80 FR 12666 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules 11.6, 11.8, 11.9, 11.10 and 11.11 of EDGX Exchange, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 46 (March 10, 2015)

Page Range		12666-12671
FR Document		2015-05485
Federal Register, Volume 80 Issue 46 (Tuesday, March 10, 2015)
[Federal Register Volume 80, Number 46 (Tuesday, March 10, 2015)]
[Notices]
[Pages 12666-12671]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-05485]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74439; File No. SR-EDGX-2015-08]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Rules 11.6, 11.8, 11.9, 11.10 and 11.11 of EDGX Exchange, Inc.

March 4, 2015.
    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 February 20, 2015, 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 self-regulatory 
organization. On February 27, 2015, the Exchange filed Amendment No. 1 
to the proposal.\3\ The Commission is publishing this notice, as 
modified by Amendment No. 1, to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaces SR-EDGX-2015-08 and supersedes such 
filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend Rules 11.6, 11.8, 11.9, 
11.10 and 11.11 to clarify and to include additional specificity 
regarding the current functionality of the Exchange's System,\4\ 
including the operation of its order types and order instructions, as 
further described below.
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    \4\ 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).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 the 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On June 5, 2014, Chair Mary Jo White asked all national securities 
exchanges to conduct a comprehensive review of each order type offered 
to members and how it operates.\5\ The Exchange notes that a 
comprehensive rule filing clarifying and updating Exchange rules was 
recently approved.\6\ However, based on the request from Chair White, 
the Exchange did indeed conduct further review of each order types and 
its operation. The proposals set forth below are based on this 
comprehensive review and are intended to clarify and to include 
additional specificity regarding the current functionality of the 
Exchange's System, including the operation of its order types and order 
instructions. The proposals set forth below are intended to supplement 
the recently approved filing based on further review conducted by the 
Exchange and are intended to clarify and enhance the understandability 
of the Exchange's rules related to the ranking and execution of orders. 
The proposal is also intended to add additional detail with respect to 
the handling of orders with a Discretionary

[[Page 12667]]

Range \7\ instruction and orders with a Non-Displayed \8\ instruction. 
The Exchange is not proposing any substantive modifications to the 
System.
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    \5\ See Mary Jo White, Chair, Commission, Speech at the Sandler 
O'Neill & Partners, L.P. Global Exchange and Brokerage Conference, 
(June 5, 2014) (available at http://www.sec.gov/News/Speech/Detail/Speech/1370542004312#.VD2HW610w6Y).
    \6\ Securities Exchange Act Release No. 73468 (October 29, 
2014), 79 FR 65450 (November 4, 2014) (SR-EDGX-2014-18).
    \7\ See Exchange Rule 11.6(d).
    \8\ See Exchange Rule 11.6(e)(2).
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Orders With a Discretionary Range and Non-Displayed Orders
    Pursuant to current Rule 11.6(d), the Exchange defines a 
Discretionary Range as an instruction the User \9\ may attach to an 
order to buy (sell) a stated amount of a security at a specified, 
displayed price with discretion to execute up (down) to a specified, 
non-displayed price. For purposes of this proposal, the Exchange will 
use the term ``Discretionary Range'' to describe the amount between the 
displayed price to and including the highest price at which a buyer is 
willing to buy or lowest price at which a seller is willing to sell. 
The Exchange proposes to make clear that although an order with a 
Discretionary Range instruction may be accompanied by a Displayed \10\ 
instruction, an order with a Discretionary Range instruction may also 
be accompanied by a Non-Displayed instruction, and if so, will have a 
non-displayed ranked price as well as a discretionary price. The 
Exchange further proposes to specifically state that resting orders 
with a Discretionary Range instruction will be executed at a price that 
uses the minimum amount of discretion necessary to execute the order 
against an incoming order. In addition, the Exchange proposes to make 
clear certain circumstances where the Discretionary Range of an order 
is temporarily reduced due to contra-side interest resting on the EDGX 
Book.\11\
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    \9\ 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).
    \10\ See Exchange Rule 11.6(e)(1).
    \11\ The term ``EDGX Book'' is defined as ``the System's 
electronic file of orders.'' See Exchange Rule 1.5(d).
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    The Exchange also proposes to specify certain situations where the 
Discretionary Range of an order is temporarily reduced based on contra-
side interest resting on the Exchange. The Exchange notes that it is 
possible for an order with a Discretionary Range instruction have its 
Discretionary Range temporarily reduced based on contra-side interest 
resting on the Exchange because an incoming order with a Post Only 
instruction \12\ will be posted to the EDGX Book rather than executing 
against the Discretionary Range of a resting order.
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    \12\ See Exchange Rule 11.6(n)(4).
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    With respect to displayed contra-side liquidity, the Exchange 
proposes to make clear that if an order posted to the EDGX Book has a 
Discretionary Range and there is a contra-side order that is displayed 
by the System on the EDGX Book within such Discretionary Range, the 
order with a Discretionary Range will not be permitted to execute at 
the price of or at a price more aggressive than such contra-side 
displayed order unless and until there is no contra-side displayed 
order on the EDGX Book within the Discretionary Range. In such case, 
the order with a Discretionary Range will have discretion to one 
Minimum Price Variation \13\ below (above) the contra-side offer (bid) 
that is displayed by the System on the EDGX Book.
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    \13\ See Exchange Rule 11.6(i).
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    With respect to non-displayed contra-side liquidity, the Exchange 
proposes to make clear that if an order posted to the EDGX Book has a 
Discretionary Range and there is a contra-side order with a Non-
Displayed instruction,\14\ the order with a Discretionary Range will 
not be permitted to execute at a price more aggressive than the ranked 
price of such contra-side order unless and until there is no contra-
side order on the EDGX Book within the Discretionary Range. In such 
case, the order with a Discretionary Range will have discretion to the 
ranked price of the contra-side offer (bid) with a Non-Displayed 
instruction that is maintained by the System on the EDGX Book.
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    \14\ The Exchange notes that the reference to orders with a Non-
Displayed instruction is intended to apply to all orders that are 
not displayed on the Exchange, such as MidPoint Match Orders as 
defined in Rule 11.8(d). The Exchange notes, however, that because 
neither MidPoint Match Orders nor orders with a Discretionary Range 
instruction (as described below) can be entered with a Post Only 
instruction, that the Rule is not currently applicable to any orders 
other than Limit Orders with a Non-Displayed instruction.
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    Similarly, the Exchange proposes to amend Rule 11.6(l)(3), which 
addresses re-pricing of orders with a Non-Displayed instruction. As set 
forth in Rule 11.6(l)(3), an order with a Non-Displayed instruction 
that is priced better than the midpoint of the NBBO will be ranked at 
the midpoint of the NBBO with discretion to execute to its limit price. 
The Exchange proposes to add language stating that if a contra-side 
order is resting on the EDGX Book at the limit price within the 
Discretionary Range, the order will be ranked at the mid-point of the 
NBBO but its discretion to execute to its limit price will be 
temporarily reduced consistent with the Discretionary Range definition 
described above.
    The Exchange notes that the language proposed with respect to the 
temporary reduction of the Discretionary Range of an order is 
consistent with the Exchange's recently amended rules.\15\ 
Specifically, the Exchange suspends the discretion of an order subject 
to the Hide Not Slide \16\ instruction for so long as a contra-side 
order that equals the Locking Price \17\ is displayed by the System on 
the EDGX Book. The Exchange suspends this discretion to avoid an 
apparent priority issue. In particular, in such a situation the 
Exchange believes a User representing an order that is displayed on the 
Exchange might believe that an incoming order was received by the 
Exchange and then bypassed such displayed order, removing some other 
non-displayed liquidity on the same side of the market as such 
displayed order. For the same reason, the Exchange believes it is 
appropriate to prevent an order with a Discretionary Range instruction 
to execute at the same price or at a price more aggressive than a 
contra-side order that is displayed on the EDGX Book. Similarly, 
although the Exchange believes it is appropriate to permit an order 
with a Discretionary Range instruction to execute at the same price as 
a contra-side order with a Non-Displayed instruction, the Exchange 
suspends such discretion at any more aggressive prices in order to 
avoid trading through orders that have been ranked on and are resting 
on the EDGX Book. Below are examples of the operation of orders with a 
Discretionary Range.
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    \15\ See supra note 6.
    \16\ See Exchange Rule 11.6(l)(1)(B).
    \17\ See Exchange Rule 11.6(f).
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Example No. 1: Modification and Reinstatement of Discretionary Range 
With a Displayed Contra-Side Order
    Assume the NBBO is $10.00 by $10.10, that the best-priced order to 
buy in the System is a displayed bid at $9.99, and that the best-priced 
order to sell in the System is a displayed offer at $10.11. A Limit 
Order \18\ to buy 100 shares at $10.00 with a Discretionary Range of 
$0.05 is entered into the System. The order will be displayed on the 
EDGX Book at $10.00 with discretion to execute up to $10.05. If a Limit 
Order to sell 100 shares at $10.05 with a Displayed instruction and a 
Post Only instruction is entered into the System such order will be 
posted and displayed by the System on the EDGX Book as an order to sell 
100 shares at $10.05. The buy order with the Discretionary Range 
instruction will

