
[Federal Register Volume 81, Number 232 (Friday, December 2, 2016)]
[Notices]
[Pages 87114-87119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28937]



[[Page 87114]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79410; File No. 4-631]


Joint Industry Plan; Notice of Filing of the Twelfth Amendment to 
the National Market System Plan To Address Extraordinary Market 
Volatility by Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats 
EDGA Exchange, Inc., Bats EDGX Exchange, Inc., Chicago Stock Exchange, 
Inc., Financial Industry Regulatory Authority, Inc., Investors Exchange 
LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The Nasdaq Stock Market LLC, 
National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT 
LLC, and NYSE Arca, Inc.

November 28, 2016.

I. Introduction

    On September 19, 2016, NYSE Group, Inc., on behalf of the following 
parties to the National Market System Plan to Address Extraordinary 
Market Volatility (``the Plan''): \1\ Bats BZX Exchange, Inc., Bats BYX 
Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., 
Chicago Stock Exchange, Inc., the Financial Industry Regulatory 
Authority, Inc. (``FINRA''), Investors Exchange LLC, National Stock 
Exchange, Inc., NASDAQ BX, Inc., NASDAQ PHLX LLC, The NASDAQ Stock 
Market LLC (``Nasdaq''), New York Stock Exchange LLC (``NYSE''), NYSE 
Arca, Inc., and NYSE MKT LLC (collectively, the ``Participants'') filed 
with the Securities and Exchange Commission (``Commission'') pursuant 
to Section 11A(a)(3) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \2\ and Rule 608 thereunder,\3\ a proposal to amend the Plan 
(``Twelfth Amendment'').\4\ The proposal reflects changes unanimously 
approved by the Participants. The Twelfth Amendment proposes to provide 
that a Trading Pause \5\ will continue until the Primary Listing 
Exchange has reopened trading using its established reopening 
procedures, even if such reopening is more than 10 minutes after the 
beginning of a Trading Pause, and to require that trading centers may 
not resume trading in an NMS Stock following a Trading Pause without 
Price Bands in such NMS Stock, as discussed below. A copy of the Plan, 
as proposed to be amended is attached as Exhibit A hereto. The 
Commission is publishing this notice to solicit comments from 
interested persons on the Twelfth Amendment.\6\
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    \1\ On May 31, 2012, the Commission approved the Plan, as 
modified by Amendment No. 1. See Securities Exchange Act Release No. 
67091, 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Plan Approval 
Order''). On February 20, 2013, the Commission noticed for immediate 
effectiveness the Second Amendment to the Plan. See Securities 
Exchange Act Release No. 68953, 78 FR 13113 (February 26, 2013). On 
April 3, 2013, the Commission approved the Third Amendment to the 
Plan. See Securities Exchange Act Release No. 69287, 78 FR 21483 
(April 10, 2013). On August 27, 2013, the Commission noticed for 
immediate effectiveness the Fourth Amendment to the Plan. See 
Securities Exchange Act Release No. 70273, 78 FR 54321 (September 3, 
2013). On September 26, 2013, the Commission approved the Fifth 
Amendment to the Plan. See Securities Exchange Act Release No. 
70530, 78 FR 60937 (October 2, 2013). On January 7, 2014, the 
Commission noticed for immediate effectiveness the Sixth Amendment 
to the Plan. See Securities Exchange Act Release No. 71247, 79 FR 
2204 (January 13, 2014). On April 3, 2014, the Commission approved 
the Seventh Amendment to the Plan. See Securities Exchange Act 
Release No. 71851, 79 FR 19687 (April 9, 2014). On February 19, 
2015, the Commission approved the Eight Amendment to the Plan. See 
Securities Exchange Act Release No. 74323, 80 FR 10169 (February 25, 
2015). On October 22, 2015, the Commission approved the Ninth 
Amendment to the Plan. See Securities Exchange Act Release No. 
76244, 80 FR 66099 (October 28, 2015). On April 21, 2016, the 
Commission approved the Tenth Amendment to the Plan. See Securities 
Exchange Act Release No. 77679, 81 FR 24908 (April 27, 2016). On 
August 26, 2016, the Commission noticed for immediate effectiveness 
the Eleventh Amendment to the Plan. See Securities Exchange Act 
Release No. 78703, 81 FR 60397 (September 1, 2016).
    \2\ 15 U.S.C. 78k-1(a)(3).
    \3\ 17 CFR 242.608.
    \4\ See Letter from Elizabeth King, General Counsel and 
Corporate Secretary, NYSE, to Brent Fields, Secretary, Commission, 
dated September 16, 2016. (``Transmittal Letter'').
    \5\ Unless otherwise specified, the terms used herein have the 
same meaning as set forth in the Plan.
    \6\ 17 CFR 242.608.
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II.

