[Federal Register Volume 80, Number 219 (Friday, November 13, 2015)]
[Notices]
[Pages 70284-70285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28795]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76382; File No. 4-657]


Order Granting Exemption From Compliance With the National Market 
System Plan To Implement a Tick Size Pilot Program

November 6, 2015.

I. Introduction

    Pursuant to Rule 608(e) \1\ under the Securities Exchange Act of 
1934 (``Exchange Act''), the Securities and Exchange Commission 
(``Commission'') may exempt from compliance with the provisions of Rule 
608, either unconditionally or on specified terms and conditions, any 
self-regulatory organization, member thereof, or specified security, if 
the Commission determines that such exemption is consistent with the 
public interest, the protection of investors, the maintenance of fair 
and orderly markets and the removal of impediments to, and perfection 
of the mechanisms of, a national market system. As discussed below, the 
Commission is exercising its authority under Rule 608(e) to exempt BATS 
Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., 
EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory 
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, 
the Nasdaq Stock Market LLC, New York Stock Exchange LLC (``NYSE''), 
NYSE MKT LLC, and NYSE Arca, Inc., (collectively ``SROs'' or 
``Participants''), from implementing the Plan to Implement a Tick Size 
Pilot Program (``Tick Size Pilot'') until October 3, 2016.
---------------------------------------------------------------------------

    \1\ 17 CFR 242.608(e).
---------------------------------------------------------------------------

II. Background

    On May 6, 2015, the Commission approved the Tick Size Pilot and 
provided that the Tick Size Pilot be implemented within one year after 
the publication of the order.\2\ The Tick Size Pilot will have a two-
year duration (``Pilot Period''),\3\ and will include exchange-listed 
common stocks that have the following characteristics: (1) A market 
capitalization of less than $3 billion; (2) a closing price of at least 
$2 per share on the last day of the measurement period (and a closing 
price of not less than $1.50 per share during the measurement period); 
(3) a consolidated average daily volume of one million shares or less; 
and (4) a volume-weighted average price of at least $2 per share 
(``Pilot Securities'').
---------------------------------------------------------------------------

    \2\ Securities Exchange Act Release No. 74892 (May 6, 2015), 80 
FR 27514 (May 13, 2015).
    \3\ The term Pilot Period means the operative period of the Tick 
Size Pilot, lasting two years from the date of implementation. See 
Section I.U of the Tick Size Pilot at 80 FR 27547.
---------------------------------------------------------------------------

    The Pilot Securities will be divided into one control group and 
three test groups. There will be 400 Pilot Securities per test group 
and the remaining Pilot Securities will be assigned to the control 
group. Test Group One Pilot Securities will quote in $0.05 per share 
increments and will trade at any currently permitted increment. Test 
Group Two Pilot Securities will quote in $0.05 per share increments 
like those in Test Group One, but will only be permitted to trade in 
$0.05 per share increments, subject to certain exceptions.\4\ Finally, 
Test Group

[[Page 70285]]

Three Pilot Securities will quote in $0.05 per share increments and 
will trade in $0.05 per share increments consistent with Test Group 
Two, and in addition be subject to a Trade-At Prohibition, which would 
generally prevent price matching by a trading center that is not 
displaying a quotation at the price of the best protected quotation, 
unless an exception applies. Pilot Securities in the control group 
would continue to quote and trade in the pricing increments that are 
currently permitted.
---------------------------------------------------------------------------

    \4\ First, executions will be able to at the midpoint between 
the national (or protected) best bid and the national (or protected) 
best offer; second, orders involving retail investor orders will be 
able to trade with price improvement of at least $0.005 per share; 
and third, negotiated trades (such as a volume-weighted average 
price trade or a time-weighted average price trade) will be able to 
trade outside of the $0.05 increment.
---------------------------------------------------------------------------

    Pursuant to the Tick Size Pilot, Participants will collect data 
reflecting a variety of market quality metrics with respect to the 
Pilot Securities and transmit such data to the Commission. The 
collected data will be publicly available in an aggregated form. In 
addition, the Participants are required to conduct, and provide the 
Commission with, a publicly-available impact assessment.

