81 FR 8806 - Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Adopt an Early Trading Session and Three New Time-in-Force Instructions

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 34 (February 22, 2016)

Page Range		8806-8812
FR Document		2016-03525

Federal Register, Volume 81 Issue 34 (Monday, February 22, 2016)

[Federal Register Volume 81, Number 34 (Monday, February 22, 2016)]
[Notices]
[Pages 8806-8812]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-03525]

[[Page 8806]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77142; File No. SR-EDGX-2016-06]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change, as Modified by Amendment No. 1
Thereto, To Adopt an Early Trading Session and Three New Time-in-Force
Instructions

February 16, 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 February 2, 2016, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. On
February 12, 2016, the Exchange filed Amendment No.1 to the proposed
rule change.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange noted that it would subject
orders that are eligible for execution as of the start of the Pre-
Opening Session to all of the Exchange's standard regulatory checks,
including compliance with Regulation NMS, Regulation SHO, as well as
other relevant Exchange rules.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange filed a proposal to amend its rules to: (i) Create a
new trading session to be known as the Early Trading Session, which
will run from 7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three
new Time-in-Force (``TIF'') instructions.\4\
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\4\ The Exchange notes that its affiliates, BATS Exchange, Inc,
(``BZX'') and BATS Y-Exchange, Inc. (``BYX'') also intend to file
proposed rule changes with the Commission to amend their rules to
also: (i) Create a new trading session to be known as the Early
Trading Session, which will run from 7:00 a.m. to 8:00 a.m. Eastern
Time; and (ii) adopt identical TIF instructions.. The Exchange
further notes that the proposed rule change would operate in an
identical manner to that proposed by BZX and BYX and the language of
the BZX, BYX and Exchange Rules would differ to the extent necessary
to conform with existing Exchange rule text or to account for
details or descriptions included in the Exchange Rules but not
currently included in BZX or BYX rules based on the current
structure of such rules.
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The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.

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

1. Purpose
The Exchange proposes to amend its rules to: (i) Create a new
trading session to be known as the Early Trading Session, which will
run from 7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three new
TIF instructions.
Early Trading Session
The Exchange trading day is currently divided into three sessions
of which a User \5\ may select their order(s) be eligible for
execution: (i) The Pre-Opening Session which starts at 8:00 a.m. and
ends at 9:30 a.m. Eastern Time; (ii) Regular Trading Hours which runs
from 9:30 a.m. to 4:00 p.m. Eastern Time; and (iii) the Post-Closing
Session, which runs from 4:00 p.m. to 8:00 p.m. Eastern Time. The
Exchange proposes to amend its rules to create a new trading session to
be known as the Early Trading Session, which will run from 7:00 a.m. to
8:00 a.m. Eastern Time.\6\ Exchange Rule 1.5 would be amended to add a
new definition for the term ``Early Trading Session'' under new
paragraph (ii). ``Early Trading Session'' would be defined as ``the
time between 7:00 a.m. and 8:00 a.m. Eastern Time.''\7\
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\5\ ``User'' is defined as ``any Member or Sponsored Participant
who is authorized to obtain access to the System pursuant to Rule
11.3.'' See Exchange Rule 1.5(ee).
\6\ The Exchange notes that NYSE Arca, Inc. (``NYSE Arca'')
operates an Opening Session that starts at 4:00 a.m. Eastern Time
(1:00 a.m. Pacific Time) and ends at 9:30 a.m. Eastern Time (6:30
a.m. Pacific Time). See NYSE Arca Rule 7.34(a)(1). The Nasdaq Stock
Market LLC (``Nasdaq'') operates a pre-market session that also
opens at 4:00 a.m. and ends at 9:30 a.m. Eastern Time. See Nasdaq
Rule 4701(g). See also Securities Exchange Act Release No. 69151
(March 15, 2013), 78 FR 17464 (March 21, 2013) (SR-Nasdaq-2013-033)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to Extend the Pre-Market Hours of the Exchange to 4:00 a.m.
EST).
\7\ An Exchange having bifurcated after hours trading sessions
is not novel. For example, the Chicago Stock Exchange, Inc.
(``CHX'') maintains two after hours trading sessions. See CHX
Article 20, Rule 1(b). See also Securities Exchange Act Release No.
60605 (September 1, 2009), 74 FR 46277 (September 8, 2009) (SR-CHX-
2009-13) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Adding Additional Trading Sessions).
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The Exchange also proposes to amend Rule 11.1(a) to account for the
Early Trading Session starting at 7:00 a.m. Eastern Time. Other than
the proposal to adopt an Early Trading Session starting at 7:00 a.m.
Eastern Time, the Exchange does not propose to amend the substance or
operation of Rule 11.1(a).
Users currently designate when their orders are eligible for
execution by selecting the desired TIF instruction under Exchange Rule
11.6(q). Orders entered between 6:00 a.m. and 8:00 a.m. Eastern Time
are not eligible for execution until the start of the Pre-Opening
Session, or Regular Trading Hours,\8\ depending on the TIF selected by
the User. Users may enter orders in advance of the trading session they
intend the order to be eligible for. For example, Users may enter
orders starting at 6:00 a.m. Eastern Time with a TIF of Regular Hours
Only, which designates that the order only be eligible for execution
during Regular Trading Hours.\9\ As stated above, Users may enter
orders as early as 6:00 a.m. Eastern Time, but those orders would not
be eligible for execution until the start of the Pre-Opening Session at
8:00 a.m. Some Users have requested the ability for their orders to be
eligible for execution starting at 7:00 a.m. Eastern Time. Therefore,
the Exchange is proposing to adopt the Early Trading Session as
discussed herein.
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\8\ ``Regular Trading Hours'' is defined as ``the time between
9:30 a.m. and 4:00 p.m. Eastern Time.'' See Exchange Rule 1.5(y).
\9\ See Exchange Rule 11.6(q)(6).
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Order entry and execution during the Early Trading Session would
operate in the same manner as it does during the Pre-Opening Session.
As amended, Exchange Rule 11.1(a)(1) would state that orders entered
between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and
8:00 a.m. Eastern Time, would not be eligible for execution until the
start of the Early Trading Session, Pre-Opening Session, or Regular
Trading Hours, depending on the TIF selected by the User. Exchange Rule
11.1(a)(1) will also be amended to state that the Exchange will not
accept the following orders prior to 7:00 a.m. Eastern Time, rather
than 8:00 a.m.: Orders with a Post Only instruction,\10\ Intermarket
Sweep Orders (``ISOs''),\11\

[[Page 8807]]

