[Federal Register Volume 81, Number 83 (Friday, April 29, 2016)]
[Notices]
[Pages 25725-25734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09983]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77703; File No. SR-NYSE-2015-46]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Partial Amendment Nos. 1 and 2 and Order Granting 
Accelerated Approval to a Proposed Rule Change to Adopt NYSE Rule 67 To 
Implement the Quoting and Trading Requirements of the Regulation NMS 
Plan To Implement A Tick Size Pilot Program

April 25, 2016.

I. Introduction

    On October 9, 2015, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal to adopt NYSE Rule 67 to implement the 
quoting and trading requirements of the Plan to Implement Tick Size 
Pilot Program (``Plan'') submitted to the Commission pursuant to Rule 
608 of Regulation NMS under the Act (``Tick Size Pilot'').\3\ The 
proposal was published for comment in the Federal Register on October 
28, 2015.\4\ The Commission received three comment letters on the 
proposal \5\ and a response letter from the Exchange.\6\ On December 3, 
2015, the Commission designated a longer period for

[[Page 25726]]

Commission action on the proposal \7\ and on January 25, 2016, 
instituted proceedings under Section 19(b)(2)(B) of the Act to 
determine whether to disapprove the proposal.\8\ On March 21, 2016, 
NYSE filed Partial Amendment No. 1.\9\ On April 21, 2016, the NYSE 
filed Partial Amendment No. 2.\10\ This order approves the proposal, as 
modified by Partial Amendments No. 1 and No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (order approving the Tick Size Pilot) 
(``Approval Order'').
    \4\ See Securities Exchange Act Release No. 76229 (October 22, 
2015) 80 FR 66065 (``Original NYSE Proposal'').
    \5\ See letters from Mary Lou Von Kaenel, Managing Director, 
Financial Information Forum, dated November 5, 2015 (``FIF Letter 
I'') and dated February 18, 2016 (``FIF Letter II''); and Theodore 
R. Lazo, Managing Director and Associate General Counsel, Securities 
Industry and Financial Markets Association, dated December 18, 2015 
(``SIFMA Letter'').
    \6\ See letter from Brendon J. Weiss, Co-Head, Government 
Affairs, Intercontinental Exchange, Inc. and John K. Kerin, CEO, 
Chicago Stock Exchange, Inc., dated January 15, 2016 (``Response 
Letter''). The response letter was filed by the Exchange on behalf 
of NYSE Arca, Inc., NYSE MKT LLC, and the Chicago Stock Exchange, 
Inc. (``CHX''). In the Response Letter, the Exchange also commented 
on proposed rule changes submitted by the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') and BATS Exchange, Inc. 
(``BATS'') to implement the quoting and trading requirements of the 
Tick Size Pilot. See Securities Exchange Act Release Nos. 76483 
(November 19, 2015), 80 FR 73853 (November 25, 2015) (SR-FINRA-2015-
047) (``FINRA Proposal'') and 76552 (December 3, 2015), 80 FR 76591 
(December 9, 2015) (SR-BATS-2015-108) (``BATS Proposal''). The FINRA 
Proposal and the BATS Proposal have subsequently been approved by 
the Commission. See Securities Exchange Act Release Nos. 77218 
(February 23, 2016), 81 FR 10290 (February 29, 2016) (``FINRA 
Approval Order'') and 77291 (March 3, 2016), 81 FR 12543 (March 9, 
2016) (``BATS Approval Order'').
    \7\ See Securities Exchange Act Release No. 76551, 80 FR 76602 
(December 9, 2015).
    \8\ See Securities Exchange Act Release No. 76971, 81 FR 5027 
(January 29, 2016).
    \9\ In Partial Amendment No. 1, NYSE amends its proposed rule 
change to conform it to the FINRA and BATS Proposals. Specifically, 
Partial Amendment No. 1: (1) Adds an exception to permit members to 
fill a customer order in a Pilot Security in Test Group Two or Test 
Group Three at a non-nickel increment to comply with NYSE Rule 5320 
under limited circumstances; (2) amends the display exception of 
Trade-at Prohibition to allow a Trading Center who is displaying as 
either agent or riskless principal to execute up to the displayed 
size as agent or riskless principle; (3) removes the explicit odd 
lot exception from the Trade-at Prohibition; (4) adds exceptions to 
the Trade-at Prohibition for certain error correction transactions; 
(5) modifies the stopped order exception to the Trade-at 
Prohibitions to better align it with the stopped order exception in 
Rule 611 of Regulation NMS; (6) clarifies the use of Trade-at 
Intermarket Sweep Orders (``Trade-at ISOs'') in connection with the 
Trade-At Prohibition; and (7) amends the definition of a ``Retail 
Investor Order.''
    \10\ In Partial Amendment No. 2, NYSE proposes additional 
amendments to conform this proposed rule change to the FINRA and 
BATS Proposals. Specifically, NYSE proposes to (1) delete its 
proposed definition of Trading Center; (2) refer to independent 
trading units, as defined in Rule 200(f) of Regulation SHO, in 
proposed NYSE Rule 67(e)(4)(C)(i) and (ii); and (3) correct a 
typographical error in the Trade-at ISO definition located in 
proposed NYSE Rule 67(a)(1)(D)(ii).
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II. Background

    On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange, 
Inc., BATS Y-Exchange, Inc., CHX, EDGA Exchange, Inc., EDGX Exchange, 
Inc., FINRA, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock 
Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, 
Inc. (collectively ``Participants'' \11\), filed with the Commission, 
pursuant to Section 11A of the Act \12\ and Rule 608 of Regulation NMS 
thereunder,\13\ the Plan to Implement the Tick Size Pilot.\14\ The 
Participants filed the Plan to comply with a Commission order dated 
June 24, 2014.\15\ The Plan was published for comment in the Federal 
Register on November 7, 2014,\16\ and approved by the Commission, as 
modified, on May 6, 2015.\17\ On November 6, 2015, the Commission 
issued an exemption to the Participants from implementing the Plan 
until October 3, 2016.\18\
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    \11\ The Commission notes that on February 5, 2016, National 
Stock Exchange, Inc. (``NSX'') filed a Plan amendment with the 
Commission to become a Plan Participant pursuant to Section II.C of 
the Plan. See Securities Exchange Act Release No. 77277 (March 3, 
2016).
    \12\ 15 U.S.C. 78k-1.
    \13\ 17 CFR 242.608.
    \14\ See letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \15\ See Securities Exchange Act Release No. 72460, 79 FR 36840 
(June 30, 2014).
    \16\ See Securities Exchange Act Release No. 73511 (November 3, 
2014), 79 FR 66423.
    \17\ See Approval Order, supra note 3.
    \18\ See Securities Exchange Act Release No. 76382, 80 FR 70284 
(November 13, 2015).
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    The Tick Size Pilot 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 certain small-capitalization companies. Each Participant is required 
to comply, and to enforce compliance by its members, as applicable, 
with the provisions of the Plan.\19\ The Plan requires Participants to 
develop quoting and trading requirements for the Tick Size Pilot as 
well as collect, publish, and submit to the Commission a variety of 
data elements such as market quality statistics and market maker 
profitability.\20\ NYSE proposes to adopt certain provisions of NYSE 
Rule 67 to implement the quoting and trading requirements of the Tick 
Size Pilot.\21\
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    \19\ Rule 608(c) of Regulation NMS. 17 CFR 242.608(c). See also 
Plan Sections II.B and IV.
    \20\ The data collection requirements for the Plan are specified 
in Appendices B and C. See Approval Order, supra note 3. NYSE has 
adopted rules to implement the data collection requirements under 
the Plan. See NYSE Rule 67(b). Securities Exchange Act Release No. 
77468 (March 29, 2016), 81 FR 19269, (April 4, 2016).
    \21\ NYSE, on behalf of the Plan Participants, submitted a 
letter to the Commission requesting an exemption from certain 
provisions of the Plan related to the quoting and trading 
requirements as they apply to Pilot Securities that have a price 
under $1.00. See letter from Elizabeth K. King, General Counsel & 
Corporate Secretary, NYSE, to Brent J. Fields, Secretary, 
Commission, dated October 14, 2015 (``October Exemption Request''). 
In addition, FINRA, on behalf of the Plan Participants, submitted a 
letter to the Commission requesting additional exemptions from 
certain provisions of the Plan related to the quoting and trading 
requirements. See letter from Marcia E. Asquith, Senior Vice 
President and Corporate Secretary, FINRA, to Robert W. Errett, 
Deputy Secretary, Commission, dated February 23, 2016 (``February 
Exemption Request''). The Commission, pursuant to its authority 
under Rule 608(e) of Regulation NMS, has granted NYSE a limited 
exemption from the requirement to comply with certain provisions of 
the Plan as specified in the letters and noted herein. See letter 
from David Shillman, Associate Director, Division of Trading and 
Markets, Commission to Sherry Sandler, Associate General Counsel, 
NYSE, dated April 25, 2016 (``SEC Exemption Letter'').
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III. Description of the Proposed Rule Change

