[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Notices]
[Pages 3674-3679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01065]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74076; File No. SR-EDGA-2015-02]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify 
the Use of Certain Data Feeds

January 15, 2015.
    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 January 7, 2015, EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend certain rules to adopt or 
align system functionality with that currently offered by BATS 
Exchange, Inc. (``BZX'') and BATS Y-Exchange, Inc. (``BYX'', and 
collectively with BZX, ``BATS'') in order to provide a consistent 
technology offering amongst the Exchange and its affiliates. These 
changes, which are described in detail below, propose to clarify for 
Members \3\ and non-Members the Exchange's use of certain data feeds 
for order handling and execution, order routing, and regulatory 
compliance.
---------------------------------------------------------------------------

    \3\ The term ``Member'' is defined as ``any registered broker or 
dealer, or any person associated with a registered broker or dealer, 
that has been admitted to membership in the Exchange. A Member will 
have the status of a ``member'' of the Exchange as that term is 
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
---------------------------------------------------------------------------

    On July 15, 2014, the Exchange filed a proposed rule change that 
described its use of data feeds for order handling and execution, order 
routing, and regulatory compliance (the ``Initial Proposal'') with the 
Commission.\4\ The Exchange submits this supplemental filing in order 
to specify for Members and non-Members the Exchange's use of certain 
data feeds in connection with the technology migration described in 
further detail below.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 72682 (July 28, 
2014), 79 FR 44938 (August 1, 2014) (SR-EDGA-2014-17). Other 
national securities exchange filed similar proposals. See e.g., 
Securities Exchange Act Release Nos. 72710 (July 29, 2014), 79 FR 
45511 (August 5, 2014) (SR-NYSE-2014-38), and 72684 (July 28, 2014), 
79 FR44956 (August 1, 2014) (SR-NASDAQ-2014-072).
    \5\ The Exchange understands that other national security 
exchanges will file similar proposed rule changes with the 
Commission to further describe their use of data feeds for order 
handling and execution, order routing, and regulatory compliance.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.directedge.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
Background
    On June 5, 2014, Chair White requested that all national securities 
exchanges develop proposed rule changes to disclose their use of data 
feeds to execute and route orders and comply with regulatory 
requirements.\6\ In addition, on June 20, 2014, the Commission's 
Division of Trading and Markets requested that the Exchange file 
proposed rule changes that disclose its usage of particular market data 
feeds, among other things.\7\ In response to these requests, the 
Exchange filed the Initial Proposal with the Commission on July 15, 
2014.\8\ The Exchange submits this supplemental filing to describe the 
Exchange's use of certain data feeds for order handling and execution, 
order routing, and regulatory compliance in connection with the 
technology migration described in further detail below.\9\
---------------------------------------------------------------------------

    \6\ See Mary Jo White, Chair, Securities and Exchange 
Commission, Speech at Sandler O'Neill & Partners L.P. Global 
Exchange and Brokerage Conference (June 5, 2014).
    \7\ See letter from Stephen Luparello, Director, Division of 
Trading and Markets, Securities and Exchange Commission, to Joe 
Ratterman, Chief Executive Officer, BATS Global Markets, Inc., dated 
June 20, 2014.
    \8\ See supra note 6.
    \9\ See supra note 7.
---------------------------------------------------------------------------

Technology Migration
    Earlier this year, the Exchange and its affiliate EDGX Exchange, 
Inc. (``EDGX'') received approval to effect a merger (the ``Merger'') 
of the Exchange's parent company, Direct Edge Holdings LLC, with BATS 
Global Markets, Inc., the parent company of BATS (the Exchange, 
together with BZX, BYX and EDGX, the ``BGM Affiliated Exchanges'').\10\ 
In the context of the Merger, the BGM Affiliated Exchanges are working 
to migrate EDGA and EDGX onto the BATS technology platform, and align 
certain system functionality, retaining only

[[Page 3675]]

intended differences between the BGM Affiliated Exchanges.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43; SR-EDGA-2013-
34).
---------------------------------------------------------------------------

