81_FR_47362 81 FR 47223 - Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt Paragraph (c) to Exchange Rule 11.21 To Describe Changes to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program

81 FR 47223 - Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt Paragraph (c) to Exchange Rule 11.21 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 Range47223-47229
FR Document2016-17090

Federal Register, Volume 81 Issue 139 (Wednesday, July 20, 2016)
[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47223-47229]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-17090]



[[Page 47223]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78330; File No. SR-BatsEDGA-2016-15]


Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Adopt Paragraph (c) to Exchange 
Rule 11.21 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 June 29, 2016, Bats EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 11.21 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.
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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(cc).
    \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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    On August 25, 2014, NYSE Group, Inc., on behalf of the Exchange, 
Bats BYX Exchange, Inc. (``BYX''), Chicago Stock Exchange, Inc., Bats 
BZX Exchange, Inc. (``BZX''), 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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    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 11.21 to 
require Members \16\ to comply with the quoting

[[Page 47224]]

and trading provisions of the Plan.\17\ The Exchange also adopted 
paragraph (b) of Rule 11.21 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. 77792 (May 10, 
2016), 81 FR 30397 (May 16, 2016) (SR-BatsEDGA-2016-08).
    \18\ See Securities Exchange Act Release No. 77417 (March 22, 
2016), 81 FR 17219 (March 28, 2016) (SR-BatsEDGA-2016-01).
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Proposed System Changes
    The Exchange proposes to adopt paragraph (c) of Exchange Rule 11.21 
to describe changes to System functionality necessary to implement the 
Plan. Paragraph (c) of Rule 11.21 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 11.21 
would apply to order types and order type instructions in Pilot 
Securities in Test Groups One, Two, and Three and not to orders in 
Pilot Securities included in the Control Group. The proposed changes 
include select and discrete amendments to the operation of: (i) Market 
Orders; (ii) orders with a Market Peg instruction; (iii) MidPoint Peg 
Orders; (iii) orders with a Discretionary Range; (iv) orders with a 
Non-Displayed instruction; (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.
Market Orders
    A 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.\19\ Market Orders shall not trade through Protected 
Quotations. Any portion of a 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.\20\ In order to comply with the minimum quoting increments 
set forth in the Plan, the Exchange proposes to state under proposed 
Rule 11.21(c)(1) that for purposes of determining whether a Market 
Order's execution price is more than 5 percent worse than the NBBO 
under Rule 11.8(a)(7), the execution price for a buy (sell) order will 
be rounded down (up) to the nearest $0.05 increment.
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    \19\ See Exchange Rule 11.8(a).
    \20\ Id.
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Market Peg Instruction
    The Exchange proposes to amend the operation of orders with a 
Market Peg instruction 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. An order with a Pegged instruction is 
automatically adjusted by the System in response to changes in the NBBO 
and will peg to the NBB or NBO or a certain amount away from the NBB or 
NBO.\21\ An order with a Market Peg instruction is pegged to the 
contra-side NBBO.\22\ A User \23\ entering an order with a Market Peg 
instruction can specify that such order's price will offset the inside 
quote on the contra-side of the market by an amount (the ``Offset'') 
set by the User. An order with a Market Peg instruction is not eligible 
to be displayed on the Exchange.
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    \21\ See Exchange Rule 11.6(j).
    \22\ See Exchange Rule 11.6(j)(1).
    \23\ 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(ee).
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    In Test Groups One and Two, the Exchange proposes to modify the 
behavior of an order with a Market Peg instruction when it is locked by 
an incoming order with a Post Only instruction \24\ that does not 
remove liquidity pursuant to Rule 11.6(n)(4).\25\ In such case, the 
order with a Market Peg instruction would be converted to an executable 
order and will remove liquidity against such incoming order.\26\ In no 
case would an order with a Market Peg instruction execute against an 
incoming order with a Post Only instruction if an order with higher 
priority is on the EDGA Book.\27\ Specifically, if an order other than 
an order with a Market Peg instruction maintains higher priority than 
one or more orders with a Market Peg instruction, the order(s) with a 
Market Peg instruction with lower priority will not be converted, as 
described above, and the incoming order with a Post Only instruction 
will be posted or cancelled in accordance with Rule 11.6(n)(4).
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    \24\ See Exchange Rule 11.6(n)(4).
    \25\ A Post Only Order will remove contra-side liquidity from 
the EDGA 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 EDGA Book and subsequently provided liquidity, 
including the applicable fees charged or rebates provided. See 
Exchange Rule 11.6(n)(4).
    \26\ The Exchange notes that an order with a Post Only 
instruction will, in most cases, remove liquidity from the EDGA 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 EDGA Book, including the applicable fees charged 
or rebates received.
    \27\ The term ``EDGA Book'' is defined as the ``System's 
electronic file of orders.'' See Exchange Rule 1.5(d).
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    The Exchange notes that orders with a Market Peg instruction are 
aggressive by nature and believes executing the order in such 
circumstance is appropriate. The Exchange also notes that the proposed 
behavior for orders with a Market Peg instruction in Test Groups One 
and Two is identical to the operation of orders with the Super 
Aggressive Routing instruction under Exchange Rule 11.6(n)(2). When an 
order with a Super Aggressive instruction is locked by an incoming 
order with a Post Only instruction that does not remove liquidity 
pursuant to Rule 11.6(n)(4), 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 order with a 
Post Only instruction if an order with higher priority is on the EDGA 
Book. The Exchange believes this change is reasonable and appropriate 
due to the limited usage of orders with a Market Peg instruction in 
Pilot Securities, to avoid unnecessary additional System complexity, 
and to ensure the order with a Market Peg instruction may execute in 
such circumstance.
    The Exchange also proposes to not accept orders with a Market Peg

[[Page 47225]]

instruction in Test Group Three based on limited current usage, 
additional System complexity, and their limited ability to execute 
under the Trade-at Prohibition. Exchange Rule 11.21(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,\28\ unless an enumerated exception applies.\29\ 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 orders with a Market Peg instruction in Test 
Group Three. A vast majority of orders with a Market Pegged instruction 
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, an order with a Market Peg instruction would not be 
eligible for execution at the locking price, including when a Trade-at 
Intermarket Sweep Order (``ISO'') \30\ 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. An order 
with a Market Peg instruction to buy at $10.10 with a zero Offset is 
entered on the Exchange. The order would be ranked and hidden on the 
EDGA Book at $10.05. A Trade-at ISO to sell at $10.05 is then entered. 
In this example, no execution occurs on the Exchange 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 orders 
with a Market Peg instruction 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 orders with a Market 
Peg instruction due to the Trade-at Prohibition.
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    \28\ 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(y).
    \29\ See also Section VI(D) of the Plan.
    \30\ 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 
11.21(a)(7)(A)(i). These additional routed orders also must be 
marked as Trade-at Intermarket Sweep Orders. Id.
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MidPoint Peg Orders
    A MidPoint 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 
\31\ inside the same side of the NBBO as the order.\32\ 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.\33\ Consistent with previous guidance 
issued by the Participants,\34\ the Exchange proposes to amend the 
operation of MidPoint Peg Orders to explicitly state that MidPoint Peg 
Orders in Pilot Securities may not be entered in increments other than 
$0.05. The System will execute a MidPoint 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 MidPoint 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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    \31\ See Exchange Rule 11.6(i).
    \32\ See Exchange Rule 11.8(d).
    \33\ See Sections VI(B), (C), and (D) of the Plan. See also 
Exchange Rules 11.21(a)(4), (a)(5), and (a)(6).
    \34\ 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 Range Instruction
    The Exchange proposes to not accept orders with a Discretionary 
Range 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, an order with a 
Discretionary Range has a displayed or non-displayed ranked price and 
size and an additional non-displayed ``discretionary price''.\35\ 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 orders with a Discretionary Range to comply with the Plan 
become increasingly complex because both the 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, orders with 
a Discretionary Range 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 orders with a Discretionary Range in Pilot 
Securities does not justify the additional System complexity that would 
be created by supporting such orders. As a result of these factors the 
Exchange proposes to not accept orders with a Discretionary Range in 
all Test Groups and the Control Group.
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    \35\ See Exchange Rule 11.6(d).
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Non-Displayed Instruction
    The Exchange proposes to re-price to the midpoint of the NBBO 
orders with a Non-Displayed instruction in Test Group Three that are 
priced in a permissible increment better than the midpoint of the NBBO. 
An order with a Non-Displayed instruction is not displayed on the 
Exchange.\36\ Exchange Rule 11.21(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, an 
order with a Non-Displayed instruction that is able to execute at the 
price of the Protected Quotation would not be able to do so in Test 
Group Three

