Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4770 (Compliance With Regulation NMS Plan To Implement a Tick Size Pilot), 95232-95236 [2016-31107]
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Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31115 Filed 12–23–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79615; File No. SR–BX–
2016–069]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 4770
(Compliance With Regulation NMS
Plan To Implement a Tick Size Pilot)
December 20, 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 December
13, 2016, NASDAQ BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
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.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 4770 (Compliance with Regulation
NMS Plan to Implement a Tick Size
Pilot) relating to the handling to certain
Order Types in Test Group Three Pilot
Securities in connection with the
Regulation NMS Plan to Implement a
Tick Size Pilot Program (‘‘Plan’’ or
‘‘Pilot’’).3 Relatedly, BX also proposes to
delete Commentary .14, which
addresses the current handling of those
Order Types. Finally, BX proposes to
add language to Rule 4770(d)(1) to
clarify the treatment of orders in a Test
Group Three Security entered through
the RASH or FIX protocols.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqbx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
42 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. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’).
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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
On September 7, 2016, the Exchange
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
a proposed rule change (‘‘Proposal’’) to
adopt paragraph (d) to Exchange Rule
4770 to describe changes to system
functionality necessary to implement
the Plan. The Exchange also proposed
amendments to Rule 4770(a) and (c) to
clarify how the Trade-at exception may
be satisfied. The SEC published the
Proposal in the Federal Register for
notice and comment on September 20,
2016.4 BX subsequently filed three
Partial Amendments to clarify aspects of
the Proposal. The Commission approved
the Proposal, as amended, on October 7,
2016.5
In SR–BX–2016–050, BX had initially
proposed a re-pricing functionality for
Price to Comply Orders, Non-Displayed
Orders, and Post-Only Orders entered
through the OUCH and FLITE protocols
in Group Three Pilot Securities.6 BX
subsequently determined that it would
4 See Securities Exchange Act Release No. 78838
(September 14, 2016), 81 FR 64566 (September 20,
2016) (Notice of filing of SR–BX–2016–050).
5 See Securities Exchange Act Release No. 79076
(October 7, 2016) (Order approving SR–BX–2016–
050).
6 As originally proposed, Rule 4770(d)(2) stated
that Price to Comply Orders in a Test Group Three
Pilot Security will be adjusted repeatedly in
accordance with changes to the NBBO until such
time as the Price to Comply Order is able to be
ranked and displayed at its original entered limit
price. Rule 4770(d)(3) stated that, if market
conditions allow, a Non-Displayed Order in a Test
Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO
up (down) to the Order’s limit price. Rule
4770(d)(4) stated that, if market conditions allow,
the Post-Only Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance
with changes to the NBBO or the best price on the
BX Book, as applicable until such time as the PostOnly Order is able to be ranked and displayed at
its original entered limit price.
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
not offer this re-pricing functionality for
Price to Comply Orders, Non-Displayed
Orders, and Post-Only Orders entered
through the OUCH and FLITE protocols
in Test Group Three Pilot securities. As
part of Partial Amendment No. 2 to SR–
BX–2016–050, BX proposed to delete
the relevant language from Rule 4770
related to this re-pricing functionality.
In that amendment, BX noted that this
change would only impact the treatment
of Price to Comply Orders, NonDisplayed Orders, and Post-Only orders
that are submitted through the OUCH
and FLITE protocols in Test Group
Three Pilot Securities, as these types of
Orders that are currently submitted to
BX through the RASH or FIX protocols
are already subject to this re-pricing
functionality and will remain subject to
this functionality under the Pilot.
In the Amendment, BX further noted
that its systems are currently
programmed so that Price to Comply
Orders, Non-Displayed Orders and PostOnly Orders entered through the OUCH
and FLITE protocols in Test Group
Three Pilot Securities may be adjusted
repeatedly to reflect changes to the
NBBO and/or the best price on the BX
book. BX stated that it was reprogramming its systems to remove this
functionality for Price to Comply
Orders, Non-Displayed Orders and PostOnly Orders entered through the OUCH
and FLITE protocols in Test Group
Three Pilot Securities. In the
Amendment, BX stated that it
anticipated that this re-programming
shall be completed no later than
November 30, 2016. If it appeared that
this functionality would remain
operational by October 17, 2016, BX
indicated that it would file a proposed
rule change with the SEC and will
provide notice to market participants
sufficiently in advance of that date to
provide effective notice. The rule
change and the notice to market
participants will describe the current
operation of the BX systems in this
regard, and the timing related to the reprogramming.
On October 17, 2016, BX filed a
proposal to extend the date by which it
would complete the re-programing of its
systems to eliminate the re-pricing
functionality in Test Group Three Pilot
Securities for Price to Comply Orders,
Price to Display Orders, Non-Displayed
Orders, and Post-Only Orders that are
entered through the OUCH or FLITE
protocols.7 In that proposal, BX stated
7 See Securities Exchange Act Release No. 79154
(October 25, 2016), 81 FR 75468 (October 31, 2016)
(SR–BX–2016–054).
Subsequent to the approval of SR–BX–2016–050,
BX become aware that this re-pricing functionality
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that it anticipated that this reprogramming shall be complete on or
before October 31, 2016.8 As BX
continued to re-program its systems to
eliminate the re-pricing functionality in
Test Group Three Pilot Securities for
Price to Comply Orders, Price to Display
Orders, Non-Displayed Orders, and
Post-Only Orders that are entered
through the OUCH or FLITE protocols,
it extended the date by which the reprogramming shall be complete to the
current date of December 12, 2016.9
The Exchange has now completed the
re-programming its systems to eliminate
the re-pricing functionality in Test
Group Three Pilot Securities for Price to
Comply Orders, Price to Display Orders,
Non-Displayed Orders, and Post-Only
Orders that are entered through the
OUCH or FLITE protocols. However, as
a result of removing the re-pricing
functionality, there are instances, due to
the different functionality of the OUCH
and FLITE protocols in comparison to
the other applicable Exchange protocols,
where the behavior of certain Order
Types entered through the OUCH and
FLITE protocols in Test Group Three
Pilot Securities will differ from the
behavior of those Order Types as set
forth in Rule 4770; specifically, the
behavior of Price to Comply Orders,
Non-Displayed Orders, and Post-Only
Orders entered through the OUCH and
FLITE protocols when the Order locks
or crosses a Protected Quotation. As
discussed below, BX is therefore
amending Rule 4770 to clarify these
differences. Although the changes made
to Price to Comply Orders, NonDisplayed Orders, and Post-Only Orders
entered through OUCH and FLITE
reflect the different functionality of the
OUCH and FLITE protocols in
comparison with the other BX protocols,
the proposed changes treat Price to
Comply Orders, Non-Displayed Orders
and Post-Only Orders entered through
OUCH and FLITE protocols in Test
Group Three Securities as consistently
as possible with such orders entered
through OUCH and FLITE in Control
Group Securities, and Test Group One
and Test Group Two Securities. These
also applies to Price to Display Orders that are
entered through the OUCH and FLITE protocols in
Test Group Three Securities, and amended
Commentary .14 to indicate that Price to Display
Orders will be treated in the same manner as Price
to Comply Orders under the re-pricing
functionality. Id.
