81 FR 10350 - Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt an Early Trading Session and Three New Time-in-Force Instructions
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 39 (February 29, 2016)
Federal Register Volume 81, Issue 39 (February 29, 2016)
| Page Range | 10350-10356 | |
| FR Document | 2016-04252 |
[Federal Register Volume 81, Number 39 (Monday, February 29, 2016)] [Notices] [Pages 10350-10356] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-04252] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77214; File No. SR-BATS-2016-14] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt an Early Trading Session and Three New Time-in-Force Instructions February 23, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on February 12, 2016, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend its rules to: (i) Create a new trading session to be known as the Early Trading Session, which will run from 7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three new Time-in-Force (``TIF'') instructions. 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 proposes to amend its rules to: (i) Create a new trading session to be known as the Early Trading Session, which will run from 7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three new TIF instructions. Early Trading Session The Exchange trading day is currently divided into three sessions of which a User \3\ may select their order(s) be eligible for execution: (i) The Pre-Opening Session which starts at 8:00 a.m. and ends at 9:30 a.m. Eastern Time; (ii) Regular Trading Hours which runs from 9:30 a.m. to 4:00 p.m. Eastern Time; and (iii) the After Hours Session, which runs from 4:00 p.m. to 5:00 p.m. Eastern Time. The Exchange proposes to amend its rules to create a new trading session to be known as the Early Trading Session, which will run from 7:00 a.m. to 8:00 a.m. Eastern Time.\4\ Exchange Rule 1.5 would be amended to add a new definition for the term ``Early Trading Session'' under new paragraph (ee). ``Early Trading Session'' would be defined as ``the time between 7:00 a.m. and 8:00 a.m. Eastern Time.'' \5\ --------------------------------------------------------------------------- \3\ ``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(cc). \4\ The Exchange notes that NYSE Arca, Inc. (``NYSE Arca'') operates an Opening Session that starts at 4:00 a.m. Eastern Time (1:00 a.m. Pacific Time) and ends at 9:30 a.m. Eastern Time (6:30 a.m. Pacific Time). See NYSE Arca Rule 7.34(a)(1). The Nasdaq Stock Market LLC (``Nasdaq'') operates a pre-market session that also opens at 4:00 a.m. and ends at 9:30 a.m. Eastern Time. See Nasdaq Rule 4701(g). See also Securities Exchange Act Release No. 69151 (March 15, 2013), 78 FR 17464 (March 21, 2013) (SR-Nasdaq-2013-033) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Extend the Pre-Market Hours of the Exchange to 4:00 a.m. EST). \5\ An Exchange having bifurcated after hours trading sessions is not novel. For example, the Chicago Stock Exchange, Inc. (``CHX'') maintains two after hours trading sessions. See CHX Article 20, Rule 1(b). See also Securities Exchange Act Release No. 60605 (September 1, 2009), 74 FR 46277 (September 8, 2009) (SR-CHX- 2009-13) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adding Additional Trading Sessions). --------------------------------------------------------------------------- The Exchange also proposes to amend Rule 11.1(a) to account for the Early Trading Session starting at 7:00 a.m. Eastern Time. Other than the proposal to adopt an Early Trading Session starting at 7:00 a.m. Eastern Time, the Exchange does not propose to amend the substance or operation of Rule 11.1(a). Users currently designate when their orders are eligible for execution by selecting the desired TIF instruction under Exchange Rule 11.9(b). Orders entered between 6:00 a.m. and 8:00 a.m. Eastern Time are not eligible for execution until the start of the Pre-Opening Session, or Regular Trading Hours,\6\ depending on the TIF selected by the User. Users may enter orders in advance of the trading session they intend the order to be eligible for. For example, Users may enter orders starting at 6:00 a.m. Eastern Time with a TIF of Regular Hours Only, which designates that the order only be eligible for execution during Regular Trading Hours.\7\ As stated above, Users may enter orders as early as 6:00 a.m. Eastern Time, but those orders would not be eligible for execution until the start of the Pre-Opening Session at 8:00 a.m. [[Page 10351]] Some Users have requested the ability for their orders to be eligible for execution starting at 7:00 a.m. Eastern Time. Therefore, the Exchange is proposing to adopt the Early Trading Session as discussed herein. --------------------------------------------------------------------------- \6\ ``Regular Trading Hours'' is defined as ``the time between 9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(w). \7\ See Exchange Rule 11.9(b)(7). --------------------------------------------------------------------------- Order entry and execution during the Early Trading Session would operate in the same manner as it does during the Pre-Opening Session. As amended, Exchange Rule 11.1(a) would state that orders entered between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and 8:00 a.m. Eastern Time, would not be eligible for execution until the start of the Early Trading Session, Pre-Opening Session, or Regular Trading Hours,\8\ depending on the TIF selected by the User. Exchange Rule 11.1(a) will also be amended to state that the Exchange will not accept the following orders prior to 7:00 a.m. Eastern Time, rather than 8:00 a.m.: BATS Post Only Orders,\9\ Partial Post Only at Limit Orders,\10\ Intermarket Sweep Orders (``ISOs''),\11\ BATS Market Orders \12\ with a TIF other than Regular Hours Only,\13\ Minimum Quantity Orders \14\ that also include a TIF of Regular Hours Only, and all orders with a TIF instruction of Immediate-or-Cancel (``IOC'') \15\ or Fill-or-Kill (``FOK'').\16\ At the commencement of the Early Trading Session, orders entered between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and 8:00 a.m. Eastern Time, will be handled in time sequence, beginning with the order with the oldest time stamp, and will be placed on the BATS Book,\17\ routed, cancelled, or executed in accordance with the terms of the order. As amended, Rule 11.1(a) would state that orders may be executed on the Exchange or routed away from the Exchange during Regular Trading Hours and during the Early Trading, Pre-Opening and After Hours Trading Sessions. --------------------------------------------------------------------------- \8\ ``Regular Trading Hours'' is defined as ``the time between 9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(w). \9\ See Exchange Rule 11.9(c)(6). \10\ See Exchange Rule 11.9(c)(7). \11\ See Exchange Rule 11.9(d). \12\ See Exchange Rule 11.9(a)(2). \13\ See Exchange Rule 11.9(b)(7). \14\ See Exchange Rule 11.9(c)(5). \15\ See Exchange Rule 11.9(b)(1). \16\ See Exchange Rule 11.9(b)(6). \17\ See Exchange Rule 1.5(e). --------------------------------------------------------------------------- Operations. From the Members' operational perspective, the Exchange's goal is to permit trading for those that choose to trade, without imposing burdens on those that do not. Thus, for example, the Exchange will not require any Member to participate in the Early Trading Session, including not requiring registered market makers to make two-sided markets between 7:00 a.m. and 8:00 a.m., just as it does not require such participation between 8:00 a.m. and 9:30 a.m.\18\ The Exchange will minimize Members' preparation efforts to the greatest extent possible by allowing Members to trade beginning at 7:00 a.m. with the same equipment, connectivity, order types, and data feeds they currently use from 8:00 a.m. onwards. --------------------------------------------------------------------------- \18\ See Exchange Rule 11.8(d)(2) (stating that for NMS stocks (as defined in Rule 600 under Regulation NMS) a Market Maker shall adhere to the pricing obligations established by this Rule during Regular Trading Hours). --------------------------------------------------------------------------- Opening Process. The Exchange will offer no opening process at 7:00 a.m., just as it offers no opening process at 8:00 a.m. today. Instead, at 7:00 a.m., the System will ``wake up'' by loading in price/time priority all open trading interest entered after 6:00 a.m.\19\ Also at 7:00 a.m., the Exchange will open the execution system and accept new eligible orders, just as it currently does at 8:00 a.m. Members will be permitted to enter orders beginning at 6:00 a.m. Market Makers will be permitted but not required to open their quotes beginning at 7:00 a.m. in the same manner they open their quotes today beginning at 8:00 a.m. --------------------------------------------------------------------------- \19\ See Exchange Rule 11.1(a). --------------------------------------------------------------------------- Order Types. Every order type that is currently available beginning at 8:00 a.m. will be available beginning at 7:00 a.m.