81_FR_47337 81 FR 47198 - Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 11.27 To Describe Changes to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program

81 FR 47198 - Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 11.27 To Describe Changes to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 139 (July 20, 2016)

Page Range47198-47205
FR Document2016-17092

Federal Register, Volume 81 Issue 139 (Wednesday, July 20, 2016)
[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47198-47205]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-17092]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78333; File No. SR-BatsBYX-2016-17]


Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Exchange Rule 11.27 To 
Describe Changes to System Functionality Necessary To Implement the 
Regulation NMS Plan To Implement a Tick Size Pilot Program

July 14, 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 29 June, 2016, Bats BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to adopt paragraph (c) to Exchange 
Rule 11.27 to describe changes to System \3\ functionality necessary to 
implement the Regulation NMS Plan to Implement a Tick Size Pilot 
Program (``Plan'' or ``Pilot'').\4\ In determining the scope of the 
proposed changes to implement the Pilot,\5\ the Exchange carefully 
weighed the impact on the Pilot, System complexity, and the usage of 
such order types in Pilot Securities. The Exchange also proposes to 
amend paragraph (a) of Rule 11.27 to specify that orders entered into 
the Exchange's Retail Price Improvement (``RPI'') Program qualify for 
certain exceptions to the Plan.
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    \3\ 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).
    \4\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
    \5\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth in the Plan.
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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
Background
    On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange, 
Bats BZX Exchange, Inc. (``BZX''), Chicago Stock Exchange, Inc., Bats 
EDGA Exchange, Inc. (``EDGA''), Bats EDGX Exchange, Inc. (``EDGX''), 
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.\7\ The Participants 
filed the Plan to comply with an order issued by the Commission on June 
24, 2014.\8\ The Plan was published for comment in the Federal Register 
on November 7, 2014, and approved by the Commission, as modified, on 
May 6, 2015.\9\
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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\ See Approval Order, supra note 4.

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[[Page 47199]]

    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, and 
to enforce compliance by its member organizations, as applicable, with 
the provisions of the Plan.
    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 Test Group selected by a stratified 
sampling.\10\ 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.\11\ 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.\12\ 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 \13\ ``Best Protected 
Bid'' or ``Best Protected Offer,'' unless an enumerated exception 
applies.\14\ The same exceptions provided under Test Group Two will 
also be available under the Trade-at Prohibition, with an additional 
exception for Block Size orders and exceptions that mirror those under 
Rule 611 of Regulation NMS.\15\
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    \10\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \11\ See Section VI(B) of the Plan.
    \12\ See Section VI(C) of the Plan.
    \13\ 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.''
    \14\ See Section VI(D) of the Plan.
    \15\ 17 CFR 242.611.
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    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 adopted paragraph (a) of Rule 11.27 to 
require Members \16\ to comply with the quoting and trading provisions 
of the Plan.\17\ The Exchange also adopted paragraph (b) of Rule 11.27 
to require Members to comply with the data collection provisions under 
Appendix B and C of the Plan.\18\
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    \16\ The term ``Member'' is defined as ``any registered broker 
or dealer that has been admitted to membership in the Exchange.'' 
See Exchange Rule 1.5(n).
    \17\ See Securities Exchange Act Release No. 77793 (May 10, 
2016), 81 FR 30366 (May 16, 2016) (SR-BatsBYX-2016-07).
    \18\ See Securities Exchange Act Release No. 77418 (March 22, 
2016), 81 FR 17213 (March 28, 2016) (SR-BatsBYX-2016-01).
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Proposed System Changes
    The Exchange proposes to amend paragraph (a) of Rule 11.27 to 
specify that orders entered into the Exchange's RPI Program qualify for 
certain exceptions to the Plan. The Exchange also proposes to adopt 
paragraph (c) of Exchange Rule 11.27 to describe changes to System 
functionality necessary to implement the Plan. Paragraph (c) of Rule 
11.27 would set forth the Exchange's specific procedures for handling, 
executing, re-pricing and displaying of certain order types and order 
type instructions applicable to Pilot Securities. Unless otherwise 
indicated, paragraph (c) of Rule 11.27 would apply to order types and 
order type instructions in Pilot Securities in Test Groups One, Two, 
and Three and not to Pilot Securities included in the Control Group. 
The proposed changes include select and discrete amendments to the 
operation of: (i) BYX Market Orders; (ii) Market Pegged Orders; (iii) 
Mid-Point Peg Orders; (iii) Discretionary Orders; (iv) Non-Displayed 
Orders; (v) Market Maker Peg Orders; (vi) Supplemental Peg Orders; and 
(vii) orders subject to the Display-Price Sliding process.
    In determining the scope of these proposed changes to implement the 
Plan, the Exchange carefully weighed the impact on the Pilot, System 
complexity, and the usage of such order types in Pilot Securities. 
These proposed changes are designed to directly comply with the Plan 
and to assist the Exchange in meeting its regulatory obligations 
pursuant to the Plan. As discussed below, certain of these changes are 
also intended to reduce risk in the System by eliminating unnecessary 
complexity based on infrequent current usage of certain order types in 
Pilot Securities and/or their limited ability to execute under the 
Trade-at Prohibition. Therefore, the Exchange firmly believes that 
these changes will have little or no impact on the operation and data 
collection elements of the Plan. The Exchange further believes that the 
proposed rule changes are reasonably designed to comply with applicable 
quoting and trading requirements specified in the Plan.
RPI Program
    In November 2012, the Commission approved the RPI Program on a 
pilot basis.\19\ The Program is designed to attract retail order flow 
to the Exchange, and allow such order flow to receive potential price 
improvement. Under the Program, all Exchange Users \20\ are permitted 
to provide potential price improvement for Retail Orders \21\ in the 
form of non-displayed interest that is better than the national best 
bid that is a Protected Quotation or the national best offer that is a 
Protected Quotation.\22\
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    \19\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012) (``RPI Approval Order'') (SR-
BYX-2012-019).
    \20\ A ``User'' is defined as any member or sponsored 
participant of the Exchange who is authorized to obtain access to 
the System pursuant to Rule 11.3. See Exchange Rule 1.5(cc).
    \21\ A ``Retail Order'' is defined in Exchange Rule 11.24(a)(2) 
as an agency order that originates from a natural person and is 
submitted to the Exchange by a RMO, provided that no change is made 
to the terms of the order with respect to price or side of market 
and the order does not originate from a trading algorithm or any 
computerized methodology. The definition of Retail Order is also 
substantially similar to the definition of Retail Investor Order 
under the Plan. See Section I(DD) of the Plan.
    \22\ The term Protected Quotation is defined in Exchange Rule 
1.5(t) and has the same meaning as is set forth in Regulation NMS 
Rule 600(b)(58). The terms Protected NBB and Protected NBO are 
defined in Exchange Rule 1.5(s). The Protected NBB is the best-
priced protected bid and the Protected NBO is the best-priced 
protected offer. Generally, the Protected NBB and Protected NBO and 
the national best bid (``NBB'') and national best offer (``NBO'', 
together with the NBB, the ``NBBO'') will be the same. However, a 
market center is not required to route to the NBB or NBO if that 
market center is subject to an exception under Regulation NMS Rule 
611(b)(1) or if such NBB or NBO is otherwise not available for an 
automatic execution. In such case, the Protected NBB or Protected 
NBO would be the best-priced protected bid or offer to which a 
market center must route interest pursuant to Regulation NMS Rule 
611.
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    Exchange 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

[[Page 47200]]

offers, orders, or indications of interest in any Pilot Security in 
Test Group One in increments other than $0.05. Pilot Securities in Test 
Group One may continue to trade at any price increment that is 
currently permitted by the applicable Participant, SEC and Exchange 
rules.\23\ Exchange 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. In Test Groups One and Two, however, 
orders entered in a Participant-operated retail liquidity program may 
be ranked and accepted in increments of less than $0.05. Therefore, the 
Exchange proposes to amend Rule 11.27(a)(4) and (5) to also specify 
that the RPI Program qualifies as a Participant-operated liquidity 
program under the Plan and that orders entered into the RPI Program may 
be ranked and accepted in increments of less than $0.05 in Test Groups 
One and Two.
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    \23\ The Exchange proposes to amend the last sentence of Rule 
11.27(a)(4) to specify that the current permissible price increments 
are set forth under Exchange Rule 11.11, Price Variations.
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    Exchange 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. 
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 
where a Retail Investor Order is provided with price improvement that 
is at least $0.005 better than the best protected bid and best 
protected offer (``PBBO'').\24\ The Exchange proposes to amend Rule 
11.27(a)(5) to specify that Retail Orders entered into the Exchange's 
RPI Program qualify as Retail Investor Orders and may be provided with 
price improvement that is at least $0.005 better than the PBBO.
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    \24\ 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 4.
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    Exchange 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 entered in a Participant-
operated retail liquidity program may be ranked and accepted in 
increments of less than $0.05. As proposed for Rules 11.27(a)(4) and 
(5) above, the Exchange similarly proposes to amend Rule 11.27(a)(6) to 
also specify that the RPI Program qualifies as a Participant-operated 
liquidity program under the Plan and that orders entered into the RPI 
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. Exchange 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. One exception is that Retail Investor Orders may be 
provided with price improvement that is at least $0.005 better than the 
PBBO. As proposed for Rule 11.27(a)(5) above, the Exchange similarly 
proposes to amend Rule 11.27(a)(6) to specify that Retail Orders 
entered into the Exchange's RPI Program qualify as Retail Investor 
Orders and may be provided with price improvement that is at least 
$0.005 better than the PBBO.
    Exchange 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,\25\ absent any of the exceptions set 
forth in Rule 11.27(a)(6)(D). Consistent with the Plan, Exchange Rule 
11.27(a)(6)(D) excepts an order that is a Retail Investor Order that is 
executed with at least $0.005 price improvement from the Trade-at 
Prohibition. The Exchange proposes to amend Rule 11.27(a)(6)(D) to 
specify that Retail Orders entered into the Exchange's RPI Program 
qualify as Retail Investor Orders and may be provided with price 
improvement that is at least $0.005 better than the PBBO.
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    \25\ The term ``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).
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BYX Market Orders
    A BYX Market Order is an order to buy or sell a stated amount of a 
security that is to be executed at the NBBO when the order reaches the 
Exchange. BYX Market Orders shall not trade through Protected 
Quotations.\26\ Any portion of a BYX Market Order that would execute at 
a price more than $0.50 or 5 percent worse than the NBBO at the time 
the order initially reaches the Exchange, whichever is greater, will be 
cancelled.\27\ In order to comply with the minimum quoting increments 
set forth in the Plan, the Exchange proposes to state under proposed 
Rule 11.27(c)(1) that for purposes of determining whether a BYX Market 
Order's execution price is more than 5 percent worse than the NBBO 
under Rule 11.9(a)(2), the execution price for a buy (sell) order will 
be rounded down (up) to the nearest $0.05 increment.
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    \26\ See Exchange Rule 11.9(a)(2).
    \27\ Id.
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Market Pegged Orders
    The Exchange proposes to amend the operation of Market Pegged 
Orders to reduce risk in its System by eliminating unnecessary 
complexity based on infrequent current usage in Pilot Securities and 
their limited ability to execute under the Trade-at Prohibition in Test 
Group Three. A Pegged Order is a limit order that after entry into the 
System, the price of the order is automatically adjusted by the System 
in response to changes in the NBBO. A Pegged Order will peg to the NBB 
or NBO or a certain amount away from the NBB or NBO.\28\ A Market 
Pegged Order is pegged to the contra-side NBBO.\29\ A User entering a 
Market Pegged Order can specify that such order's price will offset the 
inside quote on the contra-side of the market by an amount (the 
``Offset Amount'') set by the User. Market Pegged Orders are not 
eligible to be displayed on the Exchange.
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    \28\ See Exchange Rule 11.9(c)(8).
    \29\ See Exchange Rule 11.9(c)(8)(B).
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    In Test Groups One and Two, the Exchange proposes to modify the 
behavior of Market Pegged Order when it is locked by an incoming BYX 
Post Only Order \30\ or Partial Post Only at Limit Order \31\ that does 
not remove liquidity pursuant to Rule 11.9(c)(6) or Rule 
11.9(c)(7),\32\ respectively. In such

