[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Notices]
[Pages 88279-88281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29291]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79446; File No. SR-BX-2016-065]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Extend the 
Pilot Period for the Retail Price Improvement Program Until December 1, 
2017

December 1, 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 November 29, 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 seeks to extend the pilot period for the Exchange's 
Retail Price Improvement (``RPI'') Program (the ``Program''), which is 
set to expire on December 1, 2016, for a period of one year, to expire 
on December 1, 2017.
    The Exchange has designated December 1, 2016 as the date the 
proposed rule change becomes effective.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this filing is to extend the pilot period of the RPI 
Program,\3\ currently scheduled to expire on December 1, 2016 for an 
additional year, until December 1, 2017.
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    \3\ Securities Exchange Act Release No. 73702 (November 28, 
2014), 79 FR 72049 (December 4, 2014) (``RPI Approval Order'') (SR-
BX-2014-048).
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Background
    In November 2014, the Commission approved the RPI Program on a 
pilot basis.\4\ The Program is designed to attract retail order flow to 
the Exchange, and allow such order flow to receive potential price 
improvement. The Program is currently limited to trades occurring at 
prices equal to or greater than $1.00 per share. Under the Program, a 
new class of market participant called a Retail Member Organization 
(``RMO'') is eligible to submit certain retail order flow (``Retail 
Orders'') \5\ to the Exchange. BX members (``Members'') are permitted 
to provide potential price improvement for Retail Orders in the form of 
non-displayed interest that is priced more aggressively than the 
Protected National Best Bid or Offer (``Protected NBBO'').\6\
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    \4\ See id.
    \5\ A ``Retail Order'' is defined in BX Rule 4780(a)(2) by 
referencing BX Rule 4702, and BX Rule 4702(b)(6) says it is an order 
type with a non-display order attribute submitted to the Exchange by 
a RMO. A Retail Order must be an agency order, or riskless principal 
order that satisfies the criteria of FINRA Rule 5320.03. The Retail 
Order must reflect trading interest of a natural person with no 
change made to the terms of the underlying order of the natural 
person with respect to price (except in the case of a market order 
that is changed to a marketable limit order) or side of market and 
that does not originate from a trading algorithm or any other 
computerized methodology.
    \6\ The term Protected Quotation is defined in Chapter XII, Sec. 
1(19) and has the same meaning as is set forth in Regulation NMS 
Rule 600(b)(58). The Protected NBBO is the best-priced protected bid 
and offer. Generally, the Protected NBBO and the national best bid 
and offer (``NBBO'') will be the same. However, a market center is 
not required to route to the NBBO if that market center is subject 
to an exception under Regulation NMS Rule 611(b)(1) or if such NBBO 
is otherwise not available for an automatic execution. In such case, 
the Protected NBBO would be the best-priced protected bid or offer 
to which a market center must route interest pursuant to Regulation 
NMS Rule 611.
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    The Program was approved by the Commission on a pilot basis running 
one-year from the date of implementation.\7\ The Commission approved 
the Program on November 28, 2014.\8\ The Exchange implemented the

[[Page 88280]]

Program on December 1, 2014 and the pilot has since been extended for a 
year with it now scheduled to end on December 1, 2016.\9\
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    \7\ See RPI Approval Order, supra note 3 at 72053.
    \8\ Id. at 72049.
    \9\ See Securities Exchange Act Release No. 76490 (November 20, 
2015), 80 FR 74165 (November 27, 2015) (SR-BX-2015-073).
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Proposal To Extend the Operation of the Program
    The Exchange established the RPI Program in an attempt to attract 
retail order flow to the Exchange by potentially providing price 
improvement to such order flow. The Exchange believes that the Program 
promotes competition for retail order flow by allowing Exchange members 
to submit Retail Price Improvement Orders (``RPI Orders'') \10\ to 
interact with Retail Orders. Such competition has the ability to 
promote efficiency by facilitating the price discovery process and 
generating additional investor interest in trading securities, thereby 
promoting capital formation. The Exchange believes that extending the 
pilot is appropriate because it will allow the Exchange and the 
Commission additional time to analyze data regarding the Program that 
the Exchange has committed to provide.\11\ As such, the Exchange 
believes that it is appropriate to extend the current operation of the 
Program.\12\ Through this filing, the Exchange seeks to extend the 
current pilot period of the Program until December 1, 2017.
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    \10\ A Retail Price Improvement Order is defined in BX Rule 
4780(a)(3) by referencing BX Rule 4702 and BX Rule 4702(b)(5) says 
that it is as an order type with a non-display order attribute that 
is held on the Exchange Book in order to provide liquidity at a 
price at least $0.001 better than the NBBO through a special 
execution process described in Rule 4780.
    \11\ See RPI Approval Order, supra note 3 at 72051.
    \12\ Concurrently with this filing, the Exchange has submitted a 
request for an extension of the exemption under Regulation NMS Rule 
612 previously granted by the Commission that permits it to accept 
and rank the RPI orders in sub-penny increments. See Letter from 
Jeffrey S. Davis, Vice President and Deputy General Counsel and 
Secretary, NASDAQ BX, Inc. to Brent J. Fields, Secretary, Securities 
and Exchange Commission dated November 22, 2016.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and with 
Section 6(b)(5) of the Act,\14\ 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.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that extending the pilot period for the RPI 
Program is consistent with these principles because the Program is 
reasonably designed to attract retail order flow to the exchange 
environment, while helping to ensure that retail investors benefit from 
the better price that liquidity providers are willing to give their 
orders. Additionally, as previously stated, the competition promoted by 
the Program may facilitate the price discovery process and potentially 
generate additional investor interest in trading securities. The 
extension of the pilot period will allow the Commission and the 
Exchange to continue to monitor the Program for its potential effects 
on public price discovery, and on the broader market structure.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed rule change extends an established pilot program for one year, 
thus allowing the RPI Program to enhance competition for retail order 
flow and contribute to the public price discovery process.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) \16\ 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's intent to file 
the proposed rule change, along with a brief description and text of 
the proposed rule change, at least five business days prior to the 
date of filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Exchange has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \18\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay period. The Exchange states 
that waiving the operative delay would allow the pilot period to 
continue uninterrupted, which the Exchange argues would be beneficial 
to market participants and would help to eliminate the potential for 
investor confusion.
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    \18\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the 30-day operative delay 
period is consistent with the protection of investors and the public 
interest. Specifically, the Commission believes that the proposal would 
allow the RPI Program to continue uninterrupted and to provide 
additional time for data about the program to be generated and 
analyzed. For these reasons, the Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest, and designates the proposed rule change to be 
operative upon filing with the Commission.\19\
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    \19\ 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.\20\
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    \20\ 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-BX-2016-065 on the subject line.

[[Page 88281]]

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-2016-065. 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-2016-065 and should be 
submitted on or before December 28, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12), (59).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-29291 Filed 12-6-16; 8:45 am]
 BILLING CODE 8011-01-P