82 FR 40812 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rules 11.6, Definitions, 11.8, Order Types, and 11.10, Order Execution
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 165 (August 28, 2017)
Federal Register Volume 82, Issue 165 (August 28, 2017)
| Page Range | 40812-40816 | |
| FR Document | 2017-18127 |
[Federal Register Volume 82, Number 165 (Monday, August 28, 2017)] [Notices] [Pages 40812-40816] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-18127] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81457; File No. SR-BatsEDGX-2017-34] Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rules 11.6, Definitions, 11.8, Order Types, and 11.10, Order Execution August 22, 2017. 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 August 11, 2017, Bats 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. The Exchange has designated this proposal as a ``non-controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 15 U.S.C. 78s(b)(3)(A). \4\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to: (i) Add new optional functionality to orders that include the Minimum Execution Quantity instruction by amending paragraph (h) of Exchange Rule 11.6, Definitions; (ii) amend paragraph (b)(3) of Exchange Rule 11.8 to specify that a Minimum Execution Quantity instruction may be included on a Limit Order with a TIF of IOC; and (iii) amend paragraph (e)(3) of Exchange Rule 11.10, Order Execution, to specify that a change to the minimum quantity of an order with a Minimum Execution Quantity instruction may be included in a Replace message. The proposed amendments are substantially similar to the rules of the Nasdaq Stock Market LLC (``Nasdaq'') and the Investors Exchange LLC (``IEX'').\5\ --------------------------------------------------------------------------- \5\ See Nasdaq Rule 4703(e) (defining Minimum Quantity). See also Securities Exchange Act Release No. 73959 (December 30, 2014), 80 FR 582 (January 6, 2015) (order approving new optional functionality for Minimum Quantity Orders). See IEX Rule 11.190(b)(11) and Supplementary Material .03 (defining Minimum Quantity Orders and MinExec with Cancel Remaining and MinExec with AON Remaining). See also Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR 41141 (June 23, 2016) (order approving the IEX exchange application, which included IEX's Minimum Quantity Orders). See also IEX Rule 11.190(d)(3) (allowing the minimum quantity size of an order to be changed via a replace message). --------------------------------------------------------------------------- The text of the proposed rule change is available at the Exchange's Web site at www.bats.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: (i) Add new optional functionality to orders that include the Minimum Execution Quantity instruction by amending paragraph (h) of Exchange Rule 11.6, Definitions; (ii) amend paragraph (b)(3) of Exchange Rule 11.8 to specify that a Minimum Execution Quantity instruction may be included on a Limit Order with a TIF of IOC; and (iii) amend paragraph (e)(3) of Exchange Rule 11.10, Order Execution, to specify that a change to the minimum quantity of an order with a Minimum Execution Quantity instruction may be included in a Replace message. These proposed amendments are substantially similar to the rules of Nasdaq and IEX.\6\ --------------------------------------------------------------------------- \6\ See id. --------------------------------------------------------------------------- Exchange Rule 11.6(h), Proposed Individual Minimum Size The Exchange proposes to add new optional functionality that would enhance the utility of the Minimum Execution Quantity instruction by amending paragraph (h) of Exchange Rule 11.6, Definitions. In sum, the proposal would permit an incoming order with a Minimum Execution Quantity to forego executions where multiple resting orders could otherwise be aggregated to satisfy the order's minimum quantity. A Minimum Execution Quantity enables a User \7\ to specify a minimum share amount at which the order will execute. An order with a Minimum Execution Quantity will not execute unless the volume of contra-side liquidity available to execute against the order meets or exceeds the designated minimum. Specifically, Minimum Execution Quantity is an instruction a User may attach to an order with a Non- Displayed \8\ instruction or a TIF of IOC \9\ requiring the System \10\ to execute the order only to the extent that a minimum quantity can be satisfied by execution against a single order or multiple aggregated orders simultaneously.\11\ Today, an order with a Minimum Execution Quantity will execute upon entry against a single order or multiple orders if the sum of those orders is equal to or greater than its minimum quantity. An order with a Minimum Execution Quantity instruction may be partially executed upon entry so long as the execution size is equal to or exceeds the minimum quantity provided in the instruction. Any shares remaining after a partial execution will continue to be executed at a size that is equal to or exceeds the quantity provided in the instruction. Where the number of shares [[Page 40813]] remaining after a partial execution are less than the quantity provided in the instruction, the Minimum Execution Quantity shall be equal to the number of shares remaining. The Minimum Execution Quantity instruction may be coupled with Market Orders with a TIF of IOC,\12\ Limit Orders with a Non-Displayed instruction \13\ or TIF of IOC (as discussed below), Intermarket Sweep Orders (``ISO'') with a TIF of IOC,\14\ MidPoint Peg Orders,\15\ and Supplemental Peg Orders.\16\ --------------------------------------------------------------------------- \7\ The term ``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). \8\ The term ``Non-Displayed'' is defined as ``[a]n instruction the User may attach to an order stating that the order is not to be displayed by the System on the EDGX Book.'' See Exchange Rule 11.6(e)(2). \9\ As discussed below, the Exchange also proposes to clarify within Rule 11.6(h) that a Minimum Quantity instruction may also be added to an order with a TIF of IOC. See e.g., Exchange Rules 11.8(a)(3) and (c)(2) (specifying that the Minimum Quantity instruction may be included on Market Orders and ISOs with a TIF of IOC). \10\ The term ``System'' is defined as ``the electronic communications and trading facility designated by the Board through which securities orders of Users are consolidated for ranking, execution and, when applicable, routing away.'' See Exchange Rule 1.5(cc). \11\ Today, the System will aggregate multiple resting orders to satisfy the incoming order's minimum quantity and a User cannot elect the incoming order to execute against a single resting contra- side order. \12\ See Exchange Rule 11.8(a)(3). \13\ See Exchange Rule 11.8(b)(3). \14\ See Exchange Rule 11.8(c)(2). \15\ See Exchange Rule 11.8(d)(2). \16\ See Exchange Rule 11.8(f)(2). --------------------------------------------------------------------------- The Exchange has observed that some market participants avoid sending large orders with a Minimum Execution Quantity instruction to the Exchange out of concern that such orders may interact with small orders entered by professional traders, possibly adversely impacting the execution of their larger order. Institutional orders are often much larger in size than the average order in the marketplace. To facilitate the liquidation or acquisition of a large position, market participants tend to submit multiple orders into the market that may only represent a fraction of the overall institutional position to be executed. Various strategies used by institutional market participants to execute large orders are intended to limit price movement of the security at issue. Executing in small sizes, even if in the aggregate it meets the order's minimum quantity, may impact the market for that security such that the additional orders the market participant has yet to enter into the market may be more costly to execute. If an institution is able to execute in larger sizes, the contra-party to the execution is less likely to be a participant that reacts to short term changes in the stock price, and as such, the price impact to the stock may be less acute when larger individual executions are obtained.