80 FR 46620 - Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Exchange Rule 11.21, Short Sales, To Describe the Exchange's Implementation of Rule 201 of Regulation SHO Under the Securities Exchange Act of 1934 and Relocate Certain Text From Rule 11.11, Orders and Modifiers; and Amending Rule 13.2 To Incorporate by Reference Rules 200, 203 and 204 of Regulation SHO

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 150 (August 5, 2015)

Page Range		46620-46625
FR Document		2015-19124
Federal Register, Volume 80 Issue 150 (Wednesday, August 5, 2015)
[Federal Register Volume 80, Number 150 (Wednesday, August 5, 2015)]
[Notices]
[Pages 46620-46625]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-19124]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75554; File No. SR-NSX-2015-04]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 11.21, Short Sales, To Describe the Exchange's 
Implementation of Rule 201 of Regulation SHO Under the Securities 
Exchange Act of 1934 and Relocate Certain Text From Rule 11.11, Orders 
and Modifiers; and Amending Rule 13.2 To Incorporate by Reference Rules 
200, 203 and 204 of Regulation SHO

July 30, 2015.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Exchange Act'' or ``Act'') \1\ and Rule 
19b-4 thereunder,\2\ notice is hereby given that on July 17, 2015, 
National Stock Exchange, Inc. (``NSX[supreg]'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change, as described in Items I, II, and III below, 
which Items have been substantially prepared by the Exchange. The 
Commission is publishing this notice 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.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend Exchange Rule 11.21, Short 
Sales, in order to describe the manner in which the Exchange's trading 
system (the ``System'') \3\ handles sell short orders under the 
provisions of Rule 201 of Regulation SHO (``Rule 201'') pursuant to the 
Act.\4\ The Exchange also proposes to relocate to Rule 11.21 certain 
short sale-related rule text currently in Rule 11.1, Orders and 
Modifiers, and to amend Rule 13.2, Failure to Deliver and Failure to 
Receive, to delete the existing text and incorporate by reference Rules 
200, 203 and 204 of Regulation SHO.\5\ The Exchange has designated this 
rule proposal as ``non-controversial'' pursuant to Section 19(b)(3)(A) 
of the Act \6\ and provided the Commission with the notice required by 
Rule 19b-4(f)(6)(iii) under the Act.\7\
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    \3\ Exchange Rule 1.5, Definitions, defines the ``System'' as 
``. . . the electronic securities communications and trading 
facility . . . through which orders of Users are consolidated for 
ranking and execution.''
    \4\ 17 CFR 242.201. See Securities Exchange Act Release No. 
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010) (``Rule 201 
Adopting Release'') and Securities Exchange Act Release No. 63247 
(Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). See also Division of 
Trading and Markets: Responses to Frequently Asked Questions 
Concerning Rule 201 of Regulation SHO, January 20, 2011, at http://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm (``Rule 201 
FAQs'').
    \5\ 17 CFR 242.200, 17 CFR 242.203 and 17 CFR 242.204.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
Web site at www.nsx.com, at the Exchange's principal office, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the rule changes proposed by the Exchange is to 
provide transparency for Exchange Equity Trading Permit (``ETP'') 
Holders,\8\ their customers, and the investing public into the 
operation of the System in accordance with Rule 201.\9\ The proposed 
rule amendments will: (i) Consolidate the Exchange's short sale rules 
into a single rule set and make amendments that will further enhance 
the transparency of the Exchange's rules; (ii) clarify the System's 
operation regarding the handling of a ``resting'' sell short Market Peg 
Zero Display Reserve Order under Rule 201; \10\ (iii) specify the 
obligations of ETP Holders with respect to marking sell short orders 
entered into the System; and (iv) amend Rule 13.2, Failure to Deliver 
and Failure to Receive, to delete the existing text and incorporate by 
reference Rules 200, 203 and 204 of Regulation SHO pursuant to the 
Act.\11\
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    \8\ As defined in Exchange Rule 1.5, the term ``ETP'' refers to 
an Equity Trading Permit issued by the Exchange for effecting 
approved securities transactions on the Exchange's facilities.
    \9\ Pursuant to Interpretations and Policies .01 (Cessation of 
Trading Operations on NSX) under Exchange Rule 11.1 (Hours of 
Trading), the Exchange ceased operating its marketplace for the 
trading of equity securities as of the close of business on May 30, 
2014. See Securities Exchange Act Release No. 72107 (May 6, 2014), 
79 FR 27017 (May 12, 2014) (SR-NSX-2014-14). The Exchange is filing 
this proposed rule change in anticipation of the resumption of 
trading activity on the System, after all necessary regulatory 
approvals have been obtained.
    \10\ Exchange Rule 11.11(c)(2)(A) defines a Zero Display Reserve 
Order as a Reserve Order with a Zero Display Quantity and a Market 
Peg Zero Display Reserve Order as a pegged Zero Display Order that 
tracks the inside quote on the opposite side of the market.
    \11\ See footnote 5, supra.
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    Rule 201(b)(1)(i) requires that trading centers such as the 
Exchange establish, maintain and enforce written policies and 
procedures reasonably designed to prevent the execution or display of a 
short sale order of a covered security at a price that is less than or 
equal to the current national best bid if the price of that covered 
security decreases by 10% or more from such security's closing price on 
the listing market at the close of regular trading hours on the prior 
day (the ``Short Sale Price Test''). Rule 201(b)(1)(ii) requires that 
trading centers establish, maintain and enforce written policies and 
procedures reasonably designed to impose the Short Sale Price Test for 
the remainder of the trading day and the following day, when a national 
best bid for the security is calculated and disseminated on a current 
and continuing basis by a plan processor pursuant to an effective 
national market system plan (the ``Short Sale Price Test Period'').\12\
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    \12\ 17 CFR 242.201(b)(1).
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    Rule 201(b)(1)(iii)(A) \13\ provides that a trading center's 
written policies and procedures must be reasonably designed to permit 
the execution of a displayed short sale order of a covered security

