
[Federal Register Volume 82, Number 88 (Tuesday, May 9, 2017)]
[Notices]
[Pages 21585-21587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09314]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80580; File No. SR-BatsBZX-2017-25]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.22, Data Products, To Adopt a New Market Data Product Known as 
the ETF Implied Liquidity Feed

May 3, 2017.
    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 April 28, 2017, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated this proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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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 Rule 11.22, Data Products, 
to adopt a new market data product known as the ETF Implied Liquidity 
feed.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.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 Rule 11.22, Data Products, to adopt 
a new market data product known as the ETF Implied Liquidity feed. The 
ETF Implied Liquidity feed would be an optional data feed that would 
provide the Exchange's proprietary calculation of the implied liquidity 
and the aggregate best bid and offer (``BBO'') of all displayed orders 
on the Exchange and its affiliated exchanges \5\ for all standard, non-
leveraged U.S. equity Exchange Traded Funds (``ETFs'') traded on the 
System.\6\ An ETF's implied liquidity disseminated via the proposed 
feed would consist of the ETF's implied BBO (including the implied 
size) calculated via a proprietary methodology based on the national 
best bid and offer (``NBBO''), the number of shares of securities 
underlying one creation unit of the ETF, and the estimated cash 
included in one creation unit of the ETF. The Exchange will disseminate 
the aggregate BBO through the ETF Implied Liquidity feed no earlier 
than it provides its BBO to the processors under the CTA Plan or the 
Nasdaq/UTP Plan.
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    \5\ The Exchange's affiliates are Bats EDGA Exchange, Inc., 
(``EDGA''), Bats EDGX Exchange, Inc. (``EDGX''), and Bats BYX 
Exchange, Inc. (``BYX'') (``collectively, the ``Bats Exchanges'').
    \6\ The securities underlying each of the U.S. equity ETFs 
included in the proposed feed must be considered NMS Securities as 
defined under Rule 600(b)(46) of Regulation NMS. 17 CFR 
242.600(b)(46).
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    The ETF Implied Liquidity feed would provide market participants 
with an additional price discovery tool that would assist in trading of 
standard, non-leveraged U.S. equity ETFs and their underlying 
securities. The Exchange's calculation of the ETF's implied liquidity 
via the ETF Implied Liquidity feed would provide a more granular 
measure of an ETF's intraday indicative value (``IIV'', also commonly 
referred to as intraday net asset value (``iNAV'')) by incorporating 
the NBBO and its size along with other data elements described above. 
This enhanced measure of implied liquidity can provide market 
participants with a more complete picture of the liquidity available 
for an ETF based on its underlying securities.
    As ETFs trade similar to stocks throughout the day, the IIV of the 
ETF can fluctuate with the prices of the underlying securities 
intraday. For this reason, ETF issuers are required to publish an IIV 
for the ETF during the trading day which provides a snapshot estimate 
of the value of the ETF based on the last sale for the underlying 
securities. The IIV is generally calculated and disseminated 
periodically intraday by summing the last sale of all of the ETF's 
underlying securities divided by the number of shares outstanding.\7\ 
This current calculation of IIV is designed to provide investors with a 
reasonable estimate of the value of the ETF. However, this calculation 
of IIV provides a single value that does not include size or account 
for an ETF trading at a premium or discount to the IIV. For one, 
current IIV calculations do not consider the liquidity of the ETF or 
underlying securities so traded prices may differ from the theoretical 
snapshot due to bid/ask spreads and/or market impact. Although 
arbitrage activity between the ETF and its underlying securities tends 
to keep the traded price very close to IIV, there may still be 
variations. Therefore, the Exchange proposes to calculate on a real-
time basis a more granular and enhanced measure of IIV by incorporating 
the following data points for each ETF into its proprietary calculation 
of the ETF's implied liquidity: the NBBO (including size), the number 
of shares of securities underlying one creation unit of the ETF, and 
the estimated cash included in one creation unit of the ETF.\8\ The 
Exchange's calculation of the ETF's implied liquidity would provide 
additional data than what is currently provided via the ETF's IIV 
calculation of a single value, such as the implied best bid, the 
implied best offer and their implied sizes.
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    \7\ See Understanding Net Asset Value, available at http://www.etf.com/etf-education-center/21025-understanding-net-asset-value.html (last visited February 21, 2017).
    \8\ The Exchange intends to include a disclaimer as part of the 
proposed ETF Implied Liquidity feed that would alert subscribers 
that the Exchange's calculation of the ETF's implied liquidity may 
differ from the fund's calculation of IIV or iNAV and does not 
account for potential creation or redemption fees associated with 
trading in the ETF's underlying basket of securities. In addition, 
the Exchange's calculation of the ETF's implied liquidity is an 
enhanced version of an ETF's NAV that is calculated and disseminated 
intra-day and is not intended to be confused with the ETF's end of 
day calculation of the ETF's NAV which consists of a single value.
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    The Exchange believes providing the implied bid and the implied 
offer based on the ETF's underlying basket of securities can provide 
investors with even more insight into the true value of the ETF than 
the current calculation of IIV (or iNAV). The Exchange also notes that 
many market participants today calculate and provide to their customers

