
[Federal Register Volume 78, Number 43 (Tuesday, March 5, 2013)]
[Notices]
[Pages 14380-14386]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05004]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69003; File No. SR-EDGX-2013-08]


Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
EDGX Rules 1.5, 11.5, 11.8, 11.9 and 11.14 in Connection With the 
Implementation of the National Market System Plan To Address 
Extraordinary Market Volatility

February 27, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 13, 2013, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``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\ 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 Rules 1.5, 11.5, 11.8, 11.9 and 
11.14 regarding the implementation of the National Market System Plan 
to Address Extraordinary Market Volatility (as amended, the ``Plan'') 
as approved by the Securities and Exchange Commission.\3\ All of the 
changes described herein are applicable to EDGX Members. The text of 
the proposed rule change is available on the Exchange's Internet Web 
site at www.directedge.com, at the Exchange's principal office, on the 
Commission's Internet Web site at www.sec.gov, and at the Commission's 
Public Reference Room.
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    \3\ See Securities Exchange Release No. 67091 (May 31, 2012), 77 
FR 33498 (June 6, 2012) (approving the Plan on a pilot basis).
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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 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 statements may be examined at

[[Page 14381]]

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
    EDGX proposes to amend Rules 1.5, 11.5, 11.8, 11.9 and 11.14 in 
connection with the implementation of the Plan.
Background
    On April 5, 2011, NYSE Euronext, on behalf of the New York Stock 
Exchange LLC (``NYSE''), NYSE Amex LLC, and NYSE Arca, Inc. (``Arca''), 
and the following parties to the Plan: BATS Exchange, Inc., BATS Y-
Exchange, Inc. (together, ``BATS''), Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., EDGX, EDGA Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., 
NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, and National Stock 
Exchange, Inc. (collectively with NYSE, NYSE MKT, and Arca, the 
``Participants''), filed with the Commission pursuant to Section 11A of 
the Securities Exchange Act of 1934 (``Act''),\4\ and Rule 608 
thereunder,\5\ the Plan to create a market-wide limit up-limit down 
(``LULD'') mechanism that is intended to address extraordinary market 
volatility in NMS Stocks.\6\ The Plan sets forth procedures that 
provide for market-wide LULD requirements that would be designed to 
prevent trades in individual NMS Stocks from occurring outside of 
specified price bands. These LULD requirements would be coupled with 
trading pauses\7\ to accommodate more fundamental price moves (as 
opposed to erroneous trades or momentary gaps in liquidity).
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    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from Janet M. McGinness, Senior Vice President, 
Legal and Corporate Secretary, NYSE Euronext, to Elizabeth M. 
Murphy, Secretary, Commission, dated April 5, 2011 (``Transmittal 
Letter''). The term ``NMS Stock'' shall have the meaning provided in 
Rule 600(b)(47) of Regulation NMS under the Act.
    \7\ As defined in Section I(X) of the Plan.
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    The price bands would consist of a Lower Price Band (the ``Lower 
Price Band'') and an Upper Price Band (the ``Upper Price Band''--each a 
``Price Band'' and, together with the Lower Price Band, the ``Price 
Bands'') for each NMS Stock. The Price Bands would be calculated by the 
Securities Information Processors (the ``SIP'' or ``Processors'') 
responsible for consolidation of information for an NMS Stock pursuant 
to Rule 603(b) of Regulation NMS under the Act.\8\ The Price Bands 
would be based on a Reference Price \9\ that equals the arithmetic mean 
price of Eligible Reported Transactions \10\ for the NMS Stock over the 
immediately preceding five-minute period. The Price Bands for an NMS 
Stock would be calculated by applying the Percentage Parameter \11\ for 
such NMS Stock to the Reference Price, with the Lower Price Band being 
a Percentage Parameter below the Reference Price, and the Upper Price 
Band being a Percentage Parameter above the Reference Price. Between 
9:30 a.m. and 9:45 a.m. ET and 3:35 p.m. and 4:00 p.m. ET, the Price 
Bands would be calculated by applying double the Percentage Parameters.
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    \8\ 17 CFR 242.603(b).
    \9\ As defined in Section I(T) of the Plan.
    \10\ As defined in the proposed Plan, Eligible Reported 
