
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Notices]
[Pages 20040-20046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07830]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77483; File No. SR-NSX-2016-01]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Adopt Exchange Rule 11.26 To Implement the Regulation NMS Plan To 
Implement a Tick Size Pilot Program

March 31, 2016.
    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 March 29, 2016, National Stock Exchange, Inc. (``NSX'' or the 
``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 substantially prepared by 
the Exchange. The Exchange has designated this proposal as a ``non-
controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6)(iii) \4\ thereunder, which renders it 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to adopt Exchange Rule 11.26 to 
implement the Regulation NMS Plan to Implement a Tick Size Pilot 
Program (the ``Plan''). Specifically, the Exchange has proposed Rule 
11.26(b) to set forth the requirements for the collection and 
transmission of data pursuant to Appendices B and C of the Plan. The 
proposed rule change is substantially similar to proposed rule changes 
recently approved or published by the Commission for the Bats BZX 
Exchange, Inc. f/k/a BATS Exchange, Inc. (``BZX'') to adopt BZX Rule 
11.27(b) which also sets forth requirements for the collection and 
transmission of data pursuant to Appendices B and C of the Plan.\5\ The 
Exchange has designated this proposal as ``non-controversial'' and 
provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) under the Act.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
    \5\ See Securities Exchange Act Release Nos. 77105 (February 10, 
2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-2015-
102); and 77310 (March 7, 2016) (notice for comment and immediate 
effectivesness of SR-BATS-2016-27).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.nsx.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 parts of such 
statements.

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

1. Purpose
    On August 25, 2014, NYSE Group, Inc., on behalf of BZX, Chicago 
Stock Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, 
Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), NASDAQ 
OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, New 
York Stock Exchange LLC (``NYSE''), NYSE MKT LLC, and NYSE Arca, Inc. 
(collectively ``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 
(``Pilot'').\9\ The Participants filed the Plan to comply with an order 
issued by the Commission on June 24, 2014.\10\ The Plan \11\ was 
published for comment in the Federal Register on November 7, 2014 and 
was thereafter approved by the Commission, as modified, on May 6, 
2015.\12\ On November 6, 2015, the Commission granted the Participants 
an exemption from implementing the Plan until October 3, 2016.\13\ On 
March 3, 2016, the Commission noticed an amendment to the Plan adding 
NSX as a Participant.\14\
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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\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \12\ See Securities Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27513 (May 13, 2015) (File No. 4-657) (``Approval 
Order'').
    \13\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657) (Order 
Granting Exemption From Compliance With the National Market System 
Plan To Implement a Tick Size Pilot Program).
    \14\ See Securities Exchange Act Release No. 77277 (March 3, 
2016), 81 FR 12162 (March 8, 2016).
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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 stocks 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. As is described more fully below, the 
proposed rules would require ETP Holders \15\ to comply with the 
applicable data collection requirements of the Plan.\16\
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    \15\ An ``ETP Holder'' is a registrant of NSX to which NSX has 
issued an ETP. An ``ETP'' is defined as the term ``ETP'' is defined, 
in relevant part, as ``. . . an Equity Trading Permit issued by the 
Exchange for effecting approved securities transactions on the 
Exchange's trading facilities . . . .'' See Exchange Rule 1.5.E(1).
    \16\ The Exchange proposes Interpretations and Policies .11 to 
Rule 11.26 to provide that the Rule shall be in effect during a 
pilot period to coincide with the pilot period for the Plan 
(including any extensions to the pilot period for the Plan).

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[[Page 20041]]

