[Federal Register Volume 80, Number 46 (Tuesday, March 10, 2015)]
[Notices]
[Pages 12666-12671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05485]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74439; File No. SR-EDGX-2015-08]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Rules 11.6, 11.8, 11.9, 11.10 and 11.11 of EDGX Exchange, Inc.

March 4, 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 February 20, 2015, 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 self-regulatory 
organization. On February 27, 2015, the Exchange filed Amendment No. 1 
to the proposal.\3\ The Commission is publishing this notice, as 
modified by Amendment No. 1, 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\ Amendment No. 1 replaces SR-EDGX-2015-08 and supersedes such 
filing in its entirety.
---------------------------------------------------------------------------

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

    The Exchange filed a proposal to amend Rules 11.6, 11.8, 11.9, 
11.10 and 11.11 to clarify and to include additional specificity 
regarding the current functionality of the Exchange's System,\4\ 
including the operation of its order types and order instructions, as 
further described below.
---------------------------------------------------------------------------

    \4\ 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).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

1. Purpose
    On June 5, 2014, Chair Mary Jo White asked all national securities 
exchanges to conduct a comprehensive review of each order type offered 
to members and how it operates.\5\ The Exchange notes that a 
comprehensive rule filing clarifying and updating Exchange rules was 
recently approved.\6\ However, based on the request from Chair White, 
the Exchange did indeed conduct further review of each order types and 
its operation. The proposals set forth below are based on this 
comprehensive review and are intended to clarify and to include 
additional specificity regarding the current functionality of the 
Exchange's System, including the operation of its order types and order 
instructions. The proposals set forth below are intended to supplement 
the recently approved filing based on further review conducted by the 
Exchange and are intended to clarify and enhance the understandability 
of the Exchange's rules related to the ranking and execution of orders. 
The proposal is also intended to add additional detail with respect to 
the handling of orders with a Discretionary

[[Page 12667]]

Range \7\ instruction and orders with a Non-Displayed \8\ instruction. 
The Exchange is not proposing any substantive modifications to the 
System.
---------------------------------------------------------------------------

    \5\ See Mary Jo White, Chair, Commission, Speech at the Sandler 
O'Neill & Partners, L.P. Global Exchange and Brokerage Conference, 
(June 5, 2014) (available at http://www.sec.gov/News/Speech/Detail/Speech/1370542004312#.VD2HW610w6Y).
    \6\ Securities Exchange Act Release No. 73468 (October 29, 
2014), 79 FR 65450 (November 4, 2014) (SR-EDGX-2014-18).
    \7\ See Exchange Rule 11.6(d).
    \8\ See Exchange Rule 11.6(e)(2).
---------------------------------------------------------------------------

Orders With a Discretionary Range and Non-Displayed Orders
    Pursuant to current Rule 11.6(d), the Exchange defines a 
Discretionary Range as an instruction the User \9\ may attach to an 
order to buy (sell) a stated amount of a security at a specified, 
displayed price with discretion to execute up (down) to a specified, 
non-displayed price. For purposes of this proposal, the Exchange will 
use the term ``Discretionary Range'' to describe the amount between the 
displayed price to and including the highest price at which a buyer is 
willing to buy or lowest price at which a seller is willing to sell. 
The Exchange proposes to make clear that although an order with a 
Discretionary Range instruction may be accompanied by a Displayed \10\ 
instruction, an order with a Discretionary Range instruction may also 
be accompanied by a Non-Displayed instruction, and if so, will have a 
non-displayed ranked price as well as a discretionary price. The 
Exchange further proposes to specifically state that resting orders 
with a Discretionary Range instruction will be executed at a price that 
uses the minimum amount of discretion necessary to execute the order 
against an incoming order. In addition, the Exchange proposes to make 
clear certain circumstances where the Discretionary Range of an order 
is temporarily reduced due to contra-side interest resting on the EDGX 
Book.\11\
---------------------------------------------------------------------------

    \9\ 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).
    \10\ See Exchange Rule 11.6(e)(1).
    \11\ The term ``EDGX Book'' is defined as ``the System's 
electronic file of orders.'' See Exchange Rule 1.5(d).
---------------------------------------------------------------------------