8 Id.
9 See Securities Exchange Act Release Nos. 79262
(November 8, 2016), 81 FR 80123 (November 15,
2016) (SR–BX–2016–153) (extending current repricing functionality to November 14, 2016); 79409
(November 28, 2016), 81 FR 87091 (December 2,
2016) (SR–BX–2016–061) (extending current repricing functionality to December 12, 2016).
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20:45 Dec 23, 2016
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changes will adjust Price to Comply
Orders, Non-Displayed Orders, and
Post-Only Orders entered through
OUCH and FLITE when the Order has
been ranked at a midpoint of the NBBO
that then becomes impermissible due to
changes in the NBBO.
Price to Comply Orders
Currently, Rule 4770(d)(2) states that
a Price to Comply Order in a Test Group
Pilot Security will operate as described
in Rule 4702(b)(1) except as provided
under this paragraph. If a Price to
Comply Order 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 will be cancelled. If the Order is
not executable against any previously
posted orders on the Exchange Book,
and the limit price of a buy (sell) Price
to Comply Order in a Test Group Three
Pilot Security would lock or cross a
Protected Quotation of another market
center, the Order will display at one
minimum price increment below
(above) the Protected Quotation, and the
Order will be ranked on the Exchange
Book at the current midpoint of the
NBBO.
BX proposes to augment this
provision to clarify the behavior of Price
to Comply Orders entered through the
OUCH or FLITE protocols in Test Group
Three Pilot Securities that lock or cross
a Protected Quotation. Specifically, a
Price to Comply Order in a Test Group
Three Pilot Security entered through
OUCH or FLITE may be adjusted in the
following manner after initial entry and
posting to the BX Book.
If entered at a price that locked a
Protected Quotation, and if the NBBO
changes such that its price will no
longer lock a Protected Quotation, the
Price to Comply Order will be adjusted
to rank and display at its original
entered limit price.10
If entered at a price that crossed a
Protected Quotation, and if the NBBO
changes such that it can be ranked at the
price of the Protected Quotation it
crossed, the Price to Comply Order,
based on the participant’s choice, may
either be (i) cancelled or (ii) adjusted to
rank at the price of the Protected
Quotation it crossed upon entry with its
displayed price remaining unchanged.
If, after being posted on the BX Book,
the non-displayed price of a Price to
Comply Order becomes locked or
crossed by a Protected Quotation due to
a change in the NBBO, or if the Price to
10 BX notes that a Price to Comply Order will
always be adjusted in this scenario, regardless of its
port setting.
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95233
Comply Order is at an impermissible
price under Regulation NMS or the Plan
and it cannot otherwise be adjusted as
above, the Price to Comply Order will
be cancelled.11
Non-Displayed Orders
Currently, Rule 4770(d)(3) states that
a Non-Displayed Order in a Test Group
Pilot Security will operate as described
in Rule 4702(b)(3) except as provided
under this paragraph. A resting NonDisplayed Order in a Test Group Three
Pilot security cannot execute at the
price of a Protected Quotation of
another market center unless the
incoming Order otherwise qualifies for
an exception to the Trade-at prohibition
provided under Rule 4770(c)(3)(D). If
the limit price of a buy (sell) NonDisplayed Order in a Test Group Three
Pilot Security would lock or cross a
Protected Quotation of another market
center, the Order will be ranked on the
Exchange Book at either one minimum
price increment below (above) the
National Best Offer (National Best Bid)
or at the midpoint of the NBBO,
whichever is higher (lower). For a NonDisplayed Order in a Test Group Three
Pilot Security entered through RASH or
FIX, if after being posted to the
Exchange Book, the NBBO changes so
that the Non-Displayed Order would no
longer be executable at its posted price
due to the requirements of Regulation
NMS or the Plan, the Non-Displayed
Order will be repriced to a price that is
at either one minimum price increment
below (above) the National Best Offer
(National Best Bid) or at the midpoint of
the NBBO, whichever is higher (lower)
and will receive a new timestamp.12 For
11 For example, if the National Best Bid is $10.00
and the National Best Offer is $10.10, and a Price
to Comply Order to buy at $10.15 is entered, the
Price to Comply Order will be displayed at $10.05
and ranked at $10.075. If the National Best Offer
then changes to $10.15, the Price to Comply Order
will be adjusted to rank at $10.10, and will remain
displayed at $10.05. If the National Best Offer
subsequently changes to $10.10, the Price to
Comply Order will be cancelled.
BX notes that a Price to Comply Order, NonDisplayed Order, or Post-Only Order entered
through OUCH or FLITE in either a Control Group
Security, a Test Group One Pilot Security or a Test
Group Two Pilot Security would only cancel if the
resting order is crossed (not locked) by a Protected
Quotation due to a change in the NBBO.
12 As part of this proposal, BX also proposes to
clarify the operation of this provision so that it is
structurally consistent with provisions in the
descriptions of Price to Comply and Post-Only
Orders. Specifically, BX will amend this language
to provide that, if a resting Non-Displayed Order in
a Test Group Three Pilot Security entered through
RASH or FIX becomes locked or crossed by a
Protected Quotation due to a change in the NBBO,
or if the Non-Displayed Order is at an
impermissible price under Regulation NMS or the
Plan, the Non-Displayed Order will be repriced to
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
a Non-Displayed Order in a Test Group
Three Pilot Security entered through
OUCH or FLITE, if after such a NonDisplayed Order is posted to the
Exchange Book, the NBBO changes so
that the Non-Displayed Order would no
longer be executable at its posted price
due to the requirements of Regulation
NMS or the Plan, the Non-Displayed
Order will be cancelled back to the
Participant.
