81 FR 52933 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rule 11.340(b) To Set Forth the Requirements for the Collection and Transmission of Data Pursuant to the Regulation NMS Plan To Implement a Tick Size Pilot Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 154 (August 10, 2016)

Page Range		52933-52939
FR Document		2016-18912
Federal Register, Volume 81 Issue 154 (Wednesday, August 10, 2016)
[Federal Register Volume 81, Number 154 (Wednesday, August 10, 2016)]
[Notices]
[Pages 52933-52939]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18912]



[[Page 52933]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78481; File No. SR-IEX-2016-07]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
Rule 11.340(b) To Set Forth the Requirements for the Collection and 
Transmission of Data Pursuant to the Regulation NMS Plan To Implement a 
Tick Size Pilot Program

August 4, 2016.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 28, 2016, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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

    Pursuant to the provisions of section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''), and Rule 19b-4 thereunder, Investors 
Exchange LLC (``IEX'' or ``Exchange'') is filing with the Securities 
and Exchange Commission (``Commission'') a proposed rule change to 
amend Rule 11.340, which is currently reserved, to implement the 
Regulation NMS Plan to Implement a Tick Size Pilot Program (``Plan''). 
Specifically, the Exchange proposes to adopt Rule 11.340(b) to set 
forth the requirements for the collection and transmission of data 
pursuant to Appendices B and C of the Plan. The proposed rule change is 
substantially similar to proposed rule changes recently approved or 
published by the Commission for the Bats BZX Exchange, Inc. f/k/a BATS 
Exchange, Inc. (``BZX'') to adopt BZX Rule 11.27(b) which also sets 
forth requirements for the collection and transmission of data pursuant 
to Appendices B and C of the Plan. The Exchange has designated this 
proposal as a ``non-controversial'' proposed rule change pursuant to 
section 19(b)(3)(A) of the Act and provided the Commission with the 
notice required by Rule 19b-4(f)(6)(iii) under the Act. The text of the 
proposed rule change is available at the Exchange's Web site at 
www.iextrading.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 self-regulatory organization 
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 statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange, 
Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory 
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, 
the Nasdaq Stock Market LLC, New York Stock Exchange LLC (``NYSE''), 
NYSE MKT LLC, and NYSE Arca, Inc. (collectively ``Participants''), 
filed with the Commission, pursuant to section 11A of the Act \4\ and 
Rule 608 of Regulation NMS thereunder,\5\ the Plan to Implement a Tick 
Size Pilot Program (``Pilot'').\6\ The Participants filed the Plan to 
comply with an order issued by the Commission on June 24, 2014.\7\ The 
Plan \8\ was published for comment in the Federal Register on November 
7, 2014, and approved by the Commission, as modified, on May 6, 
2015.\9\ On November 6, 2015, the Commission granted the Participants 
an exemption from implementing the Plan until October 3, 2016.\10\ An 
amendment to the Plan adding IEX as a Participant will be filed with 
the Commission shortly.
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    \4\ 15 U.S.C. 78k-1
    \5\ 17 CFR 242.608.
    \6\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \7\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \8\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \9\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (File No. 4-657) (``Approval Order'').
    \10\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657) (Order 
Granting Exemption from Compliance with the National Market System 
Plan to Implement a Tick Size Pilot Program).
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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. As is described more fully below, the 
proposed rules would require IEX Members \11\ to comply with the 
applicable data collection requirements of the Plan.\12\
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    \11\ An IEX Member is ``. . . any registered broker or dealer 
that has been admitted to membership in the Exchange. A Member will 
have the status of a Member of the Exchange as that term is defined 
in Section 3(a)(3) of the Act. Membership may be granted to a sole 
proprietor, partnership, corporation, limited liability company, or 
other organization that is a registered broker or dealer pursuant to 
Section 15 of the Act, and which has been approved by the 
Exchange.'' See IEX Rule 1.160(s).
    \12\ The Exchange proposes Supplementary Material .01 to Rule 
11.340 to provide that the Rule shall be in effect during a pilot 
period to coincide with the pilot period for the Plan (including any 
extensions to the pilot period for the Plan).
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    The Pilot will include stocks of companies with $3 billion or less 
in market capitalization, an average daily trading volume of one 
million shares or less, and a volume weighted average price of at least 
$2.00 for every trading day. The Pilot will consist of a control group 
of approximately 1,400 Pilot Securities and three test groups with 400 
Pilot Securities in each (selected by a stratified random sampling 
process).\13\ During the pilot, Pilot Securities in the control group 
will be quoted at the current tick size increment of $0.01 per share 
and will trade at the currently permitted increments. Pilot Securities 
in the first test group (``Test Group One'') will be quoted in the 
$0.05 minimum increments but will continue to trade at any price 
increment that is currently permitted.\14\ 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.\15\ Pilot Securities in the third test group (``Test 
Group Three'') will be subject to the same quoting and trading 
increments as Test Group Two and also