    The Exchange also proposes to specify certain situations where the 
Discretionary Range of an order is temporarily reduced based on contra-
side interest resting on the Exchange. The Exchange notes that it is 
possible for an order with a Discretionary Range instruction have its 
Discretionary Range temporarily reduced based on contra-side interest 
resting on the Exchange because an incoming order with a Post Only 
instruction \12\ will be posted to the EDGX Book rather than executing 
against the Discretionary Range of a resting order.
---------------------------------------------------------------------------

    \12\ See Exchange Rule 11.6(n)(4).
---------------------------------------------------------------------------

    With respect to displayed contra-side liquidity, the Exchange 
proposes to make clear that if an order posted to the EDGX Book has a 
Discretionary Range and there is a contra-side order that is displayed 
by the System on the EDGX Book within such Discretionary Range, the 
order with a Discretionary Range will not be permitted to execute at 
the price of or at a price more aggressive than such contra-side 
displayed order unless and until there is no contra-side displayed 
order on the EDGX Book within the Discretionary Range. In such case, 
the order with a Discretionary Range will have discretion to one 
Minimum Price Variation \13\ below (above) the contra-side offer (bid) 
that is displayed by the System on the EDGX Book.
---------------------------------------------------------------------------

    \13\ See Exchange Rule 11.6(i).
---------------------------------------------------------------------------

    With respect to non-displayed contra-side liquidity, the Exchange 
proposes to make clear that if an order posted to the EDGX Book has a 
Discretionary Range and there is a contra-side order with a Non-
Displayed instruction,\14\ the order with a Discretionary Range will 
not be permitted to execute at a price more aggressive than the ranked 
price of such contra-side order unless and until there is no contra-
side order on the EDGX Book within the Discretionary Range. In such 
case, the order with a Discretionary Range will have discretion to the 
ranked price of the contra-side offer (bid) with a Non-Displayed 
instruction that is maintained by the System on the EDGX Book.
---------------------------------------------------------------------------

    \14\ The Exchange notes that the reference to orders with a Non-
Displayed instruction is intended to apply to all orders that are 
not displayed on the Exchange, such as MidPoint Match Orders as 
defined in Rule 11.8(d). The Exchange notes, however, that because 
neither MidPoint Match Orders nor orders with a Discretionary Range 
instruction (as described below) can be entered with a Post Only 
instruction, that the Rule is not currently applicable to any orders 
other than Limit Orders with a Non-Displayed instruction.
---------------------------------------------------------------------------

    Similarly, the Exchange proposes to amend Rule 11.6(l)(3), which 
addresses re-pricing of orders with a Non-Displayed instruction. As set 
forth in Rule 11.6(l)(3), an order with a Non-Displayed instruction 
that is priced better than the midpoint of the NBBO will be ranked at 
the midpoint of the NBBO with discretion to execute to its limit price. 
The Exchange proposes to add language stating that if a contra-side 
order is resting on the EDGX Book at the limit price within the 
Discretionary Range, the order will be ranked at the mid-point of the 
NBBO but its discretion to execute to its limit price will be 
temporarily reduced consistent with the Discretionary Range definition 
described above.
    The Exchange notes that the language proposed with respect to the 
temporary reduction of the Discretionary Range of an order is 
consistent with the Exchange's recently amended rules.\15\ 
Specifically, the Exchange suspends the discretion of an order subject 
to the Hide Not Slide \16\ instruction for so long as a contra-side 
order that equals the Locking Price \17\ is displayed by the System on 
the EDGX Book. The Exchange suspends this discretion to avoid an 
apparent priority issue. In particular, in such a situation the 
Exchange believes a User representing an order that is displayed on the 
Exchange might believe that an incoming order was received by the 
Exchange and then bypassed such displayed order, removing some other 
non-displayed liquidity on the same side of the market as such 
displayed order. For the same reason, the Exchange believes it is 
appropriate to prevent an order with a Discretionary Range instruction 
to execute at the same price or at a price more aggressive than a 
contra-side order that is displayed on the EDGX Book. Similarly, 
although the Exchange believes it is appropriate to permit an order 
with a Discretionary Range instruction to execute at the same price as 
a contra-side order with a Non-Displayed instruction, the Exchange 
suspends such discretion at any more aggressive prices in order to 
avoid trading through orders that have been ranked on and are resting 
on the EDGX Book. Below are examples of the operation of orders with a 
Discretionary Range.
---------------------------------------------------------------------------

    \15\ See supra note 6.
    \16\ See Exchange Rule 11.6(l)(1)(B).
    \17\ See Exchange Rule 11.6(f).
---------------------------------------------------------------------------