Transactions would have the meaning prescribed by the Operating 
Committee for the proposed Plan, and generally mean transactions 
that are eligible to update the sale price of an NMS Stock.
    \11\ As initially proposed by the Participants, the Percentage 
Parameters for Tier 1 NMS Stocks (i.e., stocks in the S&P 500 Index 
or Russell 1000 Index and certain ETPs) with a Reference Price of 
$1.00 or more would be five percent and less than $1.00 would be the 
lesser of (a) $0.15 or (b) 75 percent. The Percentage Parameters for 
Tier 2 NMS Stocks (i.e., all NMS Stocks other than those in Tier 1) 
with a Reference Price of $1.00 or more would be 10 percent and less 
than $1.00 would be the lesser of (a) $0.15 or (b) 75 percent. The 
Percentage Parameters for a Tier 2 NMS Stock that is a leveraged ETP 
would be the applicable Percentage Parameter set forth above 
multiplied by the leverage ratio of such product. On May 24, 2012, 
the Participants amended the Plan to create a 20% price band for 
Tier 1 and Tier 2 stocks with a Reference Price of $0.75 or more and 
up to and including $3.00. The Percentage Parameter for stocks with 
a Reference Price below $0.75 would be the lesser of (a) $0.15 or 
(b) 75 percent. See Securities Exchange Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012).
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    Under the Plan, the Exchange is required to establish, maintain, 
and enforce written policies and procedures reasonably designed to 
prevent the display of offers below the Lower Price Band and bids above 
the Upper Price Band for an NMS Stock. The Processors would disseminate 
an offer below the Lower Price Band or bid above the Upper Price Band 
that nevertheless inadvertently may be submitted despite such 
reasonable policies and procedures, but with an appropriate flag 
identifying it as non-executable; such bid or offer would not be 
included in National Best Bid (``NBB'') or National Best Offer (``NBO'' 
and, together with the NBB, the ``NBBO'') calculations. In addition, 
the Exchange is required to develop, maintain, and enforce policies and 
procedures reasonably designed to prevent trades at prices outside the 
Price Bands, with the exception of single-priced opening, reopening, 
and closing transactions on the primary listing exchange.
    In connection with the upcoming implementation of the Plan on April 
8, 2013, the Exchange proposes to amend the following rules:
Order Execution (Rule 11.9)
    The Exchange proposes to re-organize Rule 11.9 so that matters 
relevant to order execution would be covered in Rule 11.9(a), while 
matters relevant to order routing would be covered in Rule 11.9(b). 
Rules 11.9(a) and (b) would be structured so that each would contain 
subsections that would describe the manner by which execution and 
routing would be affected by the Plan, among other regulations. The 
Exchange proposes to add Rule 11.9(a)(3) that would provide particular 
details with regard to how the Plan would modify order behavior on the 
Exchange. Proposed Rule 11.9(a)(3) and its subparagraphs are described 
below.
Compliance With the Plan
    The Exchange proposes to add Rule 11.9(a)(3), which would state 
that, except as provided in Section VI of the Plan,\12\ for any 
executions to occur during Regular Trading Hours, such executions must 
occur at a price that is greater than or equal to the Lower Price Band 
and less than or equal to the Upper Price Band, when such Price Bands 
are disseminated.
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    \12\ Section VI(A)(1) of the Plan provides that ``single-priced 
opening, reopening, and closing transactions on the Primary Listing 
Exchange, however, shall be excluded from this limitation. In 
addition, any transaction that both (i) does not update the last 
sale price (except if solely because the transaction was reported 
late), and (ii) is excepted or exempt from Rule 611 under Regulation 
NMS shall be excluded from this limitation.''
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Default Behavior for Non-Routable Orders Not Crossing the Price Bands
    The Exchange proposes to add Rule 11.9(a)(3)(A), which would state 
that, when a non-routable buy (sell) order is entered into the System 
\13\ at a price less (greater) than or equal to the Upper (Lower) Price 
Band, such order will be posted to the EDGX Book \14\ or executed, 
unless (i) the order is an Immediate-or-Cancel (``IOC'') Order,\15\ in 
which case it will be cancelled if not executed, or (ii) the User \16\ 
has entered instructions to cancel the order.
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    \13\ As defined in Rule 1.5(cc).
    \14\ As defined in Rule 1.5(d).
    \15\ As defined in Rule 11.5(b)(1).
    \16\ As defined in Rule 1.5(ee).

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[[Page 14382]]

