[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)]
[Notices]
[Pages 64234-64238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22417]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78820; File No. SR-IEX-2016-13]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 11.340 To Modify Certain Data Collection Requirements of the 
Regulation NMS Plan To Implement a Tick Size Pilot Program

September 13, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\

[[Page 64235]]

notice is hereby given that, on August 30, 2016, the Investors Exchange 
LLC (``IEX'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the self-regulatory organization. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend Rule 11.340 to modify certain data collection 
requirements of the Regulation NMS Plan to Implement a Tick Size Pilot 
Program (``Plan'').\6\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
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    IEX has filed the proposed rule change for immediate effectiveness. 
IEX has requested that the SEC waive the 30-day operative period so 
that the proposed rule change can become operative on August 30, 2016.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    On August 25, 2014, FINRA, and several other self-regulatory 
organizations (the ``Participants'') filed with the Commission, 
pursuant to Section 11A of the Act \7\ and Rule 608 of Regulation NMS 
thereunder,\8\ the Plan to Implement a Tick Size Pilot Program (the 
``Plan'').\9\ The Participants filed the Plan to comply with an order 
issued by the Commission on June 24, 2014.\10\ The Plan was published 
for comment in the Federal Register on November 7, 2014, and approved 
by the Commission, as modified, on May 6, 2015.\11\ An amendment to the 
Plan adding IEX as a Participant was filed with the Commission on 
August 4, 2016.\12\
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    \7\ 15 U.S.C. 78k-1.
    \8\ 17 CFR 242.608.
    \9\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \10\ See Securities Exchange Act Release No 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \11\ See Securities Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27513 (May 13, 2015) (``Approval Order'').
    \12\ Pursuant to the terms of the Plan, the amendment was 
effective upon filing pursuant to Rule 608(b)(3)(iii) of the 
Exchange Act because it involves solely technical or ministerial 
matters.
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stock of small-
capitalization companies. Each Participant is required to comply, and 
to enforce compliance by its member organizations, as applicable, with 
the provisions of the Plan.
    The Plan provides for the creation of a group of Pilot Securities, 
which shall be placed in a control group and three separate test 
groups, with each subject to varying quoting and trading increments. 
Pilot Securities in the control group will be quoted at the current 
tick size increment of $0.01 per share and will trade at the currently 
permitted increments. Pilot Securities in the first test group will be 
quoted in $0.05 minimum increments but will continue to trade at any 
price increment that is currently permitted.\13\ Pilot Securities in 
the second test group (``Test Group Two'') will be quoted in $0.05 
minimum increments and will trade at $0.05 minimum increments subject 
to a midpoint exception, a retail investor order exception, and a 
negotiated trade exception.\14\ Pilot Securities in the third test 
group (``Test Group Three'') will be subject to the same quoting and 
trading increments as Test Group Two, and also will be subject to the 
``Trade-at'' requirement to prevent price matching by a market 
participant that is not displaying at the price of a Trading Center's 
``Best Protected Bid'' or ``Best Protected Offer,'' unless an 
enumerated exception applies.\15\ In addition to the exceptions 
provided under Test Group Two, an exception for Block Size orders and 
exceptions that mirror those under Rule 611 of Regulation NMS \16\ will 
apply to the Trade-at requirement.
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    \13\ See Section VI(B) of the Plan.
    \14\ See Section VI(C) of the Plan.
    \15\ See Section VI(D) of the Plan.
    \16\ 17 CFR 242.611.
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    The Plan also requires a Trading Center \17\ or a Market Maker \18\ 
to collect and transmit certain data to its designated examining 
authority (``DEA''), and requires DEAs to transmit this data to the 
Commission. Participants that operate a Trading Center also are 
required under the Plan to collect certain data, which is then 
transmitted directly to the Commission. With respect to Trading 
Centers, Appendix B.I to the Plan (Market Quality Statistics) requires 
a Trading Center to submit to the Participant that is its DEA a variety 
of market quality statistics. Appendix B.II to the Plan (Market and 
Marketable Limit Order Data) requires a Trading Center to submit 
information to its DEA relating to market orders and marketable limit 
orders, including the time of order receipt, order type, the order 
size, and the National Best Bid and National Best Offer quoted price.
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    \17\ The Plan incorporates the definition of a ``Trading 
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS 
defines a ``Trading Center'' as ``a national securities exchange or 
national securities association that operates an SRO trading 
facility, an alternative trading system, an exchange market maker, 
an OTC market maker, or any other broker or dealer that executes 
orders internally by trading as principal or crossing orders as 
agent.'' See 17 CFR 242.600(b).
    \18\ The Plan defines a Market Maker as ``a dealer registered 
with any self-regulatory organization, in accordance with the rules 
thereof, as (i) a market maker or (ii) a liquidity provider with an 
obligation to maintain continuous, two-sided trading interest.''
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    With respect to Market Makers, Appendix B.III requires a 
Participant that is a national securities exchange to collect daily 
Market Maker Registration statistics. Appendix B.IV requires a 
Participant to collect data related to Market Maker participation with 
respect to each Market Maker engaging in trading activity on a Trading 
Center operated by the Participant. Appendix C.I requires a Participant 
to collect data related to Market Maker profitability from each Market 
Maker for which it is the DEA. Appendix C.II requires the Participant, 
as DEA, to aggregate the Appendix C.I data, and to transmit this data 
to the Commission.
    The Commission approved the Pilot on a two-year basis, with 
implementation to begin no later than

