
[Federal Register Volume 82, Number 108 (Wednesday, June 7, 2017)]
[Notices]
[Pages 26559-26562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11751]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80841; File No. SR-BatsEDGX-2017-25]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To Add 
a New Optional Order Instruction Known as Non-Displayed Swap

June 1, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 26, 2017, Bats EDGX Exchange, Inc. (``Exchange'' or ``EDGX'') 
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 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) 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to: (i) Amend paragraph (n) of 
Exchange Rule 11.6, Routing/Posting Instructions to add a new optional 
order instruction to be known as Non-Displayed Swap; and (ii) make a 
related change to description of Limit Orders and MidPoint Peg Orders 
under Exchange Rule 11.8.
    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: (i) Amend paragraph (n) of Exchange Rule 
11.6, Routing/Posting Instructions to add a new optional order 
instruction to be known as Non-Displayed Swap; and (ii) make a related 
change to description of Limit Orders and MidPoint Peg Orders under 
Exchange Rule 11.8. The proposed amendments are substantially similar 
to the rules of the Nasdaq Stock

[[Page 26560]]

Market LLC (``Nasdaq'') and NYSE Arca, Inc. (``Arca'').\5\
---------------------------------------------------------------------------

    \5\ See Nasdaq Rule 4703(m) (defining the Trade Now order 
modifier). See also Securities Exchange Act Release No. 79282 
(November 10, 2016), 81 FR 81219 (November 17, 2016) (Notice of 
Filing and Immediate Effectiveness to add the Trade Now instruction 
to certain order types). See Arca Rule 7.31(d)(2)(B) (describing the 
Non-Display Remove Modifier). See also Securities Exchange Act 
Release No. 76267 (October 26, 2015), 80 FR 66951 (October 30, 
2015).
---------------------------------------------------------------------------

    The proposed Non-Displayed Swap (``NDS'') instruction would provide 
orders with a Non-Displayed \6\ instruction resting on the EDGX Book 
\7\ with a greater ability to receive an execution when that resting 
order is locked by an incoming order (e.g., the price of the resting 
non-displayed order is equal to the price of the incoming order that is 
to be placed on the EDGX Book). The NDS instruction would be an 
optional order instruction which would allow Users \8\ to have their 
resting non-displayed orders execute against an incoming order with a 
Post Only instruction rather than have it be locked by the incoming 
order. NDS would be defined as an instruction that may be attached to 
an order with a Non-Displayed instruction that when such order is 
resting on the EDGX Book and would be locked by an incoming order with 
a Post Only instruction that does not remove liquidity pursuant to 
paragraph (4) of Exchange Rule 11.6(n),\9\ the order with a NDS 
instruction is converted to an executable order and will remove 
liquidity against such incoming order. An order with a NDS instruction 
would not be eligible for routing pursuant to Exchange Rule 11.11, 
Routing to Away Trading Centers. The proposed NDS instruction assists 
in the avoidance of an internally locked EDGX Book (though such lock 
would not be displayed by the Exchange) \10\ by facilitating the 
execution of orders that would otherwise lock each other.
---------------------------------------------------------------------------

    \6\ See Exchange Rule 11.6(e)(2).
    \7\ See Exchange Rule 1.5(d).
    \8\ See Exchange Rule 1.5(ee).
    \9\ Under Exchange Rule 11.6(n)(4), an order with a Post Only 
instruction will remove contra-side liquidity from the EDGX Book if 
the order is an order to buy or sell a security priced below $1.00 
or if the value of such execution when removing liquidity equals or 
exceeds the value of such execution if the order instead posted to 
the EDGX Book and subsequently provided liquidity, including the 
applicable fees charged or rebates provided. To determine at the 
time of a potential execution whether the value of such execution 
when removing liquidity equals or exceeds the value of such 
execution if the order instead posted to the EDGX Book and 
subsequently provided liquidity, the Exchange will use the highest 
possible rebate paid and highest possible fee charged for such 
executions on the Exchange.
    \10\ See Exchange Rule 11.10(a)(4)(C).
---------------------------------------------------------------------------