A. Definitions and Policies To Comply With the Plan

    NYSE proposes to adopt NYSE Rule 67(a), (c), (d), and (e) \22\ to 
implement the quoting and trading requirements of the Tick Size 
Pilot.\23\ Proposed NYSE Rule 67(a)(1) contains definitions \24\ of 
``Plan,'' \25\ ``Pilot Test Groups,'' \26\ ``Retail Investor Order,'' 
\27\ and ``Trade-at Intermarket Sweep Order.'' \28\
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    \22\ NYSE Rule 67(b) sets forth the data collection requirements 
for the Exchange and its member organizations as required under the 
Plan. See supra note 20.
    \23\ The effectiveness of proposed NYSE Rule 67 will coincide 
with the Pilot Period of the Plan. See Proposed NYSE Rule 67.
    \24\ Proposed NYSE Rule 67(a)(1)(E) provides that all 
capitalized terms not otherwise defined in proposed NYSE Rule 67 
shall have the meanings set forth in the Tick Size Pilot, Regulation 
NMS under the Exchange Act, or Exchange Rules. In Partial Amendment 
No. 2, NYSE deletes its originally proposed definition of Trading 
Center to clarify reliance on the definition set forth in the Plan. 
See Partial Amendment No. 2, supra note 10.
    \25\ NYSE proposes to define the ``Plan'' as the Tick Size Pilot 
plan submitted to the Commission pursuant to Rule 608 of Regulation 
NMS. See proposed NYSE Rule 67(a)(1)(A).
    \26\ NYSE proposes to define ``Pilot Test Groups'' as the three 
test groups established under the Plan, consisting of 400 Pilot 
Securities each, which satisfy the respective criteria established 
under the Plan for each such test group. See proposed NYSE Rule 
67(a)(1)(B).
    \27\ NYSE proposes to define ``Retail Investor Order'' as an 
agency order or riskless principal order that meets the criteria of 
FINRA Rule 5320.03 that originates from a natural person and is 
submitted to the Exchange by a retail member organization provided 
that no change is made to the terms of the order with respect to the 
price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology. See 
proposed NYSE Rule 67(a)(1)(C). The Retail Investor Order definition 
was amended to clarify that the Retail Investor Order exceptions 
under the Plan were not limited to exchange-related executions. See 
Partial Amendment No. 1, supra note 9. This section was renumbered 
in Partial Amendment No. 2. See Partial Amendment No. 2, supra note 
10.
    \28\ NYSE proposes to define ``Trade-at Intermarket Sweep 
Order'' as a limit order for a Pilot Security that is identified as 
a Trade-at Intermarket Sweep Order and simultaneous to its 
identification as such has one or more additional limit orders, as 
necessary, routed to execute against the full size of the respective 
protected bid or offer of the Pilot Security at a price that is 
better than or equal to the original limit price of the identified 
order. These additional orders also must be marked as Trade-at 
Intermarket Sweep Orders. See proposed NYSE Rule 67(a)(1)(E). This 
definition was added to clarify the use of such orders under the 
Plan. See Partial Amendment No. 1, supra note 9. This definition was 
renumbered and amended to correct a typographical error. See Partial 
Amendment No. 2, supra note 10.
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    Proposed NYSE Rule 67(a)(2) provides that the Exchange is a 
Participant in the Plan and is subject to the applicable requirements 
of the Plan. Proposed NYSE Rule 67(a)(3) provides that member 
organizations shall

[[Page 25727]]

establish, maintain, and enforce written policies and procedures that 
are reasonably designed to comply with the applicable requirements of 
the Plan. Proposed NYSE Rule 67(a)(4) provides that Exchange systems 
will not display, quote, or trade in violation of the applicable 
quoting and trading requirements for a Pilot Security as specified in 
the Plan and NYSE Rule 67, unless such quotation or transaction is 
specifically exempted under the Plan.
    Proposed NYSE Rule 67(a)(5) defines the procedure for dealing with 
Pilot Securities that drop below $1.00 during the Pilot Period.\29\ If 
the price of a Pilot Security drops below $1.00 during regular trading 
on any given business day, the Pilot Security will continue to trade 
according to the quoting and trading requirements of its originally 
assigned Test Group in the Plan. If a Pilot Security has a Closing 
Price below $1.00, the Pilot Security will be moved from its respective 
Test Group into the Control Group, and will be quoted and traded-at any 
price increment that is currently permitted by Exchange rules for the 
remainder of the Pilot Period.\30\ Proposed NYSE Rule 67(a)(5) further 
provides that notwithstanding anything to the contrary, at all times 
during the Pilot Period, Pilot Securities (whether in the Control Group 
or any Pilot Test Group) will continue to be subject to the 
requirements contained in Paragraph (b).\31\
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    \29\ NYSE has requested an exemption from the Plan related to 
this provision. See October Exemption Request, supra note 21.
    \30\ See Proposed NYSE Rule 67(a)(5).
    \31\ NYSE Rule 67(b) implements the data collection provisions 
required under the Plan. See supra note 20.
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B. Quoting and Trading Rules for Test Group One and Test Group Two

    Proposed NYSE Rule 67(c) describes the quoting and trading 
requirements of Pilot Securities in Test Group One. Specifically, NYSE 
proposes that no member may display, rank, or accept from any person 
any displayable or non-displayable bids or offers, orders, or 
indications of interest in increments other than $0.05 for Pilot 
Securities in Test Group One.\32\ Orders priced to trade at the 
midpoint of the national best bid and national best offer (``NBBO'') or 
best protected bid and best protected offer (``PBBO'') and orders 
entered into the Exchange's Retail Liquidity Program as Retail Price 
Improvement Orders may be ranked and accepted in increments of less 
than $0.05. The provision also provides that Pilot Securities in Test 
Group One would continue to be able to trade at any price increment 
that is currently permitted.
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    \32\ See Proposed NYSE Rule 67(c).
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    Proposed NYSE Rule 67(d) describes the quoting and trading 
requirements of Pilot Securities in Test Group Two. Specifically, NYSE 
proposes that no member may display, rank, or accept from any person 
any displayable or non-displayable bids or offers, orders, or 
indications of interest in increments other than $0.05 for Pilot 
Securities in Test Group Two.\33\ Further, NYSE proposes that absent 
any enumerated exceptions, no member organization may execute orders in 
any Test Group Two Pilot Security in a price increment other than 
$0.05.\34\
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    \33\ Similar to the exception in Test Group One, orders priced 
to trade at the midpoint of the NBBO or PBBO and orders entered into 
the Exchange's Retail Liquidity Program as Retail Price Improvement 
Orders may be ranked and accepted in increments of less than $0.05. 
See Proposed NYSE Rule 67(d)(1).
    \34\ Proposed NYSE Rule 67(d)(2) applies to all trades, 
including Brokered Cross Trades.
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    Proposed NYSE Rule 67(d)(3) provides that Test Group Two Pilot 
Securities may trade in increments less than $0.05 in the following 
circumstances: (A) Trading may occur at the midpoint between the NBBO 
or the PBBO; (B) Retail Investor Orders may be provided price 
improvement of at least $0.005 better than the PBBO; and (C) Negotiated 
Trades may trade in less than $0.05 increments.
    In Partial Amendment No. 1, NYSE proposes an additional exception 
from the $0.05 trading increment requirement for Test Group Two Pilot 
Securities. Specifically, NYSE proposes to permit members to execute 
customer orders to comply with NYSE Rule 5320 following the execution 
of a proprietary trade by the member at an increment other than $0.05 
that was permissible pursuant to an exception under the Plan.\35\
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    \35\ See Partial Amendment No. 1, supra note 9. NYSE has 
requested an exemption from the Plan related to this provision. See 
February Exemption Request, supra note 21.
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C. Quoting and Trading Rules for Test Group Three