III. Discussion

    As discussed in the Approval Order,\5\ several actions need to 
occur prior to the implementation of the Tick Size Pilot, including: 
(1) The development and testing of applicable trading and compliance 
systems, (2) the filing and approval of SRO rules related to the Tick 
Size Pilot's quoting and trading requirements, and (3) the development 
and implementation of the written policies and procedures by 
Participants and their members that are reasonably designed to comply 
with the applicable quoting and trading increments. In addition, the 
Participants must develop appropriate policies and procedures for 
collecting and reporting to the Commission the requisite data in 
connection with the Tick Size Pilot, including the filing and approval 
of SRO rules requiring the collection and reporting of data from 
certain member firms. Data is to be collected by the Participants for 
periods beginning six months prior to the Pilot Period.\6\ To date, the 
requisite SRO rule proposals have not been filed or approved by the 
Commission, and there has not been an opportunity for the Participants 
and their members to develop and test applicable trading and compliance 
systems.\7\
---------------------------------------------------------------------------

    \5\ 80 FR at 27545.
    \6\ See Sections IV and VII of the Tick Size Pilot at 80 FR at 
27548 and 27552-53.
    \7\ The Commission notes that the Participants anticipate filing 
model data collection rule proposals with the Commission no later 
than November 13, 2015. See Letter from Brendon J. Weiss, Co-Head, 
Government Affairs, Intercontinental Exchange/NYSE, to Brent J. 
Fields, Secretary, Commission, dated November 4, 2015. In addition, 
the Commission notes that the Participants issued technical 
specifications and FAQs related to the data collection requirements 
on October 12, 2015.
---------------------------------------------------------------------------

    Accordingly, the Commission believes additional time is needed for 
the Participants and their members to complete their preparations for 
implementation of the Tick Size Pilot. The Commission believes that 
extending the implementation date by approximately five months, to 
October 3, 2016, is sufficient to allow for a smooth yet timely 
implementation of the Tick Size Pilot, including the approval of 
applicable SRO rules and the development and testing of new compliance 
systems.\8\
---------------------------------------------------------------------------

    \8\ The Commission has received requests to extend the 
implementation date of the Tick Size Pilot or its data collection 
requirements for various periods. See Letter from Theodore R. Lazo, 
Managing Director and Associate General Counsel, SIFMA, to Stephen 
Luparello, Director, Division of Trading and Markets, Commission, 
dated August 31, 2015 (requesting the data collection period be 
extended until at least three months after the requisite SRO rules 
are approved by the Commission and related interpretive guidance is 
published); Letter from Mary Lou Von Kaenel, Managing Director, 
Financial Information Forum, to Stephen Luparello, Director, 
Division of Trading and Markets, Commission, dated September 24, 
2015 (requesting the data collection period be extended a minimum of 
six months); and Letter from Brendon J. Weiss, Co-Head, Government 
Affairs, Intercontinental Exchange/NYSE, to Brent J. Fields, 
Secretary, Commission, dated November 4, 2015 (requesting the data 
collection period be extended until six months after the requisite 
SRO rules are approved, and the implementation data of the Tick Size 
Pilot until six months thereafter).
---------------------------------------------------------------------------

    Therefore, the Commission believes that it is necessary and 
appropriate to issue an exemption to extend the date by which the 
Participants must implement the Tick Size Pilot until October 3, 2016. 
The Commission has determined that such an exemption is consistent with 
the public interest, the protection of investors, the maintenance of 
fair and orderly markets and the removal of impediments to, and 
perfection of the mechanisms of, a national market system.

IV. Conclusion

    It is hereby ordered, pursuant to Rule 608(e) of Exchange Act,\9\ 
that the Participants are exempt from implementing the Tick Size Pilot 
until October 3, 2016.
---------------------------------------------------------------------------

    \9\ 17 CFR 242.608(e).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(42).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28795 Filed 11-12-15; 8:45 am]
 BILLING CODE 8011-01-P