81 FR 68476 - Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 11.26 To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 192 (October 4, 2016)
Federal Register Volume 81, Issue 192 (October 4, 2016)
| Page Range | 68476-68479 | |
| FR Document | 2016-23929 |
[Federal Register Volume 81, Number 192 (Tuesday, October 4, 2016)] [Notices] [Pages 68476-68479] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-23929] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78960; File No. SR-NSX-2016-12] Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 11.26 To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program September 28, 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 22 September, 2016, National Stock Exchange, Inc. (``NSX'' or the ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') a proposed rule change, as described in Items I, and II below, which Items have been substantially prepared by the Exchange. The Exchange has designated this proposal as a ``non- controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii) \4\ thereunder, which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 15 U.S.C. 78s(b)(3)(A). \4\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange filed a proposal to amend NSX Rule 11.26 to modify certain data collection requirements of the Regulation NMS Plan to Implement a Tick Size Pilot Program (the ``Plan''). The proposed rule change is substantially similar to proposed rule changes recently approved or published by the Commission for the Financial Industry Regulatory Authority, Inc. (``FINRA'') to amend FINRA Rule 6191, which also sets forth amendments to the requirements for the collection and transmission of data pursuant to Appendices B and C of the Plan.\5\ The Exchange has designated this proposal as a ``non-controversial'' proposed rule change and provided the Commission with the notice required by Rule 19b-4(f)(6)(iii) under the Act.\6\ --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 78800 (September 9, 2016), 81 FR 63565 (September 15, 2016) (SR-FINRA-2016-35). \6\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- The text of the proposed rule change is available at the Exchange's Web site at www.nsx.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 the Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and statutory basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On August 25, 2014, NYSE Group, Inc., on behalf of BZX, Chicago Stock Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, 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 \7\ and Rule 608 of Regulation NMS thereunder,\8\ the Plan to Implement a Tick Size Pilot Program (``Pilot'').\9\ The Participants filed the Plan to comply with an order issued by the Commission on June 24, 2014.\10\ The Plan \11\ was published for comment in the Federal Register on November 7, 2014 and was thereafter approved by the Commission, as modified, on May 6, 2015.\12\ On November 6, 2015, the Commission granted the Participants an exemption from implementing the Plan until October 3, 2016.\13\ On March 3, 2016, the Commission noticed an [[Page 68477]] amendment to the Plan adding NSX as a Participant.\14\ --------------------------------------------------------------------------- \7\ 15 U.S.C. 78k-1. \8\ 17 CFR 242.608. \9\ See Letter from Brendon J. Weiss, Vice President, Intercontinental Exchange, Inc., to Secretary, Commission, dated August 25, 2014. \10\ See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840 (June 30, 2014). \11\ Unless otherwise specified, capitalized terms used in this rule filing are based on the defined terms of the Plan. \12\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) (File No. 4-657) (``Approval Order''). \13\ 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). \14\ See Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR 12162 (March 8, 2016). --------------------------------------------------------------------------- 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 ETP Holders \15\ to comply with the applicable data collection requirements of the Plan.\16\ --------------------------------------------------------------------------- \15\ An ``ETP Holder'' is a registrant of NSX to which NSX has issued an ETP. An ``ETP'' is defined as ``. . . an Equity Trading Permit issued by the Exchange for effecting approved securities transactions on the Exchange's trading facilities. . . .'' See Exchange Rule 1.5.E(1). \16\ Interpretations and Policies .11 to Rule 11.26 to [sic] 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). --------------------------------------------------------------------------- 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).\17\ 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 $0.05 minimum increments but will continue to trade at any price increment that is currently permitted.\18\ 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.\19\ 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 will be subject to the ``Trade-at'' requirement 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.\20\ 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 \21\ will apply to the Trade-at requirement. --------------------------------------------------------------------------- \17\ See Section V of the Plan for identification of Pilot Securities, including criteria for selection and grouping. \18\ See Section VI(B) of the Plan. \19\ See Section VI(C) of the Plan. \20\ See Section VI(D) of the Plan. \21\ 17 CFR 242.611. --------------------------------------------------------------------------- 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).\22\ 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 marker profits and any corresponding changes in the liquidity of small-capitalization securities.