[Federal Register Volume 81, Number 70 (Tuesday, April 12, 2016)]
[Notices]
[Pages 21620-21623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77537; File No. SR-EDGA-2016-02]


Self-Regulatory Organizations; EDGA Exchange, Inc.; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
To Adopt an Early Trading Session and Three New Time-in-Force 
Instructions

April 6, 2016.

I. Introduction

    On February 2, 2016, EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to amend its rules to: (i) Create a new trading 
session to be known as the Early Trading Session, which will run from 
7:00 a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three new Time-in-
Force (``TIF'') instructions. On February 12, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change.\4\ The proposed rule 
change, as modified by Amendment No. 1 thereto, was published for 
comment in the Federal Register on February 22, 2016.\5\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ In Amendment No. 1, the Exchange noted that it would subject 
orders that are eligible for execution at the start of the Pre-
Opening Session to all of the Exchange's standard regulatory checks, 
including compliance with Regulation NMS, Regulation SHO as well as 
other relevant Exchange rules.
    \5\ See Securities Exchange Act Release No. 77141 (February 16, 
2016), 81 FR 8797 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend its rules to: (i) Create a new 
trading session, the Early Trading Session, which will run from 7:00 
a.m. to 8:00 a.m. Eastern Time; and (ii) adopt three new TIF 
instructions.\6\
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    \6\ See Notice, supra note 5.
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A. Early Trading Session

    The Exchange trading day is currently divided into three sessions: 
(i) The Pre-Opening Session which starts at 8:00 a.m. and ends at 9:30 
a.m. Eastern Time; (ii) Regular Trading Hours which runs from 9:30 a.m. 
to 4:00 p.m. Eastern Time; and (iii) the Post-Closing Session, which 
runs from 4:00 p.m. to 8:00 p.m. Eastern Time. The Exchange proposes to 
amend its rules to create the Early Trading Session. Exchange Rule 1.5 
would be amended to add a new term, ``Early Trading Session,'' under 
proposed paragraph (ii). ``Early Trading Session'' would be defined as 
``the time between 7:00 a.m. and 8:00 a.m. Eastern Time.''
    The Exchange also proposes to amend Exchange Rule 11.1(a) to state 
that orders may be entered or executed on, or routed away from, the 
Exchange during the the Early Trading Session and to reflect the start 
time of the Early Trading Session as 7:00 a.m. Eastern Time. Other than 
the proposal to adopt an Early Trading Session, the Exchange does not 
propose to amend the substance or operation of Exchange Rule 
11.1(a).\7\
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    \7\ See id. at 8798.
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    Users \8\ currently designate when their orders are eligible for 
execution by selecting a desired TIF instruction.\9\ Orders entered 
between 6:00 a.m. and 8:00 a.m. Eastern Time are not eligible for 
execution until the start of the Pre-Opening Session or Regular Trading 
Hours, depending on the TIF selected by the User. Users may enter 
orders in advance of the trading session for which the order is 
eligible. For example, Users may enter orders starting at 6:00 a.m. 
Eastern Time with a TIF of Regular Hours Only (``RHO''), which 
designates that the order only be eligible for execution during Regular 
Trading Hours.\10\ Users may enter orders as early as 6:00 a.m. Eastern 
Time, but those orders would not be eligible for execution until the 
start of the Pre-Opening Session at 8:00 a.m. According to the 
Exchange, some Users have requested the ability for their orders to be 
eligible for execution starting at 7:00 a.m. Eastern Time. Therefore, 
the Exchange is proposing to adopt the Early Trading Session.\11\
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    \8\ ``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).
    \9\ See Exchange Rule 11.6(q).
    \10\ See Exchange Rule 11.6(q)(6).
    \11\ See Notice, supra note 5, at 8798.
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    As amended, Exchange Rule 11.1(a)(1) would state that orders 
entered between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 
a.m. and 8:00 a.m. Eastern Time, would not be eligible for execution 
until the start of the Early Trading Session, Pre-Opening Session, or 
Regular Trading Hours, depending on the TIF selected by the User. 
Exchange Rule 11.1(a)(1) will also be amended to state that the 
Exchange will not accept the following orders prior to 7:00 a.m. 
Eastern Time, rather than 8:00 a.m.:

[[Page 21621]]

Orders with a Post Only instruction,\12\ Intermarket Sweep Orders 
(``ISOs''),\13\ Market Orders \14\ with a TIF other than Regular Hours 
Only, orders with a Minimum Execution Quantity instruction \15\ that 
also include a TIF of Regular Hours Only, and all orders with a TIF 
instruction of Immediate-or-Cancel (``IOC'') \16\ or Fill-or-Kill 
(``FOK'').\17\ At the commencement of the Early Trading Session, orders 
entered between 6:00 a.m. and 7:00 a.m. Eastern Time, rather than 6:00 
a.m. and 8:00 a.m. Eastern Time, will be handled in time sequence, 
beginning with the order with the oldest time stamp, and will be placed 
on the EDGA Book,\18\ routed, cancelled, or executed in accordance with 
the terms of the order. As amended, Exchange Rule 11.1(a) would state 
that orders may be executed on the Exchange or routed away from the 
Exchange during Regular Trading Hours and during the Early Trading, 
Pre-Opening, Regular and Post Closing Sessions.\19\
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    \12\ See Exchange Rule 11.6(n)(4).
    \13\ See Exchange Rule 11.8(c).
    \14\ See Exchange Rule 11.8(a).
    \15\ See Exchange Rule 11.6(h).
    \16\ See Exchange Rule 11.6(q)(1).
    \17\ See Exchange Rule 11.6(q)(3).
    \18\ See Exchange Rule 1.5(d).
    \19\ The Exchange also describes how the Early Trading Session 
will affect its Members' operations and the Exchange's opening 
process, order types, routing services, order processing, data 
feeds, trade reporting, market surveillance, and clearly erroneous 
trade processing. The Exchange clarifies that these processes will 
operate in the same manner with the exception of changes in time to 
reflect the adoption of the Early Trading Session. See Notice, supra 
note 5, at 8798-99.
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    The Exchange also proposes to make the changes described below to 
Exchange Rules 3.21, 11.8, 11.10, 11.15, 14.1, 14.2 and 14.3 to reflect 
the adoption of the Early Trading Session:
     Exchange Rule 3.21, Customer Disclosures. Exchange Rule 
3.21 prohibits Members from accepting an order from a customer for 
execution in the Pre-Opening or Post-Closing Session without disclosing 
to their customer that extended hours trading involves material trading 
risks, including the possibility of lower liquidity, high volatility, 
changing prices, unlinked markets, an exaggerated effect from news 
announcements, wider spreads and any other relevant risk. The Exchange 
proposes to amend Exchange Rule 3.21 to also require such disclosures 
for customer orders that are to be executed during the Early Trading 
Session.
     Exchange Rules 11.8(b), (c), (d), (e) and (g). The 
Exchange proposes to amend the description of Limit Orders under 
Exchange Rule 11.8(b), ISOs under Exchange Rule 11.8(c), MidPoint Peg 
Orders under Exchange Rule 11.8(d), MidPoint Discretionary Orders 
(``MDO'') under Rule 11.8(e), and Supplemental Peg Orders under Rule 
11.8(g) to account for the Early Trading Session. Every order type that 
is currently available beginning at 8:00 a.m. will be available 
beginning at 7:00 a.m. for inclusion in the Early Trading Session. All 
other order types, and all order type behaviors, will otherwise remain 
unchanged. Therefore, each of the above rules for Limit Orders, ISOs, 
MidPoint Peg Orders, MDOs, and Supplemental Peg Orders would be amended 
to state that those order types are available during the Early Trading 
Session.
     Exchange Rules 11.8(a) and (f). Market Orders and Market 
Maker Peg Orders would not be eligible for execution during the Early 
Trading Session. Market Orders are only eligible for execution during 
the Regular Session.\20\ Market Maker Peg Orders may currently be 
submitted to the Exchange starting at the beginning of the Pre-Opening 
Session, but the order will not be executable or automatically priced 
until after the first regular way transaction on the listing exchange 