\20\ All other order types, and all order type behaviors, will otherwise remain unchanged. The Exchange will not extend the expiration times of any orders. For example, an order that is currently available from 8:00 a.m. to 4:00 p.m. will be modified to be available from 7:00 a.m. to 4:00 p.m. An order that is available from 8:00 a.m. to 9:30 a.m. will be modified to be available from 7:00 a.m. to 9:30 a.m. Users must continue to enter a TIF instruction along with their order to indicate when the order is eligible for execution.\21\ --------------------------------------------------------------------------- \20\ Id. \21\ Id. --------------------------------------------------------------------------- Routing Services. The Exchange will route orders to away markets between 7:00 a.m. and 8:00 a.m., just as it does today between 8:00 a.m. and 9:30 a.m.\22\ All routing strategies set forth in Exchange Rule 11.13 will remain otherwise unchanged, performing the same instructions they perform between 7:00 a.m. and 8:00 a.m. today.\23\ --------------------------------------------------------------------------- \22\ Id. \23\ See Exchange Rule 11.13(b) (Routing to Away Trading Centers). --------------------------------------------------------------------------- Order Processing. Order processing will operate beginning at 7:00 a.m. just as it does today beginning at 8:00 a.m. There will be no changes to the ranking, display, and execution processes or rules. Data Feeds. The Exchange will report the best bid and offer on the Exchange to the appropriate network processor, as it currently does beginning 8:00 a.m.\24\ The Exchange's proprietary data feeds will be disseminated beginning at 7:00 a.m. using the same formats and delivery mechanisms with which the Exchange currently disseminates them beginning at 8:00 a.m. --------------------------------------------------------------------------- \24\ See Exchange Rule 11.14 (Trade Execution and Reporting). --------------------------------------------------------------------------- Trade Reporting. Trades executed between 7:00 a.m. and 8:00 a.m. will be reported to the appropriate network processor with the ``.T'' modifier, just as they are reported today between at 8:00 a.m. and 9:30 a.m.\25\ --------------------------------------------------------------------------- \25\ Id. --------------------------------------------------------------------------- Market Surveillance. The Exchange's commitment to high-quality regulation at all times will extend to 7:00 a.m. The Exchange will offer all surveillance coverage currently performed by the Exchange's surveillance systems, which will launch by the time trading starts at 7:00 a.m. Clearly Erroneous Trade Processing. The Exchange will process trade breaks beginning at 7:00 a.m. pursuant to Exchange Rule 11.17, just as it does today beginning at 8:00 a.m. Related changes to Rules 3.21, 11.9, 11.13, 11.17, 11.23, 14.6, 14.11, and 14.12. The Exchange proposes to also make the following changes to Rules 3.21, 11.9, 11.13, 11.17, 11.23, 14.6, 14.11, and 14.12 to reflect the adoption of the Early Trading Session:Rule 3.21, Customer Disclosures. In sum, Exchange Rule 3.21 prohibits Members from accepting an order from a customer for execution in the Pre-Opening or After Hours Trading Session without disclosing to their customer that extended hours trading involves material trading risks, including the possibility of lower liquidity, high volatility, changing prices, unlinked markets, an exaggerated effect from news announcements, wider spreads and any other relevant risk. The Exchange proposes to amend Rule 3.21 to include the Early Trading Session as part of the Member's required disclosures to their customers. Rule 11.9, Orders and Modifiers. The Exchange proposes to amend the description of BATS Market Orders under Rule 11.9(a)(2), Market Maker Peg Orders under Rule 11.9(c)(16), and Supplemental Peg Orders under Rule 11.9(c)(19) to account for the Early Trading Session. BATS Market Orders are currently not eligible for execution [[Page 10352]] during the Pre-Opening Session or After Hours Trading Session. Rule 11.9(a)(2) would be amended to state that BATS Market Orders would also not be eligible for execution during the Early Trading Session. Market Maker Peg Orders may currently be submitted to the Exchange starting at the beginning of the Pre-Opening Session, but the order will not be executable or automatically priced until the beginning of Regular Trading Hours. Rule 11.9(c)(16) would be amended to state that Market Maker Peg Orders may be submitted to the Exchange starting at the beginning of the Early Trading Session. Market Maker Peg Orders would continue to not be executable or automatically priced until the beginning of Regular Trading Hours. Rule 11.9(c)(19) states that Supplemental Peg Orders are eligible for execution during the Pre- Opening Session, Regular Trading Hours, and the After Hours Trading Session. Rule 11.9(c)(19) would be amended to state that Supplemental Peg Orders are also eligible for execution during the Early Trading Session. As stated above, every order type that is currently available beginning at 8:00 a.m. will be available beginning at 7:00 a.m. for inclusion in the Early Trading Session.\26\ All other order types, and all order type behaviors, will otherwise remain unchanged. The above rules describing BATS Market Orders, Market Maker Peg Orders, and Supplemental Peg Orders specifically reference the trading sessions during which the order type is eligible for execution. Therefore, the Exchange proposes to amend the description of each order type to account for the Early Trading Session. --------------------------------------------------------------------------- \26\ See proposed amendments to Exchange Rule 11.1(a). --------------------------------------------------------------------------- Rule 11.13, Order Execution and Routing. Exchange Rule 11.13(a)(2)(B) discusses compliance with Regulation NMS and Trade Through Protections and states that the price of any execution occurring during the Pre-Opening Session or the After Hours Trading Session must be equal to or better than the highest Protected Bid or lowest Protected Offer, unless the order is marked ISO or a Protected Bid is crossing a Protected Offer. The Exchange proposes to amend Rule 11.13(a)(2)(B) to expand the rule's requirements to the Early Trading Session. Rule 11.17, Clearly Erroneous Executions. Exchange Rule 11.17 outlines under which conditions the Exchange may determine that an execution is clearly erroneous. The Exchange proposes to amend Rule 11.17 to include executions that occur during the Early Trading Session.\27\ Exchange Rule 11.17(c)(1) sets forth the numerical guidelines the Exchange is to follow when determining whether an execution was clearly erroneous during Regular Trading Hours or the Pre-Opening or After Hours Trading Session. Exchange Rule 11.17(c)(3) sets forth additional factors the Exchange may consider in determining whether a transaction is clearly erroneous. These factors include Pre- Opening and After Hours Trading Session executions. The Exchange proposes to amend Rule 11.17(c)(1) and (3) to include executions occurring during the Early Trading Session. --------------------------------------------------------------------------- \27\ The Exchange notes that it also proposes to delete the ``s'' from the word ``tapes'' in paragraph (c)(3) of Rule 11.17. --------------------------------------------------------------------------- Rule 11.23, Auctions. Exchange Rules 11.23(b) and (c) describe the Exchange's Opening and Closing Auction processes. The Exchange proposes to amend Rules 11.23(b)(1)(A) and (c)(1)(A) to reflect that Users may submit orders at the start of the Early Trading Session at 7:00 a.m., rather than 8:00 a.m., to participate in either the Opening or Closing Auctions. Rule 14.6, Obligations for Companies Listed on the Exchange. The Exchange proposes to amend Rules 14.6(b)(1), (b)(2), and Interpretation and Policies .01(a), (b), (c), and .02 to require an Exchange-Listed Company that publicly releases material information outside of the Exchange market hours to inform the Exchange's Surveillance Department of that material information prior to 6:50 a.m. rather than 7:50 a.m. Eastern Time. The Exchange proposes to amend Rule 14.6, Interpretation and Policies .01(a), (b), (c), and .02 to reflect the start of the Early Trading Session at 7:00 a.m. Eastern Time. The amended provisions of Rule 14.6, Interpretation and Policies .01(a), (b), (c), and .02 require companies to notify the Exchange's Surveillance Department of the release of certain material information