
[Federal Register Volume 82, Number 165 (Monday, August 28, 2017)]
[Notices]
[Pages 40823-40825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81454; File No. SR-BatsEDGA-2017-21]


Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 11.8, Order Types, To Permit Midpoint Discretionary Orders 
To Be Non-Displayed

August 22, 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 August 11, 2017, Bats EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission 
(``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 proposed rule change to permit MidPoint 
Discretionary Orders (``MDO'') to be Non-Displayed \5\ by amending 
paragraph (e) of Exchange Rule 11.8, Order Types.
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    \5\ See Exchange Rule 11.6(e)(2).
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    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
    An MDO is a limit order to buy that is displayed at and pegged to 
the National Best Bid (``NBB''), with discretion to execute at prices 
up to and including the midpoint of the National Best Bid and Offer 
(``NBBO''), or a limit order to sell that is displayed at and pegged to 
the National Best Offer (``NBO''), with discretion to execute at prices 
down to and including the midpoint of the NBBO.\6\ MDOs are designed to 
exercise discretion to execute to the midpoint of the NBBO and provide 
price improvement over the NBBO.
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    \6\ See Exchange Rule 11.8(e) for a complete description of the 
operation of MDOs.
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    Currently, an MDO is displayed on the EDGA Book \7\ at the NBB or 
NBO to which it is pegged. The Exchange now proposes to permit Users 
\8\ to elect that their MDO be Non-Displayed on the EDGA Book by 
amending paragraph (e) of Exchange Rule 11.8, Order Types. Therefore, 
the Exchange proposes to add new paragraph (4) to the description of 
MDOs under Rule 11.8(e) stating that an MDO will default to a Displayed 
\9\ instruction unless the User includes a Non-Displayed instruction on 
the order and will be Displayed or Non-Displayed on the EDGA Book at 
its pegged or limit price in accordance with paragraph (e) of Rule 
11.8.\10\ The price to which an MDO is pegged to, whether Displayed or 
Non-Displayed, will continue to operate in the same manner as it does 
today in all other respects. Proposed paragraph (4) of Rule 11.8(e) 
would also specify that a User may elect that its MDO that is displayed 
on the EDGA Book include the User's market participant identifier 
(``MPID'') by selecting the Attributable instruction.\11\ Otherwise, an 
MDO with a Displayed instruction will automatically default to a Non-
Attributable \12\ instruction. This is consistent with the current 
operation of orders that are to be displayed on the EDGA Book.\13\
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    \7\ See Exchange Rule 1.5(d).
    \8\ See Exchange Rule 1.5(ee).
    \9\ See Exchange Rule 11.6(e)(1).
    \10\ The Exchange proposes to renumber existing paragraph (4) as 
(5) and to increase the numbering of each following paragraph under 
Rule 11.8(e) accordingly.
    \11\ See Exchange Rule 11.6(a).
    \12\ See Exchange Rule 11.6(a)(1).
    \13\ See e.g, Exchange Rule 11.8(b)(4).

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[[Page 40824]]

