NOTICES Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices 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 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 17 15 18 17 U.S.C. 78f(b)(5). CFR 242.608. VerDate Sep<11>2014 19:34 Sep 07, 2016 Jkt 238001 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. 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– BatsEDGX–2016–26 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–BatsEDGX–2016–26. 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 PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 62207 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– BatsEDGX–2016–26 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 11.22(c) to all Pilot Securities; (2) clarify in Rule 11.22(c)(1) that the increment for Market Orders and Rule 11.22(c)(5) that the increment for Market Maker Peg Orders will be at ‘‘permissible’’ increments; (3) state in Rule 11.22(c)(2) that orders with a Market Peg instruction, Rule 11.22(c)(4) that orders with a Discretionary Range, and Rule 11.22(c)(6) that Supplemental Peg Orders will not be accepted in Pilot Securities; (4) clarify in Rule 11.22(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. 19 15 E:\FR\FM\08SEN1.SGM U.S.C. 78s(b)(2). 08SEN1 62208 Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,20 that the proposed rule change (SR– BatsEDGX–2016–26), 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. 2016–21650 Filed 9–7–16; 8:45 am] BILLING CODE 8011–01–P II. Description of the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78760; File No. SR–CBOE– 2016–049] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Options That Overlie the FTSE Developed Europe Index and the FTSE Emerging Index and To Amend the Maintenance Listing Criteria Applicable to Certain Index Options mstockstill on DSK3G9T082PROD with NOTICES September 2, 2016. I. Introduction On June 15, 2016, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade options that overlie the FTSE Developed Europe Index and the FTSE Emerging Index, to raise the comprehensive surveillance agreement (‘‘CSA’’) percentages applicable to options that overlie the MSCI EAFE Index and the MSCI Emerging Markets Index, and to amend the maintenance listing criteria applicable to MSCI EAFE, MSCI Emerging Markets, FTSE 100, and FTSE China 50 Index options. The proposed rule change was published for comment in the Federal Register on July 1, 2016.3 On August 9, 2016, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed 20 Id. 21 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 78177 (Jun. 28, 2016), 81 FR 43308 (‘‘Notice’’). 1 15 VerDate Sep<11>2014 19:34 Sep 07, 2016 rule change, or institute proceedings to determine whether to disapprove the proposed rule change.4 On August 25, 2016, the Exchange filed Amendment No. 1 to the proposed rule change.5 The Commission received no comments on the proposed rule change. The Commission is publishing this notice to solicit comment on Amendment No. 1 to the proposed rule change from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. Jkt 238001 A. Listing and Trading of FTSE Developed Europe Index and FTSE Emerging Index Options The Exchange proposes to list and trade P.M. cash-settled, European-style options on the FTSE Developed Europe Index and the FTSE Emerging Index.6 4 See Securities Exchange Act Release No. 78511, 81 FR 54173 (Aug. 15, 2016). 5 Pursuant to Amendment No. 1, the Exchange proposes to (i) retain the current CSA percentages applicable to the initial and continued listing of MSCI EAFE and MSCI Emerging Markets Index options at 25% and 27.5%, respectively (the original proposal would have raised such CSA percentages to 50%) and (ii) decrease the proposed CSA percentages applicable to the initial and continued listing of FTSE Developed Europe and FTSE Emerging Index options to 32.5% and 35%, respectively (the original proposal would have set such CSA percentages at 50%). Thus, as amended by Amendment No. 1, proposed Rule 24.2, Interpretation and Policy .01(a)(7) provides that ‘‘non-U.S. component securities (stocks or ADRs) that are not subject to comprehensive surveillance agreements do not, in the aggregate, represent more than: (i) Twenty-five percent (25%) of the weight of the [MSCI] EAFE Index, (ii) twenty-seven and a half percent (27.5%) of the weight of the [MSCI Emerging Markets] Index, (iii) thirty-two and a half percent (32.5%) of the weight of the FTSE Developed [Europe] Index, and (iv) thirty-five percent (35%) of the weight of the FTSE Emerging Index.’’ In addition, Amendment No. 1 amends the proposed maintenance listing criteria applicable to FTSE Developed Europe, FTSE Emerging, MSCI EAFE, MSCI Emerging Markets, FTSE 100, and FTSE China 50 Index options to require that the CSA percentages applicable to such products be satisfied as of the first day of the month following the Reporting Authority’s review of the weighting of the constituents in the applicable index, but in no case less than on a quarterly basis (the original proposal would have provided that the CSA requirements for such products must only be satisfied as of the first day of the January and July in each year). Amendment No. 1 is available at: https://www.cboe.com/publish/RuleFilingsSEC/SRCBOE-2016-049.a1.pdf. 6 The Exchange proposes to list up to twelve nearterm expiration months for the FTSE Developed Europe and FTSE Emerging Index options. The Exchange also proposes to list LEAPS on the FTSE Developed Europe Index and the FTSE Emerging Index. The Exchange proposes that options on the FTSE Developed Europe Index and the FTSE Emerging Index would be eligible for all other expirations permitted for other broad-based indexes (e.g., End of Week/End of Month/Wednesday Expirations, Short Term Option Series, and Quarterly Options Series). In addition, the PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 The following discussion is a summary of the Exchange’s description of its proposed listing criteria for the FTSE Developed Europe and FTSE Emerging Index options.7 According to the Exchange, the FTSE Developed Europe Index is a weighted index representing the performance of large- and mid-cap companies in Developed European markets. The FTSE Developed Europe Index is comprised of over 500 securities from 15 countries. According to the Exchange, the FTSE Emerging Index is a weighted index representing the performance of largeand mid-cap companies in advanced and secondary emerging markets. The FTSE Emerging Index is comprised of approximately 950 securities from 22 countries.8 The Exchange states that the indexes are monitored and maintained by FTSE International Limited (‘‘FTSE’’).9 Adjustments to the indexes can be made on a daily basis, and FTSE reviews the indexes semi-annually. According to the Exchange, the FTSE Developed Europe Index is calculated and published in U.S. dollars on a realtime basis during U.S. trading hours from 2:00 a.m. to 10:30 a.m. (Chicago time). At 10:30 a.m. (Chicago time) the real-time index closes using the closing prices from the London Stock Exchange and between 10:30 a.m. and 3:15 p.m. (Chicago time) the FTSE Developed Europe Index level is a static value that market participants can access via data vendors. The FTSE Emerging Index is calculated and published in U.S. dollars on a real-time basis during U.S. trading hours from 6:30 p.m. (Chicago time, prior day) to 3:10 p.m. (Chicago time, next day). At 3:10 p.m. (Chicago time) the real-time index closes using the closing prices from Brazil, Chile, Peru, and Mexico and between 3:10 p.m. and 3:15 p.m. (Chicago time) the FTSE Emerging Index level is a static value that market participants can access via data vendors. The methodologies used to calculate the FTSE Developed Europe Index and the FTSE Emerging Index are similar to the methodology used to calculate the value of other benchmark marketExchange proposes to designate the FTSE Developed Europe Index and the FTSE Emerging Index as eligible for trading as FLEX options. 7 For a more complete description of the FTSE Developed Europe Index and the FTSE Emerging Index, and CBOE’s proposed listing criteria for options on these indexes, see Notice, supra note 3. 8 The Exchange states that the FTSE Developed Europe Index and the FTSE Emerging Index each meet the definition of a broad-based index as set forth in Exchange Rule 24.1(i)(1). 9 The Exchange proposes to designate FTSE as the reporting authority for the FTSE Developed Europe Index and the FTSE Emerging Index. E:\FR\FM\08SEN1.SGM 08SEN1

