[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Notices]
[Pages 20040-20046]
[FR Doc No: 2016-07830]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77483; File No. SR-NSX-2016-01]

Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Adopt Exchange Rule 11.26 To Implement the Regulation NMS Plan To
Implement a Tick Size Pilot Program

March 31, 2016.
    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 March 29, 2016, National Stock Exchange, Inc. (``NSX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change, as described in
Items I and II below, which Items have been substantially 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) \4\ thereunder, 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.

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

    The Exchange filed a proposal to adopt Exchange Rule 11.26 to
implement the Regulation NMS Plan to Implement a Tick Size Pilot
Program (the ``Plan''). Specifically, the Exchange has proposed Rule
11.26(b) to set forth the requirements for the collection and
transmission of data pursuant to Appendices B and C of the Plan. The
proposed rule change is substantially similar to proposed rule changes
recently approved or published by the Commission for the Bats BZX
Exchange, Inc. f/k/a BATS Exchange, Inc. (``BZX'') to adopt BZX Rule
11.27(b) which also sets forth requirements for the collection and
transmission of data pursuant to Appendices B and C of the Plan.\5\ The
Exchange has designated this proposal as ``non-controversial'' and
provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) under the Act.\6\
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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).
    \5\ See Securities Exchange Act Release Nos. 77105 (February 10,
2016), 81 FR 8112 (February 17, 2016) (order approving SR-BATS-2015-
102); and 77310 (March 7, 2016) (notice for comment and immediate
effectivesness of SR-BATS-2016-27).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's
Web site at www.nsx.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
    On August 25, 2014, NYSE Group, Inc., on behalf of BZX, Chicago
Stock Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange,
Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), NASDAQ
OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, New
York Stock Exchange LLC (``NYSE''), NYSE MKT LLC, and NYSE Arca, Inc.
(collectively ``Participants''), filed with the Commission, pursuant to
Section 11A of the Act \7\ and Rule 608 of Regulation NMS
thereunder,\8\ the Plan to Implement a Tick Size Pilot Program
(``Pilot'').\9\ The Participants filed the Plan to comply with an order
issued by the Commission on June 24, 2014.\10\ The Plan \11\ was
published for comment in the Federal Register on November 7, 2014 and
was thereafter approved by the Commission, as modified, on May 6,
2015.\12\ On November 6, 2015, the Commission granted the Participants
an exemption from implementing the Plan until October 3, 2016.\13\ On
March 3, 2016, the Commission noticed an amendment to the Plan adding
NSX as a Participant.\14\
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    \7\ 15 U.S.C. 78k-1.
    \8\ 17 CFR 242.608.
    \9\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
    \10\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
    \11\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
    \12\ See Securities Exchange Act Release No. 74892 (May 6,
2015), 80 FR 27513 (May 13, 2015) (File No. 4-657) (``Approval
Order'').
    \13\ See Securities Exchange Act Release No. 76382 (November 6,
2015), 80 FR 70284 (November 13, 2015) (File No. 4-657) (Order
Granting Exemption From Compliance With the National Market System
Plan To Implement a Tick Size Pilot Program).
    \14\ See Securities Exchange Act Release No. 77277 (March 3,
2016), 81 FR 12162 (March 8, 2016).
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    The Plan is designed to allow the Commission, market participants,
and the public to study and assess the impact of increment conventions
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Participant is required to comply, and
to enforce compliance by its member organizations, as applicable, with
the provisions of the Plan. As is described more fully below, the
proposed rules would require ETP Holders \15\ to comply with the
applicable data collection requirements of the Plan.\16\
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    \15\ An ``ETP Holder'' is a registrant of NSX to which NSX has
issued an ETP. An ``ETP'' is defined as the term ``ETP'' is defined,
in relevant part, as ``. . . an Equity Trading Permit issued by the
Exchange for effecting approved securities transactions on the
Exchange's trading facilities . . . .'' See Exchange Rule 1.5.E(1).
    \16\ The Exchange proposes Interpretations and Policies .11 to
Rule 11.26 to provide that the Rule shall be in effect during a
pilot period to coincide with the pilot period for the Plan
(including any extensions to the pilot period for the Plan).