[[Page 47226]]

due to the Trade-at Prohibition and the Exchange's priority rule.\37\ 
Furthermore, such aggressively priced orders would not be able to post 
to the EDGA 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 orders with a Non-Displayed instruction in Test Group 
Three, the Exchange proposes to re-price to the midpoint of the NBBO 
orders with a Non-Displayed instruction that are priced in a 
permissible increment better than the midpoint of the NBBO.
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    \36\ See Exchange Rule 11.6(e)(2).
    \37\ Under Exchange Rule 11.9(a)(2)(A), displayed Limit Orders 
have priority over non-displayed Limit Orders.
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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 11.20(d)(2)(D)) 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 11.20(d).\38\ 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.
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    \38\ See Exchange Rule 11.8(f).
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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 EDGA 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.\39\ 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.\40\ Therefore, the Exchange proposes 
to not accept Supplemental Peg Orders in Test Group Three.
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    \39\ See Exchange Rule 11.8(g).
    \40\ 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.
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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 EDGA 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).\41\ 
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.\42\
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    \41\ See Exchange Rule 11.6(l)(1)(B).
    \42\ See Exchange Rule 11.6(l)(1)(B)(iii).
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    As described above, Exchange Rule 11.21(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 BZX 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 order 
with a Non-Displayed instruction is resting on the EDGA 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 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.\43\ 
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 order with a Non-
Displayed instruction is resting on the EDGA 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.
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    \43\ Id.
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Ministerial Change
    Currently, both Interpretation and Policy .03 to Rule 11.21(a) and 
Interpretation and Policy .11 to Rule 11.21(b) state that Rule 11.21 
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 11.21 and, therefore, proposes to delete both 
Interpretation and Policy .03 to Rule 11.21(a) and Interpretation and 
Policy .11 to Rule 11.21(b) as those provisions would be redundant and 
unnecessary. The Exchange also proposes to amend the last sentence of 
Rule 11.21(a)(4) to specify that the current permissible price 
increments are set forth under Exchange Rule 11.6(i), Minimum Price 
Variation.

[[Page 47227]]

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 \44\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \45\ 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.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78f(b).
    \45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes regarding Market 
Orders, MidPoint 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 orders with 
a Market Peg instruction, orders with a Discretionary Range, orders 
with a Non-Displayed instruction, 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.\46\ For example, during March 2016, the alternative 
pegging functionality of MidPoint Peg Orders, orders with a Market Peg 
instruction, orders with a Non-Displayed instruction, 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, BYX, BZX and 
EDGX combined. Notably, orders with a Discretionary Range accounted for 
0.00% of volume in eligible Pilot Securities on the Exchange, BYX, BZX 
and EDGX combined.
---------------------------------------------------------------------------

    \46\ 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.
---------------------------------------------------------------------------

    The Commission adopted Regulation Systems Compliance and Integrity 
(``Regulation SCI'') in November 2014 to strengthen the technology 
infrastructure of the U.S. securities markets.\47\ 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. 
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.\48\ 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 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 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.
---------------------------------------------------------------------------

    \47\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72251 (December 5, 2014) (``Regulation SCI Approval 
Order'').
    \48\ But for the Plan, the Exchange notes that it would not have 
proposed to amend the operation of orders with a Market Peg 
instruction, orders with a Discretionary Range, orders with a Non-
Displayed instruction, 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, orders with a Market Peg instruction, orders with a 
Discretionary Range, the alternative pegging functionality of MidPoint 
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 orders with a Non-
Displayed instruction, and orders subject to the Display-Price

[[Page 47228]]

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 11.6(n)(2). 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 
order with a Non-Displayed instruction is resting on the EDGA 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 11.21 
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 proposed rule 
change 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.\49\ 
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.\50\ 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.\51\
---------------------------------------------------------------------------

    \49\ See Approval Order, supra note 4, at 80 FR 27515.
    \50\ Id. at 27516.
    \51\ See Section 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.\52\ 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.'' 
\53\ 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 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.\54\
---------------------------------------------------------------------------

    \52\ 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.
    \53\ See supra Item II.A.2.
    \54\ 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 Number SR-BatsEDGA-2016-15 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 47229]]

Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BatsEDGA-2016-15. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BatsEDGA-2016-15, and should 
be submitted on or before August 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
---------------------------------------------------------------------------

    \55\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-17090 Filed 7-19-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                 Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                       47223

                                                  SECURITIES AND EXCHANGE                                   II. Self-Regulatory Organization’s                      market capitalization, an average daily
                                                  COMMISSION                                                Statement of the Purpose of, and                        trading volume of one million shares or
                                                                                                            Statutory Basis for, the Proposed Rule                  less, and a volume weighted average
                                                  [Release No. 34–78330; File No. SR–                       Change                                                  price of at least $2.00 for every trading
                                                  BatsEDGA–2016–15]                                           In its filing with the Commission, the                day. The Pilot will consist of a Control
                                                                                                            Exchange included statements                            Group of approximately 1400 Pilot
                                                  Self-Regulatory Organizations; Bats                       concerning the purpose of and basis for                 Securities and three Test Groups with
                                                  EDGA Exchange, Inc.; Notice of Filing                     the proposed rule change and discussed                  400 Pilot Securities in each Test Group
                                                  of a Proposed Rule Change To Adopt                        any comments it received on the                         selected by a stratified sampling.10
                                                  Paragraph (c) to Exchange Rule 11.21                      proposed rule change. The text of these                 During the Pilot, Pilot Securities in the
                                                  To Describe Changes to System                             statements may be examined at the                       Control Group will be quoted and
                                                  Functionality Necessary To Implement                      places specified in Item IV below. The                  traded at the currently permissible
                                                  the Regulation NMS Plan To Implement                      Exchange has prepared summaries, set                    increments. Pilot Securities in the first
                                                  a Tick Size Pilot Program                                 forth in Sections A, B, and C below, of                 Test Group (‘‘Test Group One’’) will be
                                                                                                            the most significant parts of such                      quoted in $0.05 minimum increments
                                                  July 14, 2016.                                            statements.                                             but will continue to trade at any price
                                                                                                                                                                    increment that is currently permitted.11
                                                     Pursuant to Section 19(b)(1) of the                    A. Self-Regulatory Organization’s                       Pilot Securities in the second Test
                                                  Securities Exchange Act of 1934 (the                      Statement of the Purpose of, and the                    Group (‘‘Test Group Two’’) will be
                                                  ‘‘Act’’),1 and Rule 19b–4 thereunder,2                    Statutory Basis for, the Proposed Rule                  quoted in $0.05 minimum increments
                                                  notice is hereby given that on June 29,                   Change                                                  and will trade at $0.05 minimum
                                                  2016, Bats EDGA Exchange, Inc. (the                                                                               increments subject to a midpoint
                                                  ‘‘Exchange’’ or ‘‘EDGA’’) filed with the                  1. Purpose
                                                                                                                                                                    exception, a retail investor order
                                                  Securities and Exchange Commission                        Background                                              exception, and a negotiated trade
                                                  (‘‘Commission’’) the proposed rule                           On August 25, 2014, NYSE Group,                      exception.12 Pilot Securities in the third
                                                  change as described in Items I, II, and                   Inc., on behalf of the Exchange, Bats                   Test Group (‘‘Test Group Three’’) will be
                                                  III below, which Items have been                          BYX Exchange, Inc. (‘‘BYX’’), Chicago                   subject to the same restrictions as Test
                                                  prepared by the Exchange. The                             Stock Exchange, Inc., Bats BZX                          Group Two and also will be subject to
                                                  Commission is publishing this notice to                   Exchange, Inc. (‘‘BZX’’), Bats EDGX                     the ‘‘Trade-at’’ requirement to prevent
                                                  solicit comments on the proposed rule                     Exchange, Inc. (‘‘EDGX’’), Financial                    price matching by a market participant
                                                  change from interested persons.                           Industry Regulatory Authority, Inc.                     that is not displaying at a price of a
                                                                                                            (‘‘FINRA’’), NASDAQ OMX BX, Inc.,                       Trading Center’s 13 ‘‘Best Protected Bid’’
                                                  I. Self-Regulatory Organization’s
                                                                                                            NASDAQ OMX PHLX LLC, the Nasdaq                         or ‘‘Best Protected Offer,’’ unless an
                                                  Statement of the Terms of Substance of                    Stock Market LLC, New York Stock                        enumerated exception applies.14 The
                                                  the Proposed Rule Change                                  Exchange LLC (‘‘NYSE’’), NYSE MKT                       same exceptions provided under Test
                                                     The Exchange filed a proposal to                       LLC, and NYSE Arca, Inc. (collectively                  Group Two will also be available under
                                                  adopt paragraph (c) to Exchange Rule                      ‘‘Participants’’), filed with the                       the Trade-at Prohibition, with an
                                                  11.21 to describe changes to System 3                     Commission, pursuant to Section 11A of                  additional exception for Block Size
                                                                                                            the Act 6 and Rule 608 of Regulation                    orders and exceptions that mirror those
                                                  functionality necessary to implement
                                                                                                            NMS thereunder, the Plan to implement                   under Rule 611 of Regulation NMS.15
                                                  the Regulation NMS Plan to Implement
                                                                                                            a tick size pilot program.7 The                            The Plan requires the Exchange to
                                                  a Tick Size Pilot Program (‘‘Plan’’ or
                                                                                                            Participants filed the Plan to comply                   establish, maintain, and enforce written
                                                  ‘‘Pilot’’).4 In determining the scope of                  with an order issued by the Commission
                                                  the proposed changes to implement the                                                                             policies and procedures that are
                                                                                                            on June 24, 2014.8 The Plan was                         reasonably designed to comply with
                                                  Pilot,5 the Exchange carefully weighed                    published for comment in the Federal
                                                  the impact on the Pilot, System                                                                                   applicable quoting and trading
                                                                                                            Register on November 7, 2014, and                       requirements specified in the Plan.
                                                  complexity, and the usage of such order                   approved by the Commission, as                          Accordingly, the Exchange adopted
                                                  types in Pilot Securities.                                modified, on May 6, 2015.9                              paragraph (a) of Rule 11.21 to require
                                                     The text of the proposed rule change                      The Plan is designed to allow the                    Members 16 to comply with the quoting
                                                  is available at the Exchange’s Web site                   Commission, market participants, and
                                                  at www.batstrading.com, at the                            the public to study and assess the                         10 See Section V of the Plan for identification of