[[Page 64236]]

May 6, 2016.\19\ On November 6, 2015, the SEC exempted the Participants 
from implementing the pilot until October 3, 2016.\20\ As set forth in 
Appendices B and C to the Plan, data that is reported pursuant to the 
appendices shall be provided for dates starting six months prior to the 
Pilot Period through six months after the end of the Pilot Period. 
Under the revised Pilot implementation date, the Pre-Pilot data 
collection period commenced on April 4, 2016.
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    \19\ See Approval Order at 27533 and 27545.
    \20\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657).
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    On July 28, 2016, IEX filed with the Commission a proposed rule 
change to adopt IEX Rule 11.340(b) to implement the data collection 
requirements of the Plan and also requested that the Commission grant 
it certain specified exemptions that were previously provided to other 
Plan Participants prior to the time that IEX became a Plan 
Participant.\21\
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    \21\ See Securities Exchange Act Release No. 78481 (August 4, 
2016), 81 FR 52933 (August 10, 2016) (Notice of Filing of File No. 
SR-IEX-2016-07).
     IEX will also shortly submit a proposed rule change to 
implement the quoting and trading requirements of the Plan.
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    IEX now proposes to further amend Rule 11.340(b) to modify 
additional data collection and reporting requirements.\22\ First, 
Appendix B.I.a(21) through B.I.a(27) currently requires that Trading 
Centers report the cumulative number of shares of cancelled orders 
during a specified duration of time after receipt of the order that was 
cancelled. IEX and the other Participants believe that, for purposes of 
reporting cancelled orders, it is appropriate to categorize unexecuted 
Immediate or Cancel orders separately as one bucket irrespective of the 
duration of time after order receipt, i.e., without a time increment, 
to better differentiate orders cancelled subsequent to entry from those 
where the customer's intent prior to order entry was to cancel the 
order if no execution could be immediately obtained. IEX, therefore, 
proposes to modify Supplementary Material .04 to provide that 
unexecuted Immediate or Cancel orders shall be categorized separately 
for purposes of Appendix B.I.a(21) through B.I.a(27).
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    \22\ IEX notes that, in connection with this proposed rule 
change, the Participants have submitted a request seeking exemptive 
relief from certain of the Plan's data collection requirements.
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    The second change relates to the reporting of daily market quality 
statistics pursuant to Appendix B.I. Currently, Appendix B.I sets forth 
categories of orders, including market orders, marketable limit orders, 
and inside-the-quote resting limit orders, for which daily market 
quality statistics must be reported. IEX and the other Participants 
have determined that it is appropriate to include an order type for 
limit orders priced more than $0.10 away from the NBBO for purposes of 
Appendix B reporting. IEX therefore proposes to amend Supplementary 
Material .06 to provide that limit orders priced more than $0.10 away 
from the NBBO shall be included as an order type for purposes of 
Appendix B reporting, and shall be assigned the number (22). These 
orders are not currently required to be reported pursuant to Appendix 
B, and IEX and the other Participants believe that requiring the 
reporting of such orders will produce a more comprehensive data set.
    The third change relates to the reporting of market quality 
statistics pursuant to Appendix B.I for a variety of order types, 
including inside-the-quote resting limit orders (12), at-the-quote 
resting limit orders (13), and near-the-quote resting limit orders 
(within $0.10 of the NBBO) (14). IEX and the other Participants believe 
that it is appropriate to require Trading Centers to report all orders 
that fall within these categories, and not just those orders that are 
``resting.'' IEX therefore, proposes to amend Supplementary Material 
.06 to make this change.
    In the fourth change, IEX proposes to add new Supplementary 
Material .08 to modify the manner in which market maker participation 