\17\ As a result, these orders are often executed away from the Exchange in dark pools or other exchanges that offer the same functionality as proposed herein,\18\ or via broker-dealer internalization. --------------------------------------------------------------------------- \17\ The Commission has long recognized this concern: ``[a]nother type of implicit transaction cost reflected in the price of a security is short-term price volatility caused by temporary imbalances in trading interest. For example, a significant implicit cost for large investors (who often represent the consolidated investments of many individuals) is the price impact that their large trades can have on the market. Indeed, disclosure of these large orders can reduce the likelihood of their being filled.'' See Securities Exchange Act Release No. 42450 (February 23, 2000), 65 FR 10577, 10581 (February 28, 2000) (SR-NYSE-99-48). \18\ See supra note 5. --------------------------------------------------------------------------- To attract larger orders with a Minimum Execution Quantity, the Exchange proposes to add new optional functionality that would enhance the utility of the Minimum Execution Quantity instruction. In sum, the proposal would permit a User to elect that its incoming order with a Minimum Execution Quantity execute solely against one or more resting individual orders, each of which must satisfy the order's minimum quantity condition. In such case, the order would forego executions where multiple resting orders could otherwise be aggregated to satisfy the order's minimum quantity, but do not individually satisfy the minimum quantity condition.\19\ As discussed above, under the current rule an order with a Minimum Execution Quantity will execute upon entry against any number of smaller contra-side orders that, in aggregate, meet the minimum quantity set by the User. This default behavior will remain. For example, assume there are two orders to sell resting on the EDGX Book \20\--the first for 300 shares and a second for 400 shares, with the 300 share order having time priority ahead of the 400 share order. If a User entered an order with a Minimum Execution Quantity to buy 1,000 shares at $10.00 with a minimum quantity of 500 shares, and the order was marketable against the two resting sell orders for 300 and 400 shares, the System would aggregate both sell orders for purposes of meeting the minimum quantity, thus resulting in executions of 300 shares and then 400 shares respectively with the remaining 300 shares of the an order with a Minimum Execution Quantity being posted to the EDGX Book with a minimum quantity restriction of 300 shares. --------------------------------------------------------------------------- \19\ If no election is made, the System will aggregate multiple resting orders to satisfy the incoming order's minimum quantity. \20\ The term ``EDGX Book'' is defined as ``the System's electronic file of orders.'' See Exchange Rule 1.5(d). --------------------------------------------------------------------------- The proposed new optional functionality will not allow aggregation of smaller executions to satisfy the minimum quantity of an incoming order with a Minimum Execution Quantity. Using the same scenario as above, but with the proposed new functionality and a Minimum Execution Quantity requirement of 400 shares selected by the User, the order with a Minimum Execution Quantity would not execute against the two sell orders because the 300 share order with time priority at the top of the EDGX Book is less than the incoming order's 400 share Minimum Execution Quantity. The new functionality will cause the order with a Minimum Execution Quantity to be cancelled or posted to the EDGX Book, Non- Displayed, in accordance with the characteristics of the underlying order type \21\ when encountering an order with time priority that is of insufficient size to satisfy the minimum execution requirement. If posted, the order with a Minimum Execution Quantity will operate as it does currently and will only execute against individual orders that satisfy its minimum quantity as proposed herein. The Exchange notes that the User entering the order with a Minimum Execution Quantity has expressed its intention not to execute against liquidity below a certain minimum size, and therefore, cedes execution priority when it would lock an order against which it would otherwise execute if it were not for the minimum execution size restriction. The Exchange proposes to add language to paragraph (h) of Rule 11.6 to make clear that the order would cede execution priority in such in scenario. --------------------------------------------------------------------------- \21\ See supra notes 11 through 16 for a description of the functionality associated with orders that may include a Minimum Execution Quantity. --------------------------------------------------------------------------- As amended, the description of Minimum Execution Quantity under paragraph (h) of Exchange Rule 11.6 would set forth the default behavior of the Minimum Quantity instruction of executing upon entry against a single order or multiple aggregated orders simultaneously. Amended Rule 11.6(h) would set forth the proposed optional functionality where a User may alternatively specify that the incoming order's minimum quantity condition be satisfied by each order resting on the EDGX Book that would execute against the order with the Minimum Execution Quantity instruction. If there are such orders, but there are also orders that do not satisfy the minimum quantity condition, the incoming order with the Minimum Execution Quantity instruction will execute against orders resting on the EDGX Book in accordance with Rule 11.9, Order Priority, until it reaches an order that does not satisfy the minimum quantity condition at which point it would be posted to the EDGX Book or cancelled in accordance with the terms of the order. If, upon entry, there are no orders that satisfy the minimum quantity condition resting on the EDGX Book, the order will either be posted to the EDGX Book or cancelled in accordance with the terms of the order. The Exchange also proposes to re-price incoming orders with a Minimum Execution Quantity instruction where that order may cross an order posted on the EDGX Book. Specifically, where there is insufficient size to satisfy an [[Page 40814]] incoming order's minimum quantity condition and that incoming order, if posted at its limit price, would cross an order(s) resting on the EDGX Book, the order with the minimum quantity condition will be re-priced to and ranked at the Locking Price.\22\ For example, an order to buy at $11.00 with a minimum quantity condition of 500 shares is entered and there is an order resting on the EDGX Book to sell 200 shares at $10.99. The resting order to sell does not contain sufficient size to satisfy the incoming order's minimum quantity condition of 500 shares. The price of the incoming buy order, if posted to the EDGX Book, would cross the price of the resting sell order. In such case, to avoid an internally crossed book, the System will re-price the incoming buy order to $10.99, the Locking Price. This behavior is similar to how the Exchange currently reprices Non-Displayed orders that cross the Protected Quotation of an external market.\23\ In addition, both IEX and Nasdaq also re-price similar orders to avoid an internally crossed book.\24\ --------------------------------------------------------------------------- \22\ ``Locking Price'' is defined as ``[t]he price at which an order to buy (sell), that if displayed by the System on the EDGX Book, either upon entry into the System, or upon return to the System after being routed away, would be a Locking Quotation.'' See Exchange Rule 11.6(f). \23\ See Exchange Rule 11.6(l)(3). \24\ See Nasdaq Rule 4703(e). See IEX Rule 11.190(h)(2). --------------------------------------------------------------------------- The rule would further be amended to account for the partial execution against an individual order in accordance with the proposed rule change. Specifically, paragraph (h) of Exchange Rule 11.6 would further be amended to state that that an order with a Minimum Execution Quantity instruction may be partially executed so long as the execution size of the individual order or aggregate size of multiple orders, as applicable, are equal to or exceed the minimum quantity provided in the instruction. The Exchange also proposes to amend the description of the Minimum Execution Quantity instruction to clarify its operation upon order entry and when the order is posted to the EDGX Book. The Exchange proposes to clarify that upon entry, and by default, an order with a Minimum Execution Quantity will execute against a single order or multiple aggregated orders simultaneously or only against orders that individually satisfy the order's minimum quantity condition, as proposed herein. Once posted to the EDGX Book,\25\ the order may only execute against individual incoming orders with a size that satisfies the minimum quantity condition. The Exchange also proposed to clarify that an order that includes a Minimum Execution Quantity instruction is not eligible to be routed to another Trading Center in accordance with Exchange Rule 11.11, Routing to Away Trading Centers. These proposed changes would add additional specificity to the operation of the Minimum Execution Quantity instruction and are consistent with similar functionality offered by IEX and Nasdaq.