Market Orders \12\ with a TIF other than Regular Hours Only, orders
with a Minimum Execution Quantity instruction \13\ that also include a
TIF of Regular Hours Only, and all orders with a TIF instruction of
Immediate-or-Cancel (``IOC'') \14\ or Fill-or-Kill (``FOK'').\15\ At
the commencement of the Early Trading Session, orders entered between
6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 a.m. and 8:00
a.m. Eastern Time, will be handled in time sequence, beginning with the
order with the oldest time stamp, and will be placed on the EDGX
Book,\16\ routed, cancelled, or executed in accordance with the terms
of the order. As amended, Rule 11.1(a) would state that orders may be
executed on the Exchange or routed away from the Exchange during
Regular Trading Hours and during the Early Trading, Pre-Opening,
Regular and Post Closing Sessions.
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\10\ See Exchange Rule 11.6(n)(4).
\11\ See Exchange Rule 11.8(c).
\12\ See Exchange Rule 11.8(a).
\13\ See Exchange Rule 11.6(h).
\14\ See Exchange Rule 11.6(q)(1).
\15\ See Exchange Rule 11.6(q)(3).
\16\ See Exchange Rule 1.5(d).
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Operations. From the Members' operational perspective, the
Exchange's goal is to permit trading for those that choose to trade,
without imposing burdens on those that do not. Thus, for example, the
Exchange will not require any Member to participate in the Early
Trading Session, including not requiring registered market makers to
make two-sided markets between 7:00 a.m. and 8:00 a.m., just as it does
not require such participation between 8:00 a.m. and 9:30 a.m.\17\ The
Exchange will minimize Members' preparation efforts to the greatest
extent possible by allowing Members to trade beginning at 7:00 a.m.
with the same equipment, connectivity, order types, and data feeds they
currently use from 8:00 a.m. onwards.
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\17\ See Exchange Rule 11.20(d)(2) (stating that for NMS stocks
(as defined in Rule 600 under Regulation NMS) a Market Maker shall
adhere to the pricing obligations established by this Rule during
Regular Trading Hours).
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Opening Process. The Exchange will offer no opening process at 7:00
a.m., just as it offers no opening process at 8:00 a.m. today. Instead,
at 7:00 a.m., the System will ``wake up'' by loading in price/time
priority all open trading interest entered after 6:00 a.m.\18\ Also at
7:00 a.m., the Exchange will open the execution system and accept new
eligible orders, just as it currently does at 8:00 a.m. Members will be
permitted to enter orders beginning at 6:00 a.m. Market Makers will be
permitted but not required to open their quotes beginning at 7:00 a.m.
in the same manner they open their quotes today beginning at 8:00 a.m.
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\18\ See Exchange Rule 11.1(a)(1).
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Order Types. Every order type that is currently available beginning
at 8:00 a.m. will be available beginning at 7:00 a.m.\19\ All other
order types, and all order type behaviors, will otherwise remain
unchanged. The Exchange will not extend the expiration times of any
orders. For example, an order that is currently available from 8:00
a.m. to 4:00 p.m. will be modified to be available from 7:00 a.m. to
4:00 p.m. An order that is available from 8:00 a.m. to 9:30 a.m. will
be modified to be available from 7:00 a.m. to 9:30 a.m. Users must
continue to enter a TIF instruction along with their order to indicate
when the order is eligible for execution.\20\
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\19\ Id.
\20\ Id.
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Routing Services. The Exchange will route orders to away markets
between 7:00 a.m. and 8:00 a.m., just as it does today between 8:00
a.m. and 9:30 a.m.\21\ All routing strategies set forth in Exchange
Rule 11.11 will remain otherwise unchanged, performing the same
instructions they perform between 7:00 a.m. and 8:00 a.m. today.\22\
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\21\ Id.
\22\ See Exchange Rule 11.11 (Routing to Away Trading Centers).
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Order Processing. Order processing will operate beginning at 7:00
a.m. just as it does today beginning at 8:00 a.m. There will be no
changes to the ranking, display, and execution processes or rules.
Data Feeds. The Exchange will report the best bid and offer on the
Exchange to the appropriate network processor, as it currently does
beginning 8:00 a.m.\23\ The Exchange's proprietary data feeds will be
disseminated beginning at 7:00 a.m. using the same formats and delivery
mechanisms with which the Exchange currently disseminates them
beginning at 8:00 a.m.
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\23\ See Exchange Rule 11.12 (Trade Reporting).
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Trade Reporting. Trades executed between 7:00 a.m. and 8:00 a.m.
will be reported to the appropriate network processor with the ``.T''
modifier, just as they are reported today between at 8:00 a.m. and 9:30
a.m.\24\
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\24\ Id.
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Market Surveillance. The Exchange's commitment to high-quality
regulation at all times will extend to 7:00 a.m. The Exchange will
offer all surveillance coverage currently performed by the Exchange's
surveillance systems, which will launch by the time trading starts at
7:00 a.m.
Clearly Erroneous Trade Processing. The Exchange will process trade
breaks beginning at 7:00 a.m. pursuant to Exchange Rule 11.15, just as
it does today beginning at 8:00 a.m.
Related changes to Rules 3.21, 11.8, 11.10, 11.15, 14.1, 14.2 and
14.3. The Exchange proposes to also make the following changes to Rules
3.21, 11.8, 11.10, 11.15, 14.1, 14.2 and 14.3 to reflect the adoption
of the Early Trading Session:
Rule 3.21, Customer Disclosures. In sum, Exchange Rule
3.21 prohibits Members from accepting an order from a customer for
execution in the Pre-Opening or Post-Closing Session without disclosing
to their customer that extended hours trading involves material trading
risks, including the possibility of lower liquidity, high volatility,
changing prices, unlinked markets, an exaggerated effect from news
announcements, wider spreads and any other relevant risk. The Exchange
proposes to amend Rule 3.21 to include the Early Trading Session as
part of the Member's required disclosures to their customers.
Rule 11.8, Orders and Modifiers. The Exchange proposes to
amend the description of Limit Orders under Rule 11.8(b), ISOs under
Rule 11.8(c), MidPoint Peg Orders under Rule 11.8(d), and Supplemental
Peg Orders under Rule 11.8(f) to account for the Early Trading
Session.\25\ As stated above, every order type that is currently
available beginning at 8:00 a.m. will be available beginning at 7:00
a.m. for inclusion in the Early Trading Session.\26\ All other order
types, and all order type behaviors, will otherwise remain unchanged.
Therefore, but for Market Orders under Rule 11.8(a) and Market Maker
Peg Orders under Rule 11.8(e), each of the above rules for Limit
Orders, ISOs, MidPoint Peg Orders, and Supplemental Peg Orders would be
amended to state that those orders types are available during the Early
Trading Session. Market Orders and Market Maker Peg Orders would not be
eligible for execution during the Early Trading Session. Market Orders
are only eligible for execution during the Regular Session.\27\ Market
Maker Peg Orders may currently be submitted to the Exchange starting at
the beginning of the Pre-Opening Session, but the order will

[[Page 8808]]