[[Page 46621]]

during the Short Sale Price Test Period if, at the time of initial 
display of the short sale order, the order was at a price above the 
current national best bid. Further, Rule 201(b)(1)(iii)(B) requires 
that such policies and procedures must be reasonably designed to permit 
the execution of a short sale order of a covered security marked 
``short exempt'' during the Short Sale Price Test Period without regard 
to whether the order is at a price that is less than or equal to the 
current national best bid.
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    \13\ 17 CFR 242.201(b)(1)(iii)(A).
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Amendments of Exchange Rule 11.21
    The Exchange states that, consistent with its obligations as a 
trading center under Rule 201, it implemented, maintains and enforces 
written policies and procedures and System functionality reasonably 
designed to prevent the execution or display of a sell short order of a 
covered security subject to the Short Sale Price Test at a price equal 
to or below the current national best bid. The Exchange's written 
policies and procedures and the System functionality are also 
reasonably designed to: (i) Permit the execution of a displayed short 
sale order in a covered security that would otherwise be subject to the 
Short Sale Price Test if, at the time of initial display of the short 
sale order, the order was at a price above the current national best 
bid; and (ii) permit the execution or display of a short sale order in 
a covered security marked ``short exempt'' without regard to whether 
the order is at a price that is less than or equal to the current 
national best bid.\14\
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    \14\ 17 CFR 242.201(b)(1)(iii)(B). Rule 200(g)(2), 17 CFR 
242.200(g), provides that a sell order may be marked ``short 
exempt'' only if the provisions of Rules 201(c) or 201(d) are met. 
With respect to Rule 201(d), in order to mark an order ``short 
exempt'' a broker or dealer must have a reasonable basis for 
believing that the order meets one of the exceptions specified in 
Rule 201(d)(1) through (d)(7). With respect to Rule 201(c), in order 
to mark an order ``short exempt'' the order must be entered during 
the Short Sale Price Test Period and meet the conditions specified 
in Rule 201(c). 17 CFR 242.201(d); 17 CFR 242.201(c).
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    The Exchange is proposing to amend Rule 11.21 to add provisions 
regarding the operation of the System in handling short sale orders 
under Rule 201 in the event the Short Sale Price Test is triggered and 
such provisions will be part of the written policies and procedures of 
the Exchange. The Exchange states that it is proposing these amendments 
to enhance transparency in its rules and to make explicit the 
obligations of ETP Holders in ensuring that sell short orders entered 
into the System are properly marked as ``short'' or ``short exempt,'' 
and the Exchange's expectations in that regard.
    In proposed new paragraph (a) of Rule 11.21, the Exchange defines 
the terms ``covered security,'' ``national best bid,'' and ``listing 
market'' for purposes of Rule 11.21 as having the same meaning as the 
corresponding definitional section of Rule 201 \15\ and applies the 
definitions with respect to all of the proposed changes to Rule 11.21.
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    \15\ See 17 CFR 242.201(a).
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    In proposed new paragraph (b) of Rule 11.21, the Exchange 
explicitly states that ETP Holders are required to mark sell orders 
entered into the System as ``long,'' ``short,'' or ``short exempt'' as 
required by Rule 200(g) of Regulation SHO. Additionally, the Exchange 
makes clear in paragraph (b) that it relies on the marking of an order 
as ``short exempt'' when it receives such an order and it is the 
responsibility of the ETP Holder entering the order, and not the 
Exchange's responsibility, to comply with the requirements of 
Regulation SHO relating to the marking of orders as ``short exempt.'' 
The Exchange believes that, by explicitly stating these requirements as 
part of the proposed amendments to Rule 11.21, it will enhance the 
transparency and comprehensiveness of the Exchange's rules and provide 
ETP Holders with a clear statement of their order marking 
responsibilities with respect to sell short orders.
    In that regard, Interpretations and Policies .01 of Rule 11.21, as 
proposed, explicitly states that NSX Securities, LLC (``NSXS''), an 
Exchange-affiliated broker-dealer with the sole function of acting as 
the outbound routing facility of the Exchange, relies on an ETP 
Holder's marking of an order as ``long,'' ``short'' or ``short 
exempt.'' \16\ NSXS will route an order received by NSX marked ``short 
exempt'' during the Short Sale Price Test Period without independently 
evaluating the correctness of the ``short exempt'' marking under 
Regulation SHO Rules 201(c) and (d).\17\
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    \16\ Under Rule 2.11, NSXS functions solely as the Exchange's 
outbound routing facility. NSXS is not an execution venue.
    \17\ See Reg. SHO FAQs, Question and Answer 5.3.
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    In proposed new paragraph (c) of Rule 11.21, the Exchange states 
that, except as provided in subparagraphs (c)(1) and (c)(2) of the rule 
(which, as discussed below, pertain to the two exceptions permitting 
execution and display of sell short orders of a covered security during 
the Short Sale Price Test Period), the System will not execute, 
display, or route a sell short order in a covered security at a price 
that is less than or equal to the current national best bid if the 
price of that security decreases by 10 percent or more from the 
security's closing price as determined by the listing market for the 
covered security as of the end of regular trading hours on the prior 
day. Proposed new subparagraph (c)(1) states that the System will 
execute and display a short sale order during the Short Sale Price Test 
Period without regard to price if, at the time of initial display of 
the short sale order, the order was at a price above the current 
national best bid.
    The Exchange also proposes to state in new subparagraph (c)(1) that 
the ``initial display'' of the short sale order includes the initial 
display through the facilities of a securities information processor 
(``SIP'') or through the Exchange's proprietary market data feed.\18\ 
The Exchange believes that it is important to define ``initial 
display'' in Rule 11.21(c)(1) as including both display through the SIP 
and the Exchanges' proprietary market data feed so as to make explicit 
that the Exchange will use of both forms of display in determining 
whether a particular short sale order of a covered security qualifies 
for the exception under Rule 201(b)(1)(iii)(A).
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    \18\ The Exchange's proprietary market data feed, called the 
``NSX Depth of Book Feed,'' was made available on a uniform basis to 
all ETP Holders authorized to receive the feed, as well as to any 
other authorized recipients. The Exchange does not anticipate making 
any changes to the availability of the NSX Depth of Book Feed upon 
the resumption of trading on the Exchange.
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    In proposed Rule 11.21(c)(2), the Exchange states that the System 
will execute, display and route a short sale order marked ``short 
exempt'' during the Short Sale Price Test Period without regard to 
whether the short sale order is at a price above the national best 
bid.\19\ Proposed Rule 11.21(d) provides that a Short Sale Price Test 
triggered by the listing market will remain in effect for the remainder 
of the trading day on which it is triggered through the close of 
regular trading on the next trading day, when a national best bid for 
the security is calculated and disseminated on a current and continuing 
basis by a plan processor pursuant to an effective national market 
system plan.\20\
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    \19\ See 17 CFR 242.201(b)(1)(iii)(B).
    \20\ See footnote 12, supra.
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    The Exchange further proposes in Rule 11.21(e) to state that, when 
the Short Sale Price Test is in effect with respect to a covered 
security, the System will evaluate all incoming sell short orders in 
that security that are not marked ``short exempt'' to determine whether 
the order can be executed or displayed at a price above the current 
national best bid. A sell short order in a covered security ``resting'' 
on the NSX

