Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing of Partial Amendment Nos. 1 and 3, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Partial Amendment Nos. 1 and 3, to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program, 71150-71153 [2016-24842]

Download as PDF 71150 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79076; File No. SR–BX– 2016–050] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing of Partial Amendment Nos. 1 and 3, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Partial Amendment Nos. 1 and 3, to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program October 7, 2016. I. Introduction On September 7, 2016, NASDAQ BX, Inc. (‘‘Exchange’’ or ‘‘BX’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 paragraph (d) and Commentary .12 to BX Rule 4770 to change System 3 functionality necessary to implement the Regulation NMS Plan to Implement a Tick Size Pilot Program (‘‘Plan’’ or ‘‘Pilot’’).4 The Exchange is also proposing amendments to BX Rule 4770(a) and (c) to clarify certain exceptions to the Trade-at Prohibition.5 The proposed rule change was published for comment in the Federal Register on September 20, 2016.6 The Commission received two comment letters in response to the Notice.7 On September 29, 2016, the Exchange filed Partial Amendment No. 1 to the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The term ‘‘System’’ is defined as the automated system for order execution and trade reporting owned and operated by BX. See BX Rule 4701(a). 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 BX Rule 4770(c)(3)(D)(i) defines the ‘‘Trade-at Prohibition’’ as the prohibition against executions by a Trading Center of a sell order for a Pilot Security at the price of a Protected Bid or the execution of a buy order for a Pilot Security at the price of a Protected Offer during regular trading hours. See also Plan Section VI(D). 6 Securities Exchange Act Release No. 78838 (September 14, 2016), 81 FR 64566 (‘‘Notice’’). 7 See Letters to Brent J. Fields, Secretary, Commission, from Elizabeth K. King, General Counsel and Corporate Secretary, New York Stock Exchange, Inc.; Eric Swanson, EVP, General Counsel and Secretary, BATS Global Markets, Inc.; Thomas A. Wittman, EVP, Global Head of Equities, Nasdaq, Inc., dated September 9, 2016 (‘‘Comment Letter No. 1’’) and from Eric Swanson, EVP, General Counsel and Secretary, BATS Global Markets, Inc., dated September 12, 2016 (‘‘Comment Letter No. 2’’). rmajette on DSK2TPTVN1PROD with NOTICES 2 17 VerDate Sep<11>2014 14:29 Oct 13, 2016 Jkt 241001 proposed rule change.8 On October 4, 2016, the Exchange filed Partial Amendment No. 2 to the proposed rule change. On October 7, 2016, the Exchange withdrew Amendment No. 2 and filed Partial Amendment No. 3 to the proposed rule change.9 This order provides notice of filing of Partial Amendment Nos. 1 and 3, and approves the proposal, as modified by Partial Amendment Nos. 1 and 3, on an accelerated basis. II. Description of the Amended Proposal The Exchange’s proposed rule change provides for changed functionality to certain Order Types 10 and Order 8 In Partial Amendment No. 1, the Exchange proposes to change references in the rule text from ‘‘added to the Exchange Book’’ to ‘‘ranked on the Exchange Book’’ as applicable for Price to Comply Orders, Non-Displayed Orders, Post-Only Orders, and Orders with Reserve Size. The Exchange also proposes to clarify that in certain cases Price to Comply Orders, not attributable Post-Only Orders, and certain Orders with Reserve Size may be ranked on the Exchange Book at the midpoint of the National Best Bid or Offer (‘‘NBBO’’). Finally, the Exchange proposes three amendments related to the operation of Reserve Size for Test Group Three Pilot Securities: (i) Change references from ‘‘Reserve Order’’ to ‘‘Order with Reserve Size’’; (ii) clarify that the Reserve Size attribute is only available for Price to Comply Orders and Price to Display Orders entered via the RASH or FIX protocols; and (iii) clarify the handling of Orders with Reserve Size in scenarios where such Orders are entered at a price that locks a Protected Quotation on an away market center. 9 In Partial Amendment No. 3, the Exchange proposes to delete certain rule text to remove the re-pricing functionality for resting Price to Comply Orders, resting Non-Displayed Orders, and resting Post-Only Orders entered via OUCH or FLITE protocols for Test Group Three Pilot Securities. The Exchange explained that its systems were reprogrammed for Test Group Three Pilot Securities to permit resting Price to Comply Orders, resting Non-Displayed Orders, and resting Post-Only Orders entered via OUCH or FLITE protocols to repeatedly re-price in response to changes to the NBBO and/or the Exchange’s best Bid or Offer (‘‘BBO’’). The Exchange noted that it is currently reprogramming its systems to remove the proposed functionality. Further, the Exchange stated that if it appears that the multiple re-pricing functionality will remain operational by October 17, 2016, the Exchange will file a proposed rule change with the Commission and provide notice to market participants sufficiently in advance of that date. The proposed rule change and notice to market participants will describe the current operation of the systems and timing of re-programming. In any event, the Exchange states that the removal of this functionality shall be completed no later than November 30, 2016. In addition, the Exchange proposes to modify the Block Size Order exception to the Trade-at Prohibition. The Exchange also clarified that that it would not apply the Trade-at Prohibition outside of Regular Trading Hours. Finally, the Exchange is making certain nonsubstantive, clarifying amendments. 10 An ‘‘Order Type’’ is a standardized set of instructions associated with an order that define its behavior with respect to pricing, execution, and/or posting to the Exchange Book when submitted to the System. See BX Rule 4701(e). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 Attributes 11 applicable to Pilot Securities to implement the Plan. Proposed BX Rule 4770(d) would specify the order handling, executing, re-pricing and displaying for the following Order Types in Pilot Securities: (i) Price to Comply Orders; (ii) Non-Displayed Orders; (iii) PostOnly Orders; (iv) Retail Price Improving Orders; (v) Retail Orders; and (vi) Market Maker Peg Orders. The following Order Attributes would also be amended: (i) Midpoint Pegging; (ii) Reserve Size; and (iii) Good-tillCancelled. In addition, amended BX Rule 4770(d)(1) specifies that any Order Type in a security of any of the Test Groups that requires a price and does not qualify for an exception, will not be accepted if it is in a minimum price increment (‘‘MPI’’) other than $0.05.12 The Exchange also proposes to amend the definition of the term ‘‘Trade-at Intermarket Sweep Order’’ (‘‘TA ISO’’) and one of the TA ISO exceptions to the Trade-at Prohibition.13 Finally, the Exchange is proposing to modify the Block Size Order exception to the Trade-at Prohibition and add a related commentary.14 A. Amendments To Order Type Functionality 1. Price to Comply Orders 15 The Exchange proposes that a Price to Comply Order in a Test Group Pilot Security would operate consistent with current BX Rule 4702(b)(1) except as provided below. Specifically, if a Price to Comply Order for a Test Group Three Pilot Security partially executes on entry and the remainder would lock the Protected Quotation of another market center, the unexecuted portion of the Order would be cancelled. In addition, if a Price to Comply Order for a Test Group Three Pilot Security to buy (sell) is not executable against any orders residing on the Exchange Book and its limit price would lock or cross the Protected Quotation of another market center, the Order would display at one MPI below (above) the Protected 11 An ‘‘Order Attribute’’ is a further set of variable instructions that may be associated with an Order to further define how it will behave with respect to pricing, execution, and/or posting to the Exchange Book when submitted to the System. See BX Rule 4701(e). The availability of, and interaction between, Order Types and Order Attributes is described in BX Rules 4702 and 4703. 12 Proposed BX Rule 4770(d)(1) clarifies that the System will use $0.05 as the MPI when re-pricing or rounding by the System. 13 See proposed BX Rule 4770(a)(1)(D)(ii) and proposed BX Rule 4770(c)(3)(D)(iii)(j). 14 See proposed BX Rule 4770(c)(3)(D)(iii)(c) and BX Rule 4770, proposed Commentary .12. 15 See proposed BX Rule 4770(d)(2). See also Partial Amendment No. 3. E:\FR\FM\14OCN1.SGM 14OCN1 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Notices Quotation and be ranked at the current midpoint of the NBBO on the Exchange Book.16 2. Non-Displayed Orders 17 The Exchange proposes that a NonDisplayed Order in a Test Group Pilot Security would operate consistent with current BX Rule 4702(b)(3) except as provided below. Specifically, a resting Non-Displayed Order in a Test Group Three Pilot Security could not execute at the price of a Protected Quotation of another market center unless the incoming Order qualifies for an exception to the Trade-at Prohibition.18 In addition, for Test Group Three Pilot Securities, if the limit price of a buy (sell) Non-Displayed Order would lock or cross a Protected Quotation of another market center, the Order would be ranked on the Exchange Book at either one MPI below (above) the National Best Offer (‘‘NBO’’) ((National Best Bid) (‘‘NBB’’)) or at the midpoint of the NBBO, whichever is higher (lower).19 Further, for a Non-Displayed Order in a Test Group Three Pilot Security entered via RASH or FIX, if after being posted to the Exchange Book, the NBBO changes such that the Order would not be executable at its posted price due to the requirements of Regulation NMS or the Plan, the NonDisplayed Order to buy (sell) would be re-priced to either one MPI below (above) the NBO (NBB) or the midpoint of the NBBO, whichever is higher (lower) and receive a new timestamp. In the same scenario, if the Non-Displayed Order was entered via OUCH or FLITE, instead of re-pricing, the Order would be cancelled back to the Participant. 3. Post-Only Orders 20 rmajette on DSK2TPTVN1PROD with NOTICES The Exchange proposes that PostOnly Orders will operate consistent with current BX Rule 4702(b)(4) except as provided below. Specifically, for a not attributable Post-Only Order for a Test Group Three Pilot Security, if the limit price to buy (sell) would lock or cross a Protected Quotation of another market center, the Order would display at one MPI below (above) the Protected Quotation and would be ranked at the current midpoint of the NBBO on the Exchange Book.21 16 See Partial Amendment No. 1. proposed BX Rule 4770(d)(3). See also Partial Amendment No. 3. 18 See BX Rule 4770(c)(3)(D). 19 See Partial Amendment No. 1. 20 See proposed BX Rule 4770(d)(4). See also Partial Amendment No. 3. 21 See Partial Amendment No. 1. 4. Retail Price Improving Orders 22 The Exchange proposes that Retail Price Improving Orders for Test Group Pilot Securities will operate consistently with current BX Rule 4702(b)(5) except as provided below. Specifically, a Retail Price Improving Order for a Test Group Two or Test Group Three Pilot Security must be entered in a MPI of $0.005 and will only execute against Retail Orders if its price is at least $0.005 better than the NBBO. 5. Retail Orders 23 The Exchange proposes that Retail Orders for Test Group Pilot Securities will operate consistently with current BX Rule 4702(b)(6) except as provided below. Specifically, a Retail Order in a Test Group One Pilot Security must be entered with a limit price in a MPI and may execute in an increment other than a MPI if the order is provided price improvement of at least $0.001 better than the NBBO. In addition, a Retail Order in a Test Group Two or Test Group Three Pilot Security must be entered in a MPI and may execute in an increment other than a MPI if the order is provided price improvement that is at least $0.005 better than the NBBO. 6. Market Maker Peg Orders 24 The Exchange proposes that a Market Maker Peg Order for Test Group Pilot Securities will operate consistent with current BX Rule 4702(b)(7) except the displayed price of such an Order would be rounded up for bids (down for offers) to the nearest MPI (i.e., $0.05) if it would otherwise display at an increment smaller than the MPI. B. Amendments To Order Attribute Functionality 1. Midpoint Pegging 25 The Exchange proposes that an Order with a Midpoint Pegging attribute in a Test Group Pilot Security will operate consistent with current BX Rule 4703(d). The Exchange also specifies that such Orders may execute at the midpoint of the NBBO in an increment other than the MPI. 2. Reserve Size 26 The Exchange proposes that an Order with Reserve Size in a Test Group Pilot Security will operate consistent with current BX Rule 4703(h) except as described below. Specifically, a resting Order with Reserve Size in a Test Group 17 See VerDate Sep<11>2014 14:29 Oct 13, 2016 Jkt 241001 22 See proposed BX Rule 4770(d)(5). proposed BX Rule 4770(d)(6). 