                                                  principal office of the Exchange, and at                  impact of increment conventions on the                  Pilot Securities, including criteria for selection and
                                                  the Commission’s Public Reference                         liquidity and trading of the common                     grouping.
                                                  Room.                                                     stocks of small-capitalization                             11 See Section VI(B) of the Plan.
                                                                                                                                                                       12 See Section VI(C) of the Plan.
                                                                                                            companies. Each Participant is required
                                                                                                                                                                       13 The Plan incorporates the definition of
                                                    1 15  U.S.C. 78s(b)(1).
                                                                                                            to comply, and to enforce compliance
                                                                                                                                                                    ‘‘Trading Center’’ from Rule 600(b)(78) of
                                                    2 17  CFR 240.19b–4.                                    by its member organizations, as                         Regulation NMS. Regulation NMS defines a Trading
                                                     3 The term ‘‘System’’ is defined as the ‘‘electronic   applicable, with the provisions of the                  Center as ‘‘a national securities exchange or
                                                  communications and trading facility designated by         Plan.                                                   national securities association that operates an SRO
                                                                                                               The Pilot will include stocks of                     trading facility, an alternative trading system, an
                                                  the Board through which securities orders of Users
                                                                                                                                                                    exchange market maker, an OTC market maker, or
                                                  are consolidated for ranking, execution and, when         companies with $3 billion or less in
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                                                                                    any other broker or dealer that executes orders
                                                  applicable, routing away.’’ See Exchange Rule                                                                     internally by trading as principal or crossing orders
                                                  1.5(cc).                                                       6 15
                                                                                                                    U.S.C. 78k–1.                                   as agent.’’
                                                     4 See Securities Exchange Act Release No. 74892             7 See
                                                                                                                     Letter from Brendon J. Weiss, Vice                14 See Section VI(D) of the Plan.
                                                  (May 6, 2015), 80 FR 27513 (May 13, 2015)                 President, Intercontinental Exchange, Inc., to             15 17 CFR 242.611.
                                                  (‘‘Approval Order’’).                                     Secretary, Commission, dated August 25, 2014.              16 The term ‘‘Member’’ is defined as ‘‘any
                                                     5 Unless otherwise specified, capitalized terms           8 See Securities Exchange Act Release No. 72460
                                                                                                                                                                    registered broker or dealer that has been admitted
                                                  used in this rule filing are defined as set forth in      (June 24, 2014), 79 FR 36840 (June 30, 2014).           to membership in the Exchange.’’ See Exchange
                                                  the Plan.                                                    9 See Approval Order, supra note 4.                  Rule 1.5(n).



                                             VerDate Sep<11>2014    18:24 Jul 19, 2016   Jkt 238001   PO 00000     Frm 00069   Fmt 4703   Sfmt 4703   E:\FR\FM\20JYN1.SGM   20JYN1


                                                  47224                        Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  and trading provisions of the Plan.17                    Market Orders                                             In such case, the order with a Market
                                                  The Exchange also adopted paragraph                        A Market Order is an order to buy or                    Peg instruction would be converted to
                                                  (b) of Rule 11.21 to require Members to                  sell a stated amount of a security that is                an executable order and will remove
                                                  comply with the data collection                          to be executed at the NBBO when the                       liquidity against such incoming order.26
                                                  provisions under Appendix B and C of                     order reaches the Exchange.19 Market                      In no case would an order with a Market
                                                  the Plan.18                                              Orders shall not trade through Protected                  Peg instruction execute against an
                                                                                                                                                                     incoming order with a Post Only
                                                  Proposed System Changes                                  Quotations. Any portion of a Market
                                                                                                                                                                     instruction if an order with higher
                                                                                                           Order that would execute at a price
                                                     The Exchange proposes to adopt                                                                                  priority is on the EDGA Book.27
                                                                                                           more than $0.50 or 5 percent worse than
                                                  paragraph (c) of Exchange Rule 11.21 to                                                                            Specifically, if an order other than an
                                                                                                           the NBBO at the time the order initially
                                                  describe changes to System                                                                                         order with a Market Peg instruction
                                                                                                           reaches the Exchange, whichever is
                                                  functionality necessary to implement                                                                               maintains higher priority than one or
                                                                                                           greater, will be cancelled.20 In order to
                                                  the Plan. Paragraph (c) of Rule 11.21                                                                              more orders with a Market Peg
                                                                                                           comply with the minimum quoting
                                                  would set forth the Exchange’s specific                                                                            instruction, the order(s) with a Market
                                                                                                           increments set forth in the Plan, the
                                                  procedures for handling, executing, re-                                                                            Peg instruction with lower priority will
                                                                                                           Exchange proposes to state under
                                                  pricing and displaying of certain order                                                                            not be converted, as described above,
                                                                                                           proposed Rule 11.21(c)(1) that for                        and the incoming order with a Post
                                                  types and order type instructions
                                                                                                           purposes of determining whether a                         Only instruction will be posted or
                                                  applicable to Pilot Securities. Unless
                                                                                                           Market Order’s execution price is more                    cancelled in accordance with Rule
                                                  otherwise indicated, paragraph (c) of
                                                                                                           than 5 percent worse than the NBBO                        11.6(n)(4).
                                                  Rule 11.21 would apply to order types
                                                                                                           under Rule 11.8(a)(7), the execution                         The Exchange notes that orders with
                                                  and order type instructions in Pilot
                                                                                                           price for a buy (sell) order will be                      a Market Peg instruction are aggressive
                                                  Securities in Test Groups One, Two, and
                                                                                                           rounded down (up) to the nearest $0.05                    by nature and believes executing the
                                                  Three and not to orders in Pilot
                                                                                                           increment.                                                order in such circumstance is
                                                  Securities included in the Control
                                                  Group. The proposed changes include                      Market Peg Instruction                                    appropriate. The Exchange also notes
                                                  select and discrete amendments to the                                                                              that the proposed behavior for orders
                                                                                                              The Exchange proposes to amend the                     with a Market Peg instruction in Test
                                                  operation of: (i) Market Orders; (ii)                    operation of orders with a Market Peg
                                                  orders with a Market Peg instruction;                                                                              Groups One and Two is identical to the
                                                                                                           instruction to reduce risk in its System                  operation of orders with the Super
                                                  (iii) MidPoint Peg Orders; (iii) orders                  by eliminating unnecessary complexity
                                                  with a Discretionary Range; (iv) orders                                                                            Aggressive Routing instruction under
                                                                                                           based on infrequent current usage in                      Exchange Rule 11.6(n)(2). When an
                                                  with a Non-Displayed instruction; (v)                    Pilot Securities and their limited ability
                                                  Market Maker Peg Orders; (vi)                                                                                      order with a Super Aggressive
                                                                                                           to execute under the Trade-at                             instruction is locked by an incoming
                                                  Supplemental Peg Orders; and (vii)                       Prohibition in Test Group Three. An
                                                  orders subject to the Display-Price                                                                                order with a Post Only instruction that
                                                                                                           order with a Pegged instruction is                        does not remove liquidity pursuant to
                                                  Sliding process.                                         automatically adjusted by the System in
                                                     In determining the scope of these                                                                               Rule 11.6(n)(4), the order is converted to
                                                                                                           response to changes in the NBBO and                       an executable order and will remove
                                                  proposed changes to implement the                        will peg to the NBB or NBO or a certain
                                                  Plan, the Exchange carefully weighed                                                                               liquidity against such incoming order.
                                                                                                           amount away from the NBB or NBO.21                        In addition, like as proposed above, in
                                                  the impact on the Pilot, System                          An order with a Market Peg instruction                    no case would an order with a Super
                                                  complexity, and the usage of such order                  is pegged to the contra-side NBBO.22 A                    Aggressive instruction execute against
                                                  types in Pilot Securities. These                         User 23 entering an order with a Market                   an incoming order with a Post Only
                                                  proposed changes are designed to                         Peg instruction can specify that such                     instruction if an order with higher
                                                  directly comply with the Plan and to                     order’s price will offset the inside quote                priority is on the EDGA Book. The
                                                  assist the Exchange in meeting its                       on the contra-side of the market by an                    Exchange believes this change is
                                                  regulatory obligations pursuant to the                   amount (the ‘‘Offset’’) set by the User.                  reasonable and appropriate due to the
                                                  Plan. As discussed below, certain of                     An order with a Market Peg instruction                    limited usage of orders with a Market
                                                  these changes are also intended to                       is not eligible to be displayed on the                    Peg instruction in Pilot Securities, to
                                                  reduce risk in the System by eliminating                 Exchange.                                                 avoid unnecessary additional System
                                                  unnecessary complexity based on                             In Test Groups One and Two, the                        complexity, and to ensure the order
                                                  infrequent current usage of certain order                Exchange proposes to modify the                           with a Market Peg instruction may
                                                  types in Pilot Securities and/or their                   behavior of an order with a Market Peg                    execute in such circumstance.
                                                  limited ability to execute under the                     instruction when it is locked by an                          The Exchange also proposes to not
                                                  Trade-at Prohibition. Therefore, the                     incoming order with a Post Only                           accept orders with a Market Peg
                                                  Exchange firmly believes that these                      instruction 24 that does not remove
                                                  changes will have little or no impact on                 liquidity pursuant to Rule 11.6(n)(4).25                  execution if the order instead posted to the EDGA
                                                  the operation and data collection                                                                                  Book and subsequently provided liquidity,
                                                  elements of the Plan. The Exchange                            19 See   Exchange Rule 11.8(a).                      including the applicable fees charged or rebates
                                                                                                                                                                     provided. See Exchange Rule 11.6(n)(4).
                                                  further believes that the proposed rule                       20 Id.
                                                                                                                                                                        26 The Exchange notes that an order with a Post
                                                  changes are reasonably designed to                            21 See
                                                                                                                     Exchange Rule 11.6(j).                          Only instruction will, in most cases, remove
                                                  comply with applicable quoting and                            22 See
                                                                                                                     Exchange Rule 11.6(j)(1).                       liquidity from the EDGA Book because under its
                                                                                                              23 A ‘‘User’’ is defined as any member or
                                                  trading requirements specified in the                                                                              current taker-maker pricing structure, the remover
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                                                                                                           sponsored participant of the Exchange who is              of liquidity is provided a rebate while the provider
                                                  Plan.                                                    authorized to obtain access to the System pursuant        of liquidity is charged a fee. Therefore, in most
                                                                                                           to Rule 11.3. See Exchange Rule 1.5(ee).                  cases, value of the execution to remove liquidity
                                                    17 See Securities Exchange Act Release No. 77792          24 See Exchange Rule 11.6(n)(4).                       will equal or exceed the value of such execution
                                                  (May 10, 2016), 81 FR 30397 (May 16, 2016) (SR–             25 A Post Only Order will remove contra-side           once posted to the EDGA Book, including the
                                                  BatsEDGA–2016–08).                                       liquidity from the EDGA Book if the order is an           applicable fees charged or rebates received.
                                                    18 See Securities Exchange Act Release No. 77417       order to buy or sell a security priced below $1.00           27 The term ‘‘EDGA Book’’ is defined as the