not be executable or automatically priced until the beginning of
Regular Trading Hours [sic]. Rule 11.8(e)(7) would be amended to state
that Market Maker Peg Orders may be submitted to the Exchange starting
at the beginning of the Early Trading Session. Market Maker Peg Orders
would continue to not be executable or automatically priced until after
the first regular way transaction on the listing exchange in the
security, as reported by the responsible single plan processor.
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\25\ The Exchange notes that the proposed rule change would
operate in an identical manner to that proposed in SR-BATS-2016-01
and the language of the BATS and Exchange Rules differ to [sic]
extent necessary to conform with existing Exchange rule text or to
account for details or descriptions included in the Exchange Rules
but not currently included in BATS rules based on the current
structure of such rules. See supra note 4.
\26\ See proposed amendments to Exchange Rule 11.1(a).
\27\ See Exchange Rule 11.8(a)(5).
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Rule 11.10, Order Execution and Routing. Exchange Rule
11.10(a)(2) discusses compliance with Regulation NMS and Trade Through
Protections and states that the price of any execution occurring during
the Pre-Opening Session or the Post-Closing Session must be equal to or
better than the highest Protected Bid or lowest Protected Offer, unless
the order is marked ISO or a Protected Bid is crossing a Protected
Offer. The Exchange proposes to amend Rule 11.10(a)(2) to expand the
rule's requirements to the Early Trading Session.
Rule 11.15, Clearly Erroneous Executions. Exchange Rule
11.15 outlines under which conditions the Exchange may determine that
an execution is clearly erroneous. The Exchange proposes to amend Rule
11.15 to include executions that occur during the Early Trading
Session. Exchange Rule 11.15(c)(1) sets forth the numerical guidelines
the Exchange is to follow when determining whether an execution was
clearly erroneous during Regular Trading Hours or the Pre-Opening or
Post-Closing Trading Session. Exchange Rule 11.15(c)(3) sets forth
additional factors the Exchange may consider in determining whether a
transaction is clearly erroneous. These factors include Pre-Opening and
Post-Closing Trading Session executions. The Exchange proposes to amend
Rule 11.15(c)(1) and (3) to include executions occurring during the
Early Trading Session.
Rule 14.1, Unlisted Trading Privileges. The Exchange
proposes to amend Rules 14.1(c)(2), and Interpretation and Policies
.01(a) and (b) to account for the proposed Early Trading Session.
Specifically, the Exchange proposes to amend paragraph (c)(2) to state
that an information circular distributed by the Exchange prior to the
commencement of trading of a UTP Derivative Security \28\ will include
the risk of trading during the Early Trading Session, in addition to
the Pre-Opening Session and Post-Closing Trading Session. In addition,
the Exchange proposes to amend Interpretation and Policies .01(a) to
add Early Trading Session to the paragraph's title and to state that if
a UTP Derivative Security begins trading on the Exchange in the Early
Trading Session or Pre-Opening Session and subsequently a temporary
interruption occurs in the calculation or wide dissemination of the
Intraday Indicative Value (``IIV'') or the value of the underlying
index, as applicable, to such UTP Derivative Security, by a major
market data vendor, the Exchange may continue to trade the UTP
Derivative Security for the remainder of the Early Trading Session and
Pre-Opening Session. Lastly, the Exchange proposes to amend
Interpretation and Policies .01(b) to add Early Trading Session to the
paragraph's title and to amend subparagraph (2) of that section to
state that if the IIV or the value of the underlying index continues
not to be calculated or widely available as of the commencement of the
Early Trading Session or Pre-Opening Session on the next business day,
the Exchange shall not commence trading of the UTP Derivative Security
in the Early Trading Session or Pre-Opening Session that day.
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\28\ See Exchange Rule 14.1(c).
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Rule 14.2, Investment Company Units. The Exchange proposes
to amend Rule 14.2(g) to state that transactions in Investment Company
Units may occur during the Early Trading Session, in addition to during
Regular Trading Hours and the Pre-Opening and Post Closing Sessions.
Rule 14.3, Trust Issued Receipts. The Exchange proposes to
amend Rule 14.3(d) to state that transactions in Trust Issued Receipts
may occur during the Early Trading Session, in addition to during
Regular Trading Hours and the Pre-Opening and Post-Closing Sessions.
TIF Instructions
The Exchange proposes to adopt three new TIF instructions under
Rule 11.6(q).\29\ Under Rule 11.1(a)(1), a User may designate when
their order is eligible for execution by selecting the desired TIF
instruction under Exchange Rule 11.6(q). Currently, orders entered
between 6:00 a.m. and 8:00 a.m. Eastern Time are not eligible for
execution until the start of the Pre-Opening Session, or Regular
Trading Hours, depending on the TIF selected by the User. Users may
enter orders in advance of the trading session they intend the order to
be eligible for. For example, Users may enter orders starting at 6:00
a.m. Eastern Time with a TIF of Regular Hours Only, which designates
that the order only be eligible for execution during Regular Trading
Hours.\30\ As stated above, Users may enter orders as early as 6:00
a.m. Eastern Time, but those orders would not be eligible for execution
until the start of the Pre-Opening Session at 8:00 a.m.
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\29\ The Exchange also proposes to amend the descriptions of GTD
under Rule 11.6(q)(4) and GTX under Rule 11.6(q)(5) to replace
incorrect references to the Post-Market Session with Post-Closing
Session, as Post-Closing Session is the correct defined term under
Exchange Rule 1.5(r).
\30\ See Exchange Rule 11.6(q)(6).
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As discussed above, the Exchange proposed the Early Trading Session
in response to User requests for their orders to be eligible for
execution starting at 7:00 a.m. Eastern Time. Some Users, however, do
not wish for their orders to be executed during the Early Trading
Session and have requested their orders continue to not be eligible for
execution until the start of the Pre-Opening Session at 8:00 a.m.
Therefore, the Exchange proposes to adopt the following three new TIF
instructions under Rule 11.6(q):
Pre-Opening Session Plus (``PRE''). A limit order that is
designated for execution during the Pre-Opening Session and Regular
Trading Hours. Like the current Day TIF instruction,\31\ any portion
not executed expires at the end of Regular Trading Hours.
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\31\ See Exchange Rule 11.6(q)(2). This is also similar to the
current Good-`til Cancel (``GTC'') TIF instruction currently
available on BZX and the BATS Y-Exchange, Inc. (``BYX''). See BZX
and BYX Rules 11.9(b)(3).
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Pre-Opening Session `til Extended Day (``PTX''). A limit
order that is designated for execution during the Pre-Opening Session,
Regular Trading Hours, and the Post-Closing Session. Like the current
Good-`til Extended Day (``GTX'') TIF instruction,\32\ any portion not
executed expires at the end of the Post-Closing Session.
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\32\ See Exchange Rule 11.6(q)(5).
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Pre-Opening Session `til Day (``PTD''). A limit order that
is designated for execution during the Pre-Opening Session, Regular
Trading Hours, and the Post-Closing Session. Like the current Good-`til
Day (``GTD'') TIF instruction,\33\ any portion not executed will be
cancelled at the expiration time assigned to the order, which can be no
later than the close of the Post-Closing Trading Session.
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\33\ See Exchange Rule 11.6(q)(4).
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Under each proposed TIF instruction, Users may designate that their
orders only be eligible for execution starting with the Pre-Opening
Session. This is similar to the existing TIF of Regular Hours Only,
which designates that the order only be eligible for execution during
Regular Trading Hours, which starts at 9:30 a.m. Eastern Time. In such
case, a User may enter orders starting at

[[Page 8809]]

6:00 a.m. Eastern Time, but such order would not be eligible for
execution until 9:30 a.m. Eastern Time. Likewise, under each of the
proposed TIF instructions, a User may continue to enter orders as early
as 6:00 a.m., but such orders would not be eligible for execution until
8:00 a.m. Eastern Time, the start of the Pre-Opening Session.\34\ At
the commencement of the Pre-Opening Session, orders entered between
6:00 a.m. and 8:00 a.m. Eastern Time with one of the proposed TIF
instructions will be handled in time sequence, beginning with the order
with the oldest time stamp, and will be placed on the EDGX Book,
routed, cancelled, or executed in accordance with the terms of the
order.\35\
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\34\ Orders utilizing one of the proposed TIF instructions would
not be eligible for execution during the proposed Early Trading
Session.
\35\ See Exchange Rule 11.1(a).
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Lastly, the Exchange proposes to amend the following order types
under Exchange Rule 11.8 to account for the three proposed TIF
instructions: \36\
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\36\ The Exchange notes that the proposed rule change would
operate in an identical manner to that proposed in SR-BATS-2016-01
and the language of the BATS and Exchange Rules differ to [sic]
extent necessary to conform with existing Exchange rule text or to
account for details or descriptions included in the Exchange Rules
but not currently included in BATS rules based on the current
structure of such rules. See supra note 4.
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Market Orders. The proposed TIF instruction of PRE, PTX,
and PTD would not be available to Market Orders. Under Exchange Rule
11.8(a)(2), a Market Order may only include a TIF instruction of IOC,
RHO, FOK, or Day.
Limit Orders. Rule 11.8(b)(2) describes the TIF
instructions that may be attached to a Limit Order. The Exchange
proposes to amend paragraph (b)(2) to add the TIF instructions of PRE,
PTX, or PTD to the list of TIF instructions that a Limit Order may
include.
ISOs. Rule 11.8(c)(1) describes the TIF instructions that
may be attached to an incoming ISO. The Exchange proposes to amend
paragraph (c)(1) to state that an incoming ISO may have a TIF
instruction of PRE, PTX, or PTD, in addition to Day, GTD, RHO, GTX, and
IOC. Exchange Rule 11.8(c)(1) would be further amended to state that an
incoming ISO with a Post Only and TIF instruction of PRE, PTX, or PTD,
like those with an TIF instruction or GTD, GTX, or Day, will be
cancelled without execution if, when entered, it is immediately
marketable against an order with a Displayed instruction resting in the
EDGX Book unless such order removes liquidity pursuant to Exchange Rule
11.6(n)(4).\37\
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\37\ Exchange Rule 11.6(n)(4) defined the Post Only instruction
and states, in sum, that an order with a Post Only instruction and a
Display-Price Sliding or Price Adjust instruction will remove
contra-side liquidity from the EDGX Book if the order is an order to
buy or sell a security priced below $1.00 or if the value of such
execution when removing liquidity equals or exceeds the value of
such execution if the order instead posted to the EDGX Book and
subsequently provided liquidity, including the applicable fees
charged or rebates provided.
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MidPoint Peg Orders. Rule 11.8(d)(1) describes the TIF
instructions that may be attached to a MidPoint Peg Order. The Exchange
proposes to amend paragraph (d)(1) to state that a MidPoint Peg Order
may have a TIF instruction of PRE, PTX, or PTD, in addition to Day,
FOK, IOC, RHO, GTX and GTD.
Market Maker Peg Orders. The proposed TIF instruction of
PRE, PTX, and PTD would not be available to Market Maker Peg Orders.
Under Exchange Rule 11.8(e)(4), a Market Maker Peg Order may only
include a TIF instruction of Day, RHO, or GTD.
Supplemental Peg. Rule 11.8(f)(1) describes the TIF instructions
that may be attached to a Supplemental Peg Order. The Exchange proposes
to amend paragraph (f)(1) to state that a Supplemental Peg Order may
have a TIF instruction of PRE, PTX, or PTD, in addition to GTD, GTX,
RHO and Day.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\38\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\39\ in particular, in that it
is 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. The Exchange also believes that the proposed rule
change is non-discriminatory as it would apply to all Members
uniformly. The proposed rule change in whole is designed to attract
more order flow to the Exchange between 7:00 a.m. and 9:30 a.m. Eastern
Time. Increased liquidity during this time will lead to improved price
discovery and increased execution opportunities on the Exchange,
therefore, promoting just and equitable principles of trade, and
removing impediments to and perfecting the mechanism of a free and open
market and a national market system.
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\38\ 15 U.S.C. 78f.
\39\ 15 U.S.C. 78f(b)(5).
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Early Trading Session
The Exchange believes its proposal to adopt the Early Trading
Session promotes just and equitable principles of trade, removes
impediments to and perfects the mechanism of a free and open market and
a national market system, prevents fraudulent and manipulative acts and
practices, and, in general, protects investors and the public interest.
The Exchange believes that the Early Trading Session will benefit
investors, the national market system, Members, and the Exchange market
by increasing competition for order flow and executions, and thereby
spur product enhancements and lower prices. The Early Trading Session
will benefit Members and the Exchange market by increasing trading
opportunities between 7:00 a.m. and 8:00 a.m. without increasing
ancillary trading costs (telecommunications, data, connectivity, etc.)
and, thereby, decreasing average trading costs per share. The Exchange
notes that trading during the proposed Early Trading Session has been
available on NYSE Arca and Nasdaq.\40\ The Exchange believes that the
availability of trading between 7:00 a.m. and 8:00 a.m. has been
beneficial to market participants including investors and issuers on
other markets. Introduction of the Early Trading Session on the
Exchange will further expand these benefits.
---------------------------------------------------------------------------