Default Behavior when a Non-Routable Buy (Sell) Order Arrives at a 
Price Higher (Lower) than the Upper (Lower) Price Band
    The Exchange proposes to add Rule 11.9(a)(3)(B), which would state 
that, when a non-routable buy (sell) order arrives at a price greater 
(less) than the Upper (Lower) Price Band, the Exchange will re-price 
and display such buy (sell) order at the price of the Upper (Lower) 
Price Band.
Default Behavior When the Upper (Lower) Price Band Moves to a Price 
Higher (Lower) Than a Resting Buy (Sell) Order's Displayed Posting 
Price
    If the price of the Upper (Lower) Price Band moves above (below) a 
non-routable buy (sell) order's displayed posting price, such buy 
(sell) order will not be adjusted further and will remain posted at the 
original price at which it was posted to the EDGX Book.
Default Behavior When the Upper (Lower) Price Band Crosses a Resting 
Buy (Sell) Order's Displayed Posting Price
    Proposed Rule 11.9(a)(3)(B) would also state that, when the Upper 
(Lower) Price Band crosses a non-routable buy (sell) order resting on 
the EDGX Book, such buy (sell) order will be re-priced to the price of 
the Upper (Lower) Price Band.
Routable Market and Limit Orders
    The Exchange proposes to add Rule 11.9(a)(3)(C), which would cross 
reference how routable market and limit orders would behave under the 
Plan.\17\ The proposed order handling under the Plan would be set forth 
in proposed Rule 11.9(b)(1)(B) and described in the section entitled 
``Changes in Routing Behavior to Comply with the Plan,'' below.
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    \17\ The Exchange notes that the behavior of stop orders and 
stop limit orders, as defined in Exchange Rule 1.5, are not 
specifically addressed in this filing as they are converted to 
market and limit orders when the stop price is elected and will then 
behave like market or limit orders, respectively, as described 
above.
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Short Sale Behavior
    The Exchange proposes to add Rule 11.9(a)(3)(D), which would 
describe how short sale orders would be re-priced in accordance with 
both Regulation SHO and the Plan. In particular, the proposed rule 
would state that, where a short sale order is entered into the System 
with a limit price below the Lower Price Band and a short sale price 
test restriction under Rule 201 of Regulation SHO (``short sale price 
test restriction'') is in effect for the covered security, the System 
will re-price such order to the Lower Price Band as long as the Lower 
Price Band is at a Permitted Price.\18\ When a short sale order is 
entered into the System with a limit price above the Lower Price Band 
and a short sale price test restriction is in effect for the covered 
security, the System will re-price such order, if necessary, at a 
Permitted Price pursuant to Rule 11.5(c)(4).
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    \18\ As defined in Rule 11.5(c)(4)(B).

    Example:  Sell Short Order is priced at the Lower Price Band 
where the Lower Price Band is above the NBB
    Assume the NBBO is $10.00 by $10.10, the Price Bands \19\ are 
$10.01 by $10.15, and the short sale price test restriction is in 
effect. A sell short order arrives to sell 100 shares at $10.00 and 
is displayed at $10.01. The sell short order will be allowed to be 
priced at the Lower Price Band so long as the Lower Price Band is 
above the NBB during the short sale price test restriction.
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    \19\ Note that Price Band prices used in all examples in this 
filing are for illustrative purposes only and do not reflect the 
method by which the actual Price Bands will be calculated in 
accordance with the Plan.
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Policies and Procedures
    The Exchange proposes to add Rule 11.9(a)(3)(E) to specify that 
pursuant to Section IV of the Plan, all Trading Centers \20\ in NMS 
Stocks, including those operated by Members of the Exchange, shall 
establish maintain, and enforce written policies and procedures that 
are reasonably designed to comply with the requirements specified in 
Section VI of the Plan, and to comply with the Trading Pauses specified 
in Section VII of the Plan.
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    \20\ As defined in Rule 2.11(a).
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Applicability of the Plan to Specific Order Types
    The following examples and descriptions demonstrate how Rules 
11.9(a)(3)(A)-(C), as described above, will affect specific order 
functionality under the Plan.
Immediate-or-Cancel (``IOC'') Orders
    As described in proposed Rule 11.9(a)(3)(A), IOC Orders will be 
executed to the extent allowed within the Price Bands, and the portion 
not so executed will be cancelled.
    In general, IOC and IOC Intermarket Sweep Orders \21\ (``IOC ISO'') 
will be handled the same way when the Price Bands are inside of the 
NBBO. Buy IOC/IOC ISOs will be executed up to the Upper Price Band and 
the remainder will be canceled back to the User. Sell IOC/IOC ISOs will 
be executed down to the Lower Price Band and the remainder will be 
canceled back to the User. IOC ISOs will be prevented from executing at 
prices that cross the Price Bands when the limit price of the ISO 
crosses a Price Band that is outside of the NBBO.
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    \21\ ISO Orders are described in Exchange Rule 11.5(d) and 
defined under Regulation NMS. See Securities Exchange Act Release 
No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).