\23\ --------------------------------------------------------------------------- \22\ See Approval Order, 80 FR at 27543. \23\ Id. --------------------------------------------------------------------------- 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.\24\ Specifically, Appendix B.I of the Plan (Market Quality Statistics) requires Trading Centers \25\ to submit 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.\26\ Appendix B.I of the Plan also contains additional requirements for market orders and marketable limit orders, including the share-weighted average effective 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. --------------------------------------------------------------------------- \24\ 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. In that regard, the Exchange adopted Rule 11.26(c), Compliance With Quoting and Trading Restrictions, describing the responsibilities of the Exchange and of ETP Holders in complying with the quoting and trading provisions of the Plan. See Securities Exchange Act Release No. 78391 (July 21, 2016), 81 FR 49348 (July 27, 2016) (SR-NSX-2016-05). \25\ 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). \26\ 17 CFR 242.605. --------------------------------------------------------------------------- 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 the 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. Pursuant to the aforementioned requirements, the Exchange submitted and the Commission noticed a rule filing to adopt Exchange Rule 11.26(b), Compliance with Data Collection Requirements.\27\ The Exchange now proposes to amend Rule 11.26(b) to modify certain data collection and reporting requirements.\28\ First, [[Page 68478]] Appendix B.I.a(21) through B.I.a(27) currently requires that Trading Centers report the cumulative number of shares of cancelled orders during a specified duration of time after receipt of the order that was cancelled. The Exchange and the other Participants believe that, for purposes of reporting cancelled orders, it is appropriate to categorize unexecuted Immediate or Cancel orders separately as one bucket irrespective of the duration of time after order receipt, i.e., without a time increment, to better differentiate orders cancelled subsequent to entry from those where the customer's intent prior to order entry was to cancel the order if no execution could be immediately obtained. The Exchange, therefore, proposes to modify Interpretations and Policies .04 to provide that unexecuted Immediate or Cancel orders shall be categorized separately for purposes of Appendix B.I.a(21) through B.I.a(27). --------------------------------------------------------------------------- \27\ See Securities Exchange Act Release No. 77483 (March 31, 2016), 81 FR 20040 (April 6, 2016) (SR-NSX-2016-01). \28\ FINRA, on behalf of the Participants submitted a letter to Commission requesting an exemption from certain provisions of the Plan related to data collection. See letter dated August 30, 2016 from Marcia E. Asquith, Senior Vice President and Corporate Secretary, FINRA to Robert W. Errett, Deputy Secretary, Commission. The Commission, pursuant to its authority under Rule 608(e) of Regulation NMS, granted each Participant a limited exemption from the requirement to comply with certain provisions of the Plan as specified in the letter and noted herein, as long as each Participant submits proposed rule amendments to reflect the changes. See, letter dated August 30, 2016 from David S. Shillman, Associate Director, Division of Trading and Markets, Commission to Marcia E. Asquith, FINRA. --------------------------------------------------------------------------- The second change relates to the reporting of daily market quality statistics pursuant to Appendix B.I. Currently, Appendix B.I sets forth categories of orders, including market orders, marketable limit orders, and inside-the-quote resting limit orders, for which daily market quality statistics must be reported. The Exchange and the other Participants have determined that it is appropriate to include an order type for limit orders priced more than $0.10 away from the NBBO for purposes of Appendix B reporting. The Exchange therefore proposes to amend Interpretations and Policies .06 to provide that limit orders priced more than $0.10 away from the NBBO shall be included as an order type for purposes of Appendix B reporting, and shall be assigned the number (22). These orders are not currently required to be reported pursuant to Appendix B, and the Exchange and the other Participants believe that requiring the reporting of such orders will produce a more comprehensive data set. The third change relates to the reporting of market quality statistics pursuant to Appendix B.I for a variety of order types, including inside-the-quote resting limit orders (12), at-the-quote resting limit orders (13), and near-the-quote resting limit orders (within $0.10 of the NBBO) (14). The Exchange and the other Participants believe that it is appropriate to require Trading Centers to report all orders that fall within these categories, and not just those orders that are ``resting.'' The Exchange, therefore, proposes to amend Interpretations and Policies .06 to make this change. In the fourth change, the Exchange proposes to renumber Interpretations and Policies .09 to .10 and add new Interpretations and Policies .09 to modify the manner in which market maker participation statistics are calculated. Currently, Appendix B.IV provides that market maker participation statistics shall be calculated based on share participation, trade participation, cross-quote share (trade) participation, inside-the-quote share (trade) participation, at-the- quote