
[Federal Register Volume 81, Number 211 (Tuesday, November 1, 2016)]
[Notices]
[Pages 75875-75879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79162; File No. SR-BatsBZX-2016-61]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Exchange Rule 11.23, 
Auctions, To Enhance the Reopening Auction Process Following a Trading 
Halt Declared Pursuant to the Plan To Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS

October 26, 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 October 13, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Exchange Rule 11.23, 
Auctions, to enhance the reopening auction process following a trading 
halt declared pursuant to the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the 
``Limit Up-Limit Down Plan'' or ``Plan'').\3\ The Exchange also 
proposes to amend Rule 11.17, Clearly Erroneous Executions, to exclude 
executions that are a result of

[[Page 75876]]

a Halt Auction from being reviewed as clearly erroneous.
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    \3\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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
    The Exchange proposes to amend Exchange Rule 11.23, Auctions, to 
enhance the reopening auction process following a trading halt declared 
pursuant to the Limit Up-Limit Down Plan. The Exchange also proposes to 
amend Rule 11.17, Clearly Erroneous Executions, to exclude executions 
that are a result of a Halt Auction from being reviewed as clearly 
erroneous.
Background
    The Operating Committee for the Plan, with input from the Advisory 
Committee to the Plan and staff of the Commission, has identified a 
number of enhancements to the reopening process following a Trading 
Pause that will be addressed in a combination of a proposed amendment 
to the Plan and amendments to the rules of the Primary Listing 
Exchanges.\4\ The Exchange is a Participant of the Plan and a member of 
the Operating Committee.
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    \4\ Unless otherwise specified, capitalized terms used herein 
have the same meaning as set forth in the Plan or in Exchange rules.
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    The Participants submitted to the Commission a proposal to amend 
the Plan to provide that a Trading Pause will continue until the 
Primary Listing Exchange has reopened trading using its established 
reopening procedures and reports a Reopening Price.\5\ The Participants 
further proposed to eliminate the current allowance for a trading 
center to resume trading in an NMS Stock following a Trading Pause if 
the Primary Listing Exchange has not reported a Reopening Price within 
ten minutes after the declaration of a Trading Pause and has not 
declared a Regulatory Halt. In addition, to close any gaps of potential 
scenarios when trading may resume without Price Bands, the Participants 
proposed to amend the Plan to provide that a trading center may not 
resume trading in an NMS Stock following a Trading Pause without Price 
Bands in such NMS Stock. To address potential scenarios of when there 
may not be a Reopening Price from the Primary Listing Exchange from 
which to calculate Price Bands, the Participants propose to make 
related amendments to the Plan to address when trading may resume if 
the Primary Listing Exchange is unable to reopen due to a systems or 
technology issue and how the Reference Price would be determined either 
under such circumstances or if the Primary Listing Exchange reopens 
trading on a zero bid or zero quote, or both.
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    \5\ See letter from Elizabeth K. King, General Counsel, NYSE, to 
Brent J. Fields, Secretary, Commission, dated September 16, 2016 
(``Amendment No. 12'').
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    In connection with the proposed Plan amendments, the Participants 
have agreed on a standardized approach for how the Primary Listing 
Exchanges should conduct certain aspects of an automated reopening 
following a Trading Pause. Specifically, because trading centers would 
not be permitted to resume trading in an NMS Stock until there is a 
Reopening Price, the Participants believe it is appropriate for the 
Primary Listing Exchanges to adopt uniform standards for determining 
whether and when to conduct such automated reopenings, including what 
price collar thresholds would be applicable to such automated 
reopenings and how to provide for extensions of when a reopening 
auction would be conducted. The goal of such changes would be to ensure 
that all market order interest could be satisfied in an automated 
reopening auction.
    More specifically, the Participants have agreed that if there is an 
imbalance of market orders, or if the Reopening Price would be outside 
of specified price collar thresholds, the Trading Pause would be 
extended an additional five minutes in order to provide additional time 
to attract offsetting liquidity. If at the end of such extension, 
market orders still cannot be satisfied within price collar thresholds 
or if the reopening auction would be priced outside of the applicable 
price collar thresholds, the Primary Listing Exchange would extend the 
Trading Pause an additional five minutes. With each such extension, the 
Participants have agreed that it would be appropriate to widen the 
price collar threshold on the side of the market on which there is 
buying or selling pressure.
    With respect to price collar thresholds, the Participants have 
agreed that the reference price for calculating price collar thresholds 
would be the price of the limit state that preceded the Trading Pause, 
i.e., either the Lower or Upper Price Band price. If there is selling 
pressure, for NMS Stocks priced more than $3.00, the lower collar for 
the auction would be the Lower Price Band minus five percent and the 
upper collar would be the Upper Price Band; if there is buying 
pressure, the upper collar for the auction would be the Upper Price 
Band plus five percent and the lower collar would be the Lower Price 
Band. For each extension, the collars would be widened an additional 
five percent, but only on the side of the Impermissible Price (as 
defined and discussed below).\6\ The Participants believe that widening 
collars only in the direction of the Impermissible Price would address 
issues relating to the concept of mean reversion.
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    \6\ For NMS Stocks that are priced $3.00 and under, the price 
collar threshold would be $0.15.
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    Finally, the Participants have agreed that the proposed new 
procedures for reopening trading following a Trading Pause reduces the 
potential that an order or orders entered by one or more Members caused 
such execution to be clearly erroneous. Specifically, the Participants 
believe that the proposed standardized procedures for reopening trading 
following a Trading Pause incorporates a methodology that allows for 
widened collars, which may result in a reopening price away from prior 
trading prices, but which reopening price would be a result of a 
measured and transparent process that eliminates the potential that 
such trade would be considered erroneous.
    As a Primary Listing Exchange, the Exchange proposes to amend Rule 
11.23(d) to implement the proposed uniform trading practices with 
respect to reopening a security following a Trading Pause and amend 
Rule 11.17, Clearly Erroneous Executions, to preclude Members from 
requesting a review of a Trading Halt Auction as a clearly erroneous 
execution, as described below.
Description of Changes to the Halt Auction Process
    To effect the proposed enhancements that would be implemented by 
all Primary Listing Exchanges, the Exchange proposes to incorporate the