[[Page 12668]]

have its discretion to execute at $10.05 temporarily suspended but such 
order will continue to have discretion to execute up to $10.04. The 
following examples demonstrate various potential outcomes following the 
temporary suspension of the buy order's discretion to execute at 
$10.05.
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    \18\ See Exchange Rule 11.8(b).
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     If a non-routable Limit Order to sell 100 shares at $10.05 
is entered into the System, depending on applicable User instructions, 
such order will either be posted and displayed by the System on the 
EDGX Book as an order to sell 100 shares (i.e., with priority behind 
the order to sell that is already displayed on the EDGX Book at $10.05) 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.04 is 
entered into the System, such order will execute at $10.04 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.02 is 
entered into the System, such order will execute at $10.02 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.00 or 
lower or a Market Order to sell 100 shares is entered into the System, 
such order will execute at $10.00 against the resting buy order with a 
Discretionary Range instruction.
     If, instead, the sell order at $10.05 with a Post Only 
instruction is then canceled, the buy order with a Discretionary Range 
instruction will have its discretion to execute up to $10.05 
reinstated.
     If, instead, a Limit Order to buy 100 shares at $10.05 or 
higher or a Market Order to buy 100 shares is then entered into the 
System, such order will execute at $10.05 against the displayed order 
to sell with a Post Only instruction and the buy order with a 
Discretionary Range instruction will have its discretion to execute up 
to $10.05 reinstated.
Example No. 2: Modification and Reinstatement of Discretionary Range 
With a Non-Displayed Contra-Side Order Priced Less Aggressive Than the 
Midpoint of the NBBO
    Assume the NBBO is $10.00 by $10.10, that the best-priced order to 
buy in the System is a displayed bid at $9.99, and that the best-priced 
order to sell in the System is a displayed offer at $10.11. A Limit 
Order with to buy 100 shares at $10.00 with a Discretionary Range of 
$0.07 is entered into the System. The order will be ranked and 
displayed on the EDGX Book at $10.00 with discretion to execute up to 
$10.07. If a Limit Order to sell 100 shares at $10.06 with a Non-
Displayed instruction and a Post Only instruction is entered into the 
System such order will be posted by the System on the EDGX Book as an 
order to sell 100 shares at $10.06. The buy order's discretion to 
execute at $10.07 will be temporarily suspended but such order will 
continue to have discretion to execute up to $10.06. The following 
examples demonstrate various potential outcomes following the temporary 
suspension of the buy order's discretion to execute at $10.07.
     If a non-routable Limit Order to sell 100 shares at $10.07 
with a Displayed instruction is entered into the System, depending on 
applicable User instructions, such order will be posted and displayed 
by the System on the EDGX Book as an order to sell 100 shares at $10.07 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.06 is 
entered into the System, such order will execute at $10.06 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.02 is 
entered into the System, such order will execute at $10.02 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.00 or 
lower or a Market Order to sell 100 shares is entered into the System, 
such order will execute at $10.00 against the resting buy order with a 
Discretionary Range instruction.
     If, instead, the sell order with a Non-Displayed 
instruction of 100 shares that is ranked at $10.06 is then canceled, 
the buy order with a Discretionary Range instruction will have its 
discretion to execute up to $10.07 reinstated.
Example No. 3: Modification and Reinstatement of Discretionary Range 
With a Non-Displayed Contra-Side Order Priced More Aggressive Than the 
Midpoint of the NBBO
    Assume the NBBO is $10.00 by $10.10, that the best-priced order to 
buy in the System is a displayed bid at $9.99, and that the best-priced 
order to sell in the System is a displayed offer at $10.11. A Limit 
Order with to buy 100 shares at $10.00 with a Discretionary Range of 
$0.07 is entered into the System. The order will be displayed on the 
EDGX Book at $10.00 with discretion to execute up to $10.07. If a Limit 
Order to sell 100 shares at $10.04 with a Non-Displayed instruction and 
a Post Only instruction is entered into the System such order will be 
posted by the System on the EDGX Book as an order to sell 100 shares at 
$10.05 (i.e., ranked at the midpoint of the NBBO, as described above) 
with discretion to $10.04. The buy order's discretion to execute at 
$10.07 will be temporarily suspended but such order will continue to 
have discretion to execute up to $10.05. The following examples 
demonstrate various potential outcomes following the temporary 
suspension of the buy order's discretion to execute at $10.07.
     If a non-routable Limit Order to sell 100 shares at $10.07 
with a Displayed instruction is entered into the System, depending on 
applicable User instructions, such order will be posted and displayed 
by the System on the EDGX Book as an order to sell 100 shares at $10.07 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.05 is 
entered into the System, such order will execute at $10.05 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to buy 100 shares at $10.05 is 
entered into the System, such order will execute at $10.05 against the 
resting sell order with a Non-Displayed instruction and a Post Only 
instruction (i.e., at the ranked price of such order).
     If, instead, a Limit Order to sell 100 shares at $10.04 is 
entered into the System, such order will execute at $10.04 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to buy 100 shares at $10.04 is 
entered into the System, such order will execute at $10.04 against the 
resting sell order with a Non-Displayed instruction and a Post Only 
instruction (i.e., using the discretion of the resting sell order with 
a Non-Displayed instruction to sell at the order's limit price).
     If, instead, a Limit Order to sell 100 shares at $10.00 or 
lower or a Market Order to sell 100 shares is entered into the System, 
such order will execute at $10.00 against the resting buy order with a 
Discretionary Range instruction.
     If, instead, the sell order with a Non-Displayed 
instruction of 100 shares that is ranked at $10.05 is then canceled, 
the buy order with a Discretionary Range instruction will have its 
discretion to execute up to $10.07 reinstated.
    As the above examples demonstrate, the Exchange prevents executions 
against the Discretionary Range of an order at or through the price of 
a resting contra-side order with a Displayed instruction and through 
the price of a resting contra-side order with a Non-Displayed 
instruction (i.e., an execution can occur at the ranked price of an 
order with a Non-Displayed instruction but not at a price that would be 
better than such order's ranked price). The

[[Page 12669]]