BX proposes to amend this provision
to clarify the behavior of Non-Displayed
Orders entered through the OUCH or
FLITE protocols in Test Group Three
Pilot Securities that lock or cross a
Protected Quotation. Specifically, a
Non-Displayed Order in a Test Group
Three Pilot Security entered through
OUCH or FLITE may be adjusted in the
following manner after initial entry and
posting to the BX Book.
If entered at a price that locked a
Protected Quotation, and if the NBBO
changes such that its price would no
longer lock a Protected Quotation, the
Non-Displayed Order will be adjusted to
rank at its original entered limit price.13
If entered at a price that crossed a
Protected Quotation, and if the NBBO
changes such that it can be ranked at the
price of the Protected Quotation it
crossed, the Order, based on the
Participant’s choice, may either be (i)
cancelled or (ii) adjusted to rank at the
price of the Protected Quotation it
crossed.14
If entered at a price that locked or
crossed a Protected Quotation, and if the
NBBO changes such that it cannot be
ranked at the price of the Protected
Quotation it locked or crossed but can
be ranked closer to its original limit
price, the Non-Displayed Order will be
adjusted to the new midpoint of the
NBBO.15
a price that is at either one minimum price
increment below (above) the National Best Offer
(National Best Bid) or at the midpoint of the NBBO,
whichever is higher (lower) and will receive a new
timestamp.
13 BX notes that a Non-Displayed Order will
always be adjusted in this scenario, regardless of its
port setting.
14 For example, if the National Best Bid is $10.00
and the National Best Offer is $10.10, and a NonDisplayed Order to buy at $10.15 is entered, the
Non-Displayed Order will be ranked at $10.05. If
the National Best Offer then changes to $10.15, the
Non-Displayed Order may either be adjusted to rank
at $10.10, or may be cancelled back to the
Participant.
15 For example, if the National Best Bid is $10.00
and the National Best Offer is $10.10, and a NonDisplayed Order to buy at $10.10 is entered, the
Non-Displayed Order will be ranked at $10.05. If
the National Best Bid then changes to $10.05, the
price of the Non-Displayed Order will be adjusted
to $10.075.
BX notes that a Non-Displayed Order entered
through OUCH or FLITE in either a Control Group
Security, a Test Group One Pilot Security or a Test
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If, after being posted on the BX Book,
the Non-Displayed Order becomes
locked or crossed by a Protected
Quotation due to a change in the NBBO,
or if the Non-Displayed Order is at an
impermissible price under Regulation
NMS or the Plan and it cannot
otherwise be adjusted as above, the
Non-Displayed Order will be
cancelled.16
Post-Only Orders
Currently, Rule 4770(d)(4) states that
a Post-Only Order in a Test Group Pilot
Security will operate as described in
Rule 4702(b)(4) except as provided
under this paragraph. For orders that are
not attributable, if the limit price of a
buy (sell) Post-Only Order in a Test
Group Three Pilot Security would lock
or cross a Protected Quotation of
another market center, the Order will
display at one minimum price
increment below (above) the Protected
Quotation, and the Order will be ranked
on the Exchange Book at the current
midpoint of the NBBO.
BX proposes to augment this
provision to clarify the behavior of PostOnly Orders entered through the OUCH
or FLITE protocols in Test Group Three
Pilot Securities that lock or cross a
Protected Quotation. Specifically, a
Non-Attributable Post-Only Order in a
Test Group Three Pilot Security entered
through OUCH or FLITE may be
adjusted in the following manner after
initial entry and posting to the BX Book.
If entered at a price that locked a
Protected Quotation, and if the NBBO
changes such that its price will no
longer lock a Protected Quotation, the
Post-Only Order will be adjusted to rank
and display at its original entered limit
price.17
If entered at a price that crossed a
Protected Quotation, and if the NBBO
changes such that it can be ranked at the
price of the Protected Quotation it
crossed, the Post-Only Order, based on
the Participant’s choice, may either be
(i) cancelled or (ii) adjusted to rank at
the price of the Protected Quotation it
crossed upon entry with its displayed
price remaining unchanged.
If, after being posted on the BX Book,
the non-displayed price of a resting
Post-Only Order becomes locked or
Group Two Pilot Security would be ranked at the
locking price upon entry.
16 For example, if the National Best Bid is $10.00
and the National Best Offer is $10.10, and a NonDisplayed Order to buy at $10.10 is entered, the
Non-Displayed Order will be ranked at $10.05. If
the National Best Offer then changes to $10.05, the
Non-Displayed Order will be cancelled back to the
Participant.
17 BX notes that a Post-Only Order will always be
adjusted in this scenario, regardless of its port
setting.
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Sfmt 4703
crossed by a Protected Quotation due to
a change in the NBBO, or if the PostOnly Order is at an impermissible price
under Regulation NMS or the Plan and
it cannot otherwise be adjusted as
above, the Post-Only Order will be
cancelled.
Commentary .14
In removing the current re-pricing
functionality, Commentary .014 [sic],
which addresses the behavior of current
treatment of Price to Comply Orders,
Price to Display Orders, Non-Displayed
Orders, and Post-Only Orders that are
entered through the OUCH or FLITE
protocols in Test Group Three Pilot
Securities, is no longer necessary.18 The
Exchange therefore proposes to delete
this Commentary from the Rule.
Finally, BX proposes to add language
to Rule 4770(d)(1) to clarify the
treatment of orders in a Test Group
Three Security entered through the
RASH or FIX protocols. Specifically,
subject to the provisions set forth in the
remainder of Rule 4770(d), if the
entered limit price of an Order in a Test
Group Three Pilot Security, entered
through RASH or FIX, locked or crossed
a Protected Quotation and the NBBO
changes so that the Order can be ranked
closer to its original entered limit price,
the price of the Order will be adjusted
repeatedly in accordance with changes
to the NBBO. BX is proposing to make
this change to clarify the current
treatment of orders in Test Group Three
Pilot Securities entered through RASH
or FIX.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
18 Under Commentary .14, the current treatment
of Price to Comply Orders, Price to Display Orders,
Non-Displayed Orders, and Post-Only Orders that
are entered through the OUCH or FLITE protocols
in Test Group Three securities is as follows:
Following entry, and if market conditions allow,
a Price to Comply Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance
with changes to the NBBO until such time as the
Price to Comply Order is able to be ranked and
displayed at its original entered limit price.