III. Description of the Plan

    Set forth in this Section II is the statement of the purpose and 
summary of the Twelfth Amendment, along with the information required 
by Rule 608(a)(4) and (5) under the Exchange Act,\7\ prepared and 
submitted by the Participants to the Commission.\8\
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    \7\ See 17 CFR 242.608(a)(4) and (a)(5).
    \8\ See Transmittal Letter, supra note 4.
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A. Statement of Purpose and Summary of the Plan Amendment

    The Participants filed the Plan on April 5, 2011, to create a 
market-wide Limit Up-Limit Down (``LULD'') mechanism intended to 
address extraordinary market volatility in NMS Stocks, as defined in 
Rule 600(b)(47) of Regulation NMS under the Exchange Act. The Plan sets 
forth procedures that provide for market-wide LULD requirements that 
prevent trades in individual NMS Stocks from occurring outside of the 
specified Price Bands. The LULD requirements are coupled with Trading 
Pauses, as defined in Section I(Y) of the Plan, to accommodate more 
fundamental price moves. In particular, the Participants adopted this 
Plan to address the type of sudden price movements that the market 
experienced on the afternoon of May 6, 2010.
    As set forth in more detail in the Plan, all trading centers in NMS 
Stocks, including both those operated by Participants and those 
operated by members of Participants, shall establish, maintain, and 
enforce written policies and procedures that are reasonably designed to 
comply with the requirements specified in the Plan. More specifically, 
the Participants will cause and enable the single plan processor 
responsible for consolidation of information for an NMS Stock pursuant 
to Rule 603(b) of Regulation NMS under the Exchange Act to calculate 
and disseminate a Lower Price Band and Upper Price Band, as provided 
for in Section V of the Plan. Section VI of the Plan sets forth the 
LULD requirements of the Plan, and in particular, that all trading 
centers in NMS Stocks, including both those operated by Participants 
and those operated by members of Participants, shall establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to prevent trades at prices that are below the 
Lower Price Band or above the Upper Price Band for an NMS Stock, 
consistent with the Plan.
    With respect to Trading Pauses, Section VII(A)(1) of the Plan 
provides that if trading for an NMS Stock does not exit a Limit State 
within 15 seconds of entry during Regular Trading Hours, then the 
Primary Listing Exchange shall declare a Trading Pause for such NMS 
Stock and shall notify the Processor. Section VII(B)(1) of the Plan 
further provides that five minutes after declaring a Trading Pause for 
an NMS Stock, and if the Primary Listing Exchange has not declared a 
Regulatory Halt, the Primary Listing Exchange shall attempt to reopen 
trading using its established procedures and the Trading Pause shall 
end when the Primary Listing Exchange reports a Reopening Price. 
However, Section VII(B)(3) of the Plan currently provides that if the 
Primary Listing Exchange does not report a Reopening Price within ten 
minutes after the declaration of a Trading Pause in an NMS Stock, and 
has not declared a Regulatory Halt, all trading centers may begin 
trading the NMS Stock.
Overview of Proposed Amendments
    The Participants propose to amend the Plan to provide that a 
Trading Pause