                                                  (March 22, 2016), 81 FR 17219 (March 28, 2016)           or if the value of such execution when removing           ‘‘System’s electronic file of orders.’’ See Exchange
                                                  (SR–BatsEDGA–2016–01).                                   liquidity equals or exceeds the value of such             Rule 1.5(d).



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                                                                                 Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                   47225

                                                  instruction in Test Group Three based                      Market Peg instruction in Test Group                     and an additional non-displayed
                                                  on limited current usage, additional                       Three in an effort to reduce unnecessary                 ‘‘discretionary price’’.35 The
                                                  System complexity, and their limited                       System complexity, avoid an internally                   discretionary price is a non-displayed
                                                  ability to execute under the Trade-at                      locked book, and due to the limited                      upward offset at which a User is willing
                                                  Prohibition. Exchange Rule                                 execution opportunities for orders with                  to buy, if necessary, or a non-displayed
                                                  11.21(a)(6)(D) sets forth the ‘‘Trade-at                   a Market Peg instruction due to the                      downward offset at which a User is
                                                  Prohibition,’’ which is the prohibition                    Trade-at Prohibition.                                    willing to sell, if necessary. The System
                                                  against executions by a Member that                                                                                 changes necessary for orders with a
                                                                                                             MidPoint Peg Orders
                                                  operates a Trading Center of a sell order                                                                           Discretionary Range to comply with the
                                                  for a Pilot Security in Test Group Three                      A MidPoint Peg Order is an order                      Plan become increasingly complex
                                                  at the price of a Protected Bid or the                     whose price is automatically adjusted                    because both the displayed price and
                                                  execution of a buy order for a Pilot                       by the System in response to changes in                  discretionary price must comply with
                                                  Security in Test Group Three at the                        the NBBO to be pegged to the midpoint                    the Plan’s minimum quoting and trading
                                                  price of a Protected Offer during Regular                  of the NBBO, or, alternatively, pegged to                increments as well as the Trade-at
                                                  Trading Hours,28 unless an enumerated                      the less aggressive of the midpoint of                   restriction in Test Group Three. In
                                                  exception applies.29 The Exchange                          the NBBO or one Minimum Price                            addition, Users do not currently set
                                                  believes that their de minimis usage and                   Variation 31 inside the same side of the                 discretionary prices less than $0.05
                                                  limited ability to execute due to the                      NBBO as the order.32 The Plan and                        away from the order’s displayed price
                                                  Trade-at Prohibition does not justify the                  current Exchange rules permit the                        and the Exchange does not anticipate
                                                  complexity that would be created by                        acceptance of orders priced to execute at                Users doing so under the Plan. To date,
                                                  supporting orders with a Market Peg                        the midpoint of the NBBO to be ranked                    orders with a Discretionary Range are
                                                  instruction in Test Group Three. A vast                    and accepted in increments of less than                  rarely entered in Pilot Securities and the
                                                  majority of orders with a Market Pegged                    $0.05.33 Consistent with previous                        Exchange anticipates their usage to
                                                  instruction are entered into the System                    guidance issued by the Participants,34                   further decrease due to the Plan’s
                                                  with a zero Offset and, therefore, create                  the Exchange proposes to amend the                       minimum quoting increments. The
                                                  a locked market with the contra-side                       operation of MidPoint Peg Orders to                      Exchange believes that the current
                                                  NBBO. Under the Trade-at Prohibition,                      explicitly state that MidPoint Peg                       extremely limited usage of orders with
                                                  an order with a Market Peg instruction                     Orders in Pilot Securities may not be                    a Discretionary Range in Pilot Securities
                                                  would not be eligible for execution at                     entered in increments other than $0.05.                  does not justify the additional System
                                                  the locking price, including when a                        The System will execute a MidPoint Peg                   complexity that would be created by
                                                  Trade-at Intermarket Sweep Order                           Order: (i) In $0.05 increments priced                    supporting such orders. As a result of
                                                  (‘‘ISO’’) 30 is entered, because of non-                   better than the midpoint of the NBBO;                    these factors the Exchange proposes to
                                                  cleared contra-side Protected                              or (ii) at the midpoint of the NBBO,                     not accept orders with a Discretionary
                                                  Quotations. For example, assume the                        regardless of whether the midpoint of                    Range in all Test Groups and the
                                                  NBBO is $10.00 (NYSE) × $10.05                             the NBBO is in an increment of $0.05.                    Control Group.
                                                  (Nasdaq) in a Test Group 3 security. An                    In order to comply with the minimum
                                                                                                             quoting and trading increments of the                    Non-Displayed Instruction
                                                  order with a Market Peg instruction to
                                                  buy at $10.10 with a zero Offset is                        Plan and reduce unnecessary System                          The Exchange proposes to re-price to
                                                  entered on the Exchange. The order                         complexity, a MidPoint Peg Order will                    the midpoint of the NBBO orders with
                                                  would be ranked and hidden on the                          not be permitted to alternatively peg to                 a Non-Displayed instruction in Test
                                                  EDGA Book at $10.05. A Trade-at ISO to                     one Minimum Price Variation inside the                   Group Three that are priced in a
                                                  sell at $10.05 is then entered. In this                    same side of the NBBO as the order in                    permissible increment better than the
                                                  example, no execution occurs on the                        Pilot Securities. The Exchange believes                  midpoint of the NBBO. An order with
                                                  Exchange because Nasdaq is displaying                      that the current de minimis usage of the                 a Non-Displayed instruction is not
                                                  an order to sell at $10.05. The Trade-at                   alternative pegging functionality in Pilot               displayed on the Exchange.36 Exchange
                                                  ISO instruction only indicates that all of                 Securities does not justify the                          Rule 11.21(a)(6)(D) incorporates the
                                                  the better and equal priced buy orders                     complexity and risk that would be                        ‘‘Trade-at Prohibition’’ in the
                                                  have been cleared. It does not indicate                    created by re-programming the System                     Exchange’s rules. The Trade-at
                                                  that the seller has cleared any Protected                  to support this functionality under the                  Prohibition prevents the execution of a
                                                  Offers. Therefore, the Exchange                            Plan.                                                    sell order for a Pilot Security in Test
                                                  proposes to not accept orders with a                                                                                Group Three at the price of a Protected
                                                                                                             Discretionary Range Instruction                          Bid or the execution of a buy order for
                                                    28 The   term ‘‘Regular Trading Hours’’ is defined          The Exchange proposes to not accept                   a Pilot Security in Test Group Three at
                                                  as ‘‘the time between 9:30 a.m. and 4:00 p.m.              orders with a Discretionary Range in all                 the price of a Protected Offer during
                                                  Eastern Time.’’ See Exchange Rule 1.5(y).
                                                     29 See also Section VI(D) of the Plan.
                                                                                                             Test Groups, including the Control                       Regular Trading Hours, unless an
                                                     30 A Trade-at ISO is a Limit Order for a Pilot          Group, to reduce risk in the System by                   exception applies. A Trading Center that
                                                  Security that meets the following requirements: (i)        eliminating unnecessary complexity                       is displaying a quotation, via either a
                                                  When routed to a Trading Center, the limit order           based on infrequent current usage in                     processor or an SRO quotation feed, that
                                                  is identified as a Trade-at Intermarket Sweep Order;       Pilot Securities. In sum, an order with                  is a Protected Bid or Protected Offer is
                                                  and (ii) simultaneously with the routing of the limit
                                                  order identified as a Trade-at Intermarket Sweep           a Discretionary Range has a displayed or                 permitted to execute orders at that level,
                                                  Order, one or more additional limit orders, as             non-displayed ranked price and size                      but only up to the amount of its
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                                                  necessary, are routed to execute against the full size                                                              displayed size. Unless an exception
                                                  of any protected bid, in the case of a limit order to
                                                  sell, or the full displayed size of any protected offer,
                                                                                                                 31 See
                                                                                                                      Exchange Rule 11.6(i).                          applies, an order with a Non-Displayed
                                                                                                                 32 See
                                                                                                                      Exchange Rule 11.8(d).
                                                  in the case of a limit order to buy, for the Pilot                                                                  instruction that is able to execute at the
                                                                                                               33 See Sections VI(B), (C), and (D) of the Plan. See
                                                  Security with a price that is better than or equal to                                                               price of the Protected Quotation would
                                                  the limit price of the limit order identified as a         also Exchange Rules 11.21(a)(4), (a)(5), and (a)(6).
                                                                                                               34 See e.g., Question 42 of the Tick Size Pilot
                                                                                                                                                                      not be able to do so in Test Group Three
                                                  Trade-at Intermarket Sweep Order. See Exchange
                                                  Rule 11.21(a)(7)(A)(i). These additional routed            Program Trading and Quoting FAQs available at
                                                                                                                                                                       35 See   Exchange Rule 11.6(d).
                                                  orders also must be marked as Trade-at Intermarket         http://www.finra.org/sites/default/files/TSPP-
                                                  Sweep Orders. Id.                                          Trading-and-Quoting-FAQs.pdf.                             36 See   Exchange Rule 11.6(e)(2).