at least ten minutes prior to the release of such information to the public when the public release of the information is made during Exchange market hours. Rule 14.11, Other Securities. The Exchange proposes to amend Rule 14.11(b)(7) and (c)(7) to reflect the extension of the Pre- Opening Session to 7:00 a.m. Eastern Time. The Exchange also proposes to amend the following provisions of Rule 14.11 to include references to the Early Trading Session or to state that transaction in the following products may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions: Commodity-Based Trust Shares; Currency Trust Shares; Commodity Futures Trust Shares; Trust Units; and Managed Trust Securities: [cir] Rule 14.11(d), Securities Linked to the Performance of Indexes and Commodities (Including Currencies). The Exchange proposes to amend Rule 14.11(d)(2)(K)(i)(b)(3)(B) and Interpretation and Policies .01(b) of Rule 14.11(e) to state, in sum, that where the value of the index or composite value of the indexes is no longer calculated or widely disseminated on at least a 15-second basis with respect to indexes containing only securities listed on a national securities exchange, or on at least a 60-second basis with respect to indexes containing foreign country securities, provided, however, that, if the official index value does not change during some or all of the period when trading is occurring on the Exchange then the last calculated official index value must remain available throughout Regular Trading Hours and the Early Trading, Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(e)(4), Commodity-Based Trust Shares. The Exchange proposes to amend Interpretation and Policies .03 to Rule 14.11(e)(4) to state that transactions in Commodity-Based Trust Shares may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(e)(5), Currency Trust Shares. The Exchange proposes to amend Interpretation and Policies .03 to Rule 14.11(e)(5) to state that transactions in Currency Trust Shares may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(e)(6), Commodity Index Trust Shares. The Exchange proposes to amend Interpretation and Policies .03 to Rule 14.11(e)(6) to state that transactions in Commodity-Based Trust Shares may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(e)(7), Commodity Future Trust Shares. The Exchange proposes to amend Interpretation and Policies .02 to Rule 14.11(e)(7) to state that transactions in Commodity Future Trust Shares may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(e)(9), Trust Units. The Exchange proposes to amend [[Page 10353]] Interpretation and Policies .02 to Rule 14.11(e)(9) to state that transactions in Trust Units may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(e)(10), Managed Trust Securities. The Exchange proposes to amend Interpretation and Policies .02 to Rule 14.11(e)(10) to state that transactions in Managed Trust Securities may occur during the Early Trading Session, in addition to during Regular Trading Hours and the Pre-Opening and After Hours Trading Sessions. [cir] Rule 14.11(j), Derivative Securities Traded under Unlisted Trading Privileges. The Exchange proposes to amend Rule 14.11(j)(2) to state that the Exchange will distribute an information circular prior to the commencement of trading in each UTP Derivative Security that generally includes the same information as contained in the listing circular provided by the listing exchange, including, the risk of trading during the Early Trading Session (7:00 a.m.-8:00 a.m.) in addition, to the Pre-Opening Session (8:00 a.m.-9:30 a.m. Eastern Time) and the After Hours Trading Session (4:00 p.m.-5:00 p.m. Eastern Time), due to the lack of calculation or dissemination of the underlying index value, the Intraday Indicative Value (as defined in Rule 14.11(b)(3)(C)) or a similar value. The Exchange also proposes to amend Rule 14.11(j)(2) to correct an inaccurate description of the Pre- Opening Session, which currently reads as 9:00 a.m. to 9:30 a.m. rather than 8:00 a.m. to 9:30 a.m. as is set forth throughout Exchange Rules. Rule 14.12, Failure to Meet Listing Standards. The Exchange proposes to amend Rule 14.12(e) and (m)(11) to require that companies that publicly announce the receipt of a notification of deficiency, Staff Delisting Determination, Public Reprimand Letter, or Adjudicatory Body Decision that serves as a Public Reprimand outside of Exchange market hours inform the Exchange's Surveillance Department of the material information prior to 6:50 a.m. rather than 7:50 a.m. Eastern Time. If the public announcement is made during Exchange market hours, both Rules would continue to require that the company inform the Exchange's Surveillance Department at least 10 minutes prior to the announcement. TIF Instructions The Exchange proposes to adopt three new TIF instructions under Rule 11.9(b). Under Rule 11.1(a), a User may designate when their order is eligible for execution by selecting the desired TIF instruction under Exchange Rule 11.9(b). Currently, orders entered between 6:00 a.m. and 8:00 a.m. Eastern Time are not eligible for execution until the start of the Pre-Opening Session, or Regular Trading Hours, depending on the TIF selected by the User. Users may enter orders in advance of the trading session they intend the order to be eligible for. For example, Users may enter orders starting at 6:00 a.m. Eastern Time with a TIF of Regular Hours Only, which designates that the order only be eligible for execution during Regular Trading Hours.\28\ As stated above, Users may enter orders as early as 6:00 a.m. Eastern Time, but those orders would not be eligible for execution until the start of the Pre-Opening Session at 8:00 a.m. --------------------------------------------------------------------------- \28\ See Exchange Rule 11.9(b)(7). --------------------------------------------------------------------------- As discussed above, the Exchange proposed the Early Trading Session in response to User requests for their orders to be eligible for execution starting at 7:00 a.m. Eastern Time. Some Users, however, do not wish for their orders to be executed during the Early Trading Session and have requested their orders continue to not be eligible for execution until the start of the Pre-Opening Session at 8:00 a.m. Therefore, the Exchange proposes to adopt the following three new TIF instructions under Rule 11.9(b): Pre-Opening Session Plus (``PRE''). A limit order that is designated for execution during the Pre-Opening Session and Regular Trading Hours. Like the current Good-`til Cancel (``GTC'') TIF instruction,\29\ any portion not executed expires at the end of Regular Trading Hours. --------------------------------------------------------------------------- \29\ See Exchange Rule 11.9(b)(3). --------------------------------------------------------------------------- Pre-Opening Session `til Extended Day (``PTX''). A limit order that is designated for execution during the Pre-Opening Session, Regular Trading Hours, and the After Hours Session. Like the current Good-`til Extended Day (``GTX'') TIF instruction,\30\ any portion not executed expires at the end of the After Hours Session. --------------------------------------------------------------------------- \30\ See Exchange Rule 11.9(b)(5). --------------------------------------------------------------------------- Pre-Opening Session `til Day (``PTD''). A limit order that is designated for execution during the Pre-Opening Session, Regular Trading Hours, and the After Hours Session. Like the current Good-`til Day (``GTD'') TIF instruction,\31\ any portion not executed will be cancelled at the expiration time assigned to the order, which can be no later than the close of the After Hours Trading Session. --------------------------------------------------------------------------- \31\ See Exchange Rule 11.9(b)(4). --------------------------------------------------------------------------- Under each proposed TIF instruction, Users may designate that their orders only be eligible for execution starting with the Pre-Opening Session. This is similar to the existing TIF of Regular Hours Only, which designates that the order only be eligible for execution during Regular Trading Hours, which starts at 9:30 a.m. Eastern Time. In such case, a User may enter orders starting at 6:00 a.m. Eastern Time, but such order would not be eligible for execution until 9:30 a.m. Eastern Time. Likewise, under each of the proposed TIF instructions, a User may continue to enter orders as early as 6:00 a.m., but such orders would not be eligible for execution until 8:00 a.m. Eastern Time, the start of the Pre-Opening Session.\32\ At the commencement of the Pre-Opening Session, orders entered between 6:00 a.m. and 8:00 a.m. Eastern Time with one of the proposed TIF instructions will be handled in time sequence, beginning with the order with the oldest time stamp, and will be placed on the BATS Book, routed, cancelled, or executed in accordance with the terms of the order.