share (trade) participation, and outside-the-quote share (trade) participation. The Exchange and the other Participants have determined that it is appropriate to add the count of the number of Market Makers used in the calculation of share (trade) participation to each category. The Exchange is therefore proposing this change as part of Interpretations and Policies .09. In addition, Appendix B.IV(b) and (c) currently require that, when aggregating across Market Makers, share participation and trade participation shall be calculated using the share-weighted average and trade-weighted average, respectively. The Exchange and the other Participants believe that it is more appropriate to calculate share and trade participation by providing the total count of shares or trades, as applicable, rather than weighted averages, and the Exchange is therefore proposing this change as part of Interpretations and Policies. The fifth change relates to the NBBO that a Trading Center is required to use when performing certain quote-related calculations. When calculating cross-quote share (trade) participation pursuant to Appendix B.IV(d) and inside-the-quote share (trade) participation pursuant to Appendix B.IV(e), the Plan requires the Trading Center to utilize the NBBO at the time of the trade for both share and trade participation calculations. When calculating at-the-quote share (trade) participation and outside-the-quote share (trade) participation pursuant to Appendix B.IV(f) and (g), the Plan allows the Trading Center to utilize the National Best Bid or National Best Offer (NBBO) at the time of or immediately before the trade for both share and trade participation calculations. The Exchange and the other Participants believe that it is appropriate to calculate all quote participation (cross-quote share (trade) participation, inside-the-quote share (trade) participation, at-the-quote share (trade) participation and outside-the-quote share (trade) participation) solely by reference to the NBBO in effect immediately prior to the trade. The Exchange therefore proposes to make this change as part of Interpretations and Policies .09. Finally, the Exchange proposes to change the end date until which the Pre-Pilot Data Collection Securities shall be used to fulfill the Plan's data collection requirements. Currently, Interpretations and Policies .10, which is being renumbered to .11, provides that Pre-Pilot Data Collection Securities are 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 to the Plan for the period beginning six months prior to the Pilot Period and ending on the trading day immediately preceding the Pilot Period. The Exchange and the other Participants believe that it is appropriate to use the Pilot Securities to satisfy the Plan's data collection requirements prior to the commencement of the Pilot. Accordingly, the Exchange is revising Interpretations and Policies .10 (which will be re-numbered .11) to provide that the Pre-Pilot Data Collection Securities shall be used to satisfy the Plan's data collection requirements through thirty-one days prior to the Pilot Period, after which time the Pilot Securities shall be used for purposes of the data collection requirements.\29\ The Exchange will also renumber Interpretations and Policies .11 to .12. --------------------------------------------------------------------------- \29\ NYSE, NYSE MKT, and Nasdaq published an automated list of securities eligible for the Pilot on the evening of September 2, 2016. At that time, all securities were designated for the Control Group. All securities will continue to be reflected as Control Group securities for the entire month of September 2016. On September 6, 2016, NYSE, NYSE MKT, and Nasdaq published a manual list identifying the final Test Group assignment for each eligible security. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \30\ in general, and furthers the objectives of Section 6(b)(5) of the Act \31\ 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. --------------------------------------------------------------------------- \30\ 15 U.S.C. 78f(b). \31\ 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 of the [[Page 68479]] 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. 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 ETP Holders in furtherance of compliance with the Plan. B. Self-Regulatory Organization's Statement on Burden on Competition 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, other than the change to require use of the Pilot Securities beginning thirty days prior to the beginning of the Pilot Period, the proposed changes will not affect the data collection and reporting requirements for members that operate Trading Centers; the proposed changes will only affect how the Exchange and Participants that operate Trading Centers collect and report data. The Exchange notes that, with respect to the change to require the use of the Pilot Securities beginning thirty days prior to the start of the Pilot Period, the proposed change reduces the number of securities on which affected members otherwise would have been required to collect data pursuant to the Plan and Exchange Rule 11.26. In addition, the proposed rule change applies equally to all similarly situated members. Therefore, 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. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From ETP Holders, Participants or Others The Exchange has neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \32\ and Rule 19b-4(f)(6) thereunder.