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will continue until the Primary Listing Exchange has reopened trading 
using its established reopening procedures and reports a Reopening 
Price. The Participants further propose 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 
preclude potential scenarios when trading may resume without Price 
Bands, the Participants propose 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 in which there is no Reopening Price from the 
Primary Listing Exchange to use 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 in such a scenario or if the Primary Listing 
Exchange reopens trading on a zero bid or zero offer, or both.
    In conjunction with filing this amendment to the Plan, each Primary 
Listing Exchange will file proposed rule changes with the Commission 
under Section 19(b) of the Exchange Act to amend their respective rules 
for automated reopenings following a Trading Pause consistent with a 
standardized approach agreed to by Participants that would allow for 
extensions of a Trading Pause if equilibrium cannot be met for a 
Reopening Price within specified parameters.\9\ In addition, the 
Participants believe that the proposed amendments to the Plan, together 
with the proposed standardized approach to reopening trading following 
a Trading Pause, reduce the potential that an order or orders entered 
by a member of a Primary Listing Exchange would cause a reopening 
auction to execute at a clearly erroneous price. Accordingly, the 
Primary Listing Exchanges will file proposed rule changes with the 
Commission under Section 19(b) of the Exchange Act to amend their 
respective rules to preclude members from requesting review of a 
reopening auction as a clearly erroneous execution.\10\
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    \9\ The Commission notes that the Primary Listing Exchanges have 
filed associated proposed rule changes. See Securities Exchange Act 
Release Nos. 79162 (October 26, 2016), 81 FR 75875 (November 1, 
2016) (SR-BatsBZX-2016-61); 79158 (October 26, 2016), 81 FR 75879 
(November 1, 2016) (SR-NASDAQ-2016-131); and 79107 (October 18, 
2016), 81 FR 73159 (October 24, 2016) (File No. SR-NYSEArca-2016-
130).
    \10\ See supra note 9.
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Proposed Amendments to the Plan
    To effect the proposed changes, the Participants propose the 
following amendments to the Plan:
    First, the Participants propose to delete current Section VII(B)(3) 
of the Plan, which, as described above, currently provides that all 
trading centers may begin trading an NMS Stock if the Primary Listing 
Exchange does not report a Reopening Price within ten minutes after the 
declaration of a Trading Pause and has not declared a Regulatory Halt. 
By deleting current Section VII(B)(3) of the Plan, trading centers 
would no longer be permitted to begin trading an NMS Stock ten minutes 
after declaration of a Trading Pause in an NMS Stock if the Primary 
Listing Exchange has not either reported a Reopening Price or declared 
a Regulatory Halt.
    The Participants propose to replace Section VII(B)(3) of the Plan 
with new text that would provide that trading centers may not resume 
trading in an NMS Stock following a Trading Pause without Price Bands 
in such NMS Stock. This amendment would thus require that a trading 
center may resume trading only if there are Price Bands. This 
amendment, together with the requirement that the Trading Pause would 
not end until the Primary Listing Exchange reports a Reopening Price, 
would ensure that any trading based on Price Bands must be based on the 
Reopening Price of the Primary Listing Exchange as the Reference Price 
for such Price Bands.
    Second, the Participants propose to amend the Plan to provide 
procedures for situations in which the Primary Listing Exchange is 
unable to reopen an NMS Stock due to a systems or technology issue. As 
described above, the Participants propose to amend the Plan to require 
that trading centers must wait to resume trading in an NMS Stock 
following a Trading Pause until the Primary Listing Exchange 
disseminates a Reopening Price, at which point Price Bands will be 
available. The Participants believe that the Plan should include 
provisions to address a circumstance in which a Primary Listing 
Exchange is unable to reopen an NMS Stock due to a systems or 
technology issue. As proposed, in such case, trading centers may resume 
trading an NMS Stock, but only if (i) the Primary Listing Exchange 
notifies the Processor that it is unable to reopen trading due to a 
systems or technology issue and (ii) the Processor has disseminated 
Price Bands based on a Reference Price.
    To reflect this change, the Participants propose to amend Section 
VII(B)(2) of the Plan, which currently provides that the Primary 
Listing Exchange shall notify the Processor if it is unable to reopen 
trading in an NMS Stock for any reason other than a significant order 
imbalance and if it has not declared a Regulatory Halt. This section 
further provides that the Processor shall disseminate this information 
to the public, and all trading centers may begin trading the NMS Stock 
at this time. The Participants propose to amend this Section to be 
clear that the only time a trading center may resume trading in an NMS 
Stock in the absence of a Reopening Price from the Primary Listing 
Exchange is if the Primary Listing Exchange notifies the Processor that 
it is unable to reopen trading in an NMS Stock due to a systems or 
technology issue. The Participants believe that if a Primary Listing 
Exchange is unable to reopen trading due to a systems or technology 
issue, trading should be permitted to resume in that NMS Stock.
    The Participants also propose to amend the last sentence of Section 
VII(B)(2) of the Plan to delete the phrase, ``and all trading centers 
may begin trading the NMS Stock at this time'' so that the sentence 
provides instead that ``The Processor shall disseminate this 
information to the public.'' The Participants believe that this 
proposed amendment clarifies that if a Primary Listing Exchange 
notifies the Processor that it is unable to reopen trading due to a 
systems or technology issue, the Processor would disseminate that 
information to the public.
    Third, to clarify how Price Bands may be determined, the 
Participants propose to amend Section V(A)(1) of the Plan to add a new 
sentence before the last sentence of that section that would address 
how a trading center may calculate and apply Price Bands that are the 
same as the Price Bands that would have been disseminated by the 
Processor before the trading center receiving such Price Bands from the 
Processor (``Synthetic Price Bands''). Currently, the first sentence of 
Section V(A)(1) provides that the Processor shall calculate and 
disseminate Price Bands for each NMS Stock to the public. However, 
there are limited circumstances currently in which a trading center may 
resume trading using Synthetic Price Bands calculated by the trading 
center, rather than using Price Bands received from the Processor. For