24 See proposed BX Rule 4770(d)(7). 25 See proposed BX Rule 4770(d)(8). 26 See proposed BX Rule 4770(d)(9). See also Partial Amendment No. 1. 71151 Three Pilot Security (i.e., a Price to Comply Order or a Price to Display Order entered via RASH or FIX) may not execute the non-displayed Reserve Size at the price of a Protected Quotation of another market center unless the incoming Order qualifies for an exception to the Trade-at Prohibition.27 If an Order with Reserve Size for a Test Group Three Pilot Security is partially executed upon entry and the remainder would lock a Protected Quotation of another market center, the unexecuted portion of the Order would be cancelled. If a Price to Comply Order with Reserve Size to buy (sell) a Test Group Three Pilot Security is not executable against previously posted Orders on the Exchange Book, and has a limit price that would lock or cross a Protected Quotation of another market center, the displayed portion of the Order would display one MPI below (above) the Protected Quotation, and the displayed and non-displayed portions of the Order, would be ranked at the current midpoint of the NBBO on the Exchange Book. If a Price to Display Order with Reserve Size is not executable against any previously posted Orders on the Exchange Book and its limit price would lock or cross a Protected Quotation of another market center, then the displayed portion of the Order would be displayed and ranked one MPI below (above) the Protected Quotation and the non-displayed portion of the Order would be ranked at the midpoint of the NBBO. If after being posted to the Exchange Book, the NBBO changes such that an Order with Reserve Size was not executable at its ranked price due to the requirements of Regulation NMS or the Plan, the Order would adjust as described above. 3. Good-till-Cancelled 28 The Exchange proposes that an Order with a Time-in-Force of Good-tillCancelled in a Test Group Pilot Security will operate consistent with current BX Rule 4703(a)(3) except such Order would be adjusted based on a $0.05 increment. C. Amendments to Certain Trade-at Prohibition Exceptions 1. TA ISO 29 The Exchange proposes to add the phrase ‘‘or Intermarket Sweep Orders’’ (‘‘ISO’’) to the definition of TA ISO as well as to the related TA ISO exception to the Trade-at Prohibition30 to clarify 23 See PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 27 See BX Rule 4770(c)(3)(D). proposed BX Rule 4770(d)(10). 29 See proposed BX Rule 4770(a)(1)(D)(ii). 30 See proposed BX Rule 4770(c)(3)(D)(iii)(j). 28 See E:\FR\FM\14OCN1.SGM 14OCN1 71152 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Notices that ISOs may be routed to execute against the full displayed size of the Protected Quotation that was traded at. 2. Block Size Order exception for the Trade-at Prohibition 31 Currently, BX Rule 4770(c)(3)(D)(iii)(c) provides an exception to the Trade-at Prohibition for Block Size Orders.32 The Exchange proposes in Commentary .12 that for purposes of qualifying for the exception Orders must have a size of 5,000 shares or more and the resulting execution upon entry is for a size of 5,000 shares or more in aggregate. In addition, the Exchange proposes to amend the Block Size Order exception to the Trade-at Prohibition to allow execution on multiple Trading Centers to comply with Regulation NMS.33 III. Summary of Comments Received 34 Both comment letters express support for the proposal and suggest that the Commission should approve the proposal. In Comment Letter No. 1, the commenters stated that if the proposal is approved as proposed, then the Exchange would be able to meet the implementation date. Further, in Comment Letter No. 1, the commenters stated their belief that the requirements from the Commission have been unclear. In Comment Letter No. 2, the commenter questioned the Commission staff’s authority. rmajette on DSK2TPTVN1PROD with NOTICES IV. Discussion and Commission’s Findings After careful review of the proposed rule change, as modified by both Partial Amendment Nos. 1 and No. 3, and the comment letters, the Commission finds that the proposal, as modified by Partial Amendment Nos. 1 and 3, is consistent with the requirements of the Act, Rule 608 of Regulation NMS,35 and the rules and regulations thereunder that are applicable to a national securities exchange.36 Specifically, the Commission finds that the rule change is consistent with Section 6(b)(5) of the Act,37 which requires that the rules of a national securities exchange be 31 See proposed BX Rule 4770(c)(3)(D)(iii)(c) and BX Rule 4770, proposed Commentary .12. 32 The plan defines Block Size as ‘‘an order (1) of at least 5,000 shares or (2) for a quantity of stock having a market value of at least $100,000. See Plan Section I(F). 33 See proposed BX Rule 4770(c)(3)(D)(iii)(c). See also Partial Amendment No. 3. 34 See supra note 7. 35 17 CFR 242.608. 36 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). 37 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 14:29 Oct 13, 2016 Jkt 241001 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. As such, any proposed changes targeted at particular Test Groups during the Pilot Period should be necessary for compliance with the Plan. The Exchange proposes to modify its handling of certain Order Types and Order Attributes during the Pilot Period. First, the Exchange proposes to clarify that it will not accept Orders in a Test Group Pilot Security in an increment other than $0.05 unless there is an applicable exception to the MPI. Second, the Exchange proposes to clarify that the displayed price of Market Maker Peg Orders for any Test Group Pilot Security would be rounded to the nearest MPI and that Good-tillCancelled Orders for a Test Group Pilot Security would be adjusted based on the $0.05 increment. Finally, the Exchange proposes to clarify that Orders with Midpoint Pegging Attribute in a Test Group Pilot Security may execute at the midpoint of the NBBO in an increment other than the MPI. The Exchange clarifies the operation of Retail Price Improving Orders in Test Group Two and Test Group Three Pilot Securities. In addition, the Exchange proposes to clarify how Retail Orders for Test Group One Pilot Securities must be entered in the $0.05 MPI but may execute in an increment other than a MPI if it is provided with price improvement of at least $0.001. Retail Orders in Test Group Two and Test Group Three Pilot Securities must be entered in a MPI and may execute in an increment other than the $0.05 if the Order is provided with price improvement of at least $0.005 better than the NBBO. The Exchange also proposes to