    The proposed amendments are intended to align certain system 
functionality with that currently offered by BATS in order to provide a 
consistent technology offering for Users \11\ of the BGM Affiliated 
Exchanges. The Exchange notes that the proposed rule text is based on 
corresponding proposals being submitted by all of the BGM Affiliated 
Exchanges. The proposed amendments do not propose to implement new or 
unique functionality that has not been previously filed with the 
Commission or is not available on BATS or BYX.
---------------------------------------------------------------------------

    \11\ 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).
---------------------------------------------------------------------------

    To ensure proper context and a complete filing describing the 
Exchange's procedures in this area both prior to and after the 
technology migration, the Exchange has repeated relevant information 
from the Initial Proposal and supplemented such information as 
necessary. In each section below the Exchange first describes its pre-
integration functionality, which will be in place until the technology 
migration is complete, followed by a description of post-integration 
functionality. The Exchange anticipates completing the technology 
migration on or about January 12, 2015.
Order Handling and Execution
    Pre-Integration Functionality. The Exchange's Matching Engine (the 
``ME'') determines whether an order should be displayed, executed 
internally, or routed to another market center. In making this 
determination, the ME continually receives and maintains quote data 
that is delivered from an internal processor (the ``Feed Handler''). 
The market data processed by the Feed Handler is sourced directly from 
the Securities Information Processors (``SIP'') feeds. Specifically, 
the Exchange's ME uses the Consolidated Tape Association (CTA) market 
data operated by the Securities Industry Automation Corp. in Tapes A 
and B and Unlisted Trading Privileges (UTP) market data operated by 
NASDAQ OMX Group, Inc. in Tape C securities.
    These SIP feeds contain the best (top-of-book) prices in round lot 
quotations of each protected venue. The Exchange's ME consumes the SIP 
feeds to obtain the top-of-book quotes from each protected venue, 
including the Exchange's affiliates, EDGX, BZX, and BYX, and the 
Financial Industry Regulatory Authority's (``FINRA'') Alternative 
Display Facility (``ADF''). The SIP feeds do not display odd lot 
quotations; therefore, the ME does not use odd lot quotations to 
calculate the national best bid and offer (``NBBO''). However, a 
protected venue may aggregate odd lot quotations to create round lot 
quotations and publish those round lot quotations to the SIPs feeds. 
Based on the SIP feeds and the EDGA Book,\12\ the ME constructs the 
NBBO.
---------------------------------------------------------------------------

    \12\ The term ``EDGA Book'' is defined as ``the System's 
electronic file of orders.'' See Exchange Rule 1.5(d).
---------------------------------------------------------------------------

    The ME will also update the NBBO upon receipt of an Intermarket 
Sweep Order (``ISO'') with a time-in-force of Day (``Day ISO''). When a 
Day ISO is posted on the EDGA Book, the ME uses the receipt of a Day 
ISO as evidence that the protected quotes have been cleared, and the ME 
does not check away markets for equal or better-priced protected 
quotes.\13\ The ME will then display and execute non-ISO orders at the 
same price as the Day ISO.
---------------------------------------------------------------------------

    \13\ Pursuant to Regulation NMS, a broker-dealer routing a Day 
ISO is required to simultaneously route one or more additional ISOs, 
as necessary, to execute against the full displayed size of any 
protected quote priced equal to or better than the Day ISO. See also 
Question 5.02 in the ``Division of Trading and Markets, Responses to 
Frequently Asked Questions Concerning Rule 611 and Rule 610 of 
Regulation NMS'' (last updated April 4, 2008) available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------

    The NBBO is utilized for order handling and execution. The Exchange 
looks to its calculation of the NBBO, based on the SIP feeds and the 
EDGA Book, when determining the price at which an order with a Pegged 
instruction,\14\ MidPoint Peg Order,\15\ MidPoint Discretionary 
Order,\16\ Market Maker Peg Order,\17\ or Supplemental Peg Order \18\ 
is to be pegged.
    Post-Integration Functionality. As proposed, following the 
technology migration in order to calculate the NBBO in its Matching 
Engine (the ``ME''), the Exchange will use quotes disseminated by 
market centers through proprietary data feeds (generally referred to as 
``Direct Feeds'') as well as by the SIP. The ME will use quotes 
disseminated from SIP feeds for the Chicago Stock Exchange, Inc., NYSE 
MKT LLC and FINRA's ADF. The ME will consume the Direct Feeds from 
every other protected venue, including the Exchange's affiliates, BZX, 
BYX and EDGX.
---------------------------------------------------------------------------