[[Page 46622]]

Book will be evaluated by the System if matched for execution during 
the Short Sale Price Test Period and, unless the order was initially 
displayed at a price above the current national best bid, will be 
canceled if at a price equal to or below the current national best bid. 
The Exchange believes that including this provision in Rule 11.21 will 
enhance clarity and transparency regarding the Exchange's policies, 
procedures, and System controls reasonably designed to comply with Rule 
201.
    Further to the goal of enhancing transparency in the rules 
regarding the operation of the System, the Exchange is also proposing 
in new subparagraphs (f)(1) through (f)(9) of Rule 11.21 to describe 
the operation of the System during the Short Sale Price Test Period 
with respect to specific order types that are not marked ``short 
exempt,'' as follows:
    Market and Limit Order. A sell short market or limit order will be 
matched by the System for execution at a price above the current 
national best bid and, if a limit order, within the limit price of the 
sell short order. Any remaining unfilled portion will be canceled 
unless, in the case of a limit order, the limit price of the remaining 
shares is above the current national best bid; the unfilled portion of 
such a limit order will remain on the NSX Book but will not execute 
unless at a price above the current national best bid in accordance 
with Rule 201(b)(1) of Regulation SHO.
    Odd Lot and Mixed Lot Order. A sell short odd lot order and a mixed 
lot order, which is an order consisting of one or more round lots 
combined with a number of shares constituting an odd lot,\21\ will be 
rejected if entered at a price equal to or below the current national 
best bid. Odd lot orders aggregated to form a round lot and initially 
displayed at a price above the current national best bid, or a mixed 
lot order initially displayed at a price above the current national 
best bid, will be eligible for execution at a price equal to or below 
the national best bid in accordance with Rule 201(b)(1)(iii)(A) of 
Regulation SHO.
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    \21\ See Rule 11.11(c)(3) and (c)(4).
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    Immediate or Cancel (``IOC'') Order. As defined in Rule 
11.11(b)(1), an IOC order is a limit order that is to be executed in 
whole or in part as soon as such order is received by the System and 
any portion not so executed is treated as canceled. A sell short IOC 
order will, upon entry, be matched by the System for execution at a 
price above the current national best bid and any remaining unfilled 
portion will be canceled.
    Midpoint-Seeker Order. A Midpoint-Seeker Order, which is an IOC 
order that executes only against undisplayed orders priced at the 
midpoint of the protected bid and protected offer,\22\ when marked 
``sell short'' will, upon entry, be matched by the System for execution 
at a price above the current national best bid and any remaining 
unfilled portion will be canceled.
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    \22\ See Rule 11.11(c)(13).
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    Reserve Order. A Reserve Order is defined in Rule 11.11(c)(2) as 
``[a] limit order with a portion of the quantity displayed (``display 
quantity'') and with a reserve portion of the quantity (``reserve 
quantity'') that is not displayed.'' A sell short Reserve Order will be 
rejected by the System if it is entered at a price equal to or below 
the current national best bid. A sell short Reserve Order that was 
initially displayed at a price above the current national best bid may 
execute at a price equal to or below the current national best bid 
during a Short Sale Price Test Period, up to the full size of the order 
(including any reserve quantity).\23\
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    \23\ Pursuant to Rule 11.14, Priority of Orders, Interpretations 
and Policies .01, the use of a ``Replace Message'' to modify the 
quantity of a Reserve Order will result in a new timestamp and the 
order losing time priority on the NSX Book unless (i) both the 
display size of the Reserve Order is decreased and the total order 
quantity is decreased or remains the same; or (ii) both the display 
size of the Reserve Order remains the same and the total order 
quantity is decreased.
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    Post Only Order,\24\ NSX Only Order \25\ and Destination Specific 