    Example 1:  Sell IOC Order Executes Down to the Lower Price Band
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$10.04 by $10.15. Three orders are placed: Order1 to buy 100 shares 
at $10.02; Order2 to buy 100 shares at $10.04; and an IOC Order to 
sell 200 shares at $10.02. The IOC Order will execute 100 shares at 
$10.04 against Order2 and the remaining 100 shares will be cancelled 
back to the User. The IOC Order cannot execute against Order1 
because Order1 is priced below the Lower Price Band.
    Example 2:  Sell IOC ISO Executes through NBBO Down to the Lower 
Price Band
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.99 by $10.15. Three orders are placed: Order1 to buy 100 shares 
at $9.99; Order2 to buy 100 shares at $9.98; and an IOC ISO to sell 
200 shares at $9.98. The IOC ISO will execute 100 shares at $9.99 
against Order1 and the remaining 100 shares will be canceled back to 
the User. The IOC ISO cannot execute against Order2 because Order2 
is priced below the Lower Price Band.
EDGX Only/Post Only Orders \22\
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    \22\ As defined in Rules 11.5(c)(4) and (5).
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    As described in proposed Rule 11.9(a)(3)(B), where a non-routable 
order such as a EDGX Only/Post Only buy (sell) Order is entered into 
the System at a price above (below) the Upper (Lower) Price Band, such 
buy (sell) order will be re-priced and displayed at the price of the 
Upper (Lower) Price Band. If the Upper (Lower) Price Band moves higher 
(lower) than the EDGX Only/Post Only buy (sell) Order's posting price, 
such buy (sell) order will not be adjusted further and will remain at 
the original price at which it was posted to the EDGX Book.

    Example 1:  EDGX Only/Post Only Order is entered into the System 
at a Price That Crosses the Price Bands
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.08. An EDGX Only/Post Only buy Order arrives at $10.09. 
The buy order will be re-priced, displayed and posted to the EDGX 
Book at $10.08, the price of the Upper Price Band.
    Example 2:  Price Band Moves Higher Than EDGX Only/Post Only Buy 
Order on the EDGX Book
    Assume the same facts as in Example 1, but now the Price Bands 
adjust to $9.95 by $10.10. The buy order will not be adjusted 
further and will instead remain on the EDGX Book at $10.08, the 
original price at which it was posted to the EDGX Book.

[[Page 14383]]

Changes in Routing Behavior to Comply With the Plan
    The Exchange proposes to add Rule 11.9(b)(1)(B), which would 
describe how routing will function under the Plan and would be divided 
into three major subsections, detailed under the subheadings listed 
below.
Default Routing Behavior
    The first major subsection, proposed Rule 11.9(b)(1)(B)(i), would 
describe how default routing behavior would function in accordance with 
the Plan and would state that, in order to comply with the Plan, a 
routable buy (sell) market or routable marketable limit order will be 
routed by the Exchange only when the NBO (NBB) is or becomes executable 
according to the Plan, which would be when the NBO is less than or 
equal to the Upper Price Band (NBB is greater than or equal to the 
Lower Price Band). According to the Plan, the NBO (NBB) is or becomes 
non-executable when the NBO is greater than the Upper Price Band (the 
NBB is less than the Lower Price Band) (``Non-Executable''). Proposed 
Rule 11.9(b)(1)(B)(i) would also state that, excluding routing 
strategies SWPA, SWPB and SWPC, for purposes of Rules 
11.9(b)(1)(B)(i)(I) and (II), routing strategies that access all 
Protected Quotations include the following routing strategies as 
described in current Rule 11.9(b)(3) (proposed to be re-numbered Rule 
11.9(b)(2)): ROUT, ROUX, ROUC, ROUE and ROOC. Routing strategies that 
do not access all Protected Quotations include all other routing 
strategies listed in current Rule 11.9(b)(3).
    Routing strategies that access all Protected Quotations (other than 
SWPA, SWPB and SWPC) are designed to maximize liquidity with the 
intention to fully execute a marketable order. Routing strategies that 
do not access all Protected Quotations are designed with other 
objectives in mind and are not as likely to fully execute a marketable 
order because of the smaller number of liquidity sources accessed. For 
example, routing strategy ROUZ, which does not access all Protected 
Quotations, will only access dark pools after interacting with the EDGX 
Book and then post any remainder to the EDGX Book unless otherwise 
instructed by the User.
    If a marketable order utilizing a routing strategy that accesses 
all Protected Quotations cannot be executed because the Upper (Lower) 
Price Band crosses the NBO (NBB) (i.e., the NBO/NBB is non-executable), 
the Exchange believes that, in order to fulfill the routing strategy's 
objective of maximizing liquidity and fully executing a marketable 
order, it is appropriate to re-price such order up to the order's limit 
price and re-route such order once the Upper (Lower) Price Band no 
longer crosses the NBO (NBB) (i.e., the NBO/NBB becomes executable).
    Below are examples illustrating how default routing behavior will 
function in accordance with the Plan.\23\
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    \23\ All of the below examples in this section on changes to the 
behavior of routable orders as a result of compliance with the Plan 
assume that there is no liquidity on the EDGX Book.

