
[Federal Register Volume 82, Number 20 (Wednesday, February 1, 2017)]
[Notices]
[Pages 8968-8970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02088]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79884; File No. SR-BatsBZX-2016-61]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1, 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

January 26, 2017.

I. Introduction

    On October 13, 2016, Bats BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change related to the Exchange's re-opening process 
following a trading halt declared pursuant to the National Market 
System Plan to Address Extraordinary Market Volatility (``Plan''). The 
proposed rule change was published for comment in the Federal Register 
on November 1, 2016.\3\ On December 14, 2016, the Commission extended 
the time period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change to January 30, 
2017.\4\ On January 24, 2017, the Exchange filed Amendment No. 1 to the 
proposed rule change.\5\ The Commission received no

[[Page 8969]]

comments on the proposed rule change. This order approves the proposed 
rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79162 (October 26, 
2016), 81 FR 75875 (``Notice'').
    \4\ See Securities Exchange Act Release No. 79552, 81 FR 92928 
(December 20, 2016).
    \5\ In Amendment No. 1, the Exchange stated that it anticipates 
implementing the proposed rule change in the second half of 2017, 
and most likely within the third quarter, assuming the Securities 
Information Processors have implemented their changes and the other 
primary listing exchanges are able to implement their proposed rule 
changes simultaneously with the Exchange. The Exchange also updated 
the text of BZX Rule 11.23(d)(2)(E) to reflect the changes made by 
SR-BatsBZX-2016-81. See Securities Exchange Act Release No. 79467 
(December 5, 2016), 81 FR 89176 (December 9, 2016). The Exchange 
stated that the changes from SR-BatsBZX-2016-81 do not impact the 
same language as the current proposal and do not conflict with the 
current proposal. Because Amendment No. 1 does not materially alter 
the substance of the proposed rule change or raise unique or novel 
regulatory issues, Amendment No. 1 is not subject to notice and 
comment. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-batsbzx-2016-61/batsbzx201661.htm.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    In conjunction with the Twelfth Amendment to the Plan,\6\ the 
Exchange proposes to revise its re-opening process following a trading 
halt declared pursuant to the Plan (``Trading Pause'') and to make 
related changes.
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    \6\ See Securities Exchange Act Release No. 79845 (January 19, 
2017) (File No. 4-631).
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Auction Reference Price and Auction Collar for Halt Auctions Following 
a Trading Pause

    The Exchange proposes to establish a ``Halt Auction Reference 
Price'' and a ``Halt Auction Collar'' for Halt Auctions following a 
Trading Pause. Specifically, the Halt Auction Reference Price would be 
equal to the price of the Upper or Lower Price Band that triggered the 
Trading Pause.\7\ With respect to Halt Auction Collars, if the Halt 
Auction Reference Price is the Lower (Upper) Price Band, the initial 
lower (upper) Halt Auction Collar would be 5 percent less (greater) 
than the Halt Auction Reference Price, rounded to the nearest minimum 
price variation, and the upper (lower) Halt Auction Collar would be the 
Upper (Lower) Price Band.\8\ For securities with a Halt Auction 
Reference Price of $3.00 or less, the initial lower (upper) Halt 
Auction Collar would 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 would be the Upper (Lower) Price 
Band.\9\
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    \7\ See proposed BZX Rule 11.23(d)(2)(C)(i). The proposed 
definition of Halt Auction Reference Price for a Trading Pause is 
designed to be consistent across listing exchanges.
    \8\ See id.
    \9\ See id. These proposed Halt Auction Collars are designed to 
be consistent across listing exchanges. The Exchange also proposes 
to make conforming changes in renumbered BZX Rule 11.23(d)(2)(E).
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Extension of Re-Opening Time and Expansion of Halt Auction Collars for 
Halt Auctions