\40\ See supra note 6.
---------------------------------------------------------------------------

Additionally, the Exchange Act's goal of creating an efficient
market system includes multiple policies such as price discovery, order
interaction, and competition among markets. The Exchange believes that
offering a competing trading session will promote all of these policies
and will enhance quote competition, improve liquidity in the market,
support the quality of price discovery, promote market transparency,
and increase competition for trade executions while reducing spreads
and transaction costs. Additionally, increasing liquidity during the
Early Trading Session will raise investors' confidence in the fairness
of the markets and their transactions, particularly due to the lower
volume of trading occurring prior to opening.
Although the Exchange will be operating with bifurcated pre-opening
trading sessions, the Exchange notes that having bifurcated after hours
trading sessions is not novel. For example, the CHX maintains two after

[[Page 8810]]

hours trading sessions,\41\ the Late Trading Session, which runs from
4:00 p.m. to 4:15 p.m. Eastern Time, and the Late Crossing Session,
which runs from 4:15 p.m. to 5:00 Eastern Time. As such, the Exchange
does not believe that the proposed rule change will disproportionately
increase the complexity of the market.
---------------------------------------------------------------------------

\41\ See supra note 7.
---------------------------------------------------------------------------

The expansion of trading hours through the creation of the Early
Trading Session promotes just and equitable principles of trade by
providing market participants with additional options in seeking
execution on the Exchange. Order entry and execution during the Early
Trading Session would operate in the same manner as it does today
during the Pre-Opening Session. In addition, the Exchange will report
the best bid and offer on the Exchange to the appropriate network
processor, and the Exchange's proprietary data feeds will be
disseminated, beginning at 7:00 a.m. The proposal will, therefore,
facilitate a well-regulated, orderly, and efficient market during a
period of time that is currently underserved.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices because all
surveillance coverage currently performed by the Exchange's
surveillance systems will launch by the time trading starts at 7:00
a.m. Eastern Time. Further, the Exchange believes that the proposed
rule change will protect investors and the public interest because the
Exchange is updating its customer disclosure requirements to prohibit
Members from accepting an order from a customer for execution in the
Early Trading Session without disclosing to their customer that
extended hours trading involves material trading risks, including the
possibility of lower liquidity, high volatility, changing prices,
unlinked markets, an exaggerated effect from news announcements, wider
spreads and any other relevant risk.
TIF Instructions
The Exchange believes its proposed TIF instructions promote just
and equitable principles of trade, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system. The Exchange believes that the proposed TIF instructions will
benefit investors by providing them with greater control over their
orders. The proposed TIF instructions simply provide investors with
additional optionality for when their orders may be eligible for
execution.
In addition, Members will maintain the ability to cancel or modify
the terms of their order at any time, including during the time from
when the order is routed to the Exchange until the start of the Pre-
Opening Session. As a result, a Member who utilizes the proposed TIF
instructions, but later determines that market conditions favor
execution during Early Trading Session, can cancel the order residing
at the Exchange and enter a separate order to execute during the Early
Trading Session.
The ability to select the trading sessions or time upon which an
order is to be eligible for execution is not novel and is currently
available on the Exchange and other market centers. For example, on the
Exchange, a User may enter an order starting at 6:00 a.m. Eastern Time
and select that such order not be eligible for execution until 9:30
a.m., the start of Regular Trading Hours using TIF instructions of
Regular Hours Only.\42\ In addition, like each of the proposed TIF
instructions, Nasdaq utilizes a TIF, referred to as ESCN, under which
an order using its SCAN routing strategy entered prior to 8:00 a.m.
Eastern Time is not eligible for execution until 8:00 a.m. Eastern
Time.\43\
---------------------------------------------------------------------------

\42\ See Exchange Rule 11.6(q)(6). See also Nasdaq Rule 4703(a)
(outlining TIF instructions that do not activate orders until 9:30
a.m. Eastern Time).
\43\ See Nasdaq Rule 4703(a). See also Nasdaq Rule 4703(a)(7).
---------------------------------------------------------------------------

The Exchange proposed the Early Trading Session discussed above in
response to User requests for their orders to be eligible for execution
starting at 7:00 a.m. Eastern Time. However, some Users have requested
their orders continue to not be eligible for execution until the start
of the Pre-Opening Session at 8:00 a.m. Therefore, the Exchange
proposed the three new TIF instructions in order for Users to designate
their orders as eligible for execution as of the start of the Pre-
Opening Session.
Members will maintain the ability to cancel or modify the terms of
their order at any time, including during the time from when the order
is routed to the Exchange until the start of the Pre-Opening Session.
As a result, a Member who utilizes the proposed TIF instructions, but
later determines that market conditions favor execution during Early
Trading Session, can cancel the order residing at the Exchange and
enter a separate order to execute during the Early Trading Session.
While a User must make every effort to execute a marketable customer
order it receives fully and promptly,\44\ doing so might not result in
the best execution possible for the customer. Such Users may wish to
delay the execution of their orders until the start of the Pre-Opening
Session for various reasons, including the characteristics of the
market for the security as well as the amount of liquidity available in
the market as part of their best execution obligations.\45\
---------------------------------------------------------------------------

\44\ See Supplemental Material .01 to Financial Industry
Regulatory Authority, Inc. (``FINRA'') Rule 5310.
\45\ A Member's best execution obligation may also include
cancelling an order when market conditions deteriorate and could
result in an inferior execution or informing customers where the
execution of their order may be delayed intentionally as the Member
utilizes reasonable diligence to ascertain the best market for the
security. See FINRA Rule 5130 [sic]. See also FINRA Regulatory
Notice 15-46, Best Execution. Guidance on Best Execution Obligations
in Equity, Options, and Fixed Income Markets, (November 2015).
---------------------------------------------------------------------------

Specifically, FINRA Rule 5310(a)(1) provides that a Member must use
reasonable diligence to ascertain the best market for a security and
buy or sell in such market so that the resultant price to the customer
is as favorable as possible under prevailing market conditions. And
importantly, FINRA Rule 5310(a)(1)(A) states that one of the factors
that will be considered in determining whether a member has used
``reasonable diligence'' is ``the character of the market for the
security (e.g., price, volatility, relative liquidity, and pressure on
available communication).\46\ As such, a Member conducting ``reasonable
diligence'' may determine that due to the character of the Early
Trading Session, along with considering other relevant factors, the
Member wants to utilize the proposed TIF instructions.
---------------------------------------------------------------------------

\46\ Tellingly, these characteristics are reflected in the
disclosure requirements mandated by Exchange Rule 3.21 before a
Member may accept an order from a customer for execution in the Pre-
Opening, Post-Closing, and proposed Early Trading Sessions.
---------------------------------------------------------------------------