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    The Pilot will include stocks of companies with $3 billion or less
in market capitalization, an average daily trading volume of one
million shares or less, and a volume weighted average price of at least
$2.00 for every trading day. The Pilot will consist of a control group
of approximately 1,400 Pilot Securities and three test groups with 400
Pilot Securities in each (selected by a stratified random sampling
process).\17\ During the pilot, Pilot Securities in the control group
will be quoted at the current tick size increment of $0.01 per share
and will trade at the currently permitted increments. Pilot Securities
in the first test group (``Test Group One'') will be quoted in $0.05
minimum increments but will continue to trade at any price increment
that is currently permitted.\18\ Pilot Securities in the second test
group (``Test Group Two'') will be quoted in $0.05 minimum increments
and will trade at $0.05 minimum increments subject to a midpoint
exception, a retail investor order exception, and a negotiated trade
exception.\19\ Pilot Securities in the third test group (``Test Group
Three'') will be subject to the same quoting and trading increments as
Test Group Two and also will be subject to the ``Trade-at'' requirement
to prevent price matching by a market participant that is not
displaying at a Trading Center's ``Best Protected Bid'' or ``Best
Protected Offer,'' unless an enumerated exception applies.\20\ In
addition to the exceptions provided under Test Group Two, an exception
for Block Size orders and exceptions that mirror those under Rule 611
of Regulation NMS \21\ will apply to the Trade-at requirement.
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    \17\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
    \18\ See Section VI(B) of the Plan.
    \19\ See Section VI(C) of the Plan.
    \20\ See Section VI(D) of the Plan.
    \21\ 17 CFR 242.611.
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    In approving the Plan, the Commission noted that the Trading Center
data reporting requirements would facilitate an analysis of the effects
of the Pilot on liquidity (e.g., transaction costs by order size),
execution quality (e.g., speed of order executions), market maker
activity, competition between trading venues (e.g., routing frequency
of market orders), transparency (e.g., choice between displayed and
hidden orders), and market dynamics (e.g., rates and speed of order
cancellations).\22\ The Commission noted that Market Maker
profitability data would assist the Commission in evaluating the
effect, if any, of a widened tick increment on market marker profits
and any corresponding changes in the liquidity of small-capitalization
securities.\23\
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    \22\ See Approval Order, 80 FR at 27543.
    \23\ Id.
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Compliance With the Data Collection Requirements of the Plan
    The Plan contains requirements for collecting and transmitting data
to the Commission and to the public.\24\ Specifically, Appendix B.I of
the Plan (Market Quality Statistics) requires Trading Centers \25\ to
submit variety of market quality statistics, including information
about an order's original size, whether the order was displayable or
not, the cumulative number of orders, the cumulative number of shares
of orders, and the cumulative number of shares executed within specific
time increments, e.g., from 30 seconds to less than 60 seconds after
the time of order receipt. This information shall be categorized by
security, order type, original order size, hidden status, and coverage
under Rule 605.\26\ Appendix B.I of the Plan also contains additional
requirements for market orders and marketable limit orders, including
the share-weighted average effective spread for executions of orders;
the cumulative number of shares of orders executed with price
improvement; and, for shares executed with price improvement, the
share-weighted average amount per share that prices were improved.
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    \24\ The Exchange is also required by the Plan to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with applicable quoting and trading
requirements specified in the Plan. The Exchange intends to
separately propose rules that would require compliance by its ETP
Holders with the applicable quoting and trading requirements
specified in the Plan, and has reserved Paragraph (a) for such
rules.
    \25\ The Plan incorporates the definition of a ``Trading
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS
defines a ``Trading Center'' as ``a national securities exchange or
national securities association that operates an SRO trading
facility, an alternative trading system, an exchange market maker,
an OTC market maker, or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as
agent.'' See 17 CFR 242.600(b).
    \26\ 17 CFR 242.605.
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    Appendix B.II of the Plan (Market and Marketable Limit Order Data)
requires Trading Centers to submit information relating to market
orders and marketable limit orders, including the time of order
receipt, order type, the order size, the National Best Bid and National
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average
execution price-share-weighted average, and the average execution time-
share-weighted average.
    The Plan requires Appendix B.I and B.II data to be submitted by
Participants that operate a Trading Center, and by members of the
Participants that operate Trading Centers. The Plan provides that each
Participant that is the Designated Examining Authority (``DEA'') for a
member of the Participant that operates a Trading Center shall collect
such data in a pipe delimited format, beginning six months prior to the
Pilot Period and ending six months after the end of the Pilot Period.
