81 FR 8112 - Self-Regulatory Organizations: BATS Exchange Inc.; Notice of Filing of Partial Amendment No. 2 and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Partial Amendment No. 2, To Adopt Rule 11.27 Regarding the Data Collection Requirements of the Tick Size Pilot
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 31 (February 17, 2016)
Federal Register Volume 81, Issue 31 (February 17, 2016)
| Page Range | 8112-8118 | |
| FR Document | 2016-03128 |
[Federal Register Volume 81, Number 31 (Wednesday, February 17, 2016)] [Notices] [Pages 8112-8118] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-03128] [[Page 8112]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77105; File No. SR-BATS-2015-102] Self-Regulatory Organizations: BATS Exchange Inc.; Notice of Filing of Partial Amendment No. 2 and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Partial Amendment No. 2, To Adopt Rule 11.27 Regarding the Data Collection Requirements of the Tick Size Pilot February 10, 2016. I. Introduction On November 13, 2015, BATS Exchange, Inc. (``BATS'' or ``Exchange'') filed with Securities and Exchange Commission (``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the Securities Exchange Act (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt rules related to the data collection requirements set forth in the Regulation NMS Plan (``Plan'') to Implement a Tick Size Pilot Program (``Tick Size Pilot'').\3\ The proposed rule change was published for comment in the Federal Register on December 1, 2015.\4\ The Commission has received one comment letter in response to the Notice and a response letter from BATS.\5\ On January 13, 2016, the Commission designated a longer period for Commission action on the proposal.\6\ On February 4, 2016, BATS filed Partial Amendment No. 2 to the proposal.\7\ This order approves the proposed rule change, as modified by Partial Amendment No. 2. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) (order approving the Tick Size Pilot) (``Approval Order''). \4\ See Securities Exchange Act Release No. 76524 (November 25, 2015), 80 FR 75141 (``Notice''). \5\ See Letters from Mary Lou Von Kaenel, Managing Director, Financial Information Forum dated December 4, 2015, to Robert W. Errett, Deputy Secretary, Commission (``FIF Letter''), and Chris Solgan, Associate General Counsel, BATS Exchange, Inc. dated February 1, 2015 to Brent J. Fields, Secretary, Commission (``BATS Response Letter''). \6\ See Securities Exchange Act Release No. 76891, 81 FR 3218 (January 20, 2016). \7\ In Partial Amendment No. 2, BATS amends (1) proposed Rule 11.24(b)(4)(A) by deleting an erroneous cross-reference and replacing the phrase ``pipe-delineated'' with the phrase ``required by their DEA'' and (2) proposed Rule 11.27.03 by replacing the phrase ``dually listed securities'' with ``securities that trade in a foreign market.'' On February 1, 2016, BATS filed Partial Amendment No. 1 to the proposal and subsequently withdrew Partial Amendment No. 1. --------------------------------------------------------------------------- II. Background 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., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC (``Nasdaq''), 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 \8\ and Rule 608 of Regulation NMS thereunder,\9\ the Plan to Implement the Tick Size Pilot.\10\ The Participants filed the Plan to comply with an order issued by the Commission on June 24, 2014.\11\ The Plan was published for comment in the Federal Register on November 7, 2014,\12\ and approved by the Commission, as modified, on May 6, 2015.\13\ On November 6, 2015, the Commission issued an exemption to the Participants from implementing the Plan until October 3, 2016.\14\ --------------------------------------------------------------------------- \8\ 15 U.S.C. 78k-1. \9\ 17 CFR 242.608. \10\ See Letter from Brendon J. Weiss, Vice President, Intercontinental Exchange, Inc., to Secretary, Commission, dated August 25, 2014. \11\ See Securities Exchange Act Release No. 72460 (June 24, 2014), 79 FR 36840 (June 30, 2014). \12\ See Securities Exchange Act Release No. 73511 (November 3, 2014), 79 FR 66423. \13\ See Approval Order, supra note 3. \14\ See Securities Exchange Act Release No. 76382, 80 FR 70284 (November 13, 2015). --------------------------------------------------------------------------- The Tick Size Pilot 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 certain small-capitalization companies. Each Participant is required to comply, and to enforce compliance by its members, as applicable, with the provisions of the Plan.\15\ In addition to developing quoting and trading requirements for the Tick Size Pilot, the Plan requires Participants to collect and submit to the Commission a variety of data, including market quality statistics and market maker participation statistics and profitability data.\16\ BATS has filed the proposed rule change, as modified by Partial Amendment No. 2, to require its members to comply with the applicable data collection requirements of the Plan and to provide interpretive guidance and clarification of certain data collection provisions.\17\ --------------------------------------------------------------------------- \15\ Rule 608(c) of Regulation NMS. 17 CFR 242.608(c). See also Plan Sections II.B. and IV. \16\ The data collection requirements for the Plan are specified in Appendices B and C. See Approval Order, 80 FR at 27552--53, supra note 3. \17\ FINRA, on behalf of the Plan Participants submitted a letter to 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, has granted BATS a limited exemption from the requirement to comply with certain provisions of the Plan as specified in the letter and noted herein. See letter from David Shillman, Associate Director, Division of Trading and Markets, Commission to Eric Swanson, General Counsel, BATS, dated February 10, 2016 (``SEC Exemption Letter''). --------------------------------------------------------------------------- III. Description of the Proposed Rule Change, as Modified by Partial Amendment No. 2 BATS proposes Rule 11.27(b) to establish the rules necessary for compliance with applicable data collection and transmission requirements of the Plan. In addition, proposed Rule 11.27(b) contains Interpretations and Policies designed to clarify certain aspects of the data collection requirements. A. Rule Text for Proposed Rule 11.27(b) The Exchange proposes Rule 11.27(b) \18\ to facilitate compliance with the data collection and transmission requirements set forth by Appendices B and C of the Plan. Proposed Rule 11.27(b)(1) provides that a BATS member that operates a Trading Center \19\ 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 BATS member that is a Market Maker 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. --------------------------------------------------------------------------- \18\ BATS has proposed Rule 11.27(a) to establish rules related to the quoting and trading requirements of the Plan. See Securities Exchange Act Release No. 76552 (December 3, 2015), 80 FR 76591 (December 9, 2015). On January 21, 2016, the Commission extended the period for Commission action to March 8, 2016. See Securities Exchange Release Act No. 76945, 81 FR 4734 (January 27, 2016). \19\ Capitalized terms used in this Order are defined in the Plan, unless otherwise specified herein. --------------------------------------------------------------------------- Proposed Rule 11.27(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- [[Page 8113]] Pilot Data Collection Securities \20\ and Pilot Securities on a Trading Center Operated by the Exchange. Proposed Rule 11.27(b)(2) also provides that 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 (``Pre-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. Proposed Rule 11.27(b)(2) also provides that the Exchange 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.\21\ --------------------------------------------------------------------------- \20\ As discussed herein, BATS proposes to establish data collection requirements for securities designated as Pre-Pilot Data Collection Securities for the period that begins six months prior to the Pilot Period. \21\ BATS has requested an exemption from the Plan related to this provision. See Exemption Request, supra note 17. --------------------------------------------------------------------------- The Exchange proposes Rule 11.27(b)(3) related to daily Market Maker participation statistics to facilitate compliance with Appendix B.IV of the Plan. Proposed Rule 11.27(b)(3)(A) provides that a BATS member that is a Market Maker shall collect and transmit to their Designated Examining Authority (``DEA'') data relating to Item IV of Appendix B of the Plan, with respect to activity conducted on any Trading Center in Pre-Pilot Data Collection Securities and Pilot 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 dates. Proposed Rule 11.27(b)(3)(A)(i) would also require that Market Makers transmit such data in a format required by their DEA by 12:00 p.m. EST on T+4: (i) For transactions in each Pre- Pilot Data Collection Security for the Pre-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. Proposed Rule 11.27(b)(3)(B) provides that the Exchange shall transmit the data collected by the DEA pursuant to Rule 11.27(b)(3)(A) 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.