Following entry, and if market conditions allow,
a Price to Display Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance
with changes to the NBBO until such time as the
Price to Display Order is able to be ranked and
displayed at its original entered limit price.
Following entry, and if market conditions allow,
a Non-Displayed Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance
with changes to the NBBO up (down) to the Order’s
limit price.
Following entry, and if market conditions allow,
the Post-Only Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance
with changes to the NBBO or the best price on the
Exchange Book, as applicable until such time as the
Post-Only Order is able to be ranked and displayed
at its original entered limit price.
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Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices
of the Act,19 in general, and furthers the
objectives of Section 6(b)(5) of the Act,20
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
The Exchange believes that the
proposed rule change is consistent with
the Act because it clarifies the changes
the Exchange is making to the handling
of certain Order Types necessary to
implement the requirements of the Plan
on its System and, in the case of the
changes of Rule 4770(d)(1), to clarify the
current treatment of orders in Test
Group Three Pilot Securities entered
through RASH or FIX.
As a result of removing the current repricing functionality that applies to
certain Order Types in Test Group
Three Securities entered through the
OUCH and FLITE protocols, and due to
the different functionality of the OUCH
and FLITE protocols in comparison to
the other applicable BX protocols, these
Order Types will behave differently
than is currently set forth in Rule 4770
when entered through the OUCH or
FLITE protocols in certain instances. As
noted above, these changes will adjust
Price to Comply Orders, Non-Displayed
Orders, and Post-Only Orders entered
through OUCH and FLITE when the
Order has been ranked at a midpoint of
the NBBO that then becomes
impermissible due to changes in the
NBBO. These changes also will adjust
Price to Comply Orders, Non-Displayed
Orders, and Post-Only Orders entered
through OUCH and FLITE in scenarios
where the subsequent movement of the
NBBO implicates the Trade-at
prohibition with respect to the resting
order.
By clarifying the behavior of certain
Order Types in Test Group Three Pilot
Securities entered through the OUCH or
FLITE protocols, the proposal will help
allow market participants to continue to
trade NMS Stocks, within quoting and
trading requirements that are in
compliance with the Plan, with
certainty on how certain orders and
trading interests would be treated. This,
in turn, will help encourage market
participants to continue to provide
liquidity in the marketplace.
More generally, BX also notes that the
Plan, which was approved by the
Commission pursuant to an order issued
by the Commission in reliance on
Section 11A of the Act,21 provides the
19 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
21 15 U.S.C. 78k–1.
20 15
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20:45 Dec 23, 2016
Jkt 241001
Exchange authority to establish,
maintain, and enforce written policies
and procedures that are reasonably
designed to comply with applicable
quoting and trading requirements
specified in the Plan. The Exchange
believes that the proposed rule change
is consistent with the authority granted
to it by the Plan to establish
specifications and procedures for the
implementation and operation of the
Plan that are consistent with the
provisions of the Plan. Likewise, the
Exchange believes that the proposed
rule change provides interpretations of
the Plan that are consistent with the
Act, in general, and furthers the
objectives of the Act, in particular.
Finally, BX believes that the proposal
is consistent with the Act because the
proposed functionality will more
closely align the handling of Price to
Comply Orders, Non-Displayed Orders,
and Post-Only Orders that are entered
through the OUCH or FLITE protocols
for Test Group Three Pilot Securities
with the handling of such Orders
entered through the OUCH or FLITE
protocols for Control Group, Test Group
One and Test Group Two Securities
than the current functionality in place
for these Orders.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes are being made to
establish, maintain, and enforce written
policies and procedures that are
reasonably designed to comply with the
trading and quoting requirements
specified in the Plan, of which other
equities exchanges are also Participants.
Other competing national securities
exchanges are subject to the same
trading and quoting requirements
specified in the Plan, and must take the
same steps that the Exchange has to
conform its existing rules to the
requirements of the Plan. Therefore, the
proposed changes would not impose
any burden on competition, while
providing certainty of treatment and
execution of trading interests on the
Exchange to market participants in NMS
Stocks that are acting in compliance
with the requirements specified in the
Plan.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
95235
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 22 and
subparagraph (f)(6) of Rule 19b–4
thereunder.23
A proposed rule change filed under
Rule 19b–4(f)(6) 24 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),25 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. In this filing, the Exchange has
asked that the Commission waive the
requirement that the proposed rule
change not become operative for 30 days
after the date of the filing.
The Exchange notes the proposed rule
is intended to clarify the differences in
the handling of certain orders entered
into the system by different protocols.
The Exchange notes that orders will be
treated as consistently as possible across
the Test Groups and the Control Group
while complying with each grouping’s
varied quoting and trading
requirements. Additionally, the
Exchange proposed to remove
Commentary .14 because it is no longer
necessary.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposal clarifies the
Exchange’s rules and provides
transparency to members with regards
to the handling of certain orders entered
via OUCH and FLITE as well as RASH
or FIX protocols for locked or crossed
orders in Test Group Three Pilot
Securities. The Commission notes that
the Exchange proposed to remove the
functionality described in Commentary
.14 and make the necessary
corresponding systems changes in
Partial Amendment No. 2 to BX–2016–
050, which the Commission approved.26
The Exchange notes that it was able to
implement the systems changes and that
they became fully operational on the
December 14, 2016. Therefore, the
22 15
23 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
24 Id.
25 17
CFR 240.19b–4(f)(6)(iii).
supra note 5.
26 See
E:\FR\FM\27DEN1.SGM
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95236
Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change to be operative on
December 14, 2016.27
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BX–
2016–069 and should be submitted on
or before January 17, 2017.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Assistant Secretary.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BX–2016–069 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
Number SR–BX–2016–069. 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
[FR Doc. 2016–31107 Filed 12–23–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79621; File No. SR–CBOE–
2016–089]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Extend the Credit
Option Margin Pilot Program Through
July 18, 2017
December 20, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
14, 2016, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
28 17
27 For
purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
20:45 Dec 23, 2016
Jkt 241001
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend Rule 12.3 by
extending the Credit Option Margin
Pilot Program through July 18, 2017.