statistics are calculated. Currently, Appendix B.IV provides that 
market maker participation statistics shall be calculated based on 
share participation, trade participation, cross-quote share (trade) 
participation, inside-the-quote share (trade) participation, at-the-
quote share (trade) participation, and outside-the-quote share (trade) 
participation. IEX and the other Participants have determined that it 
is appropriate to add the count of the number of Market Makers used in 
the calculation of share (trade) participation to each category. FINRA 
[sic] is therefore proposing this change as part of Supplementary 
Material .10. In addition, Appendix B.IV(b) and (c) currently require 
that, when aggregating across Market Makers, share participation and 
trade participation shall be calculated using the share-weighted 
average and trade-weighted average, respectively. IEX and the other 
Participants believe that it is more appropriate to calculate share and 
trade participation by providing the total count of shares or trades, 
as applicable, rather than weighted averages, and IEX is therefore 
proposing this change as part of Supplementary Material .10.
    The fifth change relates to the NBBO that a Trading Center is 
required to use when performing certain quote-related calculations. 
When calculating cross-quote share (trade) participation pursuant to 
Appendix B.IV(d) and inside-the-quote share (trade) participation 
pursuant to Appendix B.IV(e), the Plan requires the Trading Center to 
utilize the NBBO at the time of the trade for both share and trade 
participation calculations. When calculating at-the-quote share (trade) 
participation and outside-the-quote share (trade) participation 
pursuant to Appendix B.IV(f) and (g), the Plan allows the Trading 
Center to utilize the National Best Bid of National Best Offer (NBBO) 
at the time of or immediately before the trade for both share and trade 
participation calculations. IEX and the other Participants believe that 
it is appropriate to calculate all quote participation (cross-quote 
share (trade) participation, inside-the-quote share (trade) 
participation, at-the-quote share (trade) participation and outside-
the-quote share (trade) participation) solely by reference to the NBBO 
in effect immediately prior to the trade. IEX therefore proposes to 
make this change as part of Supplementary Material .08.
    Finally, IEX proposes to change the end date until which the Pre-
Pilot Data Collection Securities shall be used to fulfill the Plan's 
data collection requirements. Currently, Supplementary Material .10 
provides that Pre-Pilot Data Collection Securities are the securities 
designated by the Participants for purposes of the data collection 
requirements described in Items I, II and IV of Appendix B and Item I 
of Appendix C to the Plan for the period beginning six months prior to 
the Pilot Period and ending on the trading day immediately preceding 
the Pilot Period. IEX and the other Participants believe that it is 
appropriate to use the Pilot Securities to satisfy the Plan's data 
collection requirements prior to the commencement of the Pilot. 
According, IEX is revising Supplementary Material .10 (which will be 
re-numbered as Supplementary Material .11) to provide that the Pre-
Pilot Data Collection Securities shall be used to satisfy the Plan's 
data collection requirements through thirty-one days prior to the Pilot 
Period, after which time the Pilot Securities shall be used for 
purposes of the data collection requirements.\23\
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    \23\ After regular trading hours on September 2, 2016, the 
national securities exchanges will establish which securities will 
be included as Pilot Securities for purposes of the Plan. FINRA and 
the other Participants have determined that members should use the 
Pilot Securities list for data collection purposes once it becomes 
available. Thus, the proposed rule change requires that, beginning 
thirty days prior to the first day of the Pilot Period--i.e., 
September 3, 2016--IEX and IEX members will comply with the data 
collection obligations of the Plan by collecting data on the Pilot 
Securities. As a result, beginning on September 3, 2016, members 
must migrate from using IEX's published Pre-Pilot Data Collection 
Security list and begin using the Pilot Securities list. September 
2, 2016 will be the last day that members use the Pre-Pilot Data 
Collection Security list.