Exchange does not, however, prevent executions against the 
Discretionary Range of an order when there is a contra-side order with 
a Discretionary Range at or through that price same price.
    The Exchange's handling of orders with a Discretionary Range 
instruction, including the discretion of an order with a Non-Displayed 
instruction more aggressive than the midpoint of the NBBO to its limit 
price, is intended to reflect the relatively passive nature of orders 
with a Discretionary Range. In all cases, although the Users submitting 
such orders have indicated a willingness to execute at a more 
aggressive price, such orders are ranked at a lower price to buy or a 
higher price to sell. In turn, if an order is executed at its ranked 
price, rather than at a price within the Discretionary Range, then the 
User that submitted the order receives a better result in each case 
(i.e., buys for less or sells for more). With this background, the 
Exchange believes it is reasonable that an order with a Discretionary 
Range instruction or a Non-Displayed instruction might temporarily 
become not executable at certain prices because such prices are more 
aggressive than their ranked price (i.e., higher prices for orders to 
buy or lower prices for orders to sell). Further, to the extent a User 
would prefer an execution at more aggressive price levels, such User 
could simply choose other order type instructions that would increase 
the likelihood of execution at these prices (e.g., a routable order 
rather than a non-routable order, an order that is ranked at its full 
price rather than an order ranked at a less aggressive price with a 
Discretionary Range, or an order with a Displayed instruction rather 
than an order with a Non-Displayed instruction).
    In addition to the changes described above, the Exchange proposes 
to re-locate within Rule 11.8(b) and re-word the statement regarding 
the inclusion of a Discretionary Range on a Limit Order. Current Rule 
11.8(b)(8) currently states that a ``User may include a Discretionary 
Range instruction.'' This ability to include a Discretionary Range 
instruction on a Limit Order is currently grouped with other 
functionality that can be elected for Limit Orders that also include a 
Post Only or Book Only instruction as well as specified time-in-force 
instructions for orders that can be entered into the System and post to 
the EDGX Book. However, the System does not allow the combination of a 
Discretionary Range and a Post Only instruction. Accordingly, the 
Exchange proposes to re-locate the reference to the Discretionary Range 
instruction within Rule 11.8(b) so that it is no longer grouped with 
other orders that can be combined with a Post Only instruction. The 
Exchange also proposes to state in Rule 11.8(b) that: (i) A Limit Order 
with a Discretionary Range instruction may also include a Book Only 
instruction; and (ii) a Limit Order with a Discretionary Range 
instruction and a Post Only instruction will be rejected. Further, the 
Exchange proposes to refer to the ability of a Limit Order to include a 
Discretionary Range instruction, rather than a ``User'' that may 
include a Discretionary Range instruction.
Priority and Execution Algorithm
    With respect to the Exchange's priority and execution algorithm, 
the Exchange is proposing various minor and structural to changes that 
are intended to emphasize the processes by which orders are accepted, 
priced, ranked, displayed and executed, as well as a new provision 
related to the ability of orders to rest at locking prices that is 
consistent with the changes to provisions related to the operation of 
orders with a Discretionary Range instruction described above. First, 
the Exchange has proposed modifications to Rule 11.9, Priority of 
Orders, to make clear that the ranking of orders described in such rule 
is in turn dependent on Exchange rules related to the execution of 
orders, primarily Rule 11.10. The Exchange believes that this has 
always been the case under Exchange rules but there was not previously 
a description of the cross-reference to Rule 11.10 within such rules. 
Accordingly, the Exchange proposes to add reference to the execution 
process in addition to the numeric cross-reference to Rule 11.10.\19\ 
The Exchange also proposes to change certain references within Rule 
11.9 to refer to ranking rather than executing equally priced trading 
interest, as the Rule as a whole is intended to describe the manner in 
which resting orders are ranked and maintained, specifically in price 
and time priority, while awaiting execution against incoming orders. 
The Exchange does not believe that the proposed modifications 
substantively modify the operation of the rules but the Exchange 
believes that it is important to make clear that the ranking of orders 
is a separate process from the execution of orders. The Exchange also 
proposes changes to Rule 11.9(a)(4) and (a)(5) to specify that orders 
retain and lose ``time'' priority under certain circumstances as 
opposed to priority generally because retaining or losing price 
priority does not require the same descriptions, as price priority will 
always be retained unless the price of an order changes.
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    \19\ The Exchange notes that it recently filed an immediately 
effective proposal containing marking errors with respect to the 
rule text proposed for sub-paragraphs (a)(2), (a)(2)(A) and 
(a)(2)(B). See Securities Exchange Act Release No. 74023 (January 9, 
2015), 80 FR 2163 (January 15, 2015) (SR-EDGX-2015-03). Accordingly, 
the Exchange has correctly marked the change in connection with this 
proposal.
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    Next, the Exchange proposes to move language contained within sub-
paragraph (a)(2) of Rule 11.10 to the main paragraph, paragraph (a), 
such that the language is more generally applicable to the rules. 
Although sub-paragraph (a)(2) contains information relevant to 
executability, in that it describes orders that are executable in 
compliance with Regulation NMS or otherwise do not trade through 
quotations of other markets, there are other provisions set forth in 
paragraph (a) that relate to executability. Accordingly, the Exchange 
proposes to relocate language stating that any order falling within the 
parameters of this paragraph shall be referred to as ``executable'' and 
that an order will be cancelled back to the User, if based on market 
conditions, User instructions, applicable Exchange Rules and/or the Act 
and the rules and regulations thereunder, such order is not executable, 
cannot be routed to another Trading Center pursuant to Rule 11.11 or 
cannot be posted to the EDGX Book.
    The Exchange proposes to adopt paragraph (C) of Rule 11.10(a)(4) to 
provide further clarity regarding the situations where orders are not 
executable, which although covered in other existing rules, would focus 
on the incoming order on the same side of an order displayed on the 
EDGX Book rather than the resting order that is rendered not executable 
because it is opposite such order displayed on the EDGX Book. Proposed 
paragraph (C) would further state that if an incoming order is on the 
same side of the market as an order displayed on the EDGX Book and upon 
entry would execute against contra-side interest at the same price as 
such displayed order, such incoming order will be cancelled or posted 
to the EDGX Book and ranked in accordance with Rule 11.9. As described 
above, the Exchange suspends the discretion of an order subject to the 
Hide Not Slide instruction for so long as a contra-side order that 
equals the Locking Price is displayed by the System on the EDGX Book. 
Similarly, as proposed to be added to EDGX Rules, the Exchange 
temporarily suspends the ability of an order to execute at the same 
price as a contra-side displayed order for any order with a 
Discretionary Range

[[Page 12670]]

instruction or any order with a Non-Displayed instruction that has been 
re-priced to the midpoint of the NBBO pursuant to Exchange rules. The 
Exchange temporarily suspends this discretion to avoid an apparent 
priority issue where a User representing an order that is displayed on 
the Exchange either believes such order has time priority among 
displayed orders at that price or that the displayed order is the only 
order at such price level and then sees an execution published by the 
Exchange at that price.
    To demonstrate the functionality in place on the Exchange described 
above, assume the NBBO is $10.00 by $10.01. A non-routable Limit Order 
to buy 100 shares at $10.01 with a Hide Not Slide instruction is 
entered into the System. The order will be displayed on the EDGX Book 
at $10.00 and ranked at $10.005 with discretion to $10.01. If a Limit 
Order to sell 100 shares at $10.01 with a Displayed instruction and a 
Post Only instruction is entered into the System such order will be 
posted and displayed by the System on the EDGX Book as an order to sell 
100 shares at $10.01. The buy order with the Hide Not Slide instruction 
will have its discretion to execute at $10.01 temporarily suspended but 
such order will continue to be ranked at $10.005. The following 
examples demonstrate various potential outcomes following the temporary 
suspension of the buy order's discretion to execute at $10.01.
     If a non-routable Limit Order to sell 100 shares at $10.01 
is entered into the System, depending on applicable User instructions, 
such order will either be posted and displayed by the System on the 
EDGX Book as an order to sell 100 shares (i.e., with priority behind 
the order to sell that is already displayed on the EDGX Book at $10.01) 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.00 is 
entered into the System, such order will execute at $10.005 against the 
resting buy order with a Hide Not Slide instruction.
     If, instead, a Limit Order to buy 100 shares at $10.01 or 
higher or a Market Order to buy 100 shares is entered into the 
System,\20\ such order will execute at $10.01 against the resting sell 
order displayed on the EDGX Book, as such resting order is fully 
executable and displayed as an offer on the EDGX Book.
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    \20\ The Exchange notes that an incoming order for purposes of 
comparison to a resting order can be any incoming order unless the 
terms of that incoming order itself preclude execution. In this 
example, a Limit Order to buy 100 shares at $10.01 that executes 
against the order to sell displayed at $10.01 on the EDGX Book could 
be a Limit Order with a Displayed instruction, a Limit Order with a 
Non-Displayed instruction, a Limit Order with a Hide Not Slide 
instruction, a Limit Order with a Price Adjust instruction, a 
routable Limit Order, a non-routable Limit Order, an order with a 
Limit Price of $10.00 and a Discretionary Range of $0.01, or any 
other type of incoming Limit Order to buy that is executable at 
$10.01. Thus, this example demonstrates that on entry the incoming 
order is compared to contra-side orders on the EDGX Book regardless 
of the modifiers that will determine how it will be displayed, 
ranked or otherwise handled by the System and that unless the 
ability of an order to execute has been suspended based on the 
Exchange's rules, the resting contra-side order with priority at 
that price will be executed against the incoming order.
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    The Exchange notes that it is proposing to add descriptive titles 
to paragraphs (A) and (B) of Rule 11.10(a)(4), which describe the 
process by which executable orders are matched within the System. 
Specifically, so long as it is otherwise executable, an incoming order 
to buy will be automatically executed to the extent that it is priced 
at an amount that equals or exceeds any order to sell in the EDGX Book 
and an incoming order to sell will be automatically executed to the 
extent that it is priced at an amount that equals or is less than any 
other order to buy in the EDGX Book. These rules further state that an 
order to buy shall be executed at the price(s) of the lowest order(s) 
to sell having priority in the EDGX Book and an order to sell shall be 
executed at the price(s) of the highest order(s) to buy having priority 
in the EDGX Book. The Exchange emphasizes these current rules only 
insofar as to highlight the interconnected nature of the priority rule.
    The Exchange also proposes to modify paragraph (h) of Rule 11.11 to 
clarify the Exchange's rule regarding the priority of routed orders. 
Paragraph (h) currently sets forth the proposition that a routed order 
does not retain priority on the Exchange while it is being routed to 
other markets. The Exchange believes that its proposed clarification to 
paragraph (h) is appropriate because it more clearly states that a 
routed order is not ranked and maintained in the EDGX Book pursuant to 
Rule 11.9(a), and therefore is not available to execute against 
incoming orders pursuant to Rule 11.10.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
\21\ and further the objectives of Section 6(b)(5) of the Act \22\ 
because they are 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, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest. The proposed rule changes are also designed to support the 
principles of Section 11A(a)(1) \23\ of the Act in that they seek to 
assure fair competition among brokers and dealers and among exchange 
markets.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S. C. 78k-1(a)(1).
---------------------------------------------------------------------------