[[Page 47201]]

case, the Market Pegged Order would be converted to an executable order 
and will remove liquidity against such incoming order.\33\ In no case 
would a Market Pegged Order execute against an incoming BYX Post Only 
Order or Partial Post Only at Limit Order if an order with higher 
priority is on the BYX Book.\34\ Specifically, if an order other than a 
Market Pegged Order maintains higher priority than one or more Market 
Pegged Orders, the Market Pegged Order(s) with lower priority will not 
be converted, as described above, and the incoming BYX Post Only Order 
or Partial Post Only at Limit Order will be posted or cancelled in 
accordance with Rule 11.9(c)(6) or Rule 11.9(c)(7).
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    \30\ See Exchange Rule 11.9(c)(6).
    \31\ See Exchange Rule 11.9(c)(7).
    \32\ A BYX Post Only Order will remove contra-side liquidity 
from the BYX Book if the order is an order to buy or sell a security 
priced below $1.00 or if the value of such execution when removing 
liquidity equals or exceeds the value of such execution if the order 
instead posted to the BYX Book and subsequently provided liquidity, 
including the applicable fees charged or rebates provided. See 
Exchange Rule 11.9(c)(6). A Partial Post Only at Limit Order will 
remove liquidity from the BYX Book up to the full size of the order 
if, at the time of receipt, it can be executed at prices better than 
its limit price. See Exchange Rule 11.9(c)(7).
    \33\ The Exchange notes that a BYX Post Only will, in most 
cases, remove liquidity from the BYX Book because under its current 
taker-maker pricing structure, the remover of liquidity is provided 
a rebate while the provider of liquidity is charged a fee. 
Therefore, in most cases, value of the execution to remove liquidity 
will equal or exceed the value of such execution once posted to the 
BYX Book, including the applicable fees charged or rebates received.
    \34\ The term ``BYX Book'' is defined as the ``System's 
electronic file of orders.'' See Exchange Rule 1.5(e).
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    The Exchange notes that Market Pegged Orders are aggressive by 
nature and believes executing the order in such circumstance is 
appropriate. The Exchange also notes that the proposed behavior for 
Market Pegged Orders in Test Groups One and Two is identical to the 
operation of orders with the Super Aggressive Routing instruction under 
Exchange Rule 11.13(b)(4)(C). When an order with a Super Aggressive 
instruction is locked by an incoming BYX Post Only Order or Partial 
Post Only at Limit Order that does not remove liquidity pursuant to 
Rule 11.9(c)(6) or Rule 11.9(c)(7), respectively, the order is 
converted to an executable order and will remove liquidity against such 
incoming order. In addition, like as proposed above, in no case would 
an order with a Super Aggressive instruction execute against an 
incoming BYX Post Only Order or Partial Post Only at Limit Order if an 
order with higher priority is on the BYX Book. The Exchange believes 
this change is reasonable and appropriate due to the limited usage of 
Market Pegged Orders in Pilot Securities, to avoid unnecessary 
additional System complexity, and to ensure the Market Pegged Order may 
execute in such circumstance.
    The Exchange also proposes to not accept Market Pegged Orders in 
Test Group Three based on limited current usage, additional System 
complexity, and their limited ability to execute under the Trade-at 
Prohibition. The Exchange believes that their de minimis usage and 
limited ability to execute due to the Trade-at Prohibition does not 
justify the complexity that would be created by supporting Market 
Pegged Orders in Test Group Three. A vast majority of Market Pegged 
Orders are entered into the System with a zero Offset and, therefore, 
create a locked market with the contra-side NBBO. Under the Trade-at 
Prohibition, a Market Pegged Order would not be eligible for execution 
at the locking price, including when a Trade-at Intermarket Sweep Order 
(``ISO'') \35\ is entered, because of non-cleared contra-side Protected 
Quotations. For example, assume the NBBO is $10.00 (NYSE) x $10.05 
(Nasdaq) in a Test Group 3 security. A Market Pegged Order to buy at 
$10.10 with a zero Offset is entered on the Exchange. The order would 
be ranked and hidden on the BYX Book at $10.05. A Trade-at ISO to sell 
at $10.05 is then entered. In this example, no execution occurs on BYX 
because Nasdaq is displaying an order to sell at $10.05. The Trade-at 
ISO instruction only indicates that all of the better and equal priced 
buy orders have been cleared. It does not indicate that the seller has 
cleared any Protected Offers. Therefore, the Exchange proposes to not 
accept Market Pegged Orders in Test Group Three in an effort to reduce 
unnecessary System complexity, avoid an internally locked book, and due 
to the limited execution opportunities for Market Pegged Orders due to 
the Trade-at Prohibition.
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    \35\ A Trade-at ISO is a Limit Order for a Pilot Security that 
meets the following requirements: (i) when routed to a Trading 
Center, the limit order is identified as a Trade-at Intermarket 
Sweep Order; and (ii) 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 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. See Exchange Rule 
11.27(a)(7)(A)(i). These additional routed orders also must be 
marked as Trade-at Intermarket Sweep Orders. Id.
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Mid-Point Peg Orders
    A Mid-Point Peg Order is an order whose price is automatically 
adjusted by the System in response to changes in the NBBO to be pegged 
to the midpoint of the NBBO, or, alternatively, pegged to the less 
aggressive of the midpoint of the NBBO or one minimum price variation 
\36\ inside the same side of the NBBO as the order.\37\ The Plan and 
current Exchange rules permit the acceptance of orders priced to 
execute at the midpoint of the NBBO to be ranked and accepted in 
increments of less than $0.05.\38\ Consistent with previous guidance 
issued by the Participants,\39\ the Exchange proposes to amend the 
operation of Mid-Point Peg Orders to explicitly state that Mid-Point 
Peg Orders in Pilot Securities may not be entered in increments other 
than $0.05. The System will execute a Mid-Point Peg Order: (i) In $0.05 
increments priced better than the midpoint of the NBBO; or (ii) at the 
midpoint of the NBBO, regardless of whether the midpoint of the NBBO is 
in an increment of $0.05. In order to comply with the minimum quoting 
and trading increments of the Plan and reduce unnecessary System 
complexity, a Mid-Point Peg Order will not be permitted to 
alternatively peg to one minimum price variation inside the same side 
of the NBBO as the order in Pilot Securities. The Exchange believes 
that the current de minimis usage of the alternative pegging 
functionality in Pilot Securities does not justify the complexity and 
risk that would be created by re-programming the System to support this 
functionality under the Plan.
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    \36\ See Exchange Rule 11.11.
    \37\ See Exchange Rule 11.9(c)(9).
    \38\ See Sections VI(B), (C), and (D) of the Plan. See also 
Exchange Rules 11.27(a)(4), (a)(5), and (a)(6).
    \39\ See e.g., Question 42 of the Tick Size Pilot Program 
Trading and Quoting FAQs available at http://www.finra.org/sites/default/files/TSPP-Trading-and-Quoting-FAQs.pdf
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Discretionary Orders
    The Exchange proposes to not accept Discretionary Orders in all 
Test Groups, including the Control Group, to reduce risk in the System 
by eliminating unnecessary complexity based on infrequent current usage 
in Pilot Securities. In sum, a Discretionary Order is a Limit Order 
with a displayed or non-displayed ranked price and size and an 
additional non-displayed ``discretionary price''.\40\ The discretionary 
price is a non-displayed upward offset at which a User is willing to 
buy, if necessary, or a non-displayed downward offset at which a User 
is willing to sell, if necessary. The System changes necessary for a 
Discretionary Order to comply with the Plan become increasingly complex 
because both the

[[Page 47202]]

displayed price and discretionary price must comply with the Plan's 
minimum quoting and trading increments as well as the Trade-at 
restriction in Test Group Three. In addition, Users do not currently 
set discretionary prices less than $0.05 away from the order's 
displayed price and the Exchange does not anticipate Users doing so 
under the Plan. To date, Discretionary Orders are rarely entered in 
Pilot Securities and the Exchange anticipates their usage to further 
decrease due to the Plan's minimum quoting increments. The Exchange 
believes that the current extremely limited usage of Discretionary 
Orders in Pilot Securities does not justify the additional System 
complexity that would be created by supporting Discretionary Orders. As 
a result of these factors the Exchange proposes to not accept 
Discretionary Orders in all Test Groups and the Control Group.
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    \40\ See Exchange Rule 11.9(c)(10).
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Non-Displayed Orders
    The Exchange proposes to re-price to the midpoint of the NBBO Non-
Displayed Orders in Test Group Three that are priced in a permissible 
increment better than the midpoint of the NBBO. A Non-Displayed Order 
is a Market or Limit Order that is not displayed on the Exchange.\41\ 
Exchange Rule 11.27(a)(6)(D) incorporates the Trade-at Prohibition in 
the Exchange's rules. The Trade-at Prohibition prevents the execution 
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, unless an exception applies. 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. Unless an exception applies, a Non-Displayed Order that 
is able to execute at the price of the Protected Quotation would not be 
able to do so in Test Group Three due to the Trade-at Prohibition and 
the Exchange's priority rule.\42\ Furthermore, such aggressively priced 
orders would not be able to post to the BYX Book at the contra-side 
Protected Quotation, and re-pricing the order to the midpoint of the 
NBBO would increase execution opportunities under normal market 
conditions. However, orders that are priced to execute at the midpoint 
of the NBBO are exempt from the Trade-at Prohibition. Therefore, to 
increase the execution opportunities for Non-Displayed Orders in Test 
Group Three, the Exchange proposes to re-price to the midpoint of the 
NBBO Non-Displayed Orders that are priced in a permissible increment 
better than the midpoint of the NBBO.
---------------------------------------------------------------------------

    \41\ See Exchange Rule 11.9(c)(11).
    \42\ Under Exchange Rule 11.12(a)(2), displayed Limit Orders 
have priority over Non-Displayed Limit Orders.
---------------------------------------------------------------------------

Market Maker Peg Orders
    A Market Maker Peg Order is a Limit Order that is automatically 
priced by the System at the Designated Percentage (as defined in 
Exchange Rule 11.8) away from the then current NBB and NBO, or if no 
NBB or NBO, at the Designated Percentage away from the last reported 
sale from the responsible single plan processor in order to comply with 
the quotation requirements for Market Makers set forth in Exchange Rule 
11.8(d).\43\ Should the above pricing result in a Market Maker Peg 
Order being priced at an increment other than $0.05, the Exchange 
proposes to round an order to buy (sell) up (down) to the nearest $0.05 
increment in order to comply with the minimum quoting increments of the 
Plan.
---------------------------------------------------------------------------

    \43\ See Exchange Rule 11.9(c)(16).
---------------------------------------------------------------------------

Supplemental Peg Orders
    The Exchange proposes to not accept Supplemental Peg Orders in Test 
Group Three in order to reduce risk in the System by eliminating 
unnecessary complexity based on infrequent current usage in Pilot 
Securities and their limited ability to execute under the Trade-at 
Prohibition. A Supplemental Peg Order is a non-displayed Limit Order 
that posts to the BYX Book, and thereafter is eligible for execution at 
the NBB for buy orders and NBO for sell orders against routable orders 
that are equal to or less than the aggregate size of the Supplemental 
Peg Order interest available at that price.\44\ In sum, Supplemental 
Peg Orders are only executable at the NBBO against an order that is in 
the process of being routed away. In such case, the Exchange is not 
displaying a Protected Quotation and, therefore, the Supplemental Peg 
Order would be unable to execute in Test Group Three due to the Trade-
at Prohibition.\45\ Therefore, the Exchange proposes to not accept 
Supplemental Peg Orders in Test Group Three.
---------------------------------------------------------------------------

    \44\ See Exchange Rule 11.9(c)(19).
    \45\ The Exchange notes that the likelihood of a Supplemental 
Peg Order qualifying for an exception to the Trade-at Prohibition is 
small. For example, Supplemental Peg Orders are only executable 
against orders that are to be routed away and would not be eligible 
to execute against an incoming ISO or Trade-at ISO. Also, the 
Exchange would not be displaying a Protected Quotation. In addition, 
the Exchange does not frequently receive orders of Block Size and, 
in order to qualify for the Block exception, the contra-side Block 
Order must be routable and the Supplemental Peg Order be of Block 
Size.
---------------------------------------------------------------------------

Display-Price Sliding
    Under the Display-Price Sliding process, an order eligible for 
display by the Exchange that, at the time of entry, would create a 
violation of Rule 610(d) of Regulation NMS by locking or crossing a 
Protected Quotation of an external market, will be ranked at the 
locking price in the BYX Book and displayed by the System at one 
minimum price variation (i.e., $0.05) below the current NBO (for bids) 
or one minimum price variation above the current NBB (for offers).\46\ 
The ranked and displayed prices of an order subject to the Display-
Price Sliding process may be adjusted once or multiple times depending 
upon the instructions of a User and changes to the prevailing NBBO.\47\
---------------------------------------------------------------------------

    \46\ See Exchange Rule 11.9(g)(1)(A).
    \47\ See Exchange Rule 11.9(g)(1)(C).
---------------------------------------------------------------------------

    As described above, Exchange 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, unless an 
exception applies. Orders that are priced to execute at the midpoint of 
the NBBO are exempt from the Trade-at Prohibition. Therefore, to 
increase the execution opportunities and qualify for the mid-point 
exception to the Trade-at Prohibition, the Exchange proposes to rank 
orders in Test Group Three that are subject to the Display-Price 
Sliding process at the midpoint of the NBBO in the BYX Book and display 
such orders one minimum price variation below the current NBO (for 
bids) or one minimum price variation above the current NBB (for 
offers).
    The Exchange also proposes to cancel orders subject to Display-
Price Sliding in Test Group Three that are only to be adjusted once and 
not multiple times in the event the NBBO widens and a contra-side Non-
Displayed Order is resting on the BYX Book at the price to which the 
order subject to Display-Price Sliding would be adjusted. Due to the 
increased minimum quoting increments under the Plan, the Exchange is 
unable to safely re-price an order subject to single Display-Price 
Sliding in Test Group Three to the original locking price in such 
circumstances and doing so would add additional System complexity and 
risk. As discussed