The Plan also requires the Participant, operating as DEA, to transmit
this information to the SEC within 30 calendar days following month
end.
    The Exchange is therefore proposing Rule 11.26(b) to set forth the
requirements for the collection and transmission of data pursuant to
Appendices B and C of the Plan. Proposed Rule 11.26(b) is substantially
similar to proposed rule changes by BZX that were recently approved or
published by the Commission to adopt BZX Rule 11.27(b) which also sets
forth requirements for the collection and transmission of data pursuant
to Appendices B and C of the Plan.\27\
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    \27\ See supra, note 5.
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    Proposed Rule 11.26(b)(1) requires that an ETP Holder that operates
a Trading Center shall establish, maintain and enforce written policies
and procedures that are reasonably designed to comply with the data
collection and transmission requirements of Items I and II to Appendix
B of the Plan, and an ETP Holder that is a Market Maker \28\ shall
establish, maintain and enforce written policies and procedures that
are reasonably designed to comply with the data collection and
transmission requirements of Item IV of Appendix B of the Plan and Item
I of Appendix C of the Plan.
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    \28\ The Plan defines a Market Maker as ``a dealer registered
with any self-regulatory organization, in accordance with the rules
thereof, as (i) a market maker or (ii) a liquidity provider with an
obligation to maintain continuous, two-sided trading interest.''
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    Proposed Rule 11.26(b)(2) provides that the Exchange shall collect
and transmit to the SEC the data described in Items I and II of
Appendix B of the Plan relating to trading activity in Pre-Pilot
Securities and Pilot Securities on a Trading Center operated by the
Exchange. The Exchange shall transmit such data to the SEC in a pipe
delimited format, on a disaggregated basis by Trading Center, within 30
calendar days following month end for: (i) Each Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) each Pilot Security for the

period beginning on the first day of the Pilot Period through six
months after the end of the Pilot Period. The Exchange also shall make
such data publicly available on the Exchange Web site on a monthly
basis at no charge and will not identify the ETP Holder that generated
the data.
    Appendix B.IV (Daily Market Maker Participation Statistics)
requires a Participant to collect data related to Market Maker
participation from each Market Maker engaging in trading activity on a
Trading Center operated by the Participant. The Exchange is therefore
proposing Rule 11.26(b)(3) to gather data about a Market Maker's
participation in Pilot Securities and Pre-Pilot Data Collection
Securities. Proposed Rule 11.26(b)(3)(A) provides that an ETP Holder
that is a Market Maker shall collect and transmit to its DEA data
relating to Item IV of Appendix B of the Plan with respect to activity
conducted on any Trading Center in Pilot Securities and Pre-Pilot Data
Collection Securities in furtherance of its status as a registered
Market Maker, including a Trading Center that executes trades otherwise
than on a national securities exchange, for transactions that have
settled or reached settlement date. The proposed rule requires Market
Makers to transmit such data in a format required by their DEA, by
12:00 p.m. EST on T + 4 for: (i) Transactions in each Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) for transactions in each Pilot Security for the period
beginning on the first day of the Pilot Period through six months after
the end of the Pilot Period.
    The Exchange understands that some ETP Holders may have a DEA that
is not a Participant to the Plan and that such non-Participant DEA
would not be subject to the Plan's data collection requirements. In
such case, a DEA that is not a Participant of the Plan would not be
required to collect the required data and may not establish procedures
for those ETP Holders for which it acts as DEA to report the data
required under subparagraphs (b)(3)(A) of Rule 11.26 and in accordance
with Item IV of Appendix B of the Plan. Therefore, the Exchange
proposes to adopt subparagraph (b)(3)(B) to Rule 11.26 to require an
ETP Holder that is a Market Maker whose DEA is not a Participant to the
Plan to transmit the data collected pursuant to paragraph (3)(A) of
Rule 11.26(b) to FINRA, which is a Participant to the Plan and will
collect data relating to Item IV of Appendix B of the Plan on behalf of
the Participants. For Market Makers for which it is the DEA, FINRA
issued a Market Maker Transaction Data Technical Specification to
collect data on Pre-Pilot Data Collection Securities and Pilot
Securities from Trading Centers to comply with the Plan's data
collection requirements.\29\
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    \29\ FINRA members for which FINRA is their DEA should refer to
the Market Maker Transaction Data Technical Specification on the
FINRA Web site at http://www.finra.org/sites/default/files/market-maker-transaction-data-tech-specs.pdf.