\22\ Proposed Rule 11.27(b)(3)(B) provides that 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.\23\ --------------------------------------------------------------------------- \22\ BATS has requested an exemption from the Plan related to this provision. See Exemption Request, supra note 17. \23\ BATS has requested an exemption from the Plan related to this provision. See Exemption Request, supra note 17. --------------------------------------------------------------------------- The Exchange proposes Rule 11.27(b)(4) related to Market Maker profitability to facilitate the data collection and transmission requirements of Appendix C.I of the Plan. Proposed Rule 11.27(b)(4)(A) requires a BATS 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 with respect to executions of Pilot Securities on any Trading Center that have settled or reached the settlement date.\24\ Proposed Rule 11.27(b)(4)(A) also requires BATS members that are Market Makers to provide such data in a format required by their DEA by 12:00 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 Pre-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. --------------------------------------------------------------------------- \24\ See Partial Amendment No. 2, supra note 7. --------------------------------------------------------------------------- The Exchange proposes Rule 11.27(b)(5) related to the daily Market Maker registration statistics to facilitate compliance with Appendix B.III of the Plan. Proposed Rule 11.27(b)(5) provides 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 pipe-delimited format within 30 calendar days following month end: (i) For transactions in each Pre-Pilot Data Collection Security for Pre-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. B. Interpretations and Policies Under Proposed Rule 11.27(b) The Exchange proposes Interpretations and Policies under proposed Rule 11.27(b) in order to clarify certain aspects related to the data collection and transmission requirements of the Plan. Proposed Interpretations and Policy .01 provides that, unless otherwise specified, the terms used in proposed Rule 11.27 shall have the same meaning as provided in the Plan. Proposed Interpretations and Policy .02 relates to the identification of Retail Investor Orders for purposes of Appendix B.II(n) reporting. The Plan provides that market and Marketable Limit Order Retail Investor Orders shall be identified in a separate field with a ``Y/N.'' The Exchange proposes in Interpretations and Policy .02 to clarify that, for purposes of the reporting requirement in Appendix B.II(n), a Trading Center shall report ``Y'' to their DEA for those Retail Investor Orders that rely on the exceptions to Test Groups Two and Three, and ``N'' for all other instances.\25\ --------------------------------------------------------------------------- \25\ BATS has requested an exemption from the Plan related to the provision. See Exemption Request, supra note 17. --------------------------------------------------------------------------- Proposed Interpretations and Policy .03 proposes to include a field, ``Affected by Limit-Up Limit-Down bands'' for purposes of Appendix B.I. Proposed Rule Interpretations and Policy 03 specifies that a Trading Center shall report ``Y'' to its DEA when the ability of an order to execute has been affected by the Limit-Up Limit-Down (``LULD'') band \26\ in effect at the time of order receipt, and shall report a value of ``N'' to its DEA when the ability of an order to execute has not been affected by the LULD bands in effect at the time of order receipt. In addition, proposed Rule Interpretations and Policy 03 provides that the Participants shall classify all orders that may trade in a foreign market as: (1) Fully executed domestically; or (2) fully or partially executed on a foreign market.\27\ For the purposes of Appendix B.II, proposed Rule Interpetation and Policy 03 sets forth that the Participants shall classify all orders in Pilot and Pre-Pilot Data Collection Securities that may trade in a foreign market 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.\28\ --------------------------------------------------------------------------- \26\ 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''). \27\ See Partial Amendment No. 2, supra note 7. \28\ See Partial Amendment No. 2, supra note 7. --------------------------------------------------------------------------- In proposed Interpretation and Policy .04, BATS proposes to modify the reporting requirements under Appendix B.I.a(14), B.I.a(15), B.I.a(21) and B.I.a(22).\29\ Specifically, BATS proposes [[Page 8114]] the following: Appendix B.I.a(14A): 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): The cumulative number of shares of orders executed from 1 millisecond to less than 100 milliseconds after the time of order receipt; Appendix B.I.a(21A): The cumulative number of shares of orders canceled from 100 microseconds to less than 1 millisecond after the time of order receipt; and Appendix B.I.a(22): The cumulative number of shares of orders canceled from 1 millisecond to less than 100 milliseconds after the time of order receipt.\30\ --------------------------------------------------------------------------- \29\ 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.Ia(15) requires reporting of the cumulative number of shares or 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 or orders cancelled from 100 microseconds to less than 100 milliseconds after the time of order receipt. \30\ BATS has requested an exemption from the Plan related to these provisions. See Exemption Request, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .05 changes the time of calculating certain data to the time of order receipt, instead of the time of order execution, as currently set forth by Appendix B.I.a(31)- (33).\31\ --------------------------------------------------------------------------- \31\ BATS has requested an exemption from the Plan related to these provisions. See Exemption Request, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .06 specifically identifies certain order types for purposes of reporting under Appendix B of the Plan (with numbers for reporting). In particular, not held orders, assigned the number (18); clean cross orders, assigned the number (19); auction orders, assigned the number (20); and orders that cannot otherwise be classified, including orders received when the NBBO is crossed, assigned the number (21) shall be identified in the data reports. Proposed Interpretation and Policy .07 sets forth that, for purposes of Appendix B of the Plan, the Exchange would not deem a member to be a Trading Center where that member only executes orders otherwise on a national securities exchange for the purpose of: (i) Correcting a bona fide error related to the execution of a customer order; (ii) purchasing a security from a customer at a nominal price solely for the purposes of liquidating the customer's position; or (iii) completing the fractional share portion of an order.\32\ --------------------------------------------------------------------------- \32\ The Exchange noted 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 proposed Rule 11.27 and need to report pursuant to Appendix B of the Plan. --------------------------------------------------------------------------- Proposed Interpretation and Policy .08 sets forth that April 4, 2016 is the date a Trading Center must begin the data collection pursuant to the Plan; and that the Exchange or a Trading Center's DEA must provide information to the SEC within 30 days following month end and make certain data publicly available pursuant to Appendix B and C of the Plan shall commence at the beginning of the Pilot Period.\33\ --------------------------------------------------------------------------- \33\ BATS has requested an exemption from the Plan related to this provision. See Exemption Request, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .09 specifies that for purposes of Appendix C.I., Participants shall calculate daily Market Maker realized profitability statistics for each trading day on a daily last in first out (LIFO) basis using reported trade price and shall include only trades executed on the subject trading day.