    Specifically, the Exchange also believes that the changes to 
provide additional clarity and specificity regarding the functionality 
of the System with respect to an order with a Discretionary Range 
instruction and an order with a Non-Displayed instruction that has 
discretion pursuant to the Exchange's re-pricing process would promote 
just and equitable principles of trade and remove impediments to a free 
and open market by providing greater transparency concerning the 
operation of the System. The Exchange also believes that the proposed 
amendments to clarify and re-structure the Exchange's priority, 
execution and routing rules will contribute to the protection of 
investors and the public interest by making the Exchange's rules easier 
to understand. Further, the Exchange believes that it is consistent 
with the Act to temporarily reduce the Discretionary Range of an order 
that has been posted to the EDGX Book for so long as there is contra-
side liquidity on the EDGX Book because this functionality prevents an 
apparent priority issue on the EDGX Book as described above as well as 
the ability of an order to execute at a price that trades through the 
ranked price of an order resting on the EDGX Book. The Exchange 
reiterates that such behavior, as described above, is temporary in 
nature; an order's full Discretionary Range will be returned as soon as 
the contra-side liquidity that caused the reduction in the first place 
is no longer maintained on the EDGX Book. The Exchange believes that 
its overall handling of orders, including the temporary suspension of 
the ability of an order with a Discretionary Range to execute at one or 
more prices is consistent with the Act because it removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system by reflecting the relatively passive nature of an order 
with a Discretionary Range instruction while honoring the instructions 
of a User submitting a contra-side order that does not remove liquidity 
on entry. As explained above, the Exchange's handling of orders with

[[Page 12671]]

a Discretionary Range instruction, including the discretion of an order 
with a Non-Displayed instruction more aggressive than the midpoint of 
the NBBO to its limit price, is intended to reflect the relatively 
passive nature of orders with a Discretionary Range. The Exchange 
believes it is reasonable that an order with a Discretionary Range 
instruction or a Non-Displayed instruction might temporarily become not 
executable at certain prices because such prices are more aggressive 
than their ranked price (i.e., higher prices for orders to buy or lower 
prices for orders to sell). Further, to the extent a User would prefer 
an execution at more aggressive price levels, such User could simply 
choose other order type instructions that would increase the likelihood 
of execution at these prices. Finally, the Exchange believes that its 
proposal to re-locate and re-word the Discretionary Range instruction 
reference within Rule 11.8(b), related to Limit Orders, is consistent 
with the Act because the change will correct an error within the 
Exchange's rules and prevent potential confusion regarding the ability 
to combine a Discretionary Range instruction with a Post Only 
instruction.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule changes are not designed to address any competitive issue but 
rather to add specificity and clarity to Exchange rules, thus providing 
greater transparency regarding the operation of the System.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule changes.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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, as modified by Amendment No. 1, is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-EDGX-2015-08 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-EDGX-2015-08. 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 (http://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-EDGX-2015-08 and should be 
submitted on or before March 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05485 Filed 3-9-15; 8:45 am]
 BILLING CODE 8011-01-P
12666 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices

general, to protect investors and the rule change is consistent with the Act order types and order instructions, as
public interest. and the rules and regulations further described below.
The proposed rule change provides a thereunder applicable to a national The text of the proposed rule change
price protection mechanism for quotes securities exchange. is available at the Exchange’s Web site
entered by a Market Maker when an It is therefore ordered, pursuant to at www.batstrading.com, at the
NBBO is available that are priced a Section 19(b)(2) of the Act,24 that the principal office of the Exchange, and at
specified dollar amount or percentage proposed rule change (SR–NYSEArca– the Commission’s Public Reference
through the last sale or prevailing 2014–150), as modified by Amendment Room.
contra-side market, which the Exchange No. 1, be, and hereby is, approved.
believes is evidence of error. The II. Self-Regulatory Organization’s
For the Commission, by the Division of
Commission believes that the proposed Statement of the Purpose of, and the
Trading and Markets, pursuant to delegated
price protection mechanism is authority.25 Statutory Basis for, the Proposed Rule
reasonably designed to promote just and Jill M. Peterson,
Change
equitable principles of trade by Assistant Secretary. In its filing with the Commission, the
preventing potential price dislocation [FR Doc. 2015–05497 Filed 3–9–15; 8:45 am] Exchange included statements
that could result from erroneous Market concerning the purpose of, and basis for,
BILLING CODE 8011–01–P
Maker quotes sweeping through the proposed rule change and discussed
multiple price points resulting in any comments it received on the
executions at prices that are through the SECURITIES AND EXCHANGE proposed rule change. The text of these
last sale price or NBBO.22 COMMISSION statements may be examined at the
The Exchange’s proposed use of places specified in Item IV below. The
benchmarks to check the reasonability [Release No. 34–74439; File No. SR–EDGX–
2015–08] Exchange has prepared summaries, set
of Market Maker bids for call and put forth in Sections A, B and C below, of
options affords a second layer of price the most significant parts of such
Self-Regulatory Organizations; EDGX
protection to Market Maker quotes. The statements.
Exchange, Inc.; Notice of Filing of a
Commission believes that the additional
Proposed Rule Change, as Modified by A. Self-Regulatory Organization’s
price reasonability check on Market
Amendment No. 1, To Amend Rules Statement of the Purpose of, and the
Maker bids that are priced equal to or
11.6, 11.8, 11.9, 11.10 and 11.11 of Statutory Basis for, the Proposed Rule
greater than the price of the underlying
EDGX Exchange, Inc. Change
security for call options, and equal to or
greater than the strike price for put March 4, 2015. 1. Purpose
options, is reasonably designed to Pursuant to Section 19(b)(1) of the
operate in manner that would remove Securities Exchange Act of 1934 (the On June 5, 2014, Chair Mary Jo White
impediments to and perfect the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 asked all national securities exchanges
mechanism of a free and open market notice is hereby given that on February to conduct a comprehensive review of
and protect investors and the public 20, 2015, EDGX Exchange, Inc. (the each order type offered to members and
interest. Further, the Commission notes ‘‘Exchange’’ or ‘‘EDGX’’) filed with the how it operates.5 The Exchange notes
the Exchange’s belief that the additional Securities and Exchange Commission that a comprehensive rule filing
risk controls that result in the (‘‘Commission’’) the proposed rule clarifying and updating Exchange rules
cancellation of a Market Maker’s resting change as described in Items I, II and III was recently approved.6 However, based
same side quote and/or the temporary below, which items have been prepared on the request from Chair White, the
suspension a Market Maker’s quoting by the self-regulatory organization. On Exchange did indeed conduct further
activity in the affected option class(es), February 27, 2015, the Exchange filed review of each order types and its
as applicable, provide market Amendment No. 1 to the proposal.3 The operation. The proposals set forth below
participants with additional protection Commission is publishing this notice, as are based on this comprehensive review
from anomalous executions.23 modified by Amendment No. 1, to and are intended to clarify and to
Accordingly, the Commission believes solicit comments on the proposed rule include additional specificity regarding
that the proposed price protection for change from interested persons. the current functionality of the
Market Maker quotes is reasonably Exchange’s System, including the
I. Self-Regulatory Organization’s operation of its order types and order
designed to prevent fraudulent and Statement of the Terms of the Substance
manipulative acts and practices, to instructions. The proposals set forth
of the Proposed Rule Change below are intended to supplement the
promote just and equitable principles of
trade, to foster cooperation and The Exchange filed a proposal to recently approved filing based on
coordination with persons engaged in amend Rules 11.6, 11.8, 11.9, 11.10 and further review conducted by the
regulating, clearing, settling, processing 11.11 to clarify and to include Exchange and are intended to clarify
information with respect to, and additional specificity regarding the and enhance the understandability of
facilitating transactions in securities, to current functionality of the Exchange’s the Exchange’s rules related to the
remove impediments to and perfect the System,4 including the operation of its ranking and execution of orders. The
mechanism of a free and open market proposal is also intended to add
24 15 U.S.C. 78s(b)(2).
and a national market system, and, in 25 17
additional detail with respect to the
CFR 200.30–3(a)(12).
general, to protect investors and the 1 15
handling of orders with a Discretionary
U.S.C. 78s(b)(1).
mstockstill on DSK4VPTVN1PROD with NOTICES