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    Proposed Rule 11.26(b)(3)(C) provides that the Exchange shall
transmit the data collected by the DEA or FINRA pursuant to Rule
11.26(b)(3)(A) and (B) above relating to Market Maker activity on a
Trading Center operated by the Exchange to the SEC in a pipe delimited
format within 30 calendar days following month end. The Exchange shall
also make such data publicly available on the Exchange Web site on a
monthly basis at no charge and shall not identify the Trading Center
that generated the data.
    Appendix C.I (Market Maker Profitability) requires a Participant to
collect data related to Market Maker profitability from each Market
Maker for which it is the DEA. Specifically, the Participant is
required to collect the total number of shares of orders executed by
the Market Maker; the raw Market Maker realized trading profits, and
the raw Market Maker unrealized trading profits. Data shall be
collected for dates starting six months prior to the Pilot Period
through six months after the end of the Pilot Period. This data shall
be collected on a monthly basis, to be provided in a pipe delimited
format to the Participant, as DEA, within 30 calendar days following
month end. Appendix C.II (Aggregated Market Maker Profitability)
requires the Participant, as DEA, to aggregate the Appendix C.I data,
and to categorize this data by security as well as by the control group
and each Test Group. That aggregated data shall contain information
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
    The Exchange is therefore proposing Rule 11.26(b)(4) to set forth
the requirements for the collection and transmission of data pursuant
to Appendix C.I of the Plan. Proposed Rule 11.26(b)(4)(A) requires that
an ETP Holder that is a Market Maker shall collect and transmit to its
DEA the data described in Item I of Appendix C of the Plan with respect
to executions in Pilot Securities that have settled or reached
settlement date that were executed on any Trading Center. The proposed
rule also requires ETP Holders to provide such data in a format
required by its their DEA by 12 p.m. EST on T + 4 for executions during
and outside of Regular Trading Hours in each: (i) Pre-Pilot Data
Collection Security for the period beginning six months prior to the
Pilot Period through the trading day immediately preceding the Pilot
Period; and (ii) Pilot Security for the period beginning on the first
day of the Pilot Period through six months after the end of the Pilot
Period.
    For the same reasons set forth above for subparagraph (b)(3)(B) to
Rule 11.26, the Exchange proposes to adopt subparagraph (b)(4)(B) to
Rule 11.26 to require an ETP Holder that is a Market Maker whose DEA is
not a Participant to the Plan to transmit the data collected pursuant
to paragraph (4)(A) of Rule 11.26(b) to FINRA. As stated above, FINRA
is a Participant to the Plan and is to collect data relating to Item I
of Appendix C of the Plan on behalf of the Participants. For Market
Makers for which it is the DEA, FINRA issued a Market Maker Transaction
Data Technical Specification to collect data on Pre-Pilot Data
Collection Securities and Pilot Securities from Trading Centers to
comply with the Plan's data collection requirements.\30\
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    \30\ Id.
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    The Exchange is also adopting a rule describing the manner in which
Market Maker participation will be calculated. Item III of Appendix B
of the Plan requires each Participant that is a national securities
exchange to collect daily Market Maker registration statistics
categorized by security, including the following information: (i)
Ticker symbol; (ii) the Participant exchange; (iii) number of
registered market makers; and (iv) the number of other registered
liquidity providers. Therefore, the Exchange proposes to adopt Rule
11.26(b)(5) providing that the Exchange shall collect and transmit to
the SEC the data described in Item III of Appendix B of the Plan
relating to daily Market Maker registration statistics in a pipe
delimited format within 30 calendar days following month end for: (i)
Transactions in each Pre-Pilot Data Collection Security for the period
beginning six months prior to the Pilot Period through the trading day
immediately preceding the Pilot Period; and (ii) transactions in each
Pilot Security for the period beginning on the first day of the Pilot
Period through six months after the end of the Pilot Period. The
Exchange notes that, as of the date

of this filing, it does not have any registered Market Makers and
therefore will not have daily Market Maker registration statistics to
collect or transmit to the SEC or to FINRA pursuant to Item III of
Appendix B the Plan as of the effective date of the data collection
requirements, April 4, 2016.