The text of the proposed rule change
is available on the Exchange’s Web site
(https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
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
On February 2, 2011, the Commission
approved the Exchange’s proposal to
establish a Credit Option Margin Pilot
Program (‘‘Program’’).5 The proposal
became effective on a pilot basis to run
on a parallel track with Financial
Industry Regulatory Authority
(‘‘FINRA’’) Rule 4240 that similarly
operates on an interim pilot basis.6
On January 17, 2012, the Exchange
filed a rule change to, among other
things, decouple the Program with the
FINRA program and to extend the
expiration date of the Program to
January 17, 2013.7 The Program,
however, continues to be substantially
5 See Securities Exchange Act Release No. 63819
(February 2, 2011), 76 FR 6838 (February 8, 2011)
order approving (SR–CBOE–2010–106). To
implement the Program, the Exchange amended
Rule 12.3(l), Margin Requirements, to make CBOE’s
margin requirements for Credit Options consistent
with Financial Industry Regulatory Authority
(‘‘FINRA’’) Rule 4240, Margin Requirements for
Credit Default Swaps. CBOE’s Credit Options (i.e.,
Credit Default Options and Credit Default Basket
Options) are analogous to credit default swaps.
6 See Securities Exchange Act Release No. 59955
(May 22, 2009), 74 FR 25586 (May 28, 2009) (Notice
of Filing and Order Granting Accelerated Approval
of Proposed Rule Change; SR–FINRA–2009–012).
7 See Securities Exchange Act Release No. 66163
(January 17, 2012), 77 FR 3318 (January 23, 2012)
(SR–CBOE–2012–007).
E:\FR\FM\27DEN1.SGM
27DEN1
]]>Agencies
[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95232-95236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31107]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79615; File No. SR-BX-2016-069]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4770
(Compliance With Regulation NMS Plan To Implement a Tick Size Pilot)
December 20, 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 December 13, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I and II below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 4770 (Compliance with
Regulation NMS Plan to Implement a Tick Size Pilot) relating to the
handling to certain Order Types in Test Group Three Pilot Securities in
connection with the Regulation NMS Plan to Implement a Tick Size Pilot
Program (``Plan'' or ``Pilot'').\3\ Relatedly, BX also proposes to
delete Commentary .14, which addresses the current handling of those
Order Types. Finally, BX proposes to add language to Rule 4770(d)(1) to
clarify the treatment of orders in a Test Group Three Security entered
through the RASH or FIX protocols.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (``Approval Order'').
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqbx.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
On September 7, 2016, the Exchange filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change
(``Proposal'') to adopt paragraph (d) to Exchange Rule 4770 to describe
changes to system functionality necessary to implement the Plan. The
Exchange also proposed amendments to Rule 4770(a) and (c) to clarify
how the Trade-at exception may be satisfied. The SEC published the
Proposal in the Federal Register for notice and comment on September
20, 2016.\4\ BX subsequently filed three Partial Amendments to clarify
aspects of the Proposal. The Commission approved the Proposal, as
amended, on October 7, 2016.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 78838 (September 14,
2016), 81 FR 64566 (September 20, 2016) (Notice of filing of SR-BX-
2016-050).
\5\ See Securities Exchange Act Release No. 79076 (October 7,
2016) (Order approving SR-BX-2016-050).
---------------------------------------------------------------------------
In SR-BX-2016-050, BX had initially proposed a re-pricing
functionality for Price to Comply Orders, Non-Displayed Orders, and
Post-Only Orders entered through the OUCH and FLITE protocols in Group
Three Pilot Securities.\6\ BX subsequently determined that it would not
offer this re-pricing functionality for Price to Comply Orders, Non-
Displayed Orders, and Post-Only Orders entered through the OUCH and
FLITE protocols in Test Group Three Pilot securities. As part of
Partial Amendment No. 2 to SR-BX-2016-050, BX proposed to delete the
relevant language from Rule 4770 related to this re-pricing
functionality.
---------------------------------------------------------------------------
\6\ As originally proposed, Rule 4770(d)(2) stated that Price to
Comply Orders in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Comply Order is able to be ranked and displayed at its
original entered limit price. Rule 4770(d)(3) stated that, if market
conditions allow, a Non-Displayed Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance with changes to
the NBBO up (down) to the Order's limit price. Rule 4770(d)(4)
stated that, if market conditions allow, the Post-Only Order in a
Test Group Three Pilot Security will be adjusted repeatedly in
accordance with changes to the NBBO or the best price on the BX
Book, as applicable until such time as the Post-Only Order is able
to be ranked and displayed at its original entered limit price.
---------------------------------------------------------------------------
In that amendment, BX noted that this change would only impact the
treatment of Price to Comply Orders, Non-Displayed Orders, and Post-
Only orders that are submitted through the OUCH and FLITE protocols in
Test Group Three Pilot Securities, as these types of Orders that are
currently submitted to BX through the RASH or FIX protocols are already
subject to this re-pricing functionality and will remain subject to
this functionality under the Pilot.
In the Amendment, BX further noted that its systems are currently
programmed so that Price to Comply Orders, Non-Displayed Orders and
Post-Only Orders entered through the OUCH and FLITE protocols in Test
Group Three Pilot Securities may be adjusted repeatedly to reflect
changes to the NBBO and/or the best price on the BX book. BX stated
that it was re-programming its systems to remove this functionality for
Price to Comply Orders, Non-Displayed Orders and Post-Only Orders
entered through the OUCH and FLITE protocols in Test Group Three Pilot
Securities. In the Amendment, BX stated that it anticipated that this
re-programming shall be completed no later than November 30, 2016. If
it appeared that this functionality would remain operational by October
17, 2016, BX indicated that it would file a proposed rule change with
the SEC and will provide notice to market participants sufficiently in
advance of that date to provide effective notice. The rule change and
the notice to market participants will describe the current operation
of the BX systems in this regard, and the timing related to the re-
programming.
On October 17, 2016, BX filed a proposal to extend the date by
which it would complete the re-programing of its systems to eliminate
the re-pricing functionality in Test Group Three Pilot Securities for
Price to Comply Orders, Price to Display Orders, Non-Displayed Orders,
and Post-Only Orders that are entered through the OUCH or FLITE
protocols.\7\ In that proposal, BX stated
[[Page 95233]]
that it anticipated that this re-programming shall be complete on or
before October 31, 2016.\8\ As BX continued to re-program its systems
to eliminate the re-pricing functionality in Test Group Three Pilot
Securities for Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, and Post-Only Orders that are entered through the
OUCH or FLITE protocols, it extended the date by which the re-
programming shall be complete to the current date of December 12,
2016.\9\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 79154 (October 25,
2016), 81 FR 75468 (October 31, 2016) (SR-BX-2016-054).
