Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rules 11.6, Definitions, 11.8, Order Types, and 11.10, Order Execution, 40812-40816 [2017-18127]
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Federal Register / Vol. 82, No. 165 / Monday, August 28, 2017 / Notices
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on August 22,
2017, it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Priority
Mail Contract 344 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2017–179,
CP2017–280.
Elizabeth A. Reed,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2017–18129 Filed 8–25–17; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81457; File No. SR–
BatsEDGX–2017–34]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change to Rules 11.6,
Definitions, 11.8, Order Types, and
11.10, Order Execution
August 22, 2017.
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 August
11, 2017, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange has designated this proposal
as a ‘‘non-controversial’’ proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to: (i)
Add new optional functionality to
orders that include the Minimum
Execution Quantity instruction by
amending paragraph (h) of Exchange
Rule 11.6, Definitions; (ii) amend
paragraph (b)(3) of Exchange Rule 11.8
to specify that a Minimum Execution
Quantity instruction may be included
on a Limit Order with a TIF of IOC; and
(iii) amend paragraph (e)(3) of Exchange
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
2 17
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Rule 11.10, Order Execution, to specify
that a change to the minimum quantity
of an order with a Minimum Execution
Quantity instruction may be included in
a Replace message. The proposed
amendments are substantially similar to
the rules of the Nasdaq Stock Market
LLC (‘‘Nasdaq’’) and the Investors
Exchange LLC (‘‘IEX’’).5
The text of the proposed rule change
is available at the Exchange’s Web site
at www.bats.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 parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to: (i) Add
new optional functionality to orders that
include the Minimum Execution
Quantity instruction by amending
paragraph (h) of Exchange Rule 11.6,
Definitions; (ii) amend paragraph (b)(3)
of Exchange Rule 11.8 to specify that a
Minimum Execution Quantity
instruction may be included on a Limit
Order with a TIF of IOC; and (iii) amend
paragraph (e)(3) of Exchange Rule 11.10,
Order Execution, to specify that a
change to the minimum quantity of an
order with a Minimum Execution
Quantity instruction may be included in
a Replace message. These proposed
amendments are substantially similar to
the rules of Nasdaq and IEX.6
5 See Nasdaq Rule 4703(e) (defining Minimum
Quantity). See also Securities Exchange Act Release
No. 73959 (December 30, 2014), 80 FR 582 (January
6, 2015) (order approving new optional
functionality for Minimum Quantity Orders). See
IEX Rule 11.190(b)(11) and Supplementary Material
.03 (defining Minimum Quantity Orders and
MinExec with Cancel Remaining and MinExec with
AON Remaining). See also Securities Exchange Act
Release No. 78101 (June 17, 2016), 81 FR 41141
(June 23, 2016) (order approving the IEX exchange
application, which included IEX’s Minimum
Quantity Orders). See also IEX Rule 11.190(d)(3)
(allowing the minimum quantity size of an order to
be changed via a replace message).
6 See id.
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Exchange Rule 11.6(h), Proposed
Individual Minimum Size
The Exchange proposes to add new
optional functionality that would
enhance the utility of the Minimum
Execution Quantity instruction by
amending paragraph (h) of Exchange
Rule 11.6, Definitions. In sum, the
proposal would permit an incoming
order with a Minimum Execution
Quantity to forego executions where
multiple resting orders could otherwise
be aggregated to satisfy the order’s
minimum quantity.
A Minimum Execution Quantity
enables a User 7 to specify a minimum
share amount at which the order will
execute. An order with a Minimum
Execution Quantity will not execute
unless the volume of contra-side
liquidity available to execute against the
order meets or exceeds the designated
minimum. Specifically, Minimum
Execution Quantity is an instruction a
User may attach to an order with a NonDisplayed 8 instruction or a TIF of IOC 9
requiring the System 10 to execute the
order only to the extent that a minimum
quantity can be satisfied by execution
against a single order or multiple
aggregated orders simultaneously.11
Today, an order with a Minimum
Execution Quantity will execute upon
entry against a single order or multiple
orders if the sum of those orders is equal
to or greater than its minimum quantity.
An order with a Minimum Execution
Quantity instruction may be partially
executed upon entry so long as the
execution size is equal to or exceeds the
minimum quantity provided in the
instruction. Any shares remaining after
a partial execution will continue to be
executed at a size that is equal to or
exceeds the quantity provided in the
instruction. Where the number of shares
7 The term ‘‘User’’ is defined as ‘‘any Member or
Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3.’’ See
Exchange Rule 1.5(ee).
8 The term ‘‘Non-Displayed’’ is defined as ‘‘[a]n
instruction the User may attach to an order stating
that the order is not to be displayed by the System
on the EDGX Book.’’ See Exchange Rule 11.6(e)(2).
9 As discussed below, the Exchange also proposes
to clarify within Rule 11.6(h) that a Minimum
Quantity instruction may also be added to an order
with a TIF of IOC. See e.g., Exchange Rules
11.8(a)(3) and (c)(2) (specifying that the Minimum
Quantity instruction may be included on Market
Orders and ISOs with a TIF of IOC).
10 The term ‘‘System’’ is defined as ‘‘the
electronic communications and trading facility
designated by the Board through which securities
orders of Users are consolidated for ranking,
execution and, when applicable, routing away.’’ See
Exchange Rule 1.5(cc).
11 Today, the System will aggregate multiple
resting orders to satisfy the incoming order’s
minimum quantity and a User cannot elect the
incoming order to execute against a single resting
contra-side order.
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remaining after a partial execution are
less than the quantity provided in the
instruction, the Minimum Execution
Quantity shall be equal to the number
of shares remaining. The Minimum
Execution Quantity instruction may be
coupled with Market Orders with a TIF
of IOC,12 Limit Orders with a NonDisplayed instruction 13 or TIF of IOC
(as discussed below), Intermarket Sweep
Orders (‘‘ISO’’) with a TIF of IOC,14
MidPoint Peg Orders,15 and
Supplemental Peg Orders.16
The Exchange has observed that some
market participants avoid sending large
orders with a Minimum Execution
Quantity instruction to the Exchange
out of concern that such orders may
interact with small orders entered by
professional traders, possibly adversely
impacting the execution of their larger
order. Institutional orders are often
much larger in size than the average
order in the marketplace. To facilitate
the liquidation or acquisition of a large
position, market participants tend to
submit multiple orders into the market
that may only represent a fraction of the
overall institutional position to be
executed. Various strategies used by
institutional market participants to
execute large orders are intended to
limit price movement of the security at
issue. Executing in small sizes, even if
in the aggregate it meets the order’s
minimum quantity, may impact the
market for that security such that the
additional orders the market participant
has yet to enter into the market may be
more costly to execute. If an institution
is able to execute in larger sizes, the
contra-party to the execution is less
likely to be a participant that reacts to
short term changes in the stock price,
and as such, the price impact to the
stock may be less acute when larger
individual executions are obtained.17 As
a result, these orders are often executed
away from the Exchange in dark pools
or other exchanges that offer the same
functionality as proposed herein,18 or
via broker-dealer internalization.