    The Exchange is also proposing, through Interpretations and
Policies, to clarify other aspects of the data collection
requirements.\31\ Proposed Interpretations and Policies .02 relates to
the use of the retail investor order flag for purposes of Appendix
B.II(n) reporting. The Plan currently states that market and marketable
limit orders shall include a ``yes/no'' field relating to the Retail
Investor Order flag. The Exchange is proposing Interpretations and
Policies .02 to clarify that, for purposes of the reporting requirement
in Appendix B.II(n), a Trading Center shall report ``y'' to their DEA
where it is relying upon the Retail Investor Order exception to Test
Groups Two and Three, and ``n'' for all other instances.\32\ The
Exchange believes that requiring the identification of a Retail
Investor Orders only where the exception may apply (i.e., Pilot
Securities in Test Groups Two and Three) is consistent with Appendix
B.II(n).
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    \31\ The Exchange is also proposing Interpretations and Policies
.01 to Rule 11.26 to clarify that certain enumerated terms used
throughout Rule 11.26 shall have the same meaning as set forth in
the Plan.
    \32\ FINRA, on behalf of the Plan Participants at the time
submitted a letter to Commission requesting exemption from certain
provisions of the Plan related to data collection. See letter from
Marcia E. Asquith, Senior Vice President and Corporate Secretary,
FINRA dated December 9, 2015 to Robert W. Errett, Deputy Secretary,
Commission (``Exemption Request''). The Commission, pursuant to its
authority under Rule 608(e) of Regulation NMS, granted BZX, as of
February 10, 2016, a limited exemption from the requirement to
comply with certain provisions of the Plan as specified in the
letter and noted herein. See e.g., letter from David Shillman,
Associate Director, Division of Trading and Markets, Commission to
Eric Swanson, General Counsel, BZX, dated February 10, 2016
(``Exemption Letter''). NSX was not a Plan Participant at the time
that such exemptions were requested or granted and respectfully
requests that the Commission grant to it the same exemptions that
the Commission granted to the other Plan Participants.
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    Interpretations and Policies .03 requires that ETP Holders populate
a field to identify to their DEA whether an order is affected by the
bands in place pursuant to the National Market System Plan to Address
Extraordinary Market Volatility.\33\ Pursuant to the Limit-Up Limit-
Down Plan, between 9:30 a.m. and 4:00 p.m., the Securities Information
Processor (``SIP'') calculates a lower price band and an upper price
band for each NMS stock. These price bands represent a specified
percentage above or below the stock's reference price, which generally
is calculated based on reported transactions in that stock over the
preceding five minutes. When one side of the market for an individual
security is outside the applicable price band, the SIP identifies that
quotation as non-executable. When the other side of the market reaches
the applicable price band (e.g., the offer reaches the lower price
band), the security enters a Limit State. The stock would exit a Limit
State if, within 15 seconds of entering the Limit State, all Limit
State Quotations were executed or canceled in their entirety. If the
security does not exit a Limit State within 15 seconds, then the
primary listing exchange declares a five-minute trading pause, which
would be applicable to all markets trading the security.
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    \33\ See National Market System Plan to Address Extraordinary
Market Volatility, Securities Exchange Act Release No. 67091 (May
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up
Limit-Down Plan'').
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    The Exchange and the other Participants have determined that it is
appropriate to create a new flag for reporting orders that are affected
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall
report a value of ``Y'' to their DEA when the ability of an order to
execute has been affected by the Limit-Up Limit-Down bands in effect at
the time of order receipt. A Trading Center shall report a value of
``N'' to their DEA when the ability of an order to execute has not been
affected by the Limit-Up Limit-Down bands in effect at the time of
order receipt.
    Interpretations and Policies .03 also requires, for securities that
may trade in a foreign market, that the Participant indicate whether
the order was handled domestically, or routed to a foreign venue.
Accordingly, the Participant will indicate, for purposes of Appendix
B.I, whether the order was: (1) Fully executed domestically, or (2)
fully or partially executed on a foreign market. For purposes of
Appendix B.II, the Participant will classify all orders in securities
that may trade in a foreign market Pilot and Pre-Pilot Securities as:
(1) Directed to a domestic venue for execution; (2) may only be
directed to a foreign venue for execution; or (3) was fully or
partially directed to a foreign venue at the discretion of the member.
