81 FR 30366 - Self-Regulatory Organizations; Bats BYX Exchange, Inc. f.k.a BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Exchange Rule 11.27(a) To Implement the Quoting and Trading Provisions of the Regulation NMS Plan To Implement a Tick Size Pilot Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 94 (May 16, 2016)

Page Range		30366-30371
FR Document		2016-11404
Federal Register, Volume 81 Issue 94 (Monday, May 16, 2016)
[Federal Register Volume 81, Number 94 (Monday, May 16, 2016)]
[Notices]
[Pages 30366-30371]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-11404]



[[Page 30366]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77793; File No. SR-BatsBYX-2016-07]


Self-Regulatory Organizations; Bats BYX Exchange, Inc. f.k.a BATS 
Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt Exchange Rule 11.27(a) To Implement the 
Quoting and Trading Provisions of the Regulation NMS Plan To Implement 
a Tick Size Pilot Program

May 10, 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 May 4, 2016, Bats BYX Exchange, Inc. f/k/a BATS Y-Exchange, 
Inc. (the ``Exchange'' or ``BYX'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
by the Exchange. The Exchange has designated this proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4-4(f)(6)(iii) thereunder,\4\ which renders it 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to adopt Exchange Rule 11.27(a) to 
implement the quoting and trading provisions of the Regulation NMS Plan 
to Implement a Tick Size Pilot Program (``Plan''). The proposed rule 
change is substantially similar to a proposed rule change approved by 
the Commission by the Bats BZX Exchange, Inc. f/k/a BATS Exchange, Inc. 
(``BZX'') to adopt BZX Rule 11.27(a) which also implemented the quoting 
and trading provisions of the Plan.\5\
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    \5\ See Securities Exchange Act Release No. 77291 (March 3, 
2016), 81 FR 12543 (March 9, 2016) (order approving SR-BATS-2015-
108).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
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
    On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange, 
BZX, Chicago Stock Exchange, Inc., Bats EDGA Exchange, Inc. f/k/a EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc. f/k/a EDGX Exchange, Inc., 
Financial Industry Regulatory Authority, Inc. (``FINRA''), NASDAQ OMX 
BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, New York 
Stock Exchange LLC (``NYSE''), NYSE MKT LLC, and NYSE Arca, Inc. 
(collectively ``Participants''), filed with the Commission, pursuant to 
Section 11A of the Act \6\ and Rule 608 of Regulation NMS thereunder, 
the Plan to implement a tick size pilot program (``Pilot'').\7\ The 
Participants filed the Plan to comply with an order issued by the 
Commission on June 24, 2014.\8\ The Plan \9\ was published for comment 
in the Federal Register on November 7, 2014, and approved by the 
Commission, as modified, on May 6, 2015.\10\
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    \6\ 15 U.S.C. 78k-1.
    \7\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \8\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \9\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth in the Plan. The Exchange also 
proposes supplementary material as part of this proposed rule change 
to, among other things, provide that the terms used in proposed Rule 
11.27 shall have the same meaning as provided in the Plan, unless 
otherwise specified.
    \10\ See Securities Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27514 (May 13, 2015) (``Approval Order'').
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Participant is required to comply with, 
and to enforce compliance by its member organizations, as applicable, 
with the provisions of the Plan. As is described more fully below, the 
proposed rules would require member organizations to comply with the 
applicable quoting and trading increments for Pilot Securities.\11\
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    \11\ The Exchange proposes to add Information and Policy .03 to 
Rule 11.27 to provide that the Rule shall be in effect during a 
pilot period to coincide with the pilot period for the Plan 
(including any extensions to the pilot period for the Plan).
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    The Pilot will include stocks of companies with $3 billion or less 
in market capitalization, an average daily trading volume of one 
million shares or less, and a volume weighted average price of at least 
$2.00 for every trading day. The Pilot will consist of a control group 
of approximately 1400 Pilot Securities and three test groups with 400 
Pilot Securities in each selected by a stratified sampling.\12\ During 
the pilot, Pilot securities in the control group will be quoted and 
traded at the currently permissible increments. Pilot Securities in the 
first test group (``Test Group One'') will be quoted in $0.05 minimum 
increments but will continue to trade at any price increment that is 
currently permitted.\13\ Pilot Securities in the second test group 
(``Test Group Two'') will be quoted in $0.05 minimum increments and 
will trade at $0.05 minimum increments subject to a midpoint exception, 
a retail investor order exception, and a negotiated trade 
exception.\14\ Pilot Securities in the third test group (``Test Group 
Three'') will be subject to the same restrictions as Test Group Two and 
also will be subject to the ``Trade-at'' requirement to prevent price 
matching by a market participant that is not displaying at a price of a 
Trading Center's \15\ ``Best Protected Bid'' or ``Best Protected 
Offer,'' unless an enumerated exception applies.\16\ In addition to the 
exceptions provided under Test Group Two, an exception for Block Size 
orders and exceptions that mirror those under Rule 611 of Regulation 
NMS \17\ will apply to the Trade-at requirement.
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    \12\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \13\ See Section VI(B) of the Plan.
    \14\ See Section VI(C) of the Plan.
    \15\ The Plan incorporates the definition of ``Trading Center'' 
from Rule 600(b)(78) of Regulation NMS. Regulation NMS defines a 
Trading Center as ``a national securities exchange or national 
securities association that operates an SRO trading facility, an 
alternative trading system, an exchange market maker, an OTC market 
maker, or any other broker or dealer that executes orders internally 
by trading as principal or crossing orders as agent.''
    \16\ See Section VI(D) of the Plan.
    \17\ 17 CFR 242.611.