[[Page 21586]]

IIV for ETFs in which they make markets. The proposed ETF Implied 
Liquidity feed could serve to assist these market participants in 
developing and verifying their own IIV calculations provided to 
customers.
    The Exchange intends to file a separate rule change with the 
Commission proposing fees to be charged for the ETF Implied Liquidity 
feed. The Exchange anticipates offering the ETF Implied Liquidity feed 
on the date of effectiveness of the rule filing to establish those 
fees.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and to protect investors and the public 
interest, and that it is not designed to permit unfair discrimination 
among customers, brokers, or dealers. This proposal is in keeping with 
those principles in that it promotes increased transparency through the 
dissemination of the ETF Implied Liquidity feed. The Exchange also 
believes this proposal is consistent with Section 6(b)(5) of the Act 
because it protects investors and the public interest and promotes just 
and equitable principles of trade by providing investors with an 
alternative for receiving market data as requested by market data 
vendors and purchasers that expressed an interest in improved, more 
granular calculations of an ETF's implied liquidity as provided by the 
proposed feed.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \11\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets and 
(ii) the availability of information with respect to quotations for and 
transactions in securities to brokers, dealers, and investors. The ETF 
Implied Liquidity feed would be accessed and subscribed to on a 
voluntary basis, in that neither the Exchange nor market data 
distributors are required by any rule or regulation to make this data 
available. Accordingly, distributors and subscribers can discontinue 
their use at any time and for any reason. Furthermore, the proposed 
rule change is consistent with Rule 603 of Regulation NMS,\12\ which 
provides that any national securities exchange that distributes 
information with respect to quotations for or transactions in an NMS 
stock do so on terms that are not unreasonably discriminatory.
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    \11\ 15 U.S.C. 78k-1.
    \12\ See 17 CFR 242.603.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to consumers of such data. It was 
believed that this authority would expand the amount of data available 
to users and consumers of such data and also spur innovation and 
competition for the provision of market data. The Exchange believes 
that the data products proposed herein are precisely the sort of market 
data products that the Commission envisioned when it adopted Regulation 
NMS. The Commission concluded that Regulation NMS--by lessening 
regulation of the market in proprietary data--would itself further the 
Act's goals of facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\13\
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    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04) (``Regulation 
NMS Adopting Release'').

By removing ``unnecessary regulatory restrictions'' on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history.
    In addition, the proposed ETF Implied Liquidity feed promotes just 
and equitable principles of trade by providing market participants with 
an additional price discovery tool that would assist in trading of 
standard, non-leveraged U.S. equity ETFs and their underlying 
securities. As stated above, the proposed feed would provide investors 
with even more insight into the true value of the ETF than the current 
calculations of IIV (or iNAV) by incorporating the NBBO and its size 
along with other data elements described above. The proposed 
calculation of an ETF's implied liquidity via the proposed ETF Implied 
Liquidity feed can provide market participants with a more complete 
picture of the liquidity available for an ETF based on its underlying 
securities. The proposed ETF Implied Liquidity feed could also serve to 
assist market participants in their own IIV (or iNAV) calculations that 
they provide to customers for ETFs in which they make markets. 
Therefore, the Exchange believes the proposed feed promotes just and 
equitable principles of trade, removes impediments to and perfects the 
mechanism of a free and open market and a national market system.
    Lastly, the ETF Implied Liquidity feed removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system by providing investors with alternative market data and 
competing with similar market data products currently offered by the 
Nasdaq Stock Market LLC (``Nasdaq'').\14\ The provision of new options 
for investors to receive market data was a primary goal of the market 
data amendments adopted by Regulation NMS.\15\
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    \14\ See Nasdaq's Global Index Data Service (``GIDS'') available 
at http://business.nasdaq.com/intel/indexes/index-data/index.html#!/tcm:5044-12151 (providing on a real-time basis intraday portfolio 
values, daily valuation information, such as NAV per Share, 
estimated cash per Share, estimated cash per creation unit, total 
cash per creation unit and total shares outstanding of the fund and 
ETF directory messages designed to provide the symbols of the ETF 
valuations). See footnote 28 of Securities Exchange Act Release No. 
77714 (April 26, 2016), 81 FR 26281 (May 2, 2016) (describing 
Nasdaq's GIDS within the order approving SR-Nasdaq-2016-028). See 
also footnote 29 of Securities Exchange Act Release No. 78592 
(August 16, 2016), 81 FR 56729 (August 22, 2016) (describing 
Nasdaq's GIDS within the order approving SR-Nasdaq-2016-061). See, 
e.g., the NYSE Arca, Inc.'s (``NYSE Arca'') EOD ETF Report available 
at http://www.nyxdata.com/Data-Products/NYSE-Arca-EOD-ETF-Report 
(providing information such as the ETF's closing trades and quotes 
at different key points during the trading day, as well referential 
information such as shares outstanding, the primary market, and 
NAV).
    \15\ See Regulation NMS Adopting Release, supra note 13.
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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.\16\ The