[[Page 87116]]

example, in 2016, Primary Listing Exchanges implemented procedures to 
calculate and apply Synthetic Price Bands based on the Opening or 
Reopening Price sent to the Processor until Price Bands are received 
from the Processor. The proposed amendment would clarify the Plan and 
make clear that any trading center could calculate and apply Synthetic 
Price Bands.
    Specifically, as proposed, if the Processor has not yet 
disseminated Price Bands, but a Reference Price is available, a trading 
center may calculate and apply Synthetic Price Bands based on the same 
Reference Price that the Processor would use for calculating such Price 
Bands until such trading center receives Price Bands from the 
Processor. The Participants believe that this proposed amendment would 
clarify that before Price Bands have been received from the Processor, 
a trading center may calculate and apply its own Synthetic Price Bands. 
An exception to a trading center trading based on Synthetic Price Bands 
would be, as described above in proposed amendments to Section 
VII(B)(3) [sic],\11\ when the Primary Listing Exchange is unable to 
reopen due to a systems or technology issue. In that scenario, all 
trading centers must wait for the Processor to disseminate Price Bands 
before trading may resume.
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    \11\ The Commission notes that the scenario where the Primary 
Listing Exchange is unable to reopen due to a systems or technology 
issue is discussed in the proposed amendment to Section VII(B)(2).
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    Fourth, the Participants propose to amend Section V(C), which 
describes how the Reference Price will be determined following a 
reopening. Currently, Section V(C)(1) specifies that the next Reference 
Price following a Trading Pause will be the Reopening Price on the 
Primary Listing Exchange if such Reopening Price occurs within ten 
minutes after the beginning of the Trading Pause. Because, as described 
above, trading centers may not resume trading an NMS Stock if the 
Primary Listing Exchange does not disseminate a Reopening Price ten 
minutes after the beginning of the Trading Pause, the Participants 
propose to amend the first sentence of Section V(C)(1) of the Plan to 
delete the phrase ``if such Reopening Price occurs within ten minutes 
after the beginning of the Trading Pause.'' The Participants also 
propose to delete the penultimate sentence of Section V(C)(1), which 
specifies that if the Reopening Price does not occur within ten minutes 
after the beginning of the Trading Pause, the first Reference Price 
following the Trading Pause shall be equal to the last effective 
Reference Price before the Trading Pause. With the proposed amendments 
to Section VII(B)(3), this Plan text is no longer necessary.
    Fifth, the Participants propose to amend Section V(C)(1) to specify 
how the Reference Price would be determined following a Reopening. 
Currently, this Section provides that if the Primary Listing Exchange 
has not declared a Regulatory Halt, the next Reference Price shall be 
the Reopening Price on the Primary Listing Exchange. The Participants 
propose to close a gap in the current Plan that would allow for trading 
to resume without any Price Bands. Specifically, if a Primary Listing 
Exchange were to resume trading on a quote with either a zero bid or 
zero offer, or both, there would be no midpoint to report to the 
Processor as a Reopening Price, and therefore the Processor would not 
have a first Reference Price from which to calculate Price Bands 
following such Trading Pause. Currently, in such case, the Processor 
does not calculate and disseminate Price Bands until five minutes after 
the conclusion of the Trading Pause or if a trade occurs. Thus, the 
first trade following the Trading Pause, if effected within five 
minutes following the end of the Trading Pause, would not be subject to 
Price Bands.
    The Participants propose to amend the first sentence of Section 