[[Page 52934]]

will be subject to the ``Trade-at'' requirements to prevent price 
matching by a market participant that is not displaying at a Trading 
Center's ``Best Protected Bid'' or ``Best Protected Offer,'' unless an 
enumerated exception applies.\16\ In addition to the exceptions 
provided under Test Group Two, an exception for Block Size orders and 
exceptions that mirror those under Rule 611 of Regulation NMS \17\ will 
apply to the Trade-at requirement.
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    \13\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \14\ See Section VI(B) of the Plan.
    \15\ See Section VI(C) of the Plan.
    \16\ See Section VI(D) of the Plan.
    \17\ 17 CFR 242.611.
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    In approving the Plan, the Commission noted that the Trading Center 
data reporting requirements would facilitate an analysis of the effects 
of the Pilot on liquidity (e.g., transaction costs by order size), 
execution quality (e.g., speed of order executions), market maker 
activity, competition between trading venues (e.g., routing frequency 
of market orders), transparency (e.g., choice between displayed and 
hidden orders), and market dynamics (e.g., rates and speed of order 
cancellations).\18\ The Commission noted that Market Maker 
profitability data would assist the Commission in evaluating the 
effect, if any, of a widened tick increment on market maker profits and 
any corresponding changes in the liquidity of small-capitalization 
securities.\19\
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    \18\ See Approval Order, 80 FR at 27543.
    \19\ Id.
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Compliance With the Data Collection Requirements of the Plan
    The Plan contains requirements for collecting and transmitting data 
to the Commission and to the public.\20\ Specifically, Appendix B.I of 
the Plan (Market Quality Statistics) requires Trading Centers \21\ to 
submit a variety of market quality statistics, including information 
about an order's original size, whether the order was displayable or 
not, the cumulative number of orders, the cumulative number of shares 
of orders, and the cumulative number of shares executed within specific 
time increments, e.g., from 30 seconds to less than 60 seconds after 
the time of order receipt. This information shall be categorized by 
security, order type, original order size, hidden status, and coverage 
under Rule 605.\22\ Appendix B.I of the Plan also contains additional 
requirements for market orders and marketable limit orders, including 
the share-weighted average spread for executions of orders; the 
cumulative number of shares of orders executed with price improvement; 
and, for shares executed with price improvement, the share-weighted 
average amount per share that prices were improved.
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    \20\ The Exchange is also required by the Plan 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 Exchange intends to 
separately propose rules that would require compliance by its 
Members with the applicable quoting and trading requirements 
specified in the Plan, and has reserved paragraph (a) for such 
rules.
    \21\ The Plan incorporates the definition of a ``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.'' See 17 CFR 242.600(b).
    \22\ 17 CFR 242.605.
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    Appendix B.II of the Plan (Market and Marketable Limit Order Data) 
requires Trading Centers to submit information relating to market 
orders and marketable limit orders, including the time of order 
receipt, order type, the order size, the National Best Bid and National 
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average 
execution price-share-weighted average, and the average execution time-
share-weighted average.
    The Plan requires Appendix B.I and B.II data to be submitted by 
Participants that operate a Trading Center, and by members of the 
Participants that operate Trading Centers. The Plan provides that each 
Participant that is a Designated Examining Authority (``DEA'') for a 
member of the Participant that operates a Trading Center shall collect 
such data in a pipe delimited format, beginning six months prior to the 
Pilot Period and ending six months after the end of the Pilot Period. 
The Plan also requires the Participant, operating as DEA, to transmit 
this information to the SEC within 30 calendar days following month 
end.
    The Exchange is therefore proposing Rule 11.340(b) to set forth the 
requirements for the collection and transmission of data pursuant to 
Appendices B and C of the Plan. Proposed Rule 11.340(b) is 
substantially similar to proposed rule changes of BZX that were 
recently approved or published by the Commission to adopt BZX Rule 
11.27(b) which also sets forth requirements for the collection and 
transmission of data pursuant to Appendices B and C of the Plan.\23\
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    \23\ See Securities Exchange Act Release Nos. 77105 (February 
10, 2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-
2015-102); and 77310 (March 7, 2016) (notice for comment and 
immediate effectiveness of SR-BATS-2016-27).
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    Proposed Rule 11.340(b)(1) requires that a Member that operates a 
Trading Center shall establish, maintain and enforce written policies 
and procedures that are reasonably designed to comply with the data 
collection and transmission requirements of Items I and II to Appendix 
B of the Plan, and a Member that is a Market Maker \24\ shall 
establish, maintain and enforce written policies and procedures that 
are reasonably designed to comply with the data collection and 
transmission requirements of Item IV of Appendix B of the Plan and Item 
I of Appendix C of the Plan.
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    \24\ The Plan defines a Market Maker as ``a dealer registered 
with any self-regulatory organization, in accordance with the rules 
thereof, as (i) a market maker or (ii) a liquidity provider with an 
obligation to maintain continuous, two-sided trading interest.''
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    Proposed Rule 11.340(b)(2) provides that the Exchange shall collect 
and transmit to the SEC the data described in Items I and II of 
Appendix B of the Plan relating to trading activity in Pre-Pilot 
Securities and Pilot Securities on a Trading Center operated by the 
Exchange. The Exchange shall transmit such data to the SEC in a pipe 
delimited format, on a disaggregated basis by Trading Center, within 30 
calendar days following month end for: (i) Each Pre-Pilot Data 
Collection Security for the period beginning six months prior to the 
Pilot Period through the trading day immediately preceding the Pilot 
Period; and (ii) each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period. The Exchange also shall make such data publicly available 
on the Exchange Web site on a monthly basis at no charge and will not 
identify the Member that generated the data.
    On June 17, 2016 the Commission granted to IEX an application for 
registration as a national securities exchange under section 6 of the 
Act.\25\ IEX intends to launch exchange operations during a security-
by-security phase-in period scheduled to begin on August 19, 2016. 
During the phase-in period, securities will transition from being 
available for trading on the Alternative Trading System operated by the 
Exchange's affiliate IEX Services LLC (``IEX ATS''), to the Exchange. 
Once a security becomes available for trading on the Exchange it will 
no longer be available for trading on the IEX ATS.\26\ The IEX ATS 
currently reports data for Pilot Securities to FINRA pursuant to FINRA 
Rule 6191(b). During the phase-in period, the IEX ATS will continue to 
report data to FINRA