public interest. 2 17 CFR 240.19b–4.
3 Amendment No. 1 replaces SR–EDGX–2015–08 5 See Mary Jo White, Chair, Commission, Speech
IV. Conclusion and supersedes such filing in its entirety. at the Sandler O’Neill & Partners, L.P. Global
For the foregoing reasons, the 4 The term ‘‘System’’ is defined as ‘‘the electronic Exchange and Brokerage Conference, (June 5, 2014)
communications and trading facility designated by (available at http://www.sec.gov/News/Speech/
Commission finds that the proposed Detail/Speech/1370542004312#.VD2HW610w6Y).
the Board through which securities orders of Users
are consolidated for ranking, execution and, when 6 Securities Exchange Act Release No. 73468
22 See Notice, supra note 3, at 1985. applicable, routing away.’’ See Exchange Rule (October 29, 2014), 79 FR 65450 (November 4, 2014)
23 See Notice, supra note 3, at 1985. 1.5(cc). (SR–EDGX–2014–18).

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Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 12667

Range 7 instruction and orders with a With respect to displayed contra-side The Exchange notes that the language
Non-Displayed 8 instruction. The liquidity, the Exchange proposes to proposed with respect to the temporary
Exchange is not proposing any make clear that if an order posted to the reduction of the Discretionary Range of
substantive modifications to the System. EDGX Book has a Discretionary Range an order is consistent with the
and there is a contra-side order that is Exchange’s recently amended rules.15
Orders With a Discretionary Range and displayed by the System on the EDGX Specifically, the Exchange suspends the
Non-Displayed Orders Book within such Discretionary Range, discretion of an order subject to the
Pursuant to current Rule 11.6(d), the the order with a Discretionary Range Hide Not Slide 16 instruction for so long
Exchange defines a Discretionary Range will not be permitted to execute at the as a contra-side order that equals the
as an instruction the User 9 may attach price of or at a price more aggressive Locking Price 17 is displayed by the
to an order to buy (sell) a stated amount than such contra-side displayed order System on the EDGX Book. The
of a security at a specified, displayed unless and until there is no contra-side Exchange suspends this discretion to
price with discretion to execute up displayed order on the EDGX Book avoid an apparent priority issue. In
(down) to a specified, non-displayed within the Discretionary Range. In such particular, in such a situation the
price. For purposes of this proposal, the case, the order with a Discretionary Exchange believes a User representing
Exchange will use the term Range will have discretion to one an order that is displayed on the
‘‘Discretionary Range’’ to describe the Minimum Price Variation 13 below Exchange might believe that an
amount between the displayed price to (above) the contra-side offer (bid) that is incoming order was received by the
displayed by the System on the EDGX Exchange and then bypassed such
and including the highest price at which
Book. displayed order, removing some other
a buyer is willing to buy or lowest price
With respect to non-displayed contra- non-displayed liquidity on the same
at which a seller is willing to sell. The
side liquidity, the Exchange proposes to side of the market as such displayed
Exchange proposes to make clear that
make clear that if an order posted to the order. For the same reason, the
although an order with a Discretionary
EDGX Book has a Discretionary Range Exchange believes it is appropriate to
Range instruction may be accompanied
and there is a contra-side order with a prevent an order with a Discretionary
by a Displayed 10 instruction, an order
Non-Displayed instruction,14 the order Range instruction to execute at the same
with a Discretionary Range instruction
with a Discretionary Range will not be price or at a price more aggressive than
may also be accompanied by a Non-
permitted to execute at a price more a contra-side order that is displayed on
Displayed instruction, and if so, will
aggressive than the ranked price of such the EDGX Book. Similarly, although the
have a non-displayed ranked price as
contra-side order unless and until there Exchange believes it is appropriate to
well as a discretionary price. The
is no contra-side order on the EDGX permit an order with a Discretionary
Exchange further proposes to
Book within the Discretionary Range. In Range instruction to execute at the same
specifically state that resting orders with
such case, the order with a price as a contra-side order with a Non-
a Discretionary Range instruction will
Discretionary Range will have discretion Displayed instruction, the Exchange
be executed at a price that uses the
to the ranked price of the contra-side suspends such discretion at any more
minimum amount of discretion
offer (bid) with a Non-Displayed aggressive prices in order to avoid
necessary to execute the order against
instruction that is maintained by the trading through orders that have been
an incoming order. In addition, the
System on the EDGX Book. ranked on and are resting on the EDGX
Exchange proposes to make clear certain
Similarly, the Exchange proposes to Book. Below are examples of the
circumstances where the Discretionary
amend Rule 11.6(l)(3), which addresses operation of orders with a Discretionary
Range of an order is temporarily
re-pricing of orders with a Non- Range.
reduced due to contra-side interest
resting on the EDGX Book.11 Displayed instruction. As set forth in Example No. 1: Modification and
The Exchange also proposes to specify Rule 11.6(l)(3), an order with a Non- Reinstatement of Discretionary Range
certain situations where the Displayed instruction that is priced With a Displayed Contra-Side Order
Discretionary Range of an order is better than the midpoint of the NBBO Assume the NBBO is $10.00 by
temporarily reduced based on contra- will be ranked at the midpoint of the $10.10, that the best-priced order to buy
side interest resting on the Exchange. NBBO with discretion to execute to its in the System is a displayed bid at
The Exchange notes that it is possible limit price. The Exchange proposes to $9.99, and that the best-priced order to
for an order with a Discretionary Range add language stating that if a contra-side sell in the System is a displayed offer at
instruction have its Discretionary Range order is resting on the EDGX Book at the $10.11. A Limit Order 18 to buy 100
temporarily reduced based on contra- limit price within the Discretionary shares at $10.00 with a Discretionary
side interest resting on the Exchange Range, the order will be ranked at the Range of $0.05 is entered into the
because an incoming order with a Post mid-point of the NBBO but its System. The order will be displayed on
Only instruction 12 will be posted to the discretion to execute to its limit price the EDGX Book at $10.00 with
EDGX Book rather than executing will be temporarily reduced consistent discretion to execute up to $10.05. If a
against the Discretionary Range of a with the Discretionary Range definition Limit Order to sell 100 shares at $10.05
resting order. described above. with a Displayed instruction and a Post
Only instruction is entered into the
13 See Exchange Rule 11.6(i).
7 See Exchange Rule 11.6(d). System such order will be posted and
14 The Exchange notes that the reference to orders
8 See Exchange Rule 11.6(e)(2).
with a Non-Displayed instruction is intended to
displayed by the System on the EDGX
mstockstill on DSK4VPTVN1PROD with NOTICES

9 The term ‘‘User’’ is defined as ‘‘any Member or
apply to all orders that are not displayed on the Book as an order to sell 100 shares at
Sponsored Participant who is authorized to obtain Exchange, such as MidPoint Match Orders as $10.05. The buy order with the
access to the System pursuant to Rule 11.3.’’ See defined in Rule 11.8(d). The Exchange notes,
Exchange Rule 1.5(ee). Discretionary Range instruction will
however, that because neither MidPoint Match
10 See Exchange Rule 11.6(e)(1).
Orders nor orders with a Discretionary Range 15 See
11 The term ‘‘EDGX Book’’ is defined as ‘‘the
instruction (as described below) can be entered supra note 6.
16 See Exchange Rule 11.6(l)(1)(B).
System’s electronic file of orders.’’ See Exchange with a Post Only instruction, that the Rule is not
Rule 1.5(d). currently applicable to any orders other than Limit 17 See Exchange Rule 11.6(f).
12 See Exchange Rule 11.6(n)(4). Orders with a Non-Displayed instruction. 18 See Exchange Rule 11.8(b).