Members will be accustomed to this additional analysis in
determining whether to participate in the Early Trading Session, Pre-
Opening Session, or Regular Trading Hours. The regulatory guidance with
respect to best execution anticipates the continued evolution of
execution venues:
[B]est execution is a facts and circumstances determination. A
broker-dealer must consider several factors affecting the quality of
execution, including, for example, the opportunity for price
improvement, the likelihood of execution . . ., the speed of execution
and the trading characteristics of the

[[Page 8811]]

security, together with other non-price factors such as reliability and
service.\47\
---------------------------------------------------------------------------

\47\ See Securities Exchange Act Release No. 43950 (November 17,
2000), 65 FR 75414 (December 1, 2000) (``Disclosure of Order
Execution and Routing Practices release'').
---------------------------------------------------------------------------

To the extent there may be best execution obligations at issue,
they are no different than the best execution obligations faced by
brokers in the current market structure,\48\ including the use of the
currently available Regular Trading Hours TIF instruction or SCAN/ESCN
routing strategy available on Nasdaq discussed above.\49\ However,
similar to why a Member may utilize the Regular Trading Hours TIF
instruction, a User may wish to forgo a possible execution during the
Early Trading Session and/or Pre-Opening Session if they believe doing
so is consistent with their best execution obligations as they
anticipate that the market for the security may improve upon the start
of the Pre-Opening Session and/or Regular Trading Hours.\50\ Applicable
best execution guidance contains no formulaic mandate as to whether or
how brokers should direct orders. The optionality created by the
proposed rule change simply represents one tool available to Members in
order to meet their best execution obligations.
---------------------------------------------------------------------------

\48\ The Commission has also indicated a User's best execution
obligation may not be satisfied simply by obtaining the best bid or
offer (``BBO''). See Securities Exchange Act Release No. 37619A
(September 6, 1996), 61 FR 48290 (September 12, 1996) (``Order
Executions Obligations release''). While a User may seek the most
favorable terms reasonably available under the circumstances of the
transaction, such terms may not necessarily in every case be the
best price available. Id. See also FINRA Regulatory Notice 15-46,
Best Execution. Guidance on Best Execution Obligations in Equity,
Options, and Fixed Income Markets, (November 2015).
\49\ See supra note 43.
\50\ Exchange Rule 3.21 requires Member make [sic] certain
disclosures to their customers prior to accepting an order for
execution outside of Regular Trading Hours. These disclosures
include, among other things, the risk of lower liquidity, higher
volatility, wider spreads, and changing prices in extended hours
trading as compared to regular market hours. See Exchange Rule
3.21(a)-(g).
---------------------------------------------------------------------------

Lastly, the Exchange reminds Members of their regulatory
obligations when submitting an order one of the proposed TIF
instructions. The Market Access Rule under Rule 15c3-5 of the Act
requires broker-dealers to, among other things, implement regulatory
risk management controls and procedures that are reasonably designed to
prevent the entry of orders that fail to comply with regulatory
requirements that apply on a pre-order entry basis.\51\ These pre-trade
controls must, for example, be reasonably designed to assure compliance
with Exchange trading rules and Commission rules under Regulation SHO
\52\ and Regulation NMS.\53\ In accordance with the Market Access Rule,
a Member's procedures must be reasonably designed to ensure compliance
with their applicable regulatory requirements, not just at the time the
order is routed to the Exchange, but also at the time the order becomes
eligible for execution.
---------------------------------------------------------------------------

\51\ See Securities Exchange Act Release No. 63241 (November 3,
2010), 75 FR 69792 (November 15, 2010) (File no. S7-03-10).
\52\ See e.g., Question 2.6 of the Division of Trading and
Markets: Response to Frequently Asked Questions Concerning
Regulations SHO, available at https://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm.
\53\ 17 CFR 240.610-611 [sic].
---------------------------------------------------------------------------

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

The Exchange does not believe that its proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will benefit investors, the national market
system, Members, and the Exchange market by increasing competition for
order flow and executions during the pre-market sessions, thereby
spurring product enhancements and lowering prices. The Exchange
believes the proposed Early Trading Session would enhance competition
by enabling the Exchange to directly compete with NYSE Arca and Nasdaq
for order flow and executions starting at 7:00 a.m., rather than 8:00
a.m. Eastern Time. In addition, the proposed TIF instructions will
enhance competition by enabling the Exchange to offer functionality
similar to Nasdaq.\54\ The fact that the extending of the proposed
Early Trading Session and TIF instructions are themselves a response to
the competition provided by other markets is evidence of its pro-
competitive nature.
---------------------------------------------------------------------------

\54\ See supra note 43.
---------------------------------------------------------------------------

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

The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from Members or other interested
parties.

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

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

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-EDGX-2016-06 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-EDGX-2016-06. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only

[[Page 8812]]

information that you wish to make available publicly. All submissions
should refer to File No. SR-EDGX-2016-06 and should be submitted on or
before March 14, 2016.

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

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

Brent J. Fields,
Secretary.
[FR Doc. 2016-03525 Filed 2-19-16; 8:45 am]
BILLING CODE 8011-01-P