    Example:  Buy Order Example where NBO is Above the Upper Price 
Band
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.05. Order1 arrives to buy 100 shares at $10.15; Order2 
arrives to buy 100 shares as a market order. Neither Order1 nor 
Order2 will be routed because no buy orders will be routed when the 
NBO is above the Upper Price Band.
Routable Market Orders
    Proposed Rule 11.9(b)(1)(B)(i) would contain two minor subsections, 
the first of which, proposed Rule 11.9(b)(1)(B)(i)(I), would describe 
routing behavior under the Plan applicable to routable market orders 
and would state that, for routing strategies that access all Protected 
Quotations, if the NBO (NBB) is Non-Executable and a buy (sell) market 
order is placed, the System will default to re-price such buy (sell) 
market order and display it at the price of the Upper (Lower) Price 
Band and will continue to re-price it to the price of the Upper (Lower) 
Price Band as the Upper (Lower) Price Band adjusts, so long as the buy 
(sell) market order does not move above (below) its market collar 
price, as defined in Rule 11.5(a)(2), or alternatively, such buy (sell) 
market order may be cancelled pursuant to User instruction. For all 
other routing strategies that do not access all Protected Quotations, 
routable market orders will not be re-priced and displayed at the price 
of the Upper (Lower) Price Band and will instead be cancelled if the 
NBO (NBB) is Non-Executable.
    The rule further provides that if the Upper (Lower) Price Band 
crosses a routable buy (sell) order resting on the EDGX Book, such buy 
(sell) order will be re-priced to the price of the Upper (Lower) Price 
Band.

    Example 1:  Buy Market Order where NBO is Above Upper Price Band
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.05. A routable buy market order arrives for 100 shares 
utilizing a routing strategy that accesses all Protected Quotations 
(e.g., ROUT). The buy order will not be routed as the NBO is Non-
Executable (greater than the Upper Price Band) and will be posted 
and displayed at $10.05 or cancelled according to the User's 
instructions.

    If the Price Bands move up after the initial re-price to $9.98 by 
$10.08, the buy order will be re-priced and displayed at $10.08. If the 
Price Bands moves down after the initial re-price to $9.92 by $10.02, 
the buy order will be re-priced and displayed at $10.02.
    In the same example, if the buy market order arrives for 100 shares 
utilizing a routing strategy that does not access all Protected 
Quotations, such as ROCO, then the System will cancel the buy market 
order when the NBO is Non-Executable and will not re-price and display 
the order at the price of the Upper Price Band.

    Example 2:  Market Order is Re-Priced to Market Collar Price as 
a Result of Movement of the Price Bands
    Assume the NBBO is $10.00 by $11.00, the Price Bands are $9.05 
by $10.05 and the last sale was at $10.00. A market order arrives to 
buy 100 shares and is displayed at $10.05 with a market collar of 
$10.50. The Price Bands then change to $10.00 by $11.00. As a 
result, the market order is posted and displayed at its collar price 
of $10.50.
Routable Limit Orders
    The second minor subsection, proposed Rule 11.9(b)(1)(B)(i)(II), 
would describe routing behavior under the Plan applicable to routable 
limit orders and would state that, if the price of (i) a routable buy 
(sell) limit order that is entered into the System or (ii) the unfilled 
balance of such order returned from routing to away Trading Centers is 
greater (less) than the Upper (Lower) Price Band and is ineligible for 
routing as a result of the NBO (NBB) being or having become Non-
Executable, then the System will default to re-price such buy (sell) 
order and display it at the price of the Upper (Lower) Price Band, or 
alternatively, it may be cancelled pursuant to User instruction. For 
routing strategies that access all Protected Quotations, if the Upper 
(Lower) Price Band subsequently moves above (below) the routable buy 
(sell) order's posting price, such routable order will continue to be 
re-priced to the Upper (Lower) Price Band until the order reaches its 
limit price. For all other routing strategies that do not access all 
Protected Quotations, the routable order will not be re-priced to a 
price above (below) the original price at which it was posted to the 
EDGX Book.
    The rule further provides that if the Upper (Lower) Price Band 
crosses a routable buy (sell) order resting on the EDGX Book, such buy 
(sell) order will be re-priced to the price of the Upper (Lower) Price 
Band.