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[[Page 30367]]

Compliance With the Quoting and Trading Increments of the Plan
    The Plan requires the Exchange to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to comply 
with applicable quoting and trading requirements specified in the Plan. 
Accordingly, the Exchange is proposing new paragraph (a) to Rule 11.27 
(Compliance with Regulation NMS Plan to Implement a Tick Size Pilot 
Program) to require Members \18\ to comply with the quoting and trading 
provisions of the Plan.
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    \18\ The term ``Member'' is defined as ``any registered broker 
or dealer, or any person associated with a registered broker or 
dealer, that has been admitted to membership in the Exchange. A 
Member will have the status of a ``member'' of the Exchange as that 
term is defined in Section 3(a)(3) of the Act.'' See Exchange Rule 
1.5(n).
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    Proposed Rule 11.27(a) (Compliance with Quoting and Trading 
Restrictions) sets forth the requirements for the Exchange and Members 
in meeting their obligations under the Plan. Rule 11.27(a)(1) will 
require Members to establish, maintain and enforce written policies and 
procedures that are reasonably designed to comply with the applicable 
quoting and trading requirements of the Plan. Rule 11.27(a)(2) provides 
that the Exchange Systems \19\ will not display, quote or trade in 
violation of the applicable quoting and trading requirements for a 
Pilot Security specified in the Plan and this Rule, unless such 
quotation or transaction is specifically exempted under the Plan.
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    \19\ The term ``System'' is defined as ``the electronic 
communications and trading facility designated by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing away.'' See Exchange Rule 
1.5(aa).
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    Proposed Rule 11.27(a)(3) clarifies the treatment of Pilot 
Securities that drop below $1.00 during the Pilot Period. In 
particular, Rule 11.27(a)(3) provides that, if the price of a Pilot 
Security drops below $1.00 during regular trading hours on any trading 
day, such Pilot Security will continue to be a Pilot Security subject 
to the Plan. However, if the Closing Price of a Pilot Security on any 
given trading day is below $1.00, such Pilot Security will be moved out 
of its Pilot Test Group into the Control Group, and may then be quoted 
and traded at any price increment that is currently permitted for the 
remainder of the Pilot Period.\20\ Rule 11.27(a)(3) also provides that, 
notwithstanding anything contained within these rules to the contrary, 
Pilot Securities (whether in the Control Group or any Pilot Test Group) 
will continue to be subject to the data collection requirements of the 
Plan at all times during the Pilot Period and for the six-month period 
following the end of the Pilot Period.
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    \20\ The NYSE, on behalf of the Plan Participants, submitted a 
letter to Commission requesting exemption from certain provisions of 
the Plan related to quoting and trading. See letter from Elizabeth 
K. King, NYSE, to Brent J. Fields, Secretary, Commission, dated 
October 14, 2015 (``October Exemption Request''). FINRA, also on 
behalf of the Plan Participants, submitted a separate letter to 
Commission requesting additional exemptions from certain provisions 
of the Plan related to quoting and trading. See letter from Marcia 
E. Asquith, Senior Vice President and Corporate Secretary, FINRA, to 
Robert W. Errett, Deputy Secretary, Commission, dated February 23, 
2016 (``February Exemption Request''). The Commission, pursuant to 
its authority under Rule 608(e) of Regulation NMS, granted BZX a 
limited exemption from the requirement to comply with certain 
provisions of the Plan as specified in the letter and noted herein. 
See letter from David Shillman, Associate Director, Division of 
Trading and Markets, Commission to Eric Swanson, General Counsel, 
BZX, dated March 3, 2016 (``Exemption Letter''). The Exchange is 
seeking the same exemptions as requested in the October Exemption 
Request and the February Exemption Request.
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    In approving the Plan, the Commission noted that the Participants 
had proposed additional selection criteria to minimize the likelihood 
that securities that trade with a share price of $1.00 or less would be 
included in the Pilot, and stated that, once established, the universe 
of Pilot Securities should stay as consistent as possible so that the 
analysis and data can be accurate throughout the Pilot Period.\21\ The 
Exchange notes that a Pilot Security that drops below $1.00 during 
regular trading hours will remain in its applicable Test Group; a Pilot 
Security will only be moved to the Control Group if its Closing Price 
on any given trading day is below $1.00. The Exchange believes that 
this provision is appropriate because it will help ensure that Pilot 
Securities in Test Groups One, Two and Three continue to reflect the 
Pilot's selection criteria, helping ensure the accuracy of the 
resulting data. The Exchange also believes that this provision is 
appropriate because it responds to comments that the Plan address the 
treatment of securities that trade below $1.00 during the Pilot 
Period.\22\
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    \21\ See Approval Order, supra note10, 80 FR at 27535.
    \22\ Id.
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    Proposed Rule 11.27(a)(4) sets forth the applicable limitations for 
securities in Test Group One. Consistent with the language of the Plan, 
Rule 11.27(a)(4) provides that no Member may display, rank, or accept 
from any person any displayable or non-displayable bids or offers, 
orders, or indications of interest in any Pilot Security in Test Group 
One in increments other than $0.05. However, orders priced to execute 
at the midpoint of the national best bid and national best offer 
(``NBBO'') or best protected bid and best protected offer (``PBBO'') 
\23\ and orders entered in a Participant-operated retail liquidity 
program may be ranked and accepted in increments of less than $0.05. 
Pilot Securities in Test Group One may continue to trade at any price 
increment that is currently permitted by applicable Participant, SEC 
and Exchange rules.
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    \23\ Regulation NMS defines a protected bid or protected offer 
as a quotation in an NMS stock that (1) is displayed by an automated 
trading center; (2) is disseminated pursuant to an effective 
national market system plan; and (3) is an automated quotation that 
is the best bid or best offer of a national securities exchange, the 
best bid or best offer of The Nasdaq Stock Market, Inc., or the best 
bid or best offer of a national securities association other than 
the best bid or best offer of The Nasdaq Stock Market, Inc. See 17 
CFR 242.600(57). In the Approval Order, the Commission noted that 
the protected quotation standard encompasses the aggregate of the 
most aggressively priced displayed liquidity on all Trading Centers, 
whereas the NBBO standard is limited to the single best order in the 
market. See Approval Order, supra note 10, 80 FR at 27539.
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    Proposed Rule 11.27(a)(5) sets forth the applicable quoting and 
trading requirements for securities in Test Group Two. This provision 
states that no Member may display, rank, or accept from any person any 
displayable or non-displayable bids or offers, orders, or indications 
of interest in any Pilot Security in Test Group Two in increments other 
than $0.05. However, orders priced to execute at the midpoint of the 
NBBO or PBBO and orders entered in a Participant-operated retail 
liquidity program may be ranked and accepted in increments of less than 
$0.05.
    Proposed Rule 11.27(a)(5) also sets forth the applicable trading 
restrictions for Test Group Two securities. Absent any of the 
exceptions listed in the Rule, no Member may execute orders in any 
Pilot Security in Test Group Two in price increments other than $0.05. 
The $0.05 trading increment will apply to all trades, including 
Brokered Cross Trades.
    Consistent with the language of the Plan, the Rule provides that 
Pilot Securities in Test Group Two may trade in increments of less than 
$0.05 under the following circumstances: (1) trading may occur at the 
midpoint between the NBBO or the PBBO; (2) Retail Investor Orders may 
be provided with price improvement that is at least $0.005 better than 
the PBBO; and (3) Negotiated Trades may trade in increments of less 
than $0.05.
    The Exchange also proposes to add an exception to Rule 11.27(a)(5) 
to permit Members to fill a customer order in a Pilot Security in Test 
Group Two at a non-nickel increment to comply with