    The following example illustrates the operation of an order with a 
NDS instruction. Assume the National Best Bid and Offer is $10.00 by 
$10.04. There is a Limit Order to buy with a Non-Displayed instruction 
resting on the EDGX Book at $10.03. An order to sell with a Post Only 
instruction priced at $10.03 is entered. Under current behavior, the 
incoming sell order with a Post Only instruction would post to the EDGX 
Book because it would not receive sufficient price improvement.\11\ 
This would result in the EDGX Book being internally locked.\12\ As 
proposed, if the Limit Order to buy with Non-Displayed instruction also 
included a NDS instruction, the orders would instead execute against 
each other at $10.03, with the resting buy order with the NDS 
instruction becoming the remover of liquidity and the incoming sell 
order with a Post Only instruction becoming the liquidity provider.
---------------------------------------------------------------------------

    \11\ Id.
    \12\ In the event the incoming order with a Post Only 
instruction was to be displayed, it would post and display at $10.03 
and the resting buy order with a Non-Displayed instruction would not 
execute against it or subsequent incoming sell orders at $10.03 for 
so long as the sell order was displayed on the Exchange. See 
Exchange Rule 11.10(a)(4)(C) and (D).
---------------------------------------------------------------------------

    Assume the same facts as above, but that a Limit Order with a Non-
Displayed instruction to buy at $10.03 is also resting on the EDGX Book 
with time priority ahead of the Limit Order to buy with a Non-Displayed 
instruction mentioned above. Like above, an order to sell with a Post 
Only instruction priced at $10.03 is entered. Under current behavior, 
the incoming sell order with a Post Only instruction would post to the 
EDGX Book because the value of such execution against the resting buy 
order when removing liquidity does not equal or exceed the value of 
such execution if the order instead posted to the EDGX Book and 
subsequently provided liquidity, including the applicable fees charged 
or rebates provided. As proposed, if the Limit Order to buy with Non-
Displayed instruction also included a NDS instruction, the incoming 
sell order would execute against the resting Limit Order with a NDS 
instruction at $10.03 with the resting buy order with the NDS 
instruction becoming the remover of liquidity and the incoming sell 
order with a Post Only instruction becoming the liquidity provider. In 
such case, the Limit Order with a Non-Displayed instruction to buy at 
$10.03 cedes time priority to the Limit Order with a Non-Displayed and 
NDS instruction because such order did not also include a NDS 
instruction \13\ and thus the User that submitted the order did not 
indicate the preference to be treated as the remover of liquidity in 
favor of an execution; instead, by not using NDS, a User indicates the 
preference to remain posted on the EDGX Book as a liquidity 
provider.\14\ However, if the incoming sell order was priced at $10.02, 
it would receive sufficient price improvement to execute upon entry 
against all resting buy Limit Orders in time priority at $10.03.\15\
---------------------------------------------------------------------------

    \13\ This behavior is inherent in the operation of Nasdaq's 
Trade Now modifier and is identical to the interaction of ALO orders 
with orders that contain the Non-Display Remove Modifier on Arca. 
See Nasdaq Rule 4703(m) and Arca Rule 7.31(e)(2)(B)(iv)(b) 
(providing that unless a resting order is designated with a Non-
Display Remove Modifier, an ALO Order will trade only with arriving 
interest).
    \14\ Should the Limit Order to buy at $10.03 with time priority 
be displayed on the EDGX Book, the incoming sell order at $10.03 
with a Post Only instruction will not execute against the non-
displayed buy order with a NDS instruction because displayed orders 
have priority over non-displayed orders. In such a case, the 
incoming Limit Order would be handled as it is today in accordance 
with existing Exchange rules. See, e.g., Exchange Rules 11.6(l), 
11.9, and 11.10(a).
    \15\ The execution occurs here because the value of the 
execution against the buy order when removing liquidity exceeds the 
value of such execution if the order instead posted to the EDGX Book 
and subsequently provided liquidity, including the applicable fees 
charged or rebates provided. See supra note 9.
---------------------------------------------------------------------------

    If the order with a NDS instruction is only partially executed, the 
unexecuted portion of that order remains on the EDGX Book and maintains 
its priority, as is the case today for an order that is partially 
executed and not cancelled by the User.\16\ The Exchange is proposing 
to make the NDS instruction available to Limit Orders \17\ that include 
a Non-Displayed instruction and MidPoint Peg Orders.\18\ The NDS 
instruction would not be available to all other order types provided by 
the Exchange under its Rule 11.8, as the execution of these order types 
is governed by other Exchange rules and the NDS instruction would be 
inconsistent with the use of those order types.
---------------------------------------------------------------------------