    Proposed NYSE Rule 67(e) describes the quoting and trading 
requirements of Pilot Securities in Test Group Three. NYSE proposes 
that no member organization may display, rank, or accept from any 
person any displayable or non-displayable bids or offers, orders, or 
indications of interest in increments other than $0.05, for Pilot 
Securities in Test Group Three.\36\ Proposed NYSE Rule 67(e)(2) states 
that absent an enumerated exception, no member organization may execute 
orders in any Test Group Three Pilot Security in a price increment 
other than $0.05.\37\ Proposed NYSE Rule 67(e)(3) provides for the same 
four exceptions to the $0.05 trading increment requirement specified 
for Test Group Two.\38\
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    \36\ Similar to the exceptions in Test Group One and Test Group 
Two, orders priced to trade at the midpoint of the NBBO or PBBO and 
orders entered into the Exchange's Retail Liquidity Program as 
Retail Price Improvement Orders may be ranked and accepted in 
increments of less than $0.05. See Proposed NYSE Rule 67(e)(1).
    \37\ Proposed NYSE Rule 67(e)(2) applies to all trades, 
including Brokered Cross Trades.
    \38\ See Proposed NYSE Rule 67(d)(3). See also, supra note 36.
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    Proposed NYSE Rule 67(e)(4) states the Test Group Three Pilot 
Securities will be subject to a Trade-at Prohibition. Proposed NYSE 
Rule 67(e)(4)(A) defines ``Trade-At Prohibition'' as the prohibition 
against executions by a Trading Center of a sell order for a Pilot 
Security at the price of a Protected Bid or the execution of a buy 
order at the price of a Protected Offer during regular trading hours. 
Proposed NYSE Rule 67(e)(4)(B) states that absent an enumerated 
exception, no member organization may execute a sell order for a Pilot 
Security in Test Group Three at the price of a Protected Bid or a buy 
order at the price of a Protected Offer.
    Proposed NYSE Rule 67(e)(4)(C) sets forth the exceptions to the 
Trade-at Prohibition for member organizations as follows:

    (i) The order is executed as agent or riskless principal by an 
independent trading unit, as defined in Rule 200(f) of Regulation 
SHO, of the Trading Center within a member organization that has a 
displayed quotation as agent or riskless principal, via either a 
processor or a SRO Quotation Feed, at a price equal to the traded-at 
Protected Quotation, that was displayed before the order was 
received, but only up to the full displayed size of that independent 
trading unit's previously displayed quote; \39\
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    \39\ See Partial Amendment No. 1, supra note 9 and Partial 
Amendment No. 2, supra note 10.
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    (ii) the order is executed by an independent trading unit, as 
defined in Rule 200(f) of Regulation SHO, of the Trading Center 
within a member organization that has displayed a quotation for the 
account of that Trading Center on a principal basis, excluding 
riskless principal, via either a processor or an SRO Quotation Feed, 
at a price equal to the traded-at Protected Quotation, that was 
displayed before the order was received, but only up to the full 
displayed size of that independent trading unit 's previously 
displayed quote; \40\
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    \40\ Id.
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    (iii) the order that is of Block Size \41\ at the time of origin 
and is not an aggregation of non-block orders; broken into orders 
smaller than Block Size prior to submitting the order to a Trading 
Center for execution; or executed on multiple Trading Centers; (iv)

[[Page 25728]]

the order is a Retail Investor Order \42\ that is executed with at 
least $0.005 price improvement;
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    \41\ ``Block Size'' is defined in the Plan as an order (1) of at 
least 5,000 shares or (2) for a quantity of stock having a market 
value of at least $100,000.
    \42\ Proposed NYSE Rule 67(a)(1)(C) defines Retail Investor 
Order. See supra note 27.
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    (v) the order is executed when the Trading Center displaying the 
Protected Quotation that was traded-at was experiencing a failure, 
material delay, or malfunction of its systems or equipment;
    (vi) the order is executed as part of a transaction that was not 
a ``regular way'' contract;
    (vii) the order is executed as part of a single-priced opening, 
reopening, or closing transaction on the Exchange;
    (viii) the order is executed when a Protected Bid is priced 
higher than a Protected Offer in the Pilot Security;
    (ix) the order is identified as a Trade-at ISO; \43\
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    \43\ Proposed NYSE Rule 67(a)(1)(D) defines Trade-at ISO.
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    (x) the order is executed by a Trading Center that 
simultaneously routed Trade-at ISOs to execute against the full 
displayed size of the Protected Quotation that was traded-at;
    (xi) the order is executed as part of a Negotiated Trade;
    (xii) the order is executed when the Trading Center displaying 
the Protected Quotation that was traded-at had displayed, within one 
second prior to execution of the transaction that constituted the 
Trade-at, a Best Protected Bid or Best Protected Offer, as 
applicable, for the Pilot Security with a price that was inferior to 
the price of the Trade-at transaction;
    (xiii) the order is executed by a Trading Center which, at the 
time of order receipt, had guaranteed an execution at no worse than 
a specified price (a ``stopped order'') where: (A) The stopped order 
was for the account of a customer; (B) the customer agreed to the 
specified price on an order-by-order basis; and (C) the price of the 
Trade-at transaction was, for a stopped buy order, equal to or less 
than the National Best Bid in the Pilot Security at the time of 
execution or, for a stopped sell order, equal to or greater than the 
National Best Offer in the Pilot Security at the time of execution, 
as long as such order is priced at an acceptable increment; \44\
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    \44\ See Partial Amendment No. 1, supra note 9. NYSE has 
requested an exemption from the Plan related to this provision. See 
February Exemption Request, supra note 21.
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    (xiv) the order is for a fractional share order of a Pilot 
Security, provided that such fractional share order was not the 
result of breaking an order \45\ for one or more whole shares of a 
Pilot Security into orders for fractional shares or was not 
otherwise effected to evade the requirements of the Tick Size Pilot; 
or
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    \45\ Additionally, no member shall break an order into smaller 
orders or otherwise effect or execute an order to evade the 
requirements of the Trade-at Prohibition or any other provisions of 
the Plan. See Proposed NYSE Rule 67(e)(4)(D).
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    (xv) the order is to correct a bona fide error, which is 
recorded by the Trading Center in its error account. NYSE proposes 
to define a bond fide error as: (A) The inaccurate conveyance or 
execution of any term of an order including, but not limited to, 
price, number of shares or other unit of trading; identification of 
the security; identification of the account for which securities are 
purchased or sold; lost or otherwise misplaced order tickets; short 
sales that were instead sold long or vice versa; or the execution of 
an order on the wrong side of a market; (B) the unauthorized or 
unintended purchase, sale, or allocation of securities, or the 
failure to follow specific client instructions; (C) the incorrect 
entry of data into relevant systems, including reliance on incorrect 
cash positions, withdrawals, or securities positions reflected in an 
account; or (D) a delay, outage, or failure of a communication 
system used to transmit market data prices or to facilitate the 
delivery or execution of an order.\46\
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    \46\ See Partial Amendment No. 1, supra note 9. NYSE has 
requested an exemption from the Plan related to this provision. See 
February Exemption Request, supra note 21.
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IV. Summary of Comments and the Exchange's Response