The Exchange believes that this proposed flag will better identify
orders in securities that may trade in a foreign market, as such orders
that were routed to foreign venues would not be subject to the Plan's
quoting and trading requirements, and could otherwise compromise the
integrity of the data.
    Interpretations and Policies .04 relates to the time ranges
specified in Appendix B.I.a(14), B.I.a(15), B.I.a(21) and
B.I.a(22).\34\ The Exchange and the other Participants have determined
that it is appropriate to change the reporting times in these
provisions to require more granular reporting for these categories.
Accordingly, the Exchange proposes to add Appendix B.I.a(14A), which
will require Trading Centers to report the cumulative number of shares
of orders executed from 100 microseconds to less than 1 millisecond
after the time of order receipt. Appendix B.I.a(15) will be changed to
require the cumulative number of shares of orders executed from 1
millisecond to less than 100 milliseconds after the time of order
receipt. The Exchange also proposes to add Appendix B.I.a(21A), which
will require Trading Centers to report the cumulative number of shares
of orders canceled from 100 microseconds to less than 1 millisecond
after the time of order receipt. Appendix B.I.a(22) will be changed to
require the cumulative number of shares of orders canceled from 1
millisecond to less than 100 milliseconds after the time of order
receipt. The Exchange believes that these new reporting requirements
will contribute to a meaningful analysis of the Pilot by producing more
granular data on these points.\35\
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    \34\ Specifically, Appendix B.I.a(14) requires reporting of the
cumulative number of shares of orders executed from 0 to less than
100 microseconds after the time of order receipt; Appendix B.I.a(15)
requires reporting of the cumulative number of shares of orders
executed from 100 microseconds to less than 100 milliseconds after
the time of order receipt; Appendix B.I.a(21) requires reporting of
the cumulative number of shares of orders cancelled from 0 to less
than 100 microseconds after the time of order receipt; and Appendix
B.I.a(22) requires reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less than 100 milliseconds
after the time of order receipt.
    \35\ On February 10, 2016, the Commission granted BZX an
exemption from Rule 608(c) related to this provision. See Exemption
Letter, supra, note 32. NSX requests that the Commission grant to it
this same exemption.
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    Interpretations and Policies .05 relates to the relevant
measurement for purposes of Appendix B.I.a(31)-(33) reporting.
Currently, the Plan states that this data shall be reported as of the
time of order execution. The Exchange and the other Participants
believe that this information should more properly be captured at the
time of order receipt as evaluating share-weighted average prices at
the time of order receipt is more consistent with the goal of observing
the effect of the Pilot on the liquidity of Pilot Securities. The
Exchange is therefore proposing to make this change through
Interpretations and

Policies .05.\36\ This change will make these provisions consistent
with the remainder of the statistics in Appendix B.I.a, which are all
based on order receipt.
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    \36\ On February 10, 2016, the Commission granted BZX an
exemption from Rule 608(c) related to this provision. See Exemption
Letter, supra, note 32. NSX requests that the Commission grant to it
this same exemption.
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    Interpretations and Policies .06 addresses the status of not-held
and auction orders for purposes of Appendix B.I reporting. Currently,
Appendix B.I sets forth eight categories of orders, including market
orders, marketable limit orders, and inside-the-quote resting limit
orders, for which daily market quality statistics must be reported.
Currently, Appendix B.I does not provide a category for not held
orders, clean cross orders, auction orders, or orders received when the
NBBO is crossed. The Exchange and the other Participants have
determined that it is appropriate to include separate categories for
these orders types for purposes of Appendix B reporting. The Exchange
is therefore proposing Interpretations and Policies .06 to provide that
not held orders shall be included as an order type for purposes of
Appendix B reporting, and shall be assigned the number (18). Clean
cross orders shall be included as an order type for purposes of
Appendix B reporting, and shall be assigned the number (19); auction
orders shall be included an as order type for purposes of Appendix B
reporting, and shall be assigned the number (20); \37\ and orders that
cannot otherwise be classified, including, for example, orders received
when the NBBO is crossed shall be included as an order type for
purposes of Appendix B reporting, and shall be assigned the number
(21). All of these orders already are included in the scope of Appendix
B; however, without this proposed change, these order types would be
categorized with other orders, such as regular held orders, that should
be able to be fully executed upon receipt, which would compromise the
value of this data.