\34\ Further, the daily LIFO calculation shall not include any positions carried over from previous trading days. In addition, proposed Interpretation and Policy .09 provides that 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, Participants will 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 will be determined by using the volume weighted average price compared to the closing price of the security as reported by the primary listing exchange. Proposed Interpretation and Policy .09 also provides that in calculating 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. --------------------------------------------------------------------------- \34\ BATS has requested an exemption from the Plan related to this provision. See Exemption Request, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .10 defines ``Pre-Pilot Data Collection Securities'' as the securities designated by the Participants for purposes of the data collection requirements described in Items I, II, III and IV of Appendix B and Item I of Appendix C of the Plan for the Pre-Pilot Period. Proposed Interpretation and Policy .10 provides that the Participants shall compile the list of Pre-Pilot Data Collection Securities by selecting all NMS stocks with (1) a market capitalization of $5 billion or less, (2) a Consolidated Average Daily Volume (CADV) of 2 million shares or less and (3) 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. Further, the Pre-Pilot measurement period shall be the three calendar months ending on the day when the Pre-Pilot Data Collection Securities are selected. Finally, the Pre-Pilot Data Collection Securities shall be selected thirty days prior to the commencement of the six-month Pre-Pilot Period. Proposed Interpretation and Policy .11 specifies that the effectiveness of proposed Rule 11.27 would coincide with the pilot period for the Plan, including any extensions. IV. Discussion and Commission Findings After careful review of the proposal and the comment letter, the Commission finds that the proposed rule change, as modified by Partial Amendment No. 2, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\35\ Specifically, the Commission finds that the proposed rule change is consistent with the requirements of section 6(b)(5) of the Act,\36\ which requires, among other things, that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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; and are not designed to permit unfair discrimination between customers, issuers, brokers or dealers. In addition, the Commission finds that the proposed rule change is consistent with the requirements of section 6(b)(8) of the Act,\37\ which requires that the Exchange's rules not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. --------------------------------------------------------------------------- \35\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \36\ 15 U.S.C. 78f(b)(5). \37\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- The Commission has previously stated that the Tick Size Pilot set forth in the Plan should provide a data-driven [[Page 8115]] approach to evaluate whether certain changes to the market structure for Pilot Securities would be consistent with the Commission's mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.\38\ As discussed below, the Commission believes that BATS's proposal is consistent with the requirements of the Act, and would further the purpose of the Plan to provide measurable data. --------------------------------------------------------------------------- \38\ See Approval Order, 80 FR at 27515-16, supra note 3. --------------------------------------------------------------------------- BATS, as a Participant in the Plan, has an obligation to comply, and enforce compliance by its members, with the terms of the Plan. Rule 608(c) of Regulation NMS provides that ``[e]ach self-regulatory organization shall comply with the terms of any effective national market system plan of which it is a sponsor or participant. Each self- regulatory organization also shall, absent reasonable justification or excuse, enforce compliance with any such plan by its members and persons associated with its members.'' \39\ BATS proposed Rule 11.27(b) would impose compliance obligations on its members with the data collection requirements set forth in Appendices B and C to the Plan. The Commission also believes the proposal is consistent with the Act because it is designed to assist BATS in meeting its regulatory obligations pursuant to and Rule 608(c) of Regulation NMS \40\ and the Plan.\41\ --------------------------------------------------------------------------- \39\ 17 CFR 242.608(c). \40\ 17 CFR 242.608(c). \41\ Sections II.B and IV of the Plan each require Participants to comply with, and enforce compliance by its members, with the Plan. See Approval Order, 80 FR at 27548, supra note 3. --------------------------------------------------------------------------- A. Proposed Rule 11.27(b) \42\ --------------------------------------------------------------------------- \42\ In its comment letter, FIF expressed its assumption that this proposed rule change would be a template for other Participants that will also have to establish rules for member compliance with the data collection and reporting provisions of the Plan. The FIF emphasized that it was important that the rules of the Participants work together to avoid conflict and noted that the FINRA Data Collection Proposal appeared to be in alignment with the instant proposal. FIF noted that its comment letter sought to raise points specific to this filing, and reinforce other relevant points relevant to this proposal that were previously raised in its comment letter related to File No. SR-FINRA-2015-048 (``FINRA Data Collection Proposal''). See FIF Letter at 1, supra note 5. --------------------------------------------------------------------------- BATS proposes Rule 11.27(b)(1) that provides that a BATS member that operates as a Trading Center must establish, maintain and enforce written policies and procedures that are reasonably designed to meet the requirements under Appendix B.I and B.II of the Plan, and that a BATS member that is a Market Maker must establish, maintain and enforce written policies and procedures that are that are reasonably designed to meet the requirements under Appendix B.IV and C.I of the Plan.\43\ The Commission finds that these provisions are consistent with the Act because they implement provisions of the Plan. --------------------------------------------------------------------------- \43\ In its comment letter, FIF requested verification that there would be no additional requirements for data submission to BATS beyond that which will be reported through FINRA (or another DEA) to cover Appendices B and C. See FIF Letter at 2, supra note 5. BATS noted that its members would not be required to provide additional information to BATS other than that required to be reported to its DEA related to Appendices B and C. See BATS Response Letter at 5, supra note 5. --------------------------------------------------------------------------- BATS proposes Rule 11.27(b)(2), related to trading activity in Pre- Pilot Data Collection Securities and Pilot Securities on a Trading Center operated by the Exchange, to meet the data collection and transmission requirements of Appendix B.I and B.II of the Plan. In its comment letter, FIF expressed confidentiality concerns with respect to the possibility that data made publicly available by BATS could potentially be reverse engineered such that the counterparties of a trade could be identified. FIF stated that because some Pilot Securities are thinly traded by a limited number of market participants the identifying characteristics related to the data, even if unattributed, could be discerned.\44\ FIF stated that great care to ensure confidentiality of detailed information must be taken and requested that the industry be enlisted in the defining the form and content of the data made publicly available on the Participants' Web sites.\45\ BATS, in its response, noted that the Plan, as approved by the Commission, sets forth the requirements for the data that is to be made publicly available by the Participants and the format in which such data shall be made available.\46\ BATS, however, also acknowledged member concerns about data confidentiality and stated its intent to work diligently to ensure that the data is made available consistent with the requirements of the Plan. --------------------------------------------------------------------------- \44\ FIF Letter at 3, supra note 5. \45\ FIF Letter at 3, supra note 5. \46\ BATS Response Letter at 7, supra note 5. --------------------------------------------------------------------------- The Commission notes that the Plan provides for the public dissemination of Tick Size Pilot data but states that ``[t]he data made publicly available shall not identify the trading center that generated the data.'' \47\ The Commission also notes that Participants are scheduled to start collecting data on April 4, 2016, but the Participants have requested not to make the data publicly available until August 30, 2016.