    As noted above, the Commission received three comment letters from 
two commenters concerning the proposed rule change \47\ along with a 
Response Letter \48\ and Partial Amendments \49\ from the Exchange.
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    \47\ See supra note 5.
    \48\ See supra note 6.
    \49\ See supra notes 9 and 10.
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    Both commenters discussed aspects of the Trade-at Prohibition. 
Specifically, the two commenters opposed the Original NYSE Proposal 
because it restricted the display exception to the Trade-at Prohibition 
to member organizations displaying Protected Quotations on a principal 
basis.\50\ The commenters believed that this restriction was not 
consistent with the Plan.
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    \50\ See FIF Letter I and SIFMA Letter.
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    In the Response letter, the Exchange described a scenario that it 
believed could occur under the FINRA and BATS Proposals. Specifically, 
the Exchange believed that the FINRA and BATS Proposals would allow an 
alternative trading system (``ATS'') to execute matched trades of any 
of its participants at the price of a traded-at Protected Quotation if 
the ATS was displaying, on an agency basis, a quotation of another 
participant at the Protected Quotation. The Exchange believed that this 
scenario created a situation where ATS participants could trade at the 
price of a Protected Quotation without requiring them to display at 
that price, thus permitting them to ``free-ride'' on a displayed 
Protected Quotation of other ATS participants.\51\ One commenter stated 
that this scenario was unlikely to occur and that they were unaware of 
any current cases in which it would be allowed.\52\ As noted in the 
FINRA Approval Order, FINRA stated that it did not believe that the 
scenario described by the Exchange in its Response Letter could occur 
under its rules. FINRA confirmed that a broker-dealer would not be 
permitted to trade based on interest that it is not responsible for 
displaying.\53\
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    \51\ See Response Letter.
    \52\ See FIF Letter II.
    \53\ See FINRA Approval Order.
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    The Exchange responded in Partial Amendment No. 1 by amending its 
display exception to the Trade-at Prohibition to allow a Trading Center 
within a member organization to execute an order at the Protected 
Quotation as agent or riskless principal if the Trading Center within 
the member organization has displayed a quotation at the Protected 
Quotation Price in an agency or riskless principal capacity, which 
conforms with the FINRA and BATS Proposals.\54\
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    \54\ See proposed NYSE Rule 67(e)(4)(C)(i) and proposed NYSE 
Rule 67(e)(4)(C)(ii). In Partial Amendment No. 2, Proposed NYSE Rule 
67(e)(4)(C)(i) and proposed NYSE Rule 67(e)(4)(C)(ii) were amended 
to reflect the use of an independent trading unit, as defined in 
Rule 200(f) of Regulation SHO, by a Trading Center. See Partial 
Amendment No. 2, supra note 10. See also 17 CFR 242.200(f).
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    Commenters also discussed the Retail Investor Order exceptions, 
Block Size Order exception to the Trade-at Prohibition as well as 
adding certain exceptions to more closely align the Trade-at 
Prohibition with Rule 611 of Regulation NMS. The commenters requested 
that the NYSE's proposed Retail Investor Order definition be amended to 
clarify that the Retail Investor Order exceptions in the Plan applied 
to both exchange trading and over-the-counter (``OTC'') trading.\55\ 
Initially, the Exchange agreed with the commenters' Retail Investor 
Order interpretation, but did not believe that amending the definition 
was necessary.\56\ Subsequently, the Exchange amended its proposed 
Retail Investor Order definition to address the concerns of commenters 
and further clarify its intent.\57\
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    \55\ See SIFMA Letter; FIF Letter I and FIF Letter II.
    \56\ See Response Letter.
    \57\ The definition was amended to remove references to the 
Exchange's retail liquidity program. See Partial Amendment No. 1, 
supra note 9.
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    One commenter stated the proposed Block Size exception to the 
Trade-at Prohibition should be amended because it would prevent the 
facilitation of block crosses that include small orders.\58\ The 
commenter suggested that the rule be amended to permit the aggregation 
of

[[Page 25729]]

non-block orders so long as at least one component of the block itself 
satisfied the definition of Block Size Order. The Exchange responded by 
stating that the commenter's suggested changes would be inconsistent 
with the Plan.\59\
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    \58\ See FIF Letter I and FIF Letter II.
    \59\ See Response Letter.
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    One commenter suggested that the proposed exceptions to the Trade-
at Prohibition should more closely align with the exemptions granted to 
Rule 611 of Regulation NMS.\60\ Specifically, the commenter referenced 
the Rule 611 of Regulation NMS exemptions for certain error correction 
transactions and certain print protection transactions.\61\ The 
Exchange agreed with the commenter, in part, and amended the proposal 
to include a Trade-at Prohibition exception for certain error 
correction transactions.\62\ The Exchange did not believe it was 
appropriate to provide a print protect transaction exception and did 
not directly address or amend its proposal to include such an 
exception.\63\
---------------------------------------------------------------------------

    \60\ 17 CFR 242.611.
    \61\ The commenter noted the following Commission orders related 
to Rule 611 of Regulation NMS. Order Exempting Certain Error 
Correction Transactions from Rule 611 of Regulation NMS under the 
Securities Exchange Act of 1934 (http://www.sec.gov/rules/exorders/2007/34-55884.pdf); Order Exempting Certain Print Protection 
Transactions from Rule 611 (http://www.sec.gov/rules/exorders/2007/34-55883.pdf). See FIF Letter I and FIF Letter II.
    \62\ The Exchange stated the error correction transaction 
exception is ``equally applicable in the Trade-at context.'' See 
Partial Amendment No. 1, supra note 9.
    \63\ Similarly, the commenter requested that a print protection 
transaction exception to the Trade-at Prohibition be added to the 
FINRA and BATS Proposals. Like the Exchange, neither FINRA nor BATS 
added the provision to their proposals. See FINRA and BATS Approval 
Orders, supra note 6.
---------------------------------------------------------------------------

    The two commenters noted the necessity for the Tick Size Pilot 
rules to be consistent across the Participants.\64\ One commenter 
indicated the approval of inconsistent proposals would make compliance 
for market participants ``virtually impossible.'' \65\ The other 
commenter stressed the importance of standardization for Tick Size 
Pilot rules stating it would be unreasonable to comply with different 
rules across Participants.\66\ In response, the Exchange amended its 
proposed rule change to conform it to the approved FINRA and BATS 
Proposals.\67\
---------------------------------------------------------------------------

    \64\ See SIFMA Letter and FIF Letter II.
    \65\ See SIFMA Letter.
    \66\ See FIF Letter II.
    \67\ See Partial Amendment No. 1, supra note 9. One commenter 
raised issues that are tangential and not directly related to the 
Exchange's proposal, such as the implementation timeline and 
questions of interpretation. See FIF Letter I and FIF Letter II. The 
Commission notes that the Participants are currently drafting FAQs 
to address interpretative questions.
---------------------------------------------------------------------------

V. Discussion and Findings

    After carefully considering the proposed rule change, as amended, 
the comments submitted, and NYSE's response to the comments, the 
Commission finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\68\ Specifically, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\69\ which requires, among other things, that the rules of an 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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, and, in general, to protect investors and the 
public interest, and are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers. In addition, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(8) of the Act,\70\ which requires that the rules of an 
exchange not impose any burden on competition that is not necessary or 
appropriate.
---------------------------------------------------------------------------

    \68\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \69\ 15 U.S.C. 78f(b)(5).
    \70\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission stated in the Approval Order that the Tick Size 
Pilot should provide a data-driven approach to evaluate whether certain 
changes to the market structure for Pilot Securities would be 
consistent with the Commission's mission to protect investors, maintain 
fair, orderly and efficient markets, and facilitate capital 
formation.\71\ As discussed below, the Commission believes that NYSE's 
proposal is consistent with the requirements of the Act and would 
further the purpose of the Plan to provide meaningful data.
---------------------------------------------------------------------------

    \71\ See Approval Order, supra note 3.
---------------------------------------------------------------------------

    NYSE, as a Plan Participant, has an obligation to comply, and 
enforce compliance by its members, with the terms of the Plan. Rule 
608(c) of Regulation NMS provides that ``[e]ach self-regulatory 
organization shall comply with the terms of any effective national 
market system plan of which it is a sponsor or participant. Each self-
regulatory organization also shall, absent reasonable justification or 
excuse, enforce compliance with any such plan by its members and 
persons associated with its members.'' \72\ Proposed NYSE Rule 67 would 
impose compliance obligations on its members with the trading and 
quoting requirements set forth in Section VI of the Plan. As discussed 
below, the Commission also believes the proposal is consistent with the 
Act because it is designed to assist NYSE in meeting its regulatory 
obligations pursuant to Rule 608 of Regulation NMS and the Plan.\73\
---------------------------------------------------------------------------

    \72\ 17 CFR 242.608(c). See also Section II.B of the Plan, which 
provides that each Participant will adopt rules requiring compliance 
by its members with provisions of the Plan. In addition, Section IV 
of the Plan requires all Participants and members of Participants to 
establish maintain and enforce written policy and procedures that 
are reasonably designed to comply with the applicable quoting and 
trading requirements specified in Section VI of the Plan for the 
Pilot Securities.
    \73\ The Commission understands that the Participants are 
developing interpretative guidance on the quoting and trading rules 
under the Plan and expects that Participants will continue to work 
with market participants on the implementation of the quoting and 
trading rules of the Tick Size Pilot.
---------------------------------------------------------------------------

A. Definitions and Policies To Comply With the Plan \74\
---------------------------------------------------------------------------

    \74\ The preamble to proposed NYSE Rule 67 specifies that the 
rule's effectiveness shall be contemporaneous with the pilot period. 
The Commission believes that this proposed rule is consistent with 
the Act because it reinforces and clarifies important dates and 
obligations under the Plan.
---------------------------------------------------------------------------