in the security, as reported by the responsible single plan processor. 
Exchange Rule 11.8(f)(7) would be amended to state that Market Maker 
Peg Orders may be submitted to the Exchange starting at the beginning 
of the Early Trading Session. Market Maker Peg Orders would continue to 
not be executable or automatically priced until after the first regular 
way transaction on the listing exchange in the security, as reported by 
the responsible single plan processor.
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    \20\ See Exchange Rule 11.8(a)(5).
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     Exchange Rule 11.10, Order Execution and Routing. Exchange 
Rule 11.10(a)(2) discusses compliance with Regulation NMS and Trade 
Through Protections and states that the price of any execution 
occurring during the Pre-Opening Session or the Post-Closing Session 
must be equal to or better than the highest Protected Bid or lowest 
Protected Offer, unless the order is marked ISO or a Protected Bid is 
crossing a Protected Offer. The Exchange proposes to amend Exchange 
Rule 11.10(a)(2) to expand the rule's requirements to the Early Trading 
Session.
     Exchange Rule 11.15, Clearly Erroneous Executions. 
Exchange Rule 11.15 outlines under which conditions the Exchange may 
determine that an execution is clearly erroneous. The Exchange proposes 
to amend Exchange Rule 11.15 to include executions that occur during 
the Early Trading Session. Exchange Rule 11.15(c)(1) sets forth the 
numerical guidelines the Exchange is to follow when determining whether 
an execution was clearly erroneous during Regular Trading Hours or the 
Pre-Opening or Post-Closing Trading Session. Exchange Rule 11.15(c)(3) 
sets forth additional factors the Exchange may consider in determining 
whether a transaction is clearly erroneous. These factors include 
whether the transaction was executed during the Pre-Opening or Post-
Closing Trading Sessions. The Exchange proposes to amend Exchange Rule 
11.15(c)(1) and (3) to include executions occurring during the Early 
Trading Session.
     Exchange Rule 14.1, Unlisted Trading Privileges. The 
Exchange proposes to amend Exchange Rules 14.1(c)(2), and 
Interpretation and Policies .01(a) and (b) to account for the Early 
Trading Session. Specifically, the Exchange proposes to amend paragraph 
(c)(2) to state that an information circular distributed by the 
Exchange prior to the commencement of trading of a UTP Derivative 
Security \21\ will describe the risk of trading during the Early 
Trading Session.\22\ In addition, the Exchange proposes to amend 
Interpretation and Policies .01(a) to add Early Trading Session to the 
paragraph's title and to state that if a UTP Derivative Security begins 
trading on the Exchange in the Early Trading Session or Pre-Opening 
Session and subsequently a temporary interruption occurs in the 
calculation or wide dissemination of the Intraday Indicative Value 
(``IIV'') or the value of the underlying index, as applicable, to such 
UTP Derivative Security, by a major market data vendor, the Exchange 
may continue to trade the UTP Derivative Security for the remainder of 
the Early Trading Session and Pre-Opening Session. Lastly, the Exchange 
proposes to amend Interpretation and Policies .01(b) to add Early 
Trading Session to the paragraph's title and to amend subparagraph (2) 
of that section to state that if the IIV or the value of the underlying 
index continues not to be calculated or widely available as of the 
commencement of the Early Trading Session or Pre-Opening Session on the 
next business day, the Exchange shall not commence trading of the UTP 
Derivative Security in the Early Trading Session or Pre-Opening Session 
that day.
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    \21\ See Exchange Rule 14.1(c).
    \22\ Currently, the information circular describes only those 
risks in the Pre-Opening and Post-Closing Trading Sessions.