\48\ The Commission notes that this could give Participants the opportunity to evaluate the data to determine whether the FIF's concerns related to the disclosure of the identity of Trading Centers exist, and if so whether additional measures are necessary to prevent the disclosure of attributed Trading Center data. The Commission finds that proposed Rule 11.27(b)(2) is consistent with the Act because it implements provisions of the Plan. --------------------------------------------------------------------------- \47\ This requirement is contained in Section VII.A of the Plan. See Approval Order, 80 FR at 27551, supra note 3. \48\ See Exemption Request, supra note 17. The Commission notes that it has granted BATS a limited exemption from Rule 608(c) of Regulation NMS related to this provision. See SEC Exemption Letter, supra note 17. --------------------------------------------------------------------------- BATS proposed Rule 11.27(b)(3) and (b)(4) related, respectively to (i) daily Market Maker participation statistics to meet the data collection and transmission requirements of Appendix B.IV of the Plan and (ii) Market Maker profitability to meet the data collection and transmission requirements for Appendix C.I and C.II of the Plan.\49\ In its comment letter, FIF relayed the concerns related to Exchange access to the disaggregated Market Maker data and the form of its receipt from FINRA before publication under these provisions.\50\ Further, FIF requested clear assurances that such data would not be used for commercial or competitive purposes.\51\ BATS confirmed that it did not intend to use the data collected pursuant to the Plan for commercial or competitive purposes.\52\ --------------------------------------------------------------------------- \49\ In its comment letter, FIF requested confirmation that a firm that becomes a Trading Center or Market Maker during the Pre- Pilot Period or Pilot Period would not have to retroactively provide data. See FIF Letter at 6, supra note 5. BATS, in response, clarified that there would be no retroactive reporting requirement for Trading Centers that become Market Makers during the Pre-Pilot or Pilot Period, and that Market Makers would only need to report data on those days for which they trade as a Registered Market Maker. See BATS Response Letter at 6, supra note 5. \50\ FIF Letter at 3, supra note 5. \51\ FIF Letter at 3, supra note 5. \52\ See BATS Response Letter at 7, supra note 5. --------------------------------------------------------------------------- The Commission finds that proposed Rules 11.27(b)(3) and (b)(4) are consistent with the Act because they will implement provisions of the Plan. Rule 11.27(b)(5) provides that the Exchange will collect and transmit to the SEC daily Market Maker registration statistics under Appendix B.III of the Plan. The Commission finds that this proposal is consistent with the Act because it implements provisions of the Plan and enhances the utility of the Tick Size Pilot data. [[Page 8116]] B. Interpretations and Policies Under Proposed Rule 11.27(b) The Exchange also proposes Interpretations and Policies under proposed Rule 11.27(b) to clarify certain aspects of the data collection requirements in the Plan. The Commission believes that the proposed Interpretations and Policies are consistent with the requirements of the Act, and should further the purpose of the Plan to provide robust, meaningful data that will allow the Commission and the public to evaluate the potential impact of the Tick Size Pilot of the trading and liquidity of Pilot Securities. Further, the proposed Interpretation and Policies should clarify certain aspects of the data collection requirement in the Plan, which in turn could serve to enhance the quality and utility of the Tick Size Pilot data to be collected and analyzed. Proposed Interpretation and Policy .01 clarifies that terms used in the rule shall have the same meaning as provided in the Plan, unless otherwise specified. The Commission believes that this proposed Rule is consistent with the Act as it clarifies the language of the BATS rule. Proposed Interpretation and Policy .02 clarifies reporting obligations with respect to the Retail Investor Orders under Appendix B.II.(n).\53\ As proposed, Trading Centers will only be required to identify those Retail Investor Orders that rely on the exceptions provided in Test Groups Two and Three rather than all orders that may satisfy the Retail Investor Order definition. The Commission finds that this provision is consistent with the Act because it clarifies existing Plan language in a way that maintains the usefulness of the data while also reducing implementation costs.\54\ --------------------------------------------------------------------------- \53\ The Commission notes that FIF reiterated its comment to the FINRA Data Collection Proposal related to the Retail Investor Order flag. See FIF Letter at 4, supra note 5. The Commission believes comments related to OATS are specific to the FINRA Data Collection Proposal. \54\ The Commission notes that it has granted BATS an exemption from Rule 608(c) related to this provision. See SEC Exemption Letter, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .03 proposes to add a reporting field to signify whether the ability of an order to be executed has been affected by LULD bands.\55\ In addition, BATS proposes that Participants will classify all orders Pilot and Pre-Pilot Data Collection Securities that may trade in a foreign market for purposes of Appendix B.II.\56\ The Commission finds that these additional discrete data reporting elements are consistent with the Act. In particular, these provisions should enhance certain Tick Size Pilot data elements and provide guidance to reporting Trading Centers. --------------------------------------------------------------------------- \55\ FIF requested confirmation as to whether FINRA would determine whether the Limit-Up Limit-Down flag is applicable. See FIF Letter at 4, supra note 5. BATS stated that it does not propose to require additional reporting by its members that operate a Trading Center beyond what has already been set forth in OATS Reporting Technical Specifications published by FINRA. \56\ FIF sought confirmation that proposed Interpretation and Policy .03 only applied to Participants, and Trading Centers were not be responsible for providing such information to the Exchange. See FIF Letter at 4, supra note 5. In response, BATS confirmed that was the case. However, BATS noted that Trading Centers would be required to include information regarding orders routed to foreign venues to OATS. See BATS Response Letter at 8, supra note 5. --------------------------------------------------------------------------- Proposed Interpretation and Policy .04 provides that certain data elements should be reported based upon modified time ranges. The proposed rules would add finer increments to the Plan reporting requirements and isolate microsecond and millisecond reporting requirements into separate data elements.\57\ According to the Participants, not all Participants or non-Participant Trading Centers currently capture or report all orders and trades in either microseconds or milliseconds.\58\ --------------------------------------------------------------------------- \57\ In its comment letter, FIF raised concerns about OATS reporting capabilities. See FIF Letter at 5, supra note 5. In response, BATS stated that it understood that a member would not be required to report in an increment of time that is not accepted or permitted by FINRA systems. See BATS Response Letter at 8-9, supra note 5. The Commission believes comments related to OATS are specific to the FINRA Data Collection Filing. \58\ See Exemption Request supra note 17. --------------------------------------------------------------------------- The Commission notes that the proposal merely shifts the time reporting elements into separate reporting lines to accommodate different reporting capabilities.\59\ The data reported under BATS' rule are consistent with the intent of the Plan. Accordingly, the Commission finds that the proposal is consistent with the Act. --------------------------------------------------------------------------- \59\ The Commission notes that it has granted BATS an exemption from Rule 608(c) related to this provision. See SEC Exemption Letter, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .05 sets forth that certain data should be calculated at the time of order receipt instead of the time of order execution as currently set forth by Appendix B.I.a(31)-(33). In the Exemption Request, the Participants suggested that the time of order receipt is more consistent with the goal of observing the effect to the Tick Size Pilot on liquidity.\60\ The Commission finds that the proposal is consistent with the Act because it should make the data more useful for measuring the impact of the Tick Size Pilot.