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12668 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices

have its discretion to execute at $10.05 is entered into the System such order $10.04. The buy order’s discretion to
temporarily suspended but such order will be posted by the System on the execute at $10.07 will be temporarily
will continue to have discretion to EDGX Book as an order to sell 100 suspended but such order will continue
execute up to $10.04. The following shares at $10.06. The buy order’s to have discretion to execute up to
examples demonstrate various potential discretion to execute at $10.07 will be $10.05. The following examples
outcomes following the temporary temporarily suspended but such order demonstrate various potential outcomes
suspension of the buy order’s discretion will continue to have discretion to following the temporary suspension of
to execute at $10.05. execute up to $10.06. The following the buy order’s discretion to execute at
• If a non-routable Limit Order to sell examples demonstrate various potential $10.07.
100 shares at $10.05 is entered into the outcomes following the temporary • If a non-routable Limit Order to sell
System, depending on applicable User suspension of the buy order’s discretion 100 shares at $10.07 with a Displayed
instructions, such order will either be to execute at $10.07. instruction is entered into the System,
posted and displayed by the System on • If a non-routable Limit Order to sell depending on applicable User
the EDGX Book as an order to sell 100 100 shares at $10.07 with a Displayed instructions, such order will be posted
shares (i.e., with priority behind the instruction is entered into the System, and displayed by the System on the
order to sell that is already displayed on depending on applicable User EDGX Book as an order to sell 100
the EDGX Book at $10.05) or will be instructions, such order will be posted shares at $10.07 or will be cancelled
cancelled back to the entering User. and displayed by the System on the back to the entering User.
• If, instead, a Limit Order to sell 100 EDGX Book as an order to sell 100 • If, instead, a Limit Order to sell 100
shares at $10.04 is entered into the shares at $10.07 or will be cancelled shares at $10.05 is entered into the
System, such order will execute at back to the entering User. System, such order will execute at
$10.04 against the resting buy order • If, instead, a Limit Order to sell 100 $10.05 against the resting buy order
with a Discretionary Range instruction. shares at $10.06 is entered into the with a Discretionary Range instruction.
• If, instead, a Limit Order to sell 100 System, such order will execute at • If, instead, a Limit Order to buy 100
shares at $10.02 is entered into the $10.06 against the resting buy order shares at $10.05 is entered into the
System, such order will execute at with a Discretionary Range instruction. System, such order will execute at
$10.02 against the resting buy order • If, instead, a Limit Order to sell 100 $10.05 against the resting sell order with
with a Discretionary Range instruction. shares at $10.02 is entered into the a Non-Displayed instruction and a Post
• If, instead, a Limit Order to sell 100 System, such order will execute at Only instruction (i.e., at the ranked
shares at $10.00 or lower or a Market $10.02 against the resting buy order price of such order).
Order to sell 100 shares is entered into with a Discretionary Range instruction. • If, instead, a Limit Order to sell 100
the System, such order will execute at • If, instead, a Limit Order to sell 100 shares at $10.04 is entered into the
$10.00 against the resting buy order shares at $10.00 or lower or a Market System, such order will execute at
with a Discretionary Range instruction. Order to sell 100 shares is entered into $10.04 against the resting buy order
• If, instead, the sell order at $10.05 the System, such order will execute at with a Discretionary Range instruction.
with a Post Only instruction is then $10.00 against the resting buy order • If, instead, a Limit Order to buy 100
canceled, the buy order with a with a Discretionary Range instruction. shares at $10.04 is entered into the
Discretionary Range instruction will • If, instead, the sell order with a System, such order will execute at
have its discretion to execute up to Non-Displayed instruction of 100 shares $10.04 against the resting sell order with
$10.05 reinstated. that is ranked at $10.06 is then a Non-Displayed instruction and a Post
• If, instead, a Limit Order to buy 100 canceled, the buy order with a Only instruction (i.e., using the
shares at $10.05 or higher or a Market Discretionary Range instruction will discretion of the resting sell order with
Order to buy 100 shares is then entered have its discretion to execute up to a Non-Displayed instruction to sell at
into the System, such order will execute $10.07 reinstated. the order’s limit price).
at $10.05 against the displayed order to • If, instead, a Limit Order to sell 100
Example No. 3: Modification and
sell with a Post Only instruction and the shares at $10.00 or lower or a Market
Reinstatement of Discretionary Range
buy order with a Discretionary Range Order to sell 100 shares is entered into
With a Non-Displayed Contra-Side
instruction will have its discretion to the System, such order will execute at
Order Priced More Aggressive Than the
execute up to $10.05 reinstated. $10.00 against the resting buy order
Midpoint of the NBBO
with a Discretionary Range instruction.
Example No. 2: Modification and Assume the NBBO is $10.00 by • If, instead, the sell order with a
Reinstatement of Discretionary Range $10.10, that the best-priced order to buy Non-Displayed instruction of 100 shares
With a Non-Displayed Contra-Side in the System is a displayed bid at that is ranked at $10.05 is then
Order Priced Less Aggressive Than the $9.99, and that the best-priced order to canceled, the buy order with a
Midpoint of the NBBO sell in the System is a displayed offer at Discretionary Range instruction will
Assume the NBBO is $10.00 by $10.11. A Limit Order with to buy 100 have its discretion to execute up to
$10.10, that the best-priced order to buy shares at $10.00 with a Discretionary $10.07 reinstated.
in the System is a displayed bid at Range of $0.07 is entered into the As the above examples demonstrate,
$9.99, and that the best-priced order to System. The order will be displayed on the Exchange prevents executions
sell in the System is a displayed offer at the EDGX Book at $10.00 with against the Discretionary Range of an
$10.11. A Limit Order with to buy 100 discretion to execute up to $10.07. If a order at or through the price of a resting
mstockstill on DSK4VPTVN1PROD with NOTICES

shares at $10.00 with a Discretionary Limit Order to sell 100 shares at $10.04 contra-side order with a Displayed
Range of $0.07 is entered into the with a Non-Displayed instruction and a instruction and through the price of a
System. The order will be ranked and Post Only instruction is entered into the resting contra-side order with a Non-
displayed on the EDGX Book at $10.00 System such order will be posted by the Displayed instruction (i.e., an execution
with discretion to execute up to $10.07. System on the EDGX Book as an order can occur at the ranked price of an order
If a Limit Order to sell 100 shares at to sell 100 shares at $10.05 (i.e., ranked with a Non-Displayed instruction but
$10.06 with a Non-Displayed at the midpoint of the NBBO, as not at a price that would be better than
instruction and a Post Only instruction described above) with discretion to such order’s ranked price). The