modify the handling of certain Orders and Order Attributes in Test Group Three PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 Pilot Securities, including: (i) Price to Comply Orders; (ii) Non-Displayed Orders; (iii) Post-Only Orders; and (iv) Orders with Reserve Size. The proposed changes are intended to facilitate compliance with the Trade-at Prohibition.38 Finally, the Exchange proposes to amend provisions related to two exceptions to the Trade-at Prohibition. First, the Exchange proposes to amend the definition of TA ISO to reflect that ISOs may be routed to the full displayed size of a Protected Quotation that is traded-at and to make the corresponding change to the applicable Trade-at Prohibition exception. Second, the Exchange proposes to amend the Tradeat Prohibition exception for Block Size Orders to allow such Orders to be executed on multiple Trading Centers. Further, the Exchange proposes that for purposes of the Block Size Order exception to the Trade-at Prohibition, the Order must have a size of 5,000 shares and the resulting execution upon entry must have a size of 5,000 shares or more in aggregate.39 The Commission believes that the proposed changes are reasonably designed to comply with the Plan. Further, the Commission believes that the proposed changes that target particular Test Groups are necessary for compliance with the Plan.40 Accordingly, the Commission finds that these changes are consistent with Section 6(b)(5) of the Act 41 and Rule 608 of Regulation NMS 42 because they implement the Plan and clarify Exchange Rules. For these reasons, the Commission finds that the proposed rule change, as modified by Partial Amendment Nos. 1 38 In Partial Amendment No. 3, the Exchange clarified that it would not apply the Trade-at Prohibition outside of Regular Trading Hours. The Commission notes that this is consistent with the Plan. See Plan Section I(LL). 39 See also BX Rule 4770(c)(3)(D)(iii)(c). 40 The Commission notes that the Exchange originally proposed to modify the operation of Post to Comply Orders, Non-Displayed Orders, and Post Only Orders entered via OUCH and FLITE for Test Group Three Pilot Securities only. In Partial Amendment No. 3, the Exchange proposes to remove the proposed functionality. Thus, the Commission believes that the proposal, as modified, is consistent with the Plan. The Exchange has committed to make the system changes necessary to implement Partial Amendment No. 3. If it appears that the system changes will not be completed by October 17, 2016, the date on which the Participants will begin implementation of Test Group 3,the Exchange will file a proposed rule change with the Commission to propose any necessary changes to the Exchange’s rules and provide notice to market participants sufficiently in advance of this date to adequately inform market participants of the current operation of the Exchange’s systems. See Partial Amendment No. 3. 41 15 U.S.C. 78f(b)(5). 42 17 CFR 242.608. E:\FR\FM\14OCN1.SGM 14OCN1 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Notices and 3, is consistent with the requirements of the Act 43 and Rule 608 of Regulation NMS.44 V. Solicitation of Comments on Partial Amendment Nos. 1 and 3 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 Partial Amendment Nos. 1 and 3, is consistent with the Act. Comments may be submitted by any of the following methods: rmajette on DSK2TPTVN1PROD 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 Number SR– BX–2016–050 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BX–2016–050. 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–BX– 2016–050 and should be submitted on or before November 4, 2016. VI. Accelerated Approval of Proposed Rule Change, as Modified by Partial Amendment Nos.1 and 3 The Commission finds good cause to approve the proposed rule change, as modified by Partial Amendment Nos. 1 and 3, prior to the thirtieth day after the date of publication of notice of the proposed rule change, as modified by Partial Amendment Nos. 1 and 3 in the Federal Register. As described above, the Exchange proposes to amend its rules to comply with the Plan. The Commission notes that the Pilot started implementation on October 3, 2016, and accelerated approval of the proposal would ensure that the rules of the Exchange would be in place during implementation. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Exchange Act,45 to approve the proposed rule change, as modified by Partial Amendment Nos. 1 and 3, on an accelerated basis. VII. Conclusion It is therefore ordered that, pursuant to Section 19(b)(2) of the Exchange Act,46 that the proposed rule change (SR–BX–2016–050), as modified by Partial Amendment Nos. 1 and 3, be and hereby is approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–24842 Filed 10–13–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79073; File No. SR–Phlx– 2016–97] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Proposed Rule Change To Delete Outdated or Unnecessary Rule Language October 7, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 27, 2016, NASDAQ PHLX 45 15 U.S.C. 78s(b)(2). 46 Id. 47 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 43 15 U.S.C. 78f(b)(5). 44 17 CFR 242.608. VerDate Sep<11>2014 14:29 Oct 13, 2016 1 15 Jkt 241001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 71153 LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to delete outdated or unnecessary rule language contained in Rule 1020, Registration and Functions of Options Specialists, section (b) and Commentary .01 through .06. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqphlx.cchwallstreet.com/ , at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Exchange Rule 1020 contains provisions relating to registration and functions of options specialists.3 Rule 1020’s provisions were initially adopted in the 1970s, in the early days of exchange trading of options. As explained below, the rule reflects the trading context in which it was adopted. Various provisions of the rule are consequently very outdated. The Exchange is therefore proposing to delete obsolete and unnecessary language from section (b) and from Commentary .01 through Commentary 3 A ‘‘specialist’’ is an Exchange member who is registered as an options specialist pursuant to Exchange Rule 1020(a). Specialists are subject to quoting and registration obligations set forth in Rules 1014(b), 1020, and 1080.02. E:\FR\FM\14OCN1.SGM 14OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 199 (Friday, October 14, 2016)]
[Notices]
[Pages 71150-71153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24842]