[[Page 30368]]

Exchange Rule 12.6 (Prohibition Against Trading Ahead of Customer 
Orders) under limited circumstances. Specifically, the exception would 
allow the execution of a customer order following a proprietary trade 
by the Member at an increment other than $0.05 in the same security, on 
the same side and at the same price as (or within the prescribed amount 
of) a customer order owed a fill pursuant to Exchange Rule 12.6, where 
the triggering proprietary trade was permissible pursuant to an 
exception under the Plan.\24\
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    \24\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See February Exemption Request and 
Exemption Letter, supra note 20. The Exchange is seeking the same 
exemptions as requested in the October Exemption Request and the 
February Exemption Request. Supra note 20.
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    Thus, the Exchange is proposing to add a customer order protection 
exception to Rule 11.27(a)(5) that would permit Members to trade Pilot 
Securities in Test Group Two in increments less than $0.05, and where 
the Member is executing a customer order to comply with Exchange Rule 
12.6 following the execution of a proprietary trade by the Member at an 
increment other than $0.05 where such proprietary trade was permissible 
pursuant to an exception under the Plan. The Exchange believes that 
this approach best facilitates the ability of Members to continue to 
protect customer orders while retaining the flexibility to engage in 
proprietary trades that comply with an exception to the Plan.
    Proposed Rule 11.27(a)(6) sets forth the applicable quoting and 
trading restrictions for Pilot Securities in Test Group Three. The rule 
provides that no Member may display, rank, or accept from any person 
any displayable or non-displayable bids or offers, orders, or 
indications of interest in any Pilot Security in Test Group Three in 
increments other than $0.05. However, orders priced to execute at the 
midpoint of the NBBO or PBBO and orders entered in a Participant-
operated retail liquidity program may be ranked and accepted in 
increments of less than $0.05. The rule also states that, absent any of 
the applicable exceptions, no Member that operates a Trading Center may 
execute orders in any Pilot Security in Test Group Three in price 
increments other than $0.05. The $0.05 trading increment will apply to 
all trades, including Brokered Cross Trades.\25\
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    \25\ A brokered cross trade is a trade that a broker-dealer that 
is a member of a Participant executes directly by matching 
simultaneous buy and sell orders for a Pilot Security. See Section 
I(G) of the Plan.
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    Proposed Rule 11.27(a)(6)(C) sets forth the exceptions pursuant to 
which Pilot Securities in Test Group Three may trade in increments of 
less than $0.05. First, trading may occur at the midpoint between the 
NBBO or PBBO. Second, Retail Investor Orders may be provided with price 
improvement that is at least $0.005 better than the PBBO. Third, 
Negotiated Trades may trade in increments of less than $0.05.
    Similar to that proposed under Rule 11.27(a)(5) described above, 
the Exchange also proposes to add an exception to Rule 11.27(a)(6) to 
permit Members to fill a customer order in a Pilot Security in Test 
Group Three at a non-nickel increment to comply with Exchange Rule 12.6 
(Prohibition Against Trading Ahead of Customer Orders) under limited 
circumstances. Specifically, the exception would allow the execution of 
a customer order following a proprietary trade by the Member at an 
increment other than $0.05 in the same security, on the same side and 
at the same price as (or within the prescribed amount of) a customer 
order owed a fill pursuant to Exchange Rule 12.6, where the triggering 
proprietary trade was permissible pursuant to an exception under the 
Plan.\26\ Thus, the Exchange is proposing to add a customer order 
protection exception to Rule 11.27(a)(6) that would permit Members to 
trade Pilot Securities in Test Group Three in increments less than 
$0.05, and where the Member is executing a customer order to comply 
with Exchange Rule 12.6 following the execution of a proprietary trade 
by the Member at an increment other than $0.05 where such proprietary 
trade was permissible pursuant to an exception under the Plan.
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    \26\ See supra note 24. The Exchange is seeking the same 
exemptions as requested in the October Exemption Request and the 
February Exemption Request. Supra note 20.
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    Proposed Rule 11.27(a)(6)(D) sets forth the ``Trade-at 
Prohibition,'' which is the prohibition against executions by a Member 
that operates a Trading Center of a sell order for a Pilot Security in 
Test Group Three at the price of a Protected Bid or the execution of a 
buy order for a Pilot Security in Test Group Three at the price of a 
Protected Offer during regular trading hours, absent any of the 
exceptions set forth in Rule 11.27(a)(6)(D). Consistent with the Plan, 
the rule reiterates that a Member that operates a Trading Center that 
is displaying a quotation, via either a processor or an SRO quotation 
feed, that is a Protected Bid or Protected Offer is permitted to 
execute orders at that level, but only up to the amount of its 
displayed size. A Member that operates a Trading Center that was not 
displaying a quotation that is the same price as a Protected Quotation, 
via either a processor or an SRO quotation feed, is prohibited from 
price-matching protected quotations unless an exception applies.
    Consistent with the Plan, proposed Rule 11.27(a)(6)(D) also sets 
forth the exceptions to the Trade-at prohibition, pursuant to which a 
Member that operates a Trading Center may execute a sell order for a 
Pilot Security in Test Group Three at the price of a Protected Bid or 
execute a buy order for a Pilot Security in Test Group Three at the 
price of a Protected Offer. The first exception to the Trade-at 
Prohibition is the ``display exception,'' which allows a trade to occur 
at the price of the Protected Quotation, up to the Trading Center's 
full displayed size, if the order ``is executed by a trading center 
that is displaying a quotation.'' \27\
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    \27\ See Section VI(D)(1) of the Plan.
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    In Rule 11.27(a)(6)(D), the Exchange proposes that a Member that 
utilizes the independent aggregation unit concept may satisfy the 
display exception only if the same independent aggregation unit that 
displays interest via either a processor or an SRO Quotation Feed also 
executes an order in reliance upon this exception. The rule provides 
that ``independent aggregation unit'' has the same meaning as provided 
under Rule 200(f) of SEC Regulation SHO.\28\ This provision also 
recognizes that not all members may utilize the independent aggregation 
unit concept as part of their regulatory structure, and still permits 
such members to utilize the display exception if all the other 
requirements of that exception are met.
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    \28\ 17 CFR 242.200. Treatment as an independent aggregation 
unit is available if traders in an aggregation unit pursue only the 
particular trading objective(s) or strategy(ies) of that aggregation 
unit and do not coordinate that strategy with any other aggregation 
unit. Therefore, one independent aggregation unit within a Trading 
Center cannot execute trades pursuant to the display exception in 
reliance on quotations displayed by a different independent 
aggregation unit. As an example, an agency desk of a Trading Center 
cannot rely on the quotation of a proprietary desk in a separate 
independent aggregation unit at that same Trading Center.
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    As initially proposed by the Participants, the Plan contained an 
additional condition to the display exception, which would have 
required that, where the quotation is displayed through a national 
securities exchange, the execution at the size of the order must occur 
against the displayed size on that national securities exchange; and 
where the quotation is displayed through the Alternative Display 
Facility