[[Page 47203]]

above, the Exchange proposes to rank orders in Test Group Three subject 
to the Display-Price Sliding process at the midpoint of the NBBO. In 
the event the NBBO changes such that an order subject to Display-Price 
Sliding would not lock or cross a Protected Quotation of an external 
market, the order will receive a new timestamp, and will be displayed 
at the order's limit price.\48\ Due to technological limitations 
arising from the increased minimum quoting increments under the Plan, 
however, the Exchange is unable to safely re-program its System to re-
price such order to the original locking price when the NBBO widens and 
a contra-side Non-Displayed Order is resting on the BYX Book at the 
price to which the order subject to Display-Price Sliding would be 
adjusted. Therefore, the Exchange proposes to cancel orders subject to 
the single Display-Price Sliding process in such circumstances. Users 
who prefer an execution in such a scenario may elect to use the 
multiple Display-Price Sliding process.
---------------------------------------------------------------------------

    \48\ Id.
---------------------------------------------------------------------------

Ministerial Change
    Currently, both Interpretation and Policy .03 to Rule 11.27(a) and 
Interpretation and Policy .11 to Rule 11.27(b) state that Rule 11.27 
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). The Exchange proposes to include this language at the 
beginning of Rule 11.27 and, therefore, proposes to delete both 
Interpretation and Policy .03 to Rule 11.27(a) and Interpretation and 
Policy .11 to Rule 11.27(b) as those provisions would be redundant and 
unnecessary.
Implementation Date
    If the Commission approves the proposed rule change, the proposed 
rule change will be effective upon Commission approval and shall 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 \49\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \50\ 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 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. The proposed 
rule change is designed to comply with the Plan, reduce complexity and 
enhance System resiliency while not adversely affecting the data 
collected under the Plan. Therefore, the Exchange believes that the 
proposed rule changes are reasonably designed to comply with applicable 
quoting and trading requirements specified in the Plan and, as 
discussed further below, other applicable regulations.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b).
    \50\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes regarding its 
Retail Price Improvement Program, BYX Market Orders, Mid-Point Peg 
Orders, Market Maker Peg Orders, and Display-Price Sliding are 
consistent with the Act because they are intended to modify the 
Exchange's System to comply with the provisions of the Plan, and are 
designed to assist the Exchange in meeting its 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 these proposals are intended to comply with the Plan, the Exchange 
believes that these proposals are in furtherance of the objectives of 
the Plan, as identified by the Commission, and is therefore consistent 
with the Act.
    The Exchange also believes that its proposed changes to Market 
Pegged Orders, Discretionary Orders, Non-Displayed Orders, Supplemental 
Peg Orders, and Display-Price Sliding are also consistent with the Act 
because they are intended to eliminate unnecessary System complexity 
and risk based on the de minimis current usage of such order types and 
instructions in Pilot Securities and/or their limited ability to 
execute under the Plan's minimum trading and quoting increments or 
Trade-at Prohibition.\51\ For example, during March 2016, the 
alternative pegging functionality of Mid-Point Peg Orders, Market 
Pegged Orders, Non-Displayed Orders, and Supplemental Peg Orders 
accounted for 0.01%, 0.02%, 0.92%, and 0.01%, respectively, of volume 
in eligible Pilot Securities on the Exchange, BZX, EDGA and EDGX 
combined. Notably, Discretionary Orders accounted for 0.00% of volume 
in eligible Pilot Securities on the Exchange, BZX, EDGA and EDGX 
combined. The Commission adopted Regulation Systems Compliance and 
Integrity (``Regulation SCI'') in November 2014 to strengthen the 
technology infrastructure of the U.S. securities markets.\52\ 
Regulation SCI is designed to reduce the occurrence of systems issues, 
improve resiliency when systems problems do occur, and enhance the 
Commission's oversight and enforcement of securities market technology 
infrastructure.
---------------------------------------------------------------------------

    \51\ The Commission has also expressed concern regarding 
potential market instability caused by technological risks. See 
e.g., Chair Mary Jo White, Commission, Enhancing Our Equity Market 
Structure (June 5, 2014) available at https://www.sec.gov/News/Speech/Detail/Speech/1370542004312#.VD2HW610w6Y.
    \52\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72251 (December 5, 2014) (``Regulation SCI Approval 
Order'').
---------------------------------------------------------------------------

    Regulation SCI required the Exchange to establish written policies 
and procedures reasonably designed to ensure that their systems have 
levels of capacity, integrity, resiliency, availability, and security 
adequate to maintain their operational capability and promote the 
maintenance of fair and orderly markets, and that they operate in a 
manner that complies with the Exchange Act. Each of these proposed 
changes are intended to reduce complexity and risk in the System to 
ensure the Exchange's technology remains robust and resilient. In 
determining the scope of the proposed changes, the Exchange carefully 
weighed the impact on the Pilot, System complexity, and the usage of 
such order types in Pilot Securities.\53\ The potential complexity 
results from code changes for a majority of the Exchange's order types, 
which requires the implementation and testing of a separate branch of 
code for each Test Group. For example, the Exchange currently utilizes 
one branch of code for which to implement and test changes. Development 
work for the Tick Pilot results in the creation of four additional 
branches of code that are to be developed and tested (e.g., Control 
Group + three Test Groups). The Exchange determined that the changes 
proposed herein are necessary to ensure continued System resiliency in 
accordance with the requirements of Regulation SCI. Therefore, the 
Exchange believes the proposed rule change

[[Page 47204]]

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 and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \53\ But for the Plan, the Exchange notes that it would not have 
proposed to amend the operation of Market Pegged Orders, 
Discretionary Orders, Non-Displayed Orders, Supplemental Peg Orders, 
and Display-Price Sliding as described herein.
---------------------------------------------------------------------------

    In addition, each of these proposed changes would have a de minimis 
to zero impact on the data reported pursuant to the Plan. As evidenced 
above, Market Pegged Orders, Discretionary Orders, the alternative 
pegging functionality of Mid-Point Peg Orders, and Supplemental Peg 
Orders are infrequently used in Pilot Securities or the execution of 
such orders would be scarce due to the Plan's minimum trading and 
quoting requirement and Trade-at Prohibition. The limited usage and 
execution scenarios do not justify the additional system complexity 
which would be created by modifying the System to support such order 
types in order to comply with the Plan. Therefore, the Exchange 
believes each proposed change is a reasonable means to ensure that the 
System's integrity, resiliency, and availability continues to promote 
the maintenance of fair and orderly markets. Due to the additional 
complexity, limited usage and execution opportunities, the Exchange 
believes it is not unfairly discriminatory to apply the changes 
proposed herein to only Pilot Securities as such changes are necessary 
to reduce complexity and ensure continued System resiliency in 
accordance with the requirements of Regulation SCI. The Exchange also 
believes the proposed changes to Non-Displayed Orders, and orders 
subject to the Display-Price Sliding process in Test Group Three are 
consistent with the Act because they are designed to increase the 
execution opportunities for such order types in compliance with the 
mid-point exception to the Trade-at Prohibition. The Exchange also 
believes the proposed change to Market Pegged Orders in Test Groups One 
and Two is consistent with the Act because it is identical to the 
operation of the Super Aggressive instruction under Exchange Rule 
11.13(b)(4)(C). The Exchange notes that Market Pegged Orders are 
aggressive by nature and believes executing the order in such 
circumstance is reasonable and appropriate.
    The Exchange also believes it is reasonable and appropriate to 
cancel an order subject to the single Display-Price Sliding process in 
Test Group Three in the event that the NBBO widens and a contra-side 
Non-Displayed Order is resting on the BYX Book at the price to which 
the order subject to Display-Price Sliding would be adjusted. Due to 
technological limitations and the Plan's increased minimum quoting 
increments, the Exchange is unable to safely re-program its System to 
re-price such orders to the original locking price in such 
circumstances. The Exchange also anticipates that the scenario under 
which it proposes to cancel the Display-Price Sliding order will be 
infrequent in Tick Pilot Securities. Users who prefer an execution in 
such a scenario may elect to use the multiple Display-Price Sliding 
process. Therefore, the Exchange believes it is consistent with the Act 
to set forth this scenario in its rules so that Users will understand 
how the System operates and how their orders would be handled in this 
discrete scenario.
    Lastly, the Exchange believes the ministerial changes to Rule 11.27 
are also consistent with the Act as they would: (i) Clarify a provision 
under paragraph (a)(4); and (ii) remove redundant provisions from the 
rule.

(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 is designed to assist the Exchange 
in meeting its regulatory obligations pursuant to the Plan, reduce 
System complexity and enhance resiliency. The Exchange also notes that 
the proposed rule change 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. In particular, the Commission seeks comment on 
the issue described below.
    In the Approval Order, the Commission stressed the importance of 
testing the impact of wider tick sizes on the trading and liquidity of 
the securities of small capitalization companies, and doing so in a way 
that produces robust results that inform future policy decisions.\54\ 
The Commission acknowledged the complexity of the Pilot and the costs 
that its implementation would create for market participants, but 
concluded that the benefits of the empirical data that would be 
produced by the Pilot warranted incurring those costs.\55\ As a result, 
the Plan requires that each Participant, including the Exchange, adopt 
rules that are necessary for compliance with the provisions of the 
Plan.\56\
---------------------------------------------------------------------------

    \54\ See Approval Order, supra note 4, at 80 FR 27515.
    \55\ Id at 27516.
    \56\ See Sections II(B) of the Plan. See also Section IV of the 
Plan.
---------------------------------------------------------------------------

    While the Exchange states that the proposed rule change describes 
the system changes necessary to implement the Pilot, the Commission 
notes that the scope of the proposed changes extends beyond those 
required for compliance with the Plan, and would eliminate certain 
order types for Pilot Securities during the Pilot Period, or modify 
their operation in ways not required by the Plan. For example, the 
Exchange proposes not to accept Market Pegged Orders, Discretionary 
Orders, and Supplemental Peg Orders, and certain types of Mid-Point Peg 
Orders, in some or all Test Groups of Pilot Securities for the duration 
of the Pilot Period.\57\ These proposals appear designed to permit the 
Exchange to avoid the costs of modifying these order types to comply 
with the Plan. The Exchange notes that these order types are 
infrequently used in Pilot Securities, and takes the position that 
``[t]he limited usage and execution scenarios do not justify the 
additional system complexity which would be created by modifying the 
System to support such order types in order to comply with the Plan.'' 
\58\ At the same time, the Exchange also does not appear prepared to 
propose to eliminate these order types indefinitely. By contrast, the 
Exchange proposes to modify, in ways not required by the

[[Page 47205]]

Plan, the operation of Market Pegged Orders and Non-Displayed Orders, 
and certain orders subject to the Display-Price Sliding process, in 
some or all Test Groups of Pilot Securities, and to incur the 
associated system change costs, in order to increase the ``execution 
opportunities'' for these order types for the duration of the Pilot 
Period.\59\
---------------------------------------------------------------------------

    \57\ The Exchange also proposes to cancel certain orders subject 
to the Display-Price Sliding process in certain Pilot Securities for 
the duration of the Pilot Period.
    \58\ See supra Item II.A.2.
    \59\ See supra Item II.A.1-2.
---------------------------------------------------------------------------

    The Commission is concerned that proposed rule changes, other than 
those necessary for compliance with Plan, that are targeted at Pilot 
Securities, that have a disparate impact on different Test Groups and 
the Control Group, and that are to apply temporarily only for the Pilot 
Period, could bias the results of the Pilot and undermine the value of 
the data generated in informing future policy decisions. Accordingly, 
the Commission is concerned that the proposed rule change may not be 
consistent with Act, including Section 6(b)(5) thereof and Rule 608 of 
Regulation NMS, or with the Plan.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-BatsBYX-2016-17 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 No. SR-BatsBYX-2016-17. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-BatsBYX-2016-17 and should be 
submitted on or before August 10, 2016.
---------------------------------------------------------------------------