Order.\26\ Sell short orders in these order types will be rejected if 
entered at a price equal to or below the current national best bid.
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    \24\ Rule 11.11(c)(5) defines a Post Only Order as ``[a] limit 
order that is to be posted on the Exchange and not routed away to 
another trading center.''
    \25\ Rule 11.11(c)(6) defines an NSX Only Order as ``[a]n order 
that is to be executed on the Exchange pursuant to Rule 11.15(a) or 
[canceled], without routing away to another trading center.''
    \26\ Rule 11.11(c)(9) defines a Destination Specific Order as 
``[a] market or limit order that instructs the System to route the 
order to a specified away trading center, after exposing the order 
to the NSX Book . . . .''
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    Sweep Order, Destination Sweep Order,\27\ Intermarket Sweep 
(``ISO'') and Post-ISO Order.\28\ A sell short Sweep Order, Destination 
Sweep Order, ISO and Post-ISO will be rejected by the System if entered 
at a price equal to or below the current national best bid. If entered 
at a price above the current national best bid, such sell short orders 
will be accepted by the System and eligible for execution. If an ISO is 
marked ``IOC,'' any remaining unfilled portion will be canceled. The 
unfilled portion of ISO orders not marked ``IOC'' and Post-ISO orders 
will be entered on the NSX Book if at a price above the national best 
bid. A Post ISO order that was not initially displayed at a price above 
the national best bid will be canceled if matched by the System for 
execution at a price equal to or below the national best bid.
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    \27\ A Sweep Order is defined in Rule 11.11(c)(7) as ``[a] limit 
order that instructs the System to `sweep' the market.'' The rule 
provides for several types of sweep orders, specifically a 
``Protected Sweep Order,'' a ``Full Sweep Order'' and a 
``Destination Sweep Order.'' For purposes of System functionality 
during the Short Sale Price Test Period, all of such Sweep Order 
types are treated in the same manner.
    \28\ ISO is defined in Rule 600(b)(30) of Regulation NMS 
pursuant to the Exchange Act, 17 CFR 242.600(b)(30). Rule 
11.11(c)(8)(ii) provides that an ISO order may be designated as a 
``Post-ISO'' when entered into the System, and the use of such 
designation constitutes a representation that the entering ETP 
Holder has simultaneously routed one or more additional limit orders 
marked ``ISO'' as necessary to away markets to execute against the 
full displayed size of any protected quotation with a price that is 
superior or equal to the price of the Post ISO entered on NSX. If 
these requirements are met, the Post ISO will be executed by 
sweeping the NSX Book up to and including the order's limit price, 
without regard to protected quotations at away markets.
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    Cancel/Replacement of Orders. As proposed in new paragraph (g) of 
Rule 11.21, a cancel/replace request will be rejected by the System if: 
(i) The limit price on the replacement sell short order is equal to or 
below the current national best bid; or (ii) if the original limit 
price of the sell short order is equal to or below the current national 
best bid and the cancel/replace message seeks to increase the order 
size.\29\
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    \29\ See footnote 23, supra.
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    To summarize, the Exchange believes that the proposed amendments to 
Rule 11.21 to describe with greater particularity the handling of 
specific order types during the Short Sale Price Test Period will 
further contribute to clarity and transparency in the Exchange's rules, 
which will operate to the benefit of ETP Holders and their customers 
and market participants generally.
Proposed Amendments Regarding Sell Short Market Peg Zero Display 
Reserve Orders
    The Exchange is proposing to amend Rule 11.11, subparagraphs 
(c)(2)(E)(i)-(iii) regarding the System's handling of a sell short 
Market Peg Zero Display Reserve Order under Rule 201by relocating the 
provisions of those subparagraphs to Rule 11.21(f)(8)(i)-(iii), thereby 
consolidating the Exchange's short sale order handling rules in one 
rule set; and amending subparagraph (iii) to delete the provision that 
any unexecuted portion of a resting sell short Market Peg Zero Display 
order will be canceled if it is matched for execution during the Short