    Proposed NYSE Rule 67 (a)(1) sets forth certain definitions to 
ensure consistency and compliance with the Plan. In Partial Amendment 
No. 1, the Exchange amended its proposed definition for Retail Investor 
Orders.\75\ The term Retail Investor Order was amended to clarify that 
under the Plan Retail Investor Orders are eligible for the Plan's 
exceptions whether on the Exchange or OTC. Under the Plan, Retail 
Investor Orders are able to trade in increments other than $0.05 when 
they are provided with price improvement of at least $0.005. The 
exception is permitted on exchange Trading Centers as well as OTC. 
NYSE's proposed rule, as amended, clarifies this exception. The amended 
definition is intended to conform with FINRA Rule 6191(a)(7)(A) \76\ 
and would apply to all member organizations' trading activities 
pursuant to the Plan, and not solely member organizations' trading 
through the Exchange's retail liquidity program. The Commission finds 
the definition consistent with the Act because it implements the Plan.
---------------------------------------------------------------------------

    \75\ See proposed NYSE Rule 67(a)(1)(C). This section was 
renumbered in Partial Amendment No. 2. See Partial Amendment No. 2, 
supra note 10.
    \76\ See FINRA Approval Order, supra note 6.
---------------------------------------------------------------------------

    In Partial Amendment No. 1, the Exchange added a definition for 
Trade-at ISO \77\ to clarify the use of such orders

[[Page 25730]]

under the Plan. The Commission notes that while the NYSE definition is 
similar to the Plan definition, the NYSE definition differs in that it 
requires that a Trade-at ISO be identified as a Trade-at ISO whereas 
under the Plan definition a Trade-at ISO would be identified as an 
ISO.\78\ As noted in the FINRA Approval Order, the use of the term ISO 
in the context of Test Group Three Pilot Securities Three could be 
unclear as an ISO used for compliance with Rule 611 of Regulation NMS 
may differ from an ISO used for compliance with the Trade-at 
Prohibition. Accordingly, by requiring Trade-at ISOs to be identified 
as such, the Commission believes that NYSE's proposal should clarify 
and distinguish the use of ISOs and Trade-at ISOs under the Tick Size 
Pilot. The Commission believes that this should also facilitate 
implementation of the Plan.
---------------------------------------------------------------------------

    \77\ See proposed NYSE Rule 67(a)(1)(D). This section was 
renumbered in Partial Amendment No. 2. See Partial Amendment No. 2, 
supra note 10.
    \78\ Section I(MM) defined a Trade-at ISO as a limit order for a 
Pilot Security that meets the following requirements: (1) When 
routed to a Trading Center, the limit order is identified as an ISO; 
and (2) simultaneously with the routing of the limit order 
identified as an ISO, one or more additional limit orders, as 
necessary, are routed to execute against the full displayed size of 
any protected bid, in the case of a limit order to sell, or the full 
displayed size of any protected offer, in the case of a limit order 
to buy, for the Pilot Security with a price that is equal to the 
limit price of the limit order identified as an ISO. These 
additional routed orders also must be marked as ISO.
---------------------------------------------------------------------------

    In Partial Amendment No. 2, NYSE proposes to remove its proposed 
definition of Trading Center and instead rely on the definition of 
Trading Center set forth in the Plan. In the Original NYSE Proposal, 
NYSE proposed to define Trading Center with a reference to independent 
trading units, as defined in Rule 200(f) of Regulation SHO. In Partial 
Amendment No. 2, NYSE noted that this proposed definition could be 
interpreted in a manner that would be inconsistent with the intentions 
of the Exchange and the Plan. As discussed below, the concept of an 
independent trading unit would only apply to the display exception to 
the Trade-at Prohibition. Accordingly, the Commission finds that the 
definitions set forth in NYSE Rule 67(a) are consistent with the Act 
because they implement and clarify provisions of the Plan.
    Proposed NYSE Rule 67(a)(2) provides that NYSE, as a Plan 
Participant, is subject to the applicable requirements of the Plan. 
Proposed NYSE Rule 67(a)(3) provides that member organizations must 
establish, maintain, and enforce written policies and procedures that 
are reasonably designed to meet the applicable quoting and trading 
requirements of the Plan. Proposed NYSE Rule 67(a)(4) provides that the 
Exchange systems will not display, quote, or trade in violation of the 
applicable quoting and trading requirements for a Pilot Security 
specified in the Plan and its rule, unless such quotation or 
transaction is specifically exempted under the Plan. As noted above, 
Sections II.B and IV of the Plan provide that each Participant must 
establish, maintain and enforce written policies and procedures that 
are reasonably designed to comply with the quoting and trading 
requirements of the Plan and adopt rules requiring compliance by its 
members with the terms of the Plan. Accordingly, proposed NYSE Rules 
67(a)(2), (3) and (4) are consistent with the Act as they clarify and 
implement these Plan provisions.

B. Pilot Securities Under $1.00 During the Pilot Period

    Proposed NYSE Rule 67(a)(5) provides a mechanism to address 
instances where the price of a Pilot Security assigned to a Test Group 
falls below $1.00. Specifically, if the price of a Pilot Security 
assigned to a Test Group falls below $1.00 during a trading day, the 
Pilot Security would remain in its assigned Test Group. If, however, a 
Pilot Security has a Closing Price below $1.00 during any trading day 
that Pilot Security would be moved out of its respective Test Group and 
into the Control Group. Proposed NYSE Rule 67(a)(5) also sets forth 
that notwithstanding the foregoing, Pilot Securities would continue to 
be subject to the data collection requirements set forth in NYSE Rule 
67(b). The Commission notes that the selection criteria for Pilot 
Securities were developed to minimize the likelihood of the inclusion 
of securities that trade with a share price of $1.00 or less. However, 
the Commission understands that there could be instances over the 
course of the Pilot Period where a Pilot Security's price falls below 
$1.00. According to the Participants, a $0.05 quoting and/or trading 
increment could be harmful to trading for such low priced Pilot 
Securities. Therefore, the Commission believes that this provision is 
consistent with the Act because it should help to ensure that the 
universe of Pilot Securities remains constant over the Pilot Period 
while also addressing trading concerns for Pilot Securities that 
experience a fall in price.\79\
---------------------------------------------------------------------------

    \79\ The Commission notes that it has granted NYSE an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 21.
---------------------------------------------------------------------------

C. Quoting and Trading Rules for Test Group One and Test Group Two

    Proposed NYSE Rule 67(c) provides that no member may display, rank, 
or accept from any person any displayable or non-displayable bids or 
offers, orders, or indications of interest in any Pilot Security in 
Test Group One in increments other than $0.05. Proposed NYSE Rule 67(c) 
also provides that orders priced to execute at the midpoint of the NBBO 
or best PBBO and orders entered in the Exchange's Retail Liquidity 
Program as Retail Price Improvement Orders may be ranked and accepted 
in increments of less than $0.05. Finally, proposed NYSE Rule 67(c) 
provides that Pilot Securities in Test Group One may continue to trade 
at any price increment that is currently permitted by NYSE Rule 62.10. 
The Commission finds that proposed NYSE Rule 67(c) is consistent with 
the Act because it implements provisions of the Plan.\80\
---------------------------------------------------------------------------

    \80\ See Section VI.B of the Plan.
---------------------------------------------------------------------------

    Proposed NYSE Rule 67(d)(1) provides that no member may display, 
rank, or accept from any person any displayable or non-displayable bids 
or offers, orders, or indications of interest in any Pilot Security in 
Test Group Two in increments other than $0.05. However, proposed NYSE 
Rule 67(d)(1) provides that orders priced to trade at the midpoint of 
the NBBO or PBBO or orders entered in the Exchange's Retail Liquidity 
Program as Retail Price Improvement Orders may be ranked and accepted 
in increments of less than $0.05. Proposed NYSE Rule 67(d)(2) provides 
that members may not execute trading in increments other than $0.05 
including Brokered Cross Trades, unless there is an applicable 
exception provided in proposed NYSE Rule 67(d)(3). Proposed Rule 
67(d)(3) provides that Pilot Securities in Test Group Two may trade in 
increments less than $0.05 in the following circumstances: (A) Trading 
may occur at the midpoint between the NBBO or the PBBO; (B) Retail 
Investor Orders may be provided with price improvement of at least 
$0.005 better than the PBBO; (C) Negotiated Trades may trade in 
increments less than $0.05; and (D) customer orders to comply with NYSE 
Rule 5320 following the execution of a proprietary trade at an 
increment other than $0.05 that is permissible pursuant to a Plan 
exception.\81\ The Commission finds that proposed NYSE Rules 67(d)(1), 
(2) and (3)(A), (3)(B) and (3)(C)