    The Pilot will include stocks of companies with $3 billion or less 
in market capitalization, an average daily trading volume of one 
million shares or less, and a volume weighted average price of at least 
$2.00 for every trading day. The Pilot will consist of a control group 
of approximately 1,400 Pilot Securities and three test groups with 400 
Pilot Securities in each (selected by a stratified random sampling 
process).\17\ During the pilot, 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 (``Test Group One'') will be quoted in $0.05 
minimum increments but will continue to trade at any price increment 
that is currently permitted.\18\ 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.\19\ 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 a Trading Center's ``Best Protected Bid'' or ``Best 
Protected Offer,'' unless an enumerated exception applies.\20\ 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 \21\ will apply to the Trade-at requirement.
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    \17\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \18\ See Section VI(B) of the Plan.
    \19\ See Section VI(C) of the Plan.
    \20\ See Section VI(D) of the Plan.
    \21\ 17 CFR 242.611.
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    In approving the Plan, the Commission noted that the Trading Center 
data reporting requirements would facilitate an analysis of the effects 
of the Pilot on liquidity (e.g., transaction costs by order size), 
execution quality (e.g., speed of order executions), market maker 
activity, competition between trading venues (e.g., routing frequency 
of market orders), transparency (e.g., choice between displayed and 
hidden orders), and market dynamics (e.g., rates and speed of order 
cancellations).\22\ The Commission noted that Market Maker 
profitability data would assist the Commission in evaluating the 
effect, if any, of a widened tick increment on market marker profits 
and any corresponding changes in the liquidity of small-capitalization 
securities.\23\
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    \22\ See Approval Order, 80 FR at 27543.
    \23\ Id.
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Compliance With the Data Collection Requirements of the Plan
    The Plan contains requirements for collecting and transmitting data 
to the Commission and to the public.\24\ Specifically, Appendix B.I of 
the Plan (Market Quality Statistics) requires Trading Centers \25\ to 
submit variety of market quality statistics, including information 
about an order's original size, whether the order was displayable or 
not, the cumulative number of orders, the cumulative number of shares 
of orders, and the cumulative number of shares executed within specific 
time increments, e.g., from 30 seconds to less than 60 seconds after 
the time of order receipt. This information shall be categorized by 
security, order type, original order size, hidden status, and coverage 
under Rule 605.\26\ Appendix B.I of the Plan also contains additional 
requirements for market orders and marketable limit orders, including 
the share-weighted average effective spread for executions of orders; 
the cumulative number of shares of orders executed with price 
improvement; and, for shares executed with price improvement, the 
share-weighted average amount per share that prices were improved.
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    \24\ The Exchange is also required by the Plan to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with applicable quoting and trading 
requirements specified in the Plan. The Exchange intends to 
separately propose rules that would require compliance by its ETP 
Holders with the applicable quoting and trading requirements 
specified in the Plan, and has reserved Paragraph (a) for such 
rules.
    \25\ 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).
    \26\ 17 CFR 242.605.
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    Appendix B.II of the Plan (Market and Marketable Limit Order Data) 
requires Trading Centers to submit information relating to market 
orders and marketable limit orders, including the time of order 
receipt, order type, the order size, the National Best Bid and National 
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average 
execution price-share-weighted average, and the average execution time-
share-weighted average.
    The Plan requires Appendix B.I and B.II data to be submitted by 
Participants that operate a Trading Center, and by members of the 
Participants that operate Trading Centers. The Plan provides that each 
Participant that is the Designated Examining Authority (``DEA'') for a 
member of the Participant that operates a Trading Center shall collect 
such data in a pipe delimited format, beginning six months prior to the 
Pilot Period and ending six months after the end of the Pilot Period. 
The Plan also requires the Participant, operating as DEA, to transmit 
this information to the SEC within 30 calendar days following month 
end.
    The Exchange is therefore proposing Rule 11.26(b) to set forth the 
requirements for the collection and transmission of data pursuant to 
Appendices B and C of the Plan. Proposed Rule 11.26(b) is substantially 
similar to proposed rule changes by BZX that were recently approved or 
published by the Commission to adopt BZX Rule 11.27(b) which also sets 
forth requirements for the collection and transmission of data pursuant 
to Appendices B and C of the Plan.\27\
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    \27\ See supra, note 5.
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    Proposed Rule 11.26(b)(1) requires that an ETP Holder that operates 
a Trading Center shall establish, maintain and enforce written policies 
and procedures that are reasonably designed to comply with the data 
collection and transmission requirements of Items I and II to Appendix 
B of the Plan, and an ETP Holder that is a Market Maker \28\ shall 
establish, maintain and enforce written policies and procedures that 
are reasonably designed to comply with the data collection and 
transmission requirements of Item IV of Appendix B of the Plan and Item 
I of Appendix C of the Plan.
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    \28\ 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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    Proposed Rule 11.26(b)(2) provides that the Exchange shall collect 
and transmit to the SEC the data described in Items I and II of 
Appendix B of the Plan relating to trading activity in Pre-Pilot 
Securities and Pilot Securities on a Trading Center operated by the 
Exchange. The Exchange shall transmit such data to the SEC in a pipe 
delimited format, on a disaggregated basis by Trading Center, within 30 
calendar days following month end for: (i) Each Pre-Pilot Data 
Collection Security for the period beginning six months prior to the 
Pilot Period through the trading day immediately preceding the Pilot 
Period; and (ii) each Pilot Security for the