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Exchange believes that the proposal will promote competition by 
enabling the Exchange to offer a market data product similar to that 
currently offered by Nasdaq and NYSE Arca.\17\ Thus, the Exchange 
believes this proposed rule change is necessary to permit fair 
competition among national securities exchanges.
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    \16\ The Bats One Feed is a data feed that disseminates, on a 
real-time basis, the aggregate BBO for securities traded on each of 
the Bats Exchanges. The Bats One Feed also contains the individual 
last sale information for the Bats Exchanges (collectively with the 
aggregate BBO, the ``Bats One Summary Feed''). See Exchange Rule 
11.22(j). See also Securities Exchange Act Release No. 73918 
(December 23, 2014), 79 FR 78920 (December 31, 2014) (File Nos. SR-
EDGX-2014-25; SR-EDGA-2014-25; SR-BATS-2014-055; SR-BYX-2014-030) 
(Notice of Amendment No. 2 and Order Granting Accelerated Approval 
to Proposed Rule Changes, as Modified by Amendments Nos. 1 and 2, to 
Establish a New Market Data Product called the Bats One Feed) 
(``Bats One Approval Order''). The Exchange would provide the 
aggregate BBO disseminated via the Bats One Summary Feed as part of 
the ETF Implied Liquidity feed. The Exchange utilizes the following 
data feeds to create the Bats One Summary Feed's aggregated BBO, 
each of which are available to vendors: EDGX Depth, EDGA Depth, BYX 
PITCH Feed, and BZX PITCH Feed. Rather than these depth-of-book 
feeds, the Exchange notes that a vendor seeking to build a competing 
product to the proposed ETF Implied Liquidity feed could simply 
utilize the top-of-book data feeds from each of the Bats Exchange's 
to create an aggregated BBO. These top-of-book feeds are EDGA Top, 
EDGX Top, BYX Top and BZX Top. The Exchange represents that a 
competing vendor could obtain these top-of-book data feeds from each 
of the Bats Exchanges on the same latency basis as the system that 
performs the aggregation and consolidation of the Bats One Summary 
Feed. See Bats One Approval Order. While the proposed ETF Implied 
Liquidity feed does not separately provide the ETF's NBBO, the 
number of shares of securities underlying one creation unit of the 
ETF, or the estimated cash included in one creation unit of the ETF, 
a vendor could obtain this information from the securities 
information processors and other publicly available sources to 
perform its own calculation of an ETF's implied liquidity to include 
as part of a competing product. Therefore, a vendor could create a 
product to compete with the proposed ETF Implied Liquidity feed on 
the same terms as the Exchange. With regard to cost, as stated 
above, the Exchange will file a separate rule filing with the 
Commission to establish fees for the ETF Implied Liquidity feed that 
would be designed to ensure that vendors could compete with the 
Exchange by creating a similar product.
    \17\ See supra note 14.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, 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 \18\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\19\ the Exchange has 
designated this rule filing as non-controversial. The Exchange has 
given the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and 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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4.
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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: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) 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 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-BatsBZX-2017-25 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 SR-BatsBZX-2017-25. 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-2017-25 and should 
be submitted on or before May 30, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09314 Filed 5-8-17; 8:45 am]
BILLING CODE 8011-01-P