12 See
Exchange Rule 11.8(a)(3).
Exchange Rule 11.8(b)(3).
14 See Exchange Rule 11.8(c)(2).
15 See Exchange Rule 11.8(d)(2).
16 See Exchange Rule 11.8(f)(2).
17 The Commission has long recognized this
concern: ‘‘[a]nother type of implicit transaction cost
reflected in the price of a security is short-term
price volatility caused by temporary imbalances in
trading interest. For example, a significant implicit
cost for large investors (who often represent the
consolidated investments of many individuals) is
the price impact that their large trades can have on
the market. Indeed, disclosure of these large orders
can reduce the likelihood of their being filled.’’ See
Securities Exchange Act Release No. 42450
(February 23, 2000), 65 FR 10577, 10581 (February
28, 2000) (SR–NYSE–99–48).
18 See supra note 5.
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13 See
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To attract larger orders with a
Minimum Execution Quantity, the
Exchange proposes to add new optional
functionality that would enhance the
utility of the Minimum Execution
Quantity instruction. In sum, the
proposal would permit a User to elect
that its incoming order with a Minimum
Execution Quantity execute solely
against one or more resting individual
orders, each of which must satisfy the
order’s minimum quantity condition. In
such case, the order would forego
executions where multiple resting
orders could otherwise be aggregated to
satisfy the order’s minimum quantity,
but do not individually satisfy the
minimum quantity condition.19 As
discussed above, under the current rule
an order with a Minimum Execution
Quantity will execute upon entry
against any number of smaller contraside orders that, in aggregate, meet the
minimum quantity set by the User. This
default behavior will remain. For
example, assume there are two orders to
sell resting on the EDGX Book 20—the
first for 300 shares and a second for 400
shares, with the 300 share order having
time priority ahead of the 400 share
order. If a User entered an order with a
Minimum Execution Quantity to buy
1,000 shares at $10.00 with a minimum
quantity of 500 shares, and the order
was marketable against the two resting
sell orders for 300 and 400 shares, the
System would aggregate both sell orders
for purposes of meeting the minimum
quantity, thus resulting in executions of
300 shares and then 400 shares
respectively with the remaining 300
shares of the an order with a Minimum
Execution Quantity being posted to the
EDGX Book with a minimum quantity
restriction of 300 shares.
The proposed new optional
functionality will not allow aggregation
of smaller executions to satisfy the
minimum quantity of an incoming order
with a Minimum Execution Quantity.
Using the same scenario as above, but
with the proposed new functionality
and a Minimum Execution Quantity
requirement of 400 shares selected by
the User, the order with a Minimum
Execution Quantity would not execute
against the two sell orders because the
300 share order with time priority at the
top of the EDGX Book is less than the
incoming order’s 400 share Minimum
Execution Quantity. The new
functionality will cause the order with
a Minimum Execution Quantity to be
19 If no election is made, the System will
aggregate multiple resting orders to satisfy the
incoming order’s minimum quantity.
20 The term ‘‘EDGX Book’’ is defined as ‘‘the
System’s electronic file of orders.’’ See Exchange
Rule 1.5(d).
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40813
cancelled or posted to the EDGX Book,
Non-Displayed, in accordance with the
characteristics of the underlying order
type 21 when encountering an order with
time priority that is of insufficient size
to satisfy the minimum execution
requirement. If posted, the order with a
Minimum Execution Quantity will
operate as it does currently and will
only execute against individual orders
that satisfy its minimum quantity as
proposed herein. The Exchange notes
that the User entering the order with a
Minimum Execution Quantity has
expressed its intention not to execute
against liquidity below a certain
minimum size, and therefore, cedes
execution priority when it would lock
an order against which it would
otherwise execute if it were not for the
minimum execution size restriction.
The Exchange proposes to add language
to paragraph (h) of Rule 11.6 to make
clear that the order would cede
execution priority in such in scenario.
As amended, the description of
Minimum Execution Quantity under
paragraph (h) of Exchange Rule 11.6
would set forth the default behavior of
the Minimum Quantity instruction of
executing upon entry against a single
order or multiple aggregated orders
simultaneously. Amended Rule 11.6(h)
would set forth the proposed optional
functionality where a User may
alternatively specify that the incoming
order’s minimum quantity condition be
satisfied by each order resting on the
EDGX Book that would execute against
the order with the Minimum Execution
Quantity instruction. If there are such
orders, but there are also orders that do
not satisfy the minimum quantity
condition, the incoming order with the
Minimum Execution Quantity
instruction will execute against orders
resting on the EDGX Book in accordance
with Rule 11.9, Order Priority, until it
reaches an order that does not satisfy
the minimum quantity condition at
which point it would be posted to the
EDGX Book or cancelled in accordance
with the terms of the order. If, upon
entry, there are no orders that satisfy the
minimum quantity condition resting on
the EDGX Book, the order will either be
posted to the EDGX Book or cancelled
in accordance with the terms of the
order.
The Exchange also proposes to reprice incoming orders with a Minimum
Execution Quantity instruction where
that order may cross an order posted on
the EDGX Book. Specifically, where
there is insufficient size to satisfy an
21 See supra notes 11 through 16 for a description
of the functionality associated with orders that may
include a Minimum Execution Quantity.
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incoming order’s minimum quantity
condition and that incoming order, if
posted at its limit price, would cross an
order(s) resting on the EDGX Book, the
order with the minimum quantity
condition will be re-priced to and
ranked at the Locking Price.22 For
example, an order to buy at $11.00 with
a minimum quantity condition of 500
shares is entered and there is an order
resting on the EDGX Book to sell 200
shares at $10.99. The resting order to
sell does not contain sufficient size to
satisfy the incoming order’s minimum
quantity condition of 500 shares. The
price of the incoming buy order, if
posted to the EDGX Book, would cross
the price of the resting sell order. In
such case, to avoid an internally crossed
book, the System will re-price the
incoming buy order to $10.99, the
Locking Price. This behavior is similar
to how the Exchange currently reprices
Non-Displayed orders that cross the
Protected Quotation of an external
market.23 In addition, both IEX and
Nasdaq also re-price similar orders to
avoid an internally crossed book.24
The rule would further be amended to
account for the partial execution against
an individual order in accordance with
the proposed rule change. Specifically,
paragraph (h) of Exchange Rule 11.6
would further be amended to state that
that an order with a Minimum
Execution Quantity instruction may be
partially executed so long as the
execution size of the individual order or
aggregate size of multiple orders, as
applicable, are equal to or exceed the
minimum quantity provided in the
instruction.