\33\ --------------------------------------------------------------------------- \32\ Orders utilizing one of the proposed TIF instructions would not be eligible for execution during the proposed Early Trading Session. \33\ See Exchange Rule 11.1(a). --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\34\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\35\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. The Exchange also believes that the proposed rule change is non-discriminatory as it would apply to all Members uniformly. The proposed rule change in whole is designed to attract more order flow to the Exchange between 7:00 a.m. and 9:30 a.m. Eastern Time. Increased liquidity during this time will lead to improved price discovery and increased execution opportunities on the Exchange, therefore, promoting just and equitable principles of trade, and removing impediments to and perfecting the mechanism of a free and open market and a national market system. --------------------------------------------------------------------------- \34\ 15 U.S.C. 78f. \35\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- [[Page 10354]] Early Trading Session The Exchange believes its proposal to adopt the Early Trading Session promotes just and equitable principles of trade, removes impediments to and perfects the mechanism of a free and open market and a national market system, prevents fraudulent and manipulative acts and practices, and, in general, protects investors and the public interest. The Exchange believes that the Early Trading Session will benefit investors, the national market system, Members, and the Exchange market by increasing competition for order flow and executions, and thereby spur product enhancements and lower prices. The Early Trading Session will benefit Members and the Exchange market by increasing trading opportunities between 7:00 a.m. and 8:00 a.m. without increasing ancillary trading costs (telecommunications, data, connectivity, etc.) and, thereby, decreasing average trading costs per share. The Exchange notes that trading during the proposed Early Trading Session has been available on NYSE Arca and Nasdaq.\36\ The Exchange believes that the availability of trading between 7:00 a.m. and 8:00 a.m. has been beneficial to market participants including investors and issuers on other markets. Introduction of the Early Trading Session on the Exchange will further expand these benefits. --------------------------------------------------------------------------- \36\ See supra note 4. --------------------------------------------------------------------------- Additionally, the Exchange Act's goal of creating an efficient market system includes multiple policies such as price discovery, order interaction, and competition among markets. The Exchange believes that offering a competing trading session will promote all of these policies and will enhance quote competition, improve liquidity in the market, support the quality of price discovery, promote market transparency, and increase competition for trade executions while reducing spreads and transaction costs. Additionally, increasing liquidity during the Early Trading Session will raise investors' confidence in the fairness of the markets and their transactions, particularly due to the lower volume of trading occurring prior to opening. Although the Exchange will be operating with bifurcated pre-opening trading sessions, the Exchange notes that having bifurcated after hours trading sessions is not novel. For example, the CHX maintains two after hours trading sessions,\37\ the Late Trading Session, which runs from 4:00 p.m. to 4:15 p.m. Eastern Time, and the Late Crossing Session, which runs from 4:15 p.m. to 5:00 Eastern Time. As such, the Exchange does not believe that the proposed rule change will disproportionately increase the complexity of the market. --------------------------------------------------------------------------- \37\ See supra note 5. --------------------------------------------------------------------------- The expansion of trading hours through the creation of the Early Trading Session promotes just and equitable principles of trade by providing market participants with additional options in seeking execution on the Exchange. Order entry and execution during the Early Trading Session would operate in the same manner as it does today during the Pre-Opening Session. In addition, the Exchange will report the best bid and offer on the Exchange to the appropriate network processor, and the Exchange's proprietary data feeds will be disseminated, beginning at 7:00 a.m. The proposal will, therefore, facilitate a well-regulated, orderly, and efficient market during a period of time that is currently underserved. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices because all surveillance coverage currently performed by the Exchange's surveillance systems will launch by the time trading starts at 7:00 a.m. Eastern Time. Further, the Exchange believes that the proposed rule change will protect investors and the public interest because the Exchange is updating its customer disclosure requirements to prohibit Members from accepting an order from a customer for execution in the Early Trading Session without disclosing to their customer that extended hours trading involves material trading risks, including the possibility of lower liquidity, high volatility, changing prices, unlinked markets, an exaggerated effect from news announcements, wider spreads and any other relevant risk. TIF Instructions The Exchange believes its proposed TIF instructions promote just and equitable principles of trade, and remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that the proposed TIF instructions will benefit investors by providing them with greater control over their orders. The proposed TIF instructions simply provide investors with additional optionality for when their orders may be eligible for execution. The ability to select the trading sessions or time upon which an order is to be eligible for execution is not novel and is currently available on the Exchange and other market centers. For example, on the Exchange, a User may enter an order starting at 6:00 a.m. Eastern Time and select that such order not be eligible for execution until 9:30 a.m., the start of Regular Trading Hours using TIF instructions of Regular Hours Only.\38\ In addition, like each of the proposed TIF instructions, Nasdaq utilizes a TIF, referred to as ESCN, under which an order using its SCAN routing strategy entered prior to 8:00 a.m. Eastern Time is not eligible for execution until 8:00 a.m. Eastern Time.\39\ --------------------------------------------------------------------------- \38\ See Exchange Rule 11.9(b)(7). See also Nasdaq Rule 4703(a) (outlining TIF instructions that do not activate orders until 9:30 a.m. Eastern Time). \39\ See Nasdaq Rule 4703(a). See also Nasdaq Rule 4703(a)(7). --------------------------------------------------------------------------- The Exchange proposed the Early Trading Session discussed above in response to User requests for their orders to be eligible for execution starting at 7:00 a.m. Eastern Time. However, some Users have requested their orders continue to not be eligible for execution until the start of the Pre-Opening Session at 8:00 a.m. Therefore, the Exchange proposed the three new TIF instructions in order for Users to designate their orders as eligible for execution as of the start of the Pre- Opening Session. Members will maintain the ability to cancel or modify the terms of their order at any time, including during the time from when the order is routed to the Exchange until the start of the Pre-Opening Session. As a result, a Member who utilizes the proposed TIF instructions, but later determines that market conditions favor execution during Early Trading Session, can cancel the order residing at the Exchange and enter a separate order to execute during the Early Trading Session. While a User must make every effort to execute a marketable customer order it receives fully and promptly,\40\ doing so might not result in the best execution possible for the customer. Such Users may wish to delay the execution of their orders until the start of the Pre-Opening Session for various reasons, including the characteristics of the market for the security as well as the amount of liquidity available in the market as part of their best execution obligations.