    \60\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-17092 Filed 7-19-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                  47198                            Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  Commission takes such action, the                           2016–69, and should be submitted on or                    types in Pilot Securities. The Exchange
                                                  Commission shall institute proceedings                      before August 10, 2016.                                   also proposes to amend paragraph (a) of
                                                  under Section 19(b)(2)(B) of the Act 21 to                     For the Commission, by the Division of                 Rule 11.27 to specify that orders entered
                                                  determine whether the proposed rule                         Trading and Markets, pursuant to delegated                into the Exchange’s Retail Price
                                                  change should be approved or                                authority.22                                              Improvement (‘‘RPI’’) Program qualify
                                                  disapproved.                                                Jill M. Peterson,                                         for certain exceptions to the Plan.
                                                  IV. Solicitation of Comments                                Assistant Secretary.                                         The text of the proposed rule change
                                                                                                              [FR Doc. 2016–17095 Filed 7–19–16; 8:45 am]               is available at the Exchange’s Web site
                                                    Interested persons are invited to                         BILLING CODE 8011–01–P                                    at www.batstrading.com, at the
                                                  submit written data, views, and                                                                                       principal office of the Exchange, and at
                                                  arguments concerning the foregoing,                                                                                   the Commission’s Public Reference
                                                  including whether the proposed rule                         SECURITIES AND EXCHANGE                                   Room.
                                                  change is consistent with the Act.                          COMMISSION
                                                  Comments may be submitted by any of                                                                                   II. Self-Regulatory Organization’s
                                                  the following methods:                                      [Release No. 34–78333; File No. SR–                       Statement of the Purpose of, and
                                                                                                              BatsBYX–2016–17]                                          Statutory Basis for, the Proposed Rule
                                                  Electronic Comments                                                                                                   Change
                                                                                                              Self-Regulatory Organizations; Bats
                                                    • Use the Commission’s Internet                           BYX Exchange, Inc.; Notice of Filing of                     In its filing with the Commission, the
                                                  comment form (http://www.sec.gov/                           a Proposed Rule Change To Amend                           Exchange included statements
                                                  rules/sro.shtml); or                                        Exchange Rule 11.27 To Describe                           concerning the purpose of and basis for
                                                    • Send an email to rule-comments@                         Changes to System Functionality                           the proposed rule change and discussed
                                                  sec.gov. Please include File No. SR–                        Necessary To Implement the                                any comments it received on the
                                                  NYSEMKT–2016–69 on the subject line.                        Regulation NMS Plan To Implement a                        proposed rule change. The text of these
                                                  Paper Comments                                              Tick Size Pilot Program                                   statements may be examined at the
                                                                                                                                                                        places specified in Item IV below. The
                                                     • Send paper comments in triplicate                      July 14, 2016.                                            Exchange has prepared summaries, set
                                                  to Secretary, Securities and Exchange                          Pursuant to Section 19(b)(1) of the                    forth in Sections A, B, and C below, of
                                                  Commission, 100 F Street NE.,                               Securities Exchange Act of 1934 (the                      the most significant parts of such
                                                  Washington, DC 20549–1090.                                  ‘‘Act’’),1 and Rule 19b–4 thereunder,2                    statements.
                                                  All submissions should refer to File No.                    notice is hereby given that on 29 June,
                                                                                                              2016, Bats BYX Exchange, Inc. (the                        (A) Self-Regulatory Organization’s
                                                  SR–NYSEMKT–2016–69. This file
                                                                                                              ‘‘Exchange’’ or ‘‘BYX’’) filed with the                   Statement of the Purpose of, and
                                                  number should be included on the
                                                                                                              Securities and Exchange Commission                        Statutory Basis for, the Proposed Rule
                                                  subject line if email is used. To help the
                                                                                                              (‘‘Commission’’) the proposed rule                        Change
                                                  Commission process and review your
                                                  comments more efficiently, please use                       change as described in Items I and II                     1. Purpose
                                                  only one method. The Commission will                        below, which Items have been prepared
                                                                                                              by the Exchange. The Commission is                        Background
                                                  post all comments on the Commission’s
                                                  Internet Web site (http://www.sec.gov/                      publishing this notice to solicit                            On August 25, 2014, NYSE Group,
                                                  rules/sro.shtml). Copies of the                             comments on the proposed rule change                      Inc., on behalf of the Exchange, Bats
                                                  submission, all subsequent                                  from interested persons.                                  BZX Exchange, Inc. (‘‘BZX’’), Chicago
                                                  amendments, all written statements                          I. Self-Regulatory Organization’s                         Stock Exchange, Inc., Bats EDGA
                                                  with respect to the proposed rule                           Statement of the Terms of Substance of                    Exchange, Inc. (‘‘EDGA’’), Bats EDGX
                                                  change that are filed with the                              the Proposed Rule Change                                  Exchange, Inc. (‘‘EDGX’’), Financial
                                                  Commission, and all written                                                                                           Industry Regulatory Authority, Inc.
                                                                                                                 The Exchange filed a proposal to                       (‘‘FINRA’’), NASDAQ OMX BX, Inc.,
                                                  communications relating to the
                                                                                                              adopt paragraph (c) to Exchange Rule                      NASDAQ OMX PHLX LLC, the Nasdaq
                                                  proposed rule change between the
                                                                                                              11.27 to describe changes to System 3                     Stock Market LLC, New York Stock
                                                  Commission and any person, other than
                                                                                                              functionality necessary to implement                      Exchange LLC (‘‘NYSE’’), NYSE MKT
                                                  those that may be withheld from the
                                                                                                              the Regulation NMS Plan to Implement                      LLC, and NYSE Arca, Inc. (collectively
                                                  public in accordance with the
                                                                                                              a Tick Size Pilot Program (‘‘Plan’’ or                    ‘‘Participants’’), filed with the
                                                  provisions of 5 U.S.C. 552, will be
                                                                                                              ‘‘Pilot’’).4 In determining the scope of                  Commission, pursuant to Section 11A of
                                                  available for Web site viewing and
                                                                                                              the proposed changes to implement the                     the Act 6 and Rule 608 of Regulation
                                                  printing in the Commission’s Public
                                                                                                              Pilot,5 the Exchange carefully weighed
                                                  Reference Room, 100 F Street NE.,                                                                                     NMS thereunder, the Plan to implement
                                                                                                              the impact on the Pilot, System                           a tick size pilot program.7 The
                                                  Washington, DC 20549 on official
                                                                                                              complexity, and the usage of such order
                                                  business days between the hours of                                                                                    Participants filed the Plan to comply
                                                  10:00 a.m. and 3:00 p.m. Copies of such                          22 17
                                                                                                                                                                        with an order issued by the Commission
                                                                                                                       CFR 200.30–3(a)(12).
                                                  filing also will be available for                                1 15
                                                                                                                      U.S.C. 78s(b)(1).
                                                                                                                                                                        on June 24, 2014.8 The Plan was
                                                  inspection and copying at the principal                        2 17 CFR 240.19b–4.                                    published for comment in the Federal
                                                  office of the Exchange. All comments                           3 The term ‘‘System’’ is defined as the ‘‘electronic   Register on November 7, 2014, and
                                                  received will be posted without change;                     communications and trading facility designated by         approved by the Commission, as
                                                  the Commission does not edit personal                       the Board through which securities orders of Users        modified, on May 6, 2015.9
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                              are consolidated for ranking, execution and, when
                                                  identifying information from                                applicable, routing away.’’ See Exchange Rule
                                                  submissions. You should submit only                         1.5(aa).                                                    6 15  U.S.C. 78k–1.
                                                  information that you wish to make                              4 See Securities Exchange Act Release No. 74892          7 See  Letter from Brendon J. Weiss, Vice
                                                  available publicly. All submissions                         (May 6, 2015), 80 FR 27513 (May 13, 2015)                 President, Intercontinental Exchange, Inc., to
                                                                                                              (‘‘Approval Order’’).                                     Secretary, Commission, dated August 25, 2014.
                                                  should refer to File No. SR–NYSEMKT–                           5 Unless otherwise specified, capitalized terms           8 See Securities Exchange Act Release No. 72460

                                                                                                              used in this rule filing are defined as set forth in      (June 24, 2014), 79 FR 36840 (June 30, 2014).
                                                    21 15   U.S.C. 78s(b)(2)(B).                              the Plan.                                                    9 See Approval Order, supra note 4.




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                                                                                Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                   47199

                                                     The Plan is designed to allow the                       The Plan requires the Exchange to                   reduce risk in the System by eliminating
                                                  Commission, market participants, and                     establish, maintain, and enforce written              unnecessary complexity based on
                                                  the public to study and assess the                       policies and procedures that are                      infrequent current usage of certain order
                                                  impact of increment conventions on the                   reasonably designed to comply with                    types in Pilot Securities and/or their
                                                  liquidity and trading of the common                      applicable quoting and trading                        limited ability to execute under the
                                                  stocks of small-capitalization                           requirements specified in the Plan.                   Trade-at Prohibition. Therefore, the
                                                  companies. Each Participant is required                  Accordingly, the Exchange adopted                     Exchange firmly believes that these
                                                  to comply, and to enforce compliance                     paragraph (a) of Rule 11.27 to require                changes will have little or no impact on
                                                  by its member organizations, as                          Members 16 to comply with the quoting                 the operation and data collection
                                                  applicable, with the provisions of the                   and trading provisions of the Plan.17                 elements of the Plan. The Exchange
                                                  Plan.                                                    The Exchange also adopted paragraph                   further believes that the proposed rule
                                                     The Pilot will include stocks of                      (b) of Rule 11.27 to require Members to               changes are reasonably designed to
                                                  companies with $3 billion or less in                     comply with the data collection                       comply with applicable quoting and
                                                  market capitalization, an average daily                  provisions under Appendix B and C of                  trading requirements specified in the
                                                  trading volume of one million shares or                  the Plan.18                                           Plan.
                                                  less, and a volume weighted average                                                                            RPI Program
                                                                                                           Proposed System Changes
                                                  price of at least $2.00 for every trading
                                                  day. The Pilot will consist of a Control                   The Exchange proposes to amend                         In November 2012, the Commission
                                                  Group of approximately 1400 Pilot                        paragraph (a) of Rule 11.27 to specify                approved the RPI Program on a pilot
                                                  Securities and three Test Groups with                    that orders entered into the Exchange’s               basis.19 The Program is designed to
                                                  400 Pilot Securities in each Test Group                  RPI Program qualify for certain                       attract retail order flow to the Exchange,
                                                  selected by a stratified sampling.10                     exceptions to the Plan. The Exchange                  and allow such order flow to receive
                                                  During the Pilot, Pilot Securities in the                also proposes to adopt paragraph (c) of               potential price improvement. Under the
                                                  Control Group will be quoted and                         Exchange Rule 11.27 to describe                       Program, all Exchange Users 20 are
                                                  traded at the currently permissible                      changes to System functionality                       permitted to provide potential price
                                                  increments. Pilot Securities in the first                necessary to implement the Plan.                      improvement for Retail Orders 21 in the
                                                  Test Group (‘‘Test Group One’’) will be                  Paragraph (c) of Rule 11.27 would set                 form of non-displayed interest that is
                                                  quoted in $0.05 minimum increments                       forth the Exchange’s specific procedures              better than the national best bid that is
                                                  but will continue to trade at any price                  for handling, executing, re-pricing and               a Protected Quotation or the national
                                                                                                           displaying of certain order types and                 best offer that is a Protected
                                                  increment that is currently permitted.11
                                                                                                           order type instructions applicable to                 Quotation.22
                                                  Pilot Securities in the second Test                                                                               Exchange Rule 11.27(a)(4) sets forth
                                                  Group (‘‘Test Group Two’’) will be                       Pilot Securities. Unless otherwise
                                                                                                                                                                 the applicable limitations for securities
                                                  quoted in $0.05 minimum increments                       indicated, paragraph (c) of Rule 11.27
                                                                                                                                                                 in Test Group One. Consistent with the
                                                  and will trade at $0.05 minimum                          would apply to order types and order
                                                                                                                                                                 language of the Plan, Rule 11.27(a)(4)
                                                  increments subject to a midpoint                         type instructions in Pilot Securities in
                                                                                                                                                                 provides that no Member may display,
                                                  exception, a retail investor order                       Test Groups One, Two, and Three and
                                                                                                                                                                 rank, or accept from any person any
                                                  exception, and a negotiated trade                        not to Pilot Securities included in the
                                                                                                                                                                 displayable or non-displayable bids or
                                                  exception.12 Pilot Securities in the third               Control Group. The proposed changes
                                                  Test Group (‘‘Test Group Three’’) will be                include select and discrete amendments                   19 See Securities Exchange Act Release No. 68303
                                                  subject to the same restrictions as Test                 to the operation of: (i) BYX Market                   (November 27, 2012), 77 FR 71652 (December 3,
                                                  Group Two and also will be subject to                    Orders; (ii) Market Pegged Orders; (iii)              2012) (‘‘RPI Approval Order’’) (SR–BYX–2012–019).
                                                  the ‘‘Trade-at’’ requirement to prevent                  Mid-Point Peg Orders; (iii) Discretionary                20 A ‘‘User’’ is defined as any member or

                                                                                                           Orders; (iv) Non-Displayed Orders; (v)                sponsored participant of the Exchange who is
                                                  price matching by a market participant                                                                         authorized to obtain access to the System pursuant
                                                  that is not displaying at a price of a                   Market Maker Peg Orders; (vi)                         to Rule 11.3. See Exchange Rule 1.5(cc).
                                                  Trading Center’s 13 ‘‘Best Protected Bid’’               Supplemental Peg Orders; and (vii)                       21 A ‘‘Retail Order’’ is defined in Exchange Rule

                                                  or ‘‘Best Protected Offer,’’ unless an                   orders subject to the Display-Price                   11.24(a)(2) as an agency order that originates from
                                                                                                           Sliding process.                                      a natural person and is submitted to the Exchange
                                                  enumerated exception applies.14 The                                                                            by a RMO, provided that no change is made to the
                                                  same exceptions provided under Test                        In determining the scope of these                   terms of the order with respect to price or side of
                                                  Group Two will also be available under                   proposed changes to implement the                     market and the order does not originate from a
                                                  the Trade-at Prohibition, with an                        Plan, the Exchange carefully weighed                  trading algorithm or any computerized
                                                                                                           the impact on the Pilot, System                       methodology. The definition of Retail Order is also
                                                  additional exception for Block Size                                                                            substantially similar to the definition of Retail
                                                  orders and exceptions that mirror those                  complexity, and the usage of such order               Investor Order under the Plan. See Section I(DD) of
                                                  under Rule 611 of Regulation NMS.15                      types in Pilot Securities. These                      the Plan.
                                                                                                           proposed changes are designed to                         22 The term Protected Quotation is defined in