[[Page 25731]]

are consistent with the Act because they implement provisions of the 
Plan.\82\
---------------------------------------------------------------------------

    \81\ See Partial Amendment No. 1, supra note 9.
    \82\ See Section VI.C of the Plan.
---------------------------------------------------------------------------

    In Partial Amendment No. 1, NYSE proposes to add a trading 
increment exception in NYSE Rule 67(d)(3)(D), which would allow the 
execution of a customer order following a proprietary trade by a NYSE 
member at an increment other than $0.05 in the same security, on the 
same side and at the same price as (or within the prescribed amount of) 
a customer order owed a fill pursuant to NYSE Rule 5320, where the 
triggering proprietary trade at an increment other than $0.05 was 
permissible pursuant to an exception under the Plan. The Exchange 
believes that this exception should facilitate the ability of its 
members to continue to protect customer orders while retaining the 
flexibility to engage in proprietary trades that comply with an 
exception to the Plan. \83\ Based on the foregoing, the Commission 
finds that proposed NYSE Rule 67(d)(3)(D) is consistent with the 
Act.\84\
---------------------------------------------------------------------------

    \83\ The Commission notes that a similar exception was added to 
the FINRA Proposal in response to a commenter's request. See FINRA 
Approval Order, supra note 6.
    \84\ The Commission notes that it has granted NYSE an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 21.
---------------------------------------------------------------------------

D. Quoting and Trading Rules for Test Group Three

    Proposed NYSE Rule 67(e)(1) provides that no member may display, 
rank, or accept from any person any displayable or non-displayable bids 
or offers, orders, or indications of interest in any Pilot Security in 
Test Group Three in increments other than $0.05. However, proposed NYSE 
Rule 67(e)(1) provides that orders may be ranked and accepted in 
increments of less than $0.05 for Test Group Three Pilot Securities if 
such order is priced to trade at the midpoint of the NBBO or PBBO or is 
entered in the Exchange's Retail Liquidity Program as Retail Price 
Improvement Orders. Proposed NYSE Rule 67(e)(2) provides that the $0.05 
trading increment applies to all trades for Test Group Three Pilot 
Securities, including Brokered Cross Trades, unless there is an 
applicable exception to the $0.05 trading increment requirement. 
Proposed Rule 67(e)(3) provides that Pilot Securities in Test Group 
Three may trade in increments less than $0.05 in the following 
circumstances: (A) Trading may occur at the midpoint between the NBBO 
or the PBBO; (B) Retail Investor Orders may be provided price 
improvement of at least $0.005 better than the PBBO; (C) Negotiated 
Trades may trade in an increment less than $0.05; and (D) customer 
orders executed to comply with NYSE Rule 5320 following the execution 
of a proprietary trade at an increment other than $0.05 that is 
permissible pursuant to a Plan exception.\85\ The Commission finds that 
proposed NYSE Rules 67(e)(1), (2) and (3)(A), (3)(B) and (3)(C) are 
consistent with the Act because they implement provisions of the 
Plan.\86\ In addition, as discussed above, \87\ the Commission finds 
that proposed NYSE Rule 67(e)(3)(D) is consistent with the Act.
---------------------------------------------------------------------------

    \85\ See Partial Amendment No. 1, supra note 9.
    \86\ See Section VI.D of the Plan.
    \87\ See Section V.C above related to the discussion of proposed 
NYSE Rule 67(d)(3)(D). The Commission notes that it has granted NYSE 
an exemption from Rule 608(c) related to this provision. See SEC 
Exemption Letter, supra note 21.
---------------------------------------------------------------------------

1. Quoting and Trading Rules for Test Group Three: Trade-At Prohibition
    Proposed NYSE Rule 67(e)(4) describes the Trade-at Prohibition for 
Test Group Three Pilot Securities and applicable exceptions. 
Specifically, proposed NYSE Rule 67(e)(4)(A) defines the Trade-at 
Prohibition as the prohibition against executions by a Trading Center 
of a sell order for a Pilot Security at the price of a Protected Bid or 
the execution of a buy order for a Pilot Security at the price of a 
Protected Offer during regular trading hours. Proposed NYSE Rule 
67(e)(4)(B) sets forth that, absent any of the exceptions listed in 
subparagraph (C), no member organization may execute a sell order for a 
Pilot Security in Test Group Three at the price of a Protected Bid or 
execute a buy order for a Pilot Security in Test Group Three at the 
price of a Protected Offer. The Commission finds these provisions 
consistent with the Act because they implement provisions set forth in 
the Plan.\88\
---------------------------------------------------------------------------

    \88\ See Section VI.D of the Plan.
---------------------------------------------------------------------------

    Proposed NYSE Rule 67(e)(4)(C) lists the exceptions to the Trade-at 
Prohibition. The proposed exceptions set forth in NYSE Rules 
67(e)(4)(C)(iv), (v), (vi), (vii), (viii), (x), (xi), (xii), (xiv) 
mirror the exceptions set forth in the Plan.\89\ The Commission finds 
these exceptions to be consistent with the Act because they implement 
Plan provisions.\90\
---------------------------------------------------------------------------

    \89\ See Section VI.D(3) through (7), (9), (10), (11) and (13) 
of the Plan.
    \90\ Id.
---------------------------------------------------------------------------

    In Partial Amendment No. 1, NYSE amended its display exception to 
the Trade-At Prohibition. Specifically, NYSE proposed to add new 
language in proposed NYSE Rule 67(e)(4)(C)(i) to permit the execution 
of an order as agent or riskless principal by a Trading Center within a 
member organization that has displayed a quotation as agent or riskless 
principal, via either a processor or an SRO Quotation Feed, at a price 
equal to the traded-at Protected Quotation, that was displayed before 
the order was received but only up to the full displayed size of the 
Trading Center's previously displayed quote.
    In Partial Amendment No. 1, the Exchange also renumbers the 
originally proposed subsection (i) as subsection (ii) to proposed NYSE 
Rule 67(e)(4)(C). Consistent with the discussion above, the provision 
was also amended to exclude displayed quotations on a riskless 
principal basis from the types of quotations that a Trading Center may 
rely on as an exception to the Trade-at Prohibition under NYSE Rule 
67(e)(4)(C)(ii). Proposed NYSE Rule 67(e)(4)(ii) now permits the 
execution of an order by a Trading Center within a member organization 
that has displayed a quotation for the account of that Trading Center 
on a principal basis (excluding riskless principal), via either a 
processor or an SRO Quotation Feed, at a price equal to the traded-at 
Protected Quotation, that was displayed before the order was received, 
but only up to the full displayed size of the Trading Center's 
previously displayed quote. A Trading Center that has displayed a 
quotation as principal, excluding riskless principal, may execute an 
order as principal, agent or riskless principal.
    In Partial Amendment No. 2, NYSE proposes to specify that a Trading 
Center that uses independent trading units, as defined under Rule 
200(f) of Regulation SHO, must execute orders that rely on the display 
exception set forth in NYSE Rules 67(e)(4)(C)(i) or (ii) within the 
same independent trading unit that displayed the relevant 
quotation.\91\
---------------------------------------------------------------------------

    \91\ See Partial Amendment No. 2, supra note10. See also 17 CFR 
242.200(f). As noted in the Original NYSE Proposal, a Trading Center 
cannot rely on the quotations displayed by that broker-dealer from a 
different independent trading unit. The Original NYSE Proposal 
contained the independent trading unit limitation in its proposed 
definition of Trading Center. As noted above, NYSE removed its 
proposed definition of Trading Center in Partial Amendment No. 2.
---------------------------------------------------------------------------

    The Commission finds that proposed NYSE Rule 67(e)(4)(C)(i) and 
(ii) are consistent with the Act. The Commission believes that the 
proposed rule clarifies the operation of the display exception for the 
Trade-at Prohibition in a manner consistent with the goals of the Plan. 
Under the proposed rule, a Trading Center would only be able to execute 
an order in the same capacity in which it has displayed

[[Page 25732]]

a quotation. Accordingly, a Trading Center could not rely on an agency 
quotation to execute on a principal basis. Further, a Trading Center 
that uses independent trading units would be restricted in its ability 
to rely on quotations displayed by other independent trading units. As 
noted above, a Trading Center that utilizes independent trading units 
may only execute an order in the independent trading unit that 
displayed the quotation. The Commission believes that these additional 
proposed rules implement the display exception to the Trade-at 
Prohibition in a manner that should incentivize the display of 
liquidity.\92\
---------------------------------------------------------------------------