    \14\ See Exchange Rule 11.6(j).
    \15\ See Exchange Rule 11.8(d).
    \16\ See Exchange Rule 11.8(e).
    \17\ See Exchange Rule 11.8(f).
    \18\ See Exchange Rule 11.8(g).
---------------------------------------------------------------------------

    The ME will include odd lot quotations in its calculation of the 
NBBO depending on the source of the quotation. Where a protected market 
center aggregates odd lot quotations at a single price level into round 
lot quotations and publishes such aggregated quotations to the SIPs, 
then the ME will include those odd lot quotations in its calculation of 
the NBBO. In addition, where a protected market center aggregates odd 
lot quotations across more than one price level and publishes such 
aggregated quotations to the SIPs, then the ME will include those odd 
lot quotations in its calculation of the NBBO.
    In addition to receiving Direct Feeds and SIP feeds, the ME's 
calculation of the NBBO may be adjusted based on orders sent to other 
venues with protected quotations, execution reports received from those 
venues, and certain orders received by the Exchange (collectively 
``Feedback''). The Exchange does not include its quotes in the 
calculation of the Exchange's NBBO because the system is designed such 
that all incoming orders are separately compared to the Exchange's Best 
Bid or Offer and the Exchange calculated NBBO, which together create a 
complete view of the NBBO, prior to display, execution, or routing.
    Feedback from the receipt of ISOs with a time-in-force of Day 
(``Day ISOs'') and feedback from the Exchange's routing broker/dealer, 
BATS Trading, Inc., (``BATS Trading''),\19\ defined respectively as 
``Day ISO Feedback and ``Router Feedback,'' will be used to augment the 
market data received by Direct Feeds and the SIP feeds as further 
described below. The Exchange's ME will update the NBBO upon receipt of 
a Day ISO. When a Day ISO is posted on the EDGA Book, the ME uses the 
receipt of a Day ISO as evidence that the protected quotes have been 
cleared, and the ME does not check away markets for equal or better-
priced protected quotes.\20\ The ME will then display and

[[Page 3676]]

execute non-ISO orders at the same price as the Day ISO.
---------------------------------------------------------------------------

    \19\ The Exchange notes that it recently filed a separate 
proposal reflecting a change from its current routing broker-dealer, 
Direct Edge ECN LLC (d/b/a DE Route), to the use of BATS Trading, 
Inc. as the Exchange's routing broker-dealer in connection with the 
technology migration. See Securities Exchange Act Release No. 73939 
(December 24, 2014), 80 FR 91 (January 2, 2015) (SR-EDGA-2014-34).
    \20\ Pursuant to Regulation NMS, a broker-dealer routing a Day 
ISO is required to simultaneously route one or more additional ISOs, 
as necessary, to execute against the full displayed size of any 
protected quote priced equal to or better than the Day ISO. See also 
Question 5.02 in the ``Division of Trading and Markets, Responses to 
Frequently Asked Questions Concerning Rule 611 and Rule 610 of 
Regulation NMS'' (last updated April 4, 2008) available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------

    All Feedback expires as soon as: (i) One (1) second passes; (ii) 
the Exchange receives new quote information; or (iii) the Exchange 
receives updated Feedback information. With the exception of Day ISO 
Feedback, the Exchange currently generates Feedback where an order was 
routed using a routing strategy offered by the Exchange that accesses 
protected quotes of trading venues on the System Routing Table (``Smart 
Order Routing'').\21\
---------------------------------------------------------------------------

    \21\ As set forth in Rule 11.11(g), the term ``System routing 
table'' refers to the proprietary process for determining the 
specific trading venues to which the System routes orders and the 
order in which it routes them.
---------------------------------------------------------------------------