                                                     10 See Section V of the Plan for identification of    directly comply with the Plan and to                  Exchange Rule 1.5(t) and has the same meaning as
                                                  Pilot Securities, including criteria for selection and                                                         is set forth in Regulation NMS Rule 600(b)(58). The
                                                                                                           assist the Exchange in meeting its                    terms Protected NBB and Protected NBO are
                                                  grouping.
                                                     11 See Section VI(B) of the Plan.
                                                                                                           regulatory obligations pursuant to the                defined in Exchange Rule 1.5(s). The Protected NBB
                                                     12 See Section VI(C) of the Plan.                     Plan. As discussed below, certain of                  is the best-priced protected bid and the Protected
                                                                                                           these changes are also intended to                    NBO is the best-priced protected offer. Generally,
                                                     13 The Plan incorporates the definition of
                                                                                                                                                                 the Protected NBB and Protected NBO and the
                                                  ‘‘Trading Center’’ from Rule 600(b)(78) of                                                                     national best bid (‘‘NBB’’) and national best offer
                                                  Regulation NMS. Regulation NMS defines a Trading           16 The term ‘‘Member’’ is defined as ‘‘any
                                                                                                                                                                 (‘‘NBO’’, together with the NBB, the ‘‘NBBO’’) will
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                                                  Center as ‘‘a national securities exchange or            registered broker or dealer that has been admitted    be the same. However, a market center is not
                                                  national securities association that operates an SRO     to membership in the Exchange.’’ See Exchange         required to route to the NBB or NBO if that market
                                                  trading facility, an alternative trading system, an      Rule 1.5(n).                                          center is subject to an exception under Regulation
                                                  exchange market maker, an OTC market maker, or             17 See Securities Exchange Act Release No. 77793
                                                                                                                                                                 NMS Rule 611(b)(1) or if such NBB or NBO is
                                                  any other broker or dealer that executes orders          (May 10, 2016), 81 FR 30366 (May 16, 2016) (SR–       otherwise not available for an automatic execution.
                                                  internally by trading as principal or crossing orders    BatsBYX–2016–07).                                     In such case, the Protected NBB or Protected NBO
                                                  as agent.’’                                                18 See Securities Exchange Act Release No. 77418    would be the best-priced protected bid or offer to
                                                     14 See Section VI(D) of the Plan.
                                                                                                           (March 22, 2016), 81 FR 17213 (March 28, 2016)        which a market center must route interest pursuant
                                                     15 17 CFR 242.611.                                    (SR–BatsBYX–2016–01).                                 to Regulation NMS Rule 611.



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                                                  47200                         Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  offers, orders, or indications of interest               improvement that is at least $0.005                   Exchange’s RPI Program qualify as
                                                  in any Pilot Security in Test Group One                  better than the PBBO.                                 Retail Investor Orders and may be
                                                  in increments other than $0.05. Pilot                       Exchange Rule 11.27(a)(6) sets forth               provided with price improvement that
                                                  Securities in Test Group One may                         the applicable quoting and trading                    is at least $0.005 better than the PBBO.
                                                  continue to trade at any price increment                 restrictions for Pilot Securities in Test
                                                                                                           Group Three. The rule provides that no                BYX Market Orders
                                                  that is currently permitted by the
                                                  applicable Participant, SEC and                          Member may display, rank, or accept                      A BYX Market Order is an order to
                                                  Exchange rules.23 Exchange Rule                          from any person any displayable or non-               buy or sell a stated amount of a security
                                                  11.27(a)(5) sets forth the applicable                    displayable bids or offers, orders, or                that is to be executed at the NBBO when
                                                  quoting and trading requirements for                     indications of interest in any Pilot                  the order reaches the Exchange. BYX
                                                  securities in Test Group Two. This                       Security in Test Group Three in                       Market Orders shall not trade through
                                                  provision states that no Member may                      increments other than $0.05. However,                 Protected Quotations.26 Any portion of
                                                  display, rank, or accept from any person                 orders entered in a Participant-operated              a BYX Market Order that would execute
                                                  any displayable or non-displayable bids                  retail liquidity program may be ranked                at a price more than $0.50 or 5 percent
                                                  or offers, orders, or indications of                     and accepted in increments of less than               worse than the NBBO at the time the
                                                  interest in any Pilot Security in Test                   $0.05. As proposed for Rules 11.27(a)(4)              order initially reaches the Exchange,
                                                  Group Two in increments other than                       and (5) above, the Exchange similarly                 whichever is greater, will be
                                                  $0.05. In Test Groups One and Two,                       proposes to amend Rule 11.27(a)(6) to                 cancelled.27 In order to comply with the
                                                  however, orders entered in a                             also specify that the RPI Program                     minimum quoting increments set forth
                                                  Participant-operated retail liquidity                    qualifies as a Participant-operated                   in the Plan, the Exchange proposes to
                                                  program may be ranked and accepted in                    liquidity program under the Plan and                  state under proposed Rule 11.27(c)(1)
                                                  increments of less than $0.05. Therefore,                that orders entered into the RPI Program              that for purposes of determining
                                                  the Exchange proposes to amend Rule                      may be ranked and accepted in                         whether a BYX Market Order’s
                                                  11.27(a)(4) and (5) to also specify that                 increments of less than $0.05.                        execution price is more than 5 percent
                                                  the RPI Program qualifies as a                              The rule also states that, absent any of           worse than the NBBO under Rule
                                                  Participant-operated liquidity program                   the applicable exceptions, no Member                  11.9(a)(2), the execution price for a buy
                                                  under the Plan and that orders entered                   that operates a Trading Center may                    (sell) order will be rounded down (up)
                                                  into the RPI Program may be ranked and                   execute orders in any Pilot Security in               to the nearest $0.05 increment.
                                                  accepted in increments of less than                      Test Group Three in price increments                  Market Pegged Orders
                                                  $0.05 in Test Groups One and Two.                        other than $0.05. Exchange Rule
                                                                                                           11.27(a)(6)(C) sets forth the exceptions                 The Exchange proposes to amend the
                                                    Exchange Rule 11.27(a)(5) also sets                                                                          operation of Market Pegged Orders to
                                                  forth the applicable trading restrictions                pursuant to which Pilot Securities in
                                                                                                           Test Group Three may trade in                         reduce risk in its System by eliminating
                                                  for Test Group Two securities. Absent                                                                          unnecessary complexity based on
                                                  any of the exceptions listed in the Rule,                increments of less than $0.05. One
                                                                                                           exception is that Retail Investor Orders              infrequent current usage in Pilot
                                                  no Member may execute orders in any                                                                            Securities and their limited ability to
                                                  Pilot Security in Test Group Two in                      may be provided with price
                                                                                                           improvement that is at least $0.005                   execute under the Trade-at Prohibition
                                                  price increments other than $0.05.                                                                             in Test Group Three. A Pegged Order is
                                                  Consistent with the language of the                      better than the PBBO. As proposed for
                                                                                                           Rule 11.27(a)(5) above, the Exchange                  a limit order that after entry into the
                                                  Plan, the Rule provides that Pilot                                                                             System, the price of the order is
                                                  Securities in Test Group Two may trade                   similarly proposes to amend Rule
                                                                                                                                                                 automatically adjusted by the System in
                                                  in increments of less than $0.05 where                   11.27(a)(6) to specify that Retail Orders
                                                                                                                                                                 response to changes in the NBBO. A
                                                  a Retail Investor Order is provided with                 entered into the Exchange’s RPI Program
                                                                                                                                                                 Pegged Order will peg to the NBB or
                                                  price improvement that is at least                       qualify as Retail Investor Orders and
                                                                                                                                                                 NBO or a certain amount away from the
                                                  $0.005 better than the best protected bid                may be provided with price
                                                                                                                                                                 NBB or NBO.28 A Market Pegged Order
                                                  and best protected offer (‘‘PBBO’’).24                   improvement that is at least $0.005
                                                                                                                                                                 is pegged to the contra-side NBBO.29 A
                                                  The Exchange proposes to amend Rule                      better than the PBBO.
                                                                                                              Exchange Rule 11.27(a)(6)(D) sets                  User entering a Market Pegged Order
                                                  11.27(a)(5) to specify that Retail Orders                                                                      can specify that such order’s price will
                                                  entered into the Exchange’s RPI Program                  forth the Trade-at Prohibition, which is
                                                                                                                                                                 offset the inside quote on the contra-
                                                  qualify as Retail Investor Orders and                    the prohibition against executions by a
                                                                                                                                                                 side of the market by an amount (the
                                                  may be provided with price                               Member that operates a Trading Center
                                                                                                                                                                 ‘‘Offset Amount’’) set by the User.
                                                                                                           of a sell order for a Pilot Security in Test
                                                                                                                                                                 Market Pegged Orders are not eligible to
                                                                                                           Group Three at the price of a Protected
                                                     23 The Exchange proposes to amend the last
                                                                                                                                                                 be displayed on the Exchange.
                                                  sentence of Rule 11.27(a)(4) to specify that the         Bid or the execution of a buy order for
                                                                                                                                                                    In Test Groups One and Two, the
                                                  current permissible price increments are set forth       a Pilot Security in Test Group Three at
                                                  under Exchange Rule 11.11, Price Variations.
                                                                                                                                                                 Exchange proposes to modify the
                                                                                                           the price of a Protected Offer during
                                                     24 Regulation NMS defines a protected bid or                                                                behavior of Market Pegged Order when
                                                                                                           Regular Trading Hours,25 absent any of
                                                  protected offer as a quotation in an NMS stock that                                                            it is locked by an incoming BYX Post
                                                  (1) is displayed by an automated trading center; (2)     the exceptions set forth in Rule                      Only Order 30 or Partial Post Only at
                                                  is disseminated pursuant to an effective national        11.27(a)(6)(D). Consistent with the Plan,
                                                                                                                                                                 Limit Order 31 that does not remove
                                                  market system plan; and (3) is an automated              Exchange Rule 11.27(a)(6)(D) excepts an
                                                  quotation that is the best bid or best offer of a                                                              liquidity pursuant to Rule 11.9(c)(6) or
                                                                                                           order that is a Retail Investor Order that
                                                  national securities exchange, the best bid or best                                                             Rule 11.9(c)(7),32 respectively. In such
                                                  offer of The Nasdaq Stock Market, Inc., or the best      is executed with at least $0.005 price
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                                                  bid or best offer of a national securities association   improvement from the Trade-at                           26 See   Exchange Rule 11.9(a)(2).
                                                  other than the best bid or best offer of The Nasdaq      Prohibition. The Exchange proposes to                   27 Id.
                                                  Stock Market, Inc. See 17 CFR 242.600(57). In the        amend Rule 11.27(a)(6)(D) to specify                    28 See Exchange Rule 11.9(c)(8).
                                                  Approval Order, the Commission noted that the
                                                  protected quotation standard encompasses the             that Retail Orders entered into the                     29 See Exchange Rule 11.9(c)(8)(B).
                                                                                                                                                                   30 See Exchange Rule 11.9(c)(6).
                                                  aggregate of the most aggressively priced displayed
                                                                                                             25 The term ‘‘Regular Trading Hours’’ is defined      31 See Exchange Rule 11.9(c)(7).
                                                  liquidity on all Trading Centers, whereas the NBBO
                                                  standard is limited to the single best order in the      as ‘‘the time between 9:30 a.m. and 4:00 p.m.           32 A BYX Post Only Order will remove contra-

                                                  market. See Approval Order, supra note 4.                Eastern Time.’’ See Exchange Rule 1.5(w).             side liquidity from the BYX Book if the order is an



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                                                                               Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                           47201