Subsequent to the approval of SR-BX-2016-050, BX become aware
that this re-pricing functionality also applies to Price to Display
Orders that are entered through the OUCH and FLITE protocols in Test
Group Three Securities, and amended Commentary .14 to indicate that
Price to Display Orders will be treated in the same manner as Price
to Comply Orders under the re-pricing functionality. Id.
\8\ Id.
\9\ See Securities Exchange Act Release Nos. 79262 (November 8,
2016), 81 FR 80123 (November 15, 2016) (SR-BX-2016-153) (extending
current re-pricing functionality to November 14, 2016); 79409
(November 28, 2016), 81 FR 87091 (December 2, 2016) (SR-BX-2016-061)
(extending current re-pricing functionality to December 12, 2016).
---------------------------------------------------------------------------
The Exchange has now completed the re-programming its systems to
eliminate the re-pricing functionality in Test Group Three Pilot
Securities for Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, and Post-Only Orders that are entered through the
OUCH or FLITE protocols. However, as a result of removing the re-
pricing functionality, there are instances, due to the different
functionality of the OUCH and FLITE protocols in comparison to the
other applicable Exchange protocols, where the behavior of certain
Order Types entered through the OUCH and FLITE protocols in Test Group
Three Pilot Securities will differ from the behavior of those Order
Types as set forth in Rule 4770; specifically, the behavior of Price to
Comply Orders, Non-Displayed Orders, and Post-Only Orders entered
through the OUCH and FLITE protocols when the Order locks or crosses a
Protected Quotation. As discussed below, BX is therefore amending Rule
4770 to clarify these differences. Although the changes made to Price
to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered
through OUCH and FLITE reflect the different functionality of the OUCH
and FLITE protocols in comparison with the other BX protocols, the
proposed changes treat Price to Comply Orders, Non-Displayed Orders and
Post-Only Orders entered through OUCH and FLITE protocols in Test Group
Three Securities as consistently as possible with such orders entered
through OUCH and FLITE in Control Group Securities, and Test Group One
and Test Group Two Securities. These changes will adjust Price to
Comply Orders, Non-Displayed Orders, and Post-Only Orders entered
through OUCH and FLITE when the Order has been ranked at a midpoint of
the NBBO that then becomes impermissible due to changes in the NBBO.
Price to Comply Orders
Currently, Rule 4770(d)(2) states that a Price to Comply Order in a
Test Group Pilot Security will operate as described in Rule 4702(b)(1)
except as provided under this paragraph. If a Price to Comply Order 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 will be cancelled. If the
Order is not executable against any previously posted orders on the
Exchange Book, and the limit price of a buy (sell) Price to Comply
Order in a Test Group Three Pilot Security would lock or cross a
Protected Quotation of another market center, the Order will display at
one minimum price increment below (above) the Protected Quotation, and
the Order will be ranked on the Exchange Book at the current midpoint
of the NBBO.
BX proposes to augment this provision to clarify the behavior of
Price to Comply Orders entered through the OUCH or FLITE protocols in
Test Group Three Pilot Securities that lock or cross a Protected
Quotation. Specifically, a Price to Comply Order in a Test Group Three
Pilot Security entered through OUCH or FLITE may be adjusted in the
following manner after initial entry and posting to the BX Book.
If entered at a price that locked a Protected Quotation, and if the
NBBO changes such that its price will no longer lock a Protected
Quotation, the Price to Comply Order will be adjusted to rank and
display at its original entered limit price.\10\
---------------------------------------------------------------------------
\10\ BX notes that a Price to Comply Order will always be
adjusted in this scenario, regardless of its port setting.
---------------------------------------------------------------------------
If entered at a price that crossed a Protected Quotation, and if
the NBBO changes such that it can be ranked at the price of the
Protected Quotation it crossed, the Price to Comply Order, based on the
participant's choice, may either be (i) cancelled or (ii) adjusted to
rank at the price of the Protected Quotation it crossed upon entry with
its displayed price remaining unchanged.
If, after being posted on the BX Book, the non-displayed price of a
Price to Comply Order becomes locked or crossed by a Protected
Quotation due to a change in the NBBO, or if the Price to Comply Order
is at an impermissible price under Regulation NMS or the Plan and it
cannot otherwise be adjusted as above, the Price to Comply Order will
be cancelled.\11\
---------------------------------------------------------------------------
\11\ For example, if the National Best Bid is $10.00 and the
National Best Offer is $10.10, and a Price to Comply Order to buy at
$10.15 is entered, the Price to Comply Order will be displayed at
$10.05 and ranked at $10.075. If the National Best Offer then
changes to $10.15, the Price to Comply Order will be adjusted to
rank at $10.10, and will remain displayed at $10.05. If the National
Best Offer subsequently changes to $10.10, the Price to Comply Order
will be cancelled.
BX notes that a Price to Comply Order, Non-Displayed Order, or
Post-Only Order entered through OUCH or FLITE in either a Control
Group Security, a Test Group One Pilot Security or a Test Group Two
Pilot Security would only cancel if the resting order is crossed
(not locked) by a Protected Quotation due to a change in the NBBO.
---------------------------------------------------------------------------
Non-Displayed Orders
Currently, Rule 4770(d)(3) states that a Non-Displayed Order in a
Test Group Pilot Security will operate as described in Rule 4702(b)(3)
except as provided under this paragraph. A resting Non-Displayed Order
in a Test Group Three Pilot security cannot execute at the price of a
Protected Quotation of another market center unless the incoming Order
otherwise qualifies for an exception to the Trade-at prohibition
provided under Rule 4770(c)(3)(D). If the limit price of a buy (sell)
Non-Displayed Order in a Test Group Three Pilot Security would lock or
cross a Protected Quotation of another market center, the Order will be
ranked on the Exchange Book at either one minimum price increment below
(above) the National Best Offer (National Best Bid) or at the midpoint
of the NBBO, whichever is higher (lower). For a Non-Displayed Order in
a Test Group Three Pilot Security entered through RASH or FIX, if after
being posted to the Exchange Book, the NBBO changes so that the Non-
Displayed Order would no longer be executable at its posted price due
to the requirements of Regulation NMS or the Plan, the Non-Displayed
Order will be repriced to a price that is at either one minimum price
increment below (above) the National Best Offer (National Best Bid) or
at the midpoint of the NBBO, whichever is higher (lower) and will
receive a new timestamp.\12\ For
[[Page 95234]]
a Non-Displayed Order in a Test Group Three Pilot Security entered
through OUCH or FLITE, if after such a Non-Displayed Order is posted to
the Exchange Book, the NBBO changes so that the Non-Displayed Order
would no longer be executable at its posted price due to the
requirements of Regulation NMS or the Plan, the Non-Displayed Order
will be cancelled back to the Participant.