[[Page 71150]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79076; File No. SR-BX-2016-050]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
of Partial Amendment Nos. 1 and 3, and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Partial Amendment
Nos. 1 and 3, to System Functionality Necessary To Implement the
Regulation NMS Plan To Implement a Tick Size Pilot Program

October 7, 2016.

I. Introduction

On September 7, 2016, NASDAQ BX, Inc. (``Exchange'' or ``BX'')
filed with the Securities and Exchange Commission (``SEC'' or
``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 paragraph (d) and
Commentary .12 to BX Rule 4770 to change System \3\ functionality
necessary to implement the Regulation NMS Plan to Implement a Tick Size
Pilot Program (``Plan'' or ``Pilot'').\4\ The Exchange is also
proposing amendments to BX Rule 4770(a) and (c) to clarify certain
exceptions to the Trade-at Prohibition.\5\ The proposed rule change was
published for comment in the Federal Register on September 20, 2016.\6\
The Commission received two comment letters in response to the
Notice.\7\ On September 29, 2016, the Exchange filed Partial Amendment
No. 1 to the proposed rule change.\8\ On October 4, 2016, the Exchange
filed Partial Amendment No. 2 to the proposed rule change. On October
7, 2016, the Exchange withdrew Amendment No. 2 and filed Partial
Amendment No. 3 to the proposed rule change.\9\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The term ``System'' is defined as the automated system for
order execution and trade reporting owned and operated by BX. See BX
Rule 4701(a).
\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\ BX Rule 4770(c)(3)(D)(i) defines the ``Trade-at
Prohibition'' as the prohibition against executions by a Trading
Center of a sell order for a Pilot Security at the price of a
Protected Bid or the execution of a buy order for a Pilot Security
at the price of a Protected Offer during regular trading hours. See
also Plan Section VI(D).
\6\ Securities Exchange Act Release No. 78838 (September 14,
2016), 81 FR 64566 (``Notice'').
\7\ See Letters to Brent J. Fields, Secretary, Commission, from
Elizabeth K. King, General Counsel and Corporate Secretary, New York
Stock Exchange, Inc.; Eric Swanson, EVP, General Counsel and
Secretary, BATS Global Markets, Inc.; Thomas A. Wittman, EVP, Global
Head of Equities, Nasdaq, Inc., dated September 9, 2016 (``Comment
Letter No. 1'') and from Eric Swanson, EVP, General Counsel and
Secretary, BATS Global Markets, Inc., dated September 12, 2016
(``Comment Letter No. 2'').
\8\ In Partial Amendment No. 1, the Exchange proposes to change
references in the rule text from ``added to the Exchange Book'' to
``ranked on the Exchange Book'' as applicable for Price to Comply
Orders, Non-Displayed Orders, Post-Only Orders, and Orders with
Reserve Size. The Exchange also proposes to clarify that in certain
cases Price to Comply Orders, not attributable Post-Only Orders, and
certain Orders with Reserve Size may be ranked on the Exchange Book
at the midpoint of the National Best Bid or Offer (``NBBO'').
Finally, the Exchange proposes three amendments related to the
operation of Reserve Size for Test Group Three Pilot Securities: (i)
Change references from ``Reserve Order'' to ``Order with Reserve
Size''; (ii) clarify that the Reserve Size attribute is only
available for Price to Comply Orders and Price to Display Orders
entered via the RASH or FIX protocols; and (iii) clarify the
handling of Orders with Reserve Size in scenarios where such Orders
are entered at a price that locks a Protected Quotation on an away
market center.
\9\ In Partial Amendment No. 3, the Exchange proposes to delete
certain rule text to remove the re-pricing functionality for resting
Price to Comply Orders, resting Non-Displayed Orders, and resting
Post-Only Orders entered via OUCH or FLITE protocols for Test Group
Three Pilot Securities. The Exchange explained that its systems were
re-programmed for Test Group Three Pilot Securities to permit
resting Price to Comply Orders, resting Non-Displayed Orders, and
resting Post-Only Orders entered via OUCH or FLITE protocols to
repeatedly re-price in response to changes to the NBBO and/or the
Exchange's best Bid or Offer (``BBO''). The Exchange noted that it
is currently re-programming its systems to remove the proposed
functionality. Further, the Exchange stated that if it appears that
the multiple re-pricing functionality will remain operational by
October 17, 2016, the Exchange will file a proposed rule change with
the Commission and provide notice to market participants
sufficiently in advance of that date. The proposed rule change and
notice to market participants will describe the current operation of
the systems and timing of re-programming. In any event, the Exchange
states that the removal of this functionality shall be completed no
later than November 30, 2016. In addition, the Exchange proposes to
modify the Block Size Order exception to the Trade-at Prohibition.
The Exchange also clarified that that it would not apply the Trade-
at Prohibition outside of Regular Trading Hours. Finally, the
Exchange is making certain non-substantive, clarifying amendments.
---------------------------------------------------------------------------

This order provides notice of filing of Partial Amendment Nos. 1
and 3, and approves the proposal, as modified by Partial Amendment Nos.
1 and 3, on an accelerated basis.

II. Description of the Amended Proposal

The Exchange's proposed rule change provides for changed
functionality to certain Order Types \10\ and Order Attributes \11\
applicable to Pilot Securities to implement the Plan. Proposed BX Rule
4770(d) would specify the order handling, executing, re-pricing and
displaying for the following Order Types in Pilot Securities: (i) Price
to Comply Orders; (ii) Non-Displayed Orders; (iii) Post-Only Orders;
(iv) Retail Price Improving Orders; (v) Retail Orders; and (vi) Market
Maker Peg Orders. The following Order Attributes would also be amended:
(i) Midpoint Pegging; (ii) Reserve Size; and (iii) Good-till-Cancelled.
In addition, amended BX Rule 4770(d)(1) specifies that any Order Type
in a security of any of the Test Groups that requires a price and does
not qualify for an exception, will not be accepted if it is in a
minimum price increment (``MPI'') other than $0.05.\12\
---------------------------------------------------------------------------

\10\ An ``Order Type'' is a standardized set of instructions
associated with an order that define its behavior with respect to
pricing, execution, and/or posting to the Exchange Book when
submitted to the System. See BX Rule 4701(e).
\11\ An ``Order Attribute'' is a further set of variable
instructions that may be associated with an Order to further define
how it will behave with respect to pricing, execution, and/or
posting to the Exchange Book when submitted to the System. See BX
Rule 4701(e). The availability of, and interaction between, Order
Types and Order Attributes is described in BX Rules 4702 and 4703.
\12\ Proposed BX Rule 4770(d)(1) clarifies that the System will
use $0.05 as the MPI when re-pricing or rounding by the System.
---------------------------------------------------------------------------