[[Page 20042]]

period beginning on the first day of the Pilot Period through six 
months after the end of the Pilot Period. The Exchange also shall make 
such data publicly available on the Exchange Web site on a monthly 
basis at no charge and will not identify the ETP Holder that generated 
the data.
    Appendix B.IV (Daily Market Maker Participation Statistics) 
requires a Participant to collect data related to Market Maker 
participation from each Market Maker engaging in trading activity on a 
Trading Center operated by the Participant. The Exchange is therefore 
proposing Rule 11.26(b)(3) to gather data about a Market Maker's 
participation in Pilot Securities and Pre-Pilot Data Collection 
Securities. Proposed Rule 11.26(b)(3)(A) provides that an ETP Holder 
that is a Market Maker shall collect and transmit to its DEA data 
relating to Item IV of Appendix B of the Plan with respect to activity 
conducted on any Trading Center in Pilot Securities and Pre-Pilot Data 
Collection Securities in furtherance of its status as a registered 
Market Maker, including a Trading Center that executes trades otherwise 
than on a national securities exchange, for transactions that have 
settled or reached settlement date. The proposed rule requires Market 
Makers to transmit such data in a format required by their DEA, by 
12:00 p.m. EST on T + 4 for: (i) Transactions in each Pre-Pilot Data 
Collection Security for the period beginning six months prior to the 
Pilot Period through the trading day immediately preceding the Pilot 
Period; and (ii) for transactions in each Pilot Security for the period 
beginning on the first day of the Pilot Period through six months after 
the end of the Pilot Period.
    The Exchange understands that some ETP Holders may have a DEA that 
is not a Participant to the Plan and that such non-Participant DEA 
would not be subject to the Plan's data collection requirements. In 
such case, a DEA that is not a Participant of the Plan would not be 
required to collect the required data and may not establish procedures 
for those ETP Holders for which it acts as DEA to report the data 
required under subparagraphs (b)(3)(A) of Rule 11.26 and in accordance 
with Item IV of Appendix B of the Plan. Therefore, the Exchange 
proposes to adopt subparagraph (b)(3)(B) to Rule 11.26 to require an 
ETP Holder that is a Market Maker whose DEA is not a Participant to the 
Plan to transmit the data collected pursuant to paragraph (3)(A) of 
Rule 11.26(b) to FINRA, which is a Participant to the Plan and will 
collect data relating to Item IV of Appendix B of the Plan on behalf of 
the Participants. For Market Makers for which it is the DEA, FINRA 
issued a Market Maker Transaction Data Technical Specification to 
collect data on Pre-Pilot Data Collection Securities and Pilot 
Securities from Trading Centers to comply with the Plan's data 
collection requirements.\29\
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    \29\ FINRA members for which FINRA is their DEA should refer to 
the Market Maker Transaction Data Technical Specification on the 
FINRA Web site at http://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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    Proposed Rule 11.26(b)(3)(C) provides that the Exchange shall 
transmit the data collected by the DEA or FINRA pursuant to Rule 
11.26(b)(3)(A) and (B) above relating to Market Maker activity on a 
Trading Center operated by the Exchange to the SEC in a pipe delimited 
format within 30 calendar days following month end. The Exchange shall 
also make such data publicly available on the Exchange Web site on a 
monthly basis at no charge and shall not identify the Trading Center 
that generated the data.
    Appendix C.I (Market Maker Profitability) requires a Participant to 
collect data related to Market Maker profitability from each Market 
Maker for which it is the DEA. Specifically, the Participant is 
required to collect the total number of shares of orders executed by 
the Market Maker; the raw Market Maker realized trading profits, and 
the raw Market Maker unrealized trading profits. Data shall be 
collected for dates starting six months prior to the Pilot Period 
through six months after the end of the Pilot Period. This data shall 
be collected on a monthly basis, to be provided in a pipe delimited 
format to the Participant, as DEA, within 30 calendar days following 
month end. Appendix C.II (Aggregated Market Maker Profitability) 
requires the Participant, as DEA, to aggregate the Appendix C.I data, 
and to categorize this data by security as well as by the control group 
and each Test Group. That aggregated data shall contain information 
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the 
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
    The Exchange is therefore proposing Rule 11.26(b)(4) to set forth 
the requirements for the collection and transmission of data pursuant 
to Appendix C.I of the Plan. Proposed Rule 11.26(b)(4)(A) requires that 
an ETP Holder that is a Market Maker shall collect and transmit to its 
DEA the data described in Item I of Appendix C of the Plan with respect 
to executions in Pilot Securities that have settled or reached 
settlement date that were executed on any Trading Center. The proposed 
rule also requires ETP Holders to provide such data in a format 
required by its their DEA by 12 p.m. EST on T + 4 for executions during 
and outside of Regular Trading Hours in each: (i) Pre-Pilot Data 
Collection Security for the period beginning six months prior to the 
Pilot Period through the trading day immediately preceding the Pilot 
Period; and (ii) Pilot Security for the period beginning on the first 
day of the Pilot Period through six months after the end of the Pilot 
Period.
    For the same reasons set forth above for subparagraph (b)(3)(B) to 
Rule 11.26, the Exchange proposes to adopt subparagraph (b)(4)(B) to 
Rule 11.26 to require an ETP Holder that is a Market Maker whose DEA is 
not a Participant to the Plan to transmit the data collected pursuant 
to paragraph (4)(A) of Rule 11.26(b) to FINRA. As stated above, FINRA 
is a Participant to the Plan and is to collect data relating to Item I 
of Appendix C of the Plan on behalf of the Participants. For Market 
Makers for which it is the DEA, FINRA issued a Market Maker Transaction 
Data Technical Specification to collect data on Pre-Pilot Data 
Collection Securities and Pilot Securities from Trading Centers to 
comply with the Plan's data collection requirements.\30\
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    \30\ Id.
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    The Exchange is also adopting a rule describing the manner in which 
Market Maker participation will be calculated. Item III of Appendix B 
of the Plan requires each Participant that is a national securities 
exchange to collect daily Market Maker registration statistics 
categorized by security, including the following information: (i) 
Ticker symbol; (ii) the Participant exchange; (iii) number of 
registered market makers; and (iv) the number of other registered 
liquidity providers. Therefore, the Exchange proposes to adopt Rule 
11.26(b)(5) providing that the Exchange shall collect and transmit to 
the SEC the data described in Item III of Appendix B of the Plan 
relating to daily Market Maker registration statistics in a pipe 
delimited format within 30 calendar days following month end for: (i) 
Transactions in each Pre-Pilot Data Collection Security for the period 
beginning six months prior to the Pilot Period through the trading day 
immediately preceding the Pilot Period; and (ii) transactions in each 
Pilot Security for the period beginning on the first day of the Pilot 
Period through six months after the end of the Pilot Period. The 
Exchange notes that, as of the date