[[Page 52935]]

for Pilot Securities that have not yet transitioned to the Exchange. 
Data for Pilot Securities that have transitioned to the Exchange will 
be reported to the SEC pursuant to IEX Rule 11.340(b), as proposed. 
Accordingly, reporting for Pilot Securities will take place as 
appropriate based on each Pilot Security's status as either available 
for trading on the IEX ATS or the Exchange.
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    \25\ See Securities Exchange Act Release No. 34-78101 (June 17, 
2016), 81 FR 41141 (June 23, 2016) (File No. 10-222).
    \26\ See, https://iextrading.com/trading/alerts/2016/028/#exchange-transition for detailed information on the transition from 
the IEX ATS to Exchange.
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    Appendix B.IV (Daily Market Maker Participation Statistics) 
requires a Participant to collect data related to Market Maker 
participation from each Market Maker engaging in trading activity on a 
Trading Center operated by the Participant. The Exchange is therefore 
proposing Rule 11.340(b)(3) to gather data about a Market Maker's 
participation in Pilot Securities and Pre-Pilot Data Collection 
Securities. Proposed Rule 11.340(b)(3)(A) provides that a Member that 
is a Market Maker shall collect and transmit to their DEA data relating 
to Item IV of Appendix B of the Plan with respect to activity conducted 
on any Trading Center in Pilot Securities and Pre-Pilot Data Collection 
Securities in furtherance of its status as a registered Market Maker, 
including a Trading Center that executes trades otherwise than on a 
national securities exchange, for transactions that have settled or 
reached settlement date. The proposed rule requires Market Makers to 
transmit such data in a format required by their DEA, by 12:00 p.m. EST 
on T+4 for: (i) Transactions in each Pre-Pilot Data Collection Security 
for the period beginning six months prior to the Pilot Period through 
the trading day immediately preceding the Pilot Period; and (ii) for 
transactions in each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period.
    The Exchange understands that some Members may have a DEA that is 
not a Participant to the Plan and that such non-Participant DEA would 
not be subject to the Plan's data collection requirements. In such 
case, a DEA that is not a Participant of the Plan would not be required 
to collect the required data and may not establish procedures for those 
Members for which it acts as DEA to report the data required under 
subparagraphs (b)(3)(A) of Rule 11.340 and in accordance with Item IV 
of Appendix B of the Plan. Therefore, the Exchange proposes to adopt 
subparagraph (b)(3)(B) to Rule 11.340 to require a Member that is a 
Market Maker whose DEA is not a Participant to the Plan to transmit the 
data collected pursuant to paragraph (3)(A) of Rule 11.340(b) to FINRA, 
which is a Participant to the Plan and will collect data relating to 
Item IV of Appendix B of the Plan on behalf of the Participants. For 
Market Makers for which it is the DEA, FINRA issued a Market Maker 
Transaction Data Technical Specification to collect data on Pre-Pilot 
Data Collection Securities and Pilot Securities from Trading Centers to 
comply with the Plan's data collection requirements.\27\
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    \27\ FINRA members for which FINRA is their DEA should refer to 
the Market Maker Transaction Technical Specification on the FINRA 
Web site at http://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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    Proposed Rule 11.340(b)(3)(C) provides that the Exchange shall 
transmit the data collected by the DEA or FINRA pursuant to Rule 
11.340(b)(3)(A) and (B) above relating to Market Maker activity on a 
Trading Center operated by the Exchange to the SEC in a pipe delimited 
format within 30 calendar days following month end. The Exchange shall 
also make such data publicly available on the Exchange Web site on a 
monthly basis at no charge and shall not identify the Trading Center 
that generated the data.
    Appendix C.I (Market Maker Profitability) requires a Participant to 
collect data related to Market Maker profitability from each Market 
Maker for which it is the DEA. Specifically, the Participant is 
required to collect the total number of shares of orders executed by 
the Market Maker; the raw Market Maker realized trading profits, and 
the raw Market Maker unrealized trading profits. Data shall be 
collected for dates starting six months prior to the Pilot Period 
through six months after the end of the Pilot Period. This data shall 
be collected on a monthly basis, to be provided in a pipe delimited 
format to the Participant, as DEA, within 30 calendar days following 
month end. Appendix C.II (Aggregated Market Maker Profitability) 
requires the Participant, as DEA, to aggregate the Appendix C.I data, 
and to categorize this data by security as well as by the control group 
and each Test Group. That aggregated data shall contain information 
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the 
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
    The Exchange is therefore proposing Rule 11.340(b)(4) to set forth 
the requirements for the collection and transmission of data pursuant 
to Appendix C.I of the Plan. Proposed Rule 11.340(b)(4)(A) requires 
that a Member that is a Market Maker shall collect and transmit to 
their DEA the data described in Item I of Appendix C of the Plan, as 
modified by Paragraph (b)(5) with respect to executions in Pilot 
Securities that have settled or reached settlement date that were 
executed on any Trading Center. The proposed rule also requires Members 
to provide such data in a format required by their DEA by 12 p.m. EST 
on T+4 for executions during and outside of Regular Trading Hours in 
each: (i) Pre-Pilot Data Collection Security for the period beginning 
six months prior to the Pilot Period through the trading day 
immediately preceding the Pilot Period; and (ii) Pilot Security for the 
period beginning on the first day of the Pilot Period through six 
months after the end of the Pilot Period.
    For the same reasons set forth above for subparagraph (b)(3)(B) to 
Rule 11.340, the Exchange proposes to adopt subparagraph (b)(4)(B) to 
Rule 11.340 to require a Member that is a Market Maker whose DEA is not 
a Participant to the Plan to transmit the data collected pursuant to 
paragraph (4)(A) of Rule 11.340(b) to FINRA. As stated above, FINRA is 
a Participant to the Plan and is to collect data relating to Item I of 
Appendix C of the Plan on behalf of the Participants. For Market Makers 
for which it is the DEA, FINRA issued a Market Maker Transaction Data 
Technical Specification to collect data on Pre-Pilot Data Collection 
Securities and Pilot Securities from Trading Centers to comply with the 
Plan's data collection requirements.\28\
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    \28\ Id.
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    The Exchange is also adopting a rule setting forth the manner in 
which Market Maker participation will be calculated. Item III of 
Appendix B of the Plan requires each Participant that is a national 
securities exchange to collect daily Market Maker registration 
statistics categorized by security, including the following 
information: (i) Ticker symbol; (ii) the Participant exchange; (iii) 
number of registered market makers; and (iv) the number of other 
registered liquidity providers. Therefore, the Exchange proposes to 
adopt Rule 11.340(b)(5) providing that the Exchange shall collect and 
transmit to the SEC the data described in Item III of Appendix B of the 
Plan relating to daily Market Maker registration statistics in a pipe 
delimited format within 30 calendar days following month end for: (i) 
Transactions in each Pre-Pilot Data Collection Security for the period 
beginning six months prior to the Pilot Period through the trading day 
immediately preceding the Pilot Period; and (ii) transactions in each 
Pilot Security for the period beginning on the first day of the Pilot 
Period through six months after the end of the Pilot Period.