[[Page 75877]]

above items that were agreed to amongst the Participants under Exchange 
Rule 11.23(d), IPO and Halt Auctions. First, the Exchange proposes to 
adopt new paragraph (C) under Rule 11.23(d)(2) titled ``Incremental 
Quote Period Extensions for Halt Auctions Following a Trading Pause.'' 
\7\ Under Exchange Rule 11.23(d)(1)(A), the Quote-Only Period \8\ with 
respect to a Halt Auction commences five (5) minutes prior to such Halt 
Auction. Proposed Rule 11.23(d)(2)(C) would provide for the Quote-Only 
Period to be extended an additional five (5) minutes should a Halt 
Auction be unable to be performed due to Market Order \9\ imbalance 
under 11.23(d)(2)(B)(i) \10\ or the Indicative Price,\11\ before being 
adjusted for Halt Auction Collars, is outside the Halt Auction Collars 
set forth in proposed subparagraphs (i) and (ii) to Exchange Rule 
11.23(d)(2)(C) discussed below (either, an ``Impermissible Price'') 
(``Initial Extension Period'').\12\
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    \7\ The Exchange proposes to renumber current paragraphs (C) and 
(D) under Rule 11.23(d)(2) as (D) and (E), respectively.
    \8\ ``Quote-Only Period'' is defined as ``a designated period of 
time prior to a Halt Auction, a Volatility Closing Auction, or an 
IPO Auction during which Users may submit orders to the Exchange for 
participation in the auction.'' See Exchange Rule 11.23(a)(17).
    \9\ See Exchange Rule 11.9(a)(2).
    \10\ Under 11.23(d)(2)(B)(i), the Quote-Only Period may be 
extended where there are unmatched Market Orders on the Auction Book 
associated with the auction.
    \11\ ``Indicative Price'' is defined as ``the price at which the 
most shares from the Auction Book and the Continuous Book would 
match.'' See Exchange Rule 11.23(a)(10).
    \12\ The Quote-Only Period would not be extended and the Halt 
Auction may occur where there is a Limit Order imbalance, but no 
Market Order imbalance exists and the Indicative Price is inside the 
thresholds set forth in proposed subparagraphs (i) and (ii) to 
Exchange Rule 11.23(d)(2)(C).
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    After the Initial Extension Period, the Quote-Only Period shall be 
extended for additional five (5) minute periods should a Halt Auction 
be unable to be performed due to an Impermissible Price (``Additional 
Extension Period'') until a Halt Auction occurs. The Exchange shall 
attempt to conduct a Halt Auction during the course of each Additional 
Extension Period. The Halt Auction will be cancelled at 3:50 p.m. 
eastern time, at which time the auction for the security shall be 
conducted pursuant to the Volatility Closing Auction process under 
section (e) of Exchange Rule 11.23. Renumbered paragraph (D) of Rule 
11.23(d)(2) would also be amended to make clear that the Exchange will 
notify market participants of the circumstances and length of an 
extension of the Quote-Only Period as proposed herein.
    Under proposed subparagraph (i) to Rule 11.23(d)(2)(C), the Halt 
Auction Reference Price shall equal the price of the Upper or Lower 
Price Band that triggered the halt. If the Halt Auction Reference Price 
is the Lower (Upper) Price Band, the initial lower (upper) Halt Auction 
Collar shall be five (5) percent less (greater) than the Halt Auction 
Reference Price, rounded to the nearest minimum price variation and the 
upper (lower) Halt Auction Collar shall be the Upper (Lower) Price 
Band. For securities with a Halt Auction Reference Price of $3.00 or 
less, the initial lower (upper) Halt Auction Collar shall be $0.15 less 
(greater) than the Halt Auction Reference Price, rounded to the nearest 
minimum price variation and the upper (lower) Halt Auction Collar shall 
be the Upper (Lower) Price Band.
    Proposed subparagraph (ii) to Rule 11.23(d)(2)(C) would state that 
at the beginning of the Initial Extension Period, the upper (lower) 
Halt Auction Collar shall be increased (decreased) by five (5) percent 
in the direction of the Impermissible Price rounded to the nearest 