8806 Federal Register / Vol. 81, No. 34 / Monday, February 22, 2016 / Notices

SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s The Exchange also proposes to amend
COMMISSION Statement of the Purpose of, and Rule 11.1(a) to account for the Early
Statutory Basis for, the Proposed Rule Trading Session starting at 7:00 a.m.
[Release No. 34–77142; File No. SR–EDGX–
2016–06]
Change Eastern Time. Other than the proposal
In its filing with the Commission, the to adopt an Early Trading Session
Self-Regulatory Organizations; EDGX Exchange included statements starting at 7:00 a.m. Eastern Time, the
Exchange, Inc.; Notice of Filing of a concerning the purpose of and basis for Exchange does not propose to amend
Proposed Rule Change, as Modified by the proposed rule change and discussed the substance or operation of Rule
Amendment No. 1 Thereto, To Adopt any comments it received on the 11.1(a).
an Early Trading Session and Three proposed rule change. The text of these Users currently designate when their
New Time-in-Force Instructions statements may be examined at the orders are eligible for execution by
places specified in Item IV below. The selecting the desired TIF instruction
February 16, 2016. under Exchange Rule 11.6(q). Orders
Exchange has prepared summaries, set
Pursuant to Section 19(b)(1) of the entered between 6:00 a.m. and 8:00 a.m.
forth in Sections A, B, and C below, of
Securities Exchange Act of 1934 (the Eastern Time are not eligible for
the most significant parts of such
‘‘Act’’),1 and Rule 19b–4 thereunder,2 execution until the start of the Pre-
statements.
notice is hereby given that on February Opening Session, or Regular Trading
2, 2016, EDGX Exchange, Inc. (the A. Self-Regulatory Organization’s Hours,8 depending on the TIF selected
‘‘Exchange’’ or ‘‘EDGX’’) filed with the Statement of the Purpose of, and by the User. Users may enter orders in
Securities and Exchange Commission Statutory Basis for, the Proposed Rule advance of the trading session they
(‘‘Commission’’) the proposed rule Change intend the order to be eligible for. For
change as described in Items I, II, and example, Users may enter orders
1. Purpose
III below, which Items have been starting at 6:00 a.m. Eastern Time with
prepared by the Exchange. On February The Exchange proposes to amend its a TIF of Regular Hours Only, which
12, 2016, the Exchange filed rules to: (i) Create a new trading session designates that the order only be eligible
Amendment No.1 to the proposed rule to be known as the Early Trading for execution during Regular Trading
change.3 The Commission is publishing Session, which will run from 7:00 a.m. Hours.9 As stated above, Users may
this notice to solicit comments on the to 8:00 a.m. Eastern Time; and (ii) adopt enter orders as early as 6:00 a.m. Eastern
proposed rule change, as amended, from three new TIF instructions. Time, but those orders would not be
interested persons. Early Trading Session eligible for execution until the start of
I. Self-Regulatory Organization’s the Pre-Opening Session at 8:00 a.m.
The Exchange trading day is currently Some Users have requested the ability
Statement of the Terms of Substance of divided into three sessions of which a
the Proposed Rule Change for their orders to be eligible for
User 5 may select their order(s) be execution starting at 7:00 a.m. Eastern
The Exchange filed a proposal to eligible for execution: (i) The Pre- Time. Therefore, the Exchange is
amend its rules to: (i) Create a new Opening Session which starts at 8:00 proposing to adopt the Early Trading
trading session to be known as the Early a.m. and ends at 9:30 a.m. Eastern Time; Session as discussed herein.
Trading Session, which will run from (ii) Regular Trading Hours which runs Order entry and execution during the
7:00 a.m. to 8:00 a.m. Eastern Time; and from 9:30 a.m. to 4:00 p.m. Eastern Early Trading Session would operate in
(ii) adopt three new Time-in-Force Time; and (iii) the Post-Closing Session, the same manner as it does during the
(‘‘TIF’’) instructions.4 which runs from 4:00 p.m. to 8:00 p.m. Pre-Opening Session. As amended,
The text of the proposed rule change Eastern Time. The Exchange proposes to Exchange Rule 11.1(a)(1) would state
is available at the Exchange’s Web site amend its rules to create a new trading that orders entered between 6:00 a.m.
at www.batstrading.com, at the session to be known as the Early and 7:00 a.m. Eastern Time, rather than
principal office of the Exchange, and at Trading Session, which will run from 6:00 a.m. and 8:00 a.m. Eastern Time,
the Commission’s Public Reference 7:00 a.m. to 8:00 a.m. Eastern Time.6 would not be eligible for execution until
Room. Exchange Rule 1.5 would be amended to the start of the Early Trading Session,
add a new definition for the term ‘‘Early Pre-Opening Session, or Regular
1 15 U.S.C. 78s(b)(1). Trading Session’’ under new paragraph Trading Hours, depending on the TIF
2 17 CFR 240.19b–4. (ii). ‘‘Early Trading Session’’ would be selected by the User. Exchange Rule
3 In Amendment No. 1, the Exchange noted that
defined as ‘‘the time between 7:00 a.m.
it would subject orders that are eligible for 11.1(a)(1) will also be amended to state
and 8:00 a.m. Eastern Time.’’7
execution as of the start of the Pre-Opening Session that the Exchange will not accept the
to all of the Exchange’s standard regulatory checks, following orders prior to 7:00 a.m.
5 ‘‘User’’ is defined as ‘‘any Member or Sponsored
including compliance with Regulation NMS,
Regulation SHO, as well as other relevant Exchange Participant who is authorized to obtain access to the Eastern Time, rather than 8:00 a.m.:
rules. System pursuant to Rule 11.3.’’ See Exchange Rule Orders with a Post Only instruction,10
4 The Exchange notes that its affiliates, BATS 1.5(ee). Intermarket Sweep Orders (‘‘ISOs’’),11
6 The Exchange notes that NYSE Arca, Inc.
Exchange, Inc, (‘‘BZX’’) and BATS Y-Exchange, Inc.
(‘‘BYX’’) also intend to file proposed rule changes (‘‘NYSE Arca’’) operates an Opening Session that
Chicago Stock Exchange, Inc. (‘‘CHX’’) maintains
with the Commission to amend their rules to also: starts at 4:00 a.m. Eastern Time (1:00 a.m. Pacific
two after hours trading sessions. See CHX Article
(i) Create a new trading session to be known as the Time) and ends at 9:30 a.m. Eastern Time (6:30 a.m.
20, Rule 1(b). See also Securities Exchange Act
Early Trading Session, which will run from 7:00 Pacific Time). See NYSE Arca Rule 7.34(a)(1). The
Nasdaq Stock Market LLC (‘‘Nasdaq’’) operates a Release No. 60605 (September 1, 2009), 74 FR
a.m. to 8:00 a.m. Eastern Time; and (ii) adopt 46277 (September 8, 2009) (SR–CHX–2009–13)
pre-market session that also opens at 4:00 a.m. and
mstockstill on DSK4VPTVN1PROD with NOTICES

identical TIF instructions.. The Exchange further (Notice of Filing and Immediate Effectiveness of
notes that the proposed rule change would operate ends at 9:30 a.m. Eastern Time. See Nasdaq Rule
4701(g). See also Securities Exchange Act Release Proposed Rule Change Adding Additional Trading
in an identical manner to that proposed by BZX and
No. 69151 (March 15, 2013), 78 FR 17464 (March Sessions).
BYX and the language of the BZX, BYX and 8 ‘‘Regular Trading Hours’’ is defined as ‘‘the time
Exchange Rules would differ to the extent necessary 21, 2013) (SR–Nasdaq–2013–033) (Notice of Filing
to conform with existing Exchange rule text or to and Immediate Effectiveness of Proposed Rule between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ See
account for details or descriptions included in the Change to Extend the Pre-Market Hours of the Exchange Rule 1.5(y).
9 See Exchange Rule 11.6(q)(6).
Exchange Rules but not currently included in BZX Exchange to 4:00 a.m. EST).
7 An Exchange having bifurcated after hours 10 See Exchange Rule 11.6(n)(4).
or BYX rules based on the current structure of such
rules. trading sessions is not novel. For example, the 11 See Exchange Rule 11.8(c).

VerDate Sep<11>2014 19:03 Feb 19, 2016 Jkt 238001 PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 E:\FR\FM\22FEN1.SGM 22FEN1

8810 Federal Register / Vol. 81, No. 34 / Monday, February 22, 2016 / Notices

hours trading sessions,41 the Late their orders may be eligible for effort to execute a marketable customer
Trading Session, which runs from 4:00 execution. order it receives fully and promptly,44
p.m. to 4:15 p.m. Eastern Time, and the In addition, Members will maintain doing so might not result in the best
Late Crossing Session, which runs from the ability to cancel or modify the terms execution possible for the customer.
4:15 p.m. to 5:00 Eastern Time. As such, of their order at any time, including Such Users may wish to delay the
the Exchange does not believe that the during the time from when the order is execution of their orders until the start
proposed rule change will routed to the Exchange until the start of of the Pre-Opening Session for various
disproportionately increase the the Pre-Opening Session. As a result, a reasons, including the characteristics of
complexity of the market. Member who utilizes the proposed TIF the market for the security as well as the
The expansion of trading hours instructions, but later determines that amount of liquidity available in the
through the creation of the Early market conditions favor execution market as part of their best execution
Trading Session promotes just and during Early Trading Session, can obligations.45
equitable principles of trade by cancel the order residing at the Specifically, FINRA Rule 5310(a)(1)
providing market participants with Exchange and enter a separate order to provides that a Member must use
additional options in seeking execution execute during the Early Trading reasonable diligence to ascertain the
on the Exchange. Order entry and Session. best market for a security and buy or sell
execution during the Early Trading The ability to select the trading in such market so that the resultant
Session would operate in the same sessions or time upon which an order is price to the customer is as favorable as
manner as it does today during the Pre- to be eligible for execution is not novel possible under prevailing market
Opening Session. In addition, the and is currently available on the conditions. And importantly, FINRA
Exchange will report the best bid and Exchange and other market centers. For Rule 5310(a)(1)(A) states that one of the
offer on the Exchange to the appropriate example, on the Exchange, a User may factors that will be considered in
network processor, and the Exchange’s enter an order starting at 6:00 a.m. determining whether a member has
proprietary data feeds will be Eastern Time and select that such order used ‘‘reasonable diligence’’ is ‘‘the
disseminated, beginning at 7:00 a.m. not be eligible for execution until 9:30
The proposal will, therefore, facilitate a character of the market for the security
a.m., the start of Regular Trading Hours (e.g., price, volatility, relative liquidity,
well-regulated, orderly, and efficient using TIF instructions of Regular Hours
market during a period of time that is and pressure on available
Only.42 In addition, like each of the communication).46 As such, a Member
currently underserved. proposed TIF instructions, Nasdaq
The Exchange believes that the conducting ‘‘reasonable diligence’’ may
utilizes a TIF, referred to as ESCN, determine that due to the character of
proposed rule change is designed to under which an order using its SCAN
prevent fraudulent and manipulative the Early Trading Session, along with
routing strategy entered prior to 8:00 considering other relevant factors, the
acts and practices because all
a.m. Eastern Time is not eligible for Member wants to utilize the proposed
surveillance coverage currently
execution until 8:00 a.m. Eastern TIF instructions.
performed by the Exchange’s
Time.43
surveillance systems will launch by the Members will be accustomed to this
The Exchange proposed the Early
time trading starts at 7:00 a.m. Eastern additional analysis in determining
Trading Session discussed above in
Time. Further, the Exchange believes whether to participate in the Early
response to User requests for their
that the proposed rule change will Trading Session, Pre-Opening Session,
orders to be eligible for execution
protect investors and the public interest or Regular Trading Hours. The
starting at 7:00 a.m. Eastern Time.
because the Exchange is updating its regulatory guidance with respect to best
However, some Users have requested
customer disclosure requirements to execution anticipates the continued
their orders continue to not be eligible
prohibit Members from accepting an evolution of execution venues:
for execution until the start of the Pre-
order from a customer for execution in [B]est execution is a facts and
Opening Session at 8:00 a.m. Therefore,
the Early Trading Session without circumstances determination. A broker-
the Exchange proposed the three new
disclosing to their customer that dealer must consider several factors
TIF instructions in order for Users to
extended hours trading involves affecting the quality of execution,
designate their orders as eligible for
material trading risks, including the including, for example, the opportunity
execution as of the start of the Pre-
possibility of lower liquidity, high for price improvement, the likelihood of
Opening Session.
volatility, changing prices, unlinked execution . . ., the speed of execution
Members will maintain the ability to
markets, an exaggerated effect from and the trading characteristics of the
cancel or modify the terms of their order
news announcements, wider spreads
at any time, including during the time
and any other relevant risk. 44 See Supplemental Material .01 to Financial
from when the order is routed to the
TIF Instructions Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule
Exchange until the start of the Pre- 5310.
The Exchange believes its proposed Opening Session. As a result, a Member 45 A Member’s best execution obligation may also