[[Page 30369]]

or another facility approved by the Commission that does not provide 
execution functionality, the execution at the size of the order must 
occur against the displayed size in accordance with the rules of the 
Alternative Display Facility of such approved facility (``venue 
limitation'').\29\ Some commenters stated that this provision was anti-
competitive, as it would have forced off-exchange Trading Centers to 
route orders to the venue on which the order was displayed.\30\
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    \29\ See Securities Exchange Act Release No. 73511 (November 3, 
2014), 79 FR 66423, 66437 (November 7, 2014).
    \30\ See Approval Order, supra note 10, 80 FR at 27540.
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    In approving the Plan, the Commission modified the Trade-At 
Prohibition to remove the venue limitation.\31\ The Commission noted 
that the venue limitation was not prescribed in its Order mandating the 
filing of the Plan.\32\ The Commission also noted that the venue 
limitation would have unnecessarily restricted the ability of off-
exchange market participants to execute orders in Test Group Three 
Securities, and that removing the venue limitation should mitigate 
concerns about the cost and complexity of the Pilot by reducing the 
need for off-exchange Trading Centers to route to the exchange.\33\ The 
Commission also stated that the venue limitation did not create any 
additional incentives to display liquidity in furtherance of the 
purposes of the Trade-At Prohibition, because the requirement that a 
Trading Center could only trade at a protected quotation up to its 
displayed size should be sufficient to incentivize displayed 
liquidity.\34\
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    \31\ Id.
    \32\ Id.
    \33\ Id.
    \34\ Id.
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    Consistent with Plan and the SEC's determination to remove the 
venue limitation, the Exchange is making clear that the display 
exception applies to trades done by a Trading Center otherwise than on 
an exchange where the Trading Center has previously displayed a 
quotation in either an agency or a principal capacity. As part of the 
display exception, the Exchange also proposes that a Trading Center 
that is displaying a quotation as agent or riskless principal may only 
execute as agent or riskless principal, while a Trading Center 
displaying a quotation as principal (excluding riskless principal) may 
execute either as principal or agent or riskless principal. The 
Exchange believes this is consistent with the Plan and the objective of 
the Trade-at Prohibition, which is to promote the display of liquidity 
and generally to prevent any Trading Center that is not quoting from 
price-matching Protected Quotations. Providing that a Trading Center 
may not execute on a proprietary basis in reliance on a quotation 
representing customer interest (whether agency or riskless principal) 
ensures that the Trading Center cannot avoid compliance with the Trade-
at Prohibition by trading on a proprietary basis in reliance on a 
quotation that does not represent such Trading Center's own interest. 
Where a Trading Center is displaying a quotation at the same price as a 
Protected Quotation in a proprietary capacity, transactions in any 
capacity at the price and up to the size of such Trading Center's 
displayed quotation would be permissible. Transactions executed 
pursuant to the display exception may occur on the venue on which such 
quotation is displayed or over the counter.
    The proposal also excepts Block Size orders \35\ and permits 
Trading Centers to trade at the price of a Protected Quotation, 
provided that the order is of Block Size at the time of origin and is 
not an aggregation of non-block orders, broken into orders smaller than 
Block Size prior to submitting the order to a Trading Center for 
execution; or executed on multiple Trading Centers.\36\ The Plan only 
provides that Block Size orders shall be exempted from the Trade-At 
Prohibition. In requiring that the order be of Block Size at the time 
of origin and not an aggregation of non-block orders, or broken into 
orders smaller than Block Size prior to submitting the order to a 
Trading Center for execution; or executed on multiple Trading Centers, 
the Exchange believes that it is providing clarity as to the 
circumstances under which a Block Size order will be excepted from the 
Trade-At Prohibition.
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    \35\ ``Block Size'' is defined in the Plan as an order (1) of at 
least 5,000 shares or (2) for a quantity of stock having a market 
value of at least $100,000.
    \36\ Once a Block Size order or portion of such Block Size order 
is routed from one Trading Center to another Trading Center in 
compliance with Rule 611 of Regulation NMS, the Block Size order 
would lose the proposed Trade-at exemption, unless the Block Size 
remaining after the first route and execution meets the Block Size 
definition under the Plan.
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    Consistent with the Plan, the proposal also excepts an order that 
is a Retail Investor Order that is executed with at least $0.005 price 
improvement.
    The exceptions set forth in proposed Rule 11.27(a)(6)(D)(ii) d. 
through n. are based on the exceptions found in Rule 611 of Regulation 
NMS.\37\ The subparagraph d. exception applies when the order is 
executed when the Trading Center displaying the Protected Quotation 
that was traded at was experiencing a failure, material delay, or 
malfunction of its systems or equipment. The subparagraph e. exception 
applies to an order that is executed as part of a transaction that was 
not a ``regular way'' contract. The subparagraph f. exception applies 
to an order that is executed as part of a single-priced opening, 
reopening, or closing transaction by the Trading Center. The 
subparagraph g. exception applies to an order that is executed when a 
Protected Bid was priced higher than a Protected Offer in a Pilot 
Security.
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    \37\ See 17 CFR 242.611.
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    The subparagraph h. exception applies when the order is identified 
as a Trade-at Intermarket Sweep Order. The subparagraph i. exception 
applies when the order is executed by a Trading Center that 
simultaneously routed Trade-at Intermarket Sweep Orders to execute 
against the full displayed size of a Protected Quotation with a price 
that is better than or equal to the limit price of the limit order 
identified as a Trade-at Intermarket Sweep Order. Depending on whether 
Rule 611 or the Trade-at requirement applies, an ISO may mean that the 
sender of the ISO has swept better-priced protected quotations, so that 
the recipient of that ISO may trade through the price of the protected 
quotation (Rule 611), or it could mean that the sender of the ISO has 
swept protected quotations at the same price that it wishes to execute 
at (in addition to any better-priced quotations), so the recipient of 
that ISO may trade at the price of the protected quotation (Trade-at). 
Given that the meaning of an ISO may differ under Rule 611 and Trade-
at, the Exchange proposes Rule 11.27(a)(6)(D)(ii)(h) so that the 
recipient of an ISO in a Test Group Three security would know, upon 
receipt of that ISO, that the Trading Center that sent the ISO had 
already executed against the full size of displayed quotations at that 
price, e.g., the recipient of that ISO could permissibly trade at the 
price of the protected quotation.
    The Exchange proposes to further clarify the use of an ISO in 
connection with the Trade-at requirement by adopting, as part of 
proposed Rule 11.27(a)(7), a definition of ``Trade-at Intermarket Sweep 
Order.'' As set forth in the Plan and as noted above, the definition of 
a Trade-at ISO does not distinguish ISOs that are compliant with Rule 
611 from ISOs that are compliant with Trade-at. The Exchange therefore 
proposes to define a Trade-at ISO as a limit order for a Pilot Security 
that meets the following requirements: (1) When routed to a Trading 
Center, the limit order is identified as a Trade-at