    \92\ See Approval Order, supra note 3. See also FINRA and BATS 
Approval Orders, supra note 6.
---------------------------------------------------------------------------

    In Partial Amendment No. 1, NYSE proposes to remove an exception 
related to odd lot orders and odd lot portions of partial round lot 
orders. The Exchange noted that it agreed with FINRA and BATS in that a 
separate exception was unnecessary and that while odd lots are not 
Protected Quotations, a Trading Center displaying an odd lot order via 
an SRO Quotation Feed would be able to execute the odd lot order based 
on such display and the price and size requirements of the Trade-at 
Prohibition. The Commission notes that the Plan does not include a 
separate exception for odd lots orders. In addition, the Commission 
notes that it addressed the treatment of odd lots orders in the 
Approval Order.\93\ Accordingly, the Commission believes that the 
NYSE's proposed rule, as amended by Partial Amendment No. 1, is 
consistent with the Act because the rule reflects the provisions of the 
Plan.
---------------------------------------------------------------------------

    \93\ See Approval Order, supra note 3.
---------------------------------------------------------------------------

    Proposed NYSE Rule 67(e)(4)(C)(iii) sets forth an exception to the 
Trade-at Prohibition for orders of Block Size that differs from the 
exception to the Trade-at Prohibition set forth in the Plan. NYSE 
proposes additional provisions with respect to Block Size orders 
including that such orders at the time of origin may not be: (A) An 
aggregation of non-block orders; (B) broken into orders smaller than 
Block Size prior to submitting the order to a Trading Center for 
execution; or (C) executed on multiple Trading Centers.
    As noted above, one commenter stated that the proposed rule would 
prevent the facilitation of block crosses that include small 
orders.\94\ The commenter suggested that the rule be amended to permit 
the aggregation of non-block orders so long as at least one component 
of the block itself satisfied the definition of Block Size Order. The 
NYSE believes that the commenter's suggestion is inconsistent with the 
Plan.\95\
---------------------------------------------------------------------------

    \94\ See FIF Letters I and II, supra note 5.
    \95\ See Response Letter, supra note 6.
---------------------------------------------------------------------------

    The Commission believes that the additional criteria proposed by 
NYSE for the Block Size exception to the Trade-at Prohibition are 
consistent with the Act.\96\ In the Approval Order, the Commission 
modified the Block Size definition for the purposes of the Plan to more 
closely reflect the trading characteristics of potential Pilot 
Securities. The Commission believes that proposed NYSE Rule 
67(e)(4)(C)(iii) appropriately limits the scope and applicability of 
the Block Size exception, and should help to exclude trades and order 
handling scenarios that were not contemplated or intended to be 
considered for an exception for the Trade-at Prohibition.
---------------------------------------------------------------------------

    \96\ The Commission notes that the NYSE's rule is consistent 
with the FINRA and BATS Rules. See FINRA and BATS Approval Orders, 
supra note 6.
---------------------------------------------------------------------------

    As noted above, the Exchange proposes in NYSE Rule 67(a)(1)(D) \97\ 
to clarify the definition of Trade-at ISOs in connection with the 
Trade-at Prohibition exception listed in proposed NYSE Rule 
67(e)(4)(C)(ix) and (x). NYSE proposes to reflect its proposed Trade-at 
ISO definition in its proposed NYSE Rule 67(e)(4)(C)(ix) to reflect 
that orders are identified as Trade-at ISOs. The Commission believes 
that NYSE's proposal in its proposed Rule 67(e)(4)(C0(ix) should 
clarify the use of ISOs and Trade-at ISOs under the Plan and facilitate 
their implementation.\98\
---------------------------------------------------------------------------

    \97\ See supra Section V.A.
    \98\ The Commission notes that the NYSE definition is consistent 
with the FINRA and BATS rules. See FINRA and BATS Approval Orders, 
supra note 6.
---------------------------------------------------------------------------

    Proposed NYSE Rule 67(e)(4)(C)(xiii) sets forth an exception to the 
Trade-at Prohibition for stopped orders. A stopped order is defined as 
an order executed by a Trading Center which, at the time of order 
receipt, the Trading Center had guaranteed an execution at no worse 
than a specified price where: (A) The stopped order was for the account 
of a customer; (B) the customer agreed to the specified price on an 
order-by-order basis; and (C) the price of the Trade-at transaction 
was, for a stopped buy order, equal to or less than the National Best 
Bid in the Pilot Security at the time of execution or, for a stopped 
sell order, equal to or greater than the National Best Offer in the 
Pilot Security at the time of execution, as long as such order is 
priced at an acceptable increment.
    In Partial Amendment No. 1, NYSE amended the rule text of proposed 
NYSE Rule 67(e)(4)(C)(xiii) to clarify its operation under the Trade-at 
Prohibition, which would conform the NYSE rule to the previously 
approved FINRA and BATS Proposals.\99\ The Commission finds that 
proposed NYSE Rule 67(e)(4)(C)(xiii), as modified by Partial Amendment 
No. 1, is consistent with the Act because it implements the Plan 
provision is a manner that clarifies its operation for these order 
types.\100\
---------------------------------------------------------------------------

    \99\ See FINRA and BATS Approval Orders, supra note 6.
    \100\ The Commission notes that it granted NYSE an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 21.
---------------------------------------------------------------------------

    In Partial Amendment No. 1, NYSE proposes an additional exception 
to the Trade-at Prohibition related to ``bona fide errors.'' \101\ 
Specifically, proposed NYSE Rule 67(e)(4)(C)(xv) would provide an 
exception to the Trade-at Prohibition where the order is to correct a 
bona fide error, which is recorded by the Trading Center in its error 
account. The proposed definition for a ``bona fide error'' is: (A) The 
inaccurate conveyance or execution of any term of an order including, 
but not limited to, price, number of shares or other unit of trading; 
identification of the security; identification of the account for which 
securities are purchased or sold; lost or otherwise misplaced order 
tickets; short sales that were instead sold long or vice versa; or the 
execution of an order on the wrong side of a market; (B) the 
unauthorized or unintended purchase, sale, or allocation of securities, 
or the failure to follow specific client

[[Page 25733]]

instructions; (C) the incorrect entry of data into relevant systems, 
including reliance on incorrect cash positions, withdrawals, or 
securities positions reflected in an account; or (D) a delay, outage, 
or failure of a communication system used to transmit market data 
prices or to facilitate the delivery or execution of an order.\102\ In 
order to utilize this exception to the Trade-at Prohibition, the 
following conditions must be met: (1) The bona fide error must be 
evidenced by objective facts and circumstances, the Trading Center must 
maintain documentation of such facts and circumstances, and the Trading 
Center must record the transaction in its error account; (2) the 
Trading Center must establish, maintain, and enforce written policies 
and procedures that are reasonably designed to address the occurrence 
of errors and, in the event of an error, the use and terms of a 
transaction to correct the error in compliance with this exception; and 
(3) the Trading Center must regularly surveil to ascertain the 
effectiveness of its policies and procedures to address errors and 
transactions to correct errors and takes prompt action to remedy 
deficiencies in such policies and procedures.\103\
---------------------------------------------------------------------------