TIF instructions promote just and who utilizes the proposed TIF include cancelling an order when market
equitable principles of trade, and instructions, but later determines that conditions deteriorate and could result in an
market conditions favor execution inferior execution or informing customers where
remove impediments to and perfect the the execution of their order may be delayed
mechanism of a free and open market during Early Trading Session, can intentionally as the Member utilizes reasonable
and a national market system. The cancel the order residing at the diligence to ascertain the best market for the
Exchange and enter a separate order to security. See FINRA Rule 5130 [sic]. See also
mstockstill on DSK4VPTVN1PROD with NOTICES

Exchange believes that the proposed TIF FINRA Regulatory Notice 15–46, Best Execution.
instructions will benefit investors by execute during the Early Trading
Guidance on Best Execution Obligations in Equity,
providing them with greater control Session. While a User must make every Options, and Fixed Income Markets, (November
over their orders. The proposed TIF 2015).
42 See Exchange Rule 11.6(q)(6). See also Nasdaq 46 Tellingly, these characteristics are reflected in
instructions simply provide investors Rule 4703(a) (outlining TIF instructions that do not the disclosure requirements mandated by Exchange
with additional optionality for when activate orders until 9:30 a.m. Eastern Time). Rule 3.21 before a Member may accept an order
43 See Nasdaq Rule 4703(a). See also Nasdaq Rule from a customer for execution in the Pre-Opening,
41 See supra note 7. 4703(a)(7). Post-Closing, and proposed Early Trading Sessions.

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Federal Register / Vol. 81, No. 34 / Monday, February 22, 2016 / Notices 8811

security, together with other non-price reasonably designed to assure Register or within such longer period (i)
factors such as reliability and service.47 compliance with Exchange trading rules as the Commission may designate up to
To the extent there may be best and Commission rules under Regulation 90 days of such date if it finds such
execution obligations at issue, they are SHO 52 and Regulation NMS.53 In longer period to be appropriate and
no different than the best execution accordance with the Market Access publishes its reasons for so finding or
obligations faced by brokers in the Rule, a Member’s procedures must be (ii) as to which the Exchange consents,
current market structure,48 including reasonably designed to ensure the Commission will: (a) By order
the use of the currently available compliance with their applicable approve or disapprove such proposed
Regular Trading Hours TIF instruction regulatory requirements, not just at the rule change, or (b) institute proceedings
or SCAN/ESCN routing strategy time the order is routed to the Exchange, to determine whether the proposed rule
available on Nasdaq discussed above.49 but also at the time the order becomes change should be disapproved.
However, similar to why a Member may eligible for execution.
utilize the Regular Trading Hours TIF IV. Solicitation of Comments
instruction, a User may wish to forgo a B. Self-Regulatory Organization’s Interested persons are invited to
possible execution during the Early Statement on Burden on Competition submit written data, views and
Trading Session and/or Pre-Opening The Exchange does not believe that its arguments concerning the foregoing,
Session if they believe doing so is proposed rule change will impose any including whether the proposed rule
consistent with their best execution burden on competition that is not change, as modified by Amendment No.
obligations as they anticipate that the necessary or appropriate in furtherance 1, is consistent with the Act. Comments
market for the security may improve of the purposes of the Act. The may be submitted by any of the
upon the start of the Pre-Opening Exchange believes that the proposed following methods:
Session and/or Regular Trading rule change will benefit investors, the
national market system, Members, and Electronic Comments
Hours.50 Applicable best execution
guidance contains no formulaic the Exchange market by increasing • Use the Commission’s Internet
mandate as to whether or how brokers competition for order flow and comment form (http://www.sec.gov/
should direct orders. The optionality executions during the pre-market rules/sro.shtml); or
created by the proposed rule change sessions, thereby spurring product • Send an email to rule-comments@
simply represents one tool available to enhancements and lowering prices. The sec.gov. Please include File No. SR–
Members in order to meet their best Exchange believes the proposed Early EDGX–2016–06 on the subject line.
execution obligations. Trading Session would enhance Paper Comments
Lastly, the Exchange reminds competition by enabling the Exchange
Members of their regulatory obligations to directly compete with NYSE Arca • Send paper comments in triplicate
when submitting an order one of the and Nasdaq for order flow and to Secretary, Securities and Exchange
proposed TIF instructions. The Market executions starting at 7:00 a.m., rather Commission, 100 F Street NE.,
Access Rule under Rule 15c3–5 of the than 8:00 a.m. Eastern Time. In Washington, DC 20549–1090.
All submissions should refer to File
Act requires broker-dealers to, among addition, the proposed TIF instructions
No. SR–EDGX–2016–06. This file
other things, implement regulatory risk will enhance competition by enabling
number should be included on the
management controls and procedures the Exchange to offer functionality
subject line if email is used. To help the
that are reasonably designed to prevent similar to Nasdaq.54 The fact that the
Commission process and review your
the entry of orders that fail to comply extending of the proposed Early Trading
comments more efficiently, please use
with regulatory requirements that apply Session and TIF instructions are
only one method. The Commission will
on a pre-order entry basis.51 These pre- themselves a response to the
post all comments on the Commission’s
trade controls must, for example, be competition provided by other markets
Internet Web site (http://www.sec.gov/
is evidence of its pro-competitive
rules/sro.shtml). Copies of the
47 See Securities Exchange Act Release No. 43950
nature.
(November 17, 2000), 65 FR 75414 (December 1, submission, all subsequent
2000) (‘‘Disclosure of Order Execution and Routing C. Self-Regulatory Organization’s amendments, all written statements
Practices release’’). Statement on Comments on the with respect to the proposed rule
48 The Commission has also indicated a User’s
Proposed Rule Change Received From change that are filed with the
best execution obligation may not be satisfied
simply by obtaining the best bid or offer (‘‘BBO’’).
Members, Participants, or Others Commission, and all written
See Securities Exchange Act Release No. 37619A The Exchange has not solicited, and communications relating to the
(September 6, 1996), 61 FR 48290 (September 12,
does not intend to solicit, comments on proposed rule change between the
1996) (‘‘Order Executions Obligations release’’). Commission and any person, other than
While a User may seek the most favorable terms this proposed rule change. The
reasonably available under the circumstances of the Exchange has not received any those that may be withheld from the
transaction, such terms may not necessarily in unsolicited written comments from public in accordance with the
every case be the best price available. Id. See also
Members or other interested parties. provisions of 5 U.S.C. 552, will be
FINRA Regulatory Notice 15–46, Best Execution. available for Web site viewing and
Guidance on Best Execution Obligations in Equity, III. Date of Effectiveness of the
Options, and Fixed Income Markets, (November printing in the Commission’s Public
2015).
Proposed Rule Change and Timing for Reference Room, 100 F Street NE.,
49 See supra note 43. Commission Action Washington, DC 20549, on official
50 Exchange Rule 3.21 requires Member make
Within 45 days of the date of business days between the hours of
[sic] certain disclosures to their customers prior to
mstockstill on DSK4VPTVN1PROD with NOTICES

publication of this notice in the Federal 10:00 a.m. and 3:00 p.m. Copies of such
accepting an order for execution outside of Regular
Trading Hours. These disclosures include, among filing will also be available for
other things, the risk of lower liquidity, higher 52 See e.g., Question 2.6 of the Division of Trading inspection and copying at the principal
volatility, wider spreads, and changing prices in and Markets: Response to Frequently Asked office of the Exchange. All comments
extended hours trading as compared to regular Questions Concerning Regulations SHO, available
at https://www.sec.gov/divisions/marketreg/mrfaq
received will be posted without change;
market hours. See Exchange Rule 3.21(a)–(g).
51 See Securities Exchange Act Release No. 63241 regsho1204.htm. the Commission does not edit personal
(November 3, 2010), 75 FR 69792 (November 15, 53 17 CFR 240.610–611 [sic]. identifying information from
2010) (File no. S7–03–10). 54 See supra note 43. submissions. You should submit only