[[Page 30370]]

Intermarket Sweep Order; (2) simultaneously with the routing of the 
limit order identified as a Trade-at Intermarket Sweep Order, one or 
more additional limit orders, as necessary, are routed to execute 
against the full displayed size of any protected bid, in the case of a 
limit order to sell, or the full displayed size of any protected offer, 
in the case of a limit order to buy, for the Pilot Security with a 
price that is better than or equal to the limit price of the limit 
order identified as a Trade-at Intermarket Sweep Order. These 
additional routed orders also must be marked as Trade-at Intermarket 
Sweep Orders. The Exchange believes that this proposed change will 
further clarify to recipients of ISOs in Group Three securities whether 
the ISO satisfies the requirements of Rule 611 or Trade-at.
    The exception under subparagraph j. of proposed Rule 
11.27(a)(6)(D)(ii) applies when the order is executed as part of a 
Negotiated Trade. The subparagraph k. exception applies when the order 
is executed when the Trading Center displaying the Protected Quotation 
that was traded at had displayed, within one second prior to execution 
of the transaction that constituted the Trade-at, a Best Protected Bid 
or Best Protected Offer, as applicable, for the Pilot Security with a 
price that was inferior to the price of the Trade-at transaction.
    The exception proposed in subparagraph l. applies to a ``stopped 
order.'' The stopped order exemption in Rule 611 of SEC Regulation NMS 
applies where ``[t]he price of the trade-through transaction was, for a 
stopped buy order, lower than the national best bid in the NMS stock at 
the time of execution or, for a stopped sell order, higher than the 
national best offer in the NMS stock at the time of execution.'' \38\ 
The Trade-at stopped order exception applies where ``the price of the 
Trade-at transaction was, for a stopped buy order, equal to the 
national best bid in the Pilot Security at the time of execution or, 
for a stopped sell order, equal to the national best offer in the Pilot 
Security at the time of execution.'' \39\
---------------------------------------------------------------------------

    \38\ See 17 CFR 242.611(b)(9).
    \39\ See Plan, Section VI(D)(12).
---------------------------------------------------------------------------

    To illustrate the application of the stopped order exemption as it 
currently operates under Rule 611 of SEC Regulation NMS and as it is 
currently proposed for Trade-at, assume the NBB is $10.00 and another 
protected quote is at $9.95. Under Rule 611 of SEC Regulation NMS, a 
stopped order to buy can be filled at $9.95 and the firm does not have 
to send an ISO to access the protected quote at $10.00 since the price 
of the stopped order must be lower than the NBB. For the stopped order 
to also be executed at $9.95 and satisfy the Trade-at requirements, the 
Trade-at exception would have to be revised to allow an order to 
execute at the price of a protected quote which, in this case, could be 
$9.95.
    Based on the fact that a stopped order would be treated differently 
under the Regulation NMS Rule 611 exception than under the proposed 
Trade-at exception, the Exchange believes that it is appropriate to 
amend the Trade-at stopped order exception to ensure that the 
application of this exception will produce a consistent result under 
both Regulation NMS and the Plan. The Exchange therefore proposes to 
amend the stopped order exception to allow a transaction to satisfy the 
Trade-at requirement if the stopped order price, for a stopped buy 
order, is equal to or less than the NBB, and for a stopped sell order, 
is equal to or greater than the NBO, as long as such order is priced at 
an acceptable increment.
    Proposed subparagraph l. to Rule 11.27(a)(6)(D)(ii) would define a 
``stopped order'' as an order that is executed by a Trading Center 
which, at the time of order receipt, the Trading Center had guaranteed 
an execution at no worse than a specified price, where (1) the stopped 
order was for the account of a customer; (2) the customer agreed to the 
specified price on an order-by-order basis; and (3) the price of the 
Trade-at transaction was, for a stopped buy order, equal to or less 
than the National Best Bid in the Pilot Security at the time of 
execution or, for a stopped sell order, equal to or greater than the 
National Best Offer in the Pilot Security at the time of execution as 
long as such order is priced at an acceptable increment.\40\
---------------------------------------------------------------------------

    \40\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 20. The 
Exchange is seeking the same exemptions as requested in the October 
Exemption Request and the February Exemption Request. Supra note 20.
---------------------------------------------------------------------------