    Under the proposal, the Exchange would provide a 5-minute Quote-
Only Period \10\ prior to a Halt Auction following a Trading Pause.\11\ 
This Quote-Only Period would be extended for an additional 5 minutes 
(``Initial Extension Period'') if a Halt Auction could not be conducted 
due to a Market Order imbalance under BZX Rule 11.23(d)(2)(B)(i) \12\ 
or if the Indicative Price,\13\ before being adjusted for Halt Auction 
Collars, is outside the Halt Auction Collars set forth in proposed BZX 
Rule 11.23(d)(2)(C)(i) and (ii) (either, an ``Impermissible 
Price'').\14\ After the Initial Extension Period, the Quote-Only Period 
would be extended for additional 5-minute periods if a Halt Auction 
could not be conducted due to an Impermissible Price (``Additional 
Extension Period'') until a Halt Auction occurs.\15\
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    \10\ See proposed BZX Rule 11.23(d)(2)(C). BZX Rule 11.23(a)(17) 
defines ``Quote-Only Period'' to mean 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.
    \11\ See proposed BZX Rule 11.23(d)(2)(C).
    \12\ BZX Rule 11.23(d)(2)(B)(i) refers to circumstances where 
there are unmatched market orders on the Auction Book associated 
with the auction.
    \13\ BZX Rule 11.23(a)(10) defines ``Indicative Price'' to mean, 
in part, the price at which the most shares from the Auction Book 
and the Continuous Book would match.
    \14\ See proposed BZX Rule 11.23(d)(2)(C). 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 
BZX Rule 11.23(d)(2)(C). See Notice, supra note 3, at 75877.
    \15\ The Exchange would attempt to conduct a Halt Auction during 
the course of each Additional Extension Period. See proposed BZX 
Rule 11.23(d)(2)(C).
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    Under the proposal, at the beginning of the Initial Extension 
Period, the upper (lower) Halt Auction Collar would be increased 
(decreased) by 5 percent in the direction of the Impermissible Price, 
rounded to the nearest minimum price variation.\16\ For securities with 
a Halt Auction Reference Price of $3.00 or less, the Halt Auction 
Collar would be increased (decreased) in $0.15 increments in the 
direction of Impermissible Price.\17\ At the beginning of each 
Additional Extension Period, the Halt Auction Collar would be widened 
in the same manner and by the same amount as the Initial Extension 
Period.\18\
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    \16\ See proposed BZX Rule 11.23(d)(2)(C)(ii).
    \17\ See id.
    \18\ See id. The proposed extensions and widening of the Halt 
Auction Collars are designed to be consistent across listing 
exchanges.
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    As proposed, a Halt Auction for a security would be cancelled at 
3:50 p.m. eastern time, at which time the auction for the security 
would be conducted pursuant to the Volatility Closing Auction process 
under BZX Rule 11.23(e).\19\
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    \19\ See proposed BZX Rule 11.23(d)(2)(C). The concept of 
holding a closing auction instead of a re-opening auction if a 
Trading Pause exists in the last ten minutes of trading is designed 
to be consistent across listing exchanges and to reflect the Twelfth 
Amendment to the Plan.
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Other Changes Relating to the Halt Auction

    The Exchange proposes to amend BZX Rule 11.23(d)(2)(A) regarding 
the publication of BZX Auction Information. BZX Rule 11.23(d)(2)(A) 
currently states that, coinciding with the beginning of the Quote-Only 
Period for a security and updated every five seconds thereafter, the 
Reference Price, Indicative Price, Auction Only Price, and the lesser 
of Reference Buy Shares and Reference Sell Shares associated with the 
Halt Auction will be disseminated via electronic means.\20\ The 
Exchange now proposes to amend BZX Rule 11.23(d)(2)(A) to include the 
Halt Auction Reference Price and Halt Auction Collars as part of the 
information to be disseminated.\21\
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    \20\ See BZX Rules 11.23(a)(2) (defining ``Auction Only 
Price''); 11.23(a)(18) (defining ``Reference Buy Shares''); 
11.23(a)(19) (defining ``Reference Price''); and 11.23(a)(21) 
(defining ``Reference Sell Shares'').
    \21\ See proposed BZX Rule 11.23(d)(2)(A). The Exchange also 
proposes to make clear that it would notify market participants of 
the circumstances and length of an extension of the Quote-Only 
Period as set forth in BZX Rules 11.23(d)(2)(B) and (C). See 
proposed BZX Rule 11.23(d)(2)(D).
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    The Exchange proposes to amend BZX Rule 11.17(a) to provide that 
executions as a result of a Halt Auction under BZX Rule 11.23(d) are 
not eligible for a request to review as clearly erroneous under BZX 
Rule 11.17(b).\22\
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    \22\ The proposal to exclude re-opening auction trades from the 
clearly erroneous execution rule is designed to be consistent across 
listing exchanges.
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Other Changes Relating to Trading Pauses