[[Page 52936]]

The Exchange notes that, as of the date of this filing, it does not 
have any registered Market Makers and therefore will not have daily 
Market Maker registration statistics to collect or transmit to the SEC 
or to FINRA pursuant to Item III of Appendix B of the Plan unless and 
until such time as it has registered Market Makers.
    The Exchange is also proposing, through Supplementary Material, to 
clarify other aspects of the data collection requirements.\29\ Proposed 
Supplementary Material .02 relates to the use of the retail investor 
order flag for purposes of Appendix B.II(n) reporting. The Plan 
currently states that market and marketable limit orders shall include 
a ``yes/no'' field relating to the Retail Investor Order flag. The 
Exchange is proposing Supplementary Material .02 to clarify that, for 
purposes of the reporting requirement in Appendix B.II(n), a Trading 
Center shall report ``y'' to their DEA where it is relying upon the 
Retail Investor Order exception to Test Groups Two and Three, and ``n'' 
for all other instances.\30\ The Exchange believes that requiring the 
identification of a Retail Investor Orders only where the exception may 
apply (i.e., Pilot Securities in Test Groups Two and Three) is 
consistent with Appendix B.II(n).
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    \29\ The Exchange is also proposing Supplementary Material .01 
to Rule 11.340 to clarify that certain enumerated terms used 
throughout Rule 11.340 shall have the same meaning as set forth in 
the Plan.
    \30\ FINRA, on behalf of the Plan Participants at the time 
submitted a letter to the Commission requesting exemption from 
certain provisions of the Plan related to data collection. See 
letter from Marcia E. Asquith, Senior Vice President and Corporate 
Secretary, FINRA dated December 9, 2015 to Robert W. Errett, Deputy 
Secretary, Commission (``Exemption Request''). The Commission, 
pursuant to its authority under Rule 608(e) of Regulation NMS, 
granted BZX, as of February 10, 2016, a limited exemption from the 
requirement to comply with certain provisions of the Plan as 
specified in the letter and noted herein. See e.g., letter from 
David Shillman, Associate Director, Division of Trading and Markets, 
Commission to Eric Swanson, General Counsel, BZX, dated February 10, 
2016 (``Exemption Letter''). On April 4, 2016, the Commission 
granted the National Stock Exchange, Inc. (``NSX''), which was not a 
Plan Participant as of February 10, 2016, comparative limited 
exemption from such requirements. See, letter from John C. Roeser, 
Associate Director, Division of Trading and Markets, Commission to 
James Buckley, Chief Regulatory Officer, NSX, dated April 4, 2016. 
IEX was not a Plan Participant at the time that such exemptions were 
requested or granted and respectfully requests that the Commission 
grant to it the same exemptions that the Commission granted to the 
other Plan Participants.
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    Supplementary Material .03 requires that Members populate a field 
to identify to their DEA whether an order is affected by the bands in 
place pursuant to the National Market System Plan to Address 
Extraordinary Market Volatility.\31\ Pursuant to the Limit-Up Limit-
Down Plan, between 9:30 a.m. and 4:00 p.m., the Securities Information 
Processor (``SIP'') calculates a lower price band and an upper price 
band for each NMS stock. These price bands represent a specified 
percentage above or below the stock's reference price, which generally 
is calculated based on reported transactions in that stock over the 
preceding five minutes. When one side of the market for an individual 
security is outside the applicable price band, the SIP identifies that 
quotation as non-executable. When the other side of the market reaches 
the applicable price band (e.g., the offer reaches the lower price 
band), the security enters a Limit State. The stock would exit a Limit 
State if, within 15 seconds of entering the Limit State, all Limit 
State Quotations were executed or canceled in their entirety. If the 
security does not exit a Limit State within 15 seconds, then the 
primary listing exchange declares a five-minute trading pause, which 
would be applicable to all markets trading the security.
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    \31\ See National Market System Plan to Address Extraordinary 