The Exchange also proposes to amend
the description of the Minimum
Execution Quantity instruction to clarify
its operation upon order entry and when
the order is posted to the EDGX Book.
The Exchange proposes to clarify that
upon entry, and by default, an order
with a Minimum Execution Quantity
will execute against a single order or
multiple aggregated orders
simultaneously or only against orders
that individually satisfy the order’s
minimum quantity condition, as
proposed herein. Once posted to the
EDGX Book,25 the order may only
22 ‘‘Locking Price’’ is defined as ‘‘[t]he price at
which an order to buy (sell), that if displayed by
the System on the EDGX Book, either upon entry
into the System, or upon return to the System after
being routed away, would be a Locking Quotation.’’
See Exchange Rule 11.6(f).
23 See Exchange Rule 11.6(l)(3).
24 See Nasdaq Rule 4703(e). See IEX Rule
11.190(h)(2).
25 Orders will only post to the EDGX Book if they
are designated with a TIF instruction that allows for
posting. For example, an order a TIF of IOC or FOK
will never post to the EDGX Book.
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execute against individual incoming
orders with a size that satisfies the
minimum quantity condition. The
Exchange also proposed to clarify that
an order that includes a Minimum
Execution Quantity instruction is not
eligible to be routed to another Trading
Center in accordance with Exchange
Rule 11.11, Routing to Away Trading
Centers. These proposed changes would
add additional specificity to the
operation of the Minimum Execution
Quantity instruction and are consistent
with similar functionality offered by IEX
and Nasdaq.26
Exchange Rule 11.8(b)(3), Limit Order
Clarification
The Exchange also proposes to amend
paragraph (b)(3) of Exchange Rule 11.8
to specify that a Minimum Execution
Quantity instruction may be included
on a Limit Order with a TIF of IOC.
Currently, paragraph (b)(3) of Exchange
Rule 11.8 states that Minimum
Execution Quantity instruction may be
placed on a Limit Order with a NonDisplayed instruction. As stated above,
the Minimum Execution Quantity
instruction may be coupled with, among
other order types, Market Orders with a
TIF of IOC and ISOs with a TIF of IOC.
A Limit Order with a TIF of IOC will
never be displayed or posted on the
EDGX Book because, by instruction, it is
to only execute upon entry, route or
cancel back to the User and will never
be posted to the EDGX Book.27
Therefore, current functionality allows a
Minimum Execution Quantity
instruction to be included on a Limit
Order with a TIF of IOC, as that order
would not be displayed on the EDGX
Book. The Exchange now seeks to add
additional specificity to paragraph (b)(3)
of Exchange Rule 11.6 to expressly state
that a Minimum Execution Quantity
instruction may be included on a Limit
Order with a TIF of IOC. The Exchange
notes that this is also consistent with
the treatment of Minimum Quantity
Orders on Bats BZX Exchange, Inc.
(‘‘BZX’’).28
Exchange Rule 11.10(e)(3), Replace
Messages
The Exchange also proposes to amend
paragraph (e)(3) of Rule 11.10, Order
Execution, to specify that a change to
the minimum quantity of an order with
a Minimum Execution Quantity
instruction may be included in a
Replace message. The rule currently
states that other than changing a Limit
26 See
supra note 5.
Exchange Rule 11.6(q)(1).
28 See BZX Rule 11.9(c)(5) (stating that BZX will
only honor a specified minimum quantity on BZX
Only Orders that are non-displayed or IOCs).
27 See
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Order to a Market Order, only the price,
Stop Price,29 the sell long indicator,
Short Sale instruction,30 Max Floor 31
and quantity terms of the order may be
changed with a Replace message.32 As
amended, paragraph (e)(3) of Rule 11.10
would also provide for a change to the
minimum quantity of an order to be
included in a Replace message.33 If a
User desires to change any other terms
of an existing order, the existing order
must be cancelled and a new order must
be entered. The Exchange notes that
specifying within Rule 11.10(e)(3) that a
change to the minimum quantity of an
order may be included in a Replace
message is consistent with current
functionality offered by IEX.34
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 35 in general, and furthers the
objectives of Section 6(b)(5) of the Act 36
in particular, in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
Exchange Rule 11.6(h), Proposed
Individual Minimum Size
The proposed rule change would
remove impediments to and promote
just and equitable principles of trade
because it would provide Users with
optional functionality that enhances the
use of the Minimum Execution Quantity
instruction. The proposed change to the
functioning of the Minimum Execution
Quantity instruction will provide
market participants, including
institutional firms who ultimately
represent individual retail investors in
29 See
Exchange Rules 11.8(a)(1) and (b)(1).
Exchange Rule 11.6(o).
31 See Exchange Rule 11.6(m)(1).
32 The Exchange also proposes to amend this
paragraph to specify that the Max Floor is
associated with an order with a Reserve Quantity
and to replace the phrase ‘‘and quantity terms’’ with
the word ‘‘size’’. The Exchange believes these
changes will add additional specificity to the rule
and ensure the rule uses terminology consistent
with the description of Replace messages and their
impact on an order’s priority under Exchange Rule
11.9(a)(4).
33 A change to the minimum quantity of an order
via a Replace message will result in such order
losing time priority as compared to other orders in
the EDGX Book and the time stamp for such order
being revised to reflect the time of the modification.
34 See IEX Rule 11.190(d)(3) (allowing a replace
message to change the minimum quantity of a
Minimum Quantity Order).
35 15 U.S.C. 78f(b).
36 15 U.S.C. 78f(b)(5).
30 See
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many cases, with better control over
their orders, thereby providing them
with greater potential to improve the
quality of their order executions.
Currently, the rule allows Users to
designate a minimum acceptable
quantity on an order that may aggregate
multiple executions to meet the
minimum quantity requirement. Once
posted to the book, however, the
minimum quantity requirement is
equivalent to a minimum execution size
requirement. The Exchange is now
proposing to provide Users with control
over the execution of their orders with
a Minimum Execution Quantity
instruction by allowing them an option
to designate the minimum individual
execution size upon entry. The control
offered by the proposed change is
consistent with the various types of
control currently provided by exchange
order types. For example, the Exchange
and other exchanges offer limit orders,
which allow a market participant
control over the price it will pay or
receive for a stock.37 Similarly,
exchanges offer order types that allow
market participants to structure their
trading activity in a manner that is more
likely to avoid certain transaction cost
related economic outcomes.38
As discussed above, the functionality
proposed herein would enable Users to
avoid transacting with smaller orders
that they believe ultimately increases
the cost of the transaction. Because the
Exchange does not have this
functionality, market participants, such
as large institutions that transact a large
number of orders on behalf of retail
investors, have avoided sending large
orders to the Exchange to avoid
potentially more expensive
transactions.39 In this regard, the
Exchange notes that the proposed new
optional functionality may improve the
Exchange’s market by attracting more
order flow. Such new order flow will
further enhance the depth and liquidity
on the Exchange, which supports just
and equitable principals of trade.