    As described above, the NBBO is utilized for order handling and 
execution. In determining the price where an order with a Pegged 
instruction,\22\ MidPoint Peg Order,\23\ MidPoint Discretionary 
Order,\24\ Market Maker Peg Order \25\ or Supplemental Peg Order \26\ 
is to be pegged, the Exchange uses the Pegged NBBO (``PBBO''). The 
Exchange will calculate the PBBO using information regarding orders 
displayed on the EDGA Book in addition to the quotes disseminated by 
market centers through Direct Feeds, SIP feeds, and Feedback used by 
the ME for its NBBO calculation.
---------------------------------------------------------------------------

    \22\ See Exchange Rule 11.6(j).
    \23\ See Exchange Rule 11.8(d).
    \24\ See Exchange Rule 11.8(e).
    \25\ See Exchange Rule 11.8(f).
    \26\ See Exchange Rule 11.8(g).
---------------------------------------------------------------------------

Order Routing
    Pre-Integration Functionality. When the Exchange has a marketable 
order with instructions from the sender that the order is eligible to 
be routed, and the ME identifies that there is no matching price 
available on the Exchange, but there is a matching price represented at 
another venue that displays protected quotes, then the ME will send the 
order to the Routing Engine (``RE'') of Direct Edge ECN LLC (d/b/a DE 
Route).\27\
---------------------------------------------------------------------------

    \27\ See supra note 21.
---------------------------------------------------------------------------

    In determining whether to route an order and to which venue(s) it 
should be routed, the RE uses quotes disseminated from Direct Feeds, 
including EDGA, EDGX, BZX and BYX, and the SIP feeds from those venues 
where the Exchange does not take the Direct Feeds, including FINRA's 
ADF.
    The RE utilizes a third-party market data processor that consumes 
the Direct Feeds and the SIP feeds, aggregates the quantities of 
symbols by price level, and redistributes them to an internal quote 
processor (the ``Quote Server''). The RE will request from the Quote 
Server a market data snapshot which includes the top-of-book and/or 
depth-of-book of each market center offering depth-of-book feeds. 
Depending on the source of the quotation, the Quote Server may include 
odd lot quotations if the market center publishes odd lot quotations in 
its Direct Feed.
    Based on this snapshot, the RE determines where to route the order, 
allocating the shares to the venues at each price level up to the limit 
price of the order, starting with the best quotes subject to the 
Member's instructions. If there are any shares remaining after the 
response to the initial route is received, the RE will take another 
snapshot from the Quote Server and send out orders based on the same 
logic. If the full quantity of the order is not executed after multiple 
route attempts, the order is returned to the ME.
    In addition, the RE utilizes in-flight order information in its 
routing methodology. The RE tracks the details of each in-flight order, 
including the quantity routed and the corresponding quote published by 
the routed venue. After the RE requests a market data snapshot from the 
Quote Server and the RE has already targeted this quote (identified by 
venue, symbol, price, quantity and time stamp), then the RE will 
subtract the routed quantity of in-flight orders from the quote size 
displayed in the market data snapshot. The RE will route an order for 
the remaining quantity to the venue. If there are no residual shares, 
the RE will bypass the quote.
    The RE also utilizes responses from other venues displaying 
protected quotes in its routing methodology. When the RE receives a 
response from a venue that does not completely fill the order targeting 
a quote, and no subsequent quote update has been received from that 
venue at the same price level, the RE will mark that venue's quote as 
stale at that price level.\28\ Absent additional quote updates from 
that venue, the RE will bypass the quote for one (1) second. After one 
second, if the quote is still included in the market data snapshot, the 
RE will target the quote again.
---------------------------------------------------------------------------

    \28\ Question 11 of the ``Division of Market Regulation: 
Responses to Frequently Asked Questions Concerning Rule 611 and Rule 
610 of Regulation NMS'' describes routing practices in the context 
of stale quotes, available at http://www.sec.gov/divisions/marketreg/rule611faq.pdf.
---------------------------------------------------------------------------

    Post Integration Functionality. As proposed, following the 
technology migration, when the Exchange has a marketable order with 
instructions from the sender that the order is eligible to be routed, 
and the ME identifies that there is no matching price available on the 
Exchange but there is a matching price represented at another venue 
that displays protected quotes, then the ME will send the order to the 
RE of BATS Trading.
    In determining whether to route an order and to which venue(s) it 
should be routed, the RE will make its own calculation of the NBBO 
using the Direct Feeds, SIP feeds, and Router Feedback, as described 
below.\29\ The RE will include odd lot quotations in its calculation of 
the NBBO depending on the source of the quotation. Where a protected 
market center aggregates odd lot quotations at a single price level 
into round lot quotations and publishes such aggregated quotations to 
the SIPs, then the RE will include those odd lot quotations in its 
calculation of the NBBO.
---------------------------------------------------------------------------