\26\ --------------------------------------------------------------------------- \25\ Orders will only post to the EDGX Book if they are designated with a TIF instruction that allows for posting. For example, an order a TIF of IOC or FOK will never post to the EDGX Book. \26\ See supra note 5. --------------------------------------------------------------------------- Exchange Rule 11.8(b)(3), Limit Order Clarification The Exchange also proposes to amend paragraph (b)(3) of Exchange Rule 11.8 to specify that a Minimum Execution Quantity instruction may be included on a Limit Order with a TIF of IOC. Currently, paragraph (b)(3) of Exchange Rule 11.8 states that Minimum Execution Quantity instruction may be placed on a Limit Order with a Non-Displayed instruction. As stated above, the Minimum Execution Quantity instruction may be coupled with, among other order types, Market Orders with a TIF of IOC and ISOs with a TIF of IOC. A Limit Order with a TIF of IOC will never be displayed or posted on the EDGX Book because, by instruction, it is to only execute upon entry, route or cancel back to the User and will never be posted to the EDGX Book.\27\ Therefore, current functionality allows a Minimum Execution Quantity instruction to be included on a Limit Order with a TIF of IOC, as that order would not be displayed on the EDGX Book. The Exchange now seeks to add additional specificity to paragraph (b)(3) of Exchange Rule 11.6 to expressly state that a Minimum Execution Quantity instruction may be included on a Limit Order with a TIF of IOC. The Exchange notes that this is also consistent with the treatment of Minimum Quantity Orders on Bats BZX Exchange, Inc. (``BZX'').\28\ --------------------------------------------------------------------------- \27\ See Exchange Rule 11.6(q)(1). \28\ See BZX Rule 11.9(c)(5) (stating that BZX will only honor a specified minimum quantity on BZX Only Orders that are non-displayed or IOCs). --------------------------------------------------------------------------- Exchange Rule 11.10(e)(3), Replace Messages The Exchange also proposes to amend paragraph (e)(3) of Rule 11.10, Order Execution, to specify that a change to the minimum quantity of an order with a Minimum Execution Quantity instruction may be included in a Replace message. The rule currently states that other than changing a Limit Order to a Market Order, only the price, Stop Price,\29\ the sell long indicator, Short Sale instruction,\30\ Max Floor \31\ and quantity terms of the order may be changed with a Replace message.\32\ As amended, paragraph (e)(3) of Rule 11.10 would also provide for a change to the minimum quantity of an order to be included in a Replace message.\33\ If a User desires to change any other terms of an existing order, the existing order must be cancelled and a new order must be entered. The Exchange notes that specifying within Rule 11.10(e)(3) that a change to the minimum quantity of an order may be included in a Replace message is consistent with current functionality offered by IEX.\34\ --------------------------------------------------------------------------- \29\ See Exchange Rules 11.8(a)(1) and (b)(1). \30\ See Exchange Rule 11.6(o). \31\ See Exchange Rule 11.6(m)(1). \32\ The Exchange also proposes to amend this paragraph to specify that the Max Floor is associated with an order with a Reserve Quantity and to replace the phrase ``and quantity terms'' with the word ``size''. The Exchange believes these changes will add additional specificity to the rule and ensure the rule uses terminology consistent with the description of Replace messages and their impact on an order's priority under Exchange Rule 11.9(a)(4). \33\ A change to the minimum quantity of an order via a Replace message will result in such order losing time priority as compared to other orders in the EDGX Book and the time stamp for such order being revised to reflect the time of the modification. \34\ See IEX Rule 11.190(d)(3) (allowing a replace message to change the minimum quantity of a Minimum Quantity Order). --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \35\ in general, and furthers the objectives of Section 6(b)(5) of the Act \36\ in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \35\ 15 U.S.C. 78f(b). \36\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Exchange Rule 11.6(h), Proposed Individual Minimum Size The proposed rule change would remove impediments to and promote just and equitable principles of trade because it would provide Users with optional functionality that enhances the use of the Minimum Execution Quantity instruction. The proposed change to the functioning of the Minimum Execution Quantity instruction will provide market participants, including institutional firms who ultimately represent individual retail investors in [[Page 40815]] many cases, with better control over their orders, thereby providing them with greater potential to improve the quality of their order executions. Currently, the rule allows Users to designate a minimum acceptable quantity on an order that may aggregate multiple executions to meet the minimum quantity requirement. Once posted to the book, however, the minimum quantity requirement is equivalent to a minimum execution size requirement. The Exchange is now proposing to provide Users with control over the execution of their orders with a Minimum Execution Quantity instruction by allowing them an option to designate the minimum individual execution size upon entry. The control offered by the proposed change is consistent with the various types of control currently provided by exchange order types. For example, the Exchange and other exchanges offer limit orders, which allow a market participant control over the price it will pay or receive for a stock.\37\ Similarly, exchanges offer order types that allow market participants to structure their trading activity in a manner that is more likely to avoid certain transaction cost related economic outcomes.\38\ --------------------------------------------------------------------------- \37\ See Exchange Rule 11.8(b). \38\ For example, the Exchange's Post Only instruction. See Exchange Rule 11.6(n)(4). --------------------------------------------------------------------------- As discussed above, the functionality proposed herein would enable Users to avoid transacting with smaller orders that they believe ultimately increases the cost of the transaction. Because the Exchange does not have this functionality, market participants, such as large institutions that transact a large number of orders on behalf of retail investors, have avoided sending large orders to the Exchange to avoid potentially more expensive transactions.\39\ In this regard, the Exchange notes that the proposed new optional functionality may improve the Exchange's market by attracting more order flow. Such new order flow will further enhance the depth and liquidity on the Exchange, which supports just and equitable principals of trade. Furthermore, the proposed modification to the Minimum Execution Quantity instruction is consistent with providing market participants with greater control over the nature of their executions so that they may achieve their trading goals and improve the quality of their executions. --------------------------------------------------------------------------- \39\ As noted, the proposal is designed to attract liquidity to the Exchange by allowing market participants to designate a minimum size of a contra-side order to interact with, thus providing them with functionality available to them on dark markets. --------------------------------------------------------------------------- The Exchange also believes that re-pricing incoming orders with a Minimum Execution Quantity instruction where that order may cross an order posted on the EDGX Book promotes just and equitable principles of trade because it enables the Exchange to avoid an internally crossed book. The proposed re-pricing is also similar to how the Exchange currently reprices Non-Displayed orders that cross the Protected Quotation of an external market.\40\ In addition, both IEX and Nasdaq also re-price minimum quantity orders to avoid an internally crossed book. In certain circumstances, Nasdaq re-prices buy (sell) orders to one minimum price increment below (above) the lowest (highest) price of such orders.\41\ IEX re-prices non-displayed orders, such as minimum quantity orders, that include a limit price more aggressive than the midpoint of the NBBO to the midpoint of the NBBO.\42\ --------------------------------------------------------------------------- \40\ See Exchange Rule 11.6(l)(3). \41\ See Nasdaq Rule 4703(e). \42\ See IEX Rule 11.190(h)(2). --------------------------------------------------------------------------- Moreover, the proposed optional functionality for the Minimum Execution Quantity instruction is substantially similar to that offered by Nasdaq and IEX, both of which have been recently approved by the Commission.\43\ Lastly, the proposed clarifications of the handing [sic] of orders with a Minimum Execution Quantity upon entry and once posted to the EDGX Book would add additional specificity to the operation of the Minimum Execution Quantity instruction and are consistent with similar functionality offered by Nasdaq.