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                                                  47226                        Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  due to the Trade-at Prohibition and the                  displaying a Protected Quotation and,                 in Test Group Three that are only to be
                                                  Exchange’s priority rule.37 Furthermore,                 therefore, the Supplemental Peg Order                 adjusted once and not multiple times in
                                                  such aggressively priced orders would                    would be unable to execute in Test                    the event the NBBO widens and a
                                                  not be able to post to the EDGA Book                     Group Three due to the Trade-at                       contra-side order with a Non-Displayed
                                                  at the contra-side Protected Quotation,                  Prohibition.40 Therefore, the Exchange                instruction is resting on the EDGA Book
                                                  and re-pricing the order to the midpoint                 proposes to not accept Supplemental                   at the price to which the order subject
                                                  of the NBBO would increase execution                     Peg Orders in Test Group Three.                       to Display-Price Sliding would be
                                                  opportunities under normal market                                                                              adjusted. Due to the increased minimum
                                                                                                           Display-Price Sliding
                                                  conditions. However, orders that are                                                                           quoting increments under the Plan, the
                                                  priced to execute at the midpoint of the                    Under the Display-Price Sliding                    Exchange is unable to safely re-price an
                                                  NBBO are exempt from the Trade-at                        process, an order eligible for display by             order subject to single Display-Price
                                                  Prohibition. Therefore, to increase the                  the Exchange that, at the time of entry,              Sliding in Test Group Three to the
                                                  execution opportunities for orders with                  would create a violation of Rule 610(d)               original locking price in such
                                                  a Non-Displayed instruction in Test                      of Regulation NMS by locking or                       circumstances and doing so would add
                                                  Group Three, the Exchange proposes to                    crossing a Protected Quotation of an                  additional System complexity and risk.
                                                  re-price to the midpoint of the NBBO                     external market, will be ranked at the                As discussed above, the Exchange
                                                  orders with a Non-Displayed instruction                  locking price in the EDGA Book and                    proposes to rank orders in Test Group
                                                  that are priced in a permissible                         displayed by the System at one                        Three subject to the Display-Price
                                                  increment better than the midpoint of                    minimum price variation (i.e., $0.05)                 Sliding process at the midpoint of the
                                                  the NBBO.                                                below the current NBO (for bids) or one               NBBO. In the event the NBBO changes
                                                                                                           minimum price variation above the                     such that an order subject to Display-
                                                  Market Maker Peg Orders                                  current NBB (for offers).41 The ranked                Price Sliding would not lock or cross a
                                                     A Market Maker Peg Order is a Limit                   and displayed prices of an order subject              Protected Quotation of an external
                                                  Order that is automatically priced by the                to the Display-Price Sliding process may              market, the order will receive a new
                                                  System at the Designated Percentage (as                  be adjusted once or multiple times                    timestamp, and will be displayed at the
                                                  defined in Exchange Rule                                 depending upon the instructions of a                  order’s limit price.43 Due to
                                                  11.20(d)(2)(D)) away from the then                       User and changes to the prevailing                    technological limitations arising from
                                                  current NBB and NBO, or if no NBB or                     NBBO.42                                               the increased minimum quoting
                                                  NBO, at the Designated Percentage away                      As described above, Exchange Rule
                                                                                                                                                                 increments under the Plan, however, the
                                                  from the last reported sale from the                     11.21(a)(6)(D) sets forth the Trade-at
                                                                                                                                                                 Exchange is unable to safely re-program
                                                  responsible single plan processor in                     Prohibition, which is the prohibition
                                                                                                                                                                 its System to re-price such order to the
                                                  order to comply with the quotation                       against executions by a Member that
                                                                                                           operates a Trading Center of a sell order             original locking price when the NBBO
                                                  requirements for Market Makers set
                                                                                                           for a Pilot Security in Test Group Three              widens and a contra-side order with a
                                                  forth in Exchange Rule 11.20(d).38
                                                                                                           at the price of a Protected Bid or the                Non-Displayed instruction is resting on
                                                  Should the above pricing result in a
                                                                                                           execution of a buy order for a Pilot                  the EDGA Book at the price to which the
                                                  Market Maker Peg Order being priced at
                                                                                                           Security in Test Group Three at the                   order subject to Display-Price Sliding
                                                  an increment other than $0.05, the
                                                                                                           price of a Protected Offer during Regular             would be adjusted. Therefore, the
                                                  Exchange proposes to round an order to
                                                                                                           Trading Hours, unless an exception                    Exchange proposes to cancel orders
                                                  buy (sell) up (down) to the nearest $0.05
                                                  increment in order to comply with the                    applies. Orders that are priced to                    subject to the single Display-Price
                                                  minimum quoting increments of the                        execute at the midpoint of the NBBO are               Sliding process in such circumstances.
                                                  Plan.                                                    exempt from the Trade-at Prohibition.                 Users who prefer an execution in such
                                                                                                           Therefore, to increase the execution                  a scenario may elect to use the multiple
                                                  Supplemental Peg Orders                                  opportunities and qualify for the mid-                Display-Price Sliding process.
                                                    The Exchange proposes to not accept                    point exception to the Trade-at                       Ministerial Change
                                                  Supplemental Peg Orders in Test Group                    Prohibition, the Exchange proposes to
                                                  Three in order to reduce risk in the                     rank orders in Test Group Three that are                 Currently, both Interpretation and
                                                  System by eliminating unnecessary                        subject to the Display-Price Sliding                  Policy .03 to Rule 11.21(a) and
                                                  complexity based on infrequent current                   process at the midpoint of the NBBO in                Interpretation and Policy .11 to Rule
                                                  usage in Pilot Securities and their                      the BZX Book and display such orders                  11.21(b) state that Rule 11.21 shall be in
                                                  limited ability to execute under the                     one minimum price variation below the                 effect during a pilot period to coincide
                                                  Trade-at Prohibition. A Supplemental                     current NBO (for bids) or one minimum                 with the pilot period for the Plan
                                                  Peg Order is a non-displayed Limit                       price variation above the current NBB                 (including any extensions to the pilot
                                                  Order that posts to the EDGA Book, and                   (for offers).                                         period for the Plan). The Exchange
                                                  thereafter is eligible for execution at the                 The Exchange also proposes to cancel               proposes to include this language at the
                                                  NBB for buy orders and NBO for sell                      orders subject to Display-Price Sliding               beginning of Rule 11.21 and, therefore,
                                                  orders against routable orders that are                                                                        proposes to delete both Interpretation
                                                  equal to or less than the aggregate size                   40 The Exchange notes that the likelihood of a      and Policy .03 to Rule 11.21(a) and
                                                  of the Supplemental Peg Order interest                   Supplemental Peg Order qualifying for an exception    Interpretation and Policy .11 to Rule
                                                                                                           to the Trade-at Prohibition is small. For example,
                                                  available at that price.39 In sum,                       Supplemental Peg Orders are only executable           11.21(b) as those provisions would be
                                                  Supplemental Peg Orders are only                         against orders that are to be routed away and would   redundant and unnecessary. The
                                                  executable at the NBBO against an order                  not be eligible to execute against an incoming ISO    Exchange also proposes to amend the
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                                                  that is in the process of being routed                   or Trade-at ISO. Also, the Exchange would not be      last sentence of Rule 11.21(a)(4) to
                                                                                                           displaying a Protected Quotation. In addition, the
                                                  away. In such case, the Exchange is not                  Exchange does not frequently receive orders of        specify that the current permissible
                                                                                                           Block Size and, in order to qualify for the Block     price increments are set forth under
                                                    37 Under Exchange Rule 11.9(a)(2)(A), displayed        exception, the contra-side Block Order must be        Exchange Rule 11.6(i), Minimum Price
                                                  Limit Orders have priority over non-displayed            routable and the Supplemental Peg Order be of
                                                  Limit Orders.                                            Block Size.                                           Variation.
                                                    38 See Exchange Rule 11.8(f).                            41 See Exchange Rule 11.6(l)(1)(B).
                                                    39 See Exchange Rule 11.8(g).                            42 See Exchange Rule 11.6(l)(1)(B)(iii).              43 Id.