    \29\ The ME and RE consume the same Direct Feeds and SIP feeds.
---------------------------------------------------------------------------

    The RE will not utilize Day ISO Feedback in constructing the NBBO; 
however, because all orders initially flow through the ME, to the 
extent Day ISO Feedback has updated the ME's calculation of the NBBO, 
all orders processed by the RE will take Day ISO Feedback into account. 
The RE will receive Feedback from all Smart Order Routing strategies.
    There are three types of Router Feedback that contribute to the 
Exchange's calculation of the NBBO:
     Immediate Feedback. Where BATS Trading routes an order to 
a venue with a protected quotation using Smart Order Routing (a 
``Feedback Order''), the number of shares available at that venue will 
be immediately decreased by the number of shares routed to the venue at 
the applicable price level.
     Execution Feedback. Where BATS Trading receives an 
execution report associated with a Feedback Order that indicates that 
the order has fully executed with no remaining shares associated with 
the order, all opposite side quotes on the venue's order book that are 
priced more aggressively than the price at which the order was executed 
will be ignored.
     Cancellation Feedback. Where BATS Trading receives an 
execution report associated with a Feedback Order that indicates that 
the order has not fully executed (either a partial execution or a 
cancellation), all opposite side quotes on the venue's order book that 
are priced equal to or more aggressively than the limit price for the 
order will be ignored.
    All Feedback expires as soon as: (i) One (1) second passes; (ii) 
the Exchange receives new quote information; or (iii)

[[Page 3677]]

the Exchange receives updated Feedback information.
Regulatory Compliance
Locked or Crossed Markets
    Pre-Integration Functionality. The ME determines whether the 
display of an order would lock or cross the market. At the time an 
order is entered into the ME, the ME will establish, based upon the 
prevailing top-of-book quotes of other exchanges displaying protected 
quotes received from the SIP feeds, whether the order will lock or 
cross the prevailing NBBO for a security. In the event that the order 
would produce a locking or crossing condition, the ME will cancel the 
order, re-price \30\ the order or route the order based on the Member's 
instructions. Two exceptions to this logic are Day ISOs and 
declarations of self-help.
---------------------------------------------------------------------------

    \30\ See Exchange Rule 11.6(l).
---------------------------------------------------------------------------

    Pursuant to Regulation NMS, when an Exchange receives a Day ISO, 
the sender of the ISO retains the responsibility to comply with 
applicable rules relating to locked and crossed markets.\31\ In such 
case, the Exchange will display a Day ISO order at the Member's price, 
even if such price would lock or cross the market.\32\
---------------------------------------------------------------------------

    \31\ See supra note 22.
    \32\ See supra note 22.
---------------------------------------------------------------------------

    Declarations of self-help occur when the RE detects that an 
exchange displaying protected quotes is slow, as defined in Regulation 
NMS, or non-responsive to the Exchange's routed orders. In this 
circumstance, according to Rule 611(b) of Regulation NMS, the Exchange 
may display a quotation that may lock or cross quotations from the 
market that the Exchange invoked self-help against.\33\ The ME and RE, 
when they process market data, maintain logic that ignores the quotes 
generated from the self-helped market in their calculations of the NBBO 
for execution and routing determinations in compliance with Regulation 
NMS. The Exchange also disables all routing to the self-helped market. 
The ME and Quote Server continue to consume the self-helped market 
center's quotes, however, in order to immediately include the quote in 
the NBBO calculation and enable routing once self-help is revoked. The 
Exchange excludes quotes from the self-helped market for re-pricing 
purposes and to price orders such as orders with a Pegged instruction 
and MidPoint Peg Orders.
---------------------------------------------------------------------------

    \33\ See also Question 5.03 in the ``Division of Trading and 
Markets, Responses to Frequently Asked Questions Concerning Rule 611 
and Rule 610 of Regulation NMS'' (last updated April 4, 2008) 
available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------