V(C)(1) to provide that use of the Reopening Price from a Primary 
Listing Exchange as the first Reference Price is only when there is a 
transaction or quotation that does not include a zero bid or a zero 
offer from which to derive a midpoint. As with the current Plan, 
subsequent Reference Prices shall be determined in the manner 
prescribed for normal openings, as specified in Section V(B)(1) of the 
Plan.
    To close the gap described above, the Participants also propose to 
specify what the first Reference Price would be if either the Primary 
Listing Exchange notifies the Processor that it is unable to reopen an 
NMS Stock due to a systems or technology issue or the Primary Listing 
Exchange reopens trading with a quotation that has a zero bid or offer, 
or both. For these circumstances, the Participants propose to add a new 
sentence to Section V(C)(1) of the Plan that would provide that the 
next Reference Price would be the last effective Price Band that was in 
a Limit State before the Trading Pause. For example, if the Limit State 
that triggered a Trading Pause was the Lower Price Band price and the 
Primary Listing Exchange is unable to reopen to a systems or technology 
issue or the reopening quotation has a zero bid or zero offer, or both, 
the first Reference Price that the Processor would use to calculate 
Price Bands would be the last Lower Price Band. The Participants 
believe that in such circumstances, using the last effective Limit 
State that triggered the Trading Pause would be a closer approximation 
of the most recent trading in that NMS Stock. By using that Limit State 
Price as a Reference Price, the next calculated Price Bands would take 
into consideration the directional movement of the trading in that NMS 
Stock because it would allow for additional trading in the direction of 
the last Limit State. As with the current Plan, any subsequent 
Reference Prices shall be calculated as specified in Section V(A) of 
the Plan.
    Sixth, the Participants propose to make a related change to Section 
V(A)(1) of the Plan regarding how Price Bands are calculated. The last 
sentence of this section currently provides that if a Reopening Price 
does not occur within ten minutes after the beginning of a Trading 
Pause, the Price Band, for the first 30 seconds following reopening 
after that Trading Pause, shall be calculated by applying triple the 
Percentage Parameters set forth in Appendix A. Because the Plan would 
provide for a resumption of trading in the absence of a Reopening Price 
only if the Primary Listing Exchange is unable to reopen due to a 
systems or technology issue, the Participants propose to revise this 
Plan text to reflect this proposed amendment. As proposed, this 
sentence would instead provide that if under Section VII(B)(2), the 
Primary Listing Exchange notifies the Processor that it is unable to 
reopen an NMS Stock due to a systems or technology issue and it has not 
declared a Regulatory Halt, the Processor will calculate and 
disseminate Price Bands by applying triple the Percentage Parameters 
set forth in Appendix A for the first 30 seconds such Price Bands are 
disseminated.\12\
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    \12\ The Participants have convened a working group to study how 
NMS Stocks are tiered under the Plan, and as a related matter, the 
Percentage Parameters assigned to a tier. The Participants are not 
proposing at this time to revise any of the Percentage Parameters or 
tier determinations.
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    Seventh, the Participants propose to amend Section VII(B)(4) of the 
Plan, which currently provides that when trading begins after a Trading 
Pause, the Processor shall update the Price Bands as set forth in 
Section V(C)(1) of the Plan. Because, as described above, the 
Participants propose to amend the Plan to require that trading may not 
resume following a Trading Pause without Price Bands, the Participants 
propose to amend Section VII(B)(4) to provide the