\41\ --------------------------------------------------------------------------- \40\ See Supplemental Material .01 to Financial Industry Regulatory Authority, Inc. (``FINRA'') Rule 5310. \41\ A Member's best execution obligation may also include cancelling an order when market conditions deteriorate and could result in an inferior execution or informing customers where the execution of their order may be delayed intentionally as the Member utilizes reasonable diligence to ascertain the best market for the security. See FINRA Rule 5130. See also FINRA Regulatory Notice 15- 46, Best Execution. Guidance on Best Execution Obligations in Equity, Options, and Fixed Income Markets, (November 2015). --------------------------------------------------------------------------- [[Page 10355]] Specifically, FINRA Rule 5310(a)(1) provides that a Member must use reasonable diligence to ascertain the best market for a security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions. And importantly, FINRA Rule 5310(a)(1)(A) states that one of the factors that will be considered in determining whether a member has used ``reasonable diligence'' is ``the character of the market for the security (e.g., price, volatility, relative liquidity, and pressure on available communication).\42\ As such, a Member conducting ``reasonable diligence'' may determine that due to the character of the Early Trading Session, along with considering other relevant factors, the Member wants to utilize the proposed TIF instructions. --------------------------------------------------------------------------- \42\ Tellingly, these characteristics are reflected in the disclosure requirements mandated by Exchange Rule 3.21 before a Member may accept an order from a customer for execution in the Pre- Opening, After Hours, and proposed Early Trading Sessions. --------------------------------------------------------------------------- Members will be accustomed to this additional analysis in determining whether to participate in the Early Trading Session, Pre- Opening Session, or Regular Trading Hours. The regulatory guidance with respect to best execution anticipates the continued evolution of execution venues: [B]est execution is a facts and circumstances determination. A broker-dealer must consider several factors affecting the quality of execution, including, for example, the opportunity for price improvement, the likelihood of execution . . . , the speed of execution and the trading characteristics of the security, together with other non-price factors such as reliability and service.\43\ --------------------------------------------------------------------------- \43\ See Securities Exchange Act Release No. 43950 (November 17, 2000), 65 FR 75414 (December 1, 2000) (``Disclosure of Order Execution and Routing Practices release''). To the extent there may be best execution obligations at issue, they are no different than the best execution obligations faced by brokers in the current market structure,\44\ including the use of the currently available Regular Trading Hours TIF instruction or SCAN/ESCN routing strategy available on Nasdaq discussed above.\45\ However, similar to why a Member may utilize the Regular Trading Hours TIF instruction, a User may wish to forgo a possible execution during the Early Trading Session and/or Pre-Opening Session if they believe doing so is consistent with their best execution obligations as they anticipate that the market for the security may improve upon the start of the Pre-Opening Session and/or Regular Trading Hours.\46\ Applicable best execution guidance contains no formulaic mandate as to whether or how brokers should direct orders. The optionality created by the proposed rule change simply represents one tool available to Members in order to meet their best execution obligations. --------------------------------------------------------------------------- \44\ The Commission has also indicated a User's best execution obligation may not be satisfied simply by obtaining the best bid or offer (``BBO''). See Securities Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290 (September 12, 1996) (``Order Executions Obligations release''). While a User may seek the most favorable terms reasonably available under the circumstances of the transaction, such terms may not necessarily in every case be the best price available. Id. See also FINRA Regulatory Notice 15-46, Best Execution. Guidance on Best Execution Obligations in Equity, Options, and Fixed Income Markets, (November 2015). \45\ See supra note 39. \46\ Exchange Rule 3.21 requires Member make certain disclosures to their customers prior to accepting an order for execution outside of Regular Trading Hours. These disclosures include, among other things, the risk of lower liquidity, higher volatility, wider spreads, and changing prices in extended hours trading as compared to regular market hours. See Exchange Rule 3.21(a)-(g). --------------------------------------------------------------------------- The Exchange notes that it would subject orders that are eligible for execution as of the start of the Pre-Opening Session to all of the Exchange's standard regulatory checks, as it currently does with all orders upon entry. These checks include compliance with Regulation NMS,\47\ Regulation SHO,\48\ as well as relevant Exchange rules.\49\ --------------------------------------------------------------------------- \47\ 17 CFR 242.610-611. \48\ 17 CFR 242.200-204. \49\ See, e.g., Exchange Rule 11.13(a). --------------------------------------------------------------------------- Lastly, the Exchange reminds Members of their regulatory obligations when submitting an order one of the proposed TIF instructions. The Market Access Rule under Rule 15c3-5 of the Act requires broker-dealers to, among other things, implement regulatory risk management controls and procedures that are reasonably designed to prevent the entry of orders that fail to comply with regulatory requirements that apply on a pre-order entry basis.\50\ These pre-trade controls must, for example, be reasonably designed to assure compliance with Exchange trading rules and Commission rules under Regulation SHO \51\ and Regulation NMS.\52\ In accordance with the Market Access Rule, a Member's procedures must be reasonably designed to ensure compliance with their applicable regulatory requirements, not just at the time the order is routed to the Exchange, but also at the time the order becomes eligible for execution. --------------------------------------------------------------------------- \50\ See Securities Exchange Act Release No. 63241 (November 3, 2010), 75 FR 69792 (November 15, 2010) (File no. S7-03-10). \51\ See e.g., Question 2.6 of the Division of Trading and Markets: Response to Frequently Asked Questions Concerning Regulations SHO, available at https://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm. \52\ 17 CFR 240.610-611. --------------------------------------------------------------------------- (B) Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that its proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed rule change will benefit investors, the national market system, Members, and the Exchange market by increasing competition for order flow and executions during the pre-market sessions, thereby spurring product enhancements and lowering prices. The Exchange believes the proposed Early Trading Session would enhance competition by enabling the Exchange to directly compete with NYSE Arca and Nasdaq for order flow and executions starting at 7:00 a.m., rather than 8:00 a.m. Eastern Time. In addition, the proposed TIF instructions will enhance competition by enabling the Exchange to offer functionality similar to Nasdaq.\53\ The fact that the extending of the proposed Early Trading Session and TIF instructions are themselves a response to the competition provided by other markets is evidence of its pro- competitive nature. --------------------------------------------------------------------------- \53\ See supra note 39. --------------------------------------------------------------------------- (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 unsolicited written comments from Members or other interested parties. 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 [[Page 10356]] 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 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-BATS-2016-14 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-BATS-2016-14. 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 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 No. SR-BATS-2016-14 and should be submitted on or before March 21, 2016. --------------------------------------------------------------------------- \54\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\54\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-04252 Filed 2-26-16; 8:45 am] BILLING CODE 8011-01-P
![10350 Federal Register / Vol. 81, No. 39 / Monday, February 29, 2016 / Notices
All submissions should refer to File ‘‘Exchange’’ or ‘‘BATS’’) filed with the from 9:30 a.m. to 4:00 p.m. Eastern
Number SR–BATS–2016–17. This file Securities and Exchange Commission Time; and (iii) the After Hours Session,
number should be included on the (‘‘Commission’’) the proposed rule which runs from 4:00 p.m. to 5:00 p.m.