---------------------------------------------------------------------------
\12\ As part of this proposal, BX also proposes to clarify the
operation of this provision so that it is structurally consistent
with provisions in the descriptions of Price to Comply and Post-Only
Orders. Specifically, BX will amend this language to provide that,
if a resting Non-Displayed Order in a Test Group Three Pilot
Security entered through RASH or FIX becomes locked or crossed by a
Protected Quotation due to a change in the NBBO, or if the Non-
Displayed Order is at an impermissible price under Regulation NMS or
the Plan, the Non-Displayed Order will be repriced to a price that
is at either one minimum price increment below (above) the National
Best Offer (National Best Bid) or at the midpoint of the NBBO,
whichever is higher (lower) and will receive a new timestamp.
---------------------------------------------------------------------------
BX proposes to amend this provision to clarify the behavior of Non-
Displayed Orders entered through the OUCH or FLITE protocols in Test
Group Three Pilot Securities that lock or cross a Protected Quotation.
Specifically, a Non-Displayed Order in a Test Group Three Pilot
Security entered through OUCH or FLITE may be adjusted in the following
manner after initial entry and posting to the BX Book.
If entered at a price that locked a Protected Quotation, and if the
NBBO changes such that its price would no longer lock a Protected
Quotation, the Non-Displayed Order will be adjusted to rank at its
original entered limit price.\13\
---------------------------------------------------------------------------
\13\ BX notes that a Non-Displayed Order will always be adjusted
in this scenario, regardless of its port setting.
---------------------------------------------------------------------------
If entered at a price that crossed a Protected Quotation, and if
the NBBO changes such that it can be ranked at the price of the
Protected Quotation it crossed, the Order, based on the Participant's
choice, may either be (i) cancelled or (ii) adjusted to rank at the
price of the Protected Quotation it crossed.\14\
---------------------------------------------------------------------------
\14\ For example, if the National Best Bid is $10.00 and the
National Best Offer is $10.10, and a Non-Displayed Order to buy at
$10.15 is entered, the Non-Displayed Order will be ranked at $10.05.
If the National Best Offer then changes to $10.15, the Non-Displayed
Order may either be adjusted to rank at $10.10, or may be cancelled
back to the Participant.
---------------------------------------------------------------------------
If entered at a price that locked or crossed a Protected Quotation,
and if the NBBO changes such that it cannot be ranked at the price of
the Protected Quotation it locked or crossed but can be ranked closer
to its original limit price, the Non-Displayed Order will be adjusted
to the new midpoint of the NBBO.\15\
---------------------------------------------------------------------------
\15\ For example, if the National Best Bid is $10.00 and the
National Best Offer is $10.10, and a Non-Displayed Order to buy at
$10.10 is entered, the Non-Displayed Order will be ranked at $10.05.
If the National Best Bid then changes to $10.05, the price of the
Non-Displayed Order will be adjusted to $10.075.
BX notes that a Non-Displayed Order entered through OUCH or
FLITE in either a Control Group Security, a Test Group One Pilot
Security or a Test Group Two Pilot Security would be ranked at the
locking price upon entry.
---------------------------------------------------------------------------
If, after being posted on the BX Book, the Non-Displayed Order
becomes locked or crossed by a Protected Quotation due to a change in
the NBBO, or if the Non-Displayed Order is at an impermissible price
under Regulation NMS or the Plan and it cannot otherwise be adjusted as
above, the Non-Displayed Order will be cancelled.\16\
---------------------------------------------------------------------------
\16\ For example, if the National Best Bid is $10.00 and the
National Best Offer is $10.10, and a Non-Displayed Order to buy at
$10.10 is entered, the Non-Displayed Order will be ranked at $10.05.
If the National Best Offer then changes to $10.05, the Non-Displayed
Order will be cancelled back to the Participant.
---------------------------------------------------------------------------
Post-Only Orders
Currently, Rule 4770(d)(4) states that a Post-Only Order in a Test
Group Pilot Security will operate as described in Rule 4702(b)(4)
except as provided under this paragraph. For orders that are not
attributable, if the limit price of a buy (sell) Post-Only Order in a
Test Group Three Pilot Security would lock or cross a Protected
Quotation of another market center, the Order will display at one
minimum price increment below (above) the Protected Quotation, and the
Order will be ranked on the Exchange Book at the current midpoint of
the NBBO.
BX proposes to augment this provision to clarify the behavior of
Post-Only Orders entered through the OUCH or FLITE protocols in Test
Group Three Pilot Securities that lock or cross a Protected Quotation.
Specifically, a Non-Attributable Post-Only Order in a Test Group Three
Pilot Security entered through OUCH or FLITE may be adjusted in the
following manner after initial entry and posting to the BX Book.
If entered at a price that locked a Protected Quotation, and if the
NBBO changes such that its price will no longer lock a Protected
Quotation, the Post-Only Order will be adjusted to rank and display at
its original entered limit price.\17\
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\17\ BX notes that a Post-Only Order will always be adjusted in
this scenario, regardless of its port setting.
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If entered at a price that crossed a Protected Quotation, and if
the NBBO changes such that it can be ranked at the price of the
Protected Quotation it crossed, the Post-Only Order, based on the
Participant's choice, may either be (i) cancelled or (ii) adjusted to
rank at the price of the Protected Quotation it crossed upon entry with
its displayed price remaining unchanged.
If, after being posted on the BX Book, the non-displayed price of a
resting Post-Only Order becomes locked or crossed by a Protected
Quotation due to a change in the NBBO, or if the Post-Only Order is at
an impermissible price under Regulation NMS or the Plan and it cannot
otherwise be adjusted as above, the Post-Only Order will be cancelled.