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[[Page 21622]]

     Exchange Rule 14.2, Investment Company Units. The Exchange 
proposes to amend Exchange Rule 14.2(g) to state that transactions in 
Investment Company Units may occur during the Early Trading Session. 
Currently, such transactions may occur during Regular Trading Hours and 
the Pre-Opening and Post Closing Sessions.
     Exchange Rule 14.3, Trust Issued Receipts. The Exchange 
proposes to amend Exchange Rule 14.3(d) to state that transactions in 
Trust Issued Receipts may occur during the Early Trading Session. 
Currently, such transactions may occur during Regular Trading Hours and 
the Pre-Opening and Post-Closing Sessions.

B. TIF Instructions

    The Exchange proposes to adopt three new TIF instructions under 
Exchange Rule 11.6(q).\23\ As discussed above, a User may designate 
when its order is eligible for execution by selecting the desired TIF 
instruction under Exchange Rule 11.6(q).\24\
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    \23\ The Exchange also proposes to amend the descriptions of 
Good-`til Day (``GTD'') under Exchange Rule 11.6(q)(4) and Good-`til 
Extended Day (``GTX'') under Exchange Rule 11.6(q)(5) to replace 
incorrect references to the Post-Market Session with Post-Closing 
Session, as Post-Closing Session is the accurate term under Exchange 
Rule 1.5(r).
    \24\ See Exchange Rule 11.1(a)(1).
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    Although the Exchange states that the proposal to adopt an Early 
Trading Session is in response to User requests for their orders to be 
eligible for execution starting at 7:00 a.m. Eastern Time, some Users 
have requested that their orders continue to not be eligible for 
execution until the start of the Pre-Opening Session at 8:00 a.m.\25\ 
Therefore, the Exchange proposes to adopt the following three new TIF 
instructions under Exchange Rule 11.6(q):
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    \25\ See Notice, supra note 5, at 8800.
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     Pre-Opening Session Plus (``PRE''). A limit order that is 
designated for execution during the Pre-Opening Session and Regular 
Trading Hours. Like the current Day TIF instruction,\26\ any portion 
not executed expires at the end of Regular Trading Hours.
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    \26\ See Exchange Rule 11.6(q)(2).
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     Pre-Opening Session `til Extended Day (``PTX''). A limit 
order that is designated for execution during the Pre-Opening Session, 
Regular Trading Hours, and the Post-Closing Session. Like the current 
GTX TIF instruction,\27\ any portion not executed expires at the end of 
the Post-Closing Session.
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    \27\ See Exchange Rule 11.6(q)(5).
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     Pre-Opening Session `til Day (``PTD''). A limit order that 
is designated for execution during the Pre-Opening Session, Regular 
Trading Hours, and the Post-Closing Session. Like the current GTD TIF 
instruction,\28\ any portion not executed will be cancelled at the 
expiration time assigned to the order, which can be no later than the 
close of the Post-Closing Trading Session.
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    \28\ See Exchange Rule 11.6(q)(4).
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    Under each proposed TIF instruction, Users may designate that their 
orders only be eligible for execution starting with the Pre-Opening 
Session. Users may continue to enter orders as early as 6:00 a.m., but 
orders with the proposed TIF instructions would not be eligible for 
execution until 8:00 a.m. Eastern Time, the start of the Pre-Opening 