[[Page 20043]]

of this filing, it does not have any registered Market Makers and 
therefore will not have daily Market Maker registration statistics to 
collect or transmit to the SEC or to FINRA pursuant to Item III of 
Appendix B the Plan as of the effective date of the data collection 
requirements, April 4, 2016.
    The Exchange is also proposing, through Interpretations and 
Policies, to clarify other aspects of the data collection 
requirements.\31\ Proposed Interpretations and Policies .02 relates to 
the use of the retail investor order flag for purposes of Appendix 
B.II(n) reporting. The Plan currently states that market and marketable 
limit orders shall include a ``yes/no'' field relating to the Retail 
Investor Order flag. The Exchange is proposing Interpretations and 
Policies .02 to clarify that, for purposes of the reporting requirement 
in Appendix B.II(n), a Trading Center shall report ``y'' to their DEA 
where it is relying upon the Retail Investor Order exception to Test 
Groups Two and Three, and ``n'' for all other instances.\32\ The 
Exchange believes that requiring the identification of a Retail 
Investor Orders only where the exception may apply (i.e., Pilot 
Securities in Test Groups Two and Three) is consistent with Appendix 
B.II(n).
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    \31\ The Exchange is also proposing Interpretations and Policies 
.01 to Rule 11.26 to clarify that certain enumerated terms used 
throughout Rule 11.26 shall have the same meaning as set forth in 
the Plan.
    \32\ FINRA, on behalf of the Plan Participants at the time 
submitted a letter to Commission requesting exemption from certain 
provisions of the Plan related to data collection. See letter from 
Marcia E. Asquith, Senior Vice President and Corporate Secretary, 
FINRA dated December 9, 2015 to Robert W. Errett, Deputy Secretary, 
Commission (``Exemption Request''). The Commission, pursuant to its 
authority under Rule 608(e) of Regulation NMS, granted BZX, as of 
February 10, 2016, a limited exemption from the requirement to 
comply with certain provisions of the Plan as specified in the 
letter and noted herein. See e.g., letter from David Shillman, 
Associate Director, Division of Trading and Markets, Commission to 
Eric Swanson, General Counsel, BZX, dated February 10, 2016 
(``Exemption Letter''). NSX was not a Plan Participant at the time 
that such exemptions were requested or granted and respectfully 
requests that the Commission grant to it the same exemptions that 
the Commission granted to the other Plan Participants.
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    Interpretations and Policies .03 requires that ETP Holders populate 
a field to identify to their DEA whether an order is affected by the 
bands in place pursuant to the National Market System Plan to Address 
Extraordinary Market Volatility.\33\ Pursuant to the Limit-Up Limit-
Down Plan, between 9:30 a.m. and 4:00 p.m., the Securities Information 
Processor (``SIP'') calculates a lower price band and an upper price 
band for each NMS stock. These price bands represent a specified 
percentage above or below the stock's reference price, which generally 
is calculated based on reported transactions in that stock over the 
preceding five minutes. When one side of the market for an individual 
security is outside the applicable price band, the SIP identifies that 
quotation as non-executable. When the other side of the market reaches 
the applicable price band (e.g., the offer reaches the lower price 
band), the security enters a Limit State. The stock would exit a Limit 
State if, within 15 seconds of entering the Limit State, all Limit 
State Quotations were executed or canceled in their entirety. If the 
security does not exit a Limit State within 15 seconds, then the 
primary listing exchange declares a five-minute trading pause, which 
would be applicable to all markets trading the security.
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    \33\ See National Market System Plan to Address Extraordinary 
Market Volatility, Securities Exchange Act Release No. 67091 (May 
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up 
Limit-Down Plan'').
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    The Exchange and the other Participants have determined that it is 
appropriate to create a new flag for reporting orders that are affected 
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall 