[[Page 46623]]

Sale Price Test at a price at or below the current national best bid. 
As proposed, such an order or portion of an order will remain on the 
NSX Book, but will not execute in whole or in part at a price equal to 
or below the current national best bid during the Short Sale Price Test 
Period. The Exchange is proposing this amendment to align the rule text 
with the operation of the System in this circumstance.
    The Exchange adopted Rule 11.11(c)(2)(E)(iii) in November 2013.\30\ 
The rule provides that a sell short Market Peg Zero Display Reserve 
Order \31\ resting on the NSX Book will track the Protected Best Bid, 
which is defined in Rule 1.5P.(3) as the higher of the protected 
national best bid or the best displayed bid on the NSX Book and, if 
matched by the System for execution during a Short Sale Price Test in 
the subject security, will be executed only to the extent that the 
Protected Best Bid is above the current national best bid and the sell 
short order can be executed, in whole or in part, at a price above the 
current national best bid in compliance with Rule 201 of Regulation 
SHO. The rule further provides that ``[a]ny such order or portion of 
such order will be canceled by the System if at a price equal to or 
below the current national best bid.''
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    \30\ See Securities Exchange Act Release No. 70881 (November 14, 
2013), 78 FR 69734 (November 20, 2013) (SR-NSX-2013-20).
    \31\ Exchange Rule 11.11(c)(2)(A) defines a Market Peg Zero 
Display Reserve Order as a Zero Display Reserve Order with a price 
set, or ``pegged,'' to track the inside quote on the opposite side 
of the market.
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    As proposed, the Exchange seeks to amend subparagraph (iii) to 
remove the provision that specifies that a resting Market Peg Zero 
Display Reserve Order or portion of such an order will be canceled by 
the System if matched for execution during the Short Sale Price Test at 
a price equal to or below the current national best bid. As a result of 
System testing, the Exchange determined that a resting sell short 
Market Peg Zero Display Reserve Order, if matched by the System for 
execution during a Short Sale Price Test in the subject security, will 
be executed only to the extent that the Protected Best Bid is above the 
current national best bid and the sell short order can be executed, in 
whole or in part, at a price above the current national best bid.
    However, System testing also indicated that, instead of canceling 
any remaining unexecuted portion of such an order, the System would 
leave the remaining unexecuted portion of the order on the NSX Book. 
The Exchange notes that the behavior of the System in this circumstance 
would not result in an execution of an order at a price equal to or 
below the national best bid during the Short Sale Price Test since the 
sell short Market Peg Zero Display Reserve Order would not execute 
unless the national best bid moved and the unfilled order or portion of 
the order could be executed at a price above the national best bid. The 
Exchange also notes that it did not detect an instance where this 
System behavior occurred with respect to an actual sell short Market 
Peg Zero Display Reserve Order entered by an ETP Holder and resting on 
the NSX Book during a Short Sale Price Test.
    Since the Exchange's testing disclosed that the behavior of the 
System did not align with subparagraph (iii) and further confirmed that 
no execution would occur at a price equal to or below the current 
national best bid in violation of Regulation SHO, the Exchange 
determined to amend the rule to remove the statement regarding 
cancellation of any unexecuted portion of a sell short Market Peg Zero 
Display Reserve Order if matched for execution during the Short Sale 
Price Test. Additionally, the Exchange is proposing to make non-
substantive changes to the text of subparagraph (iii) to align with the 
language and form used in other sections of Rule 11.21 as proposed to 
be amended.
Amendment of Rule 13.2, Failure To Deliver and Failure To Receive
    The Exchange is proposing to amend Rule 13.2 to delete the existing 
text and incorporate by reference Rules 200, Definition of ``Short 
Sale'' and Marking Requirements, 203, Borrowing and Delivery 
Requirements and 204, Close-Out Requirement, of Regulation SHO pursuant 
to the Act.\32\ Currently, Rule 13.2(a) states that ``[n]o ETP Holder 
shall sell a security for his own account, or buy a security as an ETP 
Holder for a customer (except exempt securities), if he has a fail to 
deliver in that security 60 days old or older.'' Rule 13.2(b) states 
that ``[f]or good cause shown and in exceptional circumstances, an ETP 
Holder may request and receive exemption from the provisions of the 
Rule by written request to the Secretary of the Exchange.''
    The Exchange proposes to amend Rule 13.2 to delete the current text 
of the rule and, in its place, adopt text stating that ``[b]orrowing 
and deliveries shall be effected in accordance with Rule 203 of 
Regulation SHO under the Exchange Act. The Exchange incorporates by 
reference Rules 200, 203 and 204 of Regulation SHO, to Exchange Rule 
13.2, as if they were fully set forth herein.'' \33\
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    \32\ 17 CFR 242.200, 17 CFR 242.203 and 17 CFR 242.204.
    \33\ The Exchange notes that other exchanges have adopted the 
same approach with respect to their rules regarding failure to 
deliver and failure to receive. See, e.g., BATS Exchange Inc. Rule 
13.2 (Failure to Deliver and Failure to Receive); EDGA Exchange Inc. 
Rule 13.2 (Short Sale Borrowing and Delivery Requirements).
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    The Exchange is proposing this amendment to remove the text 
regarding failure to deliver and failure to receive a security since 
such rule text is obsolete in view of the requirements set forth in 
Rules 200, 203 and 204 of Regulation SHO. Specifically, Rule 200, 
Definition of ``short sale'' and marking requirements, defines 
ownership of a security for short sale purposes and clarifies the 
requirement to determine a short seller's net aggregate position. Rule 
203, Borrowing and delivery requirements, provides inter alia that, 
subject to certain exceptions, a broker-dealer effecting a short sale 
order in any equity security have reasonable grounds to believe that 
the security can be borrowed so that it can be delivered on the date 
delivery is due.\34\ The ``locate'' requirement must be documented 
prior to the broker-dealer effecting the short sale.\35\ Rule 203(b)(3) 
requires a broker-dealer to take action to close out a failure to 
deliver in a ``threshold'' security that has remained open for thirteen 
consecutive settlement days by purchasing securities of a like kind and 
quantity.\36\ Rule 204 of Regulation SHO \37\ governs the close-out 
requirements applicable to both long and short sales of equity 
securities.
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    \34\ 17 CFR 242.203(b)(1).
    \35\ 17 CFR 242.203(b)(1)(iii).
    \36\ 17 CFR 242.203(b)(3).
    \37\ 17 CFR 242.204.
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    The Exchange believes that these provisions of Regulation SHO, 
which are intended to apply uniform rules to address the failure to 
deliver or failure to receive, render the Exchange's rule obsolete.
2. Statutory Basis
    The Exchange believes that the proposed rule amendments are 
consistent with the provisions of Section 6(b) of the Act \38\ in 
general, and further the objectives of Section 6(b)(5) of the Act \39\ 
in particular. The proposed amendments to the Exchange's rules are 
designed, among other things, to promote just and equitable principles 
of trade and, in general, protect investors and the public interest. 
The Exchange's proposal is designed to provide clarity and transparency 
with respect to written policies and procedures established by