Furthermore, the proposed modification
to the Minimum Execution Quantity
instruction is consistent with providing
market participants with greater control
over the nature of their executions so
that they may achieve their trading goals
37 See
Exchange Rule 11.8(b).
example, the Exchange’s Post Only
instruction. See Exchange Rule 11.6(n)(4).
39 As noted, the proposal is designed to attract
liquidity to the Exchange by allowing market
participants to designate a minimum size of a
contra-side order to interact with, thus providing
them with functionality available to them on dark
markets.
38 For
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and improve the quality of their
executions.
The Exchange also believes that repricing incoming orders with a
Minimum Execution Quantity
instruction where that order may cross
an order posted on the EDGX Book
promotes just and equitable principles
of trade because it enables the Exchange
to avoid an internally crossed book. The
proposed re-pricing is also similar to
how the Exchange currently reprices
Non-Displayed orders that cross the
Protected Quotation of an external
market.40 In addition, both IEX and
Nasdaq also re-price minimum quantity
orders to avoid an internally crossed
book. In certain circumstances, Nasdaq
re-prices buy (sell) orders to one
minimum price increment below
(above) the lowest (highest) price of
such orders.41 IEX re-prices nondisplayed orders, such as minimum
quantity orders, that include a limit
price more aggressive than the midpoint
of the NBBO to the midpoint of the
NBBO.42
Moreover, the proposed optional
functionality for the Minimum
Execution Quantity instruction is
substantially similar to that offered by
Nasdaq and IEX, both of which have
been recently approved by the
Commission.43 Lastly, the proposed
clarifications of the handing [sic] of
orders with a Minimum Execution
Quantity upon entry and once posted to
the EDGX Book would add additional
specificity to the operation of the
Minimum Execution Quantity
instruction and are consistent with
similar functionality offered by
Nasdaq.44
Clarification to Exchange Rules
11.8(b)(3) and 11.10(e)(3)
The Exchange believes the proposed
amendments to paragraph (b)(3) of Rule
11.8 and paragraph (e)(3) of Rule 11.10
are also consistent with the Act in that
they will add additional specificity to
the rules. In particular, the proposed
amendments to paragraph (b)(3) to Rule
11.8 would add additional specificity
regarding the order type instructions
that may be coupled with a Limit Order.
The Exchange notes that this is also
consistent with the treatment of
40 See
Exchange Rule 11.6(l)(3).
Nasdaq Rule 4703(e).
42 See IEX Rule 11.190(h)(2).
43 See supra note 5. The Exchange also notes that
a letter was submitted in strong support of Nasdaq
at the time they proposed similar changes to the
operation of their Minimum Quantity order
attribute under Nasdaq Rule 4703(e). See letter to
the Commission from James J. Angel, Associate
Professor of Finance, Georgetown University, dated
November 26, 2014.
44 See supra note 5.
41 See
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40815
Minimum Quantity Orders on BZX,45
thereby making the rule clearer and
avoiding potential investor confusion.
Also, the amendments to paragraph
(e)(3) of Rule 11.10 will ensure the rule
uses terminology consistent with the
description of Replace messages and
their impact on an order’s priority under
Exchange Rule 11.9(a)(4). Also, the
Exchange notes that specifying within
Rule 11.10(e)(3) that a change to the
minimum quantity of an order with a
Minimum Execution Quantity
instruction may be included in a
Replace message is consistent with
current functionality offered by IEX.46
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
On the contrary, the Exchange believes
the proposed rule change promotes
competition because it will enable the
Exchange to offer functionality
substantially similar to that offered by
Nasdaq and IEX.47 In addition, the
proposed amendments to paragraph
(b)(3) of Rule 11.8 and paragraph (e)(3)
of Rule 11.10 would not have any
impact on competition as they simply
add additional details to each rule and
do not alter current System
functionality. Therefore, the Exchange
does not believe the proposed rule
change will result in any burden on
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No comments were solicited or
received on the proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (A) Significantly affect
the protection of investors or the public
interest; (B) impose any significant
burden on competition; and (C) by its
terms, become operative for 30 days
from the date on which it was filed or
such shorter time as the Commission
may designate it has become effective
pursuant to Section 19(b)(3)(A) of the
45 See BZX Rule 11.9(c)(5) (stating that BZX will
only honor a specified minimum quantity on BZX
Only Orders that are non-displayed or IOCs).
46 See IEX Rule 11.190(d)(3).
47 See supra note 5.
E:\FR\FM\28AUN1.SGM
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40816
Federal Register / Vol. 82, No. 165 / Monday, August 28, 2017 / Notices
Act 48 and paragraph (f)(6) of Rule 19b–
4 thereunder,49 the Exchange has
designated this rule filing as noncontroversial. The Exchange has given
the Commission written notice of its
intent to file the proposed rule change,
along with a brief description and text
of the proposed rule change at least five
business days prior to the date of filing
of the proposed rule change, or such
shorter time as designated by the
Commission.
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: (1) Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) 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:
asabaliauskas on DSKBBXCHB2PROD 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–
BatsEDGX–2017–34 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BatsEDGX–2017–34. 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–
BatsEDGX–2017–34 and should be
submitted on or before September 18,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–18127 Filed 8–25–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81453; File No. SR–
NYSEArca–2017–88]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change to List and Trade the
Shares of the U.S. Equity Cumulative
Dividends Fund—Series 2027 and the
U.S. Equity Ex-Dividend Fund—Series
2027 Under NYSE Arca Equities Rule
8.200, Commentary .02
August 22, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
8, 2017, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
50 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
48 15
49 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
VerDate Sep<11>2014
18:45 Aug 25, 2017
Jkt 241001
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade the shares of the following under
NYSE Arca Equities Rule 8.200,
Commentary .02 (‘‘Trust Issued
Receipts’’): The U.S. Equity Cumulative
Dividends Fund—Series 2027 and the
U.S. Equity Ex-Dividend Fund—Series
2027. The proposed change is available
on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.200,
Commentary .02, which governs the
listing and trading of Trust Issued
Receipts: U.S. Equity Cumulative
Dividends Fund—Series 2027 (the
‘‘Dividend Fund’’) and U.S. Equity ExDividend Fund—Series 2027 (the ‘‘ExDividend Fund’’, and together with the
Dividend Fund, the ‘‘Funds’’ and each,
a ‘‘Fund’’).4
Each Fund will be a series of
Metaurus Equity Component Trust (the
‘‘Trust’’), a Delaware statutory trust.5
4 Commentary .02 to NYSE Arca Equities Rule
8.200 applies to Trust Issued Receipts that invest
in ‘‘Financial Instruments.’’ The term ‘‘Financial
Instruments,’’ as defined in Commentary .02(b)(4) to
NYSE Arca Equities Rule 8.200, means any
combination of investments, including cash;
securities; options on securities and indices; futures
contracts; options on futures contracts; forward
contracts; equity caps, collars, and floors; and swap
agreements.