subject line if email is used. To help the change as described in Items I, II and III Eastern Time. The Exchange proposes to
Commission process and review your below, which Items have been prepared amend its rules to create a new trading
comments more efficiently, please use by the Exchange. The Commission is session to be known as the Early
only one method. The Commission will publishing this notice to solicit Trading Session, which will run from
post all comments on the Commission’s comments on the proposed rule change 7:00 a.m. to 8:00 a.m. Eastern Time.4
Internet Web site (http://www.sec.gov/ from interested persons. Exchange Rule 1.5 would be amended to
rules/sro.shtml). Copies of the add a new definition for the term ‘‘Early
submission, all subsequent I. Self-Regulatory Organization’s Trading Session’’ under new paragraph
amendments, all written statements Statement of the Terms of Substance of (ee). ‘‘Early Trading Session’’ would be
with respect to the proposed rule the Proposed Rule Change defined as ‘‘the time between 7:00 a.m.
change that are filed with the The Exchange filed a proposal to and 8:00 a.m. Eastern Time.’’ 5
Commission, and all written amend its rules to: (i) Create a new The Exchange also proposes to amend
communications relating to the trading session to be known as the Early Rule 11.1(a) to account for the Early
proposed rule change between the Trading Session, which will run from Trading Session starting at 7:00 a.m.
Commission and any person, other than 7:00 a.m. to 8:00 a.m. Eastern Time; and Eastern Time. Other than the proposal
those that may be withheld from the (ii) adopt three new Time-in-Force to adopt an Early Trading Session
public in accordance with the (‘‘TIF’’) instructions. starting at 7:00 a.m. Eastern Time, the
provisions of 5 U.S.C. 552, will be The text of the proposed rule change Exchange does not propose to amend
available for Web site viewing and is available at the Exchange’s Web site the substance or operation of Rule
printing in the Commission’s Public at www.batstrading.com, at the 11.1(a).
Reference Room, 100 F Street NE., principal office of the Exchange, and at Users currently designate when their
Washington, DC 20549 on official the Commission’s Public Reference orders are eligible for execution by
business days between the hours of Room. selecting the desired TIF instruction
10:00 a.m. and 3:00 p.m. Copies of such under Exchange Rule 11.9(b). Orders
filing also will be available for II. Self-Regulatory Organization’s entered between 6:00 a.m. and 8:00 a.m.
inspection and copying at the principal Statement of the Purpose of, and Eastern Time are not eligible for
offices of the Exchange. All comments Statutory Basis for, the Proposed Rule execution until the start of the Pre-
received will be posted without change; Change Opening Session, or Regular Trading
the Commission does not edit personal In its filing with the Commission, the Hours,6 depending on the TIF selected
identifying information from Exchange included statements by the User. Users may enter orders in
submissions. You should submit only concerning the purpose of and basis for advance of the trading session they
information that you wish to make the proposed rule change and discussed intend the order to be eligible for. For
available publicly. All submissions any comments it received on the example, Users may enter orders
should refer to File Number SR–BATS– proposed rule change. The text of these starting at 6:00 a.m. Eastern Time with
2016–17, and should be submitted on or statements may be examined at the a TIF of Regular Hours Only, which
before March 21, 2016. places specified in Item IV below. The designates that the order only be eligible
For the Commission, by the Division of Exchange has prepared summaries, set for execution during Regular Trading
Trading and Markets, pursuant to delegated forth in Sections A, B, and C below, of Hours.7 As stated above, Users may
authority.46 the most significant parts of such enter orders as early as 6:00 a.m. Eastern
Robert W. Errett, statements. Time, but those orders would not be
Deputy Secretary. eligible for execution until the start of
(A) Self-Regulatory Organization’s the Pre-Opening Session at 8:00 a.m.
[FR Doc. 2016–04358 Filed 2–26–16; 8:45 am] Statement of the Purpose of, and
BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule 4 The Exchange notes that NYSE Arca, Inc.
Change (‘‘NYSE Arca’’) operates an Opening Session that
starts at 4:00 a.m. Eastern Time (1:00 a.m. Pacific
SECURITIES AND EXCHANGE 1. Purpose Time) and ends at 9:30 a.m. Eastern Time (6:30 a.m.
COMMISSION Pacific Time). See NYSE Arca Rule 7.34(a)(1). The
The Exchange proposes to amend its Nasdaq Stock Market LLC (‘‘Nasdaq’’) operates a
[Release No. 34–77214; File No. SR–BATS– rules to: (i) Create a new trading session pre-market session that also opens at 4:00 a.m. and
2016–14] to be known as the Early Trading ends at 9:30 a.m. Eastern Time. See Nasdaq Rule
Session, which will run from 7:00 a.m. 4701(g). See also Securities Exchange Act Release
No. 69151 (March 15, 2013), 78 FR 17464 (March
Self-Regulatory Organizations; BATS to 8:00 a.m. Eastern Time; and (ii) adopt 21, 2013) (SR–Nasdaq–2013–033) (Notice of Filing
Exchange, Inc.; Notice of Filing of a three new TIF instructions. and Immediate Effectiveness of Proposed Rule
Proposed Rule Change To Adopt an Change to Extend the Pre-Market Hours of the
Early Trading Session and Three New Early Trading Session Exchange to 4:00 a.m. EST).
5 An Exchange having bifurcated after hours
Time-in-Force Instructions The Exchange trading day is currently
trading sessions is not novel. For example, the
divided into three sessions of which a Chicago Stock Exchange, Inc. (‘‘CHX’’) maintains
February 23, 2016.
User 3 may select their order(s) be two after hours trading sessions. See CHX Article
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the eligible for execution: (i) The Pre- 20, Rule 1(b). See also Securities Exchange Act
Securities Exchange Act of 1934 (the Opening Session which starts at 8:00 Release No. 60605 (September 1, 2009), 74 FR
‘‘Act’’),1 and Rule 19b–4 thereunder,2 a.m. and ends at 9:30 a.m. Eastern Time;
46277 (September 8, 2009) (SR–CHX–2009–13)
notice is hereby given that on February (Notice of Filing and Immediate Effectiveness of
(ii) Regular Trading Hours which runs Proposed Rule Change Adding Additional Trading
12, 2016, BATS Exchange, Inc. (the Sessions).