[[Page 46624]]

the Exchange, and the System controls it implemented, to enforce the 
provisions of Rule 201. To this extent, the Exchange believes that its 
proposal furthers the requirements of Rule 201 that trading centers 
establish, maintain and enforce written policies and procedures 
reasonably designed to prevent the execution or display of a short sale 
order of a covered security in violation of the short sale price 
restrictions contained in Rule 201. The proposed amendments enhance the 
Exchange's written policies and procedures regarding the execution and 
display of permissible orders and the execution of orders marked 
``short exempt'' during the Short Sale Price Test.
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    \38\ 15 U.S.C. 78(f)(b).
    \39\ 15 U.S.C. 78(f)(b)(5).
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    The Exchange further submits that proposed paragraph (b) of Rule 
11.21, which describes the responsibilities of ETP Holders with respect 
to marking orders ``short exempt,'' and Interpretations and Policies 
.01 of Rule 11.21, which states that NSXS, as the Exchange's outbound 
order routing facility, relies on the ETP Holder's correct marking of 
an order as ``short exempt'' without independently verifying the 
accuracy of such marking, are consistent with Section 6(b)(5) of the 
Act. The Exchange believes that these amendments promote just and 
equitable principles of trade and further the public interest by 
clearly stating the ETP Holder's responsibility for correct order 
marking and providing transparency as to those responsibilities in the 
Exchange's rules.
    The Exchange submits that the proposed amendment to reposition Rule 
11.11(c)(2)(E)(i)-(iii) to Rule 11.21, and delete the statement that a 
``resting'' sell short Market Peg Zero Display Reserve Order or portion 
of such an order will be canceled by the System if at a price at or 
below the current national best bid, is consistent with Section 6(b)(5) 
of the Act in that it will assure that the rule text is logically 
organized and correctly describes with the operation of the System, 
thereby enhancing clarity and transparency in the Exchange's rules and 
promoting just and equitable principles of trade and the public 
interest.
    The Exchange further submits that the proposed amendment to Rule 
13.2 to incorporate by reference Rules 200, 203 and 204 of Regulation 
SHO is consistent with Section 6(b)(5) of the Act in that it is 
designed to impart uniformity in the regulatory requirements governing 
the failure to deliver and failure to receive securities and close-out 
requirements, thereby promoting cooperation and coordination in the 
regulation of securities transactions and enhancing investor protection 
and the public interest.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
for the furtherance of the Act. All trading centers are obligated to 
comply with the provisions of Regulation SHO. The proposed rule 
amendments provide additional clarity and transparency into the 
Exchange's written policies and procedures for handling sell short 
orders in compliance with Regulation SHO. The Exchange submits that the 
proposed amendments impose no unnecessary or inappropriate burden on 
competition and, in fact, operate to promote competition by providing 
ETP Holders, their customers, and the investing public with enhanced 
information regarding the Exchange's written policies and procedures 
and the System functionality for handling sell short orders in 
compliance with Regulation SHO.