Market Volatility, Securities Exchange Act Release No. 67091 (May 
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up 
Limit-Down Plan'').
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    The Exchange and the other Participants have determined that it is 
appropriate to create a new flag for reporting orders that are affected 
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall 
report a value of ``Y'' to their DEA when the ability of an order to 
execute has been affected by the Limit-Up Limit-Down bands in effect at 
the time of order receipt. A Trading Center shall report a value of 
``N'' to their DEA when the ability of an order to execute has not been 
affected by the Limit-Up Limit-Down bands in effect at the time of 
order receipt.
    Supplementary Material .03 also requires, for securities that may 
trade in a foreign market, that the Participant indicate whether the 
order was handled domestically, or routed to a foreign venue. 
Accordingly, the Participant will indicate, for purposes of Appendix 
B.I, whether the order was: (1) Fully executed domestically, or (2) 
fully or partially executed on a foreign market. For purposes of 
Appendix B.II, the Participant will classify all orders in dually-
listed Pilot and Pre-Pilot Securities as: (1) Directed to a domestic 
venue for execution; (2) may only be directed to a foreign venue for 
execution; or (3) was fully or partially directed to a foreign venue at 
the discretion of the Member. The Exchange believes that this proposed 
flag will better identify orders in securities that may trade in a 
foreign market, as such orders that were routed to foreign venues would 
not be subject to the Plan's quoting and trading requirements, and 
could otherwise compromise the integrity of the data.
    Supplementary Material .04 relates to the time ranges specified in 
Appendix B.I.a(14), B.I.a(15), B.I.a(21) and B.I.a(22).\32\ The 
Exchange and the other Participants have determined that it is 
appropriate to change the reporting times in these provisions to 
require more granular reporting for these categories. Accordingly, the 
Exchange proposes to add Appendix B.I.a(14A), which will require 
Trading Centers to report the cumulative number of shares of orders 
executed from 100 microseconds to less than 1 millisecond after the 
time of order receipt. Appendix B.I.a(15) will be changed to require 
the cumulative number of shares of orders executed from 1 millisecond 
to less than 100 milliseconds after the time of order receipt. The 
Exchange also proposes to add Appendix B.I.a(21A), which will require 
Trading Centers to report the cumulative number of shares of orders 
canceled from 100 microseconds to less than 1 millisecond after the 
time of order receipt. Appendix B.I.a(22) will be changed to require 
the cumulative number of shares of orders canceled from 1 millisecond 
to less than 100 milliseconds after the time of order receipt. The 
Exchange believes that these new reporting requirements will contribute 
to a meaningful analysis of the Pilot by producing more granular data 
on these points.\33\
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    \32\ Specifically, Appendix B.I.a(14) requires reporting of the 
cumulative number of shares of orders executed from 0 to less than 
100 microseconds after the time of order receipt; Appendix B.I.a(15) 
requires reporting of the cumulative number of shares of orders 
executed from 100 microseconds to less than 100 milliseconds after 
the time of order receipt; Appendix B.I.a(21) requires reporting of 
the cumulative number of shares of orders cancelled from 0 to less 
than 100 microseconds after the time of order receipt; and appendix 
B.I.a(22) requires reporting of the cumulative number of shares of 
orders cancelled from 100 microseconds to less than 100 milliseconds 
after the time of order receipt.
    \33\ On February 10, 2016, the Commission granted BZX an 
exemption from Rule 608(c) related to this provision. See Exemption 
Letter, supra, note 30. IEX requests that the Commission grant to it 
this same exemption.
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    Supplementary Material .05 relates to the relevant measurement for 
purposes of Appendix B.I.a(31)-(33) reporting. Currently, the Plan 
states that this data shall be reported as of the time of order 
execution. The Exchange and the other Participants believe that this 
information should more properly be captured at the time of order 
receipt as