\61\ In addition, the Commission notes that the time of order receipt is used in other rules for which data is calculated, which should lessen the implementation burden for gathering these data elements.\62\ --------------------------------------------------------------------------- \60\ See Exemption Request, supra note 17. \61\ The Commission notes that it has granted BATS an exemption from Rule 608(c) related to this provision. See SEC Exemption Letter, supra note 17. \62\ See e.g. 17 CFR 242.605. --------------------------------------------------------------------------- Proposed Interpretation and Policy .06 clarifies certain reporting obligations under Appendix B by requiring that certain additional order types (i.e., not held orders, auction orders, and clean cross orders) be reported separately in discrete data lines. The Commission believes that this proposed rule is consistent with the Act as it clarifies existing Plan language. The Commission notes that these orders are currently included under Appendix B to the Plan. The Commission believes this provision merely clarifies for reporting purposes how these orders would be identified, which should facilitate reporting and provide for better analysis.\63\ --------------------------------------------------------------------------- \63\ In its comment letter, FIF inquired about the introduction of additional new order types that might result in additional data collection and reporting requirements under the Plan. See FIF Letter at 5, supra note 5. In response, BATS stated that it did not intend to propose any new order types for purposes of the Plan, but that it did anticipate submitting a proposed rule change to amend the operation of certain order types within each Test Group. See BATS Response Letter at 10, supra note 5. --------------------------------------------------------------------------- Proposed Interpretation and Policy .07 sets forth circumstances where the Exchange would not deem a member to be a Trading Center for purposes of Appendix B of the Plan. Specifically, this provision sets forth that members that execute orders over-the-counter for the purpose of correcting bona fide errors of customer orders, purchase securities from customers at a nominal price solely for the purposes of liquidating customers' positions or completing a fractional share portion of an order, would not be considered a Trading Center for purposes of Appendix B of the Plan. The Commission finds that this proposal is consistent with the Act as it further clarifies what is required under the Plan. As noted in the Approval Order, the data requirements are reasonably designed to provide measurable data that should facilitate the ability of the Commission, the public, and market participants to review and analyze the effect of tick size on the trading, liquidity, and market quality of Pilot Securities.\64\ The Commission believes that excluding the discrete trading activity identified above is appropriate [[Page 8117]] and will not harm the usefulness of the data. --------------------------------------------------------------------------- \64\ See Approval Order, supra note 3. --------------------------------------------------------------------------- Proposed Interpretation and Policy .08 sets April 4, 2016 as the date a Trading Center must begin the data collection pursuant to the Plan and sets forth that the Exchange or a Trading Center's DEA must provide information to the SEC within 30 days following month end and make certain data publicly available. In its comment letter, the FIF pointed out a discrepancy as the Notice has language stating that Appendix B and Appendix C data would be published and reported to the SEC by the Exchange or the member's DEA commencing six months prior to the beginning of the Pilot Period but the text of proposed Interpretation and Policy .08 states that such data would be published and reported to the SEC commencing at the beginning of the Pilot Period.\65\ In response, BATS explained that the Participants had submitted the Exemption Request which included a request to delay the initial reporting of data to the Commission to August 30, 2016.\66\ BATS also explained that if the Commission did not grant the request, the Exchange would publish and report the data collected pursuant to Appendix B and C consistent with provisions of the Plan (i.e., six months prior to the beginning of the Pilot Period).\67\ As noted above, pursuant to Rule 608(e) of Regulation NMS,\68\ the Commission has granted BATS a limited exemption from the Plan requirements related to proposed Interpretation and Policy .08.\69\ Accordingly, the Commission believes that this provision is consistent with the Act and reinforces and clarifies important dates and obligations under the Plan. --------------------------------------------------------------------------- \65\ See FIF Letter at 5-6, supra note 5. \66\ See BATS Letter at 5, supra note 5, see also Exemption Request, supra note 17. \67\ See BATS Letter at 5, supra note 5. \68\ 17 CFR 242.608(e). \69\ See SEC Exemption Letter, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .09 specifies the method by which Participants may calculate daily Market Maker realized profitability statistics. Specifically, the provision would allow an alternative methodology that yields a LIFO-like result as opposed to a LIFO-like methodology required under Appendix C.I.(b) under the Plan. The Commission believes that proposed Interpretation and Policy .09 is consistent with the Act because the proposed calculation result will provide measurable data that is consistent with what was originally sought to be captured under the Plan. Therefore, the proposal will continue to allow analysis of the impact of the Tick Size Pilot on Market Maker Profitability.\70\ --------------------------------------------------------------------------- \70\ The Commission notes that it has granted BATS an exemption from Rule 608(c) related to this provision. See SEC Exemption Letter, supra note 17. --------------------------------------------------------------------------- Proposed Interpretation and Policy .10 defines the term ``Pre-Pilot Data Collection Securities'' for purposes of the data collection requirements under the Plan that are required to begin six months before the Pilot Period. Specifically, BATS proposes to expand the number of securities for which data will be collected during the Pre- Pilot Period to help to ensure there is a complete data set for Pilot Securities when the Pilot Period begins on October 3, 2016. In its comment letter, FIF requested information related to how listing exchanges would disclose Pre-Pilot Data Collection Securities and Pilot Securities.\71\ In response, BATS stated that it understood that the primary listing markets, the NYSE and Nasdaq, would publish the lists of Pre-Pilot Data Collection Securities and Pilot Securities listed on their respective exchanges on their Web site. BATS also stated that it understood that FINRA would consolidate and publish all Pre-Pilot Data Collection Securities and Pilot Securities on its Web site.\72\ BATS noted that it does not currently list any securities that are eligible to participate in the Plan, but would promptly publish any such security that became eligible to be a Pre-Pilot Data Collection Securities or Pilot Security on its Web site. --------------------------------------------------------------------------- \71\ See FIF Letter at 2-3, supra note 5. \72\ See BATS Response Letter at 4, supra note 5. --------------------------------------------------------------------------- The Commission finds that the proposal to identify Pre-Pilot Data Collection Securities for which Tick Size Pilot data will be collected during the Pre-Pilot Period is consistent with the Act. The Commission understands that it could be costly for Trading Centers to backfill the data requirements to collect the Pre-Pilot Period data if Trading Centers were forced to wait until the list of Pilot Securities is determined as specified under the Plan. Therefore, BATS proposal to establish a slightly broader universe of securities that likely will be subject to the Tick Size Pilot is reasonable for purposes of collecting data during the Pre-Pilot Period. The Commission believes the proposal should help to ensure that there is a complete data set for Pilot Securities when the Pilot Period commences and should help to reduce the cost and complexity of implementing the data collection requirements. Proposed Interpretation and Policy .11 specifies that the rule's effectiveness shall be contemporaneous with the pilot period. Accordingly, the rule will become effective once the Pre-Pilot Period begins.