\44\ --------------------------------------------------------------------------- \43\ See supra note 5. The Exchange also notes that a letter was submitted in strong support of Nasdaq at the time they proposed similar changes to the operation of their Minimum Quantity order attribute under Nasdaq Rule 4703(e). See letter to the Commission from James J. Angel, Associate Professor of Finance, Georgetown University, dated November 26, 2014. \44\ See supra note 5. --------------------------------------------------------------------------- Clarification to Exchange Rules 11.8(b)(3) and 11.10(e)(3) The Exchange believes the proposed amendments to paragraph (b)(3) of Rule 11.8 and paragraph (e)(3) of Rule 11.10 are also consistent with the Act in that they will add additional specificity to the rules. In particular, the proposed amendments to paragraph (b)(3) to Rule 11.8 would add additional specificity regarding the order type instructions that may be coupled with a Limit Order. The Exchange notes that this is also consistent with the treatment of Minimum Quantity Orders on BZX,\45\ thereby making the rule clearer and avoiding potential investor confusion. Also, the amendments to paragraph (e)(3) of Rule 11.10 will ensure the rule uses terminology consistent with the description of Replace messages and their impact on an order's priority under Exchange Rule 11.9(a)(4). Also, the Exchange notes that specifying within Rule 11.10(e)(3) that a change to the minimum quantity of an order with a Minimum Execution Quantity instruction may be included in a Replace message is consistent with current functionality offered by IEX.\46\ --------------------------------------------------------------------------- \45\ See BZX Rule 11.9(c)(5) (stating that BZX will only honor a specified minimum quantity on BZX Only Orders that are non-displayed or IOCs). \46\ See IEX Rule 11.190(d)(3). --------------------------------------------------------------------------- (B) Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. On the contrary, the Exchange believes the proposed rule change promotes competition because it will enable the Exchange to offer functionality substantially similar to that offered by Nasdaq and IEX.\47\ In addition, the proposed amendments to paragraph (b)(3) of Rule 11.8 and paragraph (e)(3) of Rule 11.10 would not have any impact on competition as they simply add additional details to each rule and do not alter current System functionality. Therefore, the Exchange does not believe the proposed rule change will result in any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. --------------------------------------------------------------------------- \47\ See supra note 5. --------------------------------------------------------------------------- (C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No comments were solicited or received on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (A) Significantly affect the protection of investors or the public interest; (B) impose any significant burden on competition; and (C) by its terms, become operative for 30 days from the date on which it was filed or such shorter time as the Commission may designate it has become effective pursuant to Section 19(b)(3)(A) of the [[Page 40816]] Act \48\ and paragraph (f)(6) of Rule 19b-4 thereunder,\49\ the Exchange has designated this rule filing as non-controversial. The Exchange has given the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. --------------------------------------------------------------------------- \48\ 15 U.S.C. 78s(b)(3)(A). \49\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (1) Necessary or appropriate in the public interest; (2) for the protection of investors; or (3) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic 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-BatsEDGX-2017-34 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-BatsEDGX-2017-34. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BatsEDGX-2017-34 and should be submitted on or before September 18, 2017. --------------------------------------------------------------------------- \50\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\50\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-18127 Filed 8-25-17; 8:45 am] BILLING CODE 8011-01-P
![40812 Federal Register / Vol. 82, No. 165 / Monday, August 28, 2017 / Notices
gives notice that, pursuant to 39 U.S.C. Rule 11.10, Order Execution, to specify Exchange Rule 11.6(h), Proposed
3642 and 3632(b)(3), on August 22, that a change to the minimum quantity Individual Minimum Size
2017, it filed with the Postal Regulatory of an order with a Minimum Execution The Exchange proposes to add new
Commission a Request of the United Quantity instruction may be included in optional functionality that would
States Postal Service to Add Priority a Replace message. The proposed enhance the utility of the Minimum
Mail Contract 344 to Competitive amendments are substantially similar to Execution Quantity instruction by
Product List. Documents are available at the rules of the Nasdaq Stock Market amending paragraph (h) of Exchange
www.prc.gov, Docket Nos. MC2017–179, LLC (‘‘Nasdaq’’) and the Investors Rule 11.6, Definitions. In sum, the
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The text of the proposed rule change order with a Minimum Execution
Elizabeth A. Reed, is available at the Exchange’s Web site
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at www.bats.com, at the principal office multiple resting orders could otherwise
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any comments it received on the
and Immediate Effectiveness of a Execution Quantity is an instruction a
proposed rule change. The text of these
Proposed Rule Change to Rules 11.6, User may attach to an order with a Non-
statements may be examined at the
Definitions, 11.8, Order Types, and Displayed 8 instruction or a TIF of IOC 9
places specified in Item IV below. The
11.10, Order Execution requiring the System 10 to execute the
Exchange has prepared summaries, set
order only to the extent that a minimum
August 22, 2017. forth in Sections A, B, and C below, of
quantity can be satisfied by execution
Pursuant to Section 19(b)(1) of the the most significant parts of such
against a single order or multiple
Securities Exchange Act of 1934 (the statements.
aggregated orders simultaneously.11
‘‘Act’’),1 and Rule 19b–4 thereunder,2 (A) Self-Regulatory Organization’s Today, an order with a Minimum
notice is hereby given that on August Statement of the Purpose of, and Execution Quantity will execute upon
11, 2017, Bats EDGX Exchange, Inc. (the Statutory Basis for, the Proposed Rule entry against a single order or multiple
‘‘Exchange’’ or ‘‘EDGX’’) filed with the Change orders if the sum of those orders is equal
Securities and Exchange Commission to or greater than its minimum quantity.
(‘‘Commission’’) the proposed rule 1. Purpose
An order with a Minimum Execution
change as described in Items I, II, and The Exchange proposes to: (i) Add Quantity instruction may be partially
III below, which Items have been new optional functionality to orders that executed upon entry so long as the
prepared by the Exchange. The include the Minimum Execution execution size is equal to or exceeds the
Exchange has designated this proposal Quantity instruction by amending minimum quantity provided in the
as a ‘‘non-controversial’’ proposed rule paragraph (h) of Exchange Rule 11.6, instruction. Any shares remaining after
change pursuant to Section 19(b)(3)(A) Definitions; (ii) amend paragraph (b)(3) a partial execution will continue to be
of the Act 3 and Rule 19b–4(f)(6)(iii) of Exchange Rule 11.8 to specify that a executed at a size that is equal to or
thereunder,4 which renders it effective Minimum Execution Quantity exceeds the quantity provided in the
upon filing with the Commission. The instruction may be included on a Limit instruction. Where the number of shares
Commission is publishing this notice to Order with a TIF of IOC; and (iii) amend
solicit comments on the proposed rule paragraph (e)(3) of Exchange Rule 11.10, 7 The term ‘‘User’’ is defined as ‘‘any Member or
change from interested persons. Order Execution, to specify that a Sponsored Participant who is authorized to obtain
change to the minimum quantity of an access to the System pursuant to Rule 11.3.’’ See
I. Self-Regulatory Organization’s order with a Minimum Execution Exchange Rule 1.5(ee).
Statement of the Terms of Substance of Quantity instruction may be included in
8 The term ‘‘Non-Displayed’’ is defined as ‘‘[a]n
the Proposed Rule Change instruction the User may attach to an order stating
a Replace message. These proposed that the order is not to be displayed by the System
The Exchange filed a proposal to: (i) amendments are substantially similar to on the EDGX Book.’’ See Exchange Rule 11.6(e)(2).