Session.\29\ At the commencement of the Pre-Opening Session, orders 
entered between 6:00 a.m. and 8:00 a.m. Eastern Time with one of the 
proposed TIF instructions will be handled in time sequence, beginning 
with the order with the oldest time stamp, and will be placed on the 
EDGA Book, routed, cancelled, or executed in accordance with the terms 
of the order.\30\
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    \29\ Orders utilizing one of the proposed TIF instructions would 
not be eligible for execution during the Early Trading Session.
    \30\ See Exchange Rule 11.1(a).
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    The Exchange proposes to amend the following order types under 
Exchange Rule 11.8 to account for the three proposed TIF instructions:
     Market Orders. The proposed TIF instruction of PRE, PTX, 
and PTD would not be available for Market Orders. Under Exchange Rule 
11.8(a)(2), a Market Order may only include a TIF instruction of IOC, 
RHO, FOK, or Day.
     Limit Orders. Exchange Rule 11.8(b)(2) describes the TIF 
instructions that may be attached to a Limit Order. The Exchange 
proposes to amend paragraph (b)(2) to add the TIF instructions of PRE, 
PTX, or PTD to the list of TIF instructions that a Limit Order may 
include.
     ISOs. Exchange Rule 11.8(c)(1) describes the TIF 
instructions that may be attached to an incoming ISO. The Exchange 
proposes to amend paragraph (c)(1) to state that an incoming ISO may 
have a TIF instruction of PRE, PTX, or PTD, in addition to Day, GTD, 
RHO, GTX, and IOC. Exchange Rule 11.8(c)(1) would be further amended to 
state that an incoming ISO with a Post Only and TIF instruction of PRE, 
PTX, or PTD, like those with an TIF instruction or GTD, GTX, or Day, 
will be cancelled without execution if, when entered, it is immediately 
marketable against an order with a Displayed instruction resting in the 
EDGA Book unless such order removes liquidity pursuant to Exchange Rule 
11.6(n)(4).\31\
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    \31\ Exchange Rule 11.6(n)(4) defines the Post Only instruction 
and states, in sum, that an order with a Post Only instruction and a 
Display-Price Sliding or Price Adjust instruction will remove 
contra-side liquidity from the EDGA Book if the order is an order to 
buy or sell a security priced below $1.00 or if the value of such 
execution when removing liquidity equals or exceeds the value of 
such execution if the order instead posted to the EDGA Book and 
subsequently provided liquidity, including the applicable fees 
charged or rebates provided.
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     MidPoint Peg Orders. Exchange Rule 11.8(d)(1) describes 
the TIF instructions that may be attached to a MidPoint Peg Order. The 
Exchange proposes to amend paragraph (d)(1) to state that a MidPoint 
Peg Order may have a TIF instruction of PRE, PTX, or PTD, in addition 
to Day, FOK, IOC, RHO, GTX and GTD.
     MDO. Rule 11.8(e)(1) describes the TIF instructions that 
may be attached to an MDO. The Exchange proposes to amend paragraph 
(e)(1) to state that an MDO may have a TIF instruction of PRE, PTX, or 
PTD, in addition to Day, RHO, GTX and GTD.
     Market Maker Peg Orders. The proposed TIF instruction of 
PRE, PTX, and PTD would not be available to Market Maker Peg Orders. 
Under Exchange Rule 11.8(f)(4), a Market Maker Peg Order may only 
include a TIF instruction of Day, RHO, or GTD.
     Supplemental Peg. Exchange Rule 11.8(g)(1) describes the 
TIF instructions that may be attached to a Supplemental Peg Order. The 
Exchange proposes to amend paragraph (g)(1) to state that a 
Supplemental Peg Order may have a TIF instruction of PRE, PTX, or PTD, 
in addition to GTD, GTX, RHO and Day.