\33\ 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) by its terms, become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest. --------------------------------------------------------------------------- \32\ 15 U.S.C. 78s(b)(3)(A)(iii). \33\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) \34\ normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii),\35\ the Commission may 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 so that the proposal may become operative immediately upon filing. --------------------------------------------------------------------------- \34\ 17 CFR 240.19b-4(f)(6). \35\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- The Commission believes that waiving the 30 day operative delay is consistent with the protection of investors and the public interest because it will allow the Exchange to implement the proposed rules immediately thereby preventing delays in the implementation of the Plan. The Commission notes that the Plan is scheduled to start on October 3, 2016. Therefore, the Commission hereby waives the 30 day operative delay and designates the proposed rule change to be operative upon filing with the Commission.\36\ --------------------------------------------------------------------------- \36\ For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of such 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 under Section 19(b)(2)(B) \37\ of the Act to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \37\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- 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 CommentsUse 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-NSX-2016-12 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File No. SR-NSX-2016-12. This file number should be included in the subject line if email is used. To help the Commission process and review 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 a.m. and 3 p.m. eastern time. Copies of such filings will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. Interested persons should submit only information that they wish to make available publicly. All submissions should refer to file number SR-NSX-2016-12 and should be submitted on or before October 25, 2016. --------------------------------------------------------------------------- \38\ 17 CFR 200.30-3(a)(12). For the Commission by the Division of Trading and Markets, pursuant to the delegated authority.\38\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-23929 Filed 10-3-16; 8:45 am] BILLING CODE 8011-01-P
![68476 Federal Register / Vol. 81, No. 192 / Tuesday, October 4, 2016 / Notices
Register on September 26, 2016.5 The SECURITIES AND EXCHANGE at www.nsx.com, at the principal office
Commission received one comment in COMMISSION of the Exchange, and at the
response to the proposed rule change, as Commission’s Public Reference Room.
[Release No. 34–78960; File No. SR–NSX–
modified by Amendment No. 1.6 2016–12] II. Self-Regulatory Organization’s
Section 19(b)(2) of the Act 7 provides Statement of the Purpose of, and the
that, within 45 days of the publication Self-Regulatory Organizations; Statutory Basis for, the Proposed Rule
of the notice of the filing of a proposed National Stock Exchange, Inc.; Notice Change
rule change, or within such longer of Filing and Immediate Effectiveness
of a Proposed Rule Change To Amend In its filing with the Commission, the
period up to 90 days as the Commission Exchange included statements
Exchange Rule 11.26 To Implement the
may designate if it finds such longer concerning the purpose of and statutory
Regulation NMS Plan To Implement a
period to be appropriate and publishes basis for the proposed rule change and
Tick Size Pilot Program
its reasons for so finding or as to which discussed any comments it received on
the self-regulatory organization September 28, 2016. the proposed rule change. The text of
consents, the Commission shall approve Pursuant to Section 19(b)(1) of the these statements may be examined at
the proposed rule change, disapprove Securities Exchange Act of 1934 (the the places specified in Item IV below.
the proposed rule change, or institute ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 The Exchange has prepared summaries,
proceedings to determine whether the notice is hereby given that on 22 set forth in Sections A, B, and C below,
proposed rule change should be September, 2016, National Stock of the most significant parts of such
disapproved. The Commission is Exchange, Inc. (‘‘NSX’’ or the statements.
extending this 45-day time period. ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or A. Self-Regulatory Organization’s
The Commission finds that it is ‘‘Commission’’) a proposed rule change, Statement of the Purpose of, and
appropriate to designate a longer period as described in Items I, and II below, Statutory Basis for, the Proposed Rule
within which to take action on the which Items have been substantially Change
proposed rule change so that it has prepared by the Exchange. The 1. Purpose
sufficient time to consider the proposed Exchange has designated this proposal On August 25, 2014, NYSE Group,
rule change, as modified by Amendment as a ‘‘non-controversial’’ proposed rule Inc., on behalf of BZX, Chicago Stock
No. 1. Accordingly, the Commission, change pursuant to Section 19(b)(3)(A)
Exchange, Inc., Bats EDGA Exchange,
pursuant to Section 19(b)(2) of the Act,8 of the Act 3 and Rule 19b–4(f)(6)(iii) 4
Inc., Bats EDGX Exchange, Inc., FINRA,
designates November 15, 2016, as the thereunder, which renders it effective
NASDAQ OMX BX, Inc., NASDAQ
date by which the Commission should upon filing with the Commission. The
OMX PHLX LLC, the Nasdaq Stock
approve, disapprove, or institute Commission is publishing this notice to
Market LLC, New York Stock Exchange
proceedings to determine whether to solicit comments on the proposed rule
LLC (‘‘NYSE’’), NYSE MKT LLC, and
disapprove the proposed rule change change from interested persons.