[[Page 52937]]

evaluating share-weighted average prices at the time of order receipt 
is more consistent with the goal of observing the effect of the Pilot 
on the liquidity of Pilot Securities. The Exchange is therefore 
proposing to make this change through Supplementary Material .05.\34\ 
This change will make these provisions consistent with the remainder of 
the statistics in Appendix B.I.a, which are all based on order receipt.
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    \34\ On February 10, 2016, the Commission granted BZX an 
exemption from Rule 608(c) related to this provision. See Exemption 
Letter, supra, note 30. IEX requests that the Commission grant to it 
this same exemption.
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    Supplementary Material .06 addresses the status of not-held and 
auction orders for purposes of Appendix B.I reporting. Currently, 
Appendix B.I sets forth eight categories of orders, including market 
orders, marketable limit orders, and inside-thequote resting limit 
orders, for which daily market quality statistics must be reported. 
Currently, Appendix B.I does not provide a category for not held 
orders, clean cross orders, auction orders, or orders received when the 
NBBO is crossed. The Exchange and the other Participants have 
determined that it is appropriate to include separate categories for 
both not held orders and auction orders for purposes of Appendix B 
reporting. The Exchange is therefore proposing Supplementary Material 
.06 to provide that not held orders shall be included as an order type 
for purposes of Appendix B reporting, and shall be assigned the number 
(18). Clean cross orders shall be included as an order type for 
purposes of Appendix B reporting, and shall be assigned the number 
(19); auction orders shall be included an as order type for purposes of 
Appendix B reporting, and shall be assigned the number (20); \35\ and 
orders that cannot otherwise be classified, including, for example, 
orders received when the NBBO is crossed shall be included as an order 
type for purposes of Appendix B reporting, and shall be assigned the 
number (21). All of these orders already are included in the scope of 
Appendix B; however, without this proposed change, these order types 
would be categorized with other orders, such as regular held orders, 
that should be able to be fully executed upon receipt, which would 
compromise the value of this data.
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    \35\ The Exchange notes that, as of the date of this filing, it 
does not offer order types specifically defined as ``not held,'' 
``clean cross,'' or ``auction order.''
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    The Exchange is proposing Supplementary Material .07 to clarify the 
scope of the Plan as it relates to Members that only execute orders 
limited purposes. Specifically, The Exchange and the other Participants 
believe that a Member that only executes orders otherwise than on a 
national securities exchange for the purpose of: (1) Correcting a bona 
fide error related to the execution of a customer order; (2) purchasing 
a security from a customer at a nominal price solely for purposes of 
liquidating the customer's position; or (3) completing the fractional 
share portion of an order \36\ shall not be deemed a Trading Center for 
purposes of Appendix B to the Plan. The Exchange is therefore proposing 
Supplementary Material .09 to make this clarification.
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    \36\ The Exchange notes that where a Member purchases a 
fractional share from a customer, the Trading Center that executes 
the remaining whole shares of that customer order would be subject 
to Appendix B of the Plan.
---------------------------------------------------------------------------

    The Exchange is proposing Supplementary Material .08 to clarify 
that, for purposes of the Plan, Trading Centers must begin the data 
collection required pursuant to Appendix B.I.a(1) through B.II.(y) of 
the Plan and Item I of Appendix C of the Plan on April 4, 2016. While 
the Exchange or the Member's DEA will provide the information required 
by Appendix B and C of the Plan during the Pilot Period, the 
requirement that the Exchange or their DEA provide information to the 
SEC within 30 days following month end and make such data publicly 
available on its Web site pursuant to Appendix B and C shall commence 
six months prior to the beginning of the Pilot Period.\37\