minimum price variation. For securities with a Halt Auction Reference 
Price of $3.00 or less, the Halt Auction Collar shall be increased 
(decreased) in $0.15 increments in the direction of Impermissible 
Price. At the beginning of each Additional Extension Period, the Halt 
Auction Collar shall be widened by the same amount as the Initial 
Extension Period.
    In addition, the Exchange proposes to amend paragraph (d)(2)(A) of 
Rule 11.23 regarding the publication of BZX Auction information. Under 
Rule 11.23(d)(2)(A), coinciding with the beginning of the Quote-Only 
Period for a security and updated every five seconds thereafter, the 
Reference Price,\13\ Indicative Price, Auction Only Price,\14\ and the 
lesser of Reference Buy Shares \15\ and Reference Sell Shares \16\ 
associated with the Halt Auction are disseminated via electronic means. 
The Exchange proposes to amend paragraph (d)(2)(A) of Rule 11.23 to 
include the Halt Auction Reference Price and Halt Auction Collars as 
part of the information to be publicly disseminated as part of the Halt 
Auction process.
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    \13\ See Exchange Rule 11.23(a)(19).
    \14\ See Exchange Rule 11.23(a)(2).
    \15\ See Exchange Rule 11.23(a)(18).
    \16\ See Exchange Rule 11.23(a)(21).
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    Renumbered paragraph (E) of Rule 11.23(d)(2) describes how the 
Exchange determines the price of an IPO and Halt Auction and states 
that orders will be executed at the price that maximizes the number of 
shares executed in the auction. The Exchange proposes to amend 
renumbered paragraph (E) of Rule 11.23(d)(2) to separately describe how 
the price of an IPO and Halt Auction are calculated. As amended, for 
IPO Auctions for ETPs, orders will continue to be executed at the price 
level within the Collar Price Range that maximizes the number of shares 
executed in the auction. For Halt Auctions for ETPs, orders will be 
executed at the price level within the Halt Auction Collars that 
maximizes the number of shares executed in the auction.
    The Exchange also proposes to add new paragraph (F) under Exchange 
Rule 11.23(d)(2). Proposed paragraph (F) to Rule 11.23(d)(2) would 
state if a Trading Pause is triggered by the Exchange or if the 
Exchange is unable to reopen trading at the end of the Trading Pause 
due to a systems or technology issue, the Exchange will immediately 
notify the single plan processor responsible for consolidation of 
information for the security pursuant to Rule 603 of Regulation NMS 
under the Securities Exchange Act of 1934.
    Lastly, the Exchange proposes to amend Rule 11.17, Clearly 
Erroneous Executions, to provide that Members may not request a review 
of a Trading Halt Auction under Rule 11.17(b), which specifies the 
procedures for a Member to request a review of an execution as clearly 
erroneous. The Exchange believes that this proposed rule text would 
implement the proposed standardized trading practice that reopening 
auctions would not be eligible for review by Members as a clearly 
erroneous execution.\17\
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    \17\ The Participants will be engaging in a more comprehensive 
review of Rule 11.17 in connection with amendments to the Plan 
relating to tiering of securities and applicable percentage 
parameters. The Exchange proposes to make this limited amendment to 
Rule 11.17 as an initial step to eliminating its clearly erroneous 
executions rules in their current form.
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Implementation Date
    The Exchange proposes to implement the proposed rule change 
following the Commission's approval of Amendment No. 12 to the Plan. 
The Exchange will announce the implementation date via a trading notice 
to be issued after the Commission's approval of this proposed rule 
change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \19\ in particular, in that it is designed to 
promote just and equitable principles of