[[Page 87117]]

requirement for the Processor to update such Price Bands. As proposed, 
this section would provide that the Processor would update the Price 
Bands as set forth in Section V(C)(1)-(2) of the Plan after receiving 
notification from the Primary Listing Exchange of a Reopening Price 
following a Trading Pause (or a resume message in the case of a 
reopening quote that has a zero bid or zero offer, or both), or that it 
is unable to reopen trading following a Trading Pause due to a systems 
or technology issue, provided that if the Primary Listing Exchange is 
unable to reopen due to a systems or technology issue, the update to 
the Price Bands would be no earlier than ten minutes after the 
beginning of the Trading Pause. This proposed amendment would make 
clear that the Participants will require the Processor to calculate and 
publish Price Bands in all potential scenarios following a Trading 
Pause. In addition, the proposed amendment would maintain the existing 
requirement that if a Primary Listing Exchange cannot reopen due to a 
systems or technology issue, trading would not resume until ten minutes 
after the beginning of the Trading Pause.
    Eighth, the Participants propose to amend Section VII(C)(1) of the 
Plan, which currently provides that if a Trading Pause for an NMS Stock 
is declared in the last ten minutes of trading before the end of 
Regular Trading Hours, the Primary Listing Exchange shall not reopen 
trading and shall attempt to execute a closing transaction using its 
established closing procedures. The Participants propose to amend this 
text to provide that if an NMS Stock is in a Trading Pause during the 
last ten minutes of trading before the end of Regular Trading Hours, 
the Primary Listing Exchange shall attempt to execute a closing 
transaction using its established closing procedures. With the proposed 
change to require all trading centers to wait to resume trading in an 
NMS Stock subject to a Trading Pause until the Primary Listing Exchange 
has reported a Reopening Price, it is possible that a Trading Pause 
that was declared before the last ten minutes of trading before the end 
of Regular Trading Hours could be extended until after the last ten 
minutes of trading before the end of Regular Trading Hours. The 
Participants believe that in such case, trading in such NMS Stock 
should not resume, and instead the Primary Listing Exchange should 
attempt to execute a closing transaction using established closing 
procedures.
    Ninth, the Participants propose to eliminate Trading Pauses 
following a Straddle State. Under Section VII(A)(2) of the Plan, a 
Primary Listing Exchange may declare a Trading Pause for an NMS Stock 
when an NMS Stock is in a Straddle State. A Straddle State is when the 
National Best Bid (Offer) is below (above) the Lower (Upper) Price Band 
and the NMS Stock is not in a Limit State, and trading in that NMS 
Stock deviates from normal trading characteristics such that declaring 
a Trading Pause would support the Plan's goals to address extraordinary 
market volatility. Accordingly, under the Plan, declaring a Trading 
Pause is in the discretion of the Primary Listing Exchange for that NMS 
Stock. Since implementation of the Plan, there have not been any 
Trading Pauses declared following a Straddle State. The Participants 
therefore propose to eliminate Trading Pauses following a Straddle 
State as unnecessary.\13\ In addition, the Participants believe that 
eliminating the ability for a Primary Listing Exchange to declare a 
Trading Pause following a Straddle State would promote transparency 
regarding the operation of the Plan as it would remove a discretionary 
circumstance for declaring a Trading Pause.
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    \13\ Straddle States were discussed in the ``Limit Up--Limit 
Down: National Market System Plan Assessment to Address 
Extraordinary Market Volatility,'' dated May 28, 2015, which was 
prepared for the Limit Up--Limit Down Operating Committee by James 
J. Angel, Associate Professor of Finance, Georgetown University and 
which was provided to the Commission (``Angel Report''). A copy of 
the Angel Report is available here: https://www.sec.gov/comments/4-631/4631-39.pdf. As noted in the Angel Report, the majority of 
Straddle States occurred in a limited number of low-liquidity NMS 
Stocks. They are often due to a lack of liquidity, and are resolved 
quickly. The Angel Report opined that a Trading Pause following the 
type of trading circumstances that leads to a Straddle State is 
unlikely to prevent any extreme trades or be followed by a re-
opening cross. There have not been any Trading Pauses following a 
Straddle State since the publication of the Angel Report.
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    To effect this change, the Participants propose to (i) delete 
Section I(W), which defines the term ``Straddle State'' and renumber 
the definitions following that definition accordingly; (ii) delete 
section VII(A)(2) of the Plan, which describes how Trading Pauses 
following a Straddle State may be declared, and renumber current 
Section VII(A)(3) as new Section VII(A)(2); and (iii) delete the text 
relating to gathering raw data relating to Straddle States, as 
specified in Section II(A) of Appendix B.
    Tenth, the Participants propose a non-substantive amendment to 
delete Sections VIII(A)-(C) of the Plan. These provisions currently set 
forth the schedule for implementing the Plan across all NMS Stocks. 
Because the Plan has been implemented across all NMS Stocks, the 
Participants believe it is no longer necessary to include this text in 
the Plan. As amended, Section VIII would state the initial date of Plan 
operations and the pilot end date.
    Finally, the Participants propose non-substantive amendments to 
Section II(A) of the Plan (List of Parties) and Section X of the Plan 
(Counterparts and Signatures) to update the names of the exchanges 
owned by Bats Global Markets and to formally add the IEX to the list of 
signatories to the Plan.\14\
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    \14\ As provided for in Section II(C) of the Plan, IEX became a 
Participant in the Plan effective August 11, 2016.
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* * * * *
    The Participants believe that the proposed amendments to the Plan 
would be 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.
    Specifically, these proposed amendments to the Plan are designed 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. The proposed Plan amendments also support this 
initiative by providing greater clarity regarding how the Reference 
Price and Price Bands following a Trading Pause would be determined in 
all circumstances, including if the Primary Listing Exchange is unable 
to conduct a reopening due to a systems or technology issue or if the 
reopening quote is a zero bid or a zero offer, or both.