\73\ The Commission believes that this proposed rule is consistent with the Act and reinforces and clarifies important dates and obligations under the Plan. --------------------------------------------------------------------------- \73\ See also BATS Rule 11.29.08. --------------------------------------------------------------------------- The Commission finds that BATS proposed rules to implement the Tick Size Pilot data collection requirements, including the Interpretations and Policies, are consistent with the Act. The proposal clarifies and implements the data collection requirements set forth in the Plan. V. Solicitation of Comments of Partial Amendment No. 2 Interested persons are invited to submit written data, views, and arguments concerning Partial Amendment No. 2, including whether the proposed rule change, as modified by Partial Amendment No. 2, 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-BATS-2015-102 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-BATS-2015-102. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of [[Page 8118]] 10:00 a.m. and 3:00 p.m. Copies of such 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-BATS-2015-102 and should be submitted on or before March 9, 2016. VI. Accelerated Approval of Proposed Rule Change, as Modified by Partial Amendment No. 2 The Commission finds good cause, pursuant to section 19(b)(2) of the Act, to approve the proposed rule change, as modified by Partial Amendment No. 2, prior to the 30th day after the date of publication of Partial Amendment No. 2 in the Federal Register. Partial Amendment No. 2 amends (1) proposed Rule 11.24(b)(4)(A) by deleting an erroneous cross-reference and replacing the phrase ``pipe-delineated'' with the phrase ``required by their DEA'' and (2) proposed Rule 11.27.03 by replacing the phrase ``dually listed securities'' to ``securities that trade in a foreign market''. The change to proposed Rule 11.24(b)(4)(A) is of a clarifying, technical nature. The change to proposed Interpretation and Policy .03 clarifies that foreign routing information will only be required for securities that trade in a foreign market. The Commission believes that these changes provide greater clarity on the application of the proposal. Accordingly, the Commission finds good cause for approving the proposed rule change, as modified by Partial Amendment No. 2, on an accelerated basis, pursuant to section 19(b)(2) of the Act. IV. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act \74\ that the proposed rule change, as modified by Partial Amendment No. 2 (SR-BATS-2015-102) be, and hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \74\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\75\ Brent J. Fields, Secretary. --------------------------------------------------------------------------- \75\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- [FR Doc. 2016-03128 Filed 2-16-16; 8:45 am] BILLING CODE 8011-01-P
![8112 Federal Register / Vol. 81, No. 31 / Wednesday, February 17, 2016 / Notices
SECURITIES AND EXCHANGE II. Background and clarification of certain data
COMMISSION collection provisions.17
On August 25, 2014, NYSE Group,
Inc., on behalf of BATS Exchange, Inc., III. Description of the Proposed Rule
[Release No. 34–77105; File No. SR–BATS– BATS Y-Exchange, Inc., Chicago Stock Change, as Modified by Partial
2015–102] Amendment No. 2
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., Financial BATS proposes Rule 11.27(b) to
Self-Regulatory Organizations: BATS
Industry Regulatory Authority, Inc., establish the rules necessary for
Exchange Inc.; Notice of Filing of
NASDAQ OMX BX, Inc., NASDAQ compliance with applicable data
Partial Amendment No. 2 and Order
OMX PHLX LLC, the Nasdaq Stock collection and transmission
Granting Accelerated Approval to a
Market LLC (‘‘Nasdaq’’), New York requirements of the Plan. In addition,
Proposed Rule Change, as Modified by
Stock Exchange LLC (‘‘NYSE’’), NYSE proposed Rule 11.27(b) contains
Partial Amendment No. 2, To Adopt
MKT LLC, and NYSE Arca, Inc. Interpretations and Policies designed to
Rule 11.27 Regarding the Data
(collectively ‘‘Participants’’), filed with clarify certain aspects of the data
Collection Requirements of the Tick
the Commission, pursuant to Section collection requirements.
Size Pilot
11A of the Act 8 and Rule 608 of
February 10, 2016. Regulation NMS thereunder,9 the Plan A. Rule Text for Proposed Rule 11.27(b)
to Implement the Tick Size Pilot.10 The The Exchange proposes Rule
I. Introduction Participants filed the Plan to comply 11.27(b) 18 to facilitate compliance with
with an order issued by the Commission the data collection and transmission
On November 13, 2015, BATS
on June 24, 2014.11 The Plan was requirements set forth by Appendices B
Exchange, Inc. (‘‘BATS’’ or ‘‘Exchange’’)
published for comment in the Federal and C of the Plan. Proposed Rule
filed with Securities and Exchange
Register on November 7, 2014,12 and 11.27(b)(1) provides that a BATS
Commission (‘‘SEC’’ or ‘‘Commission’’),
approved by the Commission, as member that operates a Trading
pursuant to section 19(b)(1) of the
modified, on May 6, 2015.13 On Center 19 shall establish, maintain and
Securities Exchange Act (‘‘Act’’) 1 and
November 6, 2015, the Commission enforce written policies and procedures
Rule 19b–4 thereunder,2 a proposed rule
issued an exemption to the Participants that are reasonably designed to comply
change to adopt rules related to the data
from implementing the Plan until with the data collection and
collection requirements set forth in the
October 3, 2016.14 transmission requirements of Items I
Regulation NMS Plan (‘‘Plan’’) to
Implement a Tick Size Pilot Program The Tick Size Pilot is designed to and II to Appendix B of the Plan, and
(‘‘Tick Size Pilot’’).3 The proposed rule allow the Commission, market a BATS member that is a Market Maker
change was published for comment in participants, and the public to study shall establish, maintain and enforce
the Federal Register on December 1, and assess the impact of increment written policies and procedures that are
2015.4 The Commission has received conventions on the liquidity and trading reasonably designed to comply with the
one comment letter in response to the of the common stocks of certain small- data collection and transmission
Notice and a response letter from capitalization companies. Each requirements of Item IV of Appendix B
BATS.5 On January 13, 2016, the Participant is required to comply, and to of the Plan and Item I of Appendix C of
Commission designated a longer period enforce compliance by its members, as the Plan.
for Commission action on the proposal.6 applicable, with the provisions of the Proposed Rule 11.27(b)(2) provides
On February 4, 2016, BATS filed Partial Plan.15 In addition to developing that the Exchange shall collect and
Amendment No. 2 to the proposal.7 This quoting and trading requirements for the transmit to the SEC the data described
order approves the proposed rule Tick Size Pilot, the Plan requires in Items I and II of Appendix B of the
change, as modified by Partial Participants to collect and submit to the Plan relating to trading activity in Pre-
Amendment No. 2. Commission a variety of data, including
market quality statistics and market 17 FINRA, on behalf of the Plan Participants
1 15 U.S.C. 78s(b)(1). maker participation statistics and submitted a letter to Commission requesting
2 17 profitability data.16 BATS has filed the exemption from certain provisions of the Plan
CFR 240.19b–4. related to data collection. See letter from Marcia E.
3 See Securities Exchange Act Release No. 74892 proposed rule change, as modified by Asquith, Senior Vice President and Corporate
(May 6, 2015), 80 FR 27513 (May 13, 2015) (order Partial Amendment No. 2, to require its Secretary, FINRA dated December 9, 2015 to Robert
approving the Tick Size Pilot) (‘‘Approval Order’’). members to comply with the applicable W. Errett, Deputy Secretary, Commission
4 See Securities Exchange Act Release No. 76524
data collection requirements of the Plan (‘‘Exemption Request’’). The Commission, pursuant
(November 25, 2015), 80 FR 75141 (‘‘Notice’’). to its authority under Rule 608(e) of Regulation
5 See Letters from Mary Lou Von Kaenel, and to provide interpretive guidance NMS, has granted BATS a limited exemption from
Managing Director, Financial Information Forum the requirement to comply with certain provisions
dated December 4, 2015, to Robert W. Errett, Deputy 8 15 U.S.C. 78k–1. of the Plan as specified in the letter and noted
Secretary, Commission (‘‘FIF Letter’’), and Chris 9 17 CFR 242.608. herein. See letter from David Shillman, Associate
Solgan, Associate General Counsel, BATS 10 See Letter from Brendon J. Weiss, Vice Director, Division of Trading and Markets,
Exchange, Inc. dated February 1, 2015 to Brent J. Commission to Eric Swanson, General Counsel,
President, Intercontinental Exchange, Inc., to
Fields, Secretary, Commission (‘‘BATS Response BATS, dated February 10, 2016 (‘‘SEC Exemption
Secretary, Commission, dated August 25, 2014.
Letter’’). 11 See Securities Exchange Act Release No. 72460
Letter’’).
6 See Securities Exchange Act Release No. 76891, 18 BATS has proposed Rule 11.27(a) to establish
(June 24, 2014), 79 FR 36840 (June 30, 2014).