[[Page 14384]]


    Example 1:  Sell Limit Order That Accesses All Protected 
Quotations Where NBB Is Below Lower Price Band
    Assume the NBBO is $10.02 by $10.10 and the Price Bands are 
$10.04 by $10.15. A routable sell order arrives for 100 shares at 
$10.01 utilizing a routing strategy that accesses all Protected 
Quotations (e.g., ROUT). The sell order will not be routed and will 
be posted and displayed at $10.04 or cancelled according to the 
User's instructions.
    If the Lower Price Band moves up after the initial re-price to 
$10.06 by $10.16, the order will be re-priced to display at $10.06. 
If the Lower Price Band moves down after the initial re-price to 
$10.03 by $10.13, the order will be re-priced to display at $10.03. 
Example 2: Sell Limit Order that does not access all Protected 
Quotations
    Assume the NBBO is $10.02 by $10.10 and the Price Bands are 
$10.04 by $10.15. A routable sell order arrives for 100 shares at 
$10.01 utilizing a routing strategy that does not access all 
Protected Quotations (e.g., ROUZ). The sell order will not be routed 
and will instead be posted and displayed at $10.04 or cancelled 
according to the User's instructions.
    If the Lower Price Band moves up to $10.06 by $10.16 after the 
initial re-price, the order will be re-priced and displayed at 
$10.06. If the Lower Price Band moves down to $10.03 by $10.13 after 
the initial re-price, the order will be re-priced and displayed at 
$10.04, the original price at which it was posted to the EDGX Book.
Re-Routing Behavior
    The second major subsection, proposed Rule 11.9(b)(1)(B)(ii), would 
describe how re-routing will function under the Plan and would state 
that, for routing strategies that access all Protected Quotations, when 
the Upper (Lower) Price Band adjusts such that the NBO (NBB) becomes 
executable, a routable buy (sell) market or marketable limit order will 
be eligible to be re-routed by the Exchange.

    Example 1:  Routing Buy Order when NBO Becomes Executable
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.94 by $10.09. A routable buy market order arrives for 100 shares 
utilizing a routing strategy that accesses all Protected Quotations 
(e.g., ROUT).\24\ The buy order will not be routed and will instead 
be posted and displayed at $10.09. The Price Bands change to $9.95 
by $10.10. The order will be routed since the NBO is now executable.
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    \24\ If, for example, a routing strategy that does not access 
all Protected Quotations, such as ROUZ, is elected by the User, the 
order is not re-routed and remains posted on the EDGX Book.
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    Example 2:  Routing Sell Order when NBB Becomes Executable
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$10.05 by $10.15. A routable sell order arrives for 100 shares at 
$9.99 utilizing a routing strategy that accesses all Protected 
Quotations (e.g., ROUT). The sell order will be re-priced and 
displayed at $10.05. The Price Bands then change to $9.98 by $10.10. 
The sell order will be routed since the NBB is now executable.
Behavior of Orders Utilizing SWP Routing Strategies
    The third and final major subsection, Rule 11.9(b)(1)(B)(iii), 
would describe how orders utilizing routing strategies SWPA, SWPB and 
SWPC \25\ (together, ``SWP routing strategies'') will function under 
the Plan and would state that the System will immediately cancel orders 
utilizing a SWP routing strategy when an order to buy utilizing an SWP 
routing strategy has a limit price that is greater than the Upper Price 
Band or if a sell order utilizing an SWP routing strategy has a limit 
price that is less than the Lower Price Band. The following examples 
illustrate how an order utilizing a SWP routing strategy (an ``SWP 
order'') would behave in accordance with the Plan:
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    \25\ Rules 11.9(b)(3)(o), (p) and (q) define SWPA, SWPB and SWPC 
routing strategies, respectively.