The Exchange also proposes to amend the definition of the term
``Trade-at Intermarket Sweep Order'' (``TA ISO'') and one of the TA ISO
exceptions to the Trade-at Prohibition.\13\ Finally, the Exchange is
proposing to modify the Block Size Order exception to the Trade-at
Prohibition and add a related commentary.\14\
---------------------------------------------------------------------------

\13\ See proposed BX Rule 4770(a)(1)(D)(ii) and proposed BX Rule
4770(c)(3)(D)(iii)(j).
\14\ See proposed BX Rule 4770(c)(3)(D)(iii)(c) and BX Rule
4770, proposed Commentary .12.
---------------------------------------------------------------------------

A. Amendments To Order Type Functionality

1. Price to Comply Orders \15\
---------------------------------------------------------------------------

\15\ See proposed BX Rule 4770(d)(2). See also Partial Amendment
No. 3.
---------------------------------------------------------------------------

The Exchange proposes that a Price to Comply Order in a Test Group
Pilot Security would operate consistent with current BX Rule 4702(b)(1)
except as provided below. Specifically, if a Price to Comply Order for
a Test Group Three Pilot Security partially executes on entry and the
remainder would lock the Protected Quotation of another market center,
the unexecuted portion of the Order would be cancelled. In addition, if
a Price to Comply Order for a Test Group Three Pilot Security to buy
(sell) is not executable against any orders residing on the Exchange
Book and its limit price would lock or cross the Protected Quotation of
another market center, the Order would display at one MPI below (above)
the Protected

[[Page 71151]]

Quotation and be ranked at the current midpoint of the NBBO on the
Exchange Book.\16\
---------------------------------------------------------------------------

\16\ See Partial Amendment No. 1.
---------------------------------------------------------------------------

2. Non-Displayed Orders \17\
---------------------------------------------------------------------------

\17\ See proposed BX Rule 4770(d)(3). See also Partial Amendment
No. 3.
---------------------------------------------------------------------------

The Exchange proposes that a Non-Displayed Order in a Test Group
Pilot Security would operate consistent with current BX Rule 4702(b)(3)
except as provided below. Specifically, a resting Non-Displayed Order
in a Test Group Three Pilot Security could not execute at the price of
a Protected Quotation of another market center unless the incoming
Order qualifies for an exception to the Trade-at Prohibition.\18\ In
addition, for Test Group Three Pilot Securities, if the limit price of
a buy (sell) Non-Displayed Order would lock or cross a Protected
Quotation of another market center, the Order would be ranked on the
Exchange Book at either one MPI below (above) the National Best Offer
(``NBO'') ((National Best Bid) (``NBB'')) or at the midpoint of the
NBBO, whichever is higher (lower).\19\ Further, for a Non-Displayed
Order in a Test Group Three Pilot Security entered via RASH or FIX, if
after being posted to the Exchange Book, the NBBO changes such that the
Order would not be executable at its posted price due to the
requirements of Regulation NMS or the Plan, the Non-Displayed Order to
buy (sell) would be re-priced to either one MPI below (above) the NBO
(NBB) or the midpoint of the NBBO, whichever is higher (lower) and
receive a new timestamp. In the same scenario, if the Non-Displayed
Order was entered via OUCH or FLITE, instead of re-pricing, the Order
would be cancelled back to the Participant.
---------------------------------------------------------------------------

\18\ See BX Rule 4770(c)(3)(D).
\19\ See Partial Amendment No. 1.
---------------------------------------------------------------------------

3. Post-Only Orders \20\
---------------------------------------------------------------------------

\20\ See proposed BX Rule 4770(d)(4). See also Partial Amendment
No. 3.
---------------------------------------------------------------------------

The Exchange proposes that Post-Only Orders will operate consistent
with current BX Rule 4702(b)(4) except as provided below. Specifically,
for a not attributable Post-Only Order for a Test Group Three Pilot
Security, if the limit price to buy (sell) would lock or cross a
Protected Quotation of another market center, the Order would display
at one MPI below (above) the Protected Quotation and would be ranked at
the current midpoint of the NBBO on the Exchange Book.\21\
---------------------------------------------------------------------------

\21\ See Partial Amendment No. 1.
---------------------------------------------------------------------------

4. Retail Price Improving Orders \22\
---------------------------------------------------------------------------

\22\ See proposed BX Rule 4770(d)(5).
---------------------------------------------------------------------------

The Exchange proposes that Retail Price Improving Orders for Test
Group Pilot Securities will operate consistently with current BX Rule
4702(b)(5) except as provided below. Specifically, a Retail Price
Improving Order for a Test Group Two or Test Group Three Pilot Security
must be entered in a MPI of $0.005 and will only execute against Retail
Orders if its price is at least $0.005 better than the NBBO.
5. Retail Orders \23\
---------------------------------------------------------------------------

\23\ See proposed BX Rule 4770(d)(6).
---------------------------------------------------------------------------

The Exchange proposes that Retail Orders for Test Group Pilot
Securities will operate consistently with current BX Rule 4702(b)(6)
except as provided below. Specifically, a Retail Order in a Test Group
One Pilot Security must be entered with a limit price in a MPI and may
execute in an increment other than a MPI if the order is provided price
improvement of at least $0.001 better than the NBBO. In addition, a
Retail Order in a Test Group Two or Test Group Three Pilot Security
must be entered in a MPI and may execute in an increment other than a
MPI if the order is provided price improvement that is at least $0.005
better than the NBBO.
6. Market Maker Peg Orders \24\
---------------------------------------------------------------------------

\24\ See proposed BX Rule 4770(d)(7).
---------------------------------------------------------------------------

The Exchange proposes that a Market Maker Peg Order for Test Group
Pilot Securities will operate consistent with current BX Rule
4702(b)(7) except the displayed price of such an Order would be rounded
up for bids (down for offers) to the nearest MPI (i.e., $0.05) if it
would otherwise display at an increment smaller than the MPI.