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[[Page 64237]]

    As noted in Item 2 of this filing, IEX has filed the proposed rule 
change for immediate effectiveness. IEX has requested that the SEC 
waive the 30-day operative period so that the proposed rule change can 
become operative on August 30, 2016.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\24\ in general and furthers the 
objectives of Sections 6(b)(5) of the Act \25\ in particular, in that 
it is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    IEX believes that this proposal is consistent with the Act because 
it implements and clarifies the provisions of the Plan, and is designed 
to assist IEX in meeting its regulatory obligations pursuant to the 
Plan. In approving the Plan, the SEC noted that the Pilot was an 
appropriate, data-driven test that was designed to evaluate the impact 
of a wider tick size on trading, liquidity, and the market quality of 
securities of smaller capitalization companies, and was therefore in 
furtherance of the purposes of the Act. IEX believes that this proposal 
is in furtherance of the objectives of the Plan, as identified by the 
SEC, and is therefore consistent with the Act because the proposal 
implements and clarifies the requirements of the Plan.

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

    IEX notes that the proposed rule change implements the provisions 
of the Plan, and is designed to assist IEX in meeting its regulatory 
obligations pursuant to the Plan. IEX also notes that, other than the 
change to require use of the Pilot Securities beginning thirty days 
prior to the beginning of the Pilot Period, the proposed changes will 
not affect the data collection and reporting requirements for members 
that operate Trading Centers; the proposed changes will only affect how 
IEX and other Participants that operate Trading Centers collect and 
report data. IEX notes that, with respect to the change to require the 
use of the Pilot Securities beginning thirty days prior to the start of 
the Pilot Period, the proposed change reduces the number of securities 
on which affected members otherwise would have been required to collect 
data pursuant to the Plan and IEX Rule 11.340(b). In addition, the 
proposed rule change applies equally to all similarly situated members. 
Therefore, IEX does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \26\ and Rule 19b-4(f)(6) \27\ thereunder 
because the proposal does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; and (iii) by its terms, become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\29\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. IEX has asked the 
Commission to waive the 30-day operative delay so that so that the 
proposed rule change can become operative on August 30, 2016.
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    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow IEX to implement the proposed rules immediately 
thereby preventing delays in the implementation of the Plan. The 
Commission notes that the Plan is scheduled to start on October 3, 
2016. Therefore, the Commission hereby waives the 30-day operative 
delay and designates the proposed rule change to be operative upon 
filing with the Commission.\30\
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    \30\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\31\
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    \31\ 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2016-13 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2016-03. This file 
number should be included in 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

[[Page 64238]]

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 Section, 100 F Street 
NE., Washington, DC 20549-1090. Copies of the filing will also be 
available for inspection and copying at the IEX's principal office and 
on its Internet Web site at www.iextrading.com. 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-IEX-2016-13 and should be submitted on 
or before October 11, 2016.\32\
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22417 Filed 9-16-16; 8:45 am]
 BILLING CODE 8011-01-P