    The Exchange also proposes to make certain revisions to paragraph 
(e) of Rule 11.8 to account for enabling Users to elect that an MDO to 
be Non-Displayed. These revisions include deleting references to 
``displayed'' prices and replacing certain references to ``displayed'' 
with ``pegged''. As stated above and as currently set forth in Rule 
11.8(e), the price at which an MDO is displayed on the EDGA Book is 
either the NBB or NBO to which it is pegged. An MDO that is to be Non-
Displayed will operate in the same manner but its pegged price will 
simply not be displayed on the EDGA Book. Therefore, deleting 
references to ``displayed'' prices and replacing certain references to 
``displayed'' with ``pegged'' would not affect the operation of an MDO 
other than to account for when an MDO is Non-Displayed. First, the 
Exchange proposes to amend the first sentence of paragraph (e) of Rule 
11.8 to delete references to ``displayed''. As a result, an MDO would 
be defined as ``a limit order to buy that is pegged to the NBB, with 
discretion to execute at prices up to and including the midpoint of the 
NBBO, or a limit order to sell that is pegged to the NBO, with 
discretion to execute at prices down to and including the midpoint of 
the NBBO.'' References to ``displayed'' throughout the remainder of 
paragraph (e) of Rule 11.8 would be replaced by ``pegged''. Therefore, 
the rule would state that an MDO's pegged price, like its displayed 
price today, and Discretionary Range \14\ are bound by its limit 
price.\15\ The pegged prices of an MDO, like its displayed price today, 
will continue to be derived from the NBB or NBO, and will continue to 
be unable to independently establish or maintain the NBB or NBO.
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    \14\ See Exchange Rule 11.6(d). The Exchange also proposes to 
capitalize all references to the defined term ``Discretionary 
Range'' within Rule 11.8(e).
    \15\ An MDO to buy or sell with a limit price that is less than 
the prevailing NBB or higher than the prevailing NBO, respectively, 
will continue to be posted to the EDGA Book at its limit price. See 
Exchange Rule 11.8(e).
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    The Exchange also proposes to amend renumbered paragraph (7) to 
make two non-substantive, clarifying changes and to replace the term 
``displayed'' with ``pegged''. The current language states that an MDO 
with a limit price and time-in-force of Day that rests on the EDGA Book 
will be repriced. The Exchange proposes to delete the phrase ``with a 
limit price and a time-in-force of Day'' as all MDOs must include a 
limit price and may include time-in-force instructions other than Day 
that would cause them to rest on the EDGA Book, such as RHO, GTX, and 
GTD. Paragraph (7) also states that the pegged price of an MDO that is 
resting on the EDGA Book will be adjusted in response to changes in the 
midpoint of the NBBO. While this language is technically correct and 
the midpoint of the NBBO will change in the case where either the NBB 
or NBO changes, the Exchange proposes to amend paragraph (7) to clarify 
that the pegged price will be adjusted in response to changes in the 
NBB or NBO as those are the prices that the pegged price tracks. 
Lastly, the amended rule would state that any unexecuted portion of an 
MDO that is resting on the EDGA Book will receive a new time stamp each 
time its pegged price, rather than displayed price, is automatically 
adjusted in response to changes in the NBBO.
    Today, for purposes of MDO priority, the displayed price of an MDO 
is treated like a Limit Order that is displayed on the EDGA Book.\16\ 
Limit Orders with a Non-Displayed instruction have priority behind 
Limit Orders with a Displayed instruction resting on the EDGA Book.\17\ 
In order to continue to treat MDO priority consistent with that of 
Limit Orders, and not like other orders with a Pegged instruction, the 
Exchange proposes that an MDO with a Non-Displayed instruction will 
have the same priority as Limit Orders with a Non-Displayed instruction 
when executed at their pegged price. As a result, the Exchange proposes 
to amend paragraph (a)(2)(C)(i) of Rule 11.9 to specify that, for 
purposes of order priority, the pegged price of an MDO, like its 
displayed price today, will be treated as a Limit Order, as defined in 
Exchange Rule 11.8(b). This change is designed to account for the 
pegged price of an MDO being Displayed or Non-Displayed and the 
proposed priority of an MDO with a Non-Displayed instruction. MDOs 
executed in their Discretionary Range will maintain the same priority 
as they do today regardless of whether their pegged price is displayed 
on the EDGA Book.\18\
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    \16\ See Exchange Rule 11.9(a)(2)(C)(i).
    \17\ See Exchange Rule 11.9(a)(2)(A)(ii).
    \18\ See Exchange Rule 11.9(a)(2)(A)(iv).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\ 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. The proposed rule change 
promotes just and equitable principles of trade because it would 
provide Users who utilize MDOs with additional flexibility by enabling 
such Users to elect that the pegged price of the MDO not be displayed 
on the EDGA Book. All other aspects of an MDO will remain unchanged. 
Allowing for the non-display of MDOs on the EDGA Book would minimize 
the market impact of larger orders. The proposed rule change may also 
incentivize Users to enter MDOs with large sizes thereby increasing 
liquidity at the NBBO as well as the midpoint of the NBBO, resulting in 
increased price improvement opportunities for contra-side orders. The 
Exchange notes that electing that an MDO be Non-Displayed would be 
voluntary, and that such orders will default to Displayed unless the 
User elects Non-Displayed.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    Furthermore, the Exchange notes that NYSE Arca, Inc. (``NYSE 
Arca'') and the Investors Exchange LLC (``IEX'') both currently offer 
order types that peg to the NBBO with discretion to execute to the 
midpoint of the NBBO and allow for the order's pegged price to not be 
displayed on their respective order books.\21\
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    \21\ See NYSE Arca Rule 7.31(h)(3) (defining the Discretionary 
Pegged Order). See also Securities Exchange Act Release No. 78181 
(June 28, 2016), 81 FR 43297 (July 1, 2016) (order approving the 
Discretionary Pegged Order). See IEX Rule 11.190(a)(3) (defining 
Pegged Orders as a non-displayed order which may be pegged to the 
inside quote on the same side of the market with discretion to the 
midpoint of the NBBO, i.e., Discretionary Peg orders). See also 
Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR 
41141 (June 23, 2016) (order approving the IEX exchange application, 
which included IEX's Pegged Orders and Discretionary Peg Order).
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    Lastly, the Exchange believes the non-substantive clarifying 
changes to Exchange Rule 11.8(e) remove impediments to and perfect the 
mechanism of a free and open market and a national market system as 
they seek to remove or correct in order to ensure the rule accurately 
reflects the operation of MDOs and avoid potential investor confusion.
    Therefore, the Exchange believes the proposal removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system, and, in general, protects investors and the public 
interest.

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

    The Exchange does not believe that the proposed rule change will 
result in

[[Page 40825]]

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 similar to 
that offered by NYSE Arca and IEX.\22\ 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.
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    \22\ Id.
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(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: (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 \23\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\24\ 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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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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-BatsEDGA-2017-21 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-BatsEDGA-2017-21. 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-BatsEDGA-2017-21 and should 
be submitted on or before September 18, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18126 Filed 8-25-17; 8:45 am]
 BILLING CODE 8011-01-P