B. Governing or Constituent Documents

    The governing documents of the Processor, as defined in Section 
I(P) of the Plan, will not be affected by the Plan, but once the Plan 
is implemented, the Processor's obligations will change, as set forth 
in detail in the Plan.

[[Page 87118]]

C. Implementation of Plan

    The initial date of the Plan operations was April 8, 2013.

D. Development and Implementation Phases

    The Plan was initially implemented as a one-year pilot program in 
two Phases, consistent with Section VIII of the Plan: Phase I of Plan 
implementation began on April 8, 2013 and was completed on May 3, 2013. 
Implementation of Phase II of the Plan began on August 5, 2013 and was 
completed on February 24, 2014. Pursuant to the Ninth Amendment, the 
Participants extended the Pilot until April 22, 2016.\15\ Pursuant to 
the Tenth Amendment, the pilot period of the Plan was extended until 
April 21, 2017 and the proposed modifications described in the Tenth 
Amendment were implemented three months after SEC approval of Amendment 
No. 10.
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    \15\ See supra note 1.
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    The Participants propose to implement this amendment to the Plan no 
later than six months after approval of this amendment.

E. Analysis of Impact on Competition

    The proposed Plan does not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the 
Exchange Act. The Participants do not believe that the proposed Plan 
introduces terms that are unreasonably discriminatory for the purposes 
of Section 11A(c)(1)(D) of the Exchange Act.

F. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan

    The Participants have no written understandings or agreements 
relating to interpretation of the Plan. Section II(C) of the Plan sets 
forth how any entity registered as a national securities exchange or 
national securities association may become a Participant.

G. Approval of Amendment of the Plan

    Each of the Plan's Participants has executed a written amended 
Plan.

H. Terms and Conditions of Access

    Section II(C) of the Plan provides that any entity registered as a 
national securities exchange or national securities association under 
the Exchange Act may become a Participant by: (1) Becoming a 
participant in the applicable Market Data Plans, as defined in Section 
I(F) of the Plan; (2) executing a copy of the Plan, as then in effect; 
(3) providing each then-current Participant with a copy of such 
executed Plan; and (4) effecting an amendment to the Plan as specified 
in Section III(B) of the Plan.

I. Method of Determination and Imposition, and Amount of, Fees and 
Charges

    Not applicable.

J. Method and Frequency of Processor Evaluation

    Not applicable.

K. Dispute Resolution

    Section III(C) of the Plan provides that each Participant shall 
designate an individual to represent the Participant as a member of an 
Operating Committee. No later than the initial date of the Plan, the 
Operating Committee shall designate one member of the Operating 
Committee to act as the Chair of the Operating Committee. Any 
recommendation for an amendment to the Plan from the Operating 
Committee that receives an affirmative vote of at least two-thirds of 
the Participants, but is less than unanimous, shall be submitted to the 
Commission as a request for an amendment to the Plan initiated by the 
Commission under Rule 608.
    On September 13, 2016, the Operating Committee, duly constituted 
and chaired by Mr. Paul Roland, Nasdaq, met and voted unanimously to 
amend the Plan as set forth herein in accordance with Section III(C) of 
the Plan. The Plan Advisory Committee was notified in connection with 
the Twelfth Amendment.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the amendment is 
consistent with the Exchange Act. The Commission encourages commenters 
to explain how data analysis, including prior Participant submitted 
data analysis on reopenings and Straddle States, informs their 
comments.
    In addition, the Commission requests comment on the Participants' 
proposal to remove references to Straddle States in the Plan. To effect 
this change, the Participants propose to: (i) Delete the definition of 
the term ``Straddle State'' in Section I(A)(W) of the Plan; (ii) delete 
section VII(A)(2) of the Plan, which provides that the Primary Listing 
Exchanges may declare a Trading Pause following a Straddle State and 
requires the Primary Listing Exchanges to develop policies and 
procedures for declaring a Trading Pause and notify the Processor in 
such circumstances; and (iii) remove the requirement to gather and 
provide to the Commission raw data relating to Straddle States as 
specified in Section II(A) of Appendix B.
    The Commission notes that the provisions related to Straddle States 
were added to the Plan in response to concerns that a stock could 
remain in a Straddle State for an indefinite period of time.\16\ In the 
Plan Approval Order, the Commission observed that the ability of a 
Primary Listing Exchange to declare a Trading Pause in response to a 
Straddle State should help to ensure that the market for a stock would 
not remain impaired for an indefinite period of time, while also 
providing the Primary Listing Exchange with the discretion to determine 
whether such impairment is inconsistent with the stock's normal trading 
characteristics.\17\
---------------------------------------------------------------------------