81 FR 3218 (January 20, 2016). rules related to the quoting and trading
asabaliauskas on DSK5VPTVN1PROD with NOTICES
12 See Securities Exchange Act Release No. 73511
7 In Partial Amendment No. 2, BATS amends (1) requirements of the Plan. See Securities Exchange
(November 3, 2014), 79 FR 66423. Act Release No. 76552 (December 3, 2015), 80 FR
proposed Rule 11.24(b)(4)(A) by deleting an 13 See Approval Order, supra note 3.
erroneous cross-reference and replacing the phrase 76591 (December 9, 2015). On January 21, 2016, the
14 See Securities Exchange Act Release No. 76382,
‘‘pipe-delineated’’ with the phrase ‘‘required by Commission extended the period for Commission
their DEA’’ and (2) proposed Rule 11.27.03 by 80 FR 70284 (November 13, 2015). action to March 8, 2016. See Securities Exchange
15 Rule 608(c) of Regulation NMS. 17 CFR Release Act No. 76945, 81 FR 4734 (January 27,
replacing the phrase ‘‘dually listed securities’’ with
‘‘securities that trade in a foreign market.’’ On 242.608(c). See also Plan Sections II.B. and IV. 2016).
February 1, 2016, BATS filed Partial Amendment 16 The data collection requirements for the Plan 19 Capitalized terms used in this Order are
No. 1 to the proposal and subsequently withdrew are specified in Appendices B and C. See Approval defined in the Plan, unless otherwise specified
Partial Amendment No. 1. Order, 80 FR at 27552—53, supra note 3. herein.
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![Federal Register / Vol. 81, No. 31 / Wednesday, February 17, 2016 / Notices 8115
approach to evaluate whether certain policies and procedures that are that are available until August 30, 2016.48 The
changes to the market structure for Pilot reasonably designed to meet the Commission notes that this could give
Securities would be consistent with the requirements under Appendix B.IV and Participants the opportunity to evaluate
Commission’s mission to protect C.I of the Plan.43 The Commission finds the data to determine whether the FIF’s
investors, maintain fair, orderly, and that these provisions are consistent with concerns related to the disclosure of the
efficient markets, and facilitate capital the Act because they implement identity of Trading Centers exist, and if
formation.38 As discussed below, the provisions of the Plan. so whether additional measures are
Commission believes that BATS’s BATS proposes Rule 11.27(b)(2), necessary to prevent the disclosure of
proposal is consistent with the related to trading activity in Pre-Pilot attributed Trading Center data. The
requirements of the Act, and would Data Collection Securities and Pilot Commission finds that proposed Rule
further the purpose of the Plan to Securities on a Trading Center operated
11.27(b)(2) is consistent with the Act
provide measurable data. by the Exchange, to meet the data
BATS, as a Participant in the Plan, because it implements provisions of the
collection and transmission
has an obligation to comply, and enforce requirements of Appendix B.I and B.II Plan.
compliance by its members, with the of the Plan. In its comment letter, FIF BATS proposed Rule 11.27(b)(3) and
terms of the Plan. Rule 608(c) of expressed confidentiality concerns with (b)(4) related, respectively to (i) daily
Regulation NMS provides that ‘‘[e]ach respect to the possibility that data made Market Maker participation statistics to
self-regulatory organization shall publicly available by BATS could meet the data collection and
comply with the terms of any effective potentially be reverse engineered such transmission requirements of Appendix
national market system plan of which it that the counterparties of a trade could B.IV of the Plan and (ii) Market Maker
is a sponsor or participant. Each self- be identified. FIF stated that because profitability to meet the data collection
regulatory organization also shall, some Pilot Securities are thinly traded and transmission requirements for
absent reasonable justification or by a limited number of market Appendix C.I and C.II of the Plan.49 In
excuse, enforce compliance with any participants the identifying its comment letter, FIF relayed the
such plan by its members and persons characteristics related to the data, even concerns related to Exchange access to
associated with its members.’’ 39 BATS if unattributed, could be discerned.44
proposed Rule 11.27(b) would impose the disaggregated Market Maker data
FIF stated that great care to ensure and the form of its receipt from FINRA
compliance obligations on its members confidentiality of detailed information
with the data collection requirements before publication under these
must be taken and requested that the provisions.50 Further, FIF requested
set forth in Appendices B and C to the industry be enlisted in the defining the
Plan. The Commission also believes the clear assurances that such data would
form and content of the data made
proposal is consistent with the Act not be used for commercial or
publicly available on the Participants’
because it is designed to assist BATS in competitive purposes.51 BATS
Web sites.45 BATS, in its response,
meeting its regulatory obligations confirmed that it did not intend to use
noted that the Plan, as approved by the
pursuant to and Rule 608(c) of the data collected pursuant to the Plan
Commission, sets forth the requirements
Regulation NMS 40 and the Plan.41 for the data that is to be made publicly for commercial or competitive
available by the Participants and the purposes.52
A. Proposed Rule 11.27(b) 42
format in which such data shall be made The Commission finds that proposed
BATS proposes Rule 11.27(b)(1) that Rules 11.27(b)(3) and (b)(4) are
available.46 BATS, however, also
provides that a BATS member that
acknowledged member concerns about consistent with the Act because they
operates as a Trading Center must
data confidentiality and stated its intent will implement provisions of the Plan.
establish, maintain and enforce written
to work diligently to ensure that the Rule 11.27(b)(5) provides that the
policies and procedures that are
data is made available consistent with Exchange will collect and transmit to
reasonably designed to meet the
the requirements of the Plan. the SEC daily Market Maker registration
requirements under Appendix B.I and The Commission notes that the Plan
B.II of the Plan, and that a BATS statistics under Appendix B.III of the
provides for the public dissemination of
member that is a Market Maker must Plan. The Commission finds that this
Tick Size Pilot data but states that ‘‘[t]he
establish, maintain and enforce written data made publicly available shall not proposal is consistent with the Act
identify the trading center that because it implements provisions of the
38 See Approval Order, 80 FR at 27515–16, supra
generated the data.’’ 47 The Commission Plan and enhances the utility of the Tick
note 3. Size Pilot data.
39 17 CFR 242.608(c). also notes that Participants are
40 17 CFR 242.608(c). scheduled to start collecting data on 48 See Exemption Request, supra note 17. The
41 Sections II.B and IV of the Plan each require April 4, 2016, but the Participants have Commission notes that it has granted BATS a
Participants to comply with, and enforce requested not to make the data publicly limited exemption from Rule 608(c) of Regulation
compliance by its members, with the Plan. See NMS related to this provision. See SEC Exemption
Approval Order, 80 FR at 27548, supra note 3. 43 In its comment letter, FIF requested verification Letter, supra note 17.
42 In its comment letter, FIF expressed its
49 In its comment letter, FIF requested
that there would be no additional requirements for
assumption that this proposed rule change would confirmation that a firm that becomes a Trading
data submission to BATS beyond that which will
be a template for other Participants that will also Center or Market Maker during the Pre-Pilot Period
be reported through FINRA (or another DEA) to
have to establish rules for member compliance with
cover Appendices B and C. See FIF Letter at 2, or Pilot Period would not have to retroactively
the data collection and reporting provisions of the
supra note 5. BATS noted that its members would provide data. See FIF Letter at 6, supra note 5.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Plan. The FIF emphasized that it was important that
not be required to provide additional information BATS, in response, clarified that there would be no
the rules of the Participants work together to avoid
to BATS other than that required to be reported to retroactive reporting requirement for Trading
conflict and noted that the FINRA Data Collection
its DEA related to Appendices B and C. See BATS Centers that become Market Makers during the Pre-
Proposal appeared to be in alignment with the
Response Letter at 5, supra note 5. Pilot or Pilot Period, and that Market Makers would
instant proposal. FIF noted that its comment letter 44 FIF Letter at 3, supra note 5. only need to report data on those days for which
sought to raise points specific to this filing, and
reinforce other relevant points relevant to this
45 FIF Letter at 3, supra note 5. they trade as a Registered Market Maker. See BATS
proposal that were previously raised in its comment 46 BATS Response Letter at 7, supra note 5. Response Letter at 6, supra note 5.