5 On June 9, 2017, the Trust submitted to the
Commission its draft registration statement on Form
S–1 (the ‘‘Registration Statement’’) under the
Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities
Act’’). The Jumpstart Our Business Startups Act,
enacted on April 5, 2012, added Section 6(e) to the
Securities Act. Section 6(e) of the Securities Act
E:\FR\FM\28AUN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 165 (Monday, August 28, 2017)]
[Notices]
[Pages 40812-40816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18127]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81457; File No. SR-BatsEDGX-2017-34]
Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change to
Rules 11.6, Definitions, 11.8, Order Types, and 11.10, Order Execution
August 22, 2017.
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 August 11, 2017, Bats EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange has designated this proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon
filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to: (i) Add new optional
functionality to orders that include the Minimum Execution Quantity
instruction by amending paragraph (h) of Exchange Rule 11.6,
Definitions; (ii) amend paragraph (b)(3) of Exchange Rule 11.8 to
specify that a Minimum Execution Quantity instruction may be included
on a Limit Order with a TIF of IOC; and (iii) amend paragraph (e)(3) of
Exchange Rule 11.10, Order Execution, to specify that a change to the
minimum quantity of an order with a Minimum Execution Quantity
instruction may be included in a Replace message. The proposed
amendments are substantially similar to the rules of the Nasdaq Stock
Market LLC (``Nasdaq'') and the Investors Exchange LLC (``IEX'').\5\
---------------------------------------------------------------------------
\5\ See Nasdaq Rule 4703(e) (defining Minimum Quantity). See
also Securities Exchange Act Release No. 73959 (December 30, 2014),
80 FR 582 (January 6, 2015) (order approving new optional
functionality for Minimum Quantity Orders). See IEX Rule
11.190(b)(11) and Supplementary Material .03 (defining Minimum
Quantity Orders and MinExec with Cancel Remaining and MinExec with
AON Remaining). See also Securities Exchange Act Release No. 78101
(June 17, 2016), 81 FR 41141 (June 23, 2016) (order approving the
IEX exchange application, which included IEX's Minimum Quantity
Orders). See also IEX Rule 11.190(d)(3) (allowing the minimum
quantity size of an order to be changed via a replace message).
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
Web site at www.bats.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 parts of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to: (i) Add new optional functionality to
orders that include the Minimum Execution Quantity instruction by
amending paragraph (h) of Exchange Rule 11.6, Definitions; (ii) amend
paragraph (b)(3) of Exchange Rule 11.8 to specify that a Minimum
Execution Quantity instruction may be included on a Limit Order with a
TIF of IOC; and (iii) amend paragraph (e)(3) of Exchange Rule 11.10,
Order Execution, to specify that a change to the minimum quantity of an
order with a Minimum Execution Quantity instruction may be included in
a Replace message. These proposed amendments are substantially similar
to the rules of Nasdaq and IEX.\6\
---------------------------------------------------------------------------
\6\ See id.
---------------------------------------------------------------------------
Exchange Rule 11.6(h), Proposed Individual Minimum Size
The Exchange proposes to add new optional functionality that would
enhance the utility of the Minimum Execution Quantity instruction by
amending paragraph (h) of Exchange Rule 11.6, Definitions. In sum, the
proposal would permit an incoming order with a Minimum Execution
Quantity to forego executions where multiple resting orders could
otherwise be aggregated to satisfy the order's minimum quantity.
A Minimum Execution Quantity enables a User \7\ to specify a
minimum share amount at which the order will execute. An order with a
Minimum Execution Quantity will not execute unless the volume of
contra-side liquidity available to execute against the order meets or
exceeds the designated minimum. Specifically, Minimum Execution
Quantity is an instruction a User may attach to an order with a Non-
Displayed \8\ instruction or a TIF of IOC \9\ requiring the System \10\
to execute the order only to the extent that a minimum quantity can be
satisfied by execution against a single order or multiple aggregated
orders simultaneously.\11\ Today, an order with a Minimum Execution
Quantity will execute upon entry against a single order or multiple
orders if the sum of those orders is equal to or greater than its
minimum quantity. An order with a Minimum Execution Quantity
instruction may be partially executed upon entry so long as the
execution size is equal to or exceeds the minimum quantity provided in
the instruction. Any shares remaining after a partial execution will
continue to be executed at a size that is equal to or exceeds the
quantity provided in the instruction. Where the number of shares
[[Page 40813]]
remaining after a partial execution are less than the quantity provided
in the instruction, the Minimum Execution Quantity shall be equal to
the number of shares remaining. The Minimum Execution Quantity
instruction may be coupled with Market Orders with a TIF of IOC,\12\
Limit Orders with a Non-Displayed instruction \13\ or TIF of IOC (as
discussed below), Intermarket Sweep Orders (``ISO'') with a TIF of
IOC,\14\ MidPoint Peg Orders,\15\ and Supplemental Peg Orders.\16\
---------------------------------------------------------------------------
\7\ The term ``User'' is defined as ``any Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Rule 11.3.'' See Exchange Rule 1.5(ee).
\8\ The term ``Non-Displayed'' is defined as ``[a]n instruction
the User may attach to an order stating that the order is not to be
displayed by the System on the EDGX Book.'' See Exchange Rule
11.6(e)(2).
\9\ As discussed below, the Exchange also proposes to clarify
within Rule 11.6(h) that a Minimum Quantity instruction may also be
added to an order with a TIF of IOC. See e.g., Exchange Rules
11.8(a)(3) and (c)(2) (specifying that the Minimum Quantity
instruction may be included on Market Orders and ISOs with a TIF of
IOC).
\10\ The term ``System'' is defined as ``the electronic
communications and trading facility designated by the Board through
which securities orders of Users are consolidated for ranking,
execution and, when applicable, routing away.'' See Exchange Rule
1.5(cc).