NYSE Arca, Inc. (collectively
(File No. SR–NYSE–2016–45), as I. Self-Regulatory Organization’s ‘‘Participants’’), filed with the
modified by Amendment No. 1. Statement of the Terms of the Substance Commission, pursuant to Section 11A of
For the Commission, by the Division of of the Proposed Rule Change the Act 7 and Rule 608 of Regulation
Trading and Markets, pursuant to delegated The Exchange filed a proposal to NMS thereunder,8 the Plan to
authority.9 amend NSX Rule 11.26 to modify Implement a Tick Size Pilot Program
Robert W. Errett, certain data collection requirements of (‘‘Pilot’’).9 The Participants filed the
the Regulation NMS Plan to Implement Plan to comply with an order issued by
Deputy Secretary.
a Tick Size Pilot Program (the ‘‘Plan’’). the Commission on June 24, 2014.10 The
[FR Doc. 2016–23906 Filed 10–3–16; 8:45 am] Plan 11 was published for comment in
The proposed rule change is
BILLING CODE 8011–01–P
substantially similar to proposed rule the Federal Register on November 7,
changes recently approved or published 2014 and was thereafter approved by the
by the Commission for the Financial Commission, as modified, on May 6,
Industry Regulatory Authority, Inc. 2015.12 On November 6, 2015, the
(‘‘FINRA’’) to amend FINRA Rule 6191, Commission granted the Participants an
which also sets forth amendments to the exemption from implementing the Plan
requirements for the collection and until October 3, 2016.13 On March 3,
transmission of data pursuant to 2016, the Commission noticed an
Appendices B and C of the Plan.5 The
7 15 U.S.C. 78k–1.
Exchange has designated this proposal
8 17 CFR 242.608.
as a ‘‘non-controversial’’ proposed rule 9 See Letter from Brendon J. Weiss, Vice
change and provided the Commission President, Intercontinental Exchange, Inc., to
with the notice required by Rule 19b– Secretary, Commission, dated August 25, 2014.
4(f)(6)(iii) under the Act.6 10 See Securities Exchange Act Release No. 72460
5 See Securities Exchange Act Release No. 34–
The text of the proposed rule change (June 24, 2014), 79 FR 36840 (June 30, 2014).
78887 (September 20, 2016), 81 FR 66095. 11 Unless otherwise specified, capitalized terms
6 See letter to Brent J. Fields, Secretary,
is available at the Exchange’s Web site
used in this rule filing are based on the defined
mstockstill on DSK3G9T082PROD with NOTICES
Commission, from John Ramsay, Chief Market 1 15
terms of the Plan.
U.S.C. 78s(b)(1). 12 See Securities Exchange Act Release No. 74892
Policy Officer, Investors Exchange LLC (IEX), dated 2 17 CFR 240.19b–4. (May 6, 2015), 80 FR 27513 (May 13, 2015) (File No.
September 9, 2016. 3 15 U.S.C. 78s(b)(3)(A).
In response to this Comment Letter, the NYSE 4–657) (‘‘Approval Order’’).
4 17 CFR 240.19b–4(f)(6)(iii). 13 See Securities Exchange Act Release No. 76382
submitted a response. 5 See Securities Exchange Act Release No. 78800
7 15 U.S.C. 78s(b)(2).
(November 6, 2015), 80 FR 70284 (November 13,
(September 9, 2016), 81 FR 63565 (September 15, 2015) (File No. 4-657) (Order Granting Exemption
8 Id.
2016) (SR–FINRA–2016–35). From Compliance With the National Market System
9 17 CFR 200.30–3(a)(57). 6 17 CFR 240.19b–4(f)(6)(iii). Plan To Implement a Tick Size Pilot Program).