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8812 Federal Register / Vol. 81, No. 34 / Monday, February 22, 2016 / Notices

information that you wish to make on the proposed rule change. The text The Exchange would further amend
available publicly. All submissions of those statements may be examined at Rule 7.35P(a)(10)(A) to add the specified
should refer to File No. SR–EDGX– the places specified in Item IV below. percentages for price collar thresholds
2016–06 and should be submitted on or The Exchange has prepared summaries, for Trading Halt Auctions. Consistent
before March 14, 2016. set forth in sections A, B, and C below, with Rule 1.1(s)(B), the price collar
For the Commission, by the Division of of the most significant parts of such thresholds for Trading Halt Auctions
Trading and Markets, pursuant to delegated statements. would be 10% for securities with a
authority.55 consolidated last sale price of $25.00 or
A. Self-Regulatory Organization’s less, 5% for securities with a
Brent J. Fields, Statement of the Purpose of, and
Secretary. consolidated last sale price greater than
Statutory Basis for, the Proposed Rule $25.00 but less than or equal to $50.00,
[FR Doc. 2016–03525 Filed 2–19–16; 8:45 am] Change and 3% for securities with a
BILLING CODE 8011–01–P
1. Purpose consolidated last sale price greater than
$50.00. The Exchange proposes a non-
The Exchange proposes to amend substantive difference from Rule 1.1(s)
SECURITIES AND EXCHANGE Rule 7.35P to provide for price collar
COMMISSION to refer to the ‘‘Auction Reference Price’’
thresholds for Trading Halt Auctions on in Rule 7.35P instead of the last
[Release No. 34–77140; File No. SR– Pillar. As previously described, the consolidated sale price. Rule 7.35P
NYSEArca–2016–27] Exchange is in the process of defines the term ‘‘Auction Reference
implementing Pillar, its new trading Price’’ for the Trading Halt Auction to
Self-Regulatory Organizations; NYSE platform.4 The Exchange anticipates be the last consolidated round-lot price
Arca, Inc.; Notice of Filing and beginning migrating symbols to Pillar on of that trading day, and if none, the
Immediate Effectiveness of Proposed February 22, 2016. As symbols migrate prior trading day’s Official Closing
Rule Change Amending Rule 7.35P To to Pillar, specified current rules not Price. Because the Rule 7.35P Auction
Provide for Price Collar Thresholds for designated with ‘‘P’’ will no longer be Reference Price for Trading Halt
Trading Halt Auctions applicable, and rules with a ‘‘P’’ Auctions is based on the same reference
February 16, 2016. designation will govern the applicable price for Trading Halt Auctions as
Pursuant to Section 19(b)(1) 1 of the conduct. With respect to auctions, on specified in Rule 1.1(s)(B), the Exchange
Securities Exchange Act of 1934 (the Pillar, current Rules 1.1(s) and 7.35 will proposes in Rule 7.35P to reference the
‘‘Act’’),2 and Rule 19b–4 thereunder,3 no longer govern trading; Rule 7.35P term ‘‘Auction Reference Price’’ rather
notice is hereby given that on February will govern all aspects of auctions on than refer to the last consolidated sale
4, 2016, NYSE Arca, Inc. (the Pillar.5 price.
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with The Exchange recently amended Rule Finally, as with Rule 1.1(s), the
the Securities and Exchange 1.1(s) to provide for price collar Exchange proposes that the price collar
Commission (the ‘‘Commission’’) the thresholds for Trading Halt Auctions on thresholds for Trading Halt Auctions
proposed rule change as described in a temporary basis.6 However, Rule would be in effect temporarily. Because
Items I and II below, which Items have 1.1(s)(B) will not be applicable to the Rule 1.1(s)(B) Trading Halt Auction
been prepared by the self-regulatory trading on Pillar. Accordingly, the collars will be in effect until July 28,
organization. The Commission is Exchange proposes to amend Rule 7.35P 2016, the Exchange proposes that the
publishing this notice to solicit to adopt price collar thresholds for price collar thresholds specified in Rule
comments on the proposed rule change Trading Halt Auctions on the same 7.35P(a)(10)(A) applicable to Trading
from interested persons. terms and conditions as approved in Halt Auctions would similarly be in
Rule 1.1(s)(B). As proposed, Rule effect until July 28, 2016.
I. Self-Regulatory Organization’s As the Exchange noted in the Trading
7.35P(a)(10) would be amended to add
Statement of the Terms of Substance of Halt Auction Collar Filing, the Exchange
reference to Trading Halt Auctions by
the Proposed Rule Change is continuing its analysis to identify
providing that ‘‘Auction Collar’’ would
The Exchange proposes to amend mean the price collar thresholds for the what changes, if any, would be
Rule 7.35P to provide for price collar Indicative Match Price for the Core appropriate for how the Exchange
thresholds for Trading Halt Auctions. Open Auction, Trading Halt Auction, or conducts its Trading Halt Auctions and,
The proposed rule change is available Closing Auction. based on this analysis, will file a
on the Exchange’s Web site at separate rule proposal to either make
www.nyse.com, at the principal office of 4 See Securities Exchange Act Release Nos. 74951
the price collar thresholds for Trading
the Exchange, and at the Commission’s (May 13, 2015), 80 FR 28721 (May 19, 2015) Halt Auctions permanent or propose
Public Reference Room. (Notice) and 75494 (July 20, 2015), 80 FR 44170 other or additional changes to the re-
(July 24, 2015) (Order) (SR–NYSEArca–2015–38) opening auction process.
II. Self-Regulatory Organization’s (‘‘Pillar I Filing’’); 75497 (July 21, 2015), 80 FR
Statement of the Purpose of, and 45022 (July 28, 2015) (Notice) and 76267 (Oct. 26, 2. Statutory Basis
2015), 80 FR 66951 (Oct. 30, 2015) (Order) (SR–
Statutory Basis for, the Proposed Rule NYSEArca–2015–56)(‘‘Pillar II Filing’’); 75467 (July The proposed rule change is
Change 16, 2015), 80 FR 43515 (July 22, 2015) (Notice) and consistent with Section 6(b) of the
76198 (Oct. 20, 2015), 80 FR 65274 (Oct. 26, 2015) Securities Exchange Act of 1934 (the
In its filing with the Commission, the (Order) (SR–NYSEArca–2015–58) (‘‘Pillar III
self-regulatory organization included Filing’’); and 76085 (Oct. 6, 2015), 80 FR 61513
‘‘Act’’),7 in general, and furthers the
mstockstill on DSK4VPTVN1PROD with NOTICES

statements concerning the purpose of, (Oct. 13, 2015) (Notice) and 76869 (Jan. 11, 2016), objectives of Section 6(b)(5),8 in
and basis for, the proposed rule change 81 FR 2276 (Jan. 15, 2016) (Order) (SR–NYSEArca– particular, because it is designed to
2015–86) (‘‘Pillar Auction Filing’’). prevent fraudulent and manipulative
and discussed any comments it received 5 See Pillar Auction Filing.
acts and practices, to promote just and
6 See Securities Exchange Act Release No. 76994
55 17 CFR 200.30–3(a)(12). (Jan. 28, 2016) (SR–NYSEArca–2015–121)
equitable principles of trade, to foster
1 15 U.S.C. 78s(b)(1). (Approval Order) (‘‘Trading Halt Auction Collar
2 15 U.S.C. 78a. 7 15 U.S.C. 78f(b).
Filing’’). Rule 1.1(s)(B) will be in effect until July
3 17 CFR 240.19b–4. 28, 2016. 8 15 U.S.C. 78f(b)(5).

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Document Created: 2016-02-19 23:56:50
Document Modified: 2016-02-19 23:56:50

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 8806