[Federal Register Volume 81, Number 48 (Friday, March 11, 2016)]
[Notices]
[Pages 13012-13015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05441]
[[Page 13012]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77310; File No. SR-BATS-2016-27]
Self-Regulatory Organizations; Bats BZX Exchange, Inc. f/k/a BATS
Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule 11.27(b), Compliance With Data
Collection Requirements, Relating to the Regulation NMS Plan To
Implement a Tick Size Pilot Program
March 7, 2016.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 2, 2016, Bats BZX Exchange, Inc. f/k/a BATS Exchange,
Inc. (the ``Exchange'' or ``BZX'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Exchange has designated this proposal as a ``non-
controversial'' proposed rule change pursuant to section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Exchange Rule 11.27(b)
regarding the requirements for the collection and transmission of data
pursuant to Appendices B and C of the Regulation NMS Plan to Implement
a Tick Size Pilot Program (``Plan'').
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On August 25, 2014, NYSE Group, Inc., on behalf of BZX, BATS Y-
Exchange, Inc., Chicago Stock Exchange, Inc. (``CHX''), 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 ``Participants''), filed with the
Commission, pursuant to section 11A of the Act \5\ and Rule 608 of
Regulation NMS thereunder,\6\ the Plan to Implement a Tick Size Pilot
Program (``Pilot'').\7\ The Participants filed the Plan to comply with
an order issued by the Commission on June 24, 2014.\8\ The Plan \9\ was
published for comment in the Federal Register on November 7, 2014, and
approved by the Commission, as modified, on May 6, 2015.\10\
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\5\ 15 U.S.C. 78k-1.
\6\ 17 CFR 242.608.
\7\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\8\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\9\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\10\ See Securities Exchange Act Release No. 74892 (May 6,
2015), 80 FR 27513 (May 13, 2015) (``Approval Order'').
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The Plan is designed to allow the Commission, market participants,
and the public to study and assess the impact of increment conventions
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Participant is required to comply, and
to enforce compliance by its member organizations, as applicable, with
the provisions of the Plan. As is described more fully below, the
proposed rules would require Members \11\ to comply with the applicable
data collection requirements of the Plan.\12\
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\11\ The term ``Member'' is defined as ``any registered broker
or dealer that has been admitted to membership in the Exchange. See
Exchange Rule 1.5(n).
\12\ The Exchange proposes to add Information and Policy .11 to
Rule 11.27 to provide that the Rule shall be in effect during a
pilot period to coincide with the pilot period for the Plan
(including any extensions to the pilot period for the Plan).
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The Pilot will include stocks of companies with $3 billion or less
in market capitalization, an average daily trading volume of one
million shares or less, and a volume weighted average price of at least
$2.00 for every trading day. The Pilot will consist of a control group
of approximately 1400 Pilot Securities and three test groups with 400
Pilot Securities in each (selected by a stratified random sampling
process).\13\ During the pilot, Pilot Securities in the control group
will be quoted at the current tick size increment of $0.01 per share
and will trade at the currently permitted increments. Pilot Securities
in the first test group (``Test Group One'') will be quoted in $0.05
minimum increments but will continue to trade at any price increment
that is currently permitted.\14\ Pilot Securities in the second test
group (``Test Group Two'') will be quoted in $0.05 minimum increments
and will trade at $0.05 minimum increments subject to a midpoint
exception, a retail investor order exception, and a negotiated trade
exception.\15\ Pilot Securities in the third test group (``Test Group
Three'') will be subject to the same quoting and trading increments as
Test Group Two and also will be subject to the ``Trade-at'' requirement
to prevent price matching by a market participant that is not
displaying at a Trading Center's ``Best Protected Bid'' or ``Best
Protected Offer,'' unless an enumerated exception applies.\16\ In
addition to the exceptions provided under Test Group Two, an exception
for Block Size orders and exceptions that mirror those under Rule 611
of Regulation NMS \17\ will apply to the Trade-at requirement.
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\13\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\14\ See Section VI(B) of the Plan.
\15\ See Section VI(C) of the Plan.
\16\ See Section VI(D) of the Plan.
\17\ 17 CFR 242.611.