B. Amendments To Order Attribute Functionality

1. Midpoint Pegging \25\
---------------------------------------------------------------------------

\25\ See proposed BX Rule 4770(d)(8).
---------------------------------------------------------------------------

The Exchange proposes that an Order with a Midpoint Pegging
attribute in a Test Group Pilot Security will operate consistent with
current BX Rule 4703(d). The Exchange also specifies that such Orders
may execute at the midpoint of the NBBO in an increment other than the
MPI.
2. Reserve Size \26\
---------------------------------------------------------------------------

\26\ See proposed BX Rule 4770(d)(9). See also Partial Amendment
No. 1.
---------------------------------------------------------------------------

The Exchange proposes that an Order with Reserve Size in a Test
Group Pilot Security will operate consistent with current BX Rule
4703(h) except as described below. Specifically, a resting Order with
Reserve Size in a Test Group Three Pilot Security (i.e., a Price to
Comply Order or a Price to Display Order entered via RASH or FIX) may
not execute the non-displayed Reserve Size at the price of a Protected
Quotation of another market center unless the incoming Order qualifies
for an exception to the Trade-at Prohibition.\27\ If an Order with
Reserve Size for a Test Group Three Pilot Security is partially
executed upon entry and the remainder would lock a Protected Quotation
of another market center, the unexecuted portion of the Order would be
cancelled. If a Price to Comply Order with Reserve Size to buy (sell) a
Test Group Three Pilot Security is not executable against previously
posted Orders on the Exchange Book, and has a limit price that would
lock or cross a Protected Quotation of another market center, the
displayed portion of the Order would display one MPI below (above) the
Protected Quotation, and the displayed and non-displayed portions of
the Order, would be ranked at the current midpoint of the NBBO on the
Exchange Book. If a Price to Display Order with Reserve Size is not
executable against any previously posted Orders on the Exchange Book
and its limit price would lock or cross a Protected Quotation of
another market center, then the displayed portion of the Order would be
displayed and ranked one MPI below (above) the Protected Quotation and
the non-displayed portion of the Order would be ranked at the midpoint
of the NBBO. If after being posted to the Exchange Book, the NBBO
changes such that an Order with Reserve Size was not executable at its
ranked price due to the requirements of Regulation NMS or the Plan, the
Order would adjust as described above.
---------------------------------------------------------------------------

\27\ See BX Rule 4770(c)(3)(D).
---------------------------------------------------------------------------

3. Good-till-Cancelled \28\
---------------------------------------------------------------------------

\28\ See proposed BX Rule 4770(d)(10).
---------------------------------------------------------------------------

The Exchange proposes that an Order with a Time-in-Force of Good-
till-Cancelled in a Test Group Pilot Security will operate consistent
with current BX Rule 4703(a)(3) except such Order would be adjusted
based on a $0.05 increment.

C. Amendments to Certain Trade-at Prohibition Exceptions

1. TA ISO \29\
---------------------------------------------------------------------------

\29\ See proposed BX Rule 4770(a)(1)(D)(ii).
---------------------------------------------------------------------------

The Exchange proposes to add the phrase ``or Intermarket Sweep
Orders'' (``ISO'') to the definition of TA ISO as well as to the
related TA ISO exception to the Trade-at Prohibition\30\ to clarify

[[Page 71152]]

that ISOs may be routed to execute against the full displayed size of
the Protected Quotation that was traded at.
---------------------------------------------------------------------------

\30\ See proposed BX Rule 4770(c)(3)(D)(iii)(j).
---------------------------------------------------------------------------

2. Block Size Order exception for the Trade-at Prohibition \31\
---------------------------------------------------------------------------

\31\ See proposed BX Rule 4770(c)(3)(D)(iii)(c) and BX Rule
4770, proposed Commentary .12.
---------------------------------------------------------------------------

Currently, BX Rule 4770(c)(3)(D)(iii)(c) provides an exception to
the Trade-at Prohibition for Block Size Orders.\32\ The Exchange
proposes in Commentary .12 that for purposes of qualifying for the
exception Orders must have a size of 5,000 shares or more and the
resulting execution upon entry is for a size of 5,000 shares or more in
aggregate. In addition, the Exchange proposes to amend the Block Size
Order exception to the Trade-at Prohibition to allow execution on
multiple Trading Centers to comply with Regulation NMS.\33\
---------------------------------------------------------------------------

\32\ The plan defines Block Size as ``an order (1) of at least
5,000 shares or (2) for a quantity of stock having a market value of
at least $100,000. See Plan Section I(F).
\33\ See proposed BX Rule 4770(c)(3)(D)(iii)(c). See also
Partial Amendment No. 3.
---------------------------------------------------------------------------

III. Summary of Comments Received \34\
---------------------------------------------------------------------------

\34\ See supra note 7.
---------------------------------------------------------------------------

Both comment letters express support for the proposal and suggest
that the Commission should approve the proposal. In Comment Letter No.
1, the commenters stated that if the proposal is approved as proposed,
then the Exchange would be able to meet the implementation date.
Further, in Comment Letter No. 1, the commenters stated their belief
that the requirements from the Commission have been unclear. In Comment
Letter No. 2, the commenter questioned the Commission staff's
authority.

