[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Notices]
[Pages 80123-80125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27367]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79262; File No. SR-BX-2016-153]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Commentary
.14 to Rule 4770 (Compliance With Regulation NMS Plan To Implement a
Tick Size Pilot)
November 8, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 31, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I and II, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Commentary .14 to Rule 4770
(Compliance with Regulation NMS Plan to Implement a Tick Size Pilot) to
provide the SEC with notice of its efforts to re-program its systems to
eliminate a re-pricing functionality for certain orders in Test Group
Three securities in connection with the Regulation NMS Plan to
Implement a Tick Size Pilot Program (``Plan'' or ``Pilot'').\3\
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\3\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (``Approval Order'').
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The text of the proposed rule change is set forth below. Proposed
new language is underlined; deleted text is in brackets.
* * * * *
NASDAQ BX Rules
* * * * *
4770. Compliance With Regulation NMS Plan To Implement a Tick Size
Pilot
(a) through (d) No Change.
Commentary
.01-.13 No change.
.14 Until [October 31, 2016] November 14, 2016, the treatment of
Price to Comply Orders, Price to Display Orders, Non-Displayed Orders,
and Post-Only Orders that are entered through the OUCH or FLITE
protocols in Test Group Three securities shall be as follows:
Following entry, and if market conditions allow, a Price to Comply
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO until such time as the Price to
Comply Order is able to be ranked and displayed at its original entered
limit price.
Following entry, and if market conditions allow, a Price to Display
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO until such time as the Price to
Display Order is able to be ranked and displayed at its original
entered limit price.
Following entry, and if market conditions allow, a Non-Displayed
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO up (down) to the Order's limit
price.
Following entry, and if market conditions allow, the Post-Only
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO or the best price on the
Exchange Book, as applicable until such time as the Post-Only Order is
able to be ranked and displayed at its original entered limit price.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On September 7, 2016, the Exchange filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change
(``Proposal'') to adopt paragraph (d) to Exchange Rule 4770 to describe
changes to system functionality necessary to implement the Plan. The
Exchange also proposed amendments to Rule 4770(a) and (c) to clarify
how the Trade-at exception may be satisfied. The SEC published the
Proposal in the Federal Register for notice and comment on September
20, 2016.\4\ BX subsequently filed three Partial Amendments to clarify
aspects of the Proposal. The Commission approved the Proposal, as
amended, on October 7, 2016.\5\
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\4\ See Securities Exchange Act Release No. 78838 (September 14,
2016), 81 FR 64566 (September 20, 2016) (SR-BX-2016-050).
\5\ See Securities Exchange Act Release No. 79076 (October 7,
2016) (SR-BX-2016-050).
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In SR-BX-2016-050, BX had initially proposed a re-pricing
functionality for Price to Comply Orders, Non-Displayed Orders, and
Post-Only Orders entered through the OUCH and FLITE protocols in Group
Three securities.\6\ BX subsequently determined that it would not offer
this re-pricing functionality for
[[Page 80124]]
Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders
entered through the OUCH and FLITE protocols in Group Three securities.
As part of Partial Amendment No. 2 to SR-BX-2016-050, BX proposed to
delete the relevant language from Rule 4770 related to this re-pricing
functionality.
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\6\ As originally proposed, Rule 4770(d)(2) stated that Price to
Comply Orders in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Comply Order is able to be ranked and displayed at its
original entered limit price. Rule 4770(d)(3) stated that, if market
conditions allow, a Non-Displayed Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance with changes to
the NBBO up (down) to the Order's limit price. Rule 4770(d)(4)
stated that, if market conditions allow, the Post-Only Order in a
Test Group Three Pilot Security will be adjusted repeatedly in
accordance with changes to the NBBO or the best price on the BX
Book, as applicable until such time as the Post-Only Order is able
to be ranked and displayed at its original entered limit price.
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In that amendment, BX noted that this change would only impact the
treatment of Price to Comply Orders, Non-Displayed Orders, and Post-
Only orders that are submitted through the OUCH and FLITE protocols in
Test Group Three Pilot Securities, as these types of Orders that are
currently submitted to BX through the RASH or FIX protocols are already
subject to this re-pricing functionality and will remain subject to
this functionality under the Pilot.
In the Amendment, BX further noted that its systems are currently
programmed so that Price to Comply Orders, Non-Displayed Orders and
Post-Only Orders entered through the OUCH and FLITE protocols in Test
Group Three Securities may be adjusted repeatedly to reflect changes to
the NBBO and/or the best price on the BX book. BX stated that it is re-
programming its systems to remove this functionality for Price to
Comply Orders, Non-Displayed Orders and Post-Only Orders entered
through the OUCH and FLITE protocols in Test Group Three Securities. In
the Amendment, BX stated that it anticipated that this re-programming
shall be completed no later than November 30, 2016. If it appears that
this functionality will remain operational by October 17, 2016, BX
indicated that it would file a proposed rule change with the SEC and
will provide notice to market participants sufficiently in advance of
that date to provide effective notice. The rule change and the notice
to market participants will describe the current operation of the BX
systems in this regard, and the timing related to the re-programming.