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In approving the Plan, the Commission noted that the Trading Center
data reporting requirements would facilitate an analysis of the effects
of the Pilot on liquidity (e.g., transaction costs by order size),
execution quality (e.g., speed of order executions), market maker
activity, competition between trading venues (e.g., routing frequency
of market orders), transparency (e.g., choice between displayed and
hidden orders), and market dynamics (e.g., rates and speed of order
cancellations).\18\ The Commission noted that Market Maker
[[Page 13013]]
profitability data would assist the Commission in evaluating the
effect, if any, of a widened tick increment on market marker profits
and any corresponding changes in the liquidity of small-capitalization
securities.\19\
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\18\ See Approval Order, 80 FR at 27543.
\19\ Id.
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Compliance With the Data Collection Requirements of the Plan
The Plan contains requirements for collecting and transmitting data
to the Commission and to the public.\20\ Specifically, Appendix B.I of
the Plan (Market Quality Statistics) requires Trading Centers \21\ to
submit variety of market quality statistics, including information
about an order's original size, whether the order was displayable or
not, the cumulative number of orders, the cumulative number of shares
of orders, and the cumulative number of shares executed within specific
time increments, e.g., from 30 seconds to less than 60 seconds after
the time of order receipt. This information shall be categorized by
security, order type, original order size, hidden status, and coverage
under Rule 605.\22\ Appendix B.I of the Plan also contains additional
requirements for market orders and marketable limit orders, including
the share-weighted average effective spread for executions of orders;
the cumulative number of shares of orders executed with price
improvement; and, for shares executed with price improvement, the
share-weighted average amount per share that prices were improved.
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\20\ The Exchange is also required by the Plan to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with applicable quoting and trading
requirements specified in the Plan. The Exchange separately proposes
rules that would require compliance by its Members with the
applicable quoting and trading requirements specified in the Plan,
and has reserved Paragraph (a) for such rules. See Securities
Exchange Act Release No. 76552 (December 3, 2015), 80 FR 76591
(December 9, 2015) (SR-BATS-2015-108).
\21\ The Plan incorporates the definition of a ``Trading
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS
defines a ``Trading Center'' as ``a national securities exchange or
national securities association that operates an SRO trading
facility, an alternative trading system, an exchange market maker,
an OTC market maker, or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as
agent.'' See 17 CFR 242.600(b).
\22\ 17 CFR 242.605.
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Appendix B.II of the Plan (Market and Marketable Limit Order Data)
requires Trading Centers to submit information relating to market
orders and marketable limit orders, including the time of order
receipt, order type, the order size, the National Best Bid and National
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average
execution price-share-weighted average, and the average execution time-
share-weighted average.
The Plan requires Appendix B.I and B.II data to be submitted by
Participants that operate a Trading Center, and by members of the
Participants that operate Trading Centers. The Plan provides that each
Participant that is the Designated Examining Authority (``DEA'') for a
member of the Participant that operates a Trading Center shall collect
such data in a pipe delimited format, beginning six months prior to the
Pilot Period and ending six months after the end of the Pilot Period.
The Plan also requires the Participant, operating as DEA, to transmit
this information to the SEC within 30 calendar days following month
end.
On February 10, 2016, the Commission approved a proposed rule
change by the Exchange to adopt Rule 11.27(b) which sets forth Member's
requirements for the collection and transmission of data pursuant to
Appendices B and C of the Plan.\23\
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\23\ See Securities Exchange Act Release No. 77105 (February 10,
2016), 81 FR 8112 (February 17, 2016) (SR-BATS-2015-102).
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Description of Proposed Changes to Rule 11.27(b)
Appendix B.IV (Daily Market Maker Participation Statistics)
requires a Participant to collect data related to Market Maker
participation from each Market Maker \24\ engaging in trading activity
on a Trading Center operated by the Participant. Exchange Rule
11.27(b)(3)(A) provides that a Member that is a Market Maker shall
collect and transmit to their DEA data relating to Item IV of Appendix
B of the Plan with respect to activity conducted on any Trading Center
in Pilot Securities and Pre-Pilot Data Collection Securities in
furtherance of its status as a registered Market Maker, including a
Trading Center that executes trades otherwise than on a national
securities exchange, for transactions that have settled or reached
settlement date. The rule requires Market Makers to transmit such data
in a format required by their DEA, by 12:00 p.m. EST on T+4 for: (i)
Transactions in each Pre-Pilot Data Collection Security for the period
beginning six months prior to the Pilot Period through the trading day
immediately preceding the Pilot Period; and (ii) for transactions in
each Pilot Security for the period beginning on the first day of the
Pilot Period through six months after the end of the Pilot Period.