report a value of ``Y'' to their DEA when the ability of an order to 
execute has been affected by the Limit-Up Limit-Down bands in effect at 
the time of order receipt. A Trading Center shall report a value of 
``N'' to their DEA when the ability of an order to execute has not been 
affected by the Limit-Up Limit-Down bands in effect at the time of 
order receipt.
    Interpretations and Policies .03 also requires, for securities that 
may trade in a foreign market, that the Participant indicate whether 
the order was handled domestically, or routed to a foreign venue. 
Accordingly, the Participant will indicate, for purposes of Appendix 
B.I, whether the order was: (1) Fully executed domestically, or (2) 
fully or partially executed on a foreign market. For purposes of 
Appendix B.II, the Participant will classify all orders in securities 
that may trade in a foreign market Pilot and Pre-Pilot Securities as: 
(1) Directed to a domestic venue for execution; (2) may only be 
directed to a foreign venue for execution; or (3) was fully or 
partially directed to a foreign venue at the discretion of the member. 
The Exchange believes that this proposed flag will better identify 
orders in securities that may trade in a foreign market, as such orders 
that were routed to foreign venues would not be subject to the Plan's 
quoting and trading requirements, and could otherwise compromise the 
integrity of the data.
    Interpretations and Policies .04 relates to the time ranges 
specified in Appendix B.I.a(14), B.I.a(15), B.I.a(21) and 
B.I.a(22).\34\ The Exchange and the other Participants have determined 
that it is appropriate to change the reporting times in these 
provisions to require more granular reporting for these categories. 
Accordingly, the Exchange proposes to add Appendix B.I.a(14A), which 
will require Trading Centers to report the cumulative number of shares 
of orders executed from 100 microseconds to less than 1 millisecond 
after the time of order receipt. Appendix B.I.a(15) will be changed to 
require the cumulative number of shares of orders executed from 1 
millisecond to less than 100 milliseconds after the time of order 
receipt. The Exchange also proposes to add Appendix B.I.a(21A), which 
will require Trading Centers to report the cumulative number of shares 
of orders canceled from 100 microseconds to less than 1 millisecond 
after the time of order receipt. Appendix B.I.a(22) will be changed to 
require the cumulative number of shares of orders canceled from 1 
millisecond to less than 100 milliseconds after the time of order 
receipt. The Exchange believes that these new reporting requirements 
will contribute to a meaningful analysis of the Pilot by producing more 
granular data on these points.\35\
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    \34\ Specifically, Appendix B.I.a(14) requires reporting of the 
cumulative number of shares of orders executed from 0 to less than 
100 microseconds after the time of order receipt; Appendix B.I.a(15) 
requires reporting of the cumulative number of shares of orders 
executed from 100 microseconds to less than 100 milliseconds after 
the time of order receipt; Appendix B.I.a(21) requires reporting of 
the cumulative number of shares of orders cancelled from 0 to less 
than 100 microseconds after the time of order receipt; and Appendix 
B.I.a(22) requires reporting of the cumulative number of shares of 
orders cancelled from 100 microseconds to less than 100 milliseconds 
after the time of order receipt.
    \35\ On February 10, 2016, the Commission granted BZX an 
exemption from Rule 608(c) related to this provision. See Exemption 
Letter, supra, note 32. NSX requests that the Commission grant to it 
this same exemption.
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    Interpretations and Policies .05 relates to the relevant 
measurement for purposes of Appendix B.I.a(31)-(33) reporting. 
Currently, the Plan states that this data shall be reported as of the 
time of order execution. The Exchange and the other Participants 
believe that this information should more properly be captured at the 
time of order receipt as evaluating share-weighted average prices at 
the time of order receipt is more consistent with the goal of observing 
the effect of the Pilot on the liquidity of Pilot Securities. The 
Exchange is therefore proposing to make this change through 
Interpretations and