On October 17, 2016, BX filed a proposal to extend the date by
which it would complete the re-programing of its systems to eliminate
the re-pricing functionality in Test Group Three securities for Price
to Comply Orders, Price to Display Orders, Non-Displayed Orders, and
Post-Only Orders that are entered through the OUCH or FLITE
protocols.\7\ In that proposal, BX stated that it anticipated that this
re-programming shall be complete on or before October 31, 2016.\8\
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\7\ See Securities Exchange Act Release No. 79154 (October 25,
2016) (SR-BX-2016-054).
Subsequent to the approval of SR-BX-2016-050, BX become aware
that this re-pricing functionality also applies to Price to Display
Orders that are entered through the OUCH and FLITE protocols in Test
Group Three Securities, and included those Orders as part of SR-BX-
2016-054 accordingly. Price to Display Orders will be treated in the
same manner as Price to Comply Orders under the re-pricing
functionality.
\8\ Id.
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At this time, BX is still determining how to modify its systems to
eliminate the current re-pricing functionality in Test Group Three
securities for Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, and Post-Only Orders that are entered through the
OUCH or FLITE protocols. BX is therefore submitting this proposal to
extend the date by which the current re-pricing functionality will be
eliminated. BX anticipates that the re-programming to eliminate the
current re-pricing functionality shall be completed on or before
November 14, 2016.
Therefore, the current treatment of Price to Comply Orders, Price
to Display Orders, Non-Displayed Orders, and Post-Only Orders that are
entered through the OUCH or FLITE protocols in Test Group Three
securities shall be as follows:
Following entry, and if market conditions allow, a Price to Comply
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO until such time as the Price to
Comply Order is able to be ranked and displayed at its original entered
limit price.
Following entry, and if market conditions allow, a Price to Display
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO until such time as the Price to
Display Order is able to be ranked and displayed at its original
entered limit price.
Following entry, and if market conditions allow, a Non-Displayed
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO up (down) to the Order's limit
price.
Following entry, and if market conditions allow, a Post-Only Order
in a Test Group Three Pilot Security will be adjusted repeatedly in
accordance with changes to the NBBO or the best price on the BX Book,
as applicable until such time as the Post-Only Order is able to be
ranked and displayed at its original entered limit price.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed 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. The purpose of this filing is to inform the SEC and market
participants of the status of BX's attempts to re-program its systems
to remove the re-pricing functionality in Test Group Three securities
for Price to Comply Orders, Price to Display Orders, Non-Displayed
Orders, and Post-Only Orders that are entered through the OUCH or FLITE
protocols, and the current treatment of such orders pending the removal
of this functionality. This proposal is consistent with the Act because
it provides the SEC and market participants with notice of BX's efforts
in this regard, and is being submitted in connection with the
statements made by BX in SR-BX-2016-050 and SR-BX-2016-054 in proposing
the removal of this functionality.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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BX also believes that the proposal is consistent with the Act
because the re-pricing functionality will not significantly impact the
data gathered pursuant to the Pilot. BX notes that this re-pricing
functionality only affects Price to Comply Orders, Price to Display
Orders, Non-Displayed Orders, and Post-Only Orders that are entered
through the OUCH or FLITE protocols for Test Group Three securities
until the re-pricing functionality is eliminated, and only becomes
relevant when an Order in a Test Group Three security would cross a
Protected Quotation of another market center. BX has analyzed data
relating to the frequency with which Orders in Test Group Three
securities are entered with a limit price that would cross a Protected
Quotation of another market center, and believes that the re-pricing
functionality will be triggered infrequently once Test Group Three
becomes fully operational.\11\ The Exchange also notes that it is
diligently working to eliminate the current re-pricing functionality in
Test Group Three securities for Price to Comply Orders, Price to
Display Orders, Non-Displayed Orders, and Post-Only Orders that are
entered through the OUCH or FLITE protocols, and that it anticipates
this re-programming to be complete on or before November 14, 2016.
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\11\ For example, on October 31, 2016, in the one hundred Test
Group Three securities that are currently live, 0.06% of orders that
were entered on the NASDAQ Stock Market LLC in those securities were
entered at a price that crossed the NBBO.
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[[Page 80125]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The purpose of this proposal is
to provide the SEC and market participants with notice of BX's efforts
to remove its re-pricing functionality in Test Group Three securities
for Price to Comply Orders, Price to Display Orders, Non-Displayed
Orders, and Post-Only Orders that are entered through the OUCH or FLITE
protocols, consistent with its statements in SR-BX-2016-050 and SR-BX-
2016-054.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \12\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing. Rule
19b-4(f)(6)(iii), however, permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange requests that the
Commission waive the 30-day operative delay contained in Rule 19b-
4(f)(6)(iii) so that this proposed change will be in operative as of
October 31, 2016, the date that Test Group Three securities are fully
implemented and are subject to the quoting and trading restrictions of
the Plan and, therefore, the relevant language in Rule 4770.
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 the Exchange to implement the proposed rules
immediately thereby preventing delays in the implementation of the
Plan. The Commission notes that the Pilot started implementation on
October 3, 2016, Test Group Three securities were fully phased into the
Pilot on October 31, 2016, and waiving the 30-day operative delay would
ensure that the rules of the Exchange would be in place during
implementation. Therefore, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change to be operative
upon filing with the Commission.\14\
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\14\ 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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2016-153 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-BX-2016-153. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2016-153, and should be
submitted on or before December 6, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27367 Filed 11-14-16; 8:45 am]
BILLING CODE 8011-01-P