Add new optional functionality to the rules of Nasdaq and IEX.6 9 As discussed below, the Exchange also proposes
to clarify within Rule 11.6(h) that a Minimum
orders that include the Minimum Quantity instruction may also be added to an order
5 See Nasdaq Rule 4703(e) (defining Minimum
Execution Quantity instruction by with a TIF of IOC. See e.g., Exchange Rules
Quantity). See also Securities Exchange Act Release
amending paragraph (h) of Exchange No. 73959 (December 30, 2014), 80 FR 582 (January
11.8(a)(3) and (c)(2) (specifying that the Minimum
Rule 11.6, Definitions; (ii) amend 6, 2015) (order approving new optional Quantity instruction may be included on Market
Orders and ISOs with a TIF of IOC).
paragraph (b)(3) of Exchange Rule 11.8 functionality for Minimum Quantity Orders). See
asabaliauskas on DSKBBXCHB2PROD with NOTICES
10 The term ‘‘System’’ is defined as ‘‘the
to specify that a Minimum Execution IEX Rule 11.190(b)(11) and Supplementary Material
.03 (defining Minimum Quantity Orders and electronic communications and trading facility
Quantity instruction may be included MinExec with Cancel Remaining and MinExec with designated by the Board through which securities
on a Limit Order with a TIF of IOC; and AON Remaining). See also Securities Exchange Act orders of Users are consolidated for ranking,
(iii) amend paragraph (e)(3) of Exchange Release No. 78101 (June 17, 2016), 81 FR 41141 execution and, when applicable, routing away.’’ See
(June 23, 2016) (order approving the IEX exchange Exchange Rule 1.5(cc).
1 15
application, which included IEX’s Minimum 11 Today, the System will aggregate multiple
U.S.C. 78s(b)(1). Quantity Orders). See also IEX Rule 11.190(d)(3) resting orders to satisfy the incoming order’s
2 17 CFR 240.19b–4. (allowing the minimum quantity size of an order to minimum quantity and a User cannot elect the
3 15 U.S.C. 78s(b)(3)(A). be changed via a replace message). incoming order to execute against a single resting
4 17 CFR 240.19b–4(f)(6)(iii). 6 See id. contra-side order.
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![Federal Register / Vol. 82, No. 165 / Monday, August 28, 2017 / Notices 40813
remaining after a partial execution are To attract larger orders with a cancelled or posted to the EDGX Book,
less than the quantity provided in the Minimum Execution Quantity, the Non-Displayed, in accordance with the
instruction, the Minimum Execution Exchange proposes to add new optional characteristics of the underlying order
Quantity shall be equal to the number functionality that would enhance the type 21 when encountering an order with
of shares remaining. The Minimum utility of the Minimum Execution time priority that is of insufficient size
Execution Quantity instruction may be Quantity instruction. In sum, the to satisfy the minimum execution
coupled with Market Orders with a TIF proposal would permit a User to elect requirement. If posted, the order with a
of IOC,12 Limit Orders with a Non- that its incoming order with a Minimum Minimum Execution Quantity will
Displayed instruction 13 or TIF of IOC Execution Quantity execute solely operate as it does currently and will
(as discussed below), Intermarket Sweep against one or more resting individual only execute against individual orders
Orders (‘‘ISO’’) with a TIF of IOC,14 orders, each of which must satisfy the that satisfy its minimum quantity as
MidPoint Peg Orders,15 and order’s minimum quantity condition. In proposed herein. The Exchange notes
Supplemental Peg Orders.16 such case, the order would forego that the User entering the order with a
The Exchange has observed that some executions where multiple resting Minimum Execution Quantity has
market participants avoid sending large orders could otherwise be aggregated to expressed its intention not to execute
orders with a Minimum Execution satisfy the order’s minimum quantity, against liquidity below a certain
Quantity instruction to the Exchange but do not individually satisfy the minimum size, and therefore, cedes
out of concern that such orders may minimum quantity condition.19 As execution priority when it would lock
interact with small orders entered by discussed above, under the current rule an order against which it would
professional traders, possibly adversely an order with a Minimum Execution otherwise execute if it were not for the
impacting the execution of their larger Quantity will execute upon entry minimum execution size restriction.
order. Institutional orders are often against any number of smaller contra- The Exchange proposes to add language
much larger in size than the average side orders that, in aggregate, meet the to paragraph (h) of Rule 11.6 to make
order in the marketplace. To facilitate minimum quantity set by the User. This clear that the order would cede
the liquidation or acquisition of a large default behavior will remain. For execution priority in such in scenario.
position, market participants tend to example, assume there are two orders to As amended, the description of
submit multiple orders into the market sell resting on the EDGX Book 20—the Minimum Execution Quantity under
that may only represent a fraction of the first for 300 shares and a second for 400 paragraph (h) of Exchange Rule 11.6
overall institutional position to be shares, with the 300 share order having would set forth the default behavior of
executed. Various strategies used by time priority ahead of the 400 share the Minimum Quantity instruction of
institutional market participants to order. If a User entered an order with a executing upon entry against a single
execute large orders are intended to Minimum Execution Quantity to buy order or multiple aggregated orders
limit price movement of the security at 1,000 shares at $10.00 with a minimum simultaneously. Amended Rule 11.6(h)
issue. Executing in small sizes, even if quantity of 500 shares, and the order would set forth the proposed optional
in the aggregate it meets the order’s was marketable against the two resting functionality where a User may
minimum quantity, may impact the sell orders for 300 and 400 shares, the alternatively specify that the incoming
market for that security such that the System would aggregate both sell orders order’s minimum quantity condition be
additional orders the market participant for purposes of meeting the minimum satisfied by each order resting on the
has yet to enter into the market may be quantity, thus resulting in executions of EDGX Book that would execute against
more costly to execute. If an institution 300 shares and then 400 shares the order with the Minimum Execution
is able to execute in larger sizes, the respectively with the remaining 300 Quantity instruction. If there are such
contra-party to the execution is less shares of the an order with a Minimum orders, but there are also orders that do
likely to be a participant that reacts to Execution Quantity being posted to the not satisfy the minimum quantity
short term changes in the stock price, EDGX Book with a minimum quantity condition, the incoming order with the
and as such, the price impact to the restriction of 300 shares. Minimum Execution Quantity
stock may be less acute when larger The proposed new optional instruction will execute against orders
individual executions are obtained.17 As functionality will not allow aggregation resting on the EDGX Book in accordance
a result, these orders are often executed of smaller executions to satisfy the with Rule 11.9, Order Priority, until it
away from the Exchange in dark pools minimum quantity of an incoming order reaches an order that does not satisfy
or other exchanges that offer the same with a Minimum Execution Quantity. the minimum quantity condition at
functionality as proposed herein,18 or Using the same scenario as above, but which point it would be posted to the
via broker-dealer internalization. with the proposed new functionality EDGX Book or cancelled in accordance
and a Minimum Execution Quantity with the terms of the order. If, upon
12 See Exchange Rule 11.8(a)(3). requirement of 400 shares selected by entry, there are no orders that satisfy the
13 See Exchange Rule 11.8(b)(3). the User, the order with a Minimum minimum quantity condition resting on
14 See Exchange Rule 11.8(c)(2).
Execution Quantity would not execute the EDGX Book, the order will either be
15 See Exchange Rule 11.8(d)(2).
16 See Exchange Rule 11.8(f)(2).
against the two sell orders because the posted to the EDGX Book or cancelled
17 The Commission has long recognized this
300 share order with time priority at the in accordance with the terms of the
concern: ‘‘[a]nother type of implicit transaction cost top of the EDGX Book is less than the order.