[[Page 75878]]

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. 
The Exchange believes that the proposed rule change, together with the 
proposed amendments to the Plan, are necessary or appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to and perfect the 
mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Act.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed changes would 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, because they are designed, together with the proposed 
amendments to the Plan, to address the issues experienced on August 24, 
2015 by reducing the number of repeat Trading Pauses in a single NMS 
Stock. The proposed Plan amendments are an essential component to 
Participants' goal of more standardized processes across Primary 
Listing Exchanges in reopening trading following a Trading Pause, and 
facilitates the production of an equilibrium Reopening Price by 
centralizing the reopening process through the Primary Listing 
Exchange, which would also improve the accuracy of the reopening Price 
Bands. The proposed Plan amendments support this initiative by 
requiring trading centers to wait to resume trading following Trading 
Pause until there is a Reopening Price.
    This proposed rule change further supports this initiative by 
proposing uniform trading practices for reopening trading following a 
Trading Pause. The Exchange believes that the proposed standardized 
approach for how the Primary Listing Exchanges would conduct certain 
aspects of an automated reopening following a Trading Pause would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it would provide certainty 
for market participants regarding how a security would reopen following 
a Trading Pause, regardless of the listing exchange. The Exchange 
further believes that the proposed changes would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and protect investors and the public interest because the 
goal of the proposed changes is to ensure that all Market Order 
interest could be satisfied in an automated reopening auction while at 
the same time reducing the potential for multiple Trading Pauses in a 
single security due to a large order imbalance.
    The Exchange further believes that the standardized proposal to 
extend a Trading Pause an additional five minutes would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would provide additional time to 
attract offsetting liquidity. If at the end of such extension, Market 
Orders still cannot be satisfied within the applicable price collar 
thresholds or if the reopening auction would be priced outside of the 
applicable price collar thresholds, the Primary Listing Exchange would 
extend the Trading Pause an additional five minutes, which the Exchange 
believes would further protect investors and the public interest by 
reducing the potential for significant price disparity in post-auction 
trading, which could otherwise trigger another Trading Pause. With each 
such extension, the Exchange believes that widening the price collar 
threshold on the side of the market on which there is buying or selling 
pressure would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it would 
provide additional time to attract offsetting interest while at the 
same time addressing that an imbalance may not be resolved within the 
prior auction collars.
    With respect to price collar thresholds, the Exchange believes that 
using the price of the limit state that preceded the Trading Pause, 
i.e., either the Lower or Upper Price Band price, would better reflect 
the most recent price of the security and therefore should be used as 
the reference price for determining the auction collars for such Halt 
Auction. The Exchange believes that widening auction collars only in 
the direction of the imbalance would address issues relating to the 
concept of mean reversion, which would protect investors and the public 
interest by reducing the potential for wide price swings following a 
Halt Auction.
    Finally, the Exchange believes that precluding Members from 
requesting review of a Halt Auction as a clearly erroneous execution 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because the proposed new 
procedures for reopening trading following a Trading Pause would reduce 
the possibility that an order(s) from a Member caused a Trading Halt 
Auction be clearly erroneous. Specifically, the Exchange believes that 
the proposed standardized procedures for reopening trading following a 
Trading Pause incorporates a methodology that allows for widened 
collars, which may result in a reopening price away from prior trading 
prices, but which reopening price would be a result of a measured and 
transparent process that eliminates the potential that such trade would 
be considered erroneous.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change is not designed to address any competitive 
issues, but rather, to achieve the Participants' goal of more 
standardized processes across Primary Listing Exchanges in reopening 
trading following a Trading Pause, and facilitates the production of an 
equilibrium reopening price by centralizing the reopening process 
through the Primary Listing Exchange, which would also improve the 
accuracy of the reopening Price Bands. The Exchange believes that the 
proposed rule change reduces the burden on competition for market 
participants because it promotes a transparent and consistent process 
for reopening trading following a Trading Pause regardless of where a 
security may be listed. The Exchange further believes that the proposed 
rule change would not impose any burden on competition because they are 
designed to increase transparency regarding the Exchange's Trading Halt 
Auction process while at the same time increase the ability for 
offsetting interest to participate in an auction, which would assist in 
achieving pricing equilibrium for such an auction.

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

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which

[[Page 75879]]

the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change 
should be 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-BatsBZX-2016-61 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-BatsBZX-2016-61. 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-BatsBZX-2016-61 and should 
be submitted on or before November 22, 2016.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
[FR Doc. 2016-26300 Filed 10-31-16; 8:45 am]
 BILLING CODE 8011-01-P