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                                                                                  Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                    47227

                                                  Implementation Date                                            The Exchange also believes that its                of such order types in Pilot Securities.48
                                                    If the Commission approves the                            proposed changes to orders with a                     The potential complexity results from
                                                  proposed rule change, the proposed rule                     Market Peg instruction, orders with a                 code changes for a majority of the
                                                  change will be effective upon                               Discretionary Range, orders with a Non-               Exchange’s order types, which requires
                                                  Commission approval and shall become                        Displayed instruction, Supplemental                   the implementation and testing of a
                                                                                                              Peg Orders, and Display-Price Sliding                 separate branch of code for each Test
                                                  operative upon the commencement of
                                                                                                              are also consistent with the Act because              Group. For example, the Exchange
                                                  the Pilot Period.
                                                                                                              they are intended to eliminate                        currently utilizes one branch of code for
                                                  2. Statutory Basis                                          unnecessary System complexity and                     which to implement and test changes.
                                                     The Exchange believes that its                           risk based on the de minimis current                  Development work for the Pilot results
                                                  proposal is consistent with Section 6(b)                    usage of such order types and                         in the creation of four additional
                                                  of the Act 44 in general, and furthers the                  instructions in Pilot Securities and/or               branches of code that are to be
                                                  objectives of Section 6(b)(5) of the Act 45                 their limited ability to execute under the            developed and tested (e.g., Control
                                                  in particular, in that it is designed to                    Plan’s minimum trading and quoting                    Group + three Test Groups). The
                                                  promote just and equitable principles of                    increments or Trade-at Prohibition.46                 Exchange determined that the changes
                                                  trade, to foster cooperation and                            For example, during March 2016, the                   proposed herein are necessary to ensure
                                                                                                              alternative pegging functionality of                  continued System resiliency in
                                                  coordination with persons engaged in
                                                                                                              MidPoint Peg Orders, orders with a                    accordance with the requirements of
                                                  facilitating transactions in securities, to
                                                                                                              Market Peg instruction, orders with a                 Regulation SCI. Therefore, the Exchange
                                                  remove impediments to and perfect the
                                                                                                              Non-Displayed instruction, and                        believes the proposed rule change
                                                  mechanism of a free and open market
                                                                                                              Supplemental Peg Orders accounted for                 promotes just and equitable principles
                                                  and a national market system and, in
                                                                                                              0.01%, 0.02%, 0.92%, and 0.01%,                       of trade, removes impediments to and
                                                  general, to protect investors and the
                                                                                                              respectively, of volume in eligible Pilot             perfects the mechanism of a free and
                                                  public interest. The Plan requires the
                                                                                                              Securities on the Exchange, BYX, BZX                  open market and a national market
                                                  Exchange to establish, maintain, and
                                                                                                              and EDGX combined. Notably, orders                    system and, in general, to protect
                                                  enforce written policies and procedures
                                                                                                              with a Discretionary Range accounted                  investors and the public interest.
                                                  that are reasonably designed to comply                                                                               In addition, each of these proposed
                                                  with applicable quoting and trading                         for 0.00% of volume in eligible Pilot
                                                                                                              Securities on the Exchange, BYX, BZX                  changes would have a de minimis to
                                                  requirements specified in the Plan. The                                                                           zero impact on the data reported
                                                  proposed rule change is designed to                         and EDGX combined.
                                                                                                                 The Commission adopted Regulation                  pursuant to the Plan. As evidenced
                                                  comply with the Plan, reduce                                                                                      above, orders with a Market Peg
                                                  complexity and enhance System                               Systems Compliance and Integrity
                                                                                                              (‘‘Regulation SCI’’) in November 2014 to              instruction, orders with a Discretionary
                                                  resiliency while not adversely affecting                                                                          Range, the alternative pegging
                                                  the data collected under the Plan.                          strengthen the technology infrastructure
                                                                                                              of the U.S. securities markets.47                     functionality of MidPoint Peg Orders,
                                                  Therefore, the Exchange believes that                                                                             and Supplemental Peg Orders are
                                                  the proposed rule changes are                               Regulation SCI is designed to reduce the
                                                                                                              occurrence of systems issues, improve                 infrequently used in Pilot Securities or
                                                  reasonably designed to comply with                                                                                the execution of such orders would be
                                                  applicable quoting and trading                              resiliency when systems problems do
                                                                                                              occur, and enhance the Commission’s                   scarce due to the Plan’s minimum
                                                  requirements specified in the Plan and,                                                                           trading and quoting requirement and
                                                  as discussed further below, other                           oversight and enforcement of securities
                                                                                                                                                                    Trade-at Prohibition. The limited usage
                                                  applicable regulations.                                     market technology infrastructure.
                                                                                                                                                                    and execution scenarios do not justify
                                                     The Exchange believes that the                           Regulation SCI required the Exchange to
                                                                                                                                                                    the additional system complexity which
                                                  proposed changes regarding Market                           establish written policies and
                                                                                                                                                                    would be created by modifying the
                                                  Orders, MidPoint Peg Orders, Market                         procedures reasonably designed to
                                                                                                                                                                    System to support such order types in
                                                  Maker Peg Orders, and Display-Price                         ensure that their systems have levels of
                                                                                                                                                                    order to comply with the Plan.
                                                  Sliding are consistent with the Act                         capacity, integrity, resiliency,
                                                                                                                                                                    Therefore, the Exchange believes each
                                                  because they are intended to modify the                     availability, and security adequate to
                                                                                                                                                                    proposed change is a reasonable means
                                                  Exchange’s System to comply with the                        maintain their operational capability
                                                                                                                                                                    to ensure that the System’s integrity,
                                                  provisions of the Plan, and are designed                    and promote the maintenance of fair
                                                                                                                                                                    resiliency, and availability continues to
                                                  to assist the Exchange in meeting its                       and orderly markets, and that they                    promote the maintenance of fair and
                                                  regulatory obligations pursuant to the                      operate in a manner that complies with                orderly markets. Due to the additional
                                                  Plan. In approving the Plan, the SEC                        the Exchange Act. Each of these                       complexity, limited usage and execution
                                                  noted that the Pilot was an appropriate,                    proposed changes are intended to                      opportunities, the Exchange believes it
                                                  data-driven test that was designed to                       reduce complexity and risk in the                     is not unfairly discriminatory to apply
                                                  evaluate the impact of a wider tick size                    System to ensure the Exchange’s                       the changes proposed herein to only
                                                  on trading, liquidity, and the market                       technology remains robust and resilient.              Pilot Securities as such changes are
                                                  quality of securities of smaller                            In determining the scope of the                       necessary to reduce complexity and
                                                  capitalization companies, and was                           proposed changes, the Exchange                        ensure continued System resiliency in
                                                  therefore in furtherance of the purposes                    carefully weighed the impact on the                   accordance with the requirements of
                                                  of the Act. To the extent that these                        Pilot, System complexity, and the usage               Regulation SCI. The Exchange also
                                                  proposals are intended to comply with                         46 The Commission has also expressed concern
                                                                                                                                                                    believes the proposed changes to orders
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                                                  the Plan, the Exchange believes that                        regarding potential market instability caused by
                                                                                                                                                                    with a Non-Displayed instruction, and
                                                  these proposals are in furtherance of the                   technological risks. See e.g., Chair Mary Jo White,   orders subject to the Display-Price
                                                  objectives of the Plan, as identified by                    Commission, Enhancing Our Equity Market
                                                  the Commission, and is therefore                            Structure (June 5, 2014) available at https://          48 But for the Plan, the Exchange notes that it
                                                                                                              www.sec.gov/News/Speech/Detail/Speech/                would not have proposed to amend the operation
                                                  consistent with the Act.                                    1370542004312#.VD2HW610w6Y.                           of orders with a Market Peg instruction, orders with
                                                                                                                47 See Securities Exchange Act Release No. 73639    a Discretionary Range, orders with a Non-Displayed
                                                    44 15   U.S.C. 78f(b).                                    (November 19, 2014), 79 FR 72251 (December 5,         instruction, Supplemental Peg Orders, and Display-
                                                    45 15   U.S.C. 78f(b)(5).                                 2014) (‘‘Regulation SCI Approval Order’’).            Price Sliding as described herein.