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    \37\ In the Approval Order, the SEC noted that the Pilot shall 
be implemented within one year of the date of publication, i.e., by 
May 6, 2016. See Approval Order, 80 FR at 27545. The SEC 
subsequently extended the implementation date approximately five 
months to October 3, 2016. See supra, note 9. See also Letter dated 
November 4, 2015 from Brendon J. Weiss, Co-Head, Government Affairs, 
Intercontinental Exchange/NYSE, to Brent J. Fields, Secretary, 
Commission (requesting the data collection period be extended until 
six months after the requisite SRO rules are approved, and the 
implementation date of the Tick Size Pilot until six months 
thereafter).
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    The Exchange is proposing Supplementary Material .09 to address the 
requirement in Appendix C.I(b) of the Plan that the calculation of raw 
Market Maker realized trading profits utilize a last in, first out 
(``LIFO'')-like method to determine which share prices shall be used in 
that calculation. The Exchange and the other Participants believe that 
it is more appropriate to utilize a methodology that yields LIFO-like 
results, rather than utilizing a LIFO-like method, and the Exchange is 
therefore proposing Supplementary Material .09 to make this change.\38\ 
The Exchange is proposing that, for purposes of Item I of Appendix C, 
the Participants shall calculate daily Market Maker realized 
profitability statistics for each trading day on a daily LIFO basis 
using reported trade price and shall include only trades executed on 
the subject trading day. The daily LIFO calculation shall not include 
any positions carried over from previous trading days. For purposes of 
Item I.c of Appendix C, the Participants shall calculate daily Market 
Maker unrealized profitability statistics for each trading day on an 
average price basis. Specifically, the Participants must calculate the 
volume weighted average price of the excess (deficit) of buy volume 
over sell volume for the current trading day using reported trade 
price. The gain (loss) of the excess (deficit) of buy volume over sell 
volume shall be determined by using the volume weighted average price 
compared to the closing price of the security as reported by the 
primary listing exchange. In reporting unrealized trading profits, the 
Participant shall also report the number of excess (deficit) shares 
held by the Market Maker, the volume weighted average price of that 
excess (deficit) and the closing price of the security as reported by 
the primary listing exchange used in reporting unrealized profit.\39\
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    \38\ Appendix C.I currently requires Market Maker profitability 
statistics to include (1) the total number of shares of orders 
executed by the Market Maker; (2) raw Market Maker realized trading 
profits, which is the difference between the market value of Market 
Maker shares and the market value of Market Maker purchases, using a 
LIFO-like method; and (3) raw Market Maker unrealized trading 
profits, which is the difference between the purchase or sale price 
of the end-of-day inventory position of the Market Maker and the 
Closing Price. In the case of a short position, the Closing Price 
from the sale will be subtracted; in the case of a long position, 
the purchase price will be subtracted from the Closing Price.
    \39\ The Commission granted BZX, as of February 10, 2016, an 
exemption from Rule 608(c) related to this provision. See Exemption 
Letter, supra, note 30. IEX requests that the Commission grant to it 
this same exemption.
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    Finally, the Exchange is proposing Supplementary Material .10 to 
address the securities that will be used for data collection purposes 
prior to the commencement of the Pilot. The Exchange and the other 
Participants have determined that it is appropriate to collect data for 
a group of securities that is larger, and using different quantitative 
thresholds, than the group of securities that will be Pilot Securities. 
The Exchange is therefore proposing Supplementary Material .09 to 
define ``Pre-Pilot Data Collection Securities'' as the securities 
designated by the Participants for purposes of the data collection 
requirements described in Items I, II and IV of Appendix B and Item I 
of Appendix C of the Plan for the period beginning six months prior to 
the