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Exchange does not, however, prevent Rule 11.8(b) so that it is no longer orders. The Exchange also proposes
executions against the Discretionary grouped with other orders that can be changes to Rule 11.9(a)(4) and (a)(5) to
Range of an order when there is a combined with a Post Only instruction. specify that orders retain and lose
contra-side order with a Discretionary The Exchange also proposes to state in ‘‘time’’ priority under certain
Range at or through that price same Rule 11.8(b) that: (i) A Limit Order with circumstances as opposed to priority
price. a Discretionary Range instruction may generally because retaining or losing
The Exchange’s handling of orders also include a Book Only instruction; price priority does not require the same
with a Discretionary Range instruction, and (ii) a Limit Order with a descriptions, as price priority will
including the discretion of an order Discretionary Range instruction and a always be retained unless the price of an
with a Non-Displayed instruction more Post Only instruction will be rejected. order changes.
aggressive than the midpoint of the Further, the Exchange proposes to refer Next, the Exchange proposes to move
NBBO to its limit price, is intended to to the ability of a Limit Order to include language contained within sub-
reflect the relatively passive nature of a Discretionary Range instruction, rather paragraph (a)(2) of Rule 11.10 to the
orders with a Discretionary Range. In all than a ‘‘User’’ that may include a main paragraph, paragraph (a), such that
cases, although the Users submitting Discretionary Range instruction. the language is more generally
such orders have indicated a applicable to the rules. Although sub-
willingness to execute at a more Priority and Execution Algorithm paragraph (a)(2) contains information
aggressive price, such orders are ranked With respect to the Exchange’s relevant to executability, in that it
at a lower price to buy or a higher price priority and execution algorithm, the describes orders that are executable in
to sell. In turn, if an order is executed Exchange is proposing various minor compliance with Regulation NMS or
at its ranked price, rather than at a price and structural to changes that are otherwise do not trade through
within the Discretionary Range, then the intended to emphasize the processes by quotations of other markets, there are
User that submitted the order receives a which orders are accepted, priced, other provisions set forth in paragraph
better result in each case (i.e., buys for ranked, displayed and executed, as well (a) that relate to executability.
less or sells for more). With this as a new provision related to the ability Accordingly, the Exchange proposes to
background, the Exchange believes it is of orders to rest at locking prices that is relocate language stating that any order
reasonable that an order with a consistent with the changes to falling within the parameters of this
Discretionary Range instruction or a provisions related to the operation of paragraph shall be referred to as
Non-Displayed instruction might orders with a Discretionary Range ‘‘executable’’ and that an order will be
temporarily become not executable at instruction described above. First, the cancelled back to the User, if based on
certain prices because such prices are Exchange has proposed modifications to market conditions, User instructions,
more aggressive than their ranked price Rule 11.9, Priority of Orders, to make applicable Exchange Rules and/or the
(i.e., higher prices for orders to buy or clear that the ranking of orders Act and the rules and regulations
lower prices for orders to sell). Further, described in such rule is in turn thereunder, such order is not
to the extent a User would prefer an dependent on Exchange rules related to executable, cannot be routed to another
execution at more aggressive price the execution of orders, primarily Rule Trading Center pursuant to Rule 11.11
levels, such User could simply choose 11.10. The Exchange believes that this or cannot be posted to the EDGX Book.
other order type instructions that would has always been the case under The Exchange proposes to adopt
increase the likelihood of execution at Exchange rules but there was not paragraph (C) of Rule 11.10(a)(4) to
these prices (e.g., a routable order rather previously a description of the cross- provide further clarity regarding the
than a non-routable order, an order that reference to Rule 11.10 within such situations where orders are not
is ranked at its full price rather than an rules. Accordingly, the Exchange executable, which although covered in
order ranked at a less aggressive price other existing rules, would focus on the
proposes to add reference to the
with a Discretionary Range, or an order incoming order on the same side of an
execution process in addition to the
with a Displayed instruction rather than order displayed on the EDGX Book
numeric cross-reference to Rule 11.10.19
an order with a Non-Displayed rather than the resting order that is
The Exchange also proposes to change
instruction). rendered not executable because it is
certain references within Rule 11.9 to
In addition to the changes described opposite such order displayed on the
refer to ranking rather than executing
above, the Exchange proposes to re- EDGX Book. Proposed paragraph (C)
equally priced trading interest, as the
locate within Rule 11.8(b) and re-word would further state that if an incoming
Rule as a whole is intended to describe
the statement regarding the inclusion of order is on the same side of the market
the manner in which resting orders are as an order displayed on the EDGX Book
a Discretionary Range on a Limit Order.
Current Rule 11.8(b)(8) currently states ranked and maintained, specifically in and upon entry would execute against
that a ‘‘User may include a price and time priority, while awaiting contra-side interest at the same price as
Discretionary Range instruction.’’ This execution against incoming orders. The such displayed order, such incoming
ability to include a Discretionary Range Exchange does not believe that the order will be cancelled or posted to the
instruction on a Limit Order is currently proposed modifications substantively EDGX Book and ranked in accordance
grouped with other functionality that modify the operation of the rules but the with Rule 11.9. As described above, the
can be elected for Limit Orders that also Exchange believes that it is important to Exchange suspends the discretion of an
include a Post Only or Book Only make clear that the ranking of orders is order subject to the Hide Not Slide
instruction as well as specified time-in- a separate process from the execution of instruction for so long as a contra-side
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force instructions for orders that can be 19 The Exchange notes that it recently filed an
order that equals the Locking Price is
entered into the System and post to the immediately effective proposal containing marking
displayed by the System on the EDGX
EDGX Book. However, the System does errors with respect to the rule text proposed for sub- Book. Similarly, as proposed to be
not allow the combination of a paragraphs (a)(2), (a)(2)(A) and (a)(2)(B). See added to EDGX Rules, the Exchange
Discretionary Range and a Post Only Securities Exchange Act Release No. 74023 (January temporarily suspends the ability of an
9, 2015), 80 FR 2163 (January 15, 2015) (SR–EDGX–
instruction. Accordingly, the Exchange 2015–03). Accordingly, the Exchange has correctly
order to execute at the same price as a
proposes to re-locate the reference to the marked the change in connection with this contra-side displayed order for any
Discretionary Range instruction within proposal. order with a Discretionary Range

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12670 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices

instruction or any order with a Non- $10.01 against the resting sell order open market and a national market
Displayed instruction that has been re- displayed on the EDGX Book, as such system, to foster cooperation and
priced to the midpoint of the NBBO resting order is fully executable and coordination with persons engaged in
pursuant to Exchange rules. The displayed as an offer on the EDGX Book. facilitating transactions in securities,
Exchange temporarily suspends this The Exchange notes that it is and, in general, to protect investors and
discretion to avoid an apparent priority proposing to add descriptive titles to the public interest. The proposed rule
issue where a User representing an paragraphs (A) and (B) of Rule changes are also designed to support the
order that is displayed on the Exchange 11.10(a)(4), which describe the process principles of Section 11A(a)(1) 23 of the
either believes such order has time by which executable orders are matched Act in that they seek to assure fair
priority among displayed orders at that within the System. Specifically, so long competition among brokers and dealers
price or that the displayed order is the as it is otherwise executable, an and among exchange markets.
only order at such price level and then incoming order to buy will be Specifically, the Exchange also
sees an execution published by the automatically executed to the extent believes that the changes to provide
Exchange at that price. that it is priced at an amount that equals additional clarity and specificity
To demonstrate the functionality in or exceeds any order to sell in the EDGX regarding the functionality of the
place on the Exchange described above, Book and an incoming order to sell will System with respect to an order with a
assume the NBBO is $10.00 by $10.01. be automatically executed to the extent Discretionary Range instruction and an
A non-routable Limit Order to buy 100 that it is priced at an amount that equals order with a Non-Displayed instruction
shares at $10.01 with a Hide Not Slide or is less than any other order to buy in that has discretion pursuant to the
instruction is entered into the System. the EDGX Book. These rules further Exchange’s re-pricing process would
The order will be displayed on the state that an order to buy shall be promote just and equitable principles of
EDGX Book at $10.00 and ranked at executed at the price(s) of the lowest trade and remove impediments to a free
$10.005 with discretion to $10.01. If a order(s) to sell having priority in the and open market by providing greater
Limit Order to sell 100 shares at $10.01 EDGX Book and an order to sell shall be transparency concerning the operation
with a Displayed instruction and a Post executed at the price(s) of the highest of the System. The Exchange also
Only instruction is entered into the order(s) to buy having priority in the believes that the proposed amendments
System such order will be posted and EDGX Book. The Exchange emphasizes to clarify and re-structure the
displayed by the System on the EDGX these current rules only insofar as to Exchange’s priority, execution and
Book as an order to sell 100 shares at highlight the interconnected nature of routing rules will contribute to the
$10.01. The buy order with the Hide Not the priority rule. protection of investors and the public
Slide instruction will have its discretion The Exchange also proposes to modify interest by making the Exchange’s rules
to execute at $10.01 temporarily paragraph (h) of Rule 11.11 to clarify the easier to understand. Further, the
suspended but such order will continue Exchange’s rule regarding the priority of Exchange believes that it is consistent
to be ranked at $10.005. The following routed orders. Paragraph (h) currently with the Act to temporarily reduce the
examples demonstrate various potential sets forth the proposition that a routed Discretionary Range of an order that has
outcomes following the temporary order does not retain priority on the been posted to the EDGX Book for so
suspension of the buy order’s discretion Exchange while it is being routed to long as there is contra-side liquidity on
to execute at $10.01. other markets. The Exchange believes the EDGX Book because this
• If a non-routable Limit Order to sell that its proposed clarification to functionality prevents an apparent
100 shares at $10.01 is entered into the paragraph (h) is appropriate because it priority issue on the EDGX Book as
System, depending on applicable User more clearly states that a routed order described above as well as the ability of
instructions, such order will either be is not ranked and maintained in the an order to execute at a price that trades
posted and displayed by the System on EDGX Book pursuant to Rule 11.9(a), through the ranked price of an order
the EDGX Book as an order to sell 100 and therefore is not available to execute resting on the EDGX Book. The
shares (i.e., with priority behind the against incoming orders pursuant to Exchange reiterates that such behavior,
order to sell that is already displayed on Rule 11.10. as described above, is temporary in
the EDGX Book at $10.01) or will be nature; an order’s full Discretionary
2. Statutory Basis Range will be returned as soon as the
cancelled back to the entering User.
• If, instead, a Limit Order to sell 100 The Exchange believes that the contra-side liquidity that caused the
shares at $10.00 is entered into the proposed rule changes are consistent reduction in the first place is no longer
System, such order will execute at with Section 6(b) of the Securities maintained on the EDGX Book. The
$10.005 against the resting buy order Exchange Act of 1934 (the ‘‘Act’’) 21 and Exchange believes that its overall
with a Hide Not Slide instruction. further the objectives of Section 6(b)(5) handling of orders, including the
• If, instead, a Limit Order to buy 100 of the Act 22 because they are designed temporary suspension of the ability of
shares at $10.01 or higher or a Market to promote just and equitable principles an order with a Discretionary Range to
Order to buy 100 shares is entered into of trade, to remove impediments to and execute at one or more prices is
the System,20 such order will execute at perfect the mechanism of a free and consistent with the Act because it
removes impediments to and perfects
20 The Exchange notes that an incoming order for or any other type of incoming Limit Order to buy the mechanism of a free and open
purposes of comparison to a resting order can be that is executable at $10.01. Thus, this example market and a national market system by
any incoming order unless the terms of that demonstrates that on entry the incoming order is reflecting the relatively passive nature
incoming order itself preclude execution. In this compared to contra-side orders on the EDGX Book
mstockstill on DSK4VPTVN1PROD with NOTICES