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                                                  47228                        Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices

                                                  Sliding process in Test Group Three are                  C. Self-Regulatory Organization’s                         proposes not to accept Market Pegged
                                                  consistent with the Act because they are                 Statement on Comments on the                              Orders, Discretionary Orders, and
                                                  designed to increase the execution                       Proposed Rule Change Received From                        Supplemental Peg Orders, and certain
                                                  opportunities for such order types in                    Members, Participants or Others                           types of Mid-Point Peg Orders, in some
                                                  compliance with the mid-point                              Written comments were neither                           or all Test Groups of Pilot Securities for
                                                  exception to the Trade-at Prohibition.                   solicited nor received.                                   the duration of the Pilot Period.52 These
                                                  The Exchange also believes the                                                                                     proposals appear designed to permit the
                                                  proposed change to Market Pegged                         III. Date of Effectiveness of the                         Exchange to avoid the costs of
                                                  Orders in Test Groups One and Two is                     Proposed Rule Change and Timing for                       modifying these order types to comply
                                                  consistent with the Act because it is                    Commission Action                                         with the Plan. The Exchange notes that
                                                  identical to the operation of the Super                     Within 45 days of the date of                          these order types are infrequently used
                                                  Aggressive instruction under Exchange                    publication of this notice in the Federal                 in Pilot Securities, and takes the
                                                  Rule 11.6(n)(2). The Exchange notes that                 Register or within such longer period (i)                 position that ‘‘[t]he limited usage and
                                                  Market Pegged Orders are aggressive by                   as the Commission may designate up to                     execution scenarios do not justify the
                                                  nature and believes executing the order                  90 days of such date if it finds such                     additional system complexity which
                                                  in such circumstance is reasonable and                   longer period to be appropriate and                       would be created by modifying the
                                                  appropriate.                                             publishes its reasons for so finding or                   System to support such order types in
                                                     The Exchange also believes it is                      (ii) as to which the Exchange consents,                   order to comply with the Plan.’’ 53 At
                                                  reasonable and appropriate to cancel an                  the Commission will: (a) By order                         the same time, the Exchange also does
                                                  order subject to the single Display-Price                approve or disapprove such proposed                       not appear prepared to propose to
                                                  Sliding process in Test Group Three in                   rule change, or (b) institute proceedings                 eliminate these order types indefinitely.
                                                  the event that the NBBO widens and a                     to determine whether the proposed rule                    By contrast, the Exchange proposes to
                                                  contra-side order with a Non-Displayed                   change should be disapproved.                             modify, in ways not required by the
                                                  instruction is resting on the EDGA Book                                                                            Plan, the operation of Market Pegged
                                                  at the price to which the order subject                  IV. Solicitation of Comments                              Orders and Non-Displayed Orders, and
                                                  to Display-Price Sliding would be                          Interested persons are invited to                       certain orders subject to the Display-
                                                  adjusted. Due to technological                           submit written data, views, and                           Price Sliding process, in some or all
                                                  limitations and the Plan’s increased                     arguments concerning the foregoing,                       Test Groups of Pilot Securities, and to
                                                  minimum quoting increments, the                          including whether the proposed rule                       incur the associated system change
                                                  Exchange is unable to safely re-program                  change is consistent with the Act. In                     costs, in order to increase the
                                                  its System to re-price such orders to the                particular, the Commission seeks                          ‘‘execution opportunities’’ for these
                                                  original locking price in such                           comment on the issue described below.                     order types for the duration of the Pilot
                                                  circumstances. The Exchange also                           In the Approval Order, the                              Period.54
                                                  anticipates that the scenario under                      Commission stressed the importance of                        The Commission is concerned that
                                                  which it proposes to cancel the Display-                 testing the impact of wider tick sizes on                 proposed rule changes, other than those
                                                  Price Sliding order will be infrequent in                the trading and liquidity of the                          necessary for compliance with Plan, that
                                                  Tick Pilot Securities. Users who prefer                  securities of small capitalization                        are targeted at Pilot Securities, that have
                                                  an execution in such a scenario may                      companies, and doing so in a way that                     a disparate impact on different Test
                                                  elect to use the multiple Display-Price                  produces robust results that inform                       Groups and the Control Group, and that
                                                  Sliding process. Therefore, the                          future policy decisions.49 The                            are to apply temporarily only for the
                                                  Exchange believes it is consistent with                  Commission acknowledged the                               Pilot Period, could bias the results of the
                                                  the Act to set forth this scenario in its                complexity of the Pilot and the costs                     Pilot and undermine the value of the
                                                  rules so that Users will understand how                  that its implementation would create for                  data generated in informing future
                                                  the System operates and how their                        market participants, but concluded that                   policy decisions. Accordingly, the
                                                  orders would be handled in this discrete                 the benefits of the empirical data that                   Commission is concerned that the
                                                  scenario.                                                would be produced by the Pilot                            proposed rule change may not be
                                                     Lastly, the Exchange believes the                                                                               consistent with Act, including Section
                                                                                                           warranted incurring those costs.50 As a
                                                  ministerial changes to Rule 11.21 are                                                                              6(b)(5) thereof and Rule 608 of
                                                                                                           result, the Plan requires that each
                                                  also consistent with the Act as they                                                                               Regulation NMS, or with the Plan.
                                                                                                           Participant, including the Exchange,
                                                  would: (i) Clarify a provision under                                                                                  Comments may be submitted by any
                                                                                                           adopt rules that are necessary for
                                                  paragraph (a)(4); and (ii) remove                                                                                  of the following methods:
                                                                                                           compliance with the provisions of the
                                                  redundant provisions from the rule.
                                                                                                           Plan.51                                                   Electronic Comments
                                                  B. Self-Regulatory Organization’s                          While the Exchange states that the
                                                                                                                                                                       • Use the Commission’s Internet
                                                  Statement on Burden on Competition                       proposed rule change describes the
                                                                                                                                                                     comment form (http://www.sec.gov/
                                                    The Exchange does not believe that                     system changes necessary to implement
                                                                                                                                                                     rules/sro.shtml); or
                                                  the proposed rule change will result in                  the Pilot, the Commission notes that the                    • Send an email to rule-comments@
                                                  any burden on competition that is not                    scope of the proposed changes extends                     sec.gov. Please include File Number SR–
                                                  necessary or appropriate in furtherance                  beyond those required for compliance                      BatsEDGA–2016–15 on the subject line.
                                                  of the purposes of the Act. The                          with the Plan, and would eliminate
                                                                                                           certain order types for Pilot Securities                  Paper Comments
                                                  Exchange notes that the proposed rule
                                                  change is designed to assist the                         during the Pilot Period, or modify their                    • Send paper comments in triplicate
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                                                  Exchange in meeting its regulatory                       operation in ways not required by the                     to Secretary, Securities and Exchange
                                                  obligations pursuant to the Plan, reduce                 Plan. For example, the Exchange
                                                                                                                                                                       52 The Exchange also proposes to cancel certain
                                                  System complexity and enhance                                 49 See   Approval Order, supra note 4, at 80 FR      orders subject to the Display-Price Sliding process
                                                  resiliency. The Exchange also notes that                 27515.                                                    in certain Pilot Securities for the duration of the
                                                  the proposed rule change will apply                        50 Id. at 27516.                                        Pilot Period.
                                                  equally to all Members that trade Pilot                    51 See Section II(B) of the Plan. See also Section        53 See supra Item II.A.2.