reflected in the price of a security is short-term incoming order’s 400 share Minimum The Exchange also proposes to re-
asabaliauskas on DSKBBXCHB2PROD with NOTICES
price volatility caused by temporary imbalances in Execution Quantity. The new
trading interest. For example, a significant implicit price incoming orders with a Minimum
cost for large investors (who often represent the
functionality will cause the order with Execution Quantity instruction where
consolidated investments of many individuals) is a Minimum Execution Quantity to be that order may cross an order posted on
the price impact that their large trades can have on the EDGX Book. Specifically, where
the market. Indeed, disclosure of these large orders 19 If no election is made, the System will
can reduce the likelihood of their being filled.’’ See aggregate multiple resting orders to satisfy the there is insufficient size to satisfy an
Securities Exchange Act Release No. 42450 incoming order’s minimum quantity.
(February 23, 2000), 65 FR 10577, 10581 (February 20 The term ‘‘EDGX Book’’ is defined as ‘‘the 21 See supra notes 11 through 16 for a description
28, 2000) (SR–NYSE–99–48). System’s electronic file of orders.’’ See Exchange of the functionality associated with orders that may
18 See supra note 5. Rule 1.5(d). include a Minimum Execution Quantity.
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![40814 Federal Register / Vol. 82, No. 165 / Monday, August 28, 2017 / Notices
incoming order’s minimum quantity execute against individual incoming Order to a Market Order, only the price,
condition and that incoming order, if orders with a size that satisfies the Stop Price,29 the sell long indicator,
posted at its limit price, would cross an minimum quantity condition. The Short Sale instruction,30 Max Floor 31
order(s) resting on the EDGX Book, the Exchange also proposed to clarify that and quantity terms of the order may be
order with the minimum quantity an order that includes a Minimum changed with a Replace message.32 As
condition will be re-priced to and Execution Quantity instruction is not amended, paragraph (e)(3) of Rule 11.10
ranked at the Locking Price.22 For eligible to be routed to another Trading would also provide for a change to the
example, an order to buy at $11.00 with Center in accordance with Exchange minimum quantity of an order to be
a minimum quantity condition of 500 Rule 11.11, Routing to Away Trading included in a Replace message.33 If a
shares is entered and there is an order Centers. These proposed changes would User desires to change any other terms
resting on the EDGX Book to sell 200 add additional specificity to the of an existing order, the existing order
shares at $10.99. The resting order to operation of the Minimum Execution must be cancelled and a new order must
sell does not contain sufficient size to Quantity instruction and are consistent be entered. The Exchange notes that
satisfy the incoming order’s minimum with similar functionality offered by IEX specifying within Rule 11.10(e)(3) that a
quantity condition of 500 shares. The and Nasdaq.26 change to the minimum quantity of an
price of the incoming buy order, if order may be included in a Replace
Exchange Rule 11.8(b)(3), Limit Order
posted to the EDGX Book, would cross message is consistent with current
Clarification
the price of the resting sell order. In functionality offered by IEX.34
such case, to avoid an internally crossed The Exchange also proposes to amend
paragraph (b)(3) of Exchange Rule 11.8 2. Statutory Basis
book, the System will re-price the
incoming buy order to $10.99, the to specify that a Minimum Execution The Exchange believes that its
Locking Price. This behavior is similar Quantity instruction may be included proposal is consistent with Section 6(b)
to how the Exchange currently reprices on a Limit Order with a TIF of IOC. of the Act 35 in general, and furthers the
Non-Displayed orders that cross the Currently, paragraph (b)(3) of Exchange objectives of Section 6(b)(5) of the Act 36
Protected Quotation of an external Rule 11.8 states that Minimum in particular, in that it is designed to
market.23 In addition, both IEX and Execution Quantity instruction may be promote just and equitable principles of
Nasdaq also re-price similar orders to placed on a Limit Order with a Non- trade, to foster cooperation and
avoid an internally crossed book.24 Displayed instruction. As stated above, coordination with persons engaged in
The rule would further be amended to the Minimum Execution Quantity facilitating transactions in securities, to
account for the partial execution against instruction may be coupled with, among remove impediments to and perfect the
an individual order in accordance with other order types, Market Orders with a mechanism of a free and open market
the proposed rule change. Specifically, TIF of IOC and ISOs with a TIF of IOC. and a national market system and, in
paragraph (h) of Exchange Rule 11.6 A Limit Order with a TIF of IOC will general, to protect investors and the
would further be amended to state that never be displayed or posted on the public interest.
that an order with a Minimum EDGX Book because, by instruction, it is
Exchange Rule 11.6(h), Proposed
Execution Quantity instruction may be to only execute upon entry, route or
Individual Minimum Size
partially executed so long as the cancel back to the User and will never
execution size of the individual order or be posted to the EDGX Book.27 The proposed rule change would
aggregate size of multiple orders, as Therefore, current functionality allows a remove impediments to and promote
applicable, are equal to or exceed the Minimum Execution Quantity just and equitable principles of trade
minimum quantity provided in the instruction to be included on a Limit because it would provide Users with
instruction. Order with a TIF of IOC, as that order optional functionality that enhances the
The Exchange also proposes to amend would not be displayed on the EDGX use of the Minimum Execution Quantity
the description of the Minimum Book. The Exchange now seeks to add instruction. The proposed change to the
Execution Quantity instruction to clarify additional specificity to paragraph (b)(3) functioning of the Minimum Execution
its operation upon order entry and when of Exchange Rule 11.6 to expressly state Quantity instruction will provide
the order is posted to the EDGX Book. that a Minimum Execution Quantity market participants, including
The Exchange proposes to clarify that instruction may be included on a Limit institutional firms who ultimately
upon entry, and by default, an order Order with a TIF of IOC. The Exchange represent individual retail investors in
with a Minimum Execution Quantity notes that this is also consistent with
29 See Exchange Rules 11.8(a)(1) and (b)(1).
will execute against a single order or the treatment of Minimum Quantity
30 See Exchange Rule 11.6(o).
multiple aggregated orders Orders on Bats BZX Exchange, Inc. 31 See Exchange Rule 11.6(m)(1).
simultaneously or only against orders (‘‘BZX’’).28 32 The Exchange also proposes to amend this
that individually satisfy the order’s Exchange Rule 11.10(e)(3), Replace paragraph to specify that the Max Floor is
minimum quantity condition, as Messages associated with an order with a Reserve Quantity
proposed herein. Once posted to the and to replace the phrase ‘‘and quantity terms’’ with
The Exchange also proposes to amend the word ‘‘size’’. The Exchange believes these
EDGX Book,25 the order may only changes will add additional specificity to the rule
paragraph (e)(3) of Rule 11.10, Order and ensure the rule uses terminology consistent
22 ‘‘Locking Price’’ is defined as ‘‘[t]he price at Execution, to specify that a change to with the description of Replace messages and their
which an order to buy (sell), that if displayed by the minimum quantity of an order with impact on an order’s priority under Exchange Rule
the System on the EDGX Book, either upon entry a Minimum Execution Quantity 11.9(a)(4).
asabaliauskas on DSKBBXCHB2PROD with NOTICES
into the System, or upon return to the System after 33 A change to the minimum quantity of an order
being routed away, would be a Locking Quotation.’’
instruction may be included in a
via a Replace message will result in such order
See Exchange Rule 11.6(f). Replace message. The rule currently losing time priority as compared to other orders in
23 See Exchange Rule 11.6(l)(3). states that other than changing a Limit the EDGX Book and the time stamp for such order
24 See Nasdaq Rule 4703(e). See IEX Rule being revised to reflect the time of the modification.
26 See supra note 5. 34 See IEX Rule 11.190(d)(3) (allowing a replace
11.190(h)(2).