[[Page 20044]]

Policies .05.\36\ This change will make these provisions consistent 
with the remainder of the statistics in Appendix B.I.a, which are all 
based on order receipt.
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    \36\ On February 10, 2016, the Commission granted BZX an 
exemption from Rule 608(c) related to this provision. See Exemption 
Letter, supra, note 32. NSX requests that the Commission grant to it 
this same exemption.
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    Interpretations and Policies .06 addresses the status of not-held 
and auction orders for purposes of Appendix B.I reporting. Currently, 
Appendix B.I sets forth eight 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. 
Currently, Appendix B.I does not provide a category for not held 
orders, clean cross orders, auction orders, or orders received when the 
NBBO is crossed. The Exchange and the other Participants have 
determined that it is appropriate to include separate categories for 
these orders types for purposes of Appendix B reporting. The Exchange 
is therefore proposing Interpretations and Policies .06 to provide that 
not held orders shall be included as an order type for purposes of 
Appendix B reporting, and shall be assigned the number (18). Clean 
cross orders shall be included as an order type for purposes of 
Appendix B reporting, and shall be assigned the number (19); auction 
orders shall be included an as order type for purposes of Appendix B 
reporting, and shall be assigned the number (20); \37\ and orders that 
cannot otherwise be classified, including, for example, orders received 
when the NBBO is crossed shall be included as an order type for 
purposes of Appendix B reporting, and shall be assigned the number 
(21). All of these orders already are included in the scope of Appendix 
B; however, without this proposed change, these order types would be 
categorized with other orders, such as regular held orders, that should 
be able to be fully executed upon receipt, which would compromise the 
value of this data.
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    \37\ The Exchange notes that, as of the date of this rule 
filing, it does not offer order types specifically defined as ``not 
held,'' ``clean cross,'' or ``auction order.''
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    The Exchange is proposing Interpretations and Policies .07 to 
clarify the scope of the Plan as it relates to ETP Holders that only 
execute orders limited purposes. Specifically, the Exchange and the 
other Participants believe that an ETP Holder that only executes orders 
otherwise than on a national securities exchange for the purpose of: 
(1) Correcting a bona fide error related to the execution of a customer 
order; (2) purchasing a security from a customer at a nominal price 
solely for purposes of liquidating the customer's position; or (3) 
completing the fractional share portion of an order \38\ shall not be 
deemed a Trading Center for purposes of Appendix B to the Plan. The 
Exchange is therefore proposing Interpretations and Policies .09 [sic] 
to make this clarification.
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    \38\ The Exchange notes that where an ETP Holder purchases a 
fractional share from a customer, the Trading Center that executes 
the remaining whole shares of that customer order would subject to 
subject to Appendix B of the Plan.
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    The Exchange is proposing Interpretations and Policies .08 to 
clarify that, for purposes of the Plan, Trading Centers must begin the 
data collection required pursuant to Appendix B.I.a(1) through B.II.(y) 
of the Plan and Item I of Appendix C of the Plan on April 4, 2016. 
While the Exchange or the ETP Holder's DEA will provide the information 
required by Appendix B and C of the Plan during the Pilot Period, the 
requirement that the Exchange or their DEA provide information to the 
SEC within 30 days following month end and make such data publicly 
available on its Web site pursuant to Appendix B and C shall commence 
six months prior to the beginning of the Pilot Period.\39\
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    \39\ In the Approval Order, the SEC noted that the Pilot shall 
be implemented within one year of the date of publication, i.e., by 