                                                  case, the Market Pegged Order would be                   avoid unnecessary additional System                        by the System in response to changes in
                                                  converted to an executable order and                     complexity, and to ensure the Market                       the NBBO to be pegged to the midpoint
                                                  will remove liquidity against such                       Pegged Order may execute in such                           of the NBBO, or, alternatively, pegged to
                                                  incoming order.33 In no case would a                     circumstance.                                              the less aggressive of the midpoint of
                                                  Market Pegged Order execute against an                      The Exchange also proposes to not                       the NBBO or one minimum price
                                                  incoming BYX Post Only Order or                          accept Market Pegged Orders in Test                        variation 36 inside the same side of the
                                                  Partial Post Only at Limit Order if an                   Group Three based on limited current                       NBBO as the order.37 The Plan and
                                                  order with higher priority is on the BYX                 usage, additional System complexity,                       current Exchange rules permit the
                                                  Book.34 Specifically, if an order other                  and their limited ability to execute                       acceptance of orders priced to execute at
                                                  than a Market Pegged Order maintains                     under the Trade-at Prohibition. The                        the midpoint of the NBBO to be ranked
                                                  higher priority than one or more Market                  Exchange believes that their de minimis                    and accepted in increments of less than
                                                  Pegged Orders, the Market Pegged                         usage and limited ability to execute due                   $0.05.38 Consistent with previous
                                                  Order(s) with lower priority will not be                 to the Trade-at Prohibition does not                       guidance issued by the Participants,39
                                                  converted, as described above, and the                   justify the complexity that would be                       the Exchange proposes to amend the
                                                  incoming BYX Post Only Order or                          created by supporting Market Pegged                        operation of Mid-Point Peg Orders to
                                                  Partial Post Only at Limit Order will be                 Orders in Test Group Three. A vast                         explicitly state that Mid-Point Peg
                                                  posted or cancelled in accordance with                   majority of Market Pegged Orders are                       Orders in Pilot Securities may not be
                                                  Rule 11.9(c)(6) or Rule 11.9(c)(7).                      entered into the System with a zero                        entered in increments other than $0.05.
                                                     The Exchange notes that Market                        Offset and, therefore, create a locked                     The System will execute a Mid-Point
                                                  Pegged Orders are aggressive by nature                   market with the contra-side NBBO.                          Peg Order: (i) In $0.05 increments
                                                  and believes executing the order in such                 Under the Trade-at Prohibition, a                          priced better than the midpoint of the
                                                  circumstance is appropriate. The                         Market Pegged Order would not be                           NBBO; or (ii) at the midpoint of the
                                                  Exchange also notes that the proposed                    eligible for execution at the locking                      NBBO, regardless of whether the
                                                  behavior for Market Pegged Orders in                     price, including when a Trade-at                           midpoint of the NBBO is in an
                                                  Test Groups One and Two is identical                     Intermarket Sweep Order (‘‘ISO’’) 35 is                    increment of $0.05. In order to comply
                                                  to the operation of orders with the                      entered, because of non-cleared contra-                    with the minimum quoting and trading
                                                  Super Aggressive Routing instruction                     side Protected Quotations. For example,                    increments of the Plan and reduce
                                                  under Exchange Rule 11.13(b)(4)(C).                      assume the NBBO is $10.00 (NYSE) ×                         unnecessary System complexity, a Mid-
                                                  When an order with a Super Aggressive                    $10.05 (Nasdaq) in a Test Group 3                          Point Peg Order will not be permitted to
                                                  instruction is locked by an incoming                     security. A Market Pegged Order to buy                     alternatively peg to one minimum price
                                                  BYX Post Only Order or Partial Post                      at $10.10 with a zero Offset is entered                    variation inside the same side of the
                                                  Only at Limit Order that does not                        on the Exchange. The order would be                        NBBO as the order in Pilot Securities.
                                                  remove liquidity pursuant to Rule                        ranked and hidden on the BYX Book at                       The Exchange believes that the current
                                                  11.9(c)(6) or Rule 11.9(c)(7),                           $10.05. A Trade-at ISO to sell at $10.05                   de minimis usage of the alternative
                                                  respectively, the order is converted to                  is then entered. In this example, no                       pegging functionality in Pilot Securities
                                                  an executable order and will remove                      execution occurs on BYX because                            does not justify the complexity and risk
                                                  liquidity against such incoming order.                   Nasdaq is displaying an order to sell at                   that would be created by re-
                                                  In addition, like as proposed above, in                  $10.05. The Trade-at ISO instruction                       programming the System to support this
                                                  no case would an order with a Super                      only indicates that all of the better and                  functionality under the Plan.
                                                  Aggressive instruction execute against                   equal priced buy orders have been
                                                                                                                                                                      Discretionary Orders
                                                  an incoming BYX Post Only Order or                       cleared. It does not indicate that the
                                                  Partial Post Only at Limit Order if an                   seller has cleared any Protected Offers.                      The Exchange proposes to not accept
                                                  order with higher priority is on the BYX                 Therefore, the Exchange proposes to not                    Discretionary Orders in all Test Groups,
                                                  Book. The Exchange believes this                         accept Market Pegged Orders in Test                        including the Control Group, to reduce
                                                  change is reasonable and appropriate                     Group Three in an effort to reduce                         risk in the System by eliminating
                                                  due to the limited usage of Market                       unnecessary System complexity, avoid                       unnecessary complexity based on
                                                  Pegged Orders in Pilot Securities, to                    an internally locked book, and due to                      infrequent current usage in Pilot
                                                                                                           the limited execution opportunities for                    Securities. In sum, a Discretionary
                                                  order to buy or sell a security priced below $1.00       Market Pegged Orders due to the Trade-                     Order is a Limit Order with a displayed
                                                  or if the value of such execution when removing          at Prohibition.                                            or non-displayed ranked price and size
                                                  liquidity equals or exceeds the value of such                                                                       and an additional non-displayed
                                                  execution if the order instead posted to the BYX         Mid-Point Peg Orders                                       ‘‘discretionary price’’.40 The
                                                  Book and subsequently provided liquidity,
                                                  including the applicable fees charged or rebates          A Mid-Point Peg Order is an order                         discretionary price is a non-displayed
                                                  provided. See Exchange Rule 11.9(c)(6). A Partial        whose price is automatically adjusted                      upward offset at which a User is willing
                                                  Post Only at Limit Order will remove liquidity from                                                                 to buy, if necessary, or a non-displayed
                                                  the BYX Book up to the full size of the order if, at       35 A Trade-at ISO is a Limit Order for a Pilot
                                                                                                                                                                      downward offset at which a User is
                                                  the time of receipt, it can be executed at prices        Security that meets the following requirements: (i)
                                                  better than its limit price. See Exchange Rule                                                                      willing to sell, if necessary. The System
                                                                                                           when routed to a Trading Center, the limit order is
                                                  11.9(c)(7).                                              identified as a Trade-at Intermarket Sweep Order;          changes necessary for a Discretionary
                                                     33 The Exchange notes that a BYX Post Only will,
                                                                                                           and (ii) simultaneously with the routing of the limit      Order to comply with the Plan become
                                                  in most cases, remove liquidity from the BYX Book        order identified as a Trade-at Intermarket Sweep           increasingly complex because both the
                                                  because under its current taker-maker pricing            Order, one or more additional limit orders, as
                                                  structure, the remover of liquidity is provided a        necessary, are routed to execute against the full size
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                                                                                                                                                                        36 See Exchange Rule 11.11.
                                                  rebate while the provider of liquidity is charged a      of any protected bid, in the case of a limit order to        37 See Exchange Rule 11.9(c)(9).
                                                  fee. Therefore, in most cases, value of the execution    sell, or the full displayed size of any protected offer,
                                                                                                                                                                        38 See Sections VI(B), (C), and (D) of the Plan. See
                                                  to remove liquidity will equal or exceed the value       in the case of a limit order to buy, for the Pilot
                                                  of such execution once posted to the BYX Book,           Security with a price that is better than or equal to      also Exchange Rules 11.27(a)(4), (a)(5), and (a)(6).
                                                  including the applicable fees charged or rebates         the limit price of the limit order identified as a           39 See e.g., Question 42 of the Tick Size Pilot

                                                  received.                                                Trade-at Intermarket Sweep Order. See Exchange             Program Trading and Quoting FAQs available at
                                                     34 The term ‘‘BYX Book’’ is defined as the            Rule 11.27(a)(7)(A)(i). These additional routed            http://www.finra.org/sites/default/files/TSPP-
                                                  ‘‘System’s electronic file of orders.’’ See Exchange     orders also must be marked as Trade-at Intermarket         Trading-and-Quoting-FAQs.pdf
                                                  Rule 1.5(e).                                             Sweep Orders. Id.                                            40 See Exchange Rule 11.9(c)(10).




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                                                  47202                        Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  displayed price and discretionary price                  exempt from the Trade-at Prohibition.                   proposes to not accept Supplemental
                                                  must comply with the Plan’s minimum                      Therefore, to increase the execution                    Peg Orders in Test Group Three.
                                                  quoting and trading increments as well                   opportunities for Non-Displayed Orders
                                                                                                                                                                   Display-Price Sliding
                                                  as the Trade-at restriction in Test Group                in Test Group Three, the Exchange
                                                  Three. In addition, Users do not                         proposes to re-price to the midpoint of                    Under the Display-Price Sliding
                                                  currently set discretionary prices less                  the NBBO Non-Displayed Orders that                      process, an order eligible for display by
                                                  than $0.05 away from the order’s                         are priced in a permissible increment                   the Exchange that, at the time of entry,
                                                  displayed price and the Exchange does                    better than the midpoint of the NBBO.                   would create a violation of Rule 610(d)
                                                  not anticipate Users doing so under the                                                                          of Regulation NMS by locking or
                                                                                                           Market Maker Peg Orders                                 crossing a Protected Quotation of an
                                                  Plan. To date, Discretionary Orders are
                                                  rarely entered in Pilot Securities and the                  A Market Maker Peg Order is a Limit                  external market, will be ranked at the
                                                  Exchange anticipates their usage to                      Order that is automatically priced by the               locking price in the BYX Book and
                                                  further decrease due to the Plan’s                       System at the Designated Percentage (as                 displayed by the System at one
                                                  minimum quoting increments. The                          defined in Exchange Rule 11.8) away                     minimum price variation (i.e., $0.05)
                                                  Exchange believes that the current                       from the then current NBB and NBO, or                   below the current NBO (for bids) or one
                                                  extremely limited usage of Discretionary                 if no NBB or NBO, at the Designated                     minimum price variation above the
                                                  Orders in Pilot Securities does not                      Percentage away from the last reported                  current NBB (for offers).46 The ranked
                                                  justify the additional System complexity                 sale from the responsible single plan                   and displayed prices of an order subject
                                                  that would be created by supporting                      processor in order to comply with the                   to the Display-Price Sliding process may
                                                  Discretionary Orders. As a result of                     quotation requirements for Market                       be adjusted once or multiple times
                                                  these factors the Exchange proposes to                   Makers set forth in Exchange Rule                       depending upon the instructions of a
                                                  not accept Discretionary Orders in all                   11.8(d).43 Should the above pricing                     User and changes to the prevailing
                                                  Test Groups and the Control Group.                       result in a Market Maker Peg Order                      NBBO.47
                                                                                                           being priced at an increment other than                    As described above, Exchange Rule
                                                  Non-Displayed Orders                                     $0.05, the Exchange proposes to round                   11.27(a)(6)(D) sets forth the Trade-at
                                                     The Exchange proposes to re-price to                  an order to buy (sell) up (down) to the                 Prohibition, which is the prohibition
                                                  the midpoint of the NBBO Non-                            nearest $0.05 increment in order to                     against executions by a Member that
                                                  Displayed Orders in Test Group Three                     comply with the minimum quoting                         operates a Trading Center of a sell order
                                                  that are priced in a permissible                         increments of the Plan.                                 for a Pilot Security in Test Group Three
                                                  increment better than the midpoint of                                                                            at the price of a Protected Bid or the
                                                                                                           Supplemental Peg Orders                                 execution of a buy order for a Pilot
                                                  the NBBO. A Non-Displayed Order is a
                                                  Market or Limit Order that is not                          The Exchange proposes to not accept                   Security in Test Group Three at the
                                                  displayed on the Exchange.41 Exchange                    Supplemental Peg Orders in Test Group                   price of a Protected Offer during Regular
                                                  Rule 11.27(a)(6)(D) incorporates the                     Three in order to reduce risk in the                    Trading Hours, unless an exception
                                                  Trade-at Prohibition in the Exchange’s                   System by eliminating unnecessary                       applies. Orders that are priced to
                                                  rules. The Trade-at Prohibition prevents                 complexity based on infrequent current                  execute at the midpoint of the NBBO are
                                                  the execution of a sell order for a Pilot                usage in Pilot Securities and their                     exempt from the Trade-at Prohibition.
                                                                                                           limited ability to execute under the                    Therefore, to increase the execution
                                                  Security in Test Group Three at the
                                                                                                           Trade-at Prohibition. A Supplemental                    opportunities and qualify for the mid-
                                                  price of a Protected Bid or the execution
                                                                                                           Peg Order is a non-displayed Limit                      point exception to the Trade-at
                                                  of a buy order for a Pilot Security in
                                                                                                           Order that posts to the BYX Book, and                   Prohibition, the Exchange proposes to
                                                  Test Group Three at the price of a
                                                                                                           thereafter is eligible for execution at the             rank orders in Test Group Three that are
                                                  Protected Offer during Regular Trading
                                                                                                           NBB for buy orders and NBO for sell                     subject to the Display-Price Sliding
                                                  Hours, unless an exception applies. A
                                                                                                           orders against routable orders that are                 process at the midpoint of the NBBO in
                                                  Trading Center that is displaying a
                                                                                                           equal to or less than the aggregate size                the BYX Book and display such orders
                                                  quotation, via either a processor or an
                                                                                                           of the Supplemental Peg Order interest                  one minimum price variation below the
                                                  SRO quotation feed, that is a Protected
                                                                                                           available at that price.44 In sum,                      current NBO (for bids) or one minimum
                                                  Bid or Protected Offer is permitted to                   Supplemental Peg Orders are only
                                                  execute orders at that level, but only up                                                                        price variation above the current NBB
                                                                                                           executable at the NBBO against an order                 (for offers).
                                                  to the amount of its displayed size.                     that is in the process of being routed
                                                  Unless an exception applies, a Non-                                                                                 The Exchange also proposes to cancel
                                                                                                           away. In such case, the Exchange is not                 orders subject to Display-Price Sliding
                                                  Displayed Order that is able to execute                  displaying a Protected Quotation and,
                                                  at the price of the Protected Quotation                                                                          in Test Group Three that are only to be
                                                                                                           therefore, the Supplemental Peg Order                   adjusted once and not multiple times in
                                                  would not be able to do so in Test                       would be unable to execute in Test
                                                  Group Three due to the Trade-at                                                                                  the event the NBBO widens and a
                                                                                                           Group Three due to the Trade-at                         contra-side Non-Displayed Order is
                                                  Prohibition and the Exchange’s priority                  Prohibition.45 Therefore, the Exchange
                                                  rule.42 Furthermore, such aggressively                                                                           resting on the BYX Book at the price to
                                                  priced orders would not be able to post                                                                          which the order subject to Display-Price
                                                                                                                43 See
                                                                                                                    Exchange Rule 11.9(c)(16).
                                                  to the BYX Book at the contra-side                            44 See
                                                                                                                                                                   Sliding would be adjusted. Due to the
                                                                                                                    Exchange Rule 11.9(c)(19).
                                                  Protected Quotation, and re-pricing the                    45 The Exchange notes that the likelihood of a
                                                                                                                                                                   increased minimum quoting increments
                                                  order to the midpoint of the NBBO                        Supplemental Peg Order qualifying for an exception      under the Plan, the Exchange is unable
                                                  would increase execution opportunities                   to the Trade-at Prohibition is small. For example,      to safely re-price an order subject to
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                                                                                                           Supplemental Peg Orders are only executable             single Display-Price Sliding in Test
                                                  under normal market conditions.                          against orders that are to be routed away and would
                                                  However, orders that are priced to                       not be eligible to execute against an incoming ISO
                                                                                                                                                                   Group Three to the original locking
                                                  execute at the midpoint of the NBBO are                  or Trade-at ISO. Also, the Exchange would not be        price in such circumstances and doing
                                                                                                           displaying a Protected Quotation. In addition, the      so would add additional System
                                                                                                           Exchange does not frequently receive orders of          complexity and risk. As discussed
                                                    41 SeeExchange Rule 11.9(c)(11).                       Block Size and, in order to qualify for the Block
                                                    42 UnderExchange Rule 11.12(a)(2), displayed           exception, the contra-side Block Order must be
                                                                                                                                                                     46 See   Exchange Rule 11.9(g)(1)(A).
                                                  Limit Orders have priority over Non-Displayed            routable and the Supplemental Peg Order be of
                                                  Limit Orders.                                            Block Size.                                               47 See   Exchange Rule 11.9(g)(1)(C).