regardless of the modifiers that will determine how of an order with a Discretionary Range
example, a Limit Order to buy 100 shares at $10.01
that executes against the order to sell displayed at it will be displayed, ranked or otherwise handled instruction while honoring the
$10.01 on the EDGX Book could be a Limit Order by the System and that unless the ability of an order instructions of a User submitting a
with a Displayed instruction, a Limit Order with a to execute has been suspended based on the contra-side order that does not remove
Non-Displayed instruction, a Limit Order with a Exchange’s rules, the resting contra-side order with
priority at that price will be executed against the liquidity on entry. As explained above,
Hide Not Slide instruction, a Limit Order with a
Price Adjust instruction, a routable Limit Order, a incoming order. the Exchange’s handling of orders with
21 15 U.S.C. 78f(b).
non-routable Limit Order, an order with a Limit
Price of $10.00 and a Discretionary Range of $0.01, 22 15 U.S.C. 78f(b)(5). 23 15 U.S. C. 78k–1(a)(1).

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Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 12671

a Discretionary Range instruction, to determine whether the proposed rule For the Commission, by the Division of
including the discretion of an order change should be disapproved. Trading and Markets, pursuant to delegated
with a Non-Displayed instruction more authority.24
aggressive than the midpoint of the IV. Solicitation of Comments Brent J. Fields,
NBBO to its limit price, is intended to Secretary.
Interested persons are invited to
reflect the relatively passive nature of submit written data, views, and [FR Doc. 2015–05485 Filed 3–9–15; 8:45 am]
orders with a Discretionary Range. The arguments concerning the foregoing, BILLING CODE 8011–01–P
Exchange believes it is reasonable that including whether the proposed rule
an order with a Discretionary Range change, as modified by Amendment No.
instruction or a Non-Displayed SECURITIES AND EXCHANGE
1, is consistent with the Act. Comments COMMISSION
instruction might temporarily become
may be submitted by any of the
not executable at certain prices because [Release No. 34–74438; File No. SR–CBOE–
following methods:
such prices are more aggressive than 2015–022]
their ranked price (i.e., higher prices for Electronic Comments
orders to buy or lower prices for orders Self-Regulatory Organizations;
to sell). Further, to the extent a User • Use the Commission’s Internet Chicago Board Options Exchange,
would prefer an execution at more comment form (http://www.sec.gov/ Incorporated; Notice of Filing of a
aggressive price levels, such User could rules/sro.shtml); or Proposed Rule Change Related to
simply choose other order type • Send an email to rule-comments@ Equipment and Communication on the
instructions that would increase the sec.gov. Please include File Number SR– Exchange’s Trading Floor
likelihood of execution at these prices. EDGX–2015–08 on the subject line. March 4, 2015.
Finally, the Exchange believes that its
proposal to re-locate and re-word the Paper Comments Pursuant to Section 19(b)(1) of the
Discretionary Range instruction Securities Exchange Act of 1934 (the
reference within Rule 11.8(b), related to • Send paper comments in triplicate ‘‘Act’’),1 and Rule 19b–4 thereunder,2
Limit Orders, is consistent with the Act to Brent J. Fields, Secretary, Securities notice is hereby given that on February
because the change will correct an error and Exchange Commission, 100 F Street 20, 2015, Chicago Board Options
within the Exchange’s rules and prevent NE., Washington, DC 20549–1090. Exchange, Incorporated (the ‘‘Exchange’’
potential confusion regarding the ability or ‘‘CBOE’’) filed with the Securities
All submissions should refer to File and Exchange Commission (the
to combine a Discretionary Range Number SR–EDGX–2015–08. This file
instruction with a Post Only instruction. ‘‘Commission’’) the proposed rule
number should be included on the change as described in Items I, II, and
B. Self-Regulatory Organization’s subject line if email is used. To help the III below, which Items have been
Statement on Burden on Competition Commission process and review your prepared by the Exchange. The
comments more efficiently, please use Commission is publishing this notice to
The Exchange does not believe that only one method. The Commission will solicit comments on the proposed rule
the proposed rule changes will result in post all comments on the Commission’s change from interested persons.
any burden on competition that is not Internet Web site (http://www.sec.gov/
necessary or appropriate in furtherance rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s
of the purposes of the Act. The submission, all subsequent Statement of the Terms of the Substance
proposed rule changes are not designed amendments, all written statements of the Proposed Rule Change
to address any competitive issue but with respect to the proposed rule The Exchange seeks to amend its rules
rather to add specificity and clarity to change that are filed with the related to equipment and
Exchange rules, thus providing greater Commission, and all written communication on the Exchange’s
transparency regarding the operation of trading floor
communications relating to the
the System.
proposed rule change between the (additions are italicized; deletions are
C. Self-Regulatory Organization’s Commission and any person, other than [bracketed])
Statement on Comments on the those that may be withheld from the * * * * *
Proposed Rule Change Received From public in accordance with the
Members, Participants, or Others provisions of 5 U.S.C. 552, will be Chicago Board Options Exchange,
available for Web site viewing and Incorporated Rules
The Exchange has neither solicited
printing in the Commission’s Public * * * * *
nor received written comments on the
Reference Room, 100 F Street NE., Rule 6.23. [Trading Permit Holder Wires
proposed rule changes.
Washington, DC 20549, on official From Floor] Equipment and
III. Date of Effectiveness of the business days between the hours of Communications on the Trading Floor
Proposed Rule Change and Timing for 10:00 a.m. and 3:00 p.m. Copies of the
Commission Action filing also will be available for (a) Subject to the requirements of this
inspection and copying at the principal Rule Trading Permit Holders may use
Within 45 days of the date of any communication device (e.g., any
publication of this notice in the Federal office of the Exchange. All comments
received will be posted without change; hardware or software related to a phone,
Register or within such longer period (i) system or other device, including an
the Commission does not edit personal
mstockstill on DSK4VPTVN1PROD with NOTICES

as the Commission may designate up to instant messaging system, email system
90 days of such date if it finds such identifying information from
submissions. You should submit only or similar device) on the floor of the
longer period to be appropriate and Exchange and in any trading crowd of
publishes its reasons for so finding or information that you wish to make
the Exchange. The Exchange reserves
(ii) as to which the Exchange consents, available publicly. All submissions
the Commission will: (a) By order should refer to File Number SR–EDGX– 24 17 CFR 200.30–3(a)(12).
approve or disapprove such proposed 2015–08 and should be submitted on or 1 15 U.S.C. 78s(b)(1).
rule change, or (b) institute proceedings before March 31, 2015. 2 17 CFR 240.19b–4.

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Document Created: 2018-02-21 09:34:59
Document Modified: 2018-02-21 09:34:59
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 12666