    Example 1:  Buy SWP Limit Price Crosses the Upper Price Band 
(Price Band Inside the NBBO)
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$10.00 by $10.08. A SWP order is placed to buy 100 shares at $10.10. 
The order is rejected immediately because its $10.10 limit price 
crosses the Upper Price Band.
    Example 2:  Buy SWP Limit Price Crosses the Upper Price Band 
(Price Band Outside the NBBO)
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.11. A SWP order is placed to buy 100 shares at $10.12. 
The order is rejected immediately because its $10.12 limit price 
crosses the Upper Price Band.
    Example 3:  Buy SWP Limit Price is the same as the price of the 
Upper Price Band (Price Band Outside the NBBO)
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.11. A SWP order is placed to buy 100 shares at $10.11. 
The order is executed and ISOs can be routed out since the limit of 
$10.11 is equal to the Upper Price Band.
Miscellaneous Organizational Amendments to Rule 11.9
    The Exchange proposes to add Rule 11.9(a)(1) (Compliance with 
Regulation SHO), which would contain unchanged text from current Rule 
11.9(a) relevant to compliance with Regulation SHO. The Exchange 
proposes to add Rule 11.9(a)(2) (Compliance with Regulation NMS), which 
would contain unchanged text from current Rule 11.9(a) relevant to 
compliance with Regulation NMS. The Exchange proposes to re-number 
current Rule 11.9(a)(1) (Execution against EDGX Book) to new Rule 
11.9(a)(4). The text of the rule would remain unchanged.
    The Exchange proposes to rename current Rule 11.9(b) (Execution and 
Routing) to Rule 11.9(b) (Routing). The Exchange proposes to add Rule 
11.9(b)(1), which would contain text in current Rule 11.9(b)(2) with 
regard to routing to away trading centers. The text of the rule will 
remain unchanged aside from updated cross references. The Exchange also 
proposes to add Rule 11.9(b)(1)(A), which would contain unchanged text 
in current Rule 11.9(b)(2) relevant to Regulation SHO. The Exchange 
proposes to add new Rules 11.9(b)(1)(C) and (D), which would contain 
the unchanged text of current Rules 11.9(b)(2)(A) and (B), 
respectively. Lastly, the Exchange proposes to re-number current Rule 
11.9(b)(3) to new Rule 11.9(b)(2). The text of the rule will remain 
unchanged.
Orders and Modifiers (Rule 11.5)
    The Exchange proposes to amend cross references in Rules 
11.5(a)(2), 11.5(c)(4)-(10), and 11.5(d)(1) in response to the re-
numbering of subsections within Rule 11.9, as discussed in detail 
above.
Mid-Point Match Orders
    The Exchange proposes to amend Rule 11.5(c)(7) to describe the 
behavior of Mid-Point Match (``MPM'') Orders \26\ under the Plan.
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    \26\ As defined in Rule 11.5(c)(7).
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    The Exchange believes that, when a Protected Quotation \27\ is 
crossed by the Price Bands and all Trading Centers have not yet 
replaced their quotes to re-align them with the Price Bands, the 
integrity of the NBBO is compromised. In such circumstances, the 
Exchange believes that it is fair and reasonable to shut down all 
midpoint trading until the Protected Quotation(s) is(are) no longer 
crossed by the Price Bands.
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    \27\ As defined in Rule 11.5(v).
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    In addition, pursuant to Rule 11.9(a)(3), MPM Orders will not trade 
with any other orders when the midpoint of the NBBO is below the Lower 
Price Band or above the Upper Price Band since MPM Orders only execute 
at the midpoint of the NBBO. MPM Orders will continue to execute at the 
midpoint of the NBBO as long as the execution price is between the 
Lower and Upper Price Bands.

    Example 1:  MPM Order Does Not Trade when Upper Price Band 
Crosses Protected Bids from other Exchanges
    Assume the NBBO is $10.00 by $10.01 and the Price Bands are 
$9.02 by $10.02. The best bids are $10.00 at NYSE, $10.00 at BATS 
and $9.95 at ARCA. Order1 is placed to Sell 100 shares at $9.95 as a 
MPM Order. The Price Bands then change to $8.99 by $9.99 and the 
NBBO changes to $9.95 by $10.01 (BATS and

[[Page 14385]]

NYSE's best bids are excluded from the NBBO by the SIP and neither 
exchange has yet submitted new quotes to the SIP). Order2 is placed 
to buy 100 shares at $9.99. Order2 does not trade with Order1 and 
remains posted on the EDGX Book at $9.99.
    Example 2:  MPM Orders Cannot Trade when the Price Band is 
Crossing the Midpoint of the NBBO
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$10.00 by $10.04. A MPM Order is placed to buy 100 shares at $11.00 
and posted at $10.05. A MPM Order is placed to sell 100 shares at 
$10.00. The MPM Orders cannot trade at $10.05 because the Upper 
Price Band is crossing the midpoint of the NBBO. Both orders will 
remain posted on the EDGX Book at $10.05. No execution will occur 
between the orders until the Upper Price Band no longer crosses the 
midpoint of the NBBO.
Priority of Orders (Rule 11.8)
    The Exchange proposes to add new Rule 11.8(a)(8), which would state 
that when a Price Band crosses an order resting on the EDGX Book, such 
order will be provided a new time stamp \28\ and prioritized based on 
its existing time stamp at the time the new Price Bands are 
established. Furthermore, if an order is resting on the Book at a price 
equal to the Upper (Lower) Price Band, such order will not be re-
priced, but will be provided a new time stamp and prioritized based on 
its existing time stamp at the time the new Price Bands are 
established.
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    \28\ A new time stamp enables the Exchange's System to record 
every time an order is re-priced.
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    The Exchange views this method of retaining priority based on time 
as being the method that is most fair to its Members and subject to the 
least amount of manipulation. The Exchange believes that time priority 
is a superior approach to price priority because under a time priority 
approach, it would be more difficult for certain Members to price their 
orders on the EDGA Book in a way that gives them a potential priority 
advantage when such orders are subsequently re-priced by a Price Band 
crossing the price at which such orders reside on the Book.
    The following examples demonstrate how order priority will be 
affected by the Plan.