3 ‘‘User’’ is defined as ‘‘any Member or Sponsored 6 ‘‘Regular Trading Hours’’ is defined as ‘‘the time
46 17 CFR 200.30–3(a)(12). Participant who is authorized to obtain access to the between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ See
1 15 U.S.C. 78s(b)(1). Exchange Rule 1.5(w).
System pursuant to Rule 11.3.’’ See Exchange Rule
2 17 CFR 240.19b–4. 1.5(cc). 7 See Exchange Rule 11.9(b)(7).
VerDate Sep<11>2014 19:23 Feb 26, 2016 Jkt 238001 PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 E:\FR\FM\29FEN1.SGM 29FEN1](https://thefederalregister.org/doc/81_FR_10389/page/1.svg)
![Federal Register / Vol. 81, No. 39 / Monday, February 29, 2016 / Notices 10355
Specifically, FINRA Rule 5310(a)(1) the use of the currently available accordance with the Market Access
provides that a Member must use Regular Trading Hours TIF instruction Rule, a Member’s procedures must be
reasonable diligence to ascertain the or SCAN/ESCN routing strategy reasonably designed to ensure
best market for a security and buy or sell available on Nasdaq discussed above.45 compliance with their applicable
in such market so that the resultant However, similar to why a Member may regulatory requirements, not just at the
price to the customer is as favorable as utilize the Regular Trading Hours TIF time the order is routed to the Exchange,
possible under prevailing market instruction, a User may wish to forgo a but also at the time the order becomes
conditions. And importantly, FINRA possible execution during the Early eligible for execution.
Rule 5310(a)(1)(A) states that one of the Trading Session and/or Pre-Opening
(B) Self-Regulatory Organization’s
factors that will be considered in Session if they believe doing so is
Statement on Burden on Competition
determining whether a member has consistent with their best execution
used ‘‘reasonable diligence’’ is ‘‘the obligations as they anticipate that the The Exchange does not believe that its
character of the market for the security market for the security may improve proposed rule change will impose any
(e.g., price, volatility, relative liquidity, upon the start of the Pre-Opening burden on competition that is not
and pressure on available Session and/or Regular Trading necessary or appropriate in furtherance
communication).42 As such, a Member Hours.46 Applicable best execution of the purposes of the Act. The
conducting ‘‘reasonable diligence’’ may guidance contains no formulaic Exchange believes that the proposed
determine that due to the character of mandate as to whether or how brokers rule change will benefit investors, the
the Early Trading Session, along with should direct orders. The optionality national market system, Members, and
considering other relevant factors, the created by the proposed rule change the Exchange market by increasing
Member wants to utilize the proposed simply represents one tool available to competition for order flow and
TIF instructions. Members in order to meet their best executions during the pre-market
Members will be accustomed to this execution obligations. sessions, thereby spurring product
additional analysis in determining The Exchange notes that it would enhancements and lowering prices. The
whether to participate in the Early subject orders that are eligible for Exchange believes the proposed Early
Trading Session, Pre-Opening Session, execution as of the start of the Pre- Trading Session would enhance
or Regular Trading Hours. The Opening Session to all of the Exchange’s competition by enabling the Exchange
regulatory guidance with respect to best standard regulatory checks, as it to directly compete with NYSE Arca
execution anticipates the continued currently does with all orders upon and Nasdaq for order flow and
evolution of execution venues: entry. These checks include compliance executions starting at 7:00 a.m., rather
[B]est execution is a facts and circumstances with Regulation NMS,47 Regulation than 8:00 a.m. Eastern Time. In
determination. A broker-dealer must consider SHO,48 as well as relevant Exchange addition, the proposed TIF instructions
several factors affecting the quality of rules.49 will enhance competition by enabling
execution, including, for example, the Lastly, the Exchange reminds the Exchange to offer functionality
opportunity for price improvement, the Members of their regulatory obligations similar to Nasdaq.53 The fact that the
likelihood of execution . . . , the speed of when submitting an order one of the extending of the proposed Early Trading
execution and the trading characteristics of proposed TIF instructions. The Market Session and TIF instructions are
the security, together with other non-price Access Rule under Rule 15c3–5 of the themselves a response to the
factors such as reliability and service.43 Act requires broker-dealers to, among competition provided by other markets
To the extent there may be best other things, implement regulatory risk is evidence of its pro-competitive
execution obligations at issue, they are management controls and procedures nature.
no different than the best execution that are reasonably designed to prevent
obligations faced by brokers in the the entry of orders that fail to comply (C) Self-Regulatory Organization’s
current market structure,44 including with regulatory requirements that apply Statement on Comments on the
on a pre-order entry basis.50 These pre- Proposed Rule Change Received From
intentionally as the Member utilizes reasonable trade controls must, for example, be Members, Participants or Others
diligence to ascertain the best market for the reasonably designed to assure The Exchange has not solicited, and
security. See FINRA Rule 5130. See also FINRA
Regulatory Notice 15–46, Best Execution. Guidance compliance with Exchange trading rules does not intend to solicit, comments on
on Best Execution Obligations in Equity, Options, and Commission rules under Regulation this proposed rule change. The
and Fixed Income Markets, (November 2015). SHO 51 and Regulation NMS.52 In Exchange has not received any
42 Tellingly, these characteristics are reflected in
unsolicited written comments from
the disclosure requirements mandated by Exchange 45 See supra note 39. Members or other interested parties.
Rule 3.21 before a Member may accept an order 46 Exchange Rule 3.21 requires Member make
from a customer for execution in the Pre-Opening,
certain disclosures to their customers prior to III. Date of Effectiveness of the
After Hours, and proposed Early Trading Sessions. Proposed Rule Change and Timing for
43 See Securities Exchange Act Release No. 43950
accepting an order for execution outside of Regular
(November 17, 2000), 65 FR 75414 (December 1,
Trading Hours. These disclosures include, among Commission Action
other things, the risk of lower liquidity, higher
2000) (‘‘Disclosure of Order Execution and Routing volatility, wider spreads, and changing prices in Within 45 days of the date of
Practices release’’).
44 The Commission has also indicated a User’s
extended hours trading as compared to regular publication of this notice in the Federal
market hours. See Exchange Rule 3.21(a)–(g). Register or within such longer period (i)
best execution obligation may not be satisfied 47 17 CFR 242.610–611.
simply by obtaining the best bid or offer (‘‘BBO’’). 48 17 CFR 242.200–204.
as the Commission may designate up to
90 days of such date if it finds such
asabaliauskas on DSK5VPTVN1PROD with NOTICES
See Securities Exchange Act Release No. 37619A 49 See, e.g., Exchange Rule 11.13(a).
(September 6, 1996), 61 FR 48290 (September 12, longer period to be appropriate and
50 See Securities Exchange Act Release No. 63241
1996) (‘‘Order Executions Obligations release’’).
While a User may seek the most favorable terms (November 3, 2010), 75 FR 69792 (November 15, publishes its reasons for so finding or
reasonably available under the circumstances of the 2010) (File no. S7–03–10). (ii) as to which the Exchange consents,
51 See e.g., Question 2.6 of the Division of Trading
transaction, such terms may not necessarily in the Commission will: (a) By order
every case be the best price available. Id. See also and Markets: Response to Frequently Asked
Questions Concerning Regulations SHO, available
approve or disapprove such proposed
FINRA Regulatory Notice 15–46, Best Execution.
