
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Notices]
[Pages 20024-20030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07831]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77484; File No. SR-NYSEARCA-2016-52]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Adopting 
Requirements for the Collection and Transmission of Data Pursuant to 
Appendices B and C of the Regulation NMS Plan To Implement a Tick Size 
Pilot Program

March 31, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 29, 2016, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt requirements for the collection and 
transmission of data pursuant to Appendices B and C of the Regulation 
NMS Plan to Implement a Tick Size Pilot Program (``Plan''). The 
proposed rule change is available on the Exchange's Web site at 
www.nyse.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 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 those 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 the Exchange, 
New York Stock Exchange LLC, NYSE MKT LLC, the Bats BZX Exchange, Inc. 
f/k/a BATS Exchange, Inc. (``BZX''), BATS BYX Exchange, Inc. f/k/a BATS 
Y-Exchange, Inc. (``BYX''), Bats EDGA Exchange, Inc., Bats EDGX 
Exchange, Inc., Chicago Stock Exchange, Inc., Financial Industry 
Regulatory Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX 
PHLX LLC, and the Nasdaq Stock Market LLC (collectively 
``Participants''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 11A of the Act \4\ and Rule 608 
of Regulation NMS thereunder,\5\ the Plan to Implement a Tick Size 
Pilot Program (``Pilot'').\6\ The Participants filed the Plan to comply 
with an order issued by the Commission on June 24,

[[Page 20025]]

2014.\7\ The Plan \8\ was published for comment in the Federal Register 
on November 7, 2014, and approved by the Commission, as modified, on 
May 6, 2015.\9\
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    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \7\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \8\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \9\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
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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 members, as applicable, with the 
provisions of the Plan. As is described more fully below, the proposed 
rules would require ETP Holders \10\ to comply with the applicable data 
collection requirements of the Plan.\11\
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    \10\ The term ETP Holder is defined in NYSE Arca Equities Rule 
1.1(n) to mean a sole proprietorship, partnership, corporation, 
limited liability company or other organization in good standing 
that has been issued an ETP. An ETP Holder must be a registered 
broker or dealer pursuant to Section 15 of the Act. An ETP Holder 
shall agree to be bound by the Certificate of Incorporation, Bylaws 
and Rules of NYSE Arca Equities, and by all applicable rules and 
regulations of the Commission.
    The term ETP is defined in NYSE Arca Equities Rule 1.1(m) to 
mean an equity trading permit issued by NYSE Arca Equities for 
effecting approved securities transactions on NYSE Arca Equities' 
trading facilities.
    \11\ The Exchange proposes to provide in the introduction 
paragraph to NYSE Arca Equities Rule 7.46 (``Rule 7.46'') 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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    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 1400 Pilot Securities and three test groups with 400 
Pilot Securities in each (selected by a stratified random sampling 
process).\12\ 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.\13\ Pilot Securities in the second test 
group (``Test Group Two'') will be quoted in $0.05 minimum increments 
and will trade at $0.05 minimum increments subject to a midpoint 
exception, a retail investor order exception, and a negotiated trade 
exception.\14\ Pilot Securities in the third test group (``Test Group 
Three'') will be subject to the same quoting and trading increments as 
Test Group Two and also will be subject to the ``Trade-at'' requirement 
to prevent price matching by a market participant that is not 
displaying at a Trading Center's ``Best Protected Bid'' or ``Best 
Protected Offer,'' unless an enumerated exception applies.\15\ In 
addition to the exceptions provided under Test Group Two, an exception 
for Block Size orders and exceptions that mirror those under Rule 611 
of Regulation NMS \16\ will apply to the Trade-at requirement.
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    \12\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \13\ See Section VI(B) of the Plan.
    \14\ See Section VI(C) of the Plan.
    \15\ See Section VI(D) of the Plan.
    \16\ 17 CFR 242.611.
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    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).\17\ 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.\18\
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    \17\ See Approval Order, 80 FR at 27543.
    \18\ 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.\19\ Specifically, Appendix B.I of 
the Plan (Market Quality Statistics) requires Trading Centers \20\ 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.\21\ 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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    \19\ 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 plans to separately 
propose Rules 7.46(a) and 7.46(c)-(e) that would require compliance 
by its ETP Holders with the applicable quoting and trading 
requirements specified in the Plan and has reserved Rules 7.46(a) 
and 7.46(c)-(e) for this purpose. See, e.g., Securities Exchange Act 
Release No. 76229 (October 22, 2015), 80 FR 66065 (October 28, 2015) 
(SR-NYSE-2015-46) (``Quoting & Trading Rules Proposal''), as amended 
by Partial Amendment No. 1 to the Quoting & Trading Rules Proposal.
    \20\ 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).
    \21\ 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 proposing new Rule 7.46(b) to set forth the 
requirements for the collection and transmission of data pursuant to 
Appendices B and C of the Plan. Proposed Rule 7.46(b) is substantially 
similar to the proposed