47 This requirement is contained in Section VII.A 50 FIF Letter at 3, supra note 5.
letter related to File No. SR–FINRA–2015–048
51 FIF Letter at 3, supra note 5.
(‘‘FINRA Data Collection Proposal’’). See FIF Letter of the Plan. See Approval Order, 80 FR at 27551,
at 1, supra note 5. supra note 3. 52 See BATS Response Letter at 7, supra note 5.
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![8118 Federal Register / Vol. 81, No. 31 / Wednesday, February 17, 2016 / Notices
10:00 a.m. and 3:00 p.m. Copies of such SECURITIES AND EXCHANGE reporting burden under rule 607 relates
filing also will be available for COMMISSION to the burden associated with filing its
inspection and copying at the principal sales material electronically. The
office of the Exchange. All comments Proposed Collection; Comment burden of filing electronically, however,
received will be posted without change; Request is negligible and there have been no
the Commission does not edit personal Upon Written Request, Copies Available filings made under this rule, so this
identifying information from From: Securities and Exchange collection of information does not
submissions. You should submit only Commission, Office of FOIA Services, impose any burden on the industry.
information that you wish to make 100 F Street NE., Washington, DC However, we are requesting one annual
available publicly. All submissions 20549–2736. response and an annual burden of one
should refer to File Number SR–BATS– hour for administrative purposes. The
2015–102 and should be submitted on Extension: estimate of average burden hours is
Rule 607, SEC File No. 270–561, OMB
or before March 9, 2016. Control No. 3235–0634, Request for a
made solely for purposes of the
New OMB Control No. Paperwork Reduction Act and is not
VI. Accelerated Approval of Proposed
derived from a quantitative,
Rule Change, as Modified by Partial Notice is hereby given that, pursuant comprehensive, or even representative
Amendment No. 2 to the Paperwork Reduction Act of 1995 survey or study of the burdens
(44 U.S.C. 3501 et seq.), the Securities associated with Commission rules and
The Commission finds good cause, and Exchange Commission (the
pursuant to section 19(b)(2) of the Act, forms.
‘‘Commission’’) is soliciting comments The requirements of this collection of
to approve the proposed rule change, as on the collection of information
modified by Partial Amendment No. 2, information are mandatory. Responses
summarized below. The Commission will not be kept confidential. An agency
prior to the 30th day after the date of plans to submit this existing collection
publication of Partial Amendment No. 2 may not conduct or sponsor, and a
of information to the Office of person is not required to respond to a
in the Federal Register. Partial Management and Budget for extension
Amendment No. 2 amends (1) proposed collection of information unless it
and approval. displays a currently valid control
Rule 11.24(b)(4)(A) by deleting an Regulation E (17 CFR 230.601 to
erroneous cross-reference and replacing number.
230.610a) exempts from registration
the phrase ‘‘pipe-delineated’’ with the under the Securities Act of 1933 (15 Written comments are invited on: (a)
phrase ‘‘required by their DEA’’ and (2) U.S.C. 77a et seq.) (‘‘Securities Act’’) Whether the proposed collection of
proposed Rule 11.27.03 by replacing the securities issued by a small business information is necessary for the proper
phrase ‘‘dually listed securities’’ to investment company (‘‘SBIC’’) which is performance of the functions of the
‘‘securities that trade in a foreign registered under the Investment agency, including whether the
market’’. Company Act of 1940 (15 U.S.C. 80a–1 information will have practical utility;
The change to proposed Rule et seq.) (‘‘Investment Company Act’’) or (b) the accuracy of the agency’s estimate
11.24(b)(4)(A) is of a clarifying, a closed-end investment company that of the burden of the collection of
technical nature. The change to has elected to be regulated as a business information; (c) ways to enhance the
proposed Interpretation and Policy .03 development company (‘‘BDC’’) under quality, utility, and clarity of the
clarifies that foreign routing information the Investment Company Act, so long as information collected; and (d) ways to
will only be required for securities that the aggregate offering price of all minimize the burden of the collection of
trade in a foreign market. The securities of the issuer that may be sold information on respondents, including
Commission believes that these changes within a 12-month period does not through the use of automated collection
provide greater clarity on the exceed $5,000,000 and certain other techniques or other forms of information
application of the proposal. conditions are met. Rule 607 under technology. Consideration will be given
Accordingly, the Commission finds Regulation E (17 CFR 230.607) entitled, to comments and suggestions submitted
good cause for approving the proposed ‘‘Sales material to be filed,’’ requires in writing within 60 days of this
rule change, as modified by Partial sales material used in connection with publication.
Amendment No. 2, on an accelerated securities offerings under Regulation E Please direct your written comments
basis, pursuant to section 19(b)(2) of the to be filed with the Commission at least to Pamela Dyson, Director/Chief
Act. five days (excluding weekends and Information Officer, Securities and
holidays) prior to its use.1 Commission Exchange Commission, C/O Remi
IV. Conclusion Pavlik-Simon, 100 F Street NE.,
staff reviews sales material filed under
rule 607 for materially misleading Washington, DC 20549; or send an email
It is therefore ordered, pursuant to
statements and omissions. The to: PRA_Mailbox@sec.gov.
section 19(b)(2) of the Act 74 that the
proposed rule change, as modified by requirements of rule 607 are designed to Dated: February 10, 2016.
Partial Amendment No. 2 (SR–BATS– protect investors from the use of false or Brent J. Fields,
2015–102) be, and hereby is, approved misleading sales material in connection Secretary.
on an accelerated basis. with Regulation E offerings. [FR Doc. 2016–03114 Filed 2–16–16; 8:45 am]
Respondents to this collection of
For the Commission, by the Division of BILLING CODE 8011–01–P
information include SBICs and BDCs
Trading and Markets, pursuant to delegated
asabaliauskas on DSK5VPTVN1PROD with NOTICES
authority.75 making an offering of securities under
Regulation E. Each respondent’s
Brent J. Fields,
Secretary. SMALL BUSINESS ADMINISTRATION
1 Sales material includes advertisements, articles
[FR Doc. 2016–03128 Filed 2–16–16; 8:45 am] or other communications to be published in
newspapers, magazines, or other periodicals; radio
National Small Business Development
BILLING CODE 8011–01–P
and television scripts; and letters, circulars or other Center Advisory Board
written communications proposed to be sent given
74 15 U.S.C. 78s(b)(2). or otherwise communicated to more than ten AGENCY:U.S. Small Business
75 17 CFR 200.30–3(a)(12). persons. Administration (SBA).
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Document Created: 2016-02-17 01:16:37
Document Modified: 2016-02-17 01:16:37
| 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 8112 |
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