May 6, 2016. See Approval Order, 80 FR at 27545. The SEC 
subsequently extended the implementation date approximately five 
months to October 3, 2016. See supra, note 13. See also Letter dated 
November 4, 2015 from Brendon J. Weiss, Co-Head, Government Affairs, 
Intercontinental Exchange/NYSE, to Brent J. Fields, Secretary, 
Commission (requesting the data collection period be extended until 
six months after the requisite SRO rules are approved, and the 
implementation data of the Tick Size Pilot until six months 
thereafter).
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    The Exchange is proposing Interpretations and Policies .09 to 
address the requirement in Appendix C.I(b) of the Plan that the 
calculation of raw Market Maker realized trading profits utilize a last 
in, first out (``LIFO'')-like method to determine which share prices 
shall be used in that calculation. The Exchange and the other 
Participants believe that it is more appropriate to utilize a 
methodology that yields LIFO-like results, rather than utilizing a 
LIFO-like method, and the Exchange is therefore proposing 
Interpretations and Policies .09 to make this change.\40\ The Exchange 
is proposing that, for purposes of Item I of Appendix C, the 
Participants shall calculate daily Market Maker realized profitability 
statistics for each trading day on a daily LIFO basis using reported 
trade price and shall include only trades executed on the subject 
trading day. The daily LIFO calculation shall not include any positions 
carried over from previous trading days. For purposes of Item I.c of 
Appendix C, the Participants shall calculate daily Market Maker 
unrealized profitability statistics for each trading day on an average 
price basis. Specifically, the Participants must calculate the volume 
weighted average price of the excess (deficit) of buy volume over sell 
volume for the current trading day using reported trade price. The gain 
(loss) of the excess (deficit) of buy volume over sell volume shall be 
determined by using the volume weighted average price compared to the 
closing price of the security as reported by the primary listing 
exchange. In reporting unrealized trading profits, the Participant 
shall also report the number of excess (deficit) shares held by the 
Market Maker, the volume weighted average price of that excess 
(deficit) and the closing price of the security as reported by the 
primary listing exchange used in reporting unrealized profit.\41\
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    \40\ Appendix C.I currently requires Market Maker profitability 
statistics to include (1) the total number of shares of orders 
executed by the Market Maker; (2) raw Market Maker realized trading 
profits, which is the difference between the market value of Market 
Maker shares and the market value of Market Maker purchases, using a 
LIFO-like method; and (3) raw Market Maker unrealized trading 
profits, which is the difference between the purchase or sale price 
of the end-of-day inventory position of the Market Maker and the 
Closing Price. In the case of a short position, the Closing Price 
from the sale will be subtracted; in the case of a long position, 
the purchase price will be subtracted from the Closing Price.
    \41\ The Commission granted BZX, as of February 10, 2016, an 
exemption from Rule 608(c) related to this provision. See Exemption 
Letter, supra, note 30 [sic]. NSX requests that the Commission grant 
to it this same exemption.
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    Finally, the Exchange is proposing Interpretations and Policies .10 
to address the securities that will be used for data collection 
purposes prior to the commencement of the Pilot. The Exchange and the 
other Participants have determined that it is appropriate to collect 
data for a group of securities that is larger, and using different 
quantitative thresholds, than the group of securities that will be 
Pilot Securities. The Exchange is therefore proposing Interpretations 
and Policies .10 to define ``Pre-Pilot Data Collection Securities'' as 
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 of the Plan for the period beginning six 
months prior to the Pilot Period and ending on the trading day 
immediately preceding the Pilot Period. The Participants shall compile