IV. Discussion and Commission's Findings

After careful review of the proposed rule change, as modified by
both Partial Amendment Nos. 1 and No. 3, and the comment letters, the
Commission finds that the proposal, as modified by Partial Amendment
Nos. 1 and 3, is consistent with the requirements of the Act, Rule 608
of Regulation NMS,\35\ and the rules and regulations thereunder that
are applicable to a national securities exchange.\36\ Specifically, the
Commission finds that the rule change is consistent with Section
6(b)(5) of the Act,\37\ 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.
---------------------------------------------------------------------------

\35\ 17 CFR 242.608.
\36\ 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).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. As such, any proposed changes targeted at particular Test
Groups during the Pilot Period should be necessary for compliance with
the Plan.
The Exchange proposes to modify its handling of certain Order Types
and Order Attributes during the Pilot Period. First, the Exchange
proposes to clarify that it will not accept Orders in a Test Group
Pilot Security in an increment other than $0.05 unless there is an
applicable exception to the MPI. Second, the Exchange proposes to
clarify that the displayed price of Market Maker Peg Orders for any
Test Group Pilot Security would be rounded to the nearest MPI and that
Good-till-Cancelled Orders for a Test Group Pilot Security would be
adjusted based on the $0.05 increment. Finally, the Exchange proposes
to clarify that Orders with Midpoint Pegging Attribute in a Test Group
Pilot Security may execute at the midpoint of the NBBO in an increment
other than the MPI.
The Exchange clarifies the operation of Retail Price Improving
Orders in Test Group Two and Test Group Three Pilot Securities. In
addition, the Exchange proposes to clarify how Retail Orders for Test
Group One Pilot Securities must be entered in the $0.05 MPI but may
execute in an increment other than a MPI if it is provided with price
improvement of at least $0.001. Retail Orders in Test Group Two and
Test Group Three Pilot Securities must be entered in a MPI and may
execute in an increment other than the $0.05 if the Order is provided
with price improvement of at least $0.005 better than the NBBO.
The Exchange also proposes to modify the handling of certain Orders
and Order Attributes in Test Group Three Pilot Securities, including:
(i) Price to Comply Orders; (ii) Non-Displayed Orders; (iii) Post-Only
Orders; and (iv) Orders with Reserve Size. The proposed changes are
intended to facilitate compliance with the Trade-at Prohibition.\38\
---------------------------------------------------------------------------

\38\ In Partial Amendment No. 3, the Exchange clarified that it
would not apply the Trade-at Prohibition outside of Regular Trading
Hours. The Commission notes that this is consistent with the Plan.
See Plan Section I(LL).
---------------------------------------------------------------------------

Finally, the Exchange proposes to amend provisions related to two
exceptions to the Trade-at Prohibition. First, the Exchange proposes to
amend the definition of TA ISO to reflect that ISOs may be routed to
the full displayed size of a Protected Quotation that is traded-at and
to make the corresponding change to the applicable Trade-at Prohibition
exception. Second, the Exchange proposes to amend the Trade-at
Prohibition exception for Block Size Orders to allow such Orders to be
executed on multiple Trading Centers. Further, the Exchange proposes
that for purposes of the Block Size Order exception to the Trade-at
Prohibition, the Order must have a size of 5,000 shares and the
resulting execution upon entry must have a size of 5,000 shares or more
in aggregate.\39\
---------------------------------------------------------------------------

\39\ See also BX Rule 4770(c)(3)(D)(iii)(c).
---------------------------------------------------------------------------

The Commission believes that the proposed changes are reasonably
designed to comply with the Plan. Further, the Commission believes that
the proposed changes that target particular Test Groups are necessary
for compliance with the Plan.\40\ Accordingly, the Commission finds
that these changes are consistent with Section 6(b)(5) of the Act \41\
and Rule 608 of Regulation NMS \42\ because they implement the Plan and
clarify Exchange Rules.
---------------------------------------------------------------------------

\40\ The Commission notes that the Exchange originally proposed
to modify the operation of Post to Comply Orders, Non-Displayed
Orders, and Post Only Orders entered via OUCH and FLITE for Test
Group Three Pilot Securities only. In Partial Amendment No. 3, the
Exchange proposes to remove the proposed functionality. Thus, the
Commission believes that the proposal, as modified, is consistent
with the Plan. The Exchange has committed to make the system changes
necessary to implement Partial Amendment No. 3. If it appears that
the system changes will not be completed by October 17, 2016, the
date on which the Participants will begin implementation of Test
Group 3,the Exchange will file a proposed rule change with the
Commission to propose any necessary changes to the Exchange's rules
and provide notice to market participants sufficiently in advance of
this date to adequately inform market participants of the current
operation of the Exchange's systems. See Partial Amendment No. 3.
\41\ 15 U.S.C. 78f(b)(5).
\42\ 17 CFR 242.608.
---------------------------------------------------------------------------

For these reasons, the Commission finds that the proposed rule
change, as modified by Partial Amendment Nos. 1

[[Page 71153]]

and 3, is consistent with the requirements of the Act \43\ and Rule 608
of Regulation NMS.\44\
---------------------------------------------------------------------------

\43\ 15 U.S.C. 78f(b)(5).
\44\ 17 CFR 242.608.
---------------------------------------------------------------------------

V. Solicitation of Comments on Partial Amendment Nos. 1 and 3 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 Partial Amendment Nos. 1 and 3, is consistent with the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2016-050 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2016-050. 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-BX-
2016-050 and should be submitted on or before November 4, 2016.

VI. Accelerated Approval of Proposed Rule Change, as Modified by
Partial Amendment Nos.1 and 3

The Commission finds good cause to approve the proposed rule
change, as modified by Partial Amendment Nos. 1 and 3, prior to the
thirtieth day after the date of publication of notice of the proposed
rule change, as modified by Partial Amendment Nos. 1 and 3 in the
Federal Register. As described above, the Exchange proposes to amend
its rules to comply with the Plan. The Commission notes that the Pilot
started implementation on October 3, 2016, and accelerated approval of
the proposal would ensure that the rules of the Exchange would be in
place during implementation. Accordingly, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Exchange Act,\45\ to approve
the proposed rule change, as modified by Partial Amendment Nos. 1 and
3, on an accelerated basis.
---------------------------------------------------------------------------

\45\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VII. Conclusion

It is therefore ordered that, pursuant to Section 19(b)(2) of the
Exchange Act,\46\ that the proposed rule change (SR-BX-2016-050), as
modified by Partial Amendment Nos. 1 and 3, be and hereby is approved
on an accelerated basis.
---------------------------------------------------------------------------

\46\ Id.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

\47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24842 Filed 10-13-16; 8:45 am]
BILLING CODE 8011-01-P

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