Example No. 1: Modification and Reinstatement of Discretionary Range 
With a Displayed Contra-Side Order
    Assume the NBBO is $10.00 by $10.10, that the best-priced order to 
buy in the System is a displayed bid at $9.99, and that the best-priced 
order to sell in the System is a displayed offer at $10.11. A Limit 
Order \18\ to buy 100 shares at $10.00 with a Discretionary Range of 
$0.05 is entered into the System. The order will be displayed on the 
EDGX Book at $10.00 with discretion to execute up to $10.05. If a Limit 
Order to sell 100 shares at $10.05 with a Displayed instruction and a 
Post Only instruction is entered into the System such order will be 
posted and displayed by the System on the EDGX Book as an order to sell 
100 shares at $10.05. The buy order with the Discretionary Range 
instruction will

[[Page 12668]]

have its discretion to execute at $10.05 temporarily suspended but such 
order will continue to have discretion to execute up to $10.04. The 
following examples demonstrate various potential outcomes following the 
temporary suspension of the buy order's discretion to execute at 
$10.05.
---------------------------------------------------------------------------

    \18\ See Exchange Rule 11.8(b).
---------------------------------------------------------------------------

     If a non-routable Limit Order to sell 100 shares at $10.05 
is entered into the System, depending on applicable User instructions, 
such order will either be posted and displayed by the System on the 
EDGX Book as an order to sell 100 shares (i.e., with priority behind 
the order to sell that is already displayed on the EDGX Book at $10.05) 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.04 is 
entered into the System, such order will execute at $10.04 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.02 is 
entered into the System, such order will execute at $10.02 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.00 or 
lower or a Market Order to sell 100 shares is entered into the System, 
such order will execute at $10.00 against the resting buy order with a 
Discretionary Range instruction.
     If, instead, the sell order at $10.05 with a Post Only 
instruction is then canceled, the buy order with a Discretionary Range 
instruction will have its discretion to execute up to $10.05 
reinstated.
     If, instead, a Limit Order to buy 100 shares at $10.05 or 
higher or a Market Order to buy 100 shares is then entered into the 
System, such order will execute at $10.05 against the displayed order 
to sell with a Post Only instruction and the buy order with a 
Discretionary Range instruction will have its discretion to execute up 
to $10.05 reinstated.
Example No. 2: Modification and Reinstatement of Discretionary Range 
With a Non-Displayed Contra-Side Order Priced Less Aggressive Than the 
Midpoint of the NBBO
    Assume the NBBO is $10.00 by $10.10, that the best-priced order to 
buy in the System is a displayed bid at $9.99, and that the best-priced 
order to sell in the System is a displayed offer at $10.11. A Limit 
Order with to buy 100 shares at $10.00 with a Discretionary Range of 
$0.07 is entered into the System. The order will be ranked and 
displayed on the EDGX Book at $10.00 with discretion to execute up to 
$10.07. If a Limit Order to sell 100 shares at $10.06 with a Non-
Displayed instruction and a Post Only instruction is entered into the 
System such order will be posted by the System on the EDGX Book as an 
order to sell 100 shares at $10.06. The buy order's discretion to 
execute at $10.07 will be temporarily suspended but such order will 
continue to have discretion to execute up to $10.06. The following 
examples demonstrate various potential outcomes following the temporary 
suspension of the buy order's discretion to execute at $10.07.
     If a non-routable Limit Order to sell 100 shares at $10.07 
with a Displayed instruction is entered into the System, depending on 
applicable User instructions, such order will be posted and displayed 