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\24\ The Plan defines a Market Maker as ``a dealer registered
with any self-regulatory organization, in accordance with the rules
thereof, as (i) a market maker or (ii) a liquidity provider with an
obligation to maintain continuous, two-sided trading interest.''
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Appendix C.I (Market Maker Profitability) requires a Participant to
collect data related to Market Maker profitability from each Market
Maker for which it is the DEA. Specifically, the Participant is
required to collect the total number of shares of orders executed by
the Market Maker; the raw Market Maker realized trading profits, and
the raw Market Maker unrealized trading profits. Data is to be
collected for dates starting six months prior to the Pilot Period
through six months after the end of the Pilot Period. This data is to
be collected on a monthly basis, to be provided in a pipe delimited
format to the Participant, as DEA, within 30 calendar days following
month end. Appendix C.II (Aggregated Market Maker Profitability)
requires the Participant, as DEA, to aggregate the Appendix C.I data,
and to categorize this data by security as well as by the control group
and each Test Group. That aggregated data will contain information
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
Exchange Rule 11.27(b)(4) sets forth the requirements for the
collection and transmission of data pursuant to Appendix C.I of the
Plan. Rule 11.27(b)(4)(A) requires that a Member that is a Market Maker
shall collect and transmit to their DEA the data described in Item I of
Appendix C of the Plan with respect to executions in Pilot Securities
that have settled or reached settlement date that were executed on any
Trading Center. The rule also requires Members to provide such data in
a format required by their DEA by 12 p.m. EST on T+4 for executions
during and outside of Regular Trading Hours in each: (i) Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) Pilot Security for the period beginning on the first
day of the Pilot Period through six months after the end of the Pilot
Period.
FINRA and CHX are Participants of the Plan and are to collect data
relating to Item IV of Appendix B of the Plan and Item I of Appendix C
of the Plan on behalf of the Participants. For Trading Centers for
which it is the DEA, FINRA issued a Market Maker Transaction Data
Technical Specification to collect data on Pre-Pilot Data Collection
Securities and Pilot Securities from Trading Centers to comply with the
Plan's data
[[Page 13014]]
collection requirements.\25\ CHX also adopted procedures to comply with
the Plan's data collection requirements for Market Makers that CHX
serves as DEA.\26\
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\25\ FINRA members for which FINRA is their DEA should refer to
the Tick Size OATS Data Specifications on the FINRA OATS Web site at
http://www.finra.org/industry/oats/ for detailed information and
FAQs about the proposed specific OATS Tick Size reporting
requirements.
\26\ See Tick Size Pilot Program--CHX MM Transaction Data
Technical Specifications, available at http://www.chx.com/_literature_143998/Tick_Size_Pilot_Program_-_CHX_MM_Transaction_Data_Technical_Specification.
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FINRA and CHX serve as DEA for a large majority of Members.
However, the Exchange understands that some Members that are Market
Makers do not utilize FINRA or CHX as their DEA and have a DEA that is
not a Participant to the Plan and, therefore, not subject to the Plan's
data collection requirements. For example, the Chicago Board Options
Exchange, Inc, (``CBOE'') is not a Participant to the Plan and acts as
DEA for a small portion of the Exchange's Members. In such case, a DEA
that is not a Participant of the Plan would not be required to collect
the required data and may not establish procedures for which Members it
acts a DEA for to report the data required under subparagraphs
(b)(3)(A) and (b)(4)(A) of Rule 11.27 and in accordance with Item IV of
Appendix B and Item I of Appendix C of the Plan. Therefore, the
Exchange proposes to adopt subparagraph (b)(3)(B) to Rule 11.27 to
require a Member that is a Market Maker whose DEA is not a Participant
to the Plan to transmit the data collected pursuant to paragraph (3)(A)
of Rule 11.27(b) to FINRA. The Exchange also proposes to adopt
paragraph (b)(4)(B) of Rule 11.27 to require a Member that is a Market
Maker whose DEA is not a Participant to the Plan to transmit the data
collected pursuant to paragraph (4)(A) of Rule 11.27(b) to FINRA.
The Exchange believes the proposed rule change is necessary to
ensure that all of its Members are able to report the data required by
subparagraphs (b)(3)(A) and (b)(4)(A) of Rule 11.27 in compliance with
the Plan. As noted above, FINRA has established a process by which they
are to collect data relating to Item IV of Appendix B and Item I of
Appendix C of the Plan on behalf of the Participants for those Members
that it serves as DEA.\27\ The Exchange believes requiring Members who
utilize a DEA that is not a Participant to the Plan to report data
required by subparagraphs (b)(3)(A) and (b)(4)(A) of Rule 11.27 to
FINRA would provide such Members a viable option to report such data
required by the Plan.