25 Orders will only post to the EDGX Book if they 27 See Exchange Rule 11.6(q)(1). message to change the minimum quantity of a
are designated with a TIF instruction that allows for 28 See BZX Rule 11.9(c)(5) (stating that BZX will Minimum Quantity Order).
35 15 U.S.C. 78f(b).
posting. For example, an order a TIF of IOC or FOK only honor a specified minimum quantity on BZX
will never post to the EDGX Book. Only Orders that are non-displayed or IOCs). 36 15 U.S.C. 78f(b)(5).
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many cases, with better control over and improve the quality of their Minimum Quantity Orders on BZX,45
their orders, thereby providing them executions. thereby making the rule clearer and
with greater potential to improve the The Exchange also believes that re- avoiding potential investor confusion.
quality of their order executions. pricing incoming orders with a Also, the amendments to paragraph
Currently, the rule allows Users to Minimum Execution Quantity (e)(3) of Rule 11.10 will ensure the rule
designate a minimum acceptable instruction where that order may cross uses terminology consistent with the
quantity on an order that may aggregate an order posted on the EDGX Book description of Replace messages and
multiple executions to meet the promotes just and equitable principles their impact on an order’s priority under
minimum quantity requirement. Once of trade because it enables the Exchange Exchange Rule 11.9(a)(4). Also, the
posted to the book, however, the to avoid an internally crossed book. The Exchange notes that specifying within
minimum quantity requirement is proposed re-pricing is also similar to Rule 11.10(e)(3) that a change to the
how the Exchange currently reprices minimum quantity of an order with a
equivalent to a minimum execution size
Non-Displayed orders that cross the Minimum Execution Quantity
requirement. The Exchange is now
Protected Quotation of an external instruction may be included in a
proposing to provide Users with control
market.40 In addition, both IEX and Replace message is consistent with
over the execution of their orders with Nasdaq also re-price minimum quantity
a Minimum Execution Quantity current functionality offered by IEX.46
orders to avoid an internally crossed
instruction by allowing them an option book. In certain circumstances, Nasdaq (B) Self-Regulatory Organization’s
to designate the minimum individual re-prices buy (sell) orders to one Statement on Burden on Competition
execution size upon entry. The control minimum price increment below The Exchange does not believe that
offered by the proposed change is (above) the lowest (highest) price of the proposed rule change will result in
consistent with the various types of such orders.41 IEX re-prices non- any burden on competition that is not
control currently provided by exchange displayed orders, such as minimum necessary or appropriate in furtherance
order types. For example, the Exchange quantity orders, that include a limit of the purposes of the Act, as amended.
and other exchanges offer limit orders, price more aggressive than the midpoint On the contrary, the Exchange believes
which allow a market participant of the NBBO to the midpoint of the the proposed rule change promotes
control over the price it will pay or NBBO.42 competition because it will enable the
receive for a stock.37 Similarly, Moreover, the proposed optional Exchange to offer functionality
exchanges offer order types that allow functionality for the Minimum substantially similar to that offered by
market participants to structure their Execution Quantity instruction is Nasdaq and IEX.47 In addition, the
trading activity in a manner that is more substantially similar to that offered by proposed amendments to paragraph
likely to avoid certain transaction cost Nasdaq and IEX, both of which have (b)(3) of Rule 11.8 and paragraph (e)(3)
related economic outcomes.38 been recently approved by the of Rule 11.10 would not have any
Commission.43 Lastly, the proposed impact on competition as they simply
As discussed above, the functionality
clarifications of the handing [sic] of add additional details to each rule and
proposed herein would enable Users to
orders with a Minimum Execution do not alter current System
avoid transacting with smaller orders
Quantity upon entry and once posted to functionality. Therefore, the Exchange
that they believe ultimately increases the EDGX Book would add additional
the cost of the transaction. Because the does not believe the proposed rule
specificity to the operation of the change will result in any burden on
Exchange does not have this Minimum Execution Quantity
functionality, market participants, such intermarket competition that is not
instruction and are consistent with necessary or appropriate in furtherance
as large institutions that transact a large similar functionality offered by
number of orders on behalf of retail of the purposes of the Act.
Nasdaq.44
investors, have avoided sending large (C) Self-Regulatory Organization’s
orders to the Exchange to avoid Clarification to Exchange Rules
Statement on Comments on the
potentially more expensive 11.8(b)(3) and 11.10(e)(3)
Proposed Rule Change Received From
transactions.39 In this regard, the The Exchange believes the proposed Members, Participants or Others
Exchange notes that the proposed new amendments to paragraph (b)(3) of Rule
11.8 and paragraph (e)(3) of Rule 11.10 No comments were solicited or
optional functionality may improve the
are also consistent with the Act in that received on the proposed rule change.
Exchange’s market by attracting more
order flow. Such new order flow will they will add additional specificity to III. Date of Effectiveness of the
further enhance the depth and liquidity the rules. In particular, the proposed Proposed Rule Change and Timing for
on the Exchange, which supports just amendments to paragraph (b)(3) to Rule Commission Action
and equitable principals of trade. 11.8 would add additional specificity
Because the foregoing proposed rule
Furthermore, the proposed modification regarding the order type instructions
that may be coupled with a Limit Order. change does not: (A) Significantly affect
to the Minimum Execution Quantity the protection of investors or the public
instruction is consistent with providing The Exchange notes that this is also
consistent with the treatment of interest; (B) impose any significant
market participants with greater control burden on competition; and (C) by its
over the nature of their executions so 40 See terms, become operative for 30 days
Exchange Rule 11.6(l)(3).
that they may achieve their trading goals 41 See from the date on which it was filed or
Nasdaq Rule 4703(e).
asabaliauskas on DSKBBXCHB2PROD with NOTICES
42 See IEX Rule 11.190(h)(2). such shorter time as the Commission
37 See Exchange Rule 11.8(b). 43 See supra note 5. The Exchange also notes that may designate it has become effective
38 For example, the Exchange’s Post Only a letter was submitted in strong support of Nasdaq pursuant to Section 19(b)(3)(A) of the
instruction. See Exchange Rule 11.6(n)(4). at the time they proposed similar changes to the
39 As noted, the proposal is designed to attract operation of their Minimum Quantity order
45 See BZX Rule 11.9(c)(5) (stating that BZX will
liquidity to the Exchange by allowing market attribute under Nasdaq Rule 4703(e). See letter to
participants to designate a minimum size of a the Commission from James J. Angel, Associate only honor a specified minimum quantity on BZX
contra-side order to interact with, thus providing Professor of Finance, Georgetown University, dated Only Orders that are non-displayed or IOCs).