    \16\ See Exchange Rule 11.9(a)(5).
    \17\ See Exchange Rule 11.8(b).
    \18\ See Exchange Rule 11.8(d).
---------------------------------------------------------------------------

    The Exchange notes that similar functionality exists on Nasdaq and 
Arca. Nasdaq refers to their functionality as the ``Trade Now'' 
instruction \19\ and Arca refers to their functionality as the ``Non-
Display Remove Modifier''.\20\ On

[[Page 26561]]

Arca, a Limit Non-Displayed Order may be designated with a Non-Display 
Remove Modifier. If so designated, a Limit Non-Displayed Order to buy 
(sell) will trade as the remover of liquidity with an incoming Adding 
Liquidity Only Order (``ALO Order'') to sell (buy) that has a working 
price equal to the working price of the Limit Non-Displayed Order.\21\ 
On Nasdaq, Trade Now is an order attribute that allows a resting order 
that becomes locked by an incoming Displayed Order to execute against 
the available size of the contra-side locking order as a liquidity 
taker, and any remaining shares of the resting order will remain posted 
on the Nasdaq Book with the same priority.\22\ Nasdaq requires the 
contra-side order to be display eligible, while the Exchange proposes 
to enable an order with a NDS instruction to remove liquidity 
regardless of whether the incoming order would have ultimately been 
eligible for display consistent with Arca's Non-Display Remove 
Modifier.
---------------------------------------------------------------------------

    \19\ See Nasdaq Rule 4703(m). See also Securities and Exchange 
Act Release No. 79282 (November 10, 2016), 81 FR 81219 (November 17, 
2016) (SR-Nasdaq-2016-156) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change to Amend Rule 4703 and Rule 
4703 to add a ``Trade Now'' Instruction to Certain Order Types).
    \20\ See Arca Rule 7.31(d)(2)(B). See also Securities and 
Exchange Act Release No. 76267 (October 26, 2015), 80 FR 66951 
(October 30, 2015) (SR-NYSEArca-2015-56) (Order Approving Proposed 
Rule Change, and Notice of Filing and Order Granting Accelerated 
Approval of Amendment Nos. 1 and 2 Thereto, Adopting New Equity 
Trading Rules Relating to Orders and Modifiers and the Retail 
Liquidity Program To Reflect the Implementation of Pillar, the 
Exchange's New Trading Technology Platform) (including the Non-
Display Remove Modifier).
    \21\ See Arca Rule 7.31(d)(2)(b).
    \22\ Arca provides their Non-Display Remove Modifier to their 
Mid-Point Liquidity Orders (``MPL Orders'') designated Day and MPL-
ALO Orders and Arca Only Orders. Nasdaq's Trade Now functionality is 
available to Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, Post-Only Orders, Midpoint Peg Post-Only Orders, 
and Market Maker Peg Orders. To the extent the NDS instruction is 
only available to Limit Orders with a Non-Displayed instruction and 
MidPoint Peg Orders, the Exchange notes that the NDS instruction 
will apply to different order types than Arca's Non-Display Remove 
Modifier and Nasdaq's Trade Now functionality.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \23\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \24\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest by offering Users optional 
functionality that will facilitate the execution of orders that would 
otherwise remain unexecuted, thereby increasing the efficient 
functioning of the Exchange. The NDS instruction is an optional feature 
that is intended to reflect the order management practices of various 
market participants. The proposed NDS instruction assists in the 
avoidance of an internally locked EDGX Book by facilitating the 
execution of orders that would otherwise post, or remain posted, to the 
EDGX Book.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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, as amended. On 
the contrary, the Exchange believes the proposed rule change promotes 
competition because it will enable the Exchange to offer functionality 
substantially similar to that offered by Nasdaq and Arca.\25\ 
Therefore, the Exchange does not believe the proposed rule change will 
result in any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. As the NDS 
feature will be equally available to all Users, the Exchange does not 
believe the proposed rule change will result in any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \25\ See supra note 5.
---------------------------------------------------------------------------

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

    No comments were solicited or received 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: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6) thereunder.\27\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BatsEDGX-2017-25 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-BatsEDGX-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 such 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-

[[Page 26562]]

BatsEDGX-2017-25, and should be submitted on or before June 28, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11751 Filed 6-6-17; 8:45 am]
BILLING CODE 8011-01-P