by the System on the EDGX Book as an order to sell 100 shares at $10.07 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.06 is 
entered into the System, such order will execute at $10.06 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.02 is 
entered into the System, such order will execute at $10.02 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to sell 100 shares at $10.00 or 
lower or a Market Order to sell 100 shares is entered into the System, 
such order will execute at $10.00 against the resting buy order with a 
Discretionary Range instruction.
     If, instead, the sell order with a Non-Displayed 
instruction of 100 shares that is ranked at $10.06 is then canceled, 
the buy order with a Discretionary Range instruction will have its 
discretion to execute up to $10.07 reinstated.
Example No. 3: Modification and Reinstatement of Discretionary Range 
With a Non-Displayed Contra-Side Order Priced More Aggressive Than the 
Midpoint of the NBBO
    Assume the NBBO is $10.00 by $10.10, that the best-priced order to 
buy in the System is a displayed bid at $9.99, and that the best-priced 
order to sell in the System is a displayed offer at $10.11. A Limit 
Order with to buy 100 shares at $10.00 with a Discretionary Range of 
$0.07 is entered into the System. The order will be displayed on the 
EDGX Book at $10.00 with discretion to execute up to $10.07. If a Limit 
Order to sell 100 shares at $10.04 with a Non-Displayed instruction and 
a Post Only instruction is entered into the System such order will be 
posted by the System on the EDGX Book as an order to sell 100 shares at 
$10.05 (i.e., ranked at the midpoint of the NBBO, as described above) 
with discretion to $10.04. The buy order's discretion to execute at 
$10.07 will be temporarily suspended but such order will continue to 
have discretion to execute up to $10.05. The following examples 
demonstrate various potential outcomes following the temporary 
suspension of the buy order's discretion to execute at $10.07.
     If a non-routable Limit Order to sell 100 shares at $10.07 
with a Displayed instruction is entered into the System, depending on 
applicable User instructions, such order will be posted and displayed 
by the System on the EDGX Book as an order to sell 100 shares at $10.07 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.05 is 
entered into the System, such order will execute at $10.05 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to buy 100 shares at $10.05 is 
entered into the System, such order will execute at $10.05 against the 
resting sell order with a Non-Displayed instruction and a Post Only 
instruction (i.e., at the ranked price of such order).
     If, instead, a Limit Order to sell 100 shares at $10.04 is 
entered into the System, such order will execute at $10.04 against the 
resting buy order with a Discretionary Range instruction.
     If, instead, a Limit Order to buy 100 shares at $10.04 is 
entered into the System, such order will execute at $10.04 against the 
resting sell order with a Non-Displayed instruction and a Post Only 
instruction (i.e., using the discretion of the resting sell order with 
a Non-Displayed instruction to sell at the order's limit price).
     If, instead, a Limit Order to sell 100 shares at $10.00 or 
lower or a Market Order to sell 100 shares is entered into the System, 
such order will execute at $10.00 against the resting buy order with a 
Discretionary Range instruction.
     If, instead, the sell order with a Non-Displayed 
instruction of 100 shares that is ranked at $10.05 is then canceled, 
the buy order with a Discretionary Range instruction will have its 
discretion to execute up to $10.07 reinstated.
    As the above examples demonstrate, the Exchange prevents executions 
against the Discretionary Range of an order at or through the price of 
a resting contra-side order with a Displayed instruction and through 
the price of a resting contra-side order with a Non-Displayed 
instruction (i.e., an execution can occur at the ranked price of an 
order with a Non-Displayed instruction but not at a price that would be 
better than such order's ranked price). The