    Post-Integration Functionality. The Exchange's post-integration 
functionality is similar to the pre-integration functionality. However, 
the Exchange notes that at the time an order is entered into the ME, 
the ME will establish, based upon its calculation of the NBBO from 
Direct Feeds, SIP feeds and Feedback, whether the order will lock or 
cross the prevailing NBBO for a security.
Trade-Through Rule
    Pre-Integration Functionality. Pursuant to Rule 611 of Regulation 
NMS, the Exchange shall establish, maintain, and enforce written 
policies and procedures that are reasonably designed to prevent trade-
throughs on trading centers of protected quotations in NMS stocks that 
do not fall within a valid exception and, if relying on such an 
exception, that are reasonably designed to ensure compliance with the 
terms of the exception. The ME does not permit an execution on the 
Exchange if there are better-priced protected quotations displayed in 
the market unless the order is an ISO. At the time an order is entered 
into the ME, the ME uses the view of the NBBO as described above. If 
the NBBO is priced better than what is resident on the Exchange, the 
Exchange will not match such order on the EDGA Book, and based on the 
Member's instructions, the ME will cancel the order, re-price the order 
or route the order.
    Post-Integration Functionality. The Exchange's post-integration 
functionality that describes compliance with the trade-through rule is 
the same as the Exchange's pre-integration functionality. The Exchange 
again notes that following the technology migration, it will 
calculation the NBBO using Direct Feeds, SIP Feeds, and Feedback.
Regulation SHO
    Pre-Integration Functionality. The Exchange cannot execute a short 
sale order \34\ equal to or below the current National Best Bid 
(``NBB'') when a short sale price restriction is in effect pursuant to 
Rule 201 of Regulation SHO (``Short Sale Circuit Breaker'').\35\ When a 
Short Sale Circuit Breaker is in effect, the Exchange utilizes 
information received from the SIP feeds and a view of the EDGA Book to 
assess its compliance with Rule 201 of Regulation SHO. The NBBO used 
for compliance with Rule 201 of Regulation SHO includes quotes from 
market centers against which the Exchange has declared self-help.
---------------------------------------------------------------------------

    \34\ See Exchange Rule 11.6(l)(2).
    \35\ 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010, 
the Commission adopted amendments to Regulation SHO under the Act in 
the form of Rule 201, pursuant to which, among other things, short 
sale orders in covered securities generally cannot be executed or 
displayed by a trading center, such as the Exchange, at a price that 
is at or below the current NBB when a Short Sale Circuit Breaker is 
in effect for the covered security. See Securities Exchange Act 
Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). 
In connection with the adoption of Rule 201, Rule 200(g) of 
Regulation SHO was also amended to include a ``short exempt'' 
marking requirement. See also Securities Exchange Act Release No. 
63247 (November 4, 2010), 75 FR 68702 (November 9, 2010) (extending 
the compliance date for Rules 201 and 200(g) to February 28, 2011). 
See also Division of Trading & Markets: Responses to Frequently 
Asked Questions Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/rule201faq.htm.
---------------------------------------------------------------------------

    Post-Integration Functionality. The Exchange's post-integration 
functionality is similar to the pre-integration functionality, 
including that the NBBO used for compliance with Rule 201 of Regulation 
SHO will include quotes from market centers against which the Exchange 
has declared self-help. However, the Exchange notes that when a Short 
Sale Circuit Breaker is in effect, the Exchange will utilize 
information received from Direct Feeds, SIP feeds, Feedback and a view 
of the EDGA Book to assess its compliance with Rule 201 of Regulation 
SHO.
Latent or Inaccurate Direct Feeds
    Pre-Integration Functionality. Where the Exchange's systems detect 
problems with one or more Direct Feeds, the Quote Server can manually 
fail over to the SIP feed to calculate the NBBO for the market 
center(s) where the applicable Direct Feed is experiencing issues. In 
order to make this determination, the Quote Server continuously polls 
every Direct Feed line and generates an email alert if the difference 
between a quote's sent time (as stamped by the sending market) and the 
time of receipt by the Exchange exceeds one (1) second.
    Post-Integration Functionality. As proposed, where the Exchange's 
systems detect problems with one or more Direct Feeds, the Exchange 
will immediately fail over to the SIP feed to calculate the NBBO for 
the market center(s) where the applicable Direct Feed is experiencing 
issues. The Exchange can also manually fail over to the SIP feed in 
lieu of Direct Feed data upon identification by a market center of an 
issue with its Direct Feed(s).
 2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 3678]]