                                                  Securities.                                              IV of the Plan.                                             54 See supra Item II.A.1–2.




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                                                                                   Federal Register / Vol. 81, No. 139 / Wednesday, July 20, 2016 / Notices                                                       47229

                                                  Commission, 100 F Street NE.,                              SECURITIES AND EXCHANGE                                    A. Self-Regulatory Organization’s
                                                  Washington, DC 20549–1090.                                 COMMISSION                                                 Statement of the Purpose of, and
                                                                                                                                                                        Statutory Basis for, the Proposed Rule
                                                  All submissions should refer to File                       [Release No. 34–78327; File No. SR–FINRA–
                                                                                                                                                                        Change
                                                  Number SR–BatsEDGA–2016–15. This                           2016–026]
                                                  file number should be included on the                                                                                 1. Purpose
                                                  subject line if email is used. To help the                 Self-Regulatory Organizations;
                                                                                                             Financial Industry Regulatory                                 FINRA has been developing a
                                                  Commission process and review your                                                                                    consolidated rulebook (‘‘Consolidated
                                                                                                             Authority, Inc.; Notice of Filing and
                                                  comments more efficiently, please use                                                                                 FINRA Rulebook’’).4 That process
                                                                                                             Immediate Effectiveness of a Proposed
                                                  only one method. The Commission will                       Rule Change to Update Rule Cross-                          involves FINRA submitting to the
                                                  post all comments on the Commission’s                      References and Make Non-Substantive                        Commission for approval a series of
                                                  Internet Web site (http://www.sec.gov/                     Technical Changes to Certain FINRA                         proposed rule changes over time to
                                                  rules/sro.shtml). Copies of the                            Rules                                                      adopt rules in the Consolidated FINRA
                                                  submission, all subsequent                                                                                            Rulebook. The phased adoption and
                                                  amendments, all written statements                         July 14, 2016.                                             implementation of those rules
                                                  with respect to the proposed rule                             Pursuant to Section 19(b)(1) of the                     necessitates periodic amendments to
                                                  change that are filed with the                             Securities Exchange Act of 1934                            update rule cross-references and other
                                                  Commission, and all written                                (‘‘Act’’) 1 and Rule 19b-4 thereunder,2                    non-substantive changes in the
                                                  communications relating to the                             notice is hereby given that on July 7,                     Consolidated FINRA Rulebook.
                                                  proposed rule change between the                           2016, Financial Industry Regulatory                           The proposed rule change would
                                                  Commission and any person, other than                      Authority, Inc. (‘‘FINRA’’) filed with the                 make some of those changes, as well as
                                                  those that may be withheld from the                        Securities and Exchange Commission                         other non-substantive changes unrelated
                                                                                                             (‘‘SEC’’ or ‘‘Commission’’) the proposed                   to the adoption of rules in the
                                                  public in accordance with the
                                                                                                             rule change as described in Items I and                    Consolidated FINRA Rulebook.
                                                  provisions of 5 U.S.C. 552, will be
                                                                                                             II below, which Items have been                               First, the proposed rule change would
                                                  available for Web site viewing and
                                                                                                             prepared by FINRA. FINRA has                               update rule cross-references to reflect
                                                  printing in the Commission’s Public                        designated the proposed rule change as                     the adoption of a consolidated
                                                  Reference Room, 100 F Street NE.,                          constituting a ‘‘non-controversial’’ rule                  investment company securities rule. On
                                                  Washington, DC 20549, on official                          change under paragraph (f)(6) of Rule                      June 9, 2016, FINRA filed with the SEC
                                                  business days between the hours of                         19b-4 under the Act,3 which renders the                    a proposed rule change, for immediate
                                                  10:00 a.m. and 3:00 p.m. Copies of the                     proposal effective upon receipt of this                    effectiveness, to adopt NASD Rule 2830
                                                  filing also will be available for                          filing by the Commission. The                              as FINRA Rule 2341 (Investment
                                                  inspection and copying at the principal                    Commission is publishing this notice to                    Company Securities), without any
                                                  office of the Exchange. All comments                       solicit comments on the proposed rule                      substantive changes. As part of that rule
                                                  received will be posted without change;                    change from interested persons.                            filing, FINRA also deleted in its entirety
                                                  the Commission does not edit personal                                                                                 NASD Rule 2830.5 Rule 2341 will be
                                                                                                             I. Self-Regulatory Organization’s
                                                  identifying information from                                                                                          implemented on July 9, 2016. As such,
                                                                                                             Statement of the Terms of the Substance
                                                  submissions. You should submit only                                                                                   the proposed rule change would update
                                                                                                             of the Proposed Rule Change
                                                  information that you wish to make                                                                                     references to the new rule number in
                                                  available publicly. All submissions                           FINRA is proposing to update cross-                     FINRA Rules 2320 (Variable Contracts
                                                  should refer to File Number SR–                            references and make other non-                             of an Insurance Company) and 6630
                                                  BatsEDGA–2016–15, and should be                            substantive changes within FINRA                           (Applicability of FINRA Rules to
                                                  submitted on or before August 10, 2016.                    rules, due in part to the adoption of a                    Securities Previously Designated as
                                                                                                             new consolidated FINRA rule.                               PORTAL Securities). The proposed rule
                                                     For the Commission, by the Division of                     The text of the proposed rule change                    change further would delete from the
                                                  Trading and Markets, pursuant to delegated                 is available on FINRA’s Web site at                        FINRA Manual the heading for the
                                                  authority.55                                               http://www.finra.org, at the principal                     NASD Rule 2800 Series (Special
                                                  Jill M. Peterson,                                          office of FINRA and at the                                 Products) and the placeholder for NASD
                                                  Assistant Secretary.                                       Commission’s Public Reference Room.                        Rule 2870 (Reserved) to reflect that the
                                                  [FR Doc. 2016–17090 Filed 7–19–16; 8:45 am]                II. Self-Regulatory Organization’s                         NASD Rule 2800 Series 6 has fully been
                                                  BILLING CODE 8011–01–P                                     Statement of the Purpose of, and                           consolidated into the FINRA rules.
                                                                                                             Statutory Basis for, the Proposed Rule
                                                                                                                                                                           4 The current FINRA rulebook consists of (1)
                                                                                                             Change
                                                                                                                                                                        FINRA Rules; (2) NASD Rules; and (3) rules
                                                                                                                In its filing with the Commission,                      incorporated from NYSE (‘‘Incorporated NYSE
                                                                                                             FINRA included statements concerning                       Rules’’) (together, the NASD Rules and Incorporated
                                                                                                                                                                        NYSE Rules are referred to as the ‘‘Transitional
                                                                                                             the purpose of and basis for the                           Rulebook’’). While the NASD Rules generally apply
                                                                                                             proposed rule change and discussed any                     to all FINRA members, the Incorporated NYSE
                                                                                                             comments it received on the proposed                       Rules apply only to those members of FINRA that
                                                                                                             rule change. The text of these statements                  are also members of the NYSE (‘‘Dual Members’’).
                                                                                                                                                                        The FINRA Rules apply to all FINRA members,
                                                                                                             may be examined at the places specified                    unless such rules have a more limited application
mstockstill on DSK3G9T082PROD with NOTICES




                                                                                                             in Item IV below. FINRA has prepared                       by their terms. For more information about the
                                                                                                             summaries, set forth in sections A, B,                     rulebook consolidation process, see Information
                                                                                                             and C below, of the most significant                       Notice, March 12, 2008 (Rulebook Consolidation
                                                                                                                                                                        Process).
                                                                                                             aspects of such statements.                                   5 See Securities Exchange Act Release No. 78130

                                                                                                                                                                        (June 22, 2016), 81 FR 42016 (June 28, 2016) (Notice
                                                                                                                  1 15 U.S.C. 78s(b)(1).                                of Filing and Immediate Effectiveness of File No.
                                                                                                                  2 17 CFR 240.19b-4.                                   SR–FINRA–2016–019).
                                                    55 17   CFR 200.30–3(a)(12).                                  3 17 CFR 240.19b-4(f)(6).                                6 See supra note 5.




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Document Created: 2018-02-08 07:57:04
Document Modified: 2018-02-08 07:57:04
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 47223 

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