[[Page 20026]]

rule changes by BZX that were recently approved 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.\22\
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    \22\ 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 effectiveness of SR-BATS-2016-27).
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    Proposed Rule 7.46(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 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.
    Proposed Rule 7.46(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 Data 
Collection Securities \23\ 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 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.
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    \23\ The Exchange is proposing Commentary .90 to proposed Rule 
7.46(b) 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 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.
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    Appendix B.IV (Daily Market Maker Participation Statistics) 
requires a Participant to collect data related to Market Maker 
participation from each Market Maker \24\ engaging in trading activity 
on a Trading Center operated by the Participant. The Exchange is 
therefore proposing Rule 7.46(b)(3) to gather data about a Market 
Maker's participation in Pilot Securities and Pre-Pilot Data Collection 
Securities. Proposed Rule 7.46(b)(3)(A) provides that an ETP Holder 
that is a Market Maker shall collect and transmit to their 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.
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    \24\ 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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    The Exchange understands that some ETP Holders may utilize a DEA 
that is not a Participant to the Plan and that their 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 which ETP 
Holders it acts a DEA for to report the data required under 
subparagraphs (b)(3)(A) of Rule 7.46 and in accordance with Item IV of 
Appendix B of the Plan. Therefore, the Exchange proposes to adopt 
subparagraph (b)(3)(B) to Rule 7.46 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 7.46(b) to FINRA, 
which is a Participant to the Plan and is to 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.\25\
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    \25\ 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 7.46(b)(3)(C) provides that the Exchange shall 
transmit the data collected by the DEA or FINRA pursuant to Rule 
7.46(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 7.46(b)(4) to set forth 
the requirements for the collection and transmission of data pursuant 
to Appendix C.I of the Plan. Proposed Rule 7.46(b)(4)(A) requires that 
an ETP Holder that is a Market Maker shall

[[Page 20027]]

collect and transmit to their 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 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 7.46, the Exchange proposes to adopt subparagraph (b)(4)(B) to 
Rule 7.46 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 7.46(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.\26\
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    \26\ Id.
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    The Exchange is also adopting a rule setting forth 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 7.46(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 is also proposing, through Commentary to proposed Rule 
7.46(b), to clarify other aspects of the data collection requirements. 
Commentary .10 to proposed Rule 7.46(b) 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 Commentary .10 to proposed Rule 7.46(b) 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.\27\ 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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    \27\ FINRA, on behalf of the Plan Participants 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 a limited exemption 
from the requirement to comply with certain provisions of the Plan 
as specified in the letter and noted herein. See letter from David 
Shillman, Associate Director, Division of Trading and Markets, 
Commission to Eric Swanson, General Counsel, BZX, dated February 10, 
2016 (``Exemption Letter'').
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    Commentary .20 to proposed Rule 7.46(b) 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.\28\ 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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    \28\ 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.
    Commentary .20 to proposed Rule 7.46(b) 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.
    Commentary .30 to proposed Rule 7.46(b) 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).\29\ The

[[Page 20028]]

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.\30\
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    \29\ 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.
    \30\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 27.
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    Commentary .40 to proposed Rule 7.46(b) 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 Commentary 
.40 to proposed Rule 7.46(b).\31\ 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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    \31\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 27.
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    Commentary .50 to proposed Rule 7.46(b) 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 Commentary .50 to proposed Rule 7.46(b) 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); 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.
    The Exchange is proposing Commentary .60 to proposed Rule 7.46(b) 
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 \32\ shall not be 
deemed a Trading Center for purposes of Appendix B to the Plan. The 
Exchange is therefore proposing Commentary .60 to proposed Rule 7.46(b) 
to make this clarification.
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    \32\ 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 Commentary .70 to proposed Rule 7.46(b) 
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 thats [sic] 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.\33\
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    \33\ In its order approving the Plan, the SEC noted that the 
Pilot shall be implemented within one year of the date of 
publication of its order, e.g., by May 6, 2016. See Approval Order, 
80 FR at 27545. However, on November 6, 2015, the SEC extended the 
implementation date approximately five months to October 3, 2016. 
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). See also Letter from Brendon J. Weiss, Co-Head, Government 
Affairs, Intercontinental Exchange/NYSE, to Brent J. Fields, 
Secretary, Commission, dated November 4, 2015 (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 Commentary .80 to proposed Rule 7.46(b) 
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 Commentary 
.80 to proposed Rule 7.46(b) to make this change.\34\ 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

[[Page 20029]]

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.\35\
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    \34\ 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.
    \35\ The Commission granted BZX an exemption from Rule 608(c) 
related to this provision. See Exemption Letter, supra note 27.
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    Finally, the Exchange is proposing Commentary .90 to proposed Rule 
7.46(b) to address the securities that will be used for data collection 
purposes prior to the commencement of the Pilot Period. 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 
Commentary .90 to proposed Rule 7.46(b) 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 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 Data Collection 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 \36\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \37\ 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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    \36\ 15 U.S.C. 78f(b).
    \37\ 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 of 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

    No written comments were solicited or received with respect to 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 \38\ and Rule 19b-4(f)(6) thereunder.\39\
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    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 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 \40\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \41\ 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.\42\ Therefore, the Commission hereby waives the

[[Page 20030]]

operative delay and designates the proposal operative on April 4, 
2016.\43\
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    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 17 CFR 240.19b-4(f)(6)(iii).
    \42\ 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).
    \43\ 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-NYSEARCA-2016-52 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-NYSEARCA-2016-52. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEARCA-2016-52, and should 
be submitted on or before April 27, 2016.
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    \44\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07831 Filed 4-5-16; 8:45 am]
 BILLING CODE 8011-01-P