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amendment to the Plan adding NSX as Offer,’’ unless an enumerated exception receipt. This information shall be
a Participant.14 applies.20 In addition to the exceptions categorized by security, order type,
The Plan is designed to allow the provided under Test Group Two, an original order size, hidden status, and
Commission, market participants, and exception for Block Size orders and coverage under Rule 605.26 Appendix
the public to study and assess the exceptions that mirror those under Rule B.I of the Plan also contains additional
impact of increment conventions on the 611 of Regulation NMS 21 will apply to requirements for market orders and
liquidity and trading of the common the Trade-at requirement. marketable limit orders, including the
stocks of small-capitalization In approving the Plan, the share-weighted average effective spread
companies. Each Participant is required Commission noted that the Trading for executions of orders; the cumulative
to comply, and to enforce compliance Center data reporting requirements number of shares of orders executed
by its member organizations, as would facilitate an analysis of the with price improvement; and, for shares
applicable, with the provisions of the effects of the Pilot on liquidity (e.g., executed with price improvement, the
Plan. As is described more fully below, transaction costs by order size), share-weighted average amount per
the proposed rules would require ETP execution quality (e.g., speed of order share that prices were improved.
Holders 15 to comply with the executions), market maker activity, Appendix B.II of the Plan (Market and
applicable data collection requirements competition between trading venues Marketable Limit Order Data) requires
of the Plan.16 (e.g., routing frequency of market Trading Centers to submit information
The Pilot will include stocks of orders), transparency (e.g., choice relating to market orders and marketable
companies with $3 billion or less in between displayed and hidden orders), limit orders, including the time of order
market capitalization, an average daily and market dynamics (e.g., rates and receipt, order type, the order size, the
trading volume of one million shares or speed of order cancellations).22 The National Best Bid and National Best
less, and a volume weighted average Commission noted that Market Maker Offer (‘‘NBBO’’) quoted price, the NBBO
price of at least $2.00 for every trading profitability data would assist the quoted depth, the average execution
day. The Pilot will consist of a control Commission in evaluating the effect, if price-share-weighted average, and the
group of approximately 1,400 Pilot any, of a widened tick increment on average execution time-share-weighted
Securities and three test groups with market marker profits and any average.
400 Pilot Securities in each (selected by corresponding changes in the liquidity The Plan requires Appendix B.I and
a stratified random sampling process).17 of small-capitalization securities.23 B.II data to be submitted by Participants
During the pilot, Pilot Securities in the that operate a Trading Center, and by
control group will be quoted at the Compliance With the Data Collection members of the Participants that operate
current tick size increment of $0.01 per Requirements of the Plan Trading Centers. The Plan provides that
share and will trade at the currently The Plan contains requirements for each Participant that is the Designated
permitted increments. Pilot Securities in collecting and transmitting data to the Examining Authority (‘‘DEA’’) for a
the first test group (‘‘Test Group One’’) Commission and to the public.24 member of the Participant that operates
will be quoted in $0.05 minimum Specifically, Appendix B.I of the Plan a Trading Center shall collect such data
increments but will continue to trade at (Market Quality Statistics) requires in a pipe delimited format, beginning
any price increment that is currently Trading Centers 25 to submit variety of six months prior to the Pilot Period and
permitted.18 Pilot Securities in the market quality statistics, including ending six months after the end of the
second test group (‘‘Test Group Two’’) information about an order’s original Pilot Period. The Plan also requires the
will be quoted in $0.05 minimum size, whether the order was displayable Participant, operating as DEA, to
increments and will trade at $0.05 or not, the cumulative number of orders, transmit this information to the SEC
minimum increments subject to a the cumulative number of shares of within 30 calendar days following
midpoint exception, a retail investor orders, and the cumulative number of month end.
order exception, and a negotiated trade shares executed within specific time Pursuant to the aforementioned
exception.19 Pilot Securities in the third increments, e.g., from 30 seconds to less requirements, the Exchange submitted
test group (‘‘Test Group Three’’) will be than 60 seconds after the time of order and the Commission noticed a rule
subject to the same quoting and trading filing to adopt Exchange Rule 11.26(b),
increments as Test Group Two and also 20 See Section VI(D) of the Plan. Compliance with Data Collection
will be subject to the ‘‘Trade-at’’ 21 17 CFR 242.611. Requirements.27 The Exchange now
requirement to prevent price matching 22 See Approval Order, 80 FR at 27543.
proposes to amend Rule 11.26(b) to
by a market participant that is not 23 Id.
modify certain data collection and
displaying at a Trading Center’s ‘‘Best 24 The Exchange is also required by the Plan to
reporting requirements.28 First,
Protected Bid’’ or ‘‘Best Protected establish, maintain, and enforce written policies
and procedures that are reasonably designed to
26 17 CFR 242.605.