[[Page 52938]]

Pilot Period and ending on the trading day immediately preceding the 
Pilot Period. The Participants shall compile the list of Pre-Pilot Data 
Collection Securities by selecting all NMS stocks with a market 
capitalization of $5 billion or less, a Consolidated Average Daily 
Volume (CADV) of 2 million shares or less and a closing price of $1 per 
share or more. The market capitalization and the closing price 
thresholds shall be applied to the last day of the Pre-Pilot 
measurement period, and the CADV threshold shall be applied to the 
duration of the Pre-Pilot measurement period. The Pre-Pilot measurement 
period shall be the three calendar months ending on the day when the 
Pre-Pilot Data Collection Securities are selected. The Pre-Pilot Data 
Collection Securities shall be selected thirty days prior to the 
commencement of the six-month Pre-Pilot Period. On the trading day that 
is the first trading day of the Pilot Period through six months after 
the end of the Pilot Period, the data collection requirements will 
become applicable to the Pilot Securities only. A Pilot Security will 
only be eligible to be included in a Test Group if it was a PrePilot 
Security.
Implementation Date
    The proposed rule change will be effective to coincide with IEX's 
launch of exchange operations during a security-by-security phase-in 
period.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of section 6 of the Act,\40\ in general and furthers the 
objectives of sections 6(b)(5) of the Act \41\ 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.
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    \40\ 15 U.S.C. 78f(b).
    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that this proposal is consistent with the Act 
because it implements and clarifies the provisions of the Plan, and is 
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 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. The Exchange 
believes that this proposal is in furtherance of the objectives of the 
Plan, as identified by the SEC, and is therefore consistent with the 
Act because the proposal implements and clarifies the requirements of 
the Plan and applies specific obligations to Members in furtherance of 
compliance with the Plan.

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change implements the provisions of the Plan, and is 
designed to assist the Exchange in meeting its regulatory obligations 
pursuant to the Plan. The Exchange also notes that the data collection 
requirements for Members that operate Trading Centers will apply 
equally to all such Members, as will the data collection requirements 
for Market Makers.

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

    Written comments were neither solicited nor received.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to section 
19(b)(3)(A) of the Act \42\ and Rule 19b-4(f)(6) thereunder.\43\
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    \42\ 15 U.S.C. 78s(b)(3)(A).
    \43\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \44\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \45\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest because it 
would allow the Exchange to implement the proposed rule change to 
coincide with IEX's intent to launch exchange operations during a 
security-by-security phase-in period scheduled to begin on August 19, 
2016. Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\46\
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    \44\ 17 CFR 240.19b-4(f)(6).
    \45\ 17 CFR 240.19b-4(f)(6)(iii).
    \46\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2016-07 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2016-07. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the

[[Page 52939]]

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-IEX-2016-07, and should be 
submitted on or before August 31, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18912 Filed 8-9-16; 8:45 am]
 BILLING CODE 8011-01-P
Document Created: 2016-08-10 01:59:18
Document Modified: 2016-08-10 01:59:18
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 52933