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    \37\ The Exchange notes that, as of the date of this rule
filing, it does not offer order types specifically defined as ``not
held,'' ``clean cross,'' or ``auction order.''
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    The Exchange is proposing Interpretations and Policies .07 to
clarify the scope of the Plan as it relates to ETP Holders that only
execute orders limited purposes. Specifically, the Exchange and the
other Participants believe that an ETP Holder that only executes orders
otherwise than on a national securities exchange for the purpose of:
(1) Correcting a bona fide error related to the execution of a customer
order; (2) purchasing a security from a customer at a nominal price
solely for purposes of liquidating the customer's position; or (3)
completing the fractional share portion of an order \38\ shall not be
deemed a Trading Center for purposes of Appendix B to the Plan. The
Exchange is therefore proposing Interpretations and Policies .09 [sic]
to make this clarification.
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    \38\ The Exchange notes that where an ETP Holder purchases a
fractional share from a customer, the Trading Center that executes
the remaining whole shares of that customer order would subject to
subject to Appendix B of the Plan.
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    The Exchange is proposing Interpretations and Policies .08 to
clarify that, for purposes of the Plan, Trading Centers must begin the
data collection required pursuant to Appendix B.I.a(1) through B.II.(y)
of the Plan and Item I of Appendix C of the Plan on April 4, 2016.
While the Exchange or the ETP Holder's DEA will provide the information
required by Appendix B and C of the Plan during the Pilot Period, the
requirement that the Exchange or their DEA provide information to the
SEC within 30 days following month end and make such data publicly
available on its Web site pursuant to Appendix B and C shall commence
six months prior to the beginning of the Pilot Period.\39\
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    \39\ In the Approval Order, the SEC noted that the Pilot shall
be implemented within one year of the date of publication, i.e., by
May 6, 2016. See Approval Order, 80 FR at 27545. The SEC
subsequently extended the implementation date approximately five
months to October 3, 2016. See supra, note 13. See also Letter dated
November 4, 2015 from Brendon J. Weiss, Co-Head, Government Affairs,
Intercontinental Exchange/NYSE, to Brent J. Fields, Secretary,
Commission (requesting the data collection period be extended until
six months after the requisite SRO rules are approved, and the
implementation data of the Tick Size Pilot until six months
thereafter).
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    The Exchange is proposing Interpretations and Policies .09 to
address the requirement in Appendix C.I(b) of the Plan that the
calculation of raw Market Maker realized trading profits utilize a last
in, first out (``LIFO'')-like method to determine which share prices
shall be used in that calculation. The Exchange and the other
Participants believe that it is more appropriate to utilize a
methodology that yields LIFO-like results, rather than utilizing a
LIFO-like method, and the Exchange is therefore proposing
Interpretations and Policies .09 to make this change.\40\ The Exchange
is proposing that, for purposes of Item I of Appendix C, the
Participants shall calculate daily Market Maker realized profitability
statistics for each trading day on a daily LIFO basis using reported
trade price and shall include only trades executed on the subject
trading day. The daily LIFO calculation shall not include any positions
carried over from previous trading days. For purposes of Item I.c of
Appendix C, the Participants shall calculate daily Market Maker
unrealized profitability statistics for each trading day on an average
price basis. Specifically, the Participants must calculate the volume
weighted average price of the excess (deficit) of buy volume over sell
volume for the current trading day using reported trade price. The gain
(loss) of the excess (deficit) of buy volume over sell volume shall be
determined by using the volume weighted average price compared to the
closing price of the security as reported by the primary listing
exchange. In reporting unrealized trading profits, the Participant
shall also report the number of excess (deficit) shares held by the
Market Maker, the volume weighted average price of that excess
(deficit) and the closing price of the security as reported by the
primary listing exchange used in reporting unrealized profit.\41\
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    \40\ Appendix C.I currently requires Market Maker profitability
statistics to include (1) the total number of shares of orders
executed by the Market Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market value of Market
Maker shares and the market value of Market Maker purchases, using a
LIFO-like method; and (3) raw Market Maker unrealized trading
profits, which is the difference between the purchase or sale price
of the end-of-day inventory position of the Market Maker and the
Closing Price. In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a long position,
the purchase price will be subtracted from the Closing Price.