comply with applicable quoting and trading
14 See Securities Exchange Act Release No. 77277 requirements specified in the Plan. In that regard, 27 See Securities Exchange Act Release No. 77483
(March 3, 2016), 81 FR 12162 (March 8, 2016). the Exchange adopted Rule 11.26(c), Compliance (March 31, 2016), 81 FR 20040 (April 6, 2016) (SR–
15 An ‘‘ETP Holder’’ is a registrant of NSX to
With Quoting and Trading Restrictions, describing NSX–2016–01).
which NSX has issued an ETP. An ‘‘ETP’’ is defined the responsibilities of the Exchange and of ETP 28 FINRA, on behalf of the Participants submitted
as ‘‘. . . an Equity Trading Permit issued by the Holders in complying with the quoting and trading a letter to Commission requesting an exemption
Exchange for effecting approved securities provisions of the Plan. See Securities Exchange Act from certain provisions of the Plan related to data
transactions on the Exchange’s trading Release No. 78391 (July 21, 2016), 81 FR 49348 collection. See letter dated August 30, 2016 from
facilities. . . .’’ See Exchange Rule 1.5.E(1). (July 27, 2016) (SR–NSX–2016–05). Marcia E. Asquith, Senior Vice President and
16 Interpretations and Policies .11 to Rule 11.26 to 25 The Plan incorporates the definition of a Corporate Secretary, FINRA to Robert W. Errett,
mstockstill on DSK3G9T082PROD with NOTICES
[sic] provide that the Rule shall be in effect during ‘‘Trading Center’’ from Rule 600(b)(78) of Deputy Secretary, Commission. The Commission,
a pilot period to coincide with the pilot period for Regulation NMS. Regulation NMS defines a pursuant to its authority under Rule 608(e) of
the Plan (including any extensions to the pilot ‘‘Trading Center’’ as ‘‘a national securities exchange Regulation NMS, granted each Participant a limited
period for the Plan). or national securities association that operates an exemption from the requirement to comply with
17 See Section V of the Plan for identification of
SRO trading facility, an alternative trading system, certain provisions of the Plan as specified in the
Pilot Securities, including criteria for selection and an exchange market maker, an OTC market maker, letter and noted herein, as long as each Participant
grouping. or any other broker or dealer that executes orders submits proposed rule amendments to reflect the
18 See Section VI(B) of the Plan.
internally by trading as principal or crossing orders changes. See, letter dated August 30, 2016 from
19 See Section VI(C) of the Plan. as agent.’’ See 17 CFR 242.600(b). Continued
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![Federal Register / Vol. 81, No. 192 / Tuesday, October 4, 2016 / Notices 68479
Plan. In approving the Plan, the SEC 19(b)(3)(A)(iii) of the Act 32 and Rule arguments concerning the foregoing,
noted that the Pilot was an appropriate, 19b–4(f)(6) thereunder.33 Because the including whether the proposed rule
data-driven test that was designed to proposed rule change does not: (i) change is consistent with the Act.
evaluate the impact of a wider tick size Significantly affect the protection of Comments may be submitted by any of
on trading, liquidity, and the market investors or the public interest; (ii) the following methods:
quality of securities of smaller impose any significant burden on
Electronic Comments
capitalization companies, and was competition; and (iii) by its terms,
therefore in furtherance of the purposes become operative prior to 30 days from • Use the Commission’s Internet
of the Act. The Exchange believes that the date on which it was filed, or such comment form (http://www.sec.gov/
this proposal is in furtherance of the shorter time as the Commission may rules/sro.shtml); or
objectives of the Plan, as identified by designate, if consistent with the • Send an email to rule-comments@
the SEC, and is therefore consistent with protection of investors and the public sec.gov. Please include File Number SR–
the Act because the proposal interest. NSX–2016–12 on the subject line.
implements and clarifies the A proposed rule change filed under Paper Comments
requirements of the Plan and applies Rule 19b–4(f)(6) 34 normally does not
specific obligations to ETP Holders in become operative prior to 30 days after • Send paper comments in triplicate
furtherance of compliance with the the date of the filing. However, pursuant to Brent J. Fields, Secretary, Securities
Plan. to Rule 19b4(f)(6)(iii),35 the Commission and Exchange Commission, 100 F Street
may designate a shorter time if such NE., Washington, DC 20549–1090.