[[Page 20045]]

the list of Pre-Pilot Data Collection Securities by selecting all NMS 
stocks with a market capitalization of $5 billion or less, a 
Consolidated Average Daily Volume (CADV) of 2 million shares or less 
and a closing price of $1 per share or more. The market capitalization 
and the closing price thresholds shall be applied to the last day of 
the Pre-Pilot measurement period, and the CADV threshold shall be 
applied to the duration of the Pre-Pilot measurement period. The Pre-
Pilot measurement period shall be the three calendar months ending on 
the day when the Pre-Pilot Data Collection Securities are selected. The 
Pre-Pilot Data Collection Securities shall be selected thirty days 
prior to the commencement of the six-month Pre-Pilot Period. On the 
trading day that is the first trading day of the Pilot Period through 
six months after the end of the Pilot Period, the data collection 
requirements will become applicable to the Pilot Securities only. A 
Pilot Security will only be eligible to be included in a Test Group if 
it was a Pre-Pilot Security.
Implementation Date
    The proposed rule change will be effective on April 4, 2016.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \42\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \43\ 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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    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal is consistent with the Act 
because it implements and clarifies the provisions of the Plan, and is 
designed to assist the Exchange in meeting its regulatory obligations 
pursuant of 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. The Exchange 
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 and applies specific obligations to ETP Holders in furtherance 
of compliance with the Plan.

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. The Exchange 
notes that the proposed rule change implements the provisions of the 
Plan, and is designed to assist the Exchange in meeting its regulatory 
obligations pursuant to the Plan. The Exchange also notes that the data 
collection requirements for ETP Holders that operate Trading Centers 
will apply equally to all such ETP Holders, as will the data collection 
requirements for Market Makers.

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 comments on the 
proposed rule change.

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

    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 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) of the Act \44\ and Rule 19b-4(f)(6) thereunder.\45\
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    \44\ 15 U.S.C. 78s(b)(3)(A).
    \45\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \46\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \47\ 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 asked the Commission to waive the 30-day operative delay. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest because it 
would allow the Exchange to implement the proposed amendments on April 
4, 2016, the date upon which the data collection requirements of the 
Plan become effective.\48\ Therefore, the Commission hereby waives the 
operative delay and designates the proposal operative on April 4, 
2016.\49\
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    \46\ 17 CFR 240.19b-4(f)(6).
    \47\ 17 CFR 240.19b-4(f)(6)(iii).
    \48\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (File No. 4-657) (Order Granting Exemption From 
Compliance With the National Market System Plan To Implement a Tick 
Size Pilot Program).
    \49\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change 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 rule-comments@sec.gov. Please include 
File Number SR-NSX-2016-01 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-NSX-2016-01. 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

[[Page 20046]]

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-NSX-2016-01, and should be submitted on or before April 
27, 2016.
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    \50\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07830 Filed 4-5-16; 8:45 am]
 BILLING CODE 8011-01-P