Agencies

[Federal Register Volume 81, Number 174 (Thursday, September 8, 2016)]
[Notices]
[Pages 62205-62208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21650]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78767; File No. SR-BatsEDGX-2016-26]


Self-Regulatory Organizations; Bats EDGX 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 11.22 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 EDGX Exchange, Inc. (``Exchange'' or 
``EDGX'') 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 11.22(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(cc).
    \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. 78331 (July 14, 2016), 
81 FR 47205 (``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 11.22(c) to all Pilot Securities; (2) 
clarify in Rule 11.22(c)(1) that the increment for Market Orders and 
Rule 11.22(c)(5) that the increment for Market Maker Peg Orders will 
be at ``permissible'' increments; (3) state in Rule 11.22(c)(2) that 
orders with a Market Peg instruction, Rule 11.22(c)(4) that orders 
with a Discretionary Range, and Rule 11.22(c)(6) that Supplemental 
Peg Orders will not be accepted in Pilot Securities; (4) clarify in 
Rule 11.22(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 11.22(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 11.22(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 11.22(c) specific procedures 
for handling, executing, repricing and displaying certain order types 
and order type instructions. The provisions in proposed Rule 11.22(c) 
would apply to all Pilot Securities. Further, the Exchange proposes 
that only the provisions in Exchange Rules 11.22(a) and (b) would be 
limited to the Pilot Period.\8\
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    \8\ The Exchange proposes to clarify in the introduction to 
Exchange Rule 11.22 that only the provisions in 11.22(a) and 
11.22(b) would be in effect during the Pilot Period.

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[[Page 62206]]

1. Market Orders
    Proposed Exchange Rule 11.22(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\
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    \9\ See Exchange Rule 1.5(o).
    \10\ See Amendment No. 1.
---------------------------------------------------------------------------

2. Market Peg Instruction
    Under Exchange Rule 11.6(j)(1), an order with a Market Peg 
instruction is pegged to the contra-side NBBO. EDGX 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 11.22(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 11.8(d), 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 11.22(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\
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

4. Discretionary Range Instruction
    Under Exchange Rule 11.6(d), an order with a Discretionary Range 
instruction is 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\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

5. Market Maker Peg Orders
    Under Exchange Rule 11.8(e), 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(f), 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 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\
---------------------------------------------------------------------------

    \14\ Id.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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

[[Page 62207]]

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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 17 CFR 242.608.
---------------------------------------------------------------------------

    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.

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-BatsEDGX-2016-26 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-BatsEDGX-2016-26. 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-
BatsEDGX-2016-26 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 11.22(c) to all Pilot Securities; 
(2) clarify in Rule 11.22(c)(1) that the increment for Market Orders 
and Rule 11.22(c)(5) that the increment for Market Maker Peg Orders 
will be at ``permissible'' increments; (3) state in Rule 11.22(c)(2) 
that orders with a Market Peg instruction, Rule 11.22(c)(4) that orders 
with a Discretionary Range, and Rule 11.22(c)(6) that Supplemental Peg 
Orders will not be accepted in Pilot Securities; (4) clarify in Rule 
11.22(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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(2).

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[[Page 62208]]

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\20\ that the proposed rule change (SR-BatsEDGX-2016-26), 
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\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-21650 Filed 9-7-16; 8:45 am]
 BILLING CODE 8011-01-P
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