B. Self-Regulatory Organization’s action is consistent with the protection All submissions should refer to File No.
Statement on Burden on Competition of investors and the public interest. The SR–NSX–2016–12. This file number
The Exchange notes that the proposed Exchange has asked the Commission to should be included in the subject line
rule change implements the provisions waive the 30-day operative delay so that if email is used. To help the
of the Plan, and is designed to assist the the proposal may become operative Commission process and review
Exchange in meeting its regulatory immediately upon filing. comments more efficiently, please use
obligations pursuant to the Plan. The The Commission believes that only one method. The Commission will
Exchange also notes that, other than the waiving the 30 day operative delay is post all comments on the Commission’s
change to require use of the Pilot consistent with the protection of Internet Web site (http://www.sec.gov/
Securities beginning thirty days prior to investors and the public interest rules/sro.shtml). Copies of the
the beginning of the Pilot Period, the because it will allow the Exchange to submission, all subsequent
proposed changes will not affect the implement the proposed rules amendments, all written statements
data collection and reporting immediately thereby preventing delays with respect to the proposed rule
requirements for members that operate in the implementation of the Plan. The change that are filed with the
Trading Centers; the proposed changes Commission notes that the Plan is Commission, and all written
will only affect how the Exchange and scheduled to start on October 3, 2016. communications relating to the
Participants that operate Trading Therefore, the Commission hereby proposed rule change between the
Centers collect and report data. The waives the 30 day operative delay and Commission and any person, other than
Exchange notes that, with respect to the designates the proposed rule change to those that may be withheld from the
change to require the use of the Pilot be operative upon filing with the public in accordance with the
Securities beginning thirty days prior to Commission.36 provisions of 5 U.S.C. 552, will be
the start of the Pilot Period, the At any time within 60 days of the available for Web site viewing and
proposed change reduces the number of filing of such proposed rule change, the printing in the Commission’s Public
securities on which affected members Commission summarily may Reference Room, 100 F Street NE.,
otherwise would have been required to temporarily suspend such rule change if Washington, DC 20549, on official
collect data pursuant to the Plan and it appears to the Commission that such business days between the hours of 10
Exchange Rule 11.26. In addition, the action is necessary or appropriate in the a.m. and 3 p.m. eastern time. Copies of
proposed rule change applies equally to public interest, for the protection of such filings will also be available for
all similarly situated members. investors, or otherwise in furtherance of inspection and copying at the principal
Therefore, the Exchange does not the purposes of the Act. If the office of the Exchange. All comments
believe that the proposed rule change Commission takes such action, the received will be posted without change;
will result in any burden on Commission shall institute proceedings the Commission does not edit personal
competition that is not necessary or under Section 19(b)(2)(B) 37 of the Act to identifying information from
appropriate in furtherance of the determine whether the proposed rule submissions. Interested persons should
purposes of the Act. change should be approved or submit only information that they wish
disapproved. to make available publicly.
C. Self-Regulatory Organization’s All submissions should refer to file
Statement on Comments on the IV. Solicitation of Comments
number SR–NSX–2016–12 and should
Proposed Rule Change Received From Interested persons are invited to be submitted on or before October 25,
ETP Holders, Participants or Others submit written data, views, and 2016.
The Exchange has neither solicited 32 15
For the Commission by the Division of
U.S.C. 78s(b)(3)(A)(iii).
nor received comments on the proposed Trading and Markets, pursuant to the
mstockstill on DSK3G9T082PROD with NOTICES
33 17 CFR 240.19b–4(f)(6).
rule change. 34 17 CFR 240.19b–4(f)(6).
delegated authority.38
35 17 CFR 240.19b–4(f)(6)(iii). Robert W. Errett,
III. Date of Effectiveness of the 36 For purposes only of waiving the operative Deputy Secretary.
Proposed Rule Change and Timing for delay for this proposal, the Commission has
Commission Action [FR Doc. 2016–23929 Filed 10–3–16; 8:45 am]
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See BILLING CODE 8011–01–P
The Exchange has filed the proposed 15 U.S.C. 78c(f).
rule change pursuant to Section 37 15 U.S.C. 78s(b)(2)(B). 38 17 CFR 200.30–3(a)(12).
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Document Created: 2016-10-04 03:03:54
Document Modified: 2016-10-04 03:03:54
| 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 68476 |
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