    Example 1:  Price Band Crosses Orders Resting on the EDGX Book
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.15. Two orders are placed: Order1 arrives to buy 100 
shares at $10.05 and then Order2 arrives to buy 100 shares at 
$10.08. The Price Bands change to $9.95 by $10.05 and Order2 is re-
priced to $10.05 as a result of the adjustment of the Upper Price 
Band. Order3 is then placed to sell 100 shares at $10.05. Order1 
will trade with Order3. Initially, Order2 will have price priority 
while the Price Bands are outside of the NBBO. However, after the 
Price Bands adjust, Order1 will have priority based on its existing 
time stamp at the time the new Price Bands were established.
    Example 2:  Price Band Crosses Orders Resting on the EDGX Book
    Assume the NBBO is $10.00 by $10.10 and the Price Bands are 
$9.95 by $10.15. Two orders are placed: Order1 arrives to buy 100 
shares at $10.08 and then Order2 arrives to buy 100 shares at 
$10.05. The Price Bands change to $9.95 by $10.05 and Order1 is re-
priced to $10.05 as a result of the adjustment of the Upper Price 
Band. Order3 is then placed to sell 100 shares at $10.05. Order1 
will trade with Order3 because it retains its priority based on its 
existing time stamp at the time the new Price Bands were 
established. When the Price Bands adjusted, both Order1 and Order2 
obtained new time stamps and retained priority based on the time 
stamps that existed relative to one another at the time the new 
Price Bands were established.
Definitions (Rule 1.5)
    The Exchange proposes to add new Rule 1.5(gg), which would define 
the term the ``Plan'' to mean The National Market System Plan to 
Address Extraordinary Market Volatility as well as state that a number 
of terms used in the Rules and related to the Plan shall have the 
definitions and meanings ascribed to them under the Plan.
Trading Halts Due to Extraordinary Market Volatility (Rule 11.14)
    The Exchange proposes to amend Rule 11.14(d) (individual stock 
trading pauses) to explain how the rule will operate during the phased 
implementation of the Plan. Currently, under Rule 11.14(d), if a 
primary listing market issues an individual stock trading pause in any 
NMS stock, the Exchange will pause trading in that security until 
trading has resumed on the primary listing market. If, however, trading 
has not resumed on the primary listing market and ten minutes have 
passed since the individual stock trading pause message has been 
received from the responsible single plan processor, the Exchange may 
resume trading in such stock. During Phase 1 of the Plan, an individual 
stock trading pause in Tier 1 NMS Stocks that are subject to the 
requirements of the Plan shall be subject to the Plan. Tier 1 NMS 
Stocks not yet subject to the requirements of the Plan and Tier 2 NMS 
Stocks shall be subject to the requirements set forth in paragraph (d) 
of Rule 11.14. Once the Plan has been fully implemented and all NMS 
stocks are subject to the Plan, Rule 11.14(d) will no longer apply.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\29\ which requires the rules of an exchange 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 
Exchange believes that the proposed rule change meets these 
requirements in that it seeks to promote the efficient execution of 
investor transactions, and thus strengthen investor confidence, over 
the long term by providing additional transparency regarding the order 
handling procedures employed by the Exchange and certain obligations of 
Members when sending orders to the Exchange consistent with the Plan. 
The Exchange also believes that the proposed amendments to Rules 11.8 
and 11.9 will assist Users in executing or displaying their orders 
consistent with the Plan, especially under fast moving conditions where 
the Price Bands and NBBO are quickly updating. In addition, Users can 
choose to use an IOC Order or opt out of certain default re-pricing 
processes, as described in proposed Rules 11.9(b)(3) and 
11.9(b)(1)(B)(i)(I-II), that re-price a buy (sell) order to the price 
of the Upper (Lower) Price Band. If Users choose to do so, the Exchange 
will instead cancel their orders instead as per User instructions.
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    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
its rules are comparable, in part, with re-pricing and cancellation 
processes offered by other exchanges in response to the Plan. The 
Exchange also believes that there is no impact on competition as 
analogous rule changes are being filed by all Participants to the Plan 
and the Plan itself was developed and jointly filed by all Participants 
in the first instance.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section

[[Page 14386]]

19(b)(3)(A)(iii) of the Act \30\ and Rule 19b-4(f)(6) thereunder.\31\ 
Because the 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 prior to 
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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \30\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \32\ to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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 rule-comments@sec.gov. Please include 
File No. SR-EDGX-2013-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-EDGX-2013-08. 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 No. SR-EDGX-2013-08 and should be 
submitted on or before March 26, 2013.
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    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05004 Filed 3-4-13; 8:45 am]
BILLING CODE 8011-01-P