    The subparagraph m. exception applies where the order is for a 
fractional share of a Pilot Security, provided that such fractional 
share order was not the result of breaking an order for one or more 
whole shares of a Pilot Security into orders for fractional shares or 
was not otherwise effected to evade the requirements of the Trade-at 
Prohibition or any other provisions of the Plan.
    The subparagraph n. exception applies to bona fide errors 
transactions. Following the adoption of Rule 611 and its exceptions, 
the Commission issued exemptive relief that created exceptions from 
Rule 611 for certain error correction transactions.\41\ The Exchange 
has determined that it is appropriate to incorporate the error 
correction exception to the Trade-at prohibition, as this exception is 
equally applicable in the Trade-at context. Accordingly, the Exchange 
is proposing to exempt certain transactions to correct bona fide errors 
in the execution of customer orders from the Trade-at prohibition, 
subject to the conditions set forth by the SEC's order exempting these 
transactions from Rule 611 of SEC Regulation NMS. \42\
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 55884 (June 8, 
2007), 72 FR 32926 (June 14, 2007).
    \42\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See February Exemption Request and 
Exemption Letter, supra note 20. The Exchange is seeking the same 
exemptions as requested in the October Exemption Request and the 
February Exemption Request. Supra note 20.
---------------------------------------------------------------------------

    As with the corresponding exception under Rule 611 of SEC 
Regulation NMS, the Exchange proposes to define a ``bona fide error'' 
as: (i) the inaccurate conveyance or execution of any term of an order 
including, but not limited to, price, number of shares or other unit of 
trading; identification of the security; identification of the account 
for which securities are purchased or sold; lost or otherwise misplaced 
order tickets; short sales that were instead sold long or vice versa; 
or the execution of an order on the wrong side of a market; (ii) the 
unauthorized or unintended purchase, sale, or allocation of securities, 
or the failure to follow specific client instructions; (iii) the 
incorrect entry of data into relevant systems, including reliance on 
incorrect cash positions, withdrawals, or securities positions 
reflected in an account; or (iv) a delay, outage, or failure of a 
communication system used to transmit market data prices or to 
facilitate the delivery or execution of an order. The bona fide error 
must be evidenced by objective facts and circumstances, the Trading 
Center must maintain documentation of such facts and circumstances, and 
the Trading Center must record the transaction in its error account. To 
avail itself of the exemption, the Trading Center must establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to address the occurrence of errors and, in the 
event of an error, the use and terms of a transaction to correct the 
error in compliance with this exemption. Finally, the Trading Center 
must regularly surveil to ascertain the effectiveness of its policies 
and procedures to address errors and transactions to correct errors and 
take

[[Page 30371]]

prompt action to remedy deficiencies in such policies and 
procedures.\43\
---------------------------------------------------------------------------

    \43\ See Securities Exchange Act Release No. 55884 (June 8, 
2007), 72 FR 32926 (June 14, 2007).
---------------------------------------------------------------------------

    Consistent with the Plan, the final exception to the Trade-At 
Prohibition and its accompanying supplementary material applies to an 
order that is for a fractional share of a Pilot Security. The 
supplementary material provides that such fractional share orders may 
not be the result of breaking an order for one or more whole shares of 
a Pilot Security into orders for fractional shares or that otherwise 
were effected to evade the requirements of the Trade-at Prohibition or 
any other provisions of the Plan. In approving the Plan, the Commission 
noted that this exception was appropriate, as there could be potential 
difficulty in the routing and executing of fractional shares.\44\
---------------------------------------------------------------------------

    \44\ See Approval Order, supra note 10, 80 FR at 27541.
---------------------------------------------------------------------------

    The proposed rule change will become operative upon the 
commencement of the Pilot Period.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act in general, and furthers the objectives of Section 
6(b)(5) of the Act in particular, in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
    The Exchange believes that this proposal is consistent with the Act 
because it implements, interprets, and clarifies the provisions of the 
Plan, and is designed to assist the Exchange and Members in meeting 
regulatory obligations pursuant to the Plan. In approving the Plan, the 
SEC noted that the Pilot was an appropriate, data-driven test that was 
designed to evaluate the impact of a wider tick size on trading, 
liquidity, and the market quality of securities of smaller 
capitalization companies, and was therefore in furtherance of the 
purposes of the Act. To the extent that this proposal implements, 
interprets, and clarifies the Plan and applies specific requirements to 
Members, the Exchange believes that this proposal is in furtherance of 
the objectives of the Plan, as identified by the SEC, and is therefore 
consistent with the Act.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule change implements the provisions of the 
Plan, and is designed to assist the Exchange in meeting its regulatory 
obligations pursuant to the Plan. The Exchange also notes that the 
quoting and trading requirements of the Plan will apply equally to all 
Members that trade Pilot Securities.

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

    Written comments were neither solicited nor received.

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 \45\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\46\ the Exchange has 
designated this rule filing as non-controversial. The Exchange has 
given the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78s(b)(3)(A).
    \46\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BatsBYX-2016-07 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-BatsBYX-2016-07. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsBYX-2016-07, and should 
be submitted on or before June 6, 2016.
---------------------------------------------------------------------------

    \47\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11404 Filed 5-13-16; 8:45 am]
 BILLING CODE 8011-01-P
30366 Federal Register / Vol. 81, No. 94 / Monday, May 16, 2016 / Notices

SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s to comply with, and to enforce
COMMISSION Statement of the Purpose of, and compliance by its member
Statutory Basis for, the Proposed Rule organizations, as applicable, with the
[Release No. 34–77793; File No. SR- Change provisions of the Plan. As is described
BatsBYX–2016–07] In its filing with the Commission, the more fully below, the proposed rules
Exchange included statements would require member organizations to
Self-Regulatory Organizations; Bats concerning the purpose of and basis for comply with the applicable quoting and
BYX Exchange, Inc. f.k.a BATS Y- the proposed rule change and discussed trading increments for Pilot Securities.11
Exchange, Inc.; Notice of Filing and any comments it received on the The Pilot will include stocks of
Immediate Effectiveness of a Proposed proposed rule change. The text of these companies with $3 billion or less in
Rule Change To Adopt Exchange Rule statements may be examined at the market capitalization, an average daily
11.27(a) To Implement the Quoting and places specified in Item IV below. The trading volume of one million shares or
Trading Provisions of the Regulation Exchange has prepared summaries, set less, and a volume weighted average
NMS Plan To Implement a Tick Size forth in Sections A, B, and C below, of price of at least $2.00 for every trading
Pilot Program the most significant parts of such day. The Pilot will consist of a control
statements. group of approximately 1400 Pilot
May 10, 2016. Securities and three test groups with
Pursuant to Section 19(b)(1) of the A. Self-Regulatory Organization’s 400 Pilot Securities in each selected by
Securities Exchange Act of 1934 (the Statement of the Purpose of, and a stratified sampling.12 During the pilot,
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Statutory Basis for, the Proposed Rule Pilot securities in the control group will
notice is hereby given that on May 4, Change be quoted and traded at the currently
2016, Bats BYX Exchange, Inc. f/k/a 1. Purpose permissible increments. Pilot Securities
BATS Y-Exchange, Inc. (the ‘‘Exchange’’ in the first test group (‘‘Test Group
or ‘‘BYX’’) filed with the Securities and On August 25, 2014, NYSE Group, One’’) will be quoted in $0.05 minimum
Exchange Commission (‘‘Commission’’) Inc., on behalf of the Exchange, BZX, increments but will continue to trade at
the proposed rule change as described Chicago Stock Exchange, Inc., Bats any price increment that is currently
in Items I, II and III below, which Items EDGA Exchange, Inc. f/k/a EDGA permitted.13 Pilot Securities in the
have been prepared by the Exchange. Exchange, Inc., Bats EDGX Exchange,
second test group (‘‘Test Group Two’’)
The Exchange has designated this Inc. f/k/a EDGX Exchange, Inc.,
will be quoted in $0.05 minimum
Financial Industry Regulatory
proposal as a ‘‘non-controversial’’ increments and will trade at $0.05
Authority, Inc. (‘‘FINRA’’), NASDAQ
proposed rule change pursuant to minimum increments subject to a
OMX BX, Inc., NASDAQ OMX PHLX
Section 19(b)(3)(A) of the Act 3 and Rule midpoint exception, a retail investor
LLC, the Nasdaq Stock Market LLC,
19b–4–4(f)(6)(iii) thereunder,4 which order exception, and a negotiated trade
New York Stock Exchange LLC
renders it effective upon filing with the exception.14 Pilot Securities in the third
(‘‘NYSE’’), NYSE MKT LLC, and NYSE
Commission. The Commission is test group (‘‘Test Group Three’’) will be
Arca, Inc. (collectively ‘‘Participants’’),
publishing this notice to solicit subject to the same restrictions as Test
filed with the Commission, pursuant to
comments on the proposed rule change Group Two and also will be subject to
Section 11A of the Act 6 and Rule 608
from interested persons. the ‘‘Trade-at’’ requirement to prevent
of Regulation NMS thereunder, the Plan
to implement a tick size pilot program price matching by a market participant
I. Self-Regulatory Organization’s
(‘‘Pilot’’).7 The Participants filed the that is not displaying at a price of a
Statement of the Terms of Substance of
Plan to comply with an order issued by Trading Center’s 15 ‘‘Best Protected Bid’’
the Proposed Rule Change
the Commission on June 24, 2014.8 The or ‘‘Best Protected Offer,’’ unless an
The Exchange filed a proposal to Plan 9 was published for comment in the enumerated exception applies.16 In
adopt Exchange Rule 11.27(a) to Federal Register on November 7, 2014, addition to the exceptions provided
implement the quoting and trading and approved by the Commission, as under Test Group Two, an exception for
provisions of the Regulation NMS Plan modified, on May 6, 2015.10 Block Size orders and exceptions that
to Implement a Tick Size Pilot Program The Plan is designed to allow the mirror those under Rule 611 of
(‘‘Plan’’). The proposed rule change is Commission, market participants, and Regulation NMS 17 will apply to the
substantially similar to a proposed rule the public to study and assess the Trade-at requirement.
change approved by the Commission by impact of increment conventions on the
the Bats BZX Exchange, Inc. f/k/a BATS liquidity and trading of the common
11 The Exchange proposes to add Information and

Exchange, Inc. (‘‘BZX’’) to adopt BZX Policy .03 to Rule 11.27 to provide that the Rule
stocks of small-capitalization shall be in effect during a pilot period to coincide
Rule 11.27(a) which also implemented companies. Each Participant is required with the pilot period for the Plan (including any
the quoting and trading provisions of extensions to the pilot period for the Plan).
the Plan.5 6 15 U.S.C. 78k–1. 12 See Section V of the Plan for identification of

The text of the proposed rule change 7 See Letter from Brendon J. Weiss, Vice Pilot Securities, including criteria for selection and
President, Intercontinental Exchange, Inc., to grouping.
is available at the Exchange’s Web site 13 See Section VI(B) of the Plan.
Secretary, Commission, dated August 25, 2014.
at www.batstrading.com, at the 8 See Securities Exchange Act Release No. 72460 14 See Section VI(C) of the Plan.
principal office of the Exchange, and at (June 24, 2014), 79 FR 36840 (June 30, 2014). 15 The Plan incorporates the definition of
the Commission’s Public Reference 9 Unless otherwise specified, capitalized terms ‘‘Trading Center’’ from Rule 600(b)(78) of
asabaliauskas on DSK3SPTVN1PROD with NOTICES

Room. used in this rule filing are defined as set forth in Regulation NMS. Regulation NMS defines a Trading
the Plan. The Exchange also proposes Center as ‘‘a national securities exchange or
supplementary material as part of this proposed national securities association that operates an SRO
1 15 U.S.C. 78s(b)(1). rule change to, among other things, provide that the trading facility, an alternative trading system, an
2 17 CFR 240.19b–4–4. terms used in proposed Rule 11.27 shall have the exchange market maker, an OTC market maker, or
3 15 U.S.C. 78s(b)(3)(A). any other broker or dealer that executes orders
same meaning as provided in the Plan, unless
4 17 CFR 240.19b–4–4(f)(6)(iii). otherwise specified. internally by trading as principal or crossing orders
5 See Securities Exchange Act Release No. 77291 10 See Securities Exchange Act Release No. 74892 as agent.’’
16 See Section VI(D) of the Plan.
(March 3, 2016), 81 FR 12543 (March 9, 2016) (May 6, 2015), 80 FR 27514 (May 13, 2015)
(order approving SR–BATS–2015–108). (‘‘Approval Order’’). 17 17 CFR 242.611.