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 comments on the 
proposed rule change from market participants or others.

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. 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) \40\ of the 
Exchange Act and Rule 19b-4(f)(6) \41\ thereunder.
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    \40\ 15 U.S.C. 78s(b)(3)(A).
    \41\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description of the text of the proposed rule change, at least 
five business days prior to the date of the filing of the proposed 
rule change, or such other time as designated by the Commission. The 
Exchange provided the Commission with the required notice.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay so that the proposed rule change may become effective 
and operative upon filing with the Commission pursuant to Section 
19(b)(3)(A)(iii) \42\ of the Act and Rule 19b-4(f)(6) thereunder. In 
support of its request, the Exchange stated that, because the rule 
amendments are designed to provide greater transparency and clarity 
into the Exchange's written policies and procedures for the execution 
and display of permissible orders during the Short Sale Price Test and 
the execution of orders marked ``short exempt.'' The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission 
believes that the protection of investors and the public interest will 
be enhanced by making the proposed amendments publicly available to 
market participants and the investing public as soon as practicable, 
and prior to the resumption of trading on the Exchange. Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal as effective and operative upon filing.\43\
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    \42\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \43\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NSX-2015-04 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.


[[Page 46625]]


All submissions should refer to File No. SR-NSX-2015-04. This file 
number should be included in the subject line if email is used. To help 
the Commission process and review 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 a.m. and 3 
p.m. Copies of such filings will also be available for inspection and 
copying at the principal office of the Exchange. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to file number SR-NSX-2015-04 and should be submitted on 
or before August 26, 2015.

    For the Commission by the Division of Trading and Markets, 
pursuant to the delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19124 Filed 8-4-15; 8:45 am]
BILLING CODE 8011-01-P
46622 Federal Register / Vol. 80, No. 150 / Wednesday, August 5, 2015 / Notices