    \41\ The Commission granted BZX, as of February 10, 2016, an
exemption from Rule 608(c) related to this provision. See Exemption
Letter, supra, note 30 [sic]. NSX requests that the Commission grant
to it this same exemption.
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    Finally, the Exchange is proposing Interpretations and Policies .10
to address the securities that will be used for data collection
purposes prior to the commencement of the Pilot. The Exchange and the
other Participants have determined that it is appropriate to collect
data for a group of securities that is larger, and using different
quantitative thresholds, than the group of securities that will be
Pilot Securities. The Exchange is therefore proposing Interpretations
and Policies .10 to define ``Pre-Pilot Data Collection Securities'' as
the securities designated by the Participants for purposes of the data
collection requirements described in Items I, II and IV of Appendix B
and Item I of Appendix C of the Plan for the period beginning six
months prior to the Pilot Period and ending on the trading day
immediately preceding the Pilot Period. The Participants shall compile

the list of Pre-Pilot Data Collection Securities by selecting all NMS
stocks with a market capitalization of $5 billion or less, a
Consolidated Average Daily Volume (CADV) of 2 million shares or less
and a closing price of $1 per share or more. The market capitalization
and the closing price thresholds shall be applied to the last day of
the Pre-Pilot measurement period, and the CADV threshold shall be
applied to the duration of the Pre-Pilot measurement period. The Pre-
Pilot measurement period shall be the three calendar months ending on
the day when the Pre-Pilot Data Collection Securities are selected. The
Pre-Pilot Data Collection Securities shall be selected thirty days
prior to the commencement of the six-month Pre-Pilot Period. On the
trading day that is the first trading day of the Pilot Period through
six months after the end of the Pilot Period, the data collection
requirements will become applicable to the Pilot Securities only. A
Pilot Security will only be eligible to be included in a Test Group if
it was a Pre-Pilot Security.
Implementation Date
    The proposed rule change will be effective on April 4, 2016.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \42\ in general, and furthers the objectives of Section
6(b)(5) of the Act \43\ 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.
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    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposal is consistent with the Act
because it implements and clarifies the provisions of the Plan, and is
designed to assist the Exchange in meeting its regulatory obligations
pursuant of the Plan. In approving the Plan, the SEC noted that the
Pilot was an appropriate, data-driven test that was designed to
evaluate the impact of a wider tick size on trading, liquidity, and the
market quality of securities of smaller capitalization companies, and
was therefore in furtherance of the purposes of the Act. The Exchange
believes that this proposal is in furtherance of the objectives of the
Plan, as identified by the SEC, and is therefore consistent with the
Act because the proposal implements and clarifies the requirements of
the Plan and applies specific obligations to ETP Holders in furtherance
of compliance with the Plan.

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. The Exchange
notes that the proposed rule change implements the provisions of the
Plan, and is designed to assist the Exchange in meeting its regulatory
obligations pursuant to the Plan. The Exchange also notes that the data
collection requirements for ETP Holders that operate Trading Centers
will apply equally to all such ETP Holders, as will the data collection
requirements for Market Makers.

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 comments on the
proposed rule change.

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

    Because the 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 \44\ and Rule 19b-4(f)(6) thereunder.\45\
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    \44\ 15 U.S.C. 78s(b)(3)(A).
    \45\ 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \46\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \47\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Commission believes that waiver of the operative delay is consistent
with the protection of investors and the public interest because it
would allow the Exchange to implement the proposed amendments on April
4, 2016, the date upon which the data collection requirements of the
Plan become effective.\48\ Therefore, the Commission hereby waives the
operative delay and designates the proposal operative on April 4,
2016.\49\
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    \46\ 17 CFR 240.19b-4(f)(6).
    \47\ 17 CFR 240.19b-4(f)(6)(iii).
    \48\ See Securities Exchange Act Release No. 76382 (November 6,
2015), 80 FR 70284 (File No. 4-657) (Order Granting Exemption From
Compliance With the National Market System Plan To Implement a Tick
Size Pilot Program).
    \49\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 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<EMAIL_ADDRESS>Please include
File Number SR-NSX-2016-01 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-NSX-2016-01. 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-NSX-2016-01, and should be submitted on or before April
27, 2016.
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    \50\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07830 Filed 4-5-16; 8:45 am]
 BILLING CODE 8011-01-P