III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\32\ The Commission 
believes that the proposed rule change, as modified by Amendment No. 1, 
is consistent with Section 6(b)(5) \33\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, 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

[[Page 21623]]

mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \32\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \33\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to adopt an Early Trading Session and three 
new TIF instructions and to make related changes to its rules as 
discussed above.\34\ The Commission believes that the proposed rules 
would provide Users with additional options for trading on the 
Exchange. The Commission notes that the proposed Early Trading Session 
hours are similar to those of other exchanges \35\ and that the 
proposed TIF instructions would offer functionality similar to existing 
functionality available on the Exchange and other exchanges which 
allows Members to select when their orders become eligible for 
execution.\36\
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    \34\ See supra section II.
    \35\ For example, NYSE Arca, Inc. operates an Opening Session 
that starts at 4:00 a.m. Eastern Time and ends at 9:30 a.m. Eastern 
Time and Nasdaq Stock Market LLC operates a pre-market session that 
also opens at 4:00 a.m. and ends at 9:30 a.m. Eastern Time. See NYSE 
Arca Rule 7.34(a)(1); Nasdaq Rule 4701(g); see also Securities 
Exchange Act Release No. 60605 (September 1, 2009), 74 FR 46277 
(September 8, 2009) (SR-CHX-2009-13) (adopting bifurcated post-
trading session on the Chicago Stock Exchange, Inc.).
    \36\ Specifically, on the Exchange, Users may enter an order 
starting at 6:00 a.m. Eastern Time with a TIF of Regular Hours Only, 
which designates that the order only be eligible for execution 
during Regular Trading Hours, which begin at 9:30 a.m. Eastern Time. 
See Exchange Rule 11.6(q)(6); see also NASDAQ Rule 4703(a)(7).
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    The Commission notes that the Exchange has represented that it 
would subject orders that are eligible for execution as of the start of 
the Pre-Opening Session to all of the Exchange's standard regulatory 
checks, as it currently does with all orders upon entry.\37\ 
Specifically, the Exchange will subject such orders to checks for 
compliance with, including but not limited to, Regulation NMS,\38\ 
Regulation SHO,\39\ and relevant Exchange rules. Moreover, the Exchange 
reminds its Members of their regulatory obligations when submitting an 
order with one of the proposed TIF instructions.\40\ In particular, the 
Exchange states that Members must comply with the Market Access 
Rule,\41\ which requires, among other things, pre-trade controls and 
procedures that are reasonably designed to assure compliance with 
Exchange trading rules and Commission rules pursuant to Regulation SHO 
and Regulation NMS. The Exchange also notes that a Member's procedures 
must be reasonably designed to ensure compliance with the applicable 
regulatory requirements, not just at the time the order is routed to 
the Exchange, but also at the time the order becomes eligible for 
execution.\42\
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    \37\ See Amendment No. 1, supra note 4.
    \38\ See 17 CFR 242.600-613.
    \39\ See 17 CFR 242.200-204.
    \40\ See Notice, supra note 5, at 8802.
    \41\ See 17 CFR 240.15c3-5.
    \42\ See Notice, supra note 5, at 8802.
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    The Commission further notes the Exchange's discussion of the best 
execution obligations of Members utilizing the proposed TIF 
instructions.\43\ Specifically, the Exchange states that a Member's 
best execution obligations may include cancelling an order when market 
conditions deteriorate and could result in an inferior execution or 
informing customers if the execution of their order may be delayed 
intentionally while the Member utilizes reasonable diligence to 
ascertain the best market for the security.\44\ The Exchange further 
notes that Members will maintain the ability to cancel or modify the 
terms of an order utilizing any of the proposed TIF instructions at any 
time, including during the time from when the order is routed to the 
Exchange until the start of the Pre-Opening Session. As a result, the 
Exchange states that a Member who utilizes the proposed TIF 
instructions, but later determines that market conditions favor 
execution during the Early Trading Session, can cancel the order 
residing at the Exchange and enter a separate order to execute during 
the Early Trading Session.\45\
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    \43\ See id. at 8801-02.
    \44\ Id. at 8802 n.45.
    \45\ Id. at. 8801.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\46\ that the proposed rule change (SR-EDGA-2016-02), as modified by 
Amendment No. 1, be, and it hereby is, approved.
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    \46\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08301 Filed 4-11-16; 8:45 am]
BILLING CODE 8011-01-P