Book will be evaluated by the System if Midpoint-Seeker Order. A Midpoint- Order, Destination Sweep Order, ISO
matched for execution during the Short Seeker Order, which is an IOC order and Post-ISO will be rejected by the
Sale Price Test Period and, unless the that executes only against undisplayed System if entered at a price equal to or
order was initially displayed at a price orders priced at the midpoint of the below the current national best bid. If
above the current national best bid, will protected bid and protected offer,22 entered at a price above the current
be canceled if at a price equal to or when marked ‘‘sell short’’ will, upon national best bid, such sell short orders
below the current national best bid. The entry, be matched by the System for will be accepted by the System and
Exchange believes that including this execution at a price above the current eligible for execution. If an ISO is
provision in Rule 11.21 will enhance national best bid and any remaining marked ‘‘IOC,’’ any remaining unfilled
clarity and transparency regarding the unfilled portion will be canceled. portion will be canceled. The unfilled
Exchange’s policies, procedures, and Reserve Order. A Reserve Order is portion of ISO orders not marked ‘‘IOC’’
System controls reasonably designed to defined in Rule 11.11(c)(2) as ‘‘[a] limit and Post-ISO orders will be entered on
comply with Rule 201. order with a portion of the quantity the NSX Book if at a price above the
Further to the goal of enhancing displayed (‘‘display quantity’’) and with national best bid. A Post ISO order that
transparency in the rules regarding the a reserve portion of the quantity was not initially displayed at a price
operation of the System, the Exchange is (‘‘reserve quantity’’) that is not above the national best bid will be
also proposing in new subparagraphs displayed.’’ A sell short Reserve Order canceled if matched by the System for
(f)(1) through (f)(9) of Rule 11.21 to will be rejected by the System if it is execution at a price equal to or below
describe the operation of the System entered at a price equal to or below the the national best bid.
during the Short Sale Price Test Period current national best bid. A sell short Cancel/Replacement of Orders. As
with respect to specific order types that Reserve Order that was initially proposed in new paragraph (g) of Rule
are not marked ‘‘short exempt,’’ as displayed at a price above the current 11.21, a cancel/replace request will be
follows: national best bid may execute at a price rejected by the System if: (i) The limit
Market and Limit Order. A sell short equal to or below the current national price on the replacement sell short order
market or limit order will be matched by best bid during a Short Sale Price Test is equal to or below the current national
the System for execution at a price Period, up to the full size of the order best bid; or (ii) if the original limit price
above the current national best bid and, (including any reserve quantity).23 of the sell short order is equal to or
if a limit order, within the limit price of Post Only Order,24 NSX Only below the current national best bid and
the sell short order. Any remaining Order 25 and Destination Specific the cancel/replace message seeks to
unfilled portion will be canceled unless, Order.26 Sell short orders in these order increase the order size.29
in the case of a limit order, the limit types will be rejected if entered at a To summarize, the Exchange believes
price of the remaining shares is above price equal to or below the current that the proposed amendments to Rule
the current national best bid; the national best bid. 11.21 to describe with greater
unfilled portion of such a limit order Sweep Order, Destination Sweep particularity the handling of specific
will remain on the NSX Book but will Order,27 Intermarket Sweep (‘‘ISO’’) and order types during the Short Sale Price
not execute unless at a price above the Post-ISO Order.28 A sell short Sweep Test Period will further contribute to
current national best bid in accordance clarity and transparency in the
with Rule 201(b)(1) of Regulation SHO. 22 See Rule 11.11(c)(13). Exchange’s rules, which will operate to
Odd Lot and Mixed Lot Order. A sell 23 Pursuant to Rule 11.14, Priority of Orders, the benefit of ETP Holders and their
short odd lot order and a mixed lot Interpretations and Policies .01, the use of a
‘‘Replace Message’’ to modify the quantity of a
customers and market participants
order, which is an order consisting of Reserve Order will result in a new timestamp and generally.
one or more round lots combined with the order losing time priority on the NSX Book
a number of shares constituting an odd unless (i) both the display size of the Reserve Order Proposed Amendments Regarding Sell
lot,21 will be rejected if entered at a is decreased and the total order quantity is Short Market Peg Zero Display Reserve
price equal to or below the current
decreased or remains the same; or (ii) both the Orders
display size of the Reserve Order remains the same
national best bid. Odd lot orders and the total order quantity is decreased. The Exchange is proposing to amend
aggregated to form a round lot and 24 Rule 11.11(c)(5) defines a Post Only Order as Rule 11.11, subparagraphs (c)(2)(E)(i)–
initially displayed at a price above the ‘‘[a] limit order that is to be posted on the Exchange (iii) regarding the System’s handling of
and not routed away to another trading center.’’
current national best bid, or a mixed lot 25 Rule 11.11(c)(6) defines an NSX Only Order as
a sell short Market Peg Zero Display
order initially displayed at a price above ‘‘[a]n order that is to be executed on the Exchange Reserve Order under Rule 201by
the current national best bid, will be pursuant to Rule 11.15(a) or [canceled], without relocating the provisions of those
eligible for execution at a price equal to routing away to another trading center.’’ subparagraphs to Rule 11.21(f)(8)(i)–
26 Rule 11.11(c)(9) defines a Destination Specific
or below the national best bid in (iii), thereby consolidating the
Order as ‘‘[a] market or limit order that instructs the
accordance with Rule 201(b)(1)(iii)(A) of System to route the order to a specified away
Exchange’s short sale order handling
Regulation SHO. trading center, after exposing the order to the NSX rules in one rule set; and amending
Immediate or Cancel (‘‘IOC’’) Order. Book . . . .’’ subparagraph (iii) to delete the
As defined in Rule 11.11(b)(1), an IOC 27 A Sweep Order is defined in Rule 11.11(c)(7) provision that any unexecuted portion
as ‘‘[a] limit order that instructs the System to of a resting sell short Market Peg Zero
order is a limit order that is to be ‘sweep’ the market.’’ The rule provides for several
executed in whole or in part as soon as types of sweep orders, specifically a ‘‘Protected
Display order will be canceled if it is
such order is received by the System Sweep Order,’’ a ‘‘Full Sweep Order’’ and a matched for execution during the Short
and any portion not so executed is ‘‘Destination Sweep Order.’’ For purposes of System
asabaliauskas on DSK5VPTVN1PROD with NOTICES

functionality during the Short Sale Price Test or more additional limit orders marked ‘‘ISO’’ as
treated as canceled. A sell short IOC Period, all of such Sweep Order types are treated necessary to away markets to execute against the
order will, upon entry, be matched by in the same manner. full displayed size of any protected quotation with
the System for execution at a price 28 ISO is defined in Rule 600(b)(30) of Regulation a price that is superior or equal to the price of the
above the current national best bid and NMS pursuant to the Exchange Act, 17 CFR Post ISO entered on NSX. If these requirements are
any remaining unfilled portion will be 242.600(b)(30). Rule 11.11(c)(8)(ii) provides that an met, the Post ISO will be executed by sweeping the
ISO order may be designated as a ‘‘Post-ISO’’ when NSX Book up to and including the order’s limit
canceled. entered into the System, and the use of such price, without regard to protected quotations at
designation constitutes a representation that the away markets.
21 See Rule 11.11(c)(3) and (c)(4). entering ETP Holder has simultaneously routed one 29 See footnote 23, supra.

VerDate Sep<11>2014 16:54 Aug 04, 2015 Jkt 235001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 E:\FR\FM\05AUN1.SGM 05AUN1
Document Created: 2018-02-23 10:53:15
Document Modified: 2018-02-23 10:53:15
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 46620