[[Page 12669]]

Exchange does not, however, prevent executions against the 
Discretionary Range of an order when there is a contra-side order with 
a Discretionary Range at or through that price same price.
    The Exchange's handling of orders with a Discretionary Range 
instruction, including the discretion of an order with a Non-Displayed 
instruction more aggressive than the midpoint of the NBBO to its limit 
price, is intended to reflect the relatively passive nature of orders 
with a Discretionary Range. In all cases, although the Users submitting 
such orders have indicated a willingness to execute at a more 
aggressive price, such orders are ranked at a lower price to buy or a 
higher price to sell. In turn, if an order is executed at its ranked 
price, rather than at a price within the Discretionary Range, then the 
User that submitted the order receives a better result in each case 
(i.e., buys for less or sells for more). With this background, the 
Exchange believes it is reasonable that an order with a Discretionary 
Range instruction or a Non-Displayed instruction might temporarily 
become not executable at certain prices because such prices are more 
aggressive than their ranked price (i.e., higher prices for orders to 
buy or lower prices for orders to sell). Further, to the extent a User 
would prefer an execution at more aggressive price levels, such User 
could simply choose other order type instructions that would increase 
the likelihood of execution at these prices (e.g., a routable order 
rather than a non-routable order, an order that is ranked at its full 
price rather than an order ranked at a less aggressive price with a 
Discretionary Range, or an order with a Displayed instruction rather 
than an order with a Non-Displayed instruction).
    In addition to the changes described above, the Exchange proposes 
to re-locate within Rule 11.8(b) and re-word the statement regarding 
the inclusion of a Discretionary Range on a Limit Order. Current Rule 
11.8(b)(8) currently states that a ``User may include a Discretionary 
Range instruction.'' This ability to include a Discretionary Range 
instruction on a Limit Order is currently grouped with other 
functionality that can be elected for Limit Orders that also include a 
Post Only or Book Only instruction as well as specified time-in-force 
instructions for orders that can be entered into the System and post to 
the EDGX Book. However, the System does not allow the combination of a 
Discretionary Range and a Post Only instruction. Accordingly, the 
Exchange proposes to re-locate the reference to the Discretionary Range 
instruction within Rule 11.8(b) so that it is no longer grouped with 
other orders that can be combined with a Post Only instruction. The 
Exchange also proposes to state in Rule 11.8(b) that: (i) A Limit Order 
with a Discretionary Range instruction may also include a Book Only 
instruction; and (ii) a Limit Order with a Discretionary Range 
instruction and a Post Only instruction will be rejected. Further, the 
Exchange proposes to refer to the ability of a Limit Order to include a 
Discretionary Range instruction, rather than a ``User'' that may 
include a Discretionary Range instruction.
Priority and Execution Algorithm
    With respect to the Exchange's priority and execution algorithm, 
the Exchange is proposing various minor and structural to changes that 
are intended to emphasize the processes by which orders are accepted, 
priced, ranked, displayed and executed, as well as a new provision 
related to the ability of orders to rest at locking prices that is 
consistent with the changes to provisions related to the operation of 
orders with a Discretionary Range instruction described above. First, 
the Exchange has proposed modifications to Rule 11.9, Priority of 
Orders, to make clear that the ranking of orders described in such rule 
is in turn dependent on Exchange rules related to the execution of 
orders, primarily Rule 11.10. The Exchange believes that this has 
always been the case under Exchange rules but there was not previously 
a description of the cross-reference to Rule 11.10 within such rules. 
Accordingly, the Exchange proposes to add reference to the execution 
process in addition to the numeric cross-reference to Rule 11.10.\19\ 
The Exchange also proposes to change certain references within Rule 
11.9 to refer to ranking rather than executing equally priced trading 
interest, as the Rule as a whole is intended to describe the manner in 
which resting orders are ranked and maintained, specifically in price 
and time priority, while awaiting execution against incoming orders. 
The Exchange does not believe that the proposed modifications 
substantively modify the operation of the rules but the Exchange 
believes that it is important to make clear that the ranking of orders 
is a separate process from the execution of orders. The Exchange also 
proposes changes to Rule 11.9(a)(4) and (a)(5) to specify that orders 
retain and lose ``time'' priority under certain circumstances as 
opposed to priority generally because retaining or losing price 
priority does not require the same descriptions, as price priority will 
always be retained unless the price of an order changes.
---------------------------------------------------------------------------

    \19\ The Exchange notes that it recently filed an immediately 
effective proposal containing marking errors with respect to the 
rule text proposed for sub-paragraphs (a)(2), (a)(2)(A) and 
(a)(2)(B). See Securities Exchange Act Release No. 74023 (January 9, 
2015), 80 FR 2163 (January 15, 2015) (SR-EDGX-2015-03). Accordingly, 
the Exchange has correctly marked the change in connection with this 
proposal.
---------------------------------------------------------------------------

    Next, the Exchange proposes to move language contained within sub-
paragraph (a)(2) of Rule 11.10 to the main paragraph, paragraph (a), 
such that the language is more generally applicable to the rules. 
Although sub-paragraph (a)(2) contains information relevant to 
executability, in that it describes orders that are executable in 
compliance with Regulation NMS or otherwise do not trade through 
quotations of other markets, there are other provisions set forth in 
paragraph (a) that relate to executability. Accordingly, the Exchange 
proposes to relocate language stating that any order falling within the 
parameters of this paragraph shall be referred to as ``executable'' and 
that an order will be cancelled back to the User, if based on market 
conditions, User instructions, applicable Exchange Rules and/or the Act 
and the rules and regulations thereunder, such order is not executable, 
cannot be routed to another Trading Center pursuant to Rule 11.11 or 
cannot be posted to the EDGX Book.
    The Exchange proposes to adopt paragraph (C) of Rule 11.10(a)(4) to 
provide further clarity regarding the situations where orders are not 
executable, which although covered in other existing rules, would focus 
on the incoming order on the same side of an order displayed on the 
EDGX Book rather than the resting order that is rendered not executable 
because it is opposite such order displayed on the EDGX Book. Proposed 
paragraph (C) would further state that if an incoming order is on the 
same side of the market as an order displayed on the EDGX Book and upon 
entry would execute against contra-side interest at the same price as 
such displayed order, such incoming order will be cancelled or posted 
to the EDGX Book and ranked in accordance with Rule 11.9. As described 
above, the Exchange suspends the discretion of an order subject to the 
Hide Not Slide instruction for so long as a contra-side order that 
equals the Locking Price is displayed by the System on the EDGX Book. 
Similarly, as proposed to be added to EDGX Rules, the Exchange 
temporarily suspends the ability of an order to execute at the same 
price as a contra-side displayed order for any order with a 
Discretionary Range