Commentary .14
In removing the current re-pricing functionality, Commentary .014
[sic], which addresses the behavior of current treatment of Price to
Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-
Only Orders that are entered through the OUCH or FLITE protocols in
Test Group Three Pilot Securities, is no longer necessary.\18\ The
Exchange therefore proposes to delete this Commentary from the Rule.
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\18\ Under Commentary .14, the current treatment of Price to
Comply Orders, Price to Display Orders, Non-Displayed Orders, and
Post-Only Orders that are entered through the OUCH or FLITE
protocols in Test Group Three securities is as follows:
Following entry, and if market conditions allow, a Price to
Comply Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Comply Order is able to be ranked and displayed at its
original entered limit price.
Following entry, and if market conditions allow, a Price to
Display Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Display Order is able to be ranked and displayed at its
original entered limit price.
Following entry, and if market conditions allow, a Non-Displayed
Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO up (down) to the
Order's limit price.
Following entry, and if market conditions allow, the Post-Only
Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO or the best price
on the Exchange Book, as applicable until such time as the Post-Only
Order is able to be ranked and displayed at its original entered
limit price.
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Finally, BX proposes to add language to Rule 4770(d)(1) to clarify
the treatment of orders in a Test Group Three Security entered through
the RASH or FIX protocols. Specifically, subject to the provisions set
forth in the remainder of Rule 4770(d), if the entered limit price of
an Order in a Test Group Three Pilot Security, entered through RASH or
FIX, locked or crossed a Protected Quotation and the NBBO changes so
that the Order can be ranked closer to its original entered limit
price, the price of the Order will be adjusted repeatedly in accordance
with changes to the NBBO. BX is proposing to make this change to
clarify the current treatment of orders in Test Group Three Pilot
Securities entered through RASH or FIX.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b)
[[Page 95235]]
of the Act,\19\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\20\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is consistent
with the Act because it clarifies the changes the Exchange is making to
the handling of certain Order Types necessary to implement the
requirements of the Plan on its System and, in the case of the changes
of Rule 4770(d)(1), to clarify the current treatment of orders in Test
Group Three Pilot Securities entered through RASH or FIX.
As a result of removing the current re-pricing functionality that
applies to certain Order Types in Test Group Three Securities entered
through the OUCH and FLITE protocols, and due to the different
functionality of the OUCH and FLITE protocols in comparison to the
other applicable BX protocols, these Order Types will behave
differently than is currently set forth in Rule 4770 when entered
through the OUCH or FLITE protocols in certain instances. As noted
above, these changes will adjust Price to Comply Orders, Non-Displayed
Orders, and Post-Only Orders entered through OUCH and FLITE when the
Order has been ranked at a midpoint of the NBBO that then becomes
impermissible due to changes in the NBBO. These changes also will
adjust Price to Comply Orders, Non-Displayed Orders, and Post-Only
Orders entered through OUCH and FLITE in scenarios where the subsequent
movement of the NBBO implicates the Trade-at prohibition with respect
to the resting order.
By clarifying the behavior of certain Order Types in Test Group
Three Pilot Securities entered through the OUCH or FLITE protocols, the
proposal will help allow market participants to continue to trade NMS
Stocks, within quoting and trading requirements that are in compliance
with the Plan, with certainty on how certain orders and trading
interests would be treated. This, in turn, will help encourage market
participants to continue to provide liquidity in the marketplace.
More generally, BX also notes that the Plan, which was approved by
the Commission pursuant to an order issued by the Commission in
reliance on Section 11A of the Act,\21\ provides the Exchange authority
to establish, maintain, and enforce written policies and procedures
that are reasonably designed to comply with applicable quoting and
trading requirements specified in the Plan. The Exchange believes that
the proposed rule change is consistent with the authority granted to it
by the Plan to establish specifications and procedures for the
implementation and operation of the Plan that are consistent with the
provisions of the Plan. Likewise, the Exchange believes that the
proposed rule change provides interpretations of the Plan that are
consistent with the Act, in general, and furthers the objectives of the
Act, in particular.
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\21\ 15 U.S.C. 78k-1.
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Finally, BX believes that the proposal is consistent with the Act
because the proposed functionality will more closely align the handling
of Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders
that are entered through the OUCH or FLITE protocols for Test Group
Three Pilot Securities with the handling of such Orders entered through
the OUCH or FLITE protocols for Control Group, Test Group One and Test
Group Two Securities than the current functionality in place for these
Orders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed changes are being
made to establish, maintain, and enforce written policies and
procedures that are reasonably designed to comply with the trading and
quoting requirements specified in the Plan, of which other equities
exchanges are also Participants. Other competing national securities
exchanges are subject to the same trading and quoting requirements
specified in the Plan, and must take the same steps that the Exchange
has to conform its existing rules to the requirements of the Plan.
Therefore, the proposed changes would not impose any burden on
competition, while providing certainty of treatment and execution of
trading interests on the Exchange to market participants in NMS Stocks
that are acting in compliance with the requirements specified in the
Plan.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \22\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\23\
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\22\ 15 U.S.C. 78s(b)(3)(A)(iii).
\23\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. In this filing, the
Exchange has asked that the Commission waive the requirement that the
proposed rule change not become operative for 30 days after the date of
the filing.
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\24\ Id.
\25\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange notes the proposed rule is intended to clarify the
differences in the handling of certain orders entered into the system
by different protocols. The Exchange notes that orders will be treated
as consistently as possible across the Test Groups and the Control
Group while complying with each grouping's varied quoting and trading
requirements. Additionally, the Exchange proposed to remove Commentary
.14 because it is no longer necessary.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because the proposal clarifies the Exchange's rules and provides
transparency to members with regards to the handling of certain orders
entered via OUCH and FLITE as well as RASH or FIX protocols for locked
or crossed orders in Test Group Three Pilot Securities. The Commission
notes that the Exchange proposed to remove the functionality described
in Commentary .14 and make the necessary corresponding systems changes
in Partial Amendment No. 2 to BX-2016-050, which the Commission
approved.\26\ The Exchange notes that it was able to implement the
systems changes and that they became fully operational on the December
14, 2016. Therefore, the
[[Page 95236]]
Commission hereby waives the 30-day operative delay and designates the
proposed rule change to be operative on December 14, 2016.\27\
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\26\ See supra note 5.
\27\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2016-069 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 Number SR-BX-2016-069. 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2016-069 and should be
submitted on or before January 17, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31107 Filed 12-23-16; 8:45 am]
BILLING CODE 8011-01-P