November 26, 2014. 46 See IEX Rule 11.190(d)(3).
them with functionality available to them on dark
markets. 44 See supra note 5. 47 See supra note 5.
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![40816 Federal Register / Vol. 82, No. 165 / Monday, August 28, 2017 / Notices
Act 48 and paragraph (f)(6) of Rule 19b– those that may be withheld from the I. Self-Regulatory Organization’s
4 thereunder,49 the Exchange has public in accordance with the Statement of the Terms of Substance of
designated this rule filing as non- provisions of 5 U.S.C. 552, will be the Proposed Rule Change
controversial. The Exchange has given available for Web site viewing and The Exchange proposes to list and
the Commission written notice of its printing in the Commission’s Public trade the shares of the following under
intent to file the proposed rule change, Reference Room, 100 F Street NE., NYSE Arca Equities Rule 8.200,
along with a brief description and text Washington, DC 20549, on official Commentary .02 (‘‘Trust Issued
of the proposed rule change at least five business days between the hours of Receipts’’): The U.S. Equity Cumulative
business days prior to the date of filing 10:00 a.m. and 3:00 p.m. Copies of the Dividends Fund—Series 2027 and the
of the proposed rule change, or such filing also will be available for U.S. Equity Ex-Dividend Fund—Series
shorter time as designated by the inspection and copying at the principal 2027. The proposed change is available
Commission. office of the Exchange. All comments on the Exchange’s Web site at
At any time within 60 days of the received will be posted without change; www.nyse.com, at the principal office of
filing of the proposed rule change, the the Commission does not edit personal the Exchange, and at the Commission’s
Commission summarily may identifying information from Public Reference Room.
temporarily suspend such rule change if submissions. You should submit only
it appears to the Commission that such information that you wish to make II. Self-Regulatory Organization’s
action is: (1) Necessary or appropriate in available publicly. All submissions Statement of the Purpose of, and
the public interest; (2) for the protection should refer to File Number SR– Statutory Basis for, the Proposed Rule
of investors; or (3) otherwise in BatsEDGX–2017–34 and should be Change
furtherance of the purposes of the Act. submitted on or before September 18, In its filing with the Commission, the
If the Commission takes such action, the 2017. self-regulatory organization included
Commission shall institute proceedings statements concerning the purpose of,
to determine whether the proposed rule For the Commission, by the Division of
Trading and Markets, pursuant to delegated
and basis for, the proposed rule change
should be approved or disapproved. and discussed any comments it received
authority.50
IV. Solicitation of Comments on the proposed rule change. The text
Eduardo A. Aleman,
of those statements may be examined at
Interested persons are invited to Assistant Secretary. the places specified in Item IV below.
submit written data, views, and [FR Doc. 2017–18127 Filed 8–25–17; 8:45 am] The Exchange has prepared summaries,
arguments concerning the foregoing, set forth in sections A, B, and C below,
BILLING CODE 8011–01–P
including whether the proposed rule of the most significant parts of such
change is consistent with the Act. statements.
Comments may be submitted by any of SECURITIES AND EXCHANGE
the following methods: A. Self-Regulatory Organization’s
COMMISSION
Statement of the Purpose of, and the
Electronic Comments
Statutory Basis for, the Proposed Rule
• Use the Commission’s Internet [Release No. 34–81453; File No. SR– Change
comment form (http://www.sec.gov/ NYSEArca–2017–88]
rules/sro.shtml); or 1. Purpose
• Send an email to rule-comments@ Self-Regulatory Organizations; NYSE The Exchange proposes to list and
sec.gov. Please include File Number SR– Arca, Inc.; Notice of Filing of Proposed trade shares (‘‘Shares’’) of the following
BatsEDGX–2017–34 on the subject line. Rule Change to List and Trade the under NYSE Arca Equities Rule 8.200,
Shares of the U.S. Equity Cumulative Commentary .02, which governs the
Paper Comments Dividends Fund—Series 2027 and the listing and trading of Trust Issued
• Send paper comments in triplicate U.S. Equity Ex-Dividend Fund—Series Receipts: U.S. Equity Cumulative
to Secretary, Securities and Exchange 2027 Under NYSE Arca Equities Rule Dividends Fund—Series 2027 (the
Commission, 100 F Street NE., 8.200, Commentary .02 ‘‘Dividend Fund’’) and U.S. Equity Ex-
Washington, DC 20549–1090. Dividend Fund—Series 2027 (the ‘‘Ex-
All submissions should refer to File August 22, 2017.
Dividend Fund’’, and together with the
Number SR–BatsEDGX–2017–34. This Pursuant to Section 19(b)(1) 1 of the Dividend Fund, the ‘‘Funds’’ and each,
file number should be included on the Securities Exchange Act of 1934 a ‘‘Fund’’).4
subject line if email is used. To help the (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 Each Fund will be a series of
Commission process and review your notice is hereby given that, on August Metaurus Equity Component Trust (the
comments more efficiently, please use 8, 2017, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘Trust’’), a Delaware statutory trust.5
only one method. The Commission will ‘‘NYSE Arca’’) filed with the Securities
post all comments on the Commission’s and Exchange Commission 4 Commentary .02 to NYSE Arca Equities Rule
Internet Web site (http://www.sec.gov/ (‘‘Commission’’) the proposed rule 8.200 applies to Trust Issued Receipts that invest
in ‘‘Financial Instruments.’’ The term ‘‘Financial
rules/sro.shtml). Copies of the change as described in Items I, II, and Instruments,’’ as defined in Commentary .02(b)(4) to
submission, all subsequent III below, which Items have been NYSE Arca Equities Rule 8.200, means any
amendments, all written statements prepared by the self-regulatory combination of investments, including cash;
asabaliauskas on DSKBBXCHB2PROD with NOTICES
with respect to the proposed rule organization. The Commission is securities; options on securities and indices; futures
contracts; options on futures contracts; forward
change that are filed with the publishing this notice to solicit contracts; equity caps, collars, and floors; and swap
Commission, and all written comments on the proposed rule change agreements.
communications relating to the from interested persons. 5 On June 9, 2017, the Trust submitted to the
proposed rule change between the Commission its draft registration statement on Form
S–1 (the ‘‘Registration Statement’’) under the
Commission and any person, other than 50 17 CFR 200.30–3(a)(12). Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities
1 15 U.S.C. 78s(b)(1). Act’’). The Jumpstart Our Business Startups Act,
48 15 U.S.C. 78s(b)(3)(A). 2 15 U.S.C. 78a.
enacted on April 5, 2012, added Section 6(e) to the
49 17 CFR 240.19b–4. 3 17 CFR 240.19b–4. Securities Act. Section 6(e) of the Securities Act
VerDate Sep<11>2014 18:45 Aug 25, 2017 Jkt 241001 PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 E:\FR\FM\28AUN1.SGM 28AUN1](https://thefederalregister.org/doc/82_FR_40977/page/5.svg)
Document Created: 2017-08-28 11:30:10
Document Modified: 2017-08-28 11:30:10
| 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 | 82 FR 40812 |
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