    The Exchange proposes that if a Trading Pause is triggered by the 
Exchange or if the Exchange is unable to re-open trading at the end of 
the Trading Pause due to a systems or technology issue, the Exchange 
would immediately notify the single plan processor responsible for 
consolidation of information for the security pursuant to Rule 603 of 
Regulation NMS under the Act.\23\
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    \23\ See proposed BZX Rule 11.23(d)(2)(F). This change is 
designed to be consistent across listing exchanges and to reflect 
the Twelfth Amendment to the Plan.
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    The Exchange states that it will announce the implementation date 
of the proposed rule change via a trading notice to be issued after 
this proposed rule change is approved by the Commission.\24\ The 
Exchange anticipates that this implementation will occur within the 
second half of 2017, and most likely within the third quarter, assuming 
the Securities Information Processors have implemented their changes 
and the

[[Page 8970]]

other primary listing exchanges are able to implement their proposed 
rule changes simultaneously with the Exchange.\25\
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    \24\ See Notice, supra note 3, at 75877.
    \25\ See Amendment No. 1, supra note 5. For a more detailed 
description of the proposed rule change, see Notice, supra note 3.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\26\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\27\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, 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. As noted above, the Commission 
received no comment letters regarding the proposed rule change.
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    \26\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposed rule change is designed, 
together with the Twelfth Amendment to the Plan,\28\ to address the 
issues experienced on August 24, 2015 by reducing the number of repeat 
Trading Pauses in a single NMS Stock.\29\ The Commission notes that the 
proposed rule change is also designed to further the goal of 
establishing a standardized approach for how Primary Listing Exchanges 
would conduct certain aspects of an automated re-opening following a 
Trading Pause, which should provide certainty for market participants 
regarding how a security would re-open following a Trading Pause, 
regardless of the listing exchange.\30\
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    \28\ See, supra note 6.
    \29\ See Notice, supra note 3, at 75878.
    \30\ See id.
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    With respect to the proposed Halt Auction Reference Price and Halt 
Auction Collars, the Commission finds reasonable the Exchange's belief 
that 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 Halt Auction Reference Price.\31\ Moreover, the Commission believes 
that the proposed method for calculating the initial Halt Auction 
Collars (i.e., the Halt Auction Collar on the opposite side of the 
trading pressure would be the Price Band in place before the Trading 
Pause was triggered) would address the concept of mean reversion, as 
well as avoid a security from trading outside of a price that it would 
have been permitted to trade before the Trading Pause.\32\
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    \31\ See id.
    \32\ See id.
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    The Commission believes that extending the Trading Pause and 
widening the Halt Auction Collar on the side of the Impermissible Price 
would be a measured approach to provide additional time to attract 
offsetting interest, to help to address an imbalance that may not be 
resolved within the prior Halt Auction Collars, and to reduce the 
potential for triggering another Trading Pause.\33\ Also, as the 
Exchange noted, widening the Halt Auction Collar only in the direction 
of the imbalance would address issues relating to the concept of mean 
reversion.\34\ Moreover, the Commission notes that the proposal to 
cancel the Halt Auction at 3:50 p.m. and instead conduct the Volatility 
Closing Auction under BZX Rule 11.23(e) would be consistent with the 
Twelfth Amendment to the Plan.
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    \33\ See id.
    \34\ See id.
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    The Commission believes that precluding members from requesting 
review of a Halt Auction as a clearly erroneous execution is 
appropriate. The Commission notes that the proposed re-opening 
procedures would allow for widened collars, which may result in a re-
opening price away from prior trading prices, but the re-opening price 
would be a result of a measured and transparent process that reduces 
the potential that such trade would be considered erroneous.\35\
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    \35\ See id.
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    The Commission believes that the proposed enhancements to the 
information that would be disseminated for a Halt Auction would further 
promote transparency around a Halt Auction.
    Finally, the Commission notes that proposed BZX Rule 11.23(d)(2)(F) 
is consistent with the Twelfth Amendment to the Plan.
    Based on the Exchange's representations mentioned above and in the 
Notice, and for the foregoing reasons, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act \36\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-BatsBZX-2016-61), as 
modified by Amendment No. 1, be, and hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02088 Filed 1-31-17; 8:45 am]
 BILLING CODE 8011-01-P