[[Page 12670]]

instruction or any order with a Non-Displayed instruction that has been 
re-priced to the midpoint of the NBBO pursuant to Exchange rules. The 
Exchange temporarily suspends this discretion to avoid an apparent 
priority issue where a User representing an order that is displayed on 
the Exchange either believes such order has time priority among 
displayed orders at that price or that the displayed order is the only 
order at such price level and then sees an execution published by the 
Exchange at that price.
    To demonstrate the functionality in place on the Exchange described 
above, assume the NBBO is $10.00 by $10.01. A non-routable Limit Order 
to buy 100 shares at $10.01 with a Hide Not Slide instruction is 
entered into the System. The order will be displayed on the EDGX Book 
at $10.00 and ranked at $10.005 with discretion to $10.01. If a Limit 
Order to sell 100 shares at $10.01 with a Displayed instruction and a 
Post Only instruction is entered into the System such order will be 
posted and displayed by the System on the EDGX Book as an order to sell 
100 shares at $10.01. The buy order with the Hide Not Slide instruction 
will have its discretion to execute at $10.01 temporarily suspended but 
such order will continue to be ranked at $10.005. The following 
examples demonstrate various potential outcomes following the temporary 
suspension of the buy order's discretion to execute at $10.01.
     If a non-routable Limit Order to sell 100 shares at $10.01 
is entered into the System, depending on applicable User instructions, 
such order will either be posted and displayed by the System on the 
EDGX Book as an order to sell 100 shares (i.e., with priority behind 
the order to sell that is already displayed on the EDGX Book at $10.01) 
or will be cancelled back to the entering User.
     If, instead, a Limit Order to sell 100 shares at $10.00 is 
entered into the System, such order will execute at $10.005 against the 
resting buy order with a Hide Not Slide instruction.
     If, instead, a Limit Order to buy 100 shares at $10.01 or 
higher or a Market Order to buy 100 shares is entered into the 
System,\20\ such order will execute at $10.01 against the resting sell 
order displayed on the EDGX Book, as such resting order is fully 
executable and displayed as an offer on the EDGX Book.
---------------------------------------------------------------------------

    \20\ The Exchange notes that an incoming order for purposes of 
comparison to a resting order can be any incoming order unless the 
terms of that incoming order itself preclude execution. In this 
example, a Limit Order to buy 100 shares at $10.01 that executes 
against the order to sell displayed at $10.01 on the EDGX Book could 
be a Limit Order with a Displayed instruction, a Limit Order with a 
Non-Displayed instruction, a Limit Order with a Hide Not Slide 
instruction, a Limit Order with a Price Adjust instruction, a 
routable Limit Order, a non-routable Limit Order, an order with a 
Limit Price of $10.00 and a Discretionary Range of $0.01, or any 
other type of incoming Limit Order to buy that is executable at 
$10.01. Thus, this example demonstrates that on entry the incoming 
order is compared to contra-side orders on the EDGX Book regardless 
of the modifiers that will determine how it will be displayed, 
ranked or otherwise handled by the System and that unless the 
ability of an order to execute has been suspended based on the 
Exchange's rules, the resting contra-side order with priority at 
that price will be executed against the incoming order.
---------------------------------------------------------------------------