of the Act \36\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \37\ 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. The Exchange does not 
believe that this proposal will permit unfair discrimination among 
customers, brokers, or dealers because it will be available to all 
Users.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b).
    \37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that its proposal to describe the Exchange's 
use of data feeds removes impediments to and perfects the mechanism of 
a free and open market and protects investors and the public interest 
because it provides additional specificity and transparency regarding 
both the current operation of the System and the operation of the 
System following the migration to BATS technology. The Exchange's 
proposal will enable investors to better assess the quality of the 
Exchange's execution and routing services. The Exchange believes the 
additional transparency into the operation of the Exchange as described 
in the proposal will remove impediments to and perfect the mechanism of 
a free and open market and a national market system, and, in general, 
protect investors and the public interest.

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

    The Exchange does not believe that the proposal will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. On the contrary, the Exchange believes the 
proposal would enhance competition because describing the Exchange's 
use of data feeds enhances transparency and enables investors to better 
assess the quality of the Exchange's execution and routing services. In 
addition, the Exchange believes the proposed rule change will benefit 
Exchange participants in that it is one of several changes necessary to 
achieve a consistent technology offering by the BGM Affiliated 
Exchanges.

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

    The Exchange filed the Initial Proposal with the Commission on July 
15, 2014, and it was published for comment in the Federal Register on 
August 1, 2014. The Commission received four (4) letters commenting on 
companion filings: Two (2) letters commented on SR-BATS-2014-029,\38\ 
one (1) letter commented on SR-BATS-2014-029 and SR-BYX-2014-012,\39\ 
and one (1) letter commented on SR-EDGX-2014-20.\40\ The Exchange 
believes that the comments raised in these letters are either not 
directly related to the Exchange's proposal but instead raise larger 
market structure issues or are adequately addressed in this proposal, 
particularly as it relates to the Commission's request to describe the 
Exchange's use of data feeds for order handling and execution, order 
routing, and regulatory compliance.
---------------------------------------------------------------------------

    \38\ See Letter from R.T. Leuchtkafer to the Commission, dated 
August 22, 2014 (SR-BATS-2014-029) (discussing the Exchange's market 
data feed practices). See Letter from Eric Scott Hunsader, Nanex, 
LLC, to the Commission, dated August 22, 2014 (SR-BATS-2014-029) 
(discussing the Exchange's use of NBBO as a defined term).
    \39\ See Letter from Donald Bollerman, Head of Market 
Operations, IEX ATS, to the Commission, dated September 25, 2014 
(SR-BATS-2014-029) (SR-BYX-2014-012) (discussing the Exchange's 
calculation of the PBBO).
    \40\ See Letter from Suzanne Hamlet Shatto to the Commission, 
dated August 19, 2014 (SR-EDGX-2014-20) (discussing Dodd Frank 
principles).
---------------------------------------------------------------------------

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \41\ and Rule 19b-4(f)(6) 
thereunder.\42\
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(3)(A).
    \42\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \43\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \44\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
stated that waiver of the operative delay will allow the Exchange to 
immediately adopt rule text consistent with the Initial Proposal and 
operate in the same manner as BATS with respect to the use of data 
feeds. In addition, the Exchange stated that waiver of the operative 
delay will allow it to continue to move towards a complete technology 
integration of the BGM Affiliated Exchanges to ensure stability of the 
System. For these reasons, the Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the operative 
delay and designates the proposal operative upon filing.\45\
---------------------------------------------------------------------------

    \43\ 17 CFR 240.19b-4(f)(6).
    \44\ 17 CFR 240.19b-4(f)(6)(iii).
    \45\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-EDGA-2015-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 3679]]

Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGA-2015-02. 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-EDGA-2015-02 and should be 
submitted on or before February 13, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-01065 Filed 1-22-15; 8:45 am]
BILLING CODE 8011-01-P