80 FR 68371 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 21.8, Order Display and Book Processing

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 213 (November 4, 2015)

[Federal Register Volume 80, Number 213 (Wednesday, November 4, 2015)]
[Notices]
[Pages 68371-68373]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-28025]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76302 ; File No. SR-EDGX-2015-52]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
21.8, Order Display and Book Processing

October 29, 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 October 28, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).

---------------------------------------------------------------------------

[[Page 68372]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to authorize the Exchange's equity 
options platform (``EDGX Options'') to make a modification to Rule 21.8 
(Order Display and Book Processing).
    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 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to modify Rule 21.8, Order Display and 
Book Processing, which sets forth the priority rules applicable to EDGX 
Options. Specifically, Rule 21.8 describes the general priority rules 
for EDGX Options, including that quotes and orders are prioritized by 
price and then on a pro-rata basis according to size. Rule 21.8 also 
describes additional priority overlays, including special priority 
provisions for Customer orders, Directed Market Makers and Primary 
Market Makers. The purpose of this rule filing is to make a minor 
modification to the Directed Market Maker and Primary Market Maker 
priority overlays, as described below.
    The Directed Market Maker overlay provides the Directed Market 
Maker with priority over other participants for a certain percentage of 
contracts allocated at the same price (60% or 40% depending upon the 
number of other Market Maker quotes at the NBBO). Similarly, the 
Primary Market Maker overlay provides Primary Market Makers with 
priority over other participants for a certain percentage of contracts 
allocated at the same price (60% or 40% depending upon the number of 
other Market Maker quotes at the NBBO) and for small size orders. The 
Exchange proposes to modify both of these priority overlays so that the 
percentage allocation (60% or 40%) is dependent on the number of Market 
Maker quotations or other non-Customer orders at the NBBO rather than 
simply the number of other Market Maker quotations at the NBBO. The 
Exchange believes that the amended rule would appropriately recognize 
that other professional market participants, not just Market Makers, 
may compete on the Exchange. Further, the rule as amended would be 
consistent with the priority rules of both the International Securities 
Exchange LLC (``ISE'') \5\ and NASDAQ OMX PHLX LLC (``PHLX'').\6\ The 
Exchange believes that the proposed change will have a positive 
competitive impact on quoting by reducing the likelihood of a Primary 
Market Maker or Directed Market Maker will receive the higher 60% 
allocation by increasing the types of other participants and, in turn, 
the number of orders from participants, that are considered when 
allocating executions. In other words, because other non-Customer 
orders will be considered, not just the quotes of other Market Makers, 
such other non-Customers will be better incentivized to provide 
liquidity at the NBBO.
---------------------------------------------------------------------------

    \5\ See ISE Rule 713(e) and Supplementary Material .01(b) to 
Rule 713, which count the number of other ``Professional Orders'' 
for application of the priority rule. Professional Orders, in turn, 
are defined in ISE Rule 100(a)(37C) as orders ``for the account of a 
person or entity that is not a Priority Customer,'' and are thus 
equivalent to non-Customer orders on the Exchange.
    \6\ See PHLX Rule 1014(g)(ii), which counts the number of 
``controlled accounts'' for application of the priority rule. 
Controlled accounts are accounts ``controlled by or under common 
control with a broker-dealer'', and thus, apply to a broader range 
of participants than just market makers or the equivalent.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\7\ In particular, the 
proposal is consistent with Section 6(b)(5) of the Act \8\ because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change will allow the Exchange to launch the EDGX 
Options platform with a priority allocation model that allocates a 
different percentage of contracts to Directed Market Makers and Primary 
Market Makers, either 60% or 40%, depending on whether there is more 
than one non-Customer with an order at the NBBO rather than whether 
there is more than one Market Maker at the NBBO. The Exchange believes 
that the change is appropriate and consistent with the Act because it 
recognizes that other professional participants, not just Market 
Makers, can compete for orders with Directed Market Makers and Primary 
Market Makers. As noted above, certain other options exchanges operate 
with a similar priority rule.\9\
---------------------------------------------------------------------------

    \9\ See supra notes 5 and 6.
---------------------------------------------------------------------------

(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 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather to make a 
modification to the Exchange's priority rule prior to the launch of 
EDGX Options. As noted above, the change would make the Exchange's 
priority rule similar to that of certain other options exchanges.\10\ 
As noted above, the Exchange believes that the proposed change will 
have a positive competitive impact on quoting by reducing the 
likelihood of a Primary Market Maker or Directed Market Maker will 
receive the higher 60% allocation by increasing the types of other 
participants and, in turn, the number of orders from participants, that 
are considered when allocating executions. In other words, because 
other non-Customer orders will be considered, not just the quotes of 
other Market Makers, such other non-Customers will be better 
incentivized to provide liquidity at the NBBO.
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

[[Page 68373]]

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

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
paragraph (f)(6) of Rule 19b-4 thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative for 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has asked the 
Commission to waive the 30-day operative delay so that the proposal may 
become operative immediately upon filing. The Exchange notes that the 
commencement of the operations of EDGX Options is scheduled for 
November 2, 2015, and waiver of the 30-day operative delay would permit 
the Exchange to launch EDGX Options with the proposed priority 
allocation model. The Exchange also notes that the proposed rule change 
is similar to priority rules already in place on other options 
exchanges and does not raise any new policy issues. Based on the 
foregoing, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest.\15\ The Commission hereby grants the Exchange's request and 
designates the proposal operative upon filing.
---------------------------------------------------------------------------

    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-EDGX-2015-52 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EDGX-2015-52. 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 such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-EDGX-2015-52 and should be 
submitted on or before November 25, 2015.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28025 Filed 11-3-15; 8:45 am]
 BILLING CODE 8011-01-P