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                                                                                   Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                     47203

                                                  above, the Exchange proposes to rank                         and a national market system and, in                    Point Peg Orders, Market Pegged Orders,
                                                  orders in Test Group Three subject to                        general, to protect investors and the                   Non-Displayed Orders, and
                                                  the Display-Price Sliding process at the                     public interest. The Plan requires the                  Supplemental Peg Orders accounted for
                                                  midpoint of the NBBO. In the event the                       Exchange to establish, maintain, and                    0.01%, 0.02%, 0.92%, and 0.01%,
                                                  NBBO changes such that an order                              enforce written policies and procedures                 respectively, of volume in eligible Pilot
                                                  subject to Display-Price Sliding would                       that are reasonably designed to comply                  Securities on the Exchange, BZX, EDGA
                                                  not lock or cross a Protected Quotation                      with applicable quoting and trading                     and EDGX combined. Notably,
                                                  of an external market, the order will                        requirements specified in the Plan. The                 Discretionary Orders accounted for
                                                  receive a new timestamp, and will be                         proposed rule change is designed to                     0.00% of volume in eligible Pilot
                                                  displayed at the order’s limit price.48                      comply with the Plan, reduce                            Securities on the Exchange, BZX, EDGA
                                                  Due to technological limitations arising                     complexity and enhance System                           and EDGX combined. The Commission
                                                  from the increased minimum quoting                           resiliency while not adversely affecting                adopted Regulation Systems
                                                  increments under the Plan, however, the                      the data collected under the Plan.                      Compliance and Integrity (‘‘Regulation
                                                  Exchange is unable to safely re-program                      Therefore, the Exchange believes that                   SCI’’) in November 2014 to strengthen
                                                  its System to re-price such order to the                     the proposed rule changes are                           the technology infrastructure of the U.S.
                                                  original locking price when the NBBO                         reasonably designed to comply with                      securities markets.52 Regulation SCI is
                                                  widens and a contra-side Non-Displayed                       applicable quoting and trading                          designed to reduce the occurrence of
                                                  Order is resting on the BYX Book at the                      requirements specified in the Plan and,                 systems issues, improve resiliency when
                                                  price to which the order subject to                          as discussed further below, other                       systems problems do occur, and
                                                  Display-Price Sliding would be                               applicable regulations.                                 enhance the Commission’s oversight
                                                  adjusted. Therefore, the Exchange                               The Exchange believes that the                       and enforcement of securities market
                                                  proposes to cancel orders subject to the                     proposed changes regarding its Retail                   technology infrastructure.
                                                  single Display-Price Sliding process in                      Price Improvement Program, BYX                            Regulation SCI required the Exchange
                                                  such circumstances. Users who prefer                         Market Orders, Mid-Point Peg Orders,                    to establish written policies and
                                                  an execution in such a scenario may                          Market Maker Peg Orders, and Display-                   procedures reasonably designed to
                                                  elect to use the multiple Display-Price                      Price Sliding are consistent with the Act               ensure that their systems have levels of
                                                  Sliding process.                                             because they are intended to modify the                 capacity, integrity, resiliency,
                                                                                                               Exchange’s System to comply with the                    availability, and security adequate to
                                                  Ministerial Change                                           provisions of the Plan, and are designed                maintain their operational capability
                                                     Currently, both Interpretation and                        to assist the Exchange in meeting its                   and promote the maintenance of fair
                                                  Policy .03 to Rule 11.27(a) and                              regulatory obligations pursuant to the                  and orderly markets, and that they
                                                  Interpretation and Policy .11 to Rule                        Plan. In approving the Plan, the SEC                    operate in a manner that complies with
                                                  11.27(b) state that Rule 11.27 shall be in                   noted that the Pilot was an appropriate,                the Exchange Act. Each of these
                                                  effect during a pilot period to coincide                     data-driven test that was designed to                   proposed changes are intended to
                                                  with the pilot period for the Plan                           evaluate the impact of a wider tick size                reduce complexity and risk in the
                                                  (including any extensions to the pilot                       on trading, liquidity, and the market                   System to ensure the Exchange’s
                                                  period for the Plan). The Exchange                           quality of securities of smaller                        technology remains robust and resilient.
                                                  proposes to include this language at the                     capitalization companies, and was                       In determining the scope of the
                                                  beginning of Rule 11.27 and, therefore,                      therefore in furtherance of the purposes                proposed changes, the Exchange
                                                  proposes to delete both Interpretation                       of the Act. To the extent that these                    carefully weighed the impact on the
                                                  and Policy .03 to Rule 11.27(a) and                          proposals are intended to comply with                   Pilot, System complexity, and the usage
                                                  Interpretation and Policy .11 to Rule                        the Plan, the Exchange believes that                    of such order types in Pilot Securities.53
                                                  11.27(b) as those provisions would be                        these proposals are in furtherance of the               The potential complexity results from
                                                  redundant and unnecessary.                                   objectives of the Plan, as identified by                code changes for a majority of the
                                                                                                               the Commission, and is therefore                        Exchange’s order types, which requires
                                                  Implementation Date                                          consistent with the Act.                                the implementation and testing of a
                                                    If the Commission approves the                                The Exchange also believes that its                  separate branch of code for each Test
                                                  proposed rule change, the proposed rule                      proposed changes to Market Pegged                       Group. For example, the Exchange
                                                  change will be effective upon                                Orders, Discretionary Orders, Non-                      currently utilizes one branch of code for
                                                  Commission approval and shall become                         Displayed Orders, Supplemental Peg                      which to implement and test changes.
                                                  operative upon the commencement of                           Orders, and Display-Price Sliding are                   Development work for the Tick Pilot
                                                  the Pilot Period.                                            also consistent with the Act because                    results in the creation of four additional
                                                                                                               they are intended to eliminate                          branches of code that are to be
                                                  2. Statutory Basis                                           unnecessary System complexity and                       developed and tested (e.g., Control
                                                     The Exchange believes that its                            risk based on the de minimis current                    Group + three Test Groups). The
                                                  proposal is consistent with Section 6(b)                     usage of such order types and                           Exchange determined that the changes
                                                  of the Act 49 in general, and furthers the                   instructions in Pilot Securities and/or                 proposed herein are necessary to ensure
                                                  objectives of Section 6(b)(5) of the Act 50                  their limited ability to execute under the              continued System resiliency in
                                                  in particular, in that it is designed to                     Plan’s minimum trading and quoting                      accordance with the requirements of
                                                  promote just and equitable principles of                     increments or Trade-at Prohibition.51                   Regulation SCI. Therefore, the Exchange
                                                  trade, to foster cooperation and                             For example, during March 2016, the                     believes the proposed rule change
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                                                  coordination with persons engaged in                         alternative pegging functionality of Mid-
                                                  facilitating transactions in securities, to                                                                            52 See Securities Exchange Act Release No. 73639

                                                  remove impediments to and perfect the                             51 The
                                                                                                                        Commission has also expressed concern          (November 19, 2014), 79 FR 72251 (December 5,
                                                                                                               regarding potential market instability caused by        2014) (‘‘Regulation SCI Approval Order’’).
                                                  mechanism of a free and open market
                                                                                                               technological risks. See e.g., Chair Mary Jo White,       53 But for the Plan, the Exchange notes that it

                                                                                                               Commission, Enhancing Our Equity Market                 would not have proposed to amend the operation
                                                    48 Id.
                                                                                                               Structure (June 5, 2014) available at https://          of Market Pegged Orders, Discretionary Orders,
                                                    49 15    U.S.C. 78f(b).                                    www.sec.gov/News/Speech/Detail/Speech/                  Non-Displayed Orders, Supplemental Peg Orders,
                                                    50 15    U.S.C. 78f(b)(5).                                 1370542004312#.VD2HW610w6Y.                             and Display-Price Sliding as described herein.