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\27\ See supra note 25.
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Like data collected by a DEA that is a Participant, Market Makers
would be required to transmit the data required by subparagraphs
(b)(3)(A) and (b)(4)(A) of the Rule 11.27 in a format required by FINRA
by 12:00 p.m. EST on T+4 for: (i) Transactions in each Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) for transactions in each Pilot Security for the period
beginning on the first day of the Pilot Period through six months after
the end of the Pilot Period.
Lastly, the Exchange proposes to amend current Exchange Rule
11.27(b)(3)(B). Current Exchange Rule 11.27(b)(3)(B) provides that the
Exchange shall transmit the data collected by the DEA pursuant to Rule
11.27(b)(3)(A) above relating to Market Maker activity on a Trading
Center operated by the Exchange to the SEC in a pipe delimited format
within 30 calendar days following month end. This subparagraph would be
renumbered as Rule 11.27(b)(3)(C) and amended to include the data
collected by FINRA pursuant to subparagraph (b)(3)(B) as part of the
Exchange's submission to the SEC. The Exchange shall also make such
data publicly available on the Exchange Web site on a monthly basis at
no charge and shall not identify the Trading Center that generated the
data.
Implementation Date
The proposed rule change will be effective on April 4, 2016.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act \28\ in general, and furthers the objectives of section
6(b)(5) of the Act \29\ 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 believes that
this proposal is consistent with the Act because it ensures all Members
are able to report the data required by subparagraphs (b)(3)(A) and
(b)(4)(A) of Rule 11.27 in compliance with the Plan. The Exchange
believes requiring Members who utilize a DEA that is not a Participant
to the Plan to report data required by subparagraphs (b)(3)(A) and
(b)(4)(A) of Rule 11.27 to FINRA would provide such Members a viable
option to report such data required by the Plan. In approving the Plan,
the SEC noted that the Pilot was an appropriate, data-driven test that
was designed to evaluate the impact of a wider tick size on trading,
liquidity, and the market quality of securities of smaller
capitalization companies, and was therefore in furtherance of the
purposes of the Act. In addition, ensuring that this data is properly
reported by Trading Centers who's [sic] DEA is not a Participant of the
Plan will facilitate the analysis of the effects of the Pilot on
liquidity, execution quality, market maker activity, competition
between trading venues, transparency, and market dynamics. The Exchange
believes that this proposal is in furtherance of the objectives of the
Plan, as identified by the SEC, and is therefore consistent with the
Act because it is designed to assist the Exchange in meeting its
regulatory obligations pursuant of the Plan as well as ensure Members
are able to submit the required data in furtherance of compliance with
the Plan.
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\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that the proposed rule change ensures all Members are able to
report the data required by subparagraphs (b)(3)(A) and (b)(4)(A) of
Rule 11.27 in compliance with the Plan and is designed to assist the
Exchange in meeting its regulatory obligations pursuant of the Plan.
The Exchange also notes that the data collection requirements for
Members that operate Trading Centers will apply equally to all such
Members, as will the data collection requirements for Market Makers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (A)
Significantly affect the protection of investors or the public
interest; (B) impose any significant
[[Page 13015]]
burden on competition; and (C) by its terms, become operative for 30
days from the date on which it was filed or such shorter time as the
Commission may designate it has become effective pursuant to section
19(b)(3)(A) of the Act \30\ and paragraph (f)(6) of Rule 19b-4
thereunder,\31\ the Exchange has designated this rule filing as non-
controversial. The Exchange has given the Commission written notice of
its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change at least five business
days prior to the date of filing of the proposed rule change, or such
shorter time as designated by the Commission.
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (1)
Necessary or appropriate in the public interest; (2) for the protection
of investors; or (3) otherwise in furtherance of the purposes of the
Act. If the Commission takes such action, the Commission shall
institute proceedings to determine whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic 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-BATS-2016-27 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2016-27. 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-BATS-2016-27, and should be
submitted on or before April 1, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Robert W. Errett,
Deputy Secretary.
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\32\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-05441 Filed 3-10-16; 8:45 am]
BILLING CODE 8011-01-P