\11\ Today, the System will aggregate multiple resting orders to
satisfy the incoming order's minimum quantity and a User cannot
elect the incoming order to execute against a single resting contra-
side order.
\12\ See Exchange Rule 11.8(a)(3).
\13\ See Exchange Rule 11.8(b)(3).
\14\ See Exchange Rule 11.8(c)(2).
\15\ See Exchange Rule 11.8(d)(2).
\16\ See Exchange Rule 11.8(f)(2).
---------------------------------------------------------------------------
The Exchange has observed that some market participants avoid
sending large orders with a Minimum Execution Quantity instruction to
the Exchange out of concern that such orders may interact with small
orders entered by professional traders, possibly adversely impacting
the execution of their larger order. Institutional orders are often
much larger in size than the average order in the marketplace. To
facilitate the liquidation or acquisition of a large position, market
participants tend to submit multiple orders into the market that may
only represent a fraction of the overall institutional position to be
executed. Various strategies used by institutional market participants
to execute large orders are intended to limit price movement of the
security at issue. Executing in small sizes, even if in the aggregate
it meets the order's minimum quantity, may impact the market for that
security such that the additional orders the market participant has yet
to enter into the market may be more costly to execute. If an
institution is able to execute in larger sizes, the contra-party to the
execution is less likely to be a participant that reacts to short term
changes in the stock price, and as such, the price impact to the stock
may be less acute when larger individual executions are obtained.\17\
As a result, these orders are often executed away from the Exchange in
dark pools or other exchanges that offer the same functionality as
proposed herein,\18\ or via broker-dealer internalization.
---------------------------------------------------------------------------
\17\ The Commission has long recognized this concern:
``[a]nother type of implicit transaction cost reflected in the price
of a security is short-term price volatility caused by temporary
imbalances in trading interest. For example, a significant implicit
cost for large investors (who often represent the consolidated
investments of many individuals) is the price impact that their
large trades can have on the market. Indeed, disclosure of these
large orders can reduce the likelihood of their being filled.'' See
Securities Exchange Act Release No. 42450 (February 23, 2000), 65 FR
10577, 10581 (February 28, 2000) (SR-NYSE-99-48).
\18\ See supra note 5.
---------------------------------------------------------------------------
To attract larger orders with a Minimum Execution Quantity, the
Exchange proposes to add new optional functionality that would enhance
the utility of the Minimum Execution Quantity instruction. In sum, the
proposal would permit a User to elect that its incoming order with a
Minimum Execution Quantity execute solely against one or more resting
individual orders, each of which must satisfy the order's minimum
quantity condition. In such case, the order would forego executions
where multiple resting orders could otherwise be aggregated to satisfy
the order's minimum quantity, but do not individually satisfy the
minimum quantity condition.\19\ As discussed above, under the current
rule an order with a Minimum Execution Quantity will execute upon entry
against any number of smaller contra-side orders that, in aggregate,
meet the minimum quantity set by the User. This default behavior will
remain. For example, assume there are two orders to sell resting on the
EDGX Book \20\--the first for 300 shares and a second for 400 shares,
with the 300 share order having time priority ahead of the 400 share
order. If a User entered an order with a Minimum Execution Quantity to
buy 1,000 shares at $10.00 with a minimum quantity of 500 shares, and
the order was marketable against the two resting sell orders for 300
and 400 shares, the System would aggregate both sell orders for
purposes of meeting the minimum quantity, thus resulting in executions
of 300 shares and then 400 shares respectively with the remaining 300
shares of the an order with a Minimum Execution Quantity being posted
to the EDGX Book with a minimum quantity restriction of 300 shares.
---------------------------------------------------------------------------
\19\ If no election is made, the System will aggregate multiple
resting orders to satisfy the incoming order's minimum quantity.
\20\ The term ``EDGX Book'' is defined as ``the System's
electronic file of orders.'' See Exchange Rule 1.5(d).
---------------------------------------------------------------------------
The proposed new optional functionality will not allow aggregation
of smaller executions to satisfy the minimum quantity of an incoming
order with a Minimum Execution Quantity. Using the same scenario as
above, but with the proposed new functionality and a Minimum Execution
Quantity requirement of 400 shares selected by the User, the order with
a Minimum Execution Quantity would not execute against the two sell
orders because the 300 share order with time priority at the top of the
EDGX Book is less than the incoming order's 400 share Minimum Execution
Quantity. The new functionality will cause the order with a Minimum
Execution Quantity to be cancelled or posted to the EDGX Book, Non-
Displayed, in accordance with the characteristics of the underlying
order type \21\ when encountering an order with time priority that is
of insufficient size to satisfy the minimum execution requirement. If
posted, the order with a Minimum Execution Quantity will operate as it
does currently and will only execute against individual orders that
satisfy its minimum quantity as proposed herein. The Exchange notes
that the User entering the order with a Minimum Execution Quantity has
expressed its intention not to execute against liquidity below a
certain minimum size, and therefore, cedes execution priority when it
would lock an order against which it would otherwise execute if it were
not for the minimum execution size restriction. The Exchange proposes
to add language to paragraph (h) of Rule 11.6 to make clear that the
order would cede execution priority in such in scenario.
---------------------------------------------------------------------------
\21\ See supra notes 11 through 16 for a description of the
functionality associated with orders that may include a Minimum
Execution Quantity.
---------------------------------------------------------------------------
As amended, the description of Minimum Execution Quantity under
paragraph (h) of Exchange Rule 11.6 would set forth the default
behavior of the Minimum Quantity instruction of executing upon entry
against a single order or multiple aggregated orders simultaneously.
Amended Rule 11.6(h) would set forth the proposed optional
functionality where a User may alternatively specify that the incoming
order's minimum quantity condition be satisfied by each order resting
on the EDGX Book that would execute against the order with the Minimum
Execution Quantity instruction. If there are such orders, but there are
also orders that do not satisfy the minimum quantity condition, the
incoming order with the Minimum Execution Quantity instruction will
execute against orders resting on the EDGX Book in accordance with Rule
11.9, Order Priority, until it reaches an order that does not satisfy
the minimum quantity condition at which point it would be posted to the
EDGX Book or cancelled in accordance with the terms of the order. If,
upon entry, there are no orders that satisfy the minimum quantity
condition resting on the EDGX Book, the order will either be posted to
the EDGX Book or cancelled in accordance with the terms of the order.
The Exchange also proposes to re-price incoming orders with a
Minimum Execution Quantity instruction where that order may cross an
order posted on the EDGX Book. Specifically, where there is
insufficient size to satisfy an
[[Page 40814]]
incoming order's minimum quantity condition and that incoming order, if
posted at its limit price, would cross an order(s) resting on the EDGX
Book, the order with the minimum quantity condition will be re-priced
to and ranked at the Locking Price.\22\ For example, an order to buy at
$11.00 with a minimum quantity condition of 500 shares is entered and
there is an order resting on the EDGX Book to sell 200 shares at
$10.99. The resting order to sell does not contain sufficient size to
satisfy the incoming order's minimum quantity condition of 500 shares.