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                                                  47204                        Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  promotes just and equitable principles                   increased minimum quoting increments,                 arguments concerning the foregoing,
                                                  of trade, removes impediments to and                     the Exchange is unable to safely re-                  including whether the proposal is
                                                  perfects the mechanism of a free and                     program its System to re-price such                   consistent with the Act. In particular,
                                                  open market and a national market                        orders to the original locking price in               the Commission seeks comment on the
                                                  system and, in general, to protect                       such circumstances. The Exchange also                 issue described below.
                                                  investors and the public interest.                       anticipates that the scenario under                      In the Approval Order, the
                                                     In addition, each of these proposed                   which it proposes to cancel the Display-              Commission stressed the importance of
                                                  changes would have a de minimis to                       Price Sliding order will be infrequent in             testing the impact of wider tick sizes on
                                                  zero impact on the data reported                         Tick Pilot Securities. Users who prefer               the trading and liquidity of the
                                                  pursuant to the Plan. As evidenced                       an execution in such a scenario may                   securities of small capitalization
                                                  above, Market Pegged Orders,                             elect to use the multiple Display-Price               companies, and doing so in a way that
                                                  Discretionary Orders, the alternative                    Sliding process. Therefore, the                       produces robust results that inform
                                                  pegging functionality of Mid-Point Peg                   Exchange believes it is consistent with               future policy decisions.54 The
                                                  Orders, and Supplemental Peg Orders                      the Act to set forth this scenario in its             Commission acknowledged the
                                                  are infrequently used in Pilot Securities                rules so that Users will understand how               complexity of the Pilot and the costs
                                                  or the execution of such orders would                    the System operates and how their                     that its implementation would create for
                                                  be scarce due to the Plan’s minimum                      orders would be handled in this discrete              market participants, but concluded that
                                                  trading and quoting requirement and                      scenario.                                             the benefits of the empirical data that
                                                  Trade-at Prohibition. The limited usage                    Lastly, the Exchange believes the                   would be produced by the Pilot
                                                  and execution scenarios do not justify                   ministerial changes to Rule 11.27 are                 warranted incurring those costs.55 As a
                                                  the additional system complexity which                   also consistent with the Act as they                  result, the Plan requires that each
                                                  would be created by modifying the                        would: (i) Clarify a provision under                  Participant, including the Exchange,
                                                  System to support such order types in                    paragraph (a)(4); and (ii) remove                     adopt rules that are necessary for
                                                  order to comply with the Plan.                           redundant provisions from the rule.                   compliance with the provisions of the
                                                  Therefore, the Exchange believes each                                                                          Plan.56
                                                  proposed change is a reasonable means                    (B) Self-Regulatory Organization’s                       While the Exchange states that the
                                                  to ensure that the System’s integrity,                   Statement on Burden on Competition                    proposed rule change describes the
                                                  resiliency, and availability continues to                  The Exchange does not believe that                  system changes necessary to implement
                                                  promote the maintenance of fair and                      the proposed rule change will result in               the Pilot, the Commission notes that the
                                                  orderly markets. Due to the additional                   any burden on competition that is not                 scope of the proposed changes extends
                                                  complexity, limited usage and execution                  necessary or appropriate in furtherance               beyond those required for compliance
                                                  opportunities, the Exchange believes it                  of the purposes of the Act. The                       with the Plan, and would eliminate
                                                  is not unfairly discriminatory to apply                  Exchange notes that the proposed rule                 certain order types for Pilot Securities
                                                  the changes proposed herein to only                      change is designed to assist the                      during the Pilot Period, or modify their
                                                  Pilot Securities as such changes are                     Exchange in meeting its regulatory                    operation in ways not required by the
                                                  necessary to reduce complexity and                       obligations pursuant to the Plan, reduce              Plan. For example, the Exchange
                                                  ensure continued System resiliency in                    System complexity and enhance                         proposes not to accept Market Pegged
                                                  accordance with the requirements of                      resiliency. The Exchange also notes that              Orders, Discretionary Orders, and
                                                  Regulation SCI. The Exchange also                        the proposed rule change will apply                   Supplemental Peg Orders, and certain
                                                  believes the proposed changes to Non-                    equally to all Members that trade Pilot               types of Mid-Point Peg Orders, in some
                                                  Displayed Orders, and orders subject to                  Securities.                                           or all Test Groups of Pilot Securities for
                                                  the Display-Price Sliding process in Test                                                                      the duration of the Pilot Period.57 These
                                                  Group Three are consistent with the Act                  (C) Self-Regulatory Organization’s                    proposals appear designed to permit the
                                                  because they are designed to increase                    Statement on Comments on the                          Exchange to avoid the costs of
                                                  the execution opportunities for such                     Proposed Rule Change Received From                    modifying these order types to comply
                                                  order types in compliance with the mid-                  Members, Participants or Others                       with the Plan. The Exchange notes that
                                                  point exception to the Trade-at                            Written comments were neither                       these order types are infrequently used
                                                  Prohibition. The Exchange also believes                  solicited nor received.                               in Pilot Securities, and takes the
                                                  the proposed change to Market Pegged                                                                           position that ‘‘[t]he limited usage and
                                                  Orders in Test Groups One and Two is                     III. Date of Effectiveness of the
                                                                                                           Proposed Rule Change and Timing for                   execution scenarios do not justify the
                                                  consistent with the Act because it is                                                                          additional system complexity which
                                                  identical to the operation of the Super                  Commission Action
                                                                                                                                                                 would be created by modifying the
                                                  Aggressive instruction under Exchange                       Within 45 days of the date of                      System to support such order types in
                                                  Rule 11.13(b)(4)(C). The Exchange notes                  publication of this notice in the Federal             order to comply with the Plan.’’ 58 At
                                                  that Market Pegged Orders are                            Register or within such longer period (i)             the same time, the Exchange also does
                                                  aggressive by nature and believes                        as the Commission may designate up to                 not appear prepared to propose to
                                                  executing the order in such                              90 days of such date if it finds such                 eliminate these order types indefinitely.
                                                  circumstance is reasonable and                           longer period to be appropriate and                   By contrast, the Exchange proposes to
                                                  appropriate.                                             publishes its reasons for so finding or               modify, in ways not required by the
                                                     The Exchange also believes it is                      (ii) as to which the Exchange consents,
                                                  reasonable and appropriate to cancel an                  the Commission will: (a) By order                       54 See Approval Order, supra note 4, at 80 FR
                                                  order subject to the single Display-Price
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                           approve or disapprove such proposed                   27515.
                                                  Sliding process in Test Group Three in                   rule change, or (b) institute proceedings               55 Id at 27516.

                                                  the event that the NBBO widens and a                     to determine whether the proposed rule                  56 See Sections II(B) of the Plan. See also Section

                                                  contra-side Non-Displayed Order is                                                                             IV of the Plan.
                                                                                                           change should be disapproved.                           57 The Exchange also proposes to cancel certain
                                                  resting on the BYX Book at the price to
                                                                                                           IV. Solicitation of Comments                          orders subject to the Display-Price Sliding process
                                                  which the order subject to Display-Price                                                                       in certain Pilot Securities for the duration of the
                                                  Sliding would be adjusted. Due to                          Interested persons are invited to                   Pilot Period.
                                                  technological limitations and the Plan’s                 submit written data, views and                          58 See supra Item II.A.2.




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                                                                                    Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                     47205

                                                  Plan, the operation of Market Pegged                       business days between the hours of                       the Regulation NMS Plan to Implement
                                                  Orders and Non-Displayed Orders, and                       10:00 a.m. and 3:00 p.m. Copies of such                  a Tick Size Pilot Program (‘‘Plan’’ or
                                                  certain orders subject to the Display-                     filing will also be available for                        ‘‘Pilot’’).4 In determining the scope of
                                                  Price Sliding process, in some or all                      inspection and copying at the principal                  the proposed changes to implement the
                                                  Test Groups of Pilot Securities, and to                    office of the Exchange. All comments                     Pilot,5 the Exchange carefully weighed
                                                  incur the associated system change                         received will be posted without change;                  the impact on the Pilot, System
                                                  costs, in order to increase the                            the Commission does not edit personal                    complexity, and the usage of such order
                                                  ‘‘execution opportunities’’ for these                      identifying information from                             types in Pilot Securities.
                                                  order types for the duration of the Pilot                  submissions. You should submit only                         The text of the proposed rule change
                                                  Period.59                                                  information that you wish to make                        is available at the Exchange’s Web site
                                                     The Commission is concerned that                        available publicly. All submissions                      at www.batstrading.com, at the
                                                  proposed rule changes, other than those                    should refer to File No. SR–BatsBYX–                     principal office of the Exchange, and at
                                                  necessary for compliance with Plan, that                   2016–17 and should be submitted on or                    the Commission’s Public Reference
                                                  are targeted at Pilot Securities, that have                before August 10, 2016.                                  Room.
                                                  a disparate impact on different Test                          For the Commission, by the Division of
                                                  Groups and the Control Group, and that                     Trading and Markets, pursuant to delegated               II. Self-Regulatory Organization’s
                                                  are to apply temporarily only for the                      authority.60                                             Statement of the Purpose of, and
                                                  Pilot Period, could bias the results of the                Jill M. Peterson,                                        Statutory Basis for, the Proposed Rule
                                                  Pilot and undermine the value of the                       Assistant Secretary.                                     Change
                                                  data generated in informing future                         [FR Doc. 2016–17092 Filed 7–19–16; 8:45 am]
                                                  policy decisions. Accordingly, the                                                                                    In its filing with the Commission, the
                                                                                                             BILLING CODE 8011–01–P                                   Exchange included statements
                                                  Commission is concerned that the
                                                  proposed rule change may not be                                                                                     concerning the purpose of and basis for
                                                  consistent with Act, including Section                                                                              the proposed rule change and discussed
                                                                                                             SECURITIES AND EXCHANGE                                  any comments it received on the
                                                  6(b)(5) thereof and Rule 608 of                            COMMISSION
                                                  Regulation NMS, or with the Plan.                                                                                   proposed rule change. The text of these
                                                     Comments may be submitted by any                        [Release No. 34–78331; File No. SR–                      statements may be examined at the
                                                  of the following methods:                                  BatsEDGX–2016–26]                                        places specified in Item IV below. The
                                                                                                                                                                      Exchange has prepared summaries, set
                                                  Electronic Comments                                        Self-Regulatory Organizations; Bats                      forth in Sections A, B, and C below, of
                                                    • Use the Commission’s Internet                          EDGX Exchange, Inc.; Notice of Filing                    the most significant parts of such
                                                  comment form (http://www.sec.gov/                          of a Proposed Rule Change To Adopt                       statements.
                                                  rules/sro.shtml); or                                       Paragraph (c) to Exchange Rule 11.22
                                                    • Send an email to rule-comments@                        To Describe Changes to System                            A. Self-Regulatory Organization’s
                                                  sec.gov. Please include File No. SR–                       Functionality Necessary To Implement                     Statement of the Purpose of, and
                                                  BatsBYX–2016–17 on the subject line.                       the Regulation NMS Plan To Implement                     Statutory Basis for, the Proposed Rule
                                                                                                             a Tick Size Pilot Program                                Change
                                                  Paper Comments
                                                                                                             July 14, 2016.                                           1. Purpose
                                                     • Send paper comments in triplicate
                                                  to Secretary, Securities and Exchange                         Pursuant to Section 19(b)(1) of the                   Background
                                                  Commission, 100 F Street NE.,                              Securities Exchange Act of 1934 (the
                                                                                                             ‘‘Act’’),1 and Rule 19b–4 thereunder,2                      On August 25, 2014, NYSE Group,
                                                  Washington, DC 20549–1090.
                                                                                                             notice is hereby given that on June 29,                  Inc., on behalf of the Exchange, Bats
                                                  All submissions should refer to File No.                                                                            BYX Exchange, Inc. (‘‘BYX’’), Chicago
                                                                                                             2016, Bats EDGX Exchange, Inc. (the
                                                  SR–BatsBYX–2016–17. This file number                                                                                Stock Exchange, Inc., Bats BZX
                                                                                                             ‘‘Exchange’’ or ‘‘EDGX’’) filed with the
                                                  should be included on the subject line                                                                              Exchange, Inc. (‘‘BZX’’), Bats EDGA
                                                                                                             Securities and Exchange Commission
                                                  if email is used. To help the                                                                                       Exchange, Inc. (‘‘EDGA’’), Financial
                                                                                                             (‘‘Commission’’) the proposed rule
                                                  Commission process and review your                                                                                  Industry Regulatory Authority, Inc.
                                                                                                             change as described in Items I, II, and
                                                  comments more efficiently, please use                                                                               (‘‘FINRA’’), NASDAQ OMX BX, Inc.,
                                                                                                             III below, which Items have been
                                                  only one method. The Commission will                                                                                NASDAQ OMX PHLX LLC, the Nasdaq
                                                                                                             prepared by the Exchange. The
                                                  post all comments on the Commission’s                                                                               Stock Market LLC, New York Stock
                                                                                                             Commission is publishing this notice to
                                                  Internet Web site (http://www.sec.gov/                                                                              Exchange LLC (‘‘NYSE’’), NYSE MKT
                                                                                                             solicit comments on the proposed rule
                                                  rules/sro.shtml). Copies of the                                                                                     LLC, and NYSE Arca, Inc. (collectively
                                                                                                             change from interested persons.
                                                  submission, all subsequent                                                                                          ‘‘Participants’’), filed with the
                                                  amendments, all written statements                         I. Self-Regulatory Organization’s                        Commission, pursuant to Section 11A of
                                                  with respect to the proposed rule                          Statement of the Terms of Substance of                   the Act 6 and Rule 608 of Regulation
                                                  change that are filed with the                             the Proposed Rule Change                                 NMS thereunder, the Plan to implement
                                                  Commission, and all written                                   The Exchange filed a proposal to                      a tick size pilot program.7 The
                                                  communications relating to the                             adopt paragraph (c) to Exchange Rule                     Participants filed the Plan to comply
                                                  proposed rule change between the                           11.22 to describe changes to System 3                    with an order issued by the Commission
                                                  Commission and any person, other than                      functionality necessary to implement
                                                  those that may be withheld from the                                                                                    4 See Securities Exchange Act Release No. 74892
                                                  public in accordance with the
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                                  60 17
                                                                                                                      CFR 200.30–3(a)(12).                            (May 6, 2015), 80 FR 27513 (May 13, 2015)
                                                  provisions of 5 U.S.C. 552, will be                          1 15 U.S.C. 78s(b)(1).                                 (‘‘Approval Order’’).
                                                  available for Web site viewing and                           2 17 CFR 240.19b–4.                                       5 Unless otherwise specified, capitalized terms

                                                  printing in the Commission’s Public                          3 The term ‘‘System’’ is defined as the ‘‘electronic   used in this rule filing are defined as set forth in
                                                                                                             communications and trading facility designated by        the Plan.
                                                  Reference Room, 100 F Street NE.,                                                                                      6 15 U.S.C. 78k–1.
                                                                                                             the Board through which securities orders of Users
                                                  Washington, DC 20549, on official                          are consolidated for ranking, execution and, when           7 See Letter from Brendon J. Weiss, Vice

                                                                                                             applicable, routing away.’’ See Exchange Rule            President, Intercontinental Exchange, Inc., to
                                                    59 See   supra Item II.A.1–2.                            1.5(cc).                                                 Secretary, Commission, dated August 25, 2014.



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Document Created: 2018-02-08 07:57:09
Document Modified: 2018-02-08 07:57:09
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 47198 

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