    The Exchange notes that it is proposing to add descriptive titles 
to paragraphs (A) and (B) of Rule 11.10(a)(4), which describe the 
process by which executable orders are matched within the System. 
Specifically, so long as it is otherwise executable, an incoming order 
to buy will be automatically executed to the extent that it is priced 
at an amount that equals or exceeds any order to sell in the EDGX Book 
and an incoming order to sell will be automatically executed to the 
extent that it is priced at an amount that equals or is less than any 
other order to buy in the EDGX Book. These rules further state that an 
order to buy shall be executed at the price(s) of the lowest order(s) 
to sell having priority in the EDGX Book and an order to sell shall be 
executed at the price(s) of the highest order(s) to buy having priority 
in the EDGX Book. The Exchange emphasizes these current rules only 
insofar as to highlight the interconnected nature of the priority rule.
    The Exchange also proposes to modify paragraph (h) of Rule 11.11 to 
clarify the Exchange's rule regarding the priority of routed orders. 
Paragraph (h) currently sets forth the proposition that a routed order 
does not retain priority on the Exchange while it is being routed to 
other markets. The Exchange believes that its proposed clarification to 
paragraph (h) is appropriate because it more clearly states that a 
routed order is not ranked and maintained in the EDGX Book pursuant to 
Rule 11.9(a), and therefore is not available to execute against 
incoming orders pursuant to Rule 11.10.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
\21\ and further the objectives of Section 6(b)(5) of the Act \22\ 
because they are designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanism of a free and 
open market and a national market system, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest. The proposed rule changes are also designed to support the 
principles of Section 11A(a)(1) \23\ of the Act in that they seek to 
assure fair competition among brokers and dealers and among exchange 
markets.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S. C. 78k-1(a)(1).
---------------------------------------------------------------------------

    Specifically, the Exchange also believes that the changes to 
provide additional clarity and specificity regarding the functionality 
of the System with respect to an order with a Discretionary Range 
instruction and an order with a Non-Displayed instruction that has 
discretion pursuant to the Exchange's re-pricing process would promote 
just and equitable principles of trade and remove impediments to a free 
and open market by providing greater transparency concerning the 
operation of the System. The Exchange also believes that the proposed 
amendments to clarify and re-structure the Exchange's priority, 
execution and routing rules will contribute to the protection of 
investors and the public interest by making the Exchange's rules easier 
to understand. Further, the Exchange believes that it is consistent 
with the Act to temporarily reduce the Discretionary Range of an order 
that has been posted to the EDGX Book for so long as there is contra-
side liquidity on the EDGX Book because this functionality prevents an 
apparent priority issue on the EDGX Book as described above as well as 
the ability of an order to execute at a price that trades through the 
ranked price of an order resting on the EDGX Book. The Exchange 
reiterates that such behavior, as described above, is temporary in 
nature; an order's full Discretionary Range will be returned as soon as 
the contra-side liquidity that caused the reduction in the first place 
is no longer maintained on the EDGX Book. The Exchange believes that 
its overall handling of orders, including the temporary suspension of 
the ability of an order with a Discretionary Range to execute at one or 
more prices is consistent with the Act because it removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system by reflecting the relatively passive nature of an order 
with a Discretionary Range instruction while honoring the instructions 
of a User submitting a contra-side order that does not remove liquidity 
on entry. As explained above, the Exchange's handling of orders with

[[Page 12671]]

a Discretionary Range instruction, including the discretion of an order 
with a Non-Displayed instruction more aggressive than the midpoint of 
the NBBO to its limit price, is intended to reflect the relatively 
passive nature of orders with a Discretionary Range. The Exchange 
believes it is reasonable that an order with a Discretionary Range 
instruction or a Non-Displayed instruction might temporarily become not 
executable at certain prices because such prices are more aggressive 
than their ranked price (i.e., higher prices for orders to buy or lower 
prices for orders to sell). Further, to the extent a User would prefer 
an execution at more aggressive price levels, such User could simply 
choose other order type instructions that would increase the likelihood 
of execution at these prices. Finally, the Exchange believes that its 
proposal to re-locate and re-word the Discretionary Range instruction 
reference within Rule 11.8(b), related to Limit Orders, is consistent 
with the Act because the change will correct an error within the 
Exchange's rules and prevent potential confusion regarding the ability 
to combine a Discretionary Range instruction with a Post Only 
instruction.

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

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule changes are not designed to address any competitive issue but 
rather to add specificity and clarity to Exchange rules, thus providing 
greater transparency regarding the operation of the System.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule changes.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-EDGX-2015-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-EDGX-2015-08. 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-EDGX-2015-08 and should be 
submitted on or before March 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05485 Filed 3-9-15; 8:45 am]
 BILLING CODE 8011-01-P