The price of the incoming buy order, if posted to the EDGX Book, would
cross the price of the resting sell order. In such case, to avoid an
internally crossed book, the System will re-price the incoming buy
order to $10.99, the Locking Price. This behavior is similar to how the
Exchange currently reprices Non-Displayed orders that cross the
Protected Quotation of an external market.\23\ In addition, both IEX
and Nasdaq also re-price similar orders to avoid an internally crossed
book.\24\
---------------------------------------------------------------------------
\22\ ``Locking Price'' is defined as ``[t]he price at which an
order to buy (sell), that if displayed by the System on the EDGX
Book, either upon entry into the System, or upon return to the
System after being routed away, would be a Locking Quotation.'' See
Exchange Rule 11.6(f).
\23\ See Exchange Rule 11.6(l)(3).
\24\ See Nasdaq Rule 4703(e). See IEX Rule 11.190(h)(2).
---------------------------------------------------------------------------
The rule would further be amended to account for the partial
execution against an individual order in accordance with the proposed
rule change. Specifically, paragraph (h) of Exchange Rule 11.6 would
further be amended to state that that an order with a Minimum Execution
Quantity instruction may be partially executed so long as the execution
size of the individual order or aggregate size of multiple orders, as
applicable, are equal to or exceed the minimum quantity provided in the
instruction.
The Exchange also proposes to amend the description of the Minimum
Execution Quantity instruction to clarify its operation upon order
entry and when the order is posted to the EDGX Book. The Exchange
proposes to clarify that upon entry, and by default, an order with a
Minimum Execution Quantity will execute against a single order or
multiple aggregated orders simultaneously or only against orders that
individually satisfy the order's minimum quantity condition, as
proposed herein. Once posted to the EDGX Book,\25\ the order may only
execute against individual incoming orders with a size that satisfies
the minimum quantity condition. The Exchange also proposed to clarify
that an order that includes a Minimum Execution Quantity instruction is
not eligible to be routed to another Trading Center in accordance with
Exchange Rule 11.11, Routing to Away Trading Centers. These proposed
changes would add additional specificity to the operation of the
Minimum Execution Quantity instruction and are consistent with similar
functionality offered by IEX and Nasdaq.\26\
---------------------------------------------------------------------------
\25\ Orders will only post to the EDGX Book if they are
designated with a TIF instruction that allows for posting. For
example, an order a TIF of IOC or FOK will never post to the EDGX
Book.
\26\ See supra note 5.
---------------------------------------------------------------------------
Exchange Rule 11.8(b)(3), Limit Order Clarification
The Exchange also proposes to amend paragraph (b)(3) of Exchange
Rule 11.8 to specify that a Minimum Execution Quantity instruction may
be included on a Limit Order with a TIF of IOC. Currently, paragraph
(b)(3) of Exchange Rule 11.8 states that Minimum Execution Quantity
instruction may be placed on a Limit Order with a Non-Displayed
instruction. As stated above, the Minimum Execution Quantity
instruction may be coupled with, among other order types, Market Orders
with a TIF of IOC and ISOs with a TIF of IOC. A Limit Order with a TIF
of IOC will never be displayed or posted on the EDGX Book because, by
instruction, it is to only execute upon entry, route or cancel back to
the User and will never be posted to the EDGX Book.\27\ Therefore,
current functionality allows a Minimum Execution Quantity instruction
to be included on a Limit Order with a TIF of IOC, as that order would
not be displayed on the EDGX Book. The Exchange now seeks to add
additional specificity to paragraph (b)(3) of Exchange Rule 11.6 to
expressly state that a Minimum Execution Quantity instruction may be
included on a Limit Order with a TIF of IOC. The Exchange notes that
this is also consistent with the treatment of Minimum Quantity Orders
on Bats BZX Exchange, Inc. (``BZX'').\28\
---------------------------------------------------------------------------
\27\ See Exchange Rule 11.6(q)(1).
\28\ See BZX Rule 11.9(c)(5) (stating that BZX will only honor a
specified minimum quantity on BZX Only Orders that are non-displayed
or IOCs).
---------------------------------------------------------------------------
Exchange Rule 11.10(e)(3), Replace Messages
The Exchange also proposes to amend paragraph (e)(3) of Rule 11.10,
Order Execution, to specify that a change to the minimum quantity of an
order with a Minimum Execution Quantity instruction may be included in
a Replace message. The rule currently states that other than changing a
Limit Order to a Market Order, only the price, Stop Price,\29\ the sell
long indicator, Short Sale instruction,\30\ Max Floor \31\ and quantity
terms of the order may be changed with a Replace message.\32\ As
amended, paragraph (e)(3) of Rule 11.10 would also provide for a change
to the minimum quantity of an order to be included in a Replace
message.\33\ If a User desires to change any other terms of an existing
order, the existing order must be cancelled and a new order must be
entered. The Exchange notes that specifying within Rule 11.10(e)(3)
that a change to the minimum quantity of an order may be included in a
Replace message is consistent with current functionality offered by
IEX.\34\
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\29\ See Exchange Rules 11.8(a)(1) and (b)(1).
\30\ See Exchange Rule 11.6(o).
\31\ See Exchange Rule 11.6(m)(1).
\32\ The Exchange also proposes to amend this paragraph to
specify that the Max Floor is associated with an order with a
Reserve Quantity and to replace the phrase ``and quantity terms''
with the word ``size''. The Exchange believes these changes will add
additional specificity to the rule and ensure the rule uses
terminology consistent with the description of Replace messages and
their impact on an order's priority under Exchange Rule 11.9(a)(4).
\33\ A change to the minimum quantity of an order via a Replace
message will result in such order losing time priority as compared
to other orders in the EDGX Book and the time stamp for such order
being revised to reflect the time of the modification.
\34\ See IEX Rule 11.190(d)(3) (allowing a replace message to
change the minimum quantity of a Minimum Quantity Order).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \35\ in general, and furthers the objectives of Section
6(b)(5) of the Act \36\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\35\ 15 U.S.C. 78f(b).
\36\ 15 U.S.C. 78f(b)(5).