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Federal Register / Vol. 81, No. 94 / Monday, May 16, 2016 / Notices 30369

or another facility approved by the display of liquidity and generally to Center displaying the Protected
Commission that does not provide prevent any Trading Center that is not Quotation that was traded at was
execution functionality, the execution at quoting from price-matching Protected experiencing a failure, material delay, or
the size of the order must occur against Quotations. Providing that a Trading malfunction of its systems or
the displayed size in accordance with Center may not execute on a proprietary equipment. The subparagraph e.
the rules of the Alternative Display basis in reliance on a quotation exception applies to an order that is
Facility of such approved facility representing customer interest (whether executed as part of a transaction that
(‘‘venue limitation’’).29 Some agency or riskless principal) ensures was not a ‘‘regular way’’ contract. The
commenters stated that this provision that the Trading Center cannot avoid subparagraph f. exception applies to an
was anti-competitive, as it would have compliance with the Trade-at order that is executed as part of a single-
forced off-exchange Trading Centers to Prohibition by trading on a proprietary priced opening, reopening, or closing
route orders to the venue on which the basis in reliance on a quotation that transaction by the Trading Center. The
order was displayed.30 does not represent such Trading subparagraph g. exception applies to an
In approving the Plan, the Center’s own interest. Where a Trading order that is executed when a Protected
Commission modified the Trade-At Center is displaying a quotation at the Bid was priced higher than a Protected
Prohibition to remove the venue same price as a Protected Quotation in Offer in a Pilot Security.
limitation.31 The Commission noted a proprietary capacity, transactions in The subparagraph h. exception
that the venue limitation was not any capacity at the price and up to the applies when the order is identified as
prescribed in its Order mandating the size of such Trading Center’s displayed a Trade-at Intermarket Sweep Order.
filing of the Plan.32 The Commission quotation would be permissible. The subparagraph i. exception applies
also noted that the venue limitation Transactions executed pursuant to the when the order is executed by a Trading
would have unnecessarily restricted the display exception may occur on the Center that simultaneously routed
ability of off-exchange market venue on which such quotation is Trade-at Intermarket Sweep Orders to
participants to execute orders in Test displayed or over the counter. execute against the full displayed size of
Group Three Securities, and that The proposal also excepts Block Size a Protected Quotation with a price that
removing the venue limitation should orders 35 and permits Trading Centers to is better than or equal to the limit price
mitigate concerns about the cost and trade at the price of a Protected of the limit order identified as a Trade-
complexity of the Pilot by reducing the Quotation, provided that the order is of at Intermarket Sweep Order. Depending
need for off-exchange Trading Centers to Block Size at the time of origin and is on whether Rule 611 or the Trade-at
route to the exchange.33 The not an aggregation of non-block orders, requirement applies, an ISO may mean
Commission also stated that the venue broken into orders smaller than Block that the sender of the ISO has swept
limitation did not create any additional Size prior to submitting the order to a better-priced protected quotations, so
incentives to display liquidity in Trading Center for execution; or that the recipient of that ISO may trade
furtherance of the purposes of the executed on multiple Trading Centers.36 through the price of the protected
Trade-At Prohibition, because the The Plan only provides that Block Size quotation (Rule 611), or it could mean
requirement that a Trading Center could orders shall be exempted from the that the sender of the ISO has swept
only trade at a protected quotation up to Trade-At Prohibition. In requiring that protected quotations at the same price
its displayed size should be sufficient to the order be of Block Size at the time of that it wishes to execute at (in addition
incentivize displayed liquidity.34 origin and not an aggregation of non- to any better-priced quotations), so the
Consistent with Plan and the SEC’s block orders, or broken into orders recipient of that ISO may trade at the
determination to remove the venue smaller than Block Size prior to price of the protected quotation (Trade-
limitation, the Exchange is making clear submitting the order to a Trading Center at). Given that the meaning of an ISO
that the display exception applies to for execution; or executed on multiple may differ under Rule 611 and Trade-at,
trades done by a Trading Center Trading Centers, the Exchange believes the Exchange proposes Rule
otherwise than on an exchange where that it is providing clarity as to the 11.27(a)(6)(D)(ii)(h) so that the recipient
the Trading Center has previously circumstances under which a Block Size of an ISO in a Test Group Three security
displayed a quotation in either an order will be excepted from the Trade- would know, upon receipt of that ISO,
agency or a principal capacity. As part At Prohibition. that the Trading Center that sent the ISO
of the display exception, the Exchange Consistent with the Plan, the proposal had already executed against the full
also proposes that a Trading Center that also excepts an order that is a Retail size of displayed quotations at that
is displaying a quotation as agent or Investor Order that is executed with at price, e.g., the recipient of that ISO
riskless principal may only execute as least $0.005 price improvement. could permissibly trade at the price of
agent or riskless principal, while a The exceptions set forth in proposed the protected quotation.
Trading Center displaying a quotation as Rule 11.27(a)(6)(D)(ii) d. through n. are The Exchange proposes to further
principal (excluding riskless principal) based on the exceptions found in Rule clarify the use of an ISO in connection
may execute either as principal or agent 611 of Regulation NMS.37 The with the Trade-at requirement by
or riskless principal. The Exchange subparagraph d. exception applies when adopting, as part of proposed Rule
believes this is consistent with the Plan the order is executed when the Trading 11.27(a)(7), a definition of ‘‘Trade-at
and the objective of the Trade-at Intermarket Sweep Order.’’ As set forth
Prohibition, which is to promote the 35 ‘‘Block Size’’ is defined in the Plan as an order
in the Plan and as noted above, the
(1) of at least 5,000 shares or (2) for a quantity of definition of a Trade-at ISO does not
asabaliauskas on DSK3SPTVN1PROD with NOTICES

stock having a market value of at least $100,000.
29 See Securities Exchange Act Release No. 73511
36 Once a Block Size order or portion of such
distinguish ISOs that are compliant with
(November 3, 2014), 79 FR 66423, 66437 (November Rule 611 from ISOs that are compliant
Block Size order is routed from one Trading Center
7, 2014). with Trade-at. The Exchange therefore
30 See Approval Order, supra note 10, 80 FR at
to another Trading Center in compliance with Rule
27540.
611 of Regulation NMS, the Block Size order would proposes to define a Trade-at ISO as a
lose the proposed Trade-at exemption, unless the limit order for a Pilot Security that
31 Id.
Block Size remaining after the first route and
32 Id.
execution meets the Block Size definition under the meets the following requirements: (1)
33 Id. Plan. When routed to a Trading Center, the
34 Id. 37 See 17 CFR 242.611. limit order is identified as a Trade-at

VerDate Sep<11>2014 18:48 May 13, 2016 Jkt 238001 PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 E:\FR\FM\16MYN1.SGM 16MYN1
Document Created: 2016-05-14 01:17:08
Document Modified: 2016-05-14 01:17:08
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 30366