    \101\ A commenter requested this particular exception to the 
Trade-at Prohibition. See FIF Letter I and FIF Letter II, supra note 
5. The Commission notes that this commenter also suggested that 
there should be a print protection transaction exception to the 
Trade-at Prohibition that corresponds to the print protection 
transaction exemption that is applicable to Rule 611 of Regulation 
NMS. See FIF Letter I and FIF Letter II. As noted in the FINRA and 
BATS Approval Orders, the Commission does not agree that a print 
protection transaction exception would be consistent with the Trade-
At Prohibition in the Plan. First, the print protection transaction 
exemption applicable to Rule 611 of Regulation NMS is inconsistent 
with the Trade-at Prohibition because the print protection exemption 
under Rule 611 of Regulation NMS explicitly contemplates protection 
for both displayed and reserve (undisplayed) size of orders. In this 
regard, the Commission believes that such an exception for the 
Trade-at Prohibition often will be unnecessary because a print 
protection transaction exception for the Trade-at Prohibition would 
need to be premised upon a displayed customer order, which already 
is excepted from the Trade-at Prohibition if it satisfies the 
requirements of proposed NYSE Rule 67(e)(4)(C)(i) and (ii) and the 
Plan. Moreover, providing a print protection transaction exemption 
from the Trade-At Prohibition would create the potential for trading 
scenarios that would result in better-priced, displayed orders being 
bypassed for the execution of inferior, same-priced orders. The 
Commission believes such a result is inconsistent with the Plan in 
general, and the Trade-at Prohibition in particular.
    \102\ Absent a bona fide error as defined above, the proposed 
exception would not apply to a broker dealer's mere failure to 
execute a not-held order in accordance with a customer's 
expectations.
    \103\ See Partial Amendment No. 1, supra note 9. See also 
Securities Exchange Act Release No. 55884 (June 8, 2007), 72 FR 
32926 (June 14, 2007).
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    The Commission finds that the exception to the Trade-at Prohibition 
for the correction of bona fide errors is consistent with the Act.\104\ 
The Commission believes that this exception should promote efficiency 
and the best execution of investor orders. Analogous to the 
Commission's order exempting such orders from Rule 611 of Regulation 
NMS, this exemption will allow Trading Centers to execute error 
correction transactions at the appropriate prices to correct bona fide 
errors without having to qualify for one of the exceptions to the 
Trade-at Prohibition.\105\
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    \104\ The Commission notes that the conditions for a bona fide 
error exception for the Trade-at Prohibition would be consistent 
with the corresponding bona fide error exemption for Rule 611 of 
Regulation NMS and would apply only to the error correction 
transaction itself and would not, for example, apply to any 
subsequent trades effected by a Trading Center to eliminate a 
proprietary position connected with the error correction transaction 
or a broker dealer's mere failure to execute a not-held order in 
accordance with a customer's expectations. See also Securities 
Exchange Act Release No. 55884 (June 8, 2007), 72 FR 32926 (June 14, 
2007).
    \105\ The Commission notes that it has granted NYSE an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 21.
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    The Commission finds that the NYSE proposal to implement the Tick 
Size Pilot quoting and trading requirements are consistent with the 
Act. The proposal clarifies and implements the quoting and trading 
requirements set forth in the Plan.

VI. Solicitation of Comments of Partial Amendment Nos. 1 and 2

    Interested persons are invited to submit written data, views, and 
arguments concerning Partial Amendment Nos. 1 and 2, including whether 
the proposed rule change, as modified by Partial Amendment Nos. 1 and 
2, 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-NYSE-2015-46 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-NYSE-2015-46. 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 such 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-NYSE-2015-46 and should be 
submitted on or before May 20, 2016.

VII. Accelerated Approval of Proposed Rule Change, as Modified by 
Partial Amendment Nos. 1 and 2

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act, to approve the proposed rule change, as modified by Partial 
Amendment Nos. 1 and 2, prior to the 30th day after the date of 
publication of Partial Amendment Nos. 1 and 2 in the Federal Register. 
Partial Amendment Nos. 1 and 2 were submitted to conform the NYSE 
Proposal to the previously approved FINRA and BATS Proposals. To 
achieve this uniformity, NYSE amends several requirements set forth in 
this proposed rule change. In Partial Amendment No. 1, NYSE proposes to 
first, add an exception to permit members to fill a customer order in a 
Pilot Security in Test Group Two or Three at a non-nickel increment to 
comply with NYSE Rule 5320 (Prohibition Against Trading Ahead of 
Customer Orders) under limited circumstances; second, amend the display 
exception of Trade-at Prohibition to allow a Trading Center who is 
displaying as either agent or riskless principal to execute as agent or 
riskless principal up to the displayed size; third, remove the explicit 
odd lot exception from the Trade-at Prohibition; fourth, amend the 
proposal to adopt an exception to the Trade-at Prohibition for certain 
error correction transactions; fifth, modify the stopped order 
exception to the Trade-at Prohibition to clarify its operation under 
the Plan; sixth, clarify the use of Trade-at ISOs in connection with 
the Trade-at Prohibition, and finally, amend the definition of a 
``Retail Investor Order.''
    NYSE believes that the change to allow members to fill a customer 
order at a non-nickel increment to comply with NYSE Rule 5320 under 
limited circumstances best facilitates the ability of members to 
continue to protect customer orders while retaining the flexibility to 
engage in proprietary trades that comply with an exception to the Plan. 
NYSE believes the amendment to the display exception to the Trade-at 
Prohibition would allow a Trading Center to execute an order at the 
Protected Quotation in the same capacity in which it has displayed a 
quotation, at a price equal to the Protected Quotation and up its 
displayed size would be consistent with the previously stated 
Commission view

[[Page 25734]]

on the display exception.\106\ NYSE believes removing its proposed odd 
lot exception to the Trade-at Prohibition is appropriate because it is 
unnecessary and that a Trading Center displaying an odd lot would be 
able to execute the trade based on display, price and size 
requirements. NYSE believes adding an exception to the Trade-at 
Prohibition for error correction transactions is appropriate as this 
exception is equally applicable to the Trade-at Prohibition as to Rule 
611 of Regulation NMS, and that adopting this exception appropriately 
aligns the requirements of the Trade-at Prohibition with Rule 611 of 
Regulation NMS. Similarly, NYSE believes that amending the stopped 
order exception will result in more consistent treatment under 
Regulation NMS and the Plan. NYSE believes that amending the reference 
to ISOs in connection with the Trade-at Prohibition is consistent with 
the Act because it will better align that reference to the definition 
of ``Trade-At Intermarket Sweep Order'' as set forth in the Plan. 
Finally, NYSE believes the amended definition of ``Retail Investor 
Order'' clarifies that the exception should be generally applicable and 
not solely to the Exchange's retail liquidity program.
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    \106\ See FINRA and BATS Approval Orders, supra note 6.
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    In Partial Amendment No. 2, NYSE proposes to (1) delete its 
proposed definition of Trading Center; (2) add a reference to 
independent aggregation units to its proposed NYSE Rule 67(e)(4)(C)(i) 
and (ii); and (3) correct a typographical error in proposed the Trade-
at ISO definition located in proposed NYSE 67(a)(1)(D)(ii). NYSE 
believes that removing the definition of Trading Center and referring 
to independent trading units in proposed Rule 67(e)(4)(C)(i) and (ii) 
makes its rule consistent with the FINRA and BATS Proposals and further 
clarifies the intent of its rule and the Plan. In addition, NYSE 
believes that the correction of the typographical error is minor and 
non-substantive.
    Based on the foregoing, the Commission believes that the changes in 
Partial Amendment Nos. 1 and 2 to: (1) Add an exception to NYSE Rule 
67(d)(3)(D) and NYSE Rule 67(e)(3)(D) to permit members to fill a 
customer order in a Pilot Security at a non-nickel increment to comply 
with NYSE Rule 5320 under limited circumstances, (2) amend the NYSE 
Rule 67(e)(4)(C)(i) and NYSE Rule 67(e)(4)(C)(ii) relating to the 
display exception of the Trade-at Prohibition for a Trading Center 
displaying as agent or riskless principle, (3) remove the explicit odd 
lot exception to the Trade-at Prohibition that was previously listed as 
NYSE Rule 67(e)(4)(C)(i) and Supplementary Material .10, (4) add NYSE 
Rule 67(e)(4)(C)(xv) to create an exception to the Trade-at Prohibition 
for certain error correction transactions, (5) modify NYSE Rule 
67(e)(4)(C)(xiii) to amend the stopped order exception to the Trade-at 
Prohibition, (6) add the definition of Trade-at ISO as NYSE Rule 
67(a)(1)(E) to clarify the use of ISOs in connection with the Trade-at 
Prohibition, (7) modify the definition of Retail Investor Order 
contained in NYSE Rule 67(a)(1)(D) to clarify the rule's applicability, 
(8) delete the NYSE definition of Trading Center, (9) add references to 
independent trading units in proposed NYSE Rules 67(e)(4)(C)(i) and 
(ii), and (10) correct non substantive typographical errors are all 
consistent with the Act. Accordingly, the Commission finds good cause 
for approving the proposed rule change, as modified by Partial 
Amendment Nos. 1 and 2, on an accelerated basis, pursuant to Section 
19(b)(2) of the Act.

VIII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\107\ that the proposed rule change, as modified by Partial Amendment 
Nos. 1 and 2 (SR-NYSE-2015-46) be, and it hereby is, approved on an 
accelerated basis.
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    \107\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\108\
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    \108\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09983 Filed 4-28-16; 8:45 am]
 BILLING CODE 8011-01-P