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Exchange Rule 11.6(h), Proposed Individual Minimum Size
The proposed rule change would remove impediments to and promote
just and equitable principles of trade because it would provide Users
with optional functionality that enhances the use of the Minimum
Execution Quantity instruction. The proposed change to the functioning
of the Minimum Execution Quantity instruction will provide market
participants, including institutional firms who ultimately represent
individual retail investors in
[[Page 40815]]
many cases, with better control over their orders, thereby providing
them with greater potential to improve the quality of their order
executions. Currently, the rule allows Users to designate a minimum
acceptable quantity on an order that may aggregate multiple executions
to meet the minimum quantity requirement. Once posted to the book,
however, the minimum quantity requirement is equivalent to a minimum
execution size requirement. The Exchange is now proposing to provide
Users with control over the execution of their orders with a Minimum
Execution Quantity instruction by allowing them an option to designate
the minimum individual execution size upon entry. The control offered
by the proposed change is consistent with the various types of control
currently provided by exchange order types. For example, the Exchange
and other exchanges offer limit orders, which allow a market
participant control over the price it will pay or receive for a
stock.\37\ Similarly, exchanges offer order types that allow market
participants to structure their trading activity in a manner that is
more likely to avoid certain transaction cost related economic
outcomes.\38\
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\37\ See Exchange Rule 11.8(b).
\38\ For example, the Exchange's Post Only instruction. See
Exchange Rule 11.6(n)(4).
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As discussed above, the functionality proposed herein would enable
Users to avoid transacting with smaller orders that they believe
ultimately increases the cost of the transaction. Because the Exchange
does not have this functionality, market participants, such as large
institutions that transact a large number of orders on behalf of retail
investors, have avoided sending large orders to the Exchange to avoid
potentially more expensive transactions.\39\ In this regard, the
Exchange notes that the proposed new optional functionality may improve
the Exchange's market by attracting more order flow. Such new order
flow will further enhance the depth and liquidity on the Exchange,
which supports just and equitable principals of trade. Furthermore, the
proposed modification to the Minimum Execution Quantity instruction is
consistent with providing market participants with greater control over
the nature of their executions so that they may achieve their trading
goals and improve the quality of their executions.
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\39\ As noted, the proposal is designed to attract liquidity to
the Exchange by allowing market participants to designate a minimum
size of a contra-side order to interact with, thus providing them
with functionality available to them on dark markets.
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The Exchange also believes that re-pricing incoming orders with a
Minimum Execution Quantity instruction where that order may cross an
order posted on the EDGX Book promotes just and equitable principles of
trade because it enables the Exchange to avoid an internally crossed
book. The proposed re-pricing is also similar to how the Exchange
currently reprices Non-Displayed orders that cross the Protected
Quotation of an external market.\40\ In addition, both IEX and Nasdaq
also re-price minimum quantity orders to avoid an internally crossed
book. In certain circumstances, Nasdaq re-prices buy (sell) orders to
one minimum price increment below (above) the lowest (highest) price of
such orders.\41\ IEX re-prices non-displayed orders, such as minimum
quantity orders, that include a limit price more aggressive than the
midpoint of the NBBO to the midpoint of the NBBO.\42\
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\40\ See Exchange Rule 11.6(l)(3).
\41\ See Nasdaq Rule 4703(e).
\42\ See IEX Rule 11.190(h)(2).
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Moreover, the proposed optional functionality for the Minimum
Execution Quantity instruction is substantially similar to that offered
by Nasdaq and IEX, both of which have been recently approved by the
Commission.\43\ Lastly, the proposed clarifications of the handing
[sic] of orders with a Minimum Execution Quantity upon entry and once
posted to the EDGX Book would add additional specificity to the
operation of the Minimum Execution Quantity instruction and are
consistent with similar functionality offered by Nasdaq.\44\
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\43\ See supra note 5. The Exchange also notes that a letter was
submitted in strong support of Nasdaq at the time they proposed
similar changes to the operation of their Minimum Quantity order
attribute under Nasdaq Rule 4703(e). See letter to the Commission
from James J. Angel, Associate Professor of Finance, Georgetown
University, dated November 26, 2014.
\44\ See supra note 5.
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Clarification to Exchange Rules 11.8(b)(3) and 11.10(e)(3)
The Exchange believes the proposed amendments to paragraph (b)(3)
of Rule 11.8 and paragraph (e)(3) of Rule 11.10 are also consistent
with the Act in that they will add additional specificity to the rules.
In particular, the proposed amendments to paragraph (b)(3) to Rule 11.8
would add additional specificity regarding the order type instructions
that may be coupled with a Limit Order. The Exchange notes that this is
also consistent with the treatment of Minimum Quantity Orders on
BZX,\45\ thereby making the rule clearer and avoiding potential
investor confusion. Also, the amendments to paragraph (e)(3) of Rule
11.10 will ensure the rule uses terminology consistent with the
description of Replace messages and their impact on an order's priority
under Exchange Rule 11.9(a)(4). Also, the Exchange notes that
specifying within Rule 11.10(e)(3) that a change to the minimum
quantity of an order with a Minimum Execution Quantity instruction may
be included in a Replace message is consistent with current
functionality offered by IEX.\46\
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\45\ See BZX Rule 11.9(c)(5) (stating that BZX will only honor a
specified minimum quantity on BZX Only Orders that are non-displayed
or IOCs).
\46\ See IEX Rule 11.190(d)(3).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended. On
the contrary, the Exchange believes the proposed rule change promotes
competition because it will enable the Exchange to offer functionality
substantially similar to that offered by Nasdaq and IEX.\47\ In
addition, the proposed amendments to paragraph (b)(3) of Rule 11.8 and
paragraph (e)(3) of Rule 11.10 would not have any impact on competition
as they simply add additional details to each rule and do not alter
current System functionality. Therefore, the Exchange does not believe
the proposed rule change will result in any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\47\ See supra note 5.
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(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No comments were solicited or received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (A)
Significantly affect the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C) by
its terms, become operative for 30 days from the date on which it was
filed or such shorter time as the Commission may designate it has
become effective pursuant to Section 19(b)(3)(A) of the
[[Page 40816]]
Act \48\ and paragraph (f)(6) of Rule 19b-4 thereunder,\49\ the
Exchange has designated this rule filing as non-controversial. The
Exchange has given the Commission written notice of its intent to file
the proposed rule change, along with a brief description and text of
the proposed rule change at least five business days prior to the date
of filing of the proposed rule change, or such shorter time as
designated by the Commission.
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\48\ 15 U.S.C. 78s(b)(3)(A).
\49\ 17 CFR 240.19b-4.
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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: (1)
Necessary or appropriate in the public interest; (2) for the protection
of investors; or (3) 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-BatsEDGX-2017-34 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BatsEDGX-2017-34. 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-BatsEDGX-2017-34 and should
be submitted on or before September 18, 2017.
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\50\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18127 Filed 8-25-17; 8:45 am]
BILLING CODE 8011-01-P