    \16\ See Plan Approval Order, supra note 1, at 33503.
    \17\ See id., at 33509.
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    In their letter to the Commission regarding Amendment 12, the 
Participants noted that, since implementation of the Plan, the Primary 
Listing Exchanges have not exercised discretion to declare a Trading 
Pause in response to a Straddle State.\18\ The Participants further 
noted that Straddle State data reported in the Angel Report \19\ showed 
that there were approximately 4.8 million Straddle States during the 
sample period and that over three quarters of Straddle States 
disappeared within one second. The Angel Report also showed that 
approximately 110,000 Straddle States lasted over fifteen seconds.
---------------------------------------------------------------------------

    \18\ See Transmittal Letter, supra note 4.
    \19\ See supra note 13.
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    Commission staff has also conducted an analysis of Straddle States 
under the Plan, covering the period from May 12, 2014 to August 29, 
2014, and found that most Straddle States occurred in Tier 2 
securities.\20\ Of the 2,073,497 Straddle States examined by Commission 
staff that occurred in Tier 2 securities, the vast majority of Straddle 
States lasted only five minutes.\21\ However, more than 4,000 Straddle 
States lasted between five and 30 minutes, while more than 4,000 
Straddle States lasted longer than 30 minutes.\22\
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    \20\ The analysis found that over 99.9% of Straddle States 
occurred in Tier 2 securities.
    \21\ For this part of the analysis, the Commission staff used 
data on Straddle States, which was provided to the Commission by the 
Participants as described in Appendix B of the Plan, to examine 6711 
Tier 2 securities over a period of 78 trading days.
    \22\ Notably, this analysis was performed on a time period 
before the adoption of Amendment 10, which changed how opening 
reference prices are calculated if there is no trading in the 
opening auction. As such, it is possible the longer Straddle States 
observed in the analysis resulted from an opening reference price 
that was based on an opening auction with no trades and in which the 
midpoint of the opening bid and ask quotes significantly deviated 
from the previous day's closing price. However, information 
contained in the Angel Report suggests otherwise. See Angel Report 
supra note 13. Table 25 in the Angel Report shows that when all 
opening reference prices are included, 1.80% of all Straddle States 
last longer than 30 seconds. In contrast, when days with what Angel 
refers to as ``bad'' opening reference points are excluded, Table 27 
in the Angel Report finds that 8.34% of the Straddle States last 
longer than 30 seconds. Id. If a ``bad'' opening reference price 
contributed to longer Straddle States, the percentage of Straddle 
States lasting longer than 30 seconds would likely decrease once 
``bad'' opening reference prices are excluded, not increase.

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[[Page 87119]]

    Accordingly, the Commission requests comment on whether the 
concerns outlined in the Plan Approval Order about stocks remaining in 
Straddle States for indefinite periods of time continues to be a viable 
concern, and how the data analysis discussed above informs those 
concerns. In this regard, should the Plan continue to provide the 
discretion for Primary Listing Markets to declare a Trading Pause when 
an NMS Stock is in a Straddle State? Are there other alternatives to 
declaring a Trading Pause to address concerns about NMS Stocks 
remaining in Straddle States for indefinite periods of time? Should the 
Plan continue to provide for the collection of data related to Straddle 
States or should the Plan contain any mechanism to monitor Straddle 
States? Please explain.
    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 4-631 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number 4-631. 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 plan amendment that are filed 
with the Commission, and all written communications relating to the 
amendment between the Commission and any person, other than those that 
may be withheld from the public in accordance with the provisions of 5 
U.S.C. 552, will be available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the Participants' offices. 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 4-631 and should be submitted on or before 
December 23, 2016.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-28937 Filed 12-1-16; 8:45 am]
 BILLING CODE 8011-01-P