Guidance on Best Execution Obligations in Equity, at https://www.sec.gov/divisions/marketreg/ rule change, or (b) institute proceedings
Options, and Fixed Income Markets, (November mrfaqregsho1204.htm.
2015). 52 17 CFR 240.610–611. 53 See supra note 39.
VerDate Sep<11>2014 19:23 Feb 26, 2016 Jkt 238001 PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 E:\FR\FM\29FEN1.SGM 29FEN1](https://thefederalregister.org/doc/81_FR_10389/page/6.svg)
![10356 Federal Register / Vol. 81, No. 39 / Monday, February 29, 2016 / Notices
to determine whether the proposed rule For the Commission, by the Division of year ($170 million for 2015), or (2) a
change should be disapproved. Trading and Markets, pursuant to delegated quantity of a GSP-eligible article having
authority.54 a value equal to or greater than 50
IV. Solicitation of Comments Robert W. Errett, percent of the value of total U.S. imports
Deputy Secretary. of the article from all countries (the ‘‘50
Interested persons are invited to
submit written data, views, and [FR Doc. 2016–04252 Filed 2–26–16; 8:45 am] percent’’ CNL), the President must
arguments concerning the foregoing, BILLING CODE 8011–01–P terminate GSP duty-free treatment for
including whether the proposed rule that article from that BDC by no later
change is consistent with the Act. than July 1 of the next calendar year,
Comments may be submitted by any of OFFICE OF THE UNITED STATES unless a waiver is granted. (Note—as
the following methods: TRADE REPRESENTATIVE announced in a November 17, 2015,
Federal Register notice (FRN), petitions
Electronic Comments 2015/2016 Generalized System of for CNL waivers are being considered
Preferences (GSP) Annual Product under a separate timeline than that of
• Use the Commission’s Internet Review: Inviting Public Comments on the actions on CNLs set forth in this
comment form (http://www.sec.gov/ Possible Actions Related to FRN).
rules/sro.shtml); or Competitive Need Limitations De minimis waivers: Under section
• Send an email to rule-comments@ 503(c)(2)(F) of the 1974 Act, the
sec.gov. Please include File Number SR– AGENCY: Office of the United States
President may waive the 50 percent
BATS–2016–14 on the subject line. Trade Representative.
CNL with respect to an eligible article
ACTION: Notice and solicitation of imported from a BDC if the value of
Paper Comments comments. total imports of that article from all
• Send paper comments in triplicate countries during the calendar year did
SUMMARY: This notice announces the
to Secretary, Securities and Exchange not exceed the applicable de minimis
availability of full 2015 calendar year
Commission, 100 F Street NE., amount for that year ($22.5 million for
import statistics relating to competitive
Washington, DC 20549–1090. 2015).
need limitations (CNLs) under the
Generalized System of Preferences Redesignations: Under section
All submissions should refer to File 503(c)(2)(C) of the 1974 Act, if imports
Number SR–BATS–2016–14. This file (GSP) program. The Office of the United
States Trade Representative (USTR) will of an eligible article from a BDC ceased
number should be included on the to receive duty-free treatment due to
subject line if email is used. To help the accept public comments submitted by
April 1, 2016, regarding: (1) Possible de exceeding a CNL in a prior year, the
Commission process and review your President may, subject to the
comments more efficiently, please use minimis CNL waivers; and (2) possible
redesignations of articles currently not considerations in sections 501 and 502
only one method. The Commission will of the 1974 Act, redesignate such an
post all comments on the Commission’s eligible for GSP benefits because they
previously exceeded the CNL article for duty-free treatment if imports
Internet Web site (http://www.sec.gov/ in the most recently completed calendar
thresholds. This notice also announces
rules/sro.shtml). Copies of the year did not exceed the CNLs.
the withdrawal by the petitioners of
submission, all subsequent CNL waiver revocation: Under Section
certain previously accepted CNL waiver
amendments, all written statements 503(d)(5) of the 1974 Act, a CNL waiver
petitions.
with respect to the proposed rule remains in effect until the President
change that are filed with the FOR FURTHER INFORMATION CONTACT:
determines that it is no longer
Commission, and all written Aimee Larsen, Director for GSP, Office warranted due to changed
communications relating to the of the United States Trade circumstances. Section 503(d)(4)(B)(ii)
proposed rule change between the Representative, 600 17th Street NW., of the 1974 Act, as amended by Public
Commission and any person, other than Washington DC 20508. The telephone Law 109–432, also provides that, ‘‘[n]ot
those that may be withheld from the number is (202) 395–2974 and the email later than July 1 of each year, the
public in accordance with the address is Aimee_B_Larsen@ President should revoke any waiver that
provisions of 5 U.S.C. 552, will be ustr.eop.gov. has then been in effect with respect to
available for Web site viewing and DATES: Public comments are due by 5:00 an article for five years or more if the
printing in the Commission’s Public p.m., Friday, April 1, 2016. beneficiary developing country has
Reference Room, 100 F Street NE., SUPPLEMENTARY INFORMATION: exported to the United States (directly
Washington, DC 20549, on official or indirectly) during the preceding
business days between the hours of I. Statutory Provisions Related to CNLs calendar year a quantity of the article—
10:00 a.m. and 3:00 p.m. Copies of the The GSP program provides for the (I) having an appraised value in excess
filing will also be available for duty-free importation of designated of 1.5 times the applicable amount set
inspection and copying at the principal articles when imported from designated forth in subsection (c)(2)(A)(ii) for that
office of the Exchange. All comments beneficiary developing countries calendar year ($255 million in 2015); or
received will be posted without change; (BDCs). The GSP program is authorized (II) exceeding 75 percent of the
the Commission does not edit personal by Title V of the Trade Act of 1974 (19 appraised value of the total imports of
identifying information from U.S.C. 2461, et seq.), as amended (the that article into the United States during
asabaliauskas on DSK5VPTVN1PROD with NOTICES
submissions. You should submit only ‘‘1974 Act’’). that calendar year.’’
information that you wish to make Section 503(c)(2)(A) of the 1974 Act Exclusions from GSP duty-free
available publicly. All submissions sets out the two CNLs. When the treatment where CNLs have been
should refer to File No. SR–BATS– President determines that a BDC exceeded will be effective July 1, 2016,
2016–14 and should be submitted on or exported to the United States during a unless granted a waiver by the
before March 21, 2016. calendar year either: (1) A quantity of a President. Any CNL-based exclusions,
GSP-eligible article having a value in CNL waiver revocations, and decisions
54 17 CFR 200.30–3(a)(12). excess of the applicable amount for that with respect to de minimis waivers and
VerDate Sep<11>2014 19:23 Feb 26, 2016 Jkt 238001 PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 E:\FR\FM\29FEN1.SGM 29FEN1](https://thefederalregister.org/doc/81_FR_10389/page/7.svg)
Document Created: 2016-02-27 02:05:19
Document Modified